Document:

Exhibit 10.4

 

 

Recommended Cash Offer

 

Bidder’s Statement and

Target’s Statement

 

for the recommended Offer by

 

Shuffle Master Australasia Pty Ltd

ACN 117 058 796, a wholly owned indirect subsidiary
of:

 

to acquire all of the
ordinary shares in

 

	
  

  	
  Limited

  

 

ACN 003 190 501

 

for $1.55
cash per share

 

The Directors of Stargames
Limited

unanimously recommend that
you

 

Accept

 

the $1.55 cash per share offer

in the absence of a superior
proposal.

 

	
   

  	
  Stargames’ Advisers:

  	
   

  
	
   

  	
  

  	
  

  
	
   

  	
   

  	
   

  
	
   

  	
  Legal Adviser

  	
  Financial Adviser

  

 

This is an
important document and should receive your immediate attention.  If you are in any doubt about how to deal
with it, please consult your broker, financial adviser or legal adviser
immediately.

 

 

Important
Notices

 

This booklet contains Shuffle Master
Australasia Pty Ltd’s Bidder’s Statement issued by Shuffle Master under Pt 6.5
of the Corporations Act dated 15 November 2005 and Stargames Limited’s
Target’s Statement dated 15 November 2005. Copies of these Statements have
been lodged with ASIC.  Neither ASIC nor
any of its officers take any responsibility for the contents of these
Statements.

 

The information in section 1 (other than
the Shuffle Master Chairman’s letter) and the Target’s Statement has been
prepared by Stargames (Stargames Information)
and is the responsibility of Stargames. Neither Shuffle Master nor its
officers, employees or advisers assumes any responsibility for the accuracy or
completeness of the Stargames Information. The information in section 1 is
qualified by the detailed information set out elsewhere in this booklet.

 

The letter from the Chairman of Shuffle
Master in section 1 and the Bidder’s Statement has been prepared by
Shuffle Master (Shuffle Master Information) and is
the responsibility of Shuffle Master. Neither Stargames nor its officers,
employees or advisers assume any responsibility for the accuracy or
completeness of the Shuffle Master Information.

 

You should read this entire booklet before
deciding whether to accept the Offer.

 

No Account Taken of Your
Personal Circumstances

 

The Bidder’s Statement and the Target’s
Statement and the recommendations contained in them should not be taken as
personal financial advice, as they do not take into account your individual
objectives, financial and tax situation, and particular needs.  You should obtain independent financial and
tax advice before making a decision about the Offer.

 

Forward
Looking Statements

 

Some of the statements appearing in the
Bidder’s Statement, Target’s Statement and section 1 of this booklet may
be in the nature of forward looking statements. You should be aware that such
statements are only predictions and are subject to inherent risks and
uncertainties. Those risks and uncertainties include factors and risks specific
to the industry in which Stargames and
Shuffle Master and the members
of the Stargames Group and Shuffle Master Group operate as well as general
economic conditions, prevailing exchange rates and interest rates and
conditions in the financial markets. Actual events or results may differ
materially from the events or results expressed or implied in any forward
looking statement. You are cautioned not to place undue reliance on any forward
looking statement. The forwarding looking statements in the Bidder’s Statement,
the Target’s Statement and section 1 of this booklet reflect views held
only as at the date of the Bidder’s Statement and the Target’s Statement.

 

Defined Terms

 

The Bidder’s Statement and Target’s Statement
and this booklet use a number of capitalised terms which are defined in the
Glossary in section 9 of the Bidder’s Statement and section 6 of the
Target’s Statement.

 

Shareholder Enquiries

 

Stargames has established a Shareholder
Information Line which Shareholders should call if they have any questions in
relation to the Shuffle Master Offer. 
The Shareholder Information Line number is 1300 733 636 (for callers in
Australia) or +613 9415 4247 (for international callers).  The line will be attended between the hours
of 9.00am and 5.00pm AEDT on business days.

 

As required under the Corporations Act 2001
(Cth), all calls to this telephone number will be recorded.

 

If you require further information regarding
your shareholding, please contact:

 

	
  Computershare Investor Services Pty Limited

  
	
  Telephone (Aust):

  	
  1300 556 161

  
	
  Telephone (Int’l):

  	
  +613 9615 4000

  

 

 

Contents

 

	
  Section 1 – Overview

  	
   

  
	
  1.

  	
  Letter from the
  Chairman of Shuffle Master

  	
   

  
	
  2.

  	
  Letter from
  the Chairman of Stargames

  	
   

  
	
  3.

  	
  Summary of the
  Offer

  	
   

  
	
  4.

  	
  Why you should
  accept the Offer

  	
   

  
	
  5.

  	
  Risks
  associated with accepting the Offer

  	
   

  
	
  6.

  	
  How to accept the Offer

  	
   

  
	
  7.

  	
  Frequently
  Asked Questions

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2 – Bidder’s
  Statement

  	
   

  
	
  1.

  	
  Information
  on Shuffle Master and the SMI Group

  	
   

  
	
  2.

  	
  Information
  on Stargames and the Stargames Group

  	
   

  
	
  3.

  	
  Information
  on Stargames’ securities

  	
   

  
	
  4.

  	
  Sources of Cash
  Consideration

  	
   

  
	
  5.

  	
  Shuffle
  Master’s intentions in relation to Stargames

  	
   

  
	
  6.

  	
  Tax
  considerations

  	
   

  
	
  7.

  	
  Other material
  information

  	
   

  
	
  8.

  	
  Terms and
  conditions of the Offer

  	
   

  
	
  9.

  	
  Definitions
  and interpretation

  	
   

  
	
  10.

  	
  Approval of the
  Bidder’s Statement

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3 – Target’s Statement

  	
   

  
	
  1.

  	
  Director’s review of
  Offer

  	
   

  
	
  2.

  	
  Information about
  Stargames

  	
   

  
	
  3.

  	
  The
  Offer

  	
   

  
	
  4.

  	
  Interests of Directors

  	
   

  
	
  5.

  	
  Additional Information

  	
   

  
	
  6.

  	
  Glossary

  	
   

  

 

Key
Dates

 

	
  Bidder’s Statement and Target’s Statement lodged
  with ASIC

  	
  15 November 2005

  
	
   

  	
   

  
	
  Date of Offer

  	
  [  ] November 2005

  
	
   

  	
   

  
	
  Close of Offer Period (unless extended)

  	
  7.00pm (Australian Eastern Daylight Time)

  on [  ] December 2005

  

 

 

 

15 November 2005

 

 

Dear Stargames
shareholder,

 

Takeover bid for Stargames Limited

 

On behalf of the directors of Shuffle Master Australasia Pty Ltd (Shuffle Master) I am pleased to make this offer to acquire
all your Stargames Limited (Stargames)
shares for $1.55 per share in cash. Shuffle Master is an wholly owned indirect subsidiary
of Shuffle Master, Inc. (SMI). SMI is a
United States public company listed on the NASDAQ exchange (symbol “SHFL”). SMI
is one of the leading gaming supply companies in the world. SMI develops and
sells card shuffler machines and proprietary card table games, such as “Three
Card Poker” and “Let it Ride”.

 

Our offer values your company at approximately $24 million above the
market capitalisation of Stargames at 11 November 2005.  I believe that our offer provides you with an
attractive cash value for your shares and this document sets out the reasons
why we believe that you should accept our offer.  These include the following:

 

•                                         Our offer represents a significant
premium of 19.2% to Stargames closing share price on 11 November 2005, the
last trading day prior to announcement of this Offer;

 

•                                         Our offer has been recommended
unanimously by the Stargames board of directors who recognise the value in
Shuffle Master’s offer;

 

•                                         There is no higher offer at
present for your shares;

 

•                                         Our offer is a simple cash offer;
and

 

•                                         By accepting the offer, you will
receive a certain cash value for each of your Stargames shares (if the offer
conditions are satisfied).

 

I ask you to consider this document carefully and to accept Shuffle
Master’s offer.

 

Yours sincerely

 

 

Mark Yoseloff, Pd.D.

 

Chairman of Shuffle Master, and Chairman of the Board and Chief
Executive Officer of SMI

 

2

 

	
  

  	
  Stargames
  Limited

  
	
  ABN 54 003
  190 501

  
	
  Head Office

  
	
  1 Sheridan
  Close, Milperra NSW 2214, Australia

  
	
  P 61 2 9773
  0299  F 61 2 9773 0828

  
	
   

  	
   

  
	
   

  	
  www.stargames.com.au

  
	
   

  	
   

  
	
   

  	
  All
  correspondance

  
	
   

  	
  PO Box 4516,
  Milperra NSW 1891, Australia

  

 

15 November, 2005

 

 

Dear fellow Stargames shareholder,

 

On 15 November 2005, Shuffle Master Australasia Pty Ltd announced
a recommended cash takeover offer of $1.55 per share for all of your ordinary
shares in Stargames Limited.

 

This letter accompanies your Directors’ recommendation and Target’s
Statement, as well as the Shuffle Master Bidder’s Statement.

 

In the absence of a superior offer,
the Directors of Stargames unanimously recommend that you ACCEPT the Offer. Each
Director who owns Shares has indicated that he intends to ACCEPT the Offer within
seven (7) days in respect of his own shares.

 

Stargames’ Director’s recommendation is based on the following:

 

•                              the Offer represents a material premium
to Stargames trading range prior to the announcement of the Offer;

 

•                              the Directors’ opinion that the
Offer fully values Stargames shares;

 

•                              the Directors’ belief that
Stargames international expansion will be achieved more quickly, and with
greater certainty, as part of a larger international gaming group; and

 

•                              to date, no other party has
provided an offer, which in the opinion of the Stargames Directors, is superior
to the Offer.

 

I am personally of the firm belief that the Offer is recognition of the
strength of the Stargames business and the company’s successful growth into a
leader in multi-terminal gaming. 
Notwithstanding this, in the opinion of Stargames’ Directors, the Offer
appropriately values the existing operations of the company, as well as the company’s
prospects as a stand alone entity.

 

Further information about the Offer and the reasons for your Directors’
recommendation are set out in the attached Target’s Statement.  I recommend that you consider the material
carefully before taking action in relation to the Offer.  If you are in any doubt about whether to
accept the Offer, you should seek your own independent financial and taxation
advice.

 

If you have any other queries, please call the Stargames Shareholder
Information Line on 1300 733 636 during normal business hours.

 

Yours Sincerely

 

 

John Messara

Chairman

Stargames Limited

 

3

 

Summary of the Offer

 

	
  The Offer

  	
  Shuffle Master offers to buy all of your
  Stargames shares (including Stargames shares that are issued during the Offer
  Period due to the conversion of Stargames options) for cash consideration of
  A$1.55 per share on the terms set out in section 8 of the Bidder’s
  Statement.

  
	
   

  	
   

  
	
  Offer Period

  	
  The Offer is scheduled to close at 7pm (Australian
  Eastern Daylight Time) on [  ] December 2005.

  
	
   

  	
   

  
	
  Payment Date

  	
  If you accept the Offer in accordance with the
  instructions contained in the Offer and the Acceptance Form, you will be sent
  payment on or before the earlier of:

   

  •                                         one month after the later
  of the date you accept or the date the Offer becomes, or is declared,
  unconditional; and

   

  •                                         21 days after the end of
  the Offer Period.

  
	
   

  	
   

  
	
  No Brokerage Costs or Stamp Duty

  	
  You will not pay any brokerage costs or stamp
  duty if you accept the Offer.

  
	
   

  	
   

  
	
  Conditions

  	
  The Offer is subject to the following conditions:

   

  •                                All necessary government, gaming and regulatory
  approvals, consents or waivers;

   

  •                                Minimum acceptance of 90%;

   

  •                                No action by any Public Authority that adversely
  affects the Offer;

   

  •                                No material adverse change in Stargames’ or SMI’s
  businesses (other than in relation to SMI’s businesses, events within the
  control of, or as a direct result of action by, SMI or its associates);

   

  •                                No material acquisitions or disposals by
  Stargames, or Stargames conducting its business beyond certain parameters;

   

  •                                No force majeure event, being an act of war,
  terrorism or the like occurring;

   

  •                                The S&P/ASX All Ordinaries Index does not
  fall to a point 15% below its closing level on 14 November 2005 during
  the Condition Period;

   

  •                                The NASDAQ does not fall to a point 15% below its
  closing level on 11 November 2005 during the Condition Period; and

   

  •                                No prescribed occurrences (as specified in the
  Bidder’s Statement).

   

  The above is a summary only and full details of
  all of the conditions are set out in Section 8.7 of the Bidder’s
  Statement.

  

 

4

 

	
  How to Accept

  	
  You may only accept the Offer for all of
  your Stargames shares.  To accept the
  Offer:

   

  •                                If you hold Stargames Shares in an Issuer
  Sponsored Holding, complete and sign the enclosed Acceptance Form in
  accordance with the instructions on it and return it to the address indicated
  on the form; or

   

  •                                If you hold your Stargames shares in a CHESS
  Holding, either:

   

  •                  instruct your stockbroker of Controlling Participant to initiate
  acceptance of this Offer; or

   

  •                  complete and sign the enclosed Acceptance Form in accordance
  with the instructions on it and return it to the address indicated on the
  form; or

   

  •                                If you are a Participant, initiate acceptance in
  accordance with the requirements of the ASTC Settlement Rules,

   

  before the end of the Offer Period.

  
	
   

  	
   

  
	
  Further Information

  	
  If you have any questions in relation to the
  Offer or accepting it, please contact the information line on 1300 733 636
  (callers in Australia) or +613 9415 4247 (callers outside Australia).  Please note that in order to comply with
  legal requirements, any calls to this number will be recorded.  Enquiries in relation to the Offer will not
  be taken on any other telephone numbers.

   

  For queries in relation to your Stargames
  shareholding, call Computershare Investor Services Pty Limited on 1300 556
  161.

  

 

5

 

Why You Should Accept the Offer

 

1.                            The Offer Price represents a material premium
to Stargames’ recent trading price

 

 

The Offer Price of A$1.55 per share provides a material cash premium to
the levels at which Stargames shares have recently been trading:

 

•                                A 19.2% premium to the closing
price for Stargames shares on 11 November 2005, the last trading day
before the Shuffle Master Offer was announced;

 

•                                A 17.4% premium to the volume
weighted average price of Stargames shares for the one month prior to 11 November 2005;

 

•                                A 18.9% premium to the volume
weighted average price of Stargames shares for the three months prior to 11 November 2005;
and

 

•                                A 31.6% premium to the volume
weighted average price of Stargames shares for the six months prior to 11 November 2005.

 

2.                            The Offer price places an attractive
multiple on Stargames’ current earnings.

 

The Offer Price of A$1.55 per Stargames share values the company at a
price-earnings multiple of 25x the company’s 2005 reported net profit after tax.  This multiple is higher than the current
average multiple of Stargames listed small cap peer group (1).

 

(1)           The current historic
price-earnings multiple for the S&P/ASX Small Ordinaries Index is 21x

 

6

 

3.                            Stargames international expansion plans
as a stand alone entity will require substantial capital expenditure in the
short term

 

The Stargames business has evolved from a domestic business focused
primarily on stand alone gaming machines, to a company where major growth
opportunities lie with the sale of the company’s multi-terminal gaming machines
and other gaming machine products to international markets.

 

Against this background, the global gaming industry has recently
undergone significant consolidation, with larger global gaming companies
substantially increasing both their competitive positioning and reach.

 

While Stargames Directors believe that it is possible for an
independent, Australian based company to capture these international growth
opportunities over time, this would require substantial capital expenditure in
the short term (and would not be without risk). 
However, the Directors recognise that the potential of the Stargames
business will be able to be achieved more quickly, and with greater certainty,
if Stargames were part of a larger international gaming group with a deeper
sales network and a larger territory of existing gaming approvals.

 

SMI, an international gaming supply company with significant
relationships and licenses globally, is better positioned to guide the
Stargames business through the next stage of its international expansion and to
reinforce the company’s business in domestic markets.

 

In the view of Stargames’ Directors, the price offered by Shuffle
Master appropriately values the existing operations of the company, as well as
the company’s prospects as a stand alone entity.

 

4.                            The Offer provides a liquidity event
for all Stargames shareholders

 

Stargames has traditionally been a lightly traded stock with low
liquidity levels, meaning that some shareholders have not been in a position to
actively trade their shareholdings on market. 
Stargames’ Directors have sought opportunities to improve the liquidity
of the company’s stock and have communicated this intention to the market.  The Shuffle Master Offer achieves this
objective, providing a liquidity event for all Stargames shareholders.

 

5.                            You will receive the certainty of cash
consideration for your shares

 

Once the Offer becomes unconditional you will receive cash
consideration of $1.55 per share.

 

This cash consideration provides immediate and certain value
recognition for your Stargames shares, compared with a less predictable stand
alone international expansion option should you elect not to accept the Offer.

 

6.                            No superior bidder has been found

 

As previously advised to shareholders, Stargames has held discussions
with a number of potential business partners about a possible corporate
transaction.

 

While considerable interest has been shown in Stargames, to date no
other party has provided an offer, which in the opinion of the Stargames Directors
is as good as, or superior to, the Shuffle Master Offer.

 

7

 

7.                            There are risks to Stargames share
price should you not accept the Offer

 

Stargames share price may decline to a level lower than its pre-announcement
price ($1.30) if changes occur in the competitive environment which negatively
impact Stargames trading performance or there is a decline in gaming sector
market conditions.

 

8.                            You will not incur any brokerage fees

 

If you accept the Offer, you will not incur any brokerage fees that you
would otherwise be likely to pay if you sold your Stargames shares on market.

 

The Directors of
Stargames unanimously recommend that you ACCEPT the Offer, in the absence of a
superior proposal.

 

Each Director who
owns Shares has indicated that he intends to ACCEPT the Offer within seven (7) days
in respect of his own shares.

 

8

 

Risks Associated with Accepting the
Offer

 

1.                            The Offer is subject to a number of conditions
and there is no guarantee that they will be satisfied, or waived, by Shuffle
Master.

 

Shareholders should carefully review sections 7.4 and 8.7 of the Bidder’s
Statement which contains a discussion of the conditions.  If you accept the Offer before Shuffle Master
waives the conditions, you will give up the ability to deal with your Shares,
including the ability to sell on-market.

 

The Offer is conditional on all legal and regulatory approvals,
consents or waivers necessary for the Offer to be made and accepted by
Shareholders and for the appointment of Shuffle Master nominees to the Board of
Stargames and its subsidiaries, in particular, approvals from gaming
regulators.  The Stargames Board
considers it likely that these conditions will be satisfied  if the Closing Date is extended by Shuffle
Master.  However, the Directors believe that
it is unlikely that this condition will be satisfied before the Closing Date, if
the Closing Date is not extended.  There
is no guarantee that the necessary approvals, consents or waivers will be
given.

 

Refer to section 7.4 of the Bidder’s Statement and section 1.5
of the Target’s Statement for further information in relation to the approval
processes.

 

2.                            Shuffle Master declares Offer
unconditional but does not get 90%

 

Shuffle Master’s Offer is currently conditional on acceptances taking
its interest in Stargames to 90%.  At the
current point in time, Shuffle Master has not given any indication that it
would consider waiving the 90% Acceptance Condition.

 

If Shuffle Master did waive the 90% Acceptance Condition, then this
could result in control of Stargames passing to Shuffle Master but it not
getting to 90%.  Shuffle Master would not
be able to compulsorily acquire the rest of the Shares in Stargames.  If this occurs, the number of shares traded
on the ASX could be significantly reduced and there is a risk that Shareholders
who do not accept the Offer will become minority shareholders in a company with
reduced share trading liquidity.

 

Shuffle Master’s intentions should it end up holding less than 90% of
Stargames have been set out in section 5.4 of the Bidder’s Statement.

 

Shareholders should note that SMI currently holds a call option over approximately
17.8% of Stargames Shares.

 

3.                            You will forgo any future increase in
Stargames’ share price

 

If you accept the Offer, you will forgo any potential increase in
Stargames share price that may occur in the future (other than from an
increased offer by Shuffle Master).

 

Stargames share price may improve due to future trading performance as
a result of improved domestic gaming conditions, successful execution of the
Company’s international expansion strategy, or as a result of another party
making a superior offer (although there have been no indications suggesting
this).

 

4.                            You may be subject to capital gains tax

 

If you accept the Offer, you may be liable to pay capital gains
tax.  The Directors recommend that you
obtain professional taxation advice in relation to your specific circumstances.

 

9

 

How to ACCEPT the Shuffle Master Offer

 

Your acceptance must be received before the end of the Offer Period
(7.00pm, AEDT on [  ] December 2005,
unless the Offer Period is extended). 
Depending on the nature of your holding, you may accept the Offer in the
following ways.

 

Issuer Sponsored Shareholders

 

If your Stargames shares are in an Issuer Sponsored Holding, to accept
the Offer you must complete and sign the Acceptance Form (enclosed with
this booklet) in accordance with the instructions on it.  Once completed and signed, you need to return
the Acceptance Form, together with any other documents required by the
instruction on it to one of the addresses specified on the form so that they
are received before the end of the Offer Period.

 

Chess Sponsored Shareholders

 

If your Stargames shares are in a CHESS Holding, you must either:

 

•                  complete and sign the Acceptance Form (enclosed
with this booklet) in accordance with the instructions on it.  Once completed and signed, you need to return
the Acceptance Form, together with any other documents required by the
instruction on it, to one of the addresses specified on the form.  This will authorise Shuffle Master to instruct
your controlling participant (usually, your broker) to initiate acceptance on
your behalf.  For return of the
Acceptance Form to be an effective acceptance of the Offer, you must
ensure it is received in time to give instructions to your controlling
participant, and for your controlling participant to carry out those instructions,
before the end of the of the Offer Period; or

 

•                  instruct your controlling
participant to initiate acceptance on your behalf under rule 14.14 of the
ASTC Settlement Rules, so as to be effective before the end of the Offer
Period.

 

If you are a participant, you must yourself initiate acceptance under rule 14.14
of the ASTC Settlement Rules, so as to be effective before the end of the Offer
Period.

 

Full details on how to accept the Offer are set out in section 8.3
of the Bidder’s Statement.

 

Effect of Acceptance

 

A description of the effect of accepting the Shuffle Master Offer is
set out in section 8.5 of the Bidder’s Statement.

 

Shareholders who accept the Offer will lose the ability to sell their
Stargames Shares to anyone else during the Offer Period, including by selling
them on the ASX or by accepting any superior proposal that may emerge.

 

You should read the Bidder’s Statement in
conjunction with the Target’s Statement, which contains your Director’s
recommendation to ACCEPT the Shuffle Master Offer in the absence of a superior
proposal.

 

If you have any questions, call the Stargames
Shareholder Information Line on 1300 733 636 (within Australia) or +61 3 9415
4247 (outside Australia).

 

10

 

Frequently Asked Questions

 

Should I accept the bid?

 

The Directors unanimously recommend that you ACCEPT the Shuffle Master
Offer, in the absence of a superior proposal. 
The Directors note that despite a number of discussions, to date no
other party has provided an offer, which in the opinion of the Stargames
Directors, is as good as, or superior to the Shuffle Master Offer.

 

Will the bid conditions be satisfied?

 

The Offer is subject to a number of conditions.  Stargames is working with Shuffle Master to try
to fulfil the conditions, where possible, or give Shuffle Master confidence to
waive any other conditions where strict compliance may not be possible.

 

How do I accept the bid?

 

You should follow the instructions set out on page 10, as well as
in Shuffle Master’s Bidder’s Statement.

 

When do I have to make a decision?

 

Shuffle Master’s Offer must remain open for at least one month.  It is currently scheduled to close on [  ] December 2005.  Shuffle Master may extend the Offer Period.  Your Directors will keep you informed if
there are any material developments in relation to the Offer.  Shareholders are also encouraged to monitor
the Stargames website at www.stargames.com.au for any updates on the Shuffle
Master Offer.

 

Will I be forced to sell my Shares?

 

You cannot be forced to sell your Shares unless Shuffle Master receives
acceptances giving it more than 90% voting power in Stargames.  Then (and subject to some other legal
requirements), Shuffle Master will be entitled to proceed to compulsory
acquisition of Shares held by Stargames shareholders who did not accept the
bid, in which case you will receive the same payment for your Shares that you
would have received under the Offer.

 

What is a Bidder’s Statement?

 

This booklet contains a Bidder’s Statement.  Shuffle Master is required to produce the
Bidder’s Statement to provide information about the Offer for your Stargames
shares.

 

What is a Target’s Statement?

 

This booklet also contains a Target’s Statement.  Stargames is required to produce the Target’s
Statement in response to Shuffle Master’s Offer.  Stargames’ Target’s Statement contains
information to help you decide whether to accept Shuffle Master’s Offer for
your Shares.

 

Who should I call if I have questions?

 

You can contact the Stargames Shareholder Information Line on 1300 733
636 (callers in Australia) or +61 3 9415 4247 (international callers) or you
can speak to your financial or other professional adviser.

 

11

 

Enclosed in
this booklet are the Bidder’s Statement and Target’s Statement.  Please read them both carefully

 

 

Bidder’s Statement

 

13

 

Contents of
this Bidder’s Statement

 

	
  Section

  	
   

  	
  Title

  	
   

  
	
  1

  	
   

  	
  Information on Shuffle Master and the SMI Group

  	
   

  
	
  2

  	
   

  	
  Information on Stargames and the Stargames Group

  	
   

  
	
  3

  	
   

  	
  Information on Stargames’ securities

  	
   

  
	
  4

  	
   

  	
  Sources
  of Cash Consideration

  	
   

  
	
  5

  	
   

  	
  Shuffle
  Master’s intentions in relation to Stargames

  	
   

  
	
  6

  	
   

  	
  Tax
  considerations

  	
   

  
	
  7

  	
   

  	
  Other
  material information

  	
   

  
	
  8

  	
   

  	
  The
  terms and conditions of the Offer

  	
   

  
	
  9

  	
   

  	
  Definitions
  and interpretation

  	
   

  
	
  10

  	
   

  	
  Approval
  of Bidder’s Statement

  	
   

  
	
  Annexure
  A

  	
   

  	
  Announcements
  in relation to the Offer

  	
   

  

 

14

 

1                                        Information on Shuffle Master
and the SMI Group

 

1.1                               Overview of Bidder

 

The bidder
under the Offer is Shuffle Master
Australasia Pty Ltd (Shuffle Master),
an wholly owned indirect subsidiary of Shuffle Master, Inc. (SMI). Shuffle Master’s sole shareholder is Shuffle Master
Australasia Holdings Pty Ltd (Shuffle Master Holdings)
which is also an wholly owned indirect subsidiary of SMI. Shuffle Master was
incorporated in Australia in November 2005 for the purpose of making the
Offer. Shuffle Master Holdings was also incorporated in Australia in November 2005
for the purpose of holding all of the shares in Shuffle Master. Shuffle Master
has not undertaken any business other than the making of the Offer (and the making
of a concurrent offer to the holders of the Options). Shuffle Master does not
have any subsidiaries.

 

1.2                               Directors

 

(a)                                 Directors of Shuffle Master

 

Brief profiles of the directors of Shuffle Master as at the date of this Bidder’s Statement are as follows
(all directors were appointed in November 2005):

 

(1)                                 Dr Mark L Yoseloff –
Chairman

 

A brief profile of Dr Yoseloff is set out in section 1.2(b)(1) below.

 

(2)                                 Paul C. Meyer

 

A brief profile of Mr Meyer is set out in section 1.2(c)(1) below.

 

(3)                                 Susan Livingstone

 

Ms Susan Livingstone has been an accountant since 1968. Ms Livingstone
has a diploma in Financial Services (Financial Planning), is an Australian
Taxation Office tax agent nominee for Simpson & Winslow Pty Ltd and is
a member of the Association of Taxation and Management Accountants and the
Taxation Institute.

 

(b)                                Directors of SMI

 

Brief profiles of the members of the Board of Directors of SMI as at the date of this Bidder’s
Statement are as follows:

 

(1)                                 Dr. Mark L. Yoseloff - Chairman of the Board and Chief
Executive Officer

 

Mark L. Yoseloff joined SMI
in June 1997 as Executive Vice President and was promoted to Chief
Executive Officer in June 2001. A former senior executive for Coleco
Industries, Dr Yoseloff joined SMI with over 20 years experience in the design,
development and manufacturing of electronic games. His work has resulted in the
creation of more than 150 electronic game products and video products for
leading gaming companies. The co-author of a college text on discrete mathematics
and probability theory,

 

15

 

Dr. Yoseloff
received a doctorate in finite mathematics from Princeton University and taught
mathematics and computer science at Princeton University and Arizona State University.

 

Dr Yoseloff is an
Executive Officer (as defined by the United States Securities and Exchange
Commission) and a Corporate Officer of SMI.

 

(2)                                 Ken Robson

 

Ken Robson, a certified
public accountant, has been a member of SMI’s board of directors since March 2001.
Mr Robson has been a private investor and consultant for Iveystone Products,
International, Inc., a Richmond, Virginia consulting and investing firm,
since 1996. From 1989 to 1996, he was owner and president of MCA, Inc., a
Virginia software development and billing firm.

 

(3)                                 Garry W. Saunders

 

Garry Saunders has been
a director of SMI since October 2002. From May 2004 until October 2005,
Mr Saunders was vice president of international operations for Las Vegas Sands, Inc.
Mr Saunders has been managing director of Nevluck, LLC, a development company
based in Las Vegas, since 2002. Mr Saunders served Playboy Enterprises, Inc.
as president of its gaming division from 1997 to 2001 and ITT Corporation as
executive vice president for the gaming activities of its Sheraton and Caesars
World Divisions from 1994 to 1997. Mr Saunders was a director of Windsor
Woodmount Black Hawk Resort Corporation from January 2002 to December 2004.

 

(4)                                 Louis Castle

 

Louis Castle has been a
director of SMI since March 2005. Mr Castle has been vice president of
creative development at the Los Angeles studio of Electronic Arts, Inc., a
publicly traded interactive entertainment software company, since 2003. Prior
to that, Mr Castle co-founded and for 18 years held the position of vice
president at Westwood Studios, an entertainment software company that was
subsequently acquired by Electronic Arts, Inc. While at Westwood Studios,
Mr Castle served in various capacities including vice president – creative
development, general manager, chief operating officer and finance officer.

 

(c)                                 Senior Management of SMI

 

Brief profiles of the senior management of SMI as at the date of this Bidder’s Statement are as follows:

 

(1)                                 Dr. Mark L. Yoseloff - Chairman of the Board and Chief
Executive Officer

 

A brief profile of Dr Yoseloff is set out in section 1.2(b)(1) above.

 

(2)                                 Paul C. Meyer – President,
Chief Operating Officer and Secretary

 

Paul C. Meyer
joined SMI as President in October 2003 and was promoted to Chief
Operating Officer in February 2004. His

 

16

 

experience
includes serving as President for the Integrated Solutions Division of
Concurrent Computer Corporation (2000-2003) and ASM Associates (1998-2000). Mr Meyer’s
experience also includes numerous other executive positions including Executive
Vice President of Virgin Interactive Entertainment, Inc., an entertainment
software developer and publisher, Executive Vice President and Chief Operating
Officer of PlayNet Technologies, in New York, New York, a developer and
manufacturer of coin-operated equipment, and Executive Vice President and
General Manager of Viacom New Media in New York, New York.

 

Mr Meyer is an Executive
Officer (as defined by the United States Securities and Exchange Commission)
and a Corporate Officer of SMI.

 

(3)                                 Richard L. Baldwin - CPA,
Senior Vice President and Chief Financial Officer

 

Richard L.
Baldwin joined SMI in September 2004 from International Game Technology
where as Director of Finance and Investor Relations, he was the company’s lead
contact with the investment community and was responsible for a variety of
other key financial duties. Prior to joining IGT, Mr Baldwin held a number of
key corporate financial positions for Anchor Gaming and was a Senior Auditor
for Deloitte & Touche LLP. Mr Baldwin graduated from the University of
Nevada, Las Vegas with a B.S. in Business Administration and is a member of a
variety of professional organizations including NIRI, AICPA and NSCPA.

 

Mr Baldwin is an
Executive Officer (as defined by the United States Securities and Exchange
Commission) and a Corporate Officer of SMI.

 

(4)                                 Jerome R. Smith -
Senior Vice President and General Counsel

 

Jerome R.
Smith provides legal advice to SMI and its affiliate and subsidiary entities.
Mr Smith joined SMI as Assistant General Counsel in early 2001 and was promoted
to General Counsel in August 2001 and was given the additional title of Senior
Vice President in March 2004. Prior to joining SMI, Mr Smith served as
corporate counsel for several other companies including World Communications, Inc.
and Hang Ten International and represented both public and private companies
through his private law practice. His expertise includes extensive experience
with mergers and acquisitions, intellectual property, corporate governance and
general corporate and business transactional legal matters. Mr Smith graduated
from Duke University and received his law degree from Emory University School
of Law.

 

(5)                                 R. Brooke Dunn -
Senior Vice President

 

R. Brooke Dunn
joined SMI in 1996 as Director of Marketing, bringing extensive marketing and
gaming experience to SMI. He was promoted to Vice President of Marketing in July 1997
and Senior Vice President in July 2001. Prior to joining SMI, Mr Dunn

 

17

 

was Vice
President of Gaming Operations Marketing for the Hilton Gaming Corporation, as
well as Vice President of Marketing for numerous companies including the Reno
Hilton, Harveys in Lake Tahoe and the Flamingo Hilton Laughlin. Dunn graduated
from San Diego State University with a B.S. in Marketing.

 

Mr Dunn is an “Executive
Officer” (as defined by the United States Securities and Exchange Commission)
of SMI.

 

1.3                               History, structure and ownership of SMI Group

 

(a)                                 History

 

SMI was incorporated in Minnesota in the United States of America in 1983
and in 1992 was listed on NASDAQ. SMI has its head office in Las Vegas, Nevada.
SMI’s stock is traded on the NASDAQ National Market under the code “SHFL”. Based
on its issued capital as at 22 August 2005 (as contained in SMI’s last
quarterly filing with the United States Securities and Exchange Commission), SMI
had, as at the close of business on 11 November 2005, a market
capitalisation of US$933,478,395 (A$1,279,087,962 based on an exchange rate as
at that date of A$1 = US$0.72980).

 

(b)                                Structure

 

SMI is the ultimate holding company for Shuffle Master and also
conducts the business of the SMI Group directly and indirectly through its
subsidiaries throughout the world. The SMI Group holds gaming licences in almost
every jurisdiction in the world in which there is legalised casino gaming.

 

(c)                                 Ownership

 

As of 22 August 2005, SMI had on issue 34,844,285 shares of its US$0.01
par value common stock. No individual shareholder owns more than 10% of SMI and
officers and directors of SMI, in aggregate, hold less than 5% of SMI’s stock.

 

1.4                               Principal activities of Shuffle Master and SMI Group

 

(a)                                 Shuffle Master

 

The principal activity of Shuffle
Master is to acquire and hold Shares, including those acquired under the
Offer.

 

(b)                                SMI Group

 

(1)                                 Operations

 

SMI Group develops, manufactures and markets shufflers, table games and
technology-based products for the gaming industry for use on casino
floors.  SMI Group’s products primarily relate to its casino customers’
table game activities and are focused on increasing their profitability,
productivity and security.

 

SMI Group’s utility products include a full line of automatic card
shufflers for use with the vast majority of card table games and chip sorting
machines for roulette. Casinos all over the world rely

 

18

 

on SMI Group shufflers to increase table game security and improve
table game play, and there are currently over 17,000 SMI Group shufflers
installed worldwide. In addition, SMI Group has acquired or is developing other
products to automatically gather data and to enable casinos to track table game
players, such as SMI Group’s current products Bloodhound® and
Intelligent Table SystemTM products.  SMI Group’s entertainment products
include a line of live proprietary poker, blackjack, baccarat, and pai gow
poker based table games and the Table MasterTM that delivers the popular branded
table game content on a multi-player video platform.

 

In January 2005, SMI Group formed Shuffle Up ProductionsTM, Inc.
to market its intellectual property and develop live and broadcast tournament
events as well as merchandise based on its gaming offerings.  In June 2005,
SMI Group announced details related to its Three Card Poker National
ChampionshipTM with a grand prize of US$1 million dollars.  All of its
product lines compete or will compete with other gaming products, such as slot
machines, blackjack tables, keno, craps, and roulette, for space on the casino
floor.

 

SMI Group manufactures the majority of its products at its headquarters
and manufacturing facility in Las Vegas, Nevada. In addition, SMI Group outsources
the manufacturing of certain of its products, in the United States, Europe and
Asia Pacific.

 

(2)                                 Recent acquisitions

 

CARD. Effective
May 1, 2004, SMI Group acquired a 100% ownership interest in CARD Casinos
Austria Research & Development GmbH & Co KG (CARD) and its wholly-owned subsidiaries from Casinos Austria
AG.  CARD, which is now a wholly-owned indirect subsidiary of Shuffle
Master International, Inc. (a SMI Group member), provides SMI Group with a
European headquarters and direct sales force for international business
centrally located in Vienna with a satellite office in New Zealand. CARD
develops, manufactures and supplies innovative casino products including the
one2sixTM shuffler which accommodates up to six decks of cards and can be
used for almost every casino card game.  In addition, CARD’s recently
introduced products include the Easy Chipper®, a
next-generation roulette chip sorting machine.

 

BTI.  On February 24, 2004, SMI Group acquired certain assets of BET
Technology, Inc. (BTI), a
privately held corporation that develops and distributes table games to casinos
throughout North America.  The acquired assets and operations, which have
been assigned to SMI Group’s Entertainment Products segment, include the
Fortune Pai Gow Poker®, Royal Match 21TM and Casino War®
table games and related patents, trademarks and other intellectual property, as
well as the “BET Technology, Inc.” name.  The acquired installed base
of Fortune Pai Gow Poker, Royal Match 21, and Casino War table games was 1,090
units at the acquisition date.

 

19

 

VIP. In
August 2005, SMI Group acquired VIP Gaming Solutions Pty Limited, a
privately held corporation with its headquarters in Sydney. VIP Gaming
Solutions Pty Limited distributes a variety of table gaming products for
casinos.

 

1.5                               Public announcements by SMI

 

SMI is listed on
NASDAQ and as such is subject to regular reporting and disclosure obligations.

 

A substantial
amount of information about SMI Group
is available in electronic form from: www.shufflemaster.com.

 

1.6                               Announcement by Shuffle
Master in relation to the Offer

 

On 15 November 2005, Shuffle Master made
a public announcement to ASX in relation to the Offer. A copy of that
announcement is contained in Annexure A of this Bidder’s Statement.

 

20

 

2                                        Information on Stargames
and the Stargames Group

 

2.1                               Overview of Stargames

 

Section 2
of the Target’s Statement contains an overview of Stargames and its principal
activities.

 

The Target’s
Statement of Stargames contains a range of information in relation to Stargames.
Stargames’ Target Statement has been prepared by Stargames and SMI Group takes
no responsibility for its accuracy.

 

2.2                               Directors

 

Section 2
of the Target’s Statement contains information about the directors of Stargames.

 

2.3                               Recent financial position and performance of Stargames

 

Section 5
of the Target’s Statement contains information about the recent financial
position and performance of the Stargames Group.

 

Since 30 June 2005
Stargames has made a number of announcements to ASX that may be relevant to its
financial position. A brief description of each announcement is set out in Section 5
of the Target’s Statement.

 

2.4                               Other material information on Stargames

 

The Target’s Statement contains details of other material information in
relation to Stargames.

 

2.5                               Announcement by Stargames
in relation to the Offer

 

On 15 November 2005, Stargames made a
public announcement to ASX in relation to the Offer. A copy of that
announcement is contained in Annexure A of this Bidder’s Statement.

 

21

 

3                                        Information on Stargames’
securities

 

3.1                               Disclaimer

 

The following
information on Stargames’
securities has been prepared by Shuffle
Master using publicly available information and
information made available to Shuffle
Master by Stargames.

 

SMI Group does not, subject to the Corporations
Act, make any representation or warranty, express or implied, as to the
accuracy or completeness of such information.

 

Further
information relating to Stargames’
securities is included in the Target’s
Statement of Stargames.

 

3.2                               Stargames’
issued securities

 

According to
documents provided by Stargames
to ASX, as at the date of this Bidder’s Statement, Stargames’ issued securities consisted of:

 

•                                         94,866,880 Shares; and

 

•                                         3,480,000 Options.

 

Stargames
proposes to issue 750,000 Options to the managing director, Mr John Rouse, if
approved by a resolution of members at the annual general meeting to be held on
24 November 2005.

 

The Shares are
quoted on ASX and, subject to the restrictions applying to particular shares
under the Employee Share Plans described in section 5 of the Target’s
Statement, may be freely traded.

 

The Options
are not quoted on ASX. Each Option entitles the holder (on valid exercise) to
be issued one Share (subject to specified vesting conditions and vesting
dates).

 

3.3                               Options

 

According to
documents provided by Stargames,
Options have been issued by Stargames
under  each of the option plans set
out below:

 

(a)                                 Employee Share Option Plan

 

Stargames has 760,000 options over its unissued shares outstanding that
are regulated by the Employee Share Option Plan.

 

(b)                                Senior Executive Share Option Plan

 

Stargames has 2,220,000 options over its unissued shares outstanding
under its Senior Executive Share Option Plan. As mentioned in section 3.2
above, Stargames proposes to issue 750,000 Options to the managing director, Mr
John Rouse, if approved by a resolution of members at the annual general
meeting. These Options will be issued under this plan.

 

22

 

(c)                                 Executive Director’s Share Option Plan

 

Stargames has 500,000 options over its unissued shares under the
Executive Director’s Share Option Plan that are outstanding
and are held by John Rouse.

 

(d)                                Exercise prices

 

So far as is known to Shuffle Master based on information provided by Stargames,
the exercise prices and expiry dates for the Options on issue as at the date of
this Bidder’s Statement are as follows:

 

	
  Option Series

  	
   

  	
  Expiry
  Date

  	
   

  	
  Exercise
  price

  	
   

  	
  Options
  on issue

  	
   

  
	
  Employee Share Option Plan

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Series G

  	
   

  	
  17 May 2006

  	
   

  	
  1.00

  	
   

  	
  660,000

  	
   

  
	
  Series H

  	
   

  	
  23 Aug 2006

  	
   

  	
  1.00

  	
   

  	
  50,000

  	
   

  
	
  Series P

  	
   

  	
  25 Feb 2009

  	
   

  	
  1.20

  	
   

  	
  50,000

  	
   

  
	
  Senior Executive Share Option Plan

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Series J

  	
   

  	
  30 Jun 2006

  	
   

  	
  1.20

  	
   

  	
  440,000

  	
   

  
	
  Series K

  	
   

  	
  30 Jun 2006

  	
   

  	
  1.20

  	
   

  	
  180,000

  	
   

  
	
  Series O

  	
   

  	
  6 Aug 2008

  	
   

  	
  1.20

  	
   

  	
  100,000

  	
   

  
	
  Series Q

  	
   

  	
  5 Oct 2005

  	
   

  	
  1.30

  	
   

  	
  1,500,000

  	
   

  
	
  Series Q - Options to be issued to John
  Rouse if approved by members at annual general meeting

  	
   

  	
  23 Nov 2010

  	
   

  	
  1.30

  	
   

  	
  750,000

  	
   

  
	
  Executive Director’s Share Option Plan

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Series C2

  	
   

  	
  30 Jun 2006

  	
   

  	
  1.20

  	
   

  	
  500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  TOTAL

  	
   

  	
  4,230,000

  	
   

  

 

3.4                               Interests in Stargames
securities

 

As at the date
of this Bidder’s Statement:

 

•                                         Shuffle
Master’s voting power
in Stargames was 17.83%;

 

•                                         Shuffle Master had a relevant interest in 16,914,512 Shares; and

 

•                                         Shuffle Master had a relevant interest in no Options.

 

As at the date
of the Offer:

 

•                                         Shuffle Master’s voting power in Stargames
was [insert
percentage]%;

 

•                                         Shuffle Master had a relevant interest in [insert number] Shares; and

 

•                                         Shuffle Master had a relevant interest in [insert number] Options.

 

3.5                               Option deeds between SMI and each of CVC Limited and CVC
Communication and Technology Pty Limited

 

On 15 November 2005, SMI entered into Option Deeds with each of
CVC Limited and CVC Communication and Technology Pty Limited, under which it
has the option to acquire 10,610,000 Shares and 6,304,512 Shares, respectively.
These Shares in total represent 17.83% of the
total Shares on issue. If SMI (or a

 

23

 

nominee of it who is a wholly owned subsidiary of SMI) exercises the
options under these deeds, it will be required to pay consideration of $1.55
per Share to the grantors of the options.

 

The options under each Option Deed will become exercisable at the
beginning of the Offer Period and will lapse on the earlier of:

 

(a)                                   the date that is 3 months and 3 Business Days from the date the first takeover offer
is made to Stargames shareholders under the Offer or, if a Competing Takeover
Bid is announced during that 3 month period, 5 months from 15 November 2005;
and

 

(b)                                  5 Business Days after the end of
the Offer Period.

 

Under the
Option Deeds, SMI is provided with the ability to direct the votes of the
grantors of the options in certain circumstances including in relation to
competing takeover proposals.

 

A full copy of
each Option Deed will have been released to the ASX by 15 November 2005.

 

3.6                               Dealings in Shares and Options

 

Neither Shuffle Master nor any associate of Shuffle Master has provided, or agreed
to provide, consideration for Shares or Options under any purchase or agreement
during the 4 months before the date of this Bidder’s Statement, except as
described in section 3.5.

 

Neither Shuffle Master nor any associate of Shuffle Master has provided, or agreed
to provide, consideration for Shares or Options under
any purchase or agreement during the period starting on the date of this Bidder’s
Statement and ending on the date immediately before the date of the Offer.

 

3.7                               Recent share price performance of Stargames

 

The closing price
of Stargames Shares on ASX on 11
November 2005, being the last day on which Stargames Shares were traded before
the Announcement Date, was $1.30.

 

The latest
recorded sale price of Stargames
Shares on ASX before the date on which this Bidder’s Statement was lodged with
ASIC was $1.30.

 

The following
chart shows the last sale price of Stargames
Shares on ASX in the six months prior to the
Announcement Date.

 

24

 

 

3.8                               Effect
of the Offer on Options

 

The Offer
extends to Stargames Shares that
are issued on the exercise of Stargames
Options during the period from the Register Date to the end of the Offer
Period.

 

Shuffle Master is also making, or intends to
make, contemporaneous offers in respect of the Options, on the terms described
in section 7.1 of this Bidder’s Statement.

 

If Shuffle
Master and its associates have relevant interests in at least 90% of the Stargames Shares during, or at the end
of the Offer Period, Shuffle Master will (if it and its associates have a
relevant interest in more than 90% of Stargames
Shares at the time) give a notice of compulsory acquisition to all outstanding Stargames shareholders, even if the Stargames Shares to which those notices
relate are issued:

 

•                                         after the Offer closes but before the notices are given (pursuant to
paragraph 661A(4)(b) of the Corporations Act); or

 

•                                         on exercise of Stargames
Options, up to six weeks after the notices are given (pursuant to paragraph 661A(4)(c) of
the Corporations Act).

 

If not all of the Stargames
Options are acquired by Shuffle Master
or cancelled pursuant to agreements or other arrangements, and Shuffle Master is entitled to
compulsorily acquire any outstanding Shares, Shuffle Master presently intends to seek to compulsorily acquire
or cancel any outstanding Options pursuant to Part 6A.2 of the
Corporations Act, although it reserves the right not to do so.

 

3.9                               No
pre-Offer benefits

 

During the
period of four months before the date of this Bidder’s Statement, neither Shuffle Master nor any associate of Shuffle Master gave, or offered to
give, or agreed to give a benefit to another person which was likely to induce
the other person, or an associate of the other person, to:

 

25

 

•                                         accept the Offer; or

 

•                                         dispose of Stargames
Shares,

 

and which is
not offered to all holders of Stargames
Shares under the Offer.

 

3.10                        No
escalation agreements

 

Neither Shuffle Master nor any associate of Shuffle Master has entered into any
escalation agreement that is prohibited by section 622 of the Corporations
Act.

 

26

 

4                                        Sources of cash consideration

 

4.1                               Total
cash consideration

 

The
consideration for the acquisition of the Shares to which the Offer relates will
be satisfied wholly in cash.

 

If acceptances
are received for all Shares on issue as at the date of this Bidder’s Statement,
the amount of cash that Shuffle Master
would be required to pay under the Offer would be $147,043,664.00.

 

If, the
holders of all Options on issue and contemplated to be on issue at the date of
this Bidder’s Statement elect to accept the offer to cancel their Options, an
additional $1,397,500 will be payable by Shuffle Master. This assumes that the
consideration for the Options will $1.55 per share less the exercise price for
the applicable Options.

 

However, if
holders of all Options on issue and contemplated to be on issue as at the date
of this Bidder’s Statement exercise those Options (as opposed to accepting the
offer to cancel their Options) and accept the Offer in respect of the Shares
issued to them, an additional $6,556,500.00 will be payable
by Shuffle Master under the
Offer. (This assumes that each holder of Options funds the exercise price for
the options to Stargames from his or her own sources and so will receive $1.55
per Share).

 

Accordingly,
the maximum amount that Shuffle Master
could be required to pay under the Offer is $153,600,164, together with transaction costs.

 

4.2                               Sources
of cash consideration

 

(a)                                 Fund raising

 

SMI will attempt to raise the funds required for the cash consideration
from either the public or private sale of its securities. There is no guarantee
that any such transactions will close in time to fund the Offer.

 

(b)                                Commitment

 

In case the funds are not raised by way of sale of securities, SMI has
received from Deutsche Bank (DB) a
commitment to provide US$115 million to fund the Offer (Facility).

 

The Facility is available for purposes which include funding the cash
consideration.

 

The availability of the Facility, and the ability to draw down under
it, is subject to the same conditions set out in the Offer, as well as
conditions precedent of a procedural nature and a condition that the parties
prepare and execute formal loan documentation.

 

As at the date of this bidder’s statement, Shuffle Master is not aware
of any reason why those conditions precedent will not be satisfied in time to
allow the proceeds to be available to pay the cash consideration as and when
required by the terms of the Offer.

 

27

 

The Facility is subject to events of default. As at the date of this
bidder’s statement, Shuffle Master is not aware of the occurrence of any event
of default or any circumstances that would lead to an event of default.

 

(c)                                 Loan to Shuffle Master

 

SMI has agreed to provide to Shuffle Master all necessary funding for
the purposes of paying the cash consideration and other costs associated with
the Offer. The conditions to this agreement, are the same as the conditions to
the Offer and the terms of the agreement are no less favourable to Shuffle
Master than those provided to SMI.

 

28

 

5                                        Shuffle Master’s intentions in relation to Stargames

 

5.1                               Introduction

 

Shuffle Master has been established for the
purpose of making the Offer.

 

The intentions
of Shuffle Master are set out in
this section of the Bidder’s Statement. Those intentions have been formed
on the basis of facts and information concerning Stargames, and the general business environment, which are known
at the time of preparing this Bidder’s Statement. Final decisions will only be
reached by Shuffle Master in
light of material information and circumstances at the relevant time.
Accordingly, the statements set out in this section are statements of
current intention only and accordingly may vary as new information becomes
available or circumstances change.

 

5.2                               Overview
and rationale for the Offer

 

The SMI Group
considers that the Australasian region has potential growth in the market for gaming
products for the upcoming years. The acquisition of Stargames will increase the
SMI Group’s presence in the region. It will also provide SMI Group with access
to a product line that will be potentially attractive to major Australasian customers
as well as to other customers outside the region.

 

That product
line includes multi-player products, which could gain in their share of casino
floor space over the next few years. It also includes a range of video slot
products designed specifically for the Australasian market as well as a number
of other international jurisdictions.

 

Stargames’
development capabilities may also enhance the SMI Group’s own Table Master
product. Additionally, the SMI Group’s branded content may enhance Stargames’
Vegas Star product line.The development team at Stargames should also enhance
the development capability of the SMI Group.

 

5.3                               Intentions
for Stargames
as a wholly owned controlled entity

 

This section 5.3
describes Shuffle Master’s
intentions if Shuffle Master and
its associates acquire a relevant interest in 90% or more of the Shares, and so
becomes entitled to proceed to compulsory acquisition of outstanding Shares in
accordance with Part 6A.1 of the Corporations Act.

 

In that
circumstance, Shuffle Master’s
current intentions are as follows:

 

(a)                                 Corporate matters

 

Shuffle Master presently
intends to:

 

•                                         proceed with compulsory acquisition of the outstanding Shares in
accordance with the provisions of Part 6A.1 of the Corporations Act,
including any Stargames Shares
which are issued after the close of the Offer as a result of the exercise of
Options (see section 3.8 of this Bidder’s Statement);

 

•                                         thereupon arrange for Stargames
to be removed from the official list of the ASX; and

 

29

 

•                                         subject to regulatory approvals being obtained for the new
directors, replace the members of the Board with the nominees of Shuffle Master. It is anticipated that
Dr. Mark Yoseloff  and Mr Paul C.
Meyer (both officers of SMI) will be appointed to the boards of Stargames and
each of its subsidiaries and that Mr John Rouse will remain a director of each
of Stargames and each of its subsidiaries; and

 

•                                         retain the services of all of the current senior management of Stargames,
subject to the operational review discussed below.

 

(b)                                Impact on other employees

 

Shuffle Master intends that the present employees of Stargames will
continue to be employed by Stargames, subject to any changes arising from the
operational review discussed below. Shuffle Master expects that there may be
opportunities for high-performing Stargames staff to work for SMI in other
locations around the world.

 

(c)                                 General operational review

 

After the end of the Offer Period, Shuffle Master intends to conduct an immediate, broad based review
of Stargames’ operations on both
a strategic and financial level. Shuffle Master intends that the review will
evaluate Stargames’ performance, profitability and prospects and strategic
relevance for the SMI Group to enable Shuffle Master to determine business
plans for the future. In particular, Shuffle Master intends to explore the
opportunities created by the access to product lines and development capabilities
referred to in section 5.2 above.

 

5.4                               Intentions
for Stargames
as a part owned controlled entity

 

Shuffle Master reserves its right to declare the
Offer free from the 90% minimum acceptance condition (or any other condition)
to the Offer. However, Shuffle Master
has not decided whether it will free the Offer from the 90% minimum acceptance
condition (or any other condition).

 

This section 5.4
describes Shuffle Master’s
intentions if it were to declare the Offer free
of the 90% minimum acceptance condition and if Stargames becomes a controlled entity of Shuffle Master, but Shuffle
Master is not entitled to proceed to compulsory acquisition in
accordance with Part 6A.1 of the Corporations Act.

 

In that
circumstance, Shuffle Master’s
current intentions are as follows:

 

(a)                                 Corporate matters

 

After the end of the Offer Period, Shuffle Master intends:

 

•                                         (subject to the Corporations Act,
regulatory approval and the constitution of Stargames) to seek to replace some of the members of
the board of Stargames with nominees of SMI, so that the proportion of such nominees is
broadly similar to the voting power of Shuffle Master. Shuffle Master
would consider the recommendations in the ASX Corporate Governance Guidelines
when determining the composition of the board. Replacement board members have
not yet been finally decided by SMI and their
identity will depend on the circumstances at the relevant time and

 

30

 

will be subject to regulatory approval;
however, it is expected that the majority of the replacement board members will
be Dr Mark Yoseloff, Paul Meyer (both members of the SMI management team) and
John Rouse (a current director of Stargames); and

 

•                                         if possible, to seek the delisting
of Stargames from the ASX.

 

It is possible that, even if Shuffle Master is not entitled to proceed to
compulsory acquisition of minority holdings after the end of the Offer Period
under Part 6A.1 of the Corporations Act, it may subsequently become
entitled to exercise rights of general compulsory acquisition under Part 6D.2
of the Corporations Act; for example, as a result of acquisitions of Shares in
reliance on the “3% creep” exception in item 9 of section 611 of the
Corporations Act. If so, it intends to exercise those rights.

 

(b)                                General operational review

 

After the end of the Offer Period, Shuffle Master intends to propose to the board
of Stargames that an immediate, broad-based
review of Stargames’ operations be conducted on both a
strategic and financial level, along similar lines to that described in clause 5.3(c).

 

Shuffle Master intends, subject to the approval of the
board of Stargames, to participate in this review.

 

(c)                                 Dividends and funding

 

Shuffle Master, in accordance with SMI’s current
practice, would not intend to pay dividends.

 

(d)                                Limitations in giving effect to intentions

 

The ability of Shuffle Master
to implement the intentions set out in this clause 5.4, will be subject to
the legal obligations of Stargames directors to have regard to the interests of
Stargames and all Stargames shareholders, and the
requirements of the Corporations Act and the ASX Listing Rules relating to
transactions between related parties. Shuffle
Master will only make a decision on the above mentioned courses of
action following legal and financial advice in relation to those requirements.

 

5.5                               Intentions
for Stargames if not controlled by Shuffle Master

 

This section 5.5
describes Shuffle Master’s intentions if it were to
declare the Offer free of the 90% minimum acceptance condition and if Stargames
does not become a controlled entity of Shuffle Master.

 

In that
circumstance:

 

•                                         Shuffle Master does not expect to be in a position to give effect to
the intentions set out in sections 5.3 or 5.4 of this Bidder’s Statement;
and

 

•                                         Shuffle Master’s current intention is to continue to hold any stake
in Stargames with a view to maximising returns for SMI’s shareholders (this may
result in Shuffle Master acquiring additional shares, to the extent permitted
by law) or may dispose of its current holding in Stargames and any additional
Shares acquired under the Offer in a manner which maximises returns for SMI’s
shareholders.

 

31

 

5.6                               Other
intentions

 

Subject to the
matters described above in this section 5 and elsewhere in this Bidder’s
Statement and, in particular, the completion of the strategic review of Stargames
operations, it is the intention of Shuffle
Master, on the basis of the facts and information concerning Stargames that are known to it and the
existing circumstances affecting the assets and operations of Stargames at the date of this Bidder’s
Statement, that:

 

•                                         the business of Stargames
will be conducted in substantially the same manner as at the date of this
Bidder’s Statement;

 

•                                         there will be no redeployment of the fixed assets of Stargames; and

 

•                                         the present employees of Stargames
will continue to be employed by Stargames.

 

32

 

6                                        Taxation considerations for Stargames
shareholders accepting the offer and disposing of shares

 

The following discussion is a general description of the Australian
income and capital gains tax consequences for Stargames shareholders on
disposing of their Shares pursuant to the Offer made by Shuffle Master.

 

It is based upon Australian taxation law and practice operative at the
date of this Bidder’s Statement. It is not intended to be an authoritative or
complete analysis of the taxation implications of accepting the Offer, and does
not take into account the specific circumstances of any particular shareholder.
In particular, it does not deal with the taxation consequences of disposing of
shares issued under an employee share scheme, which may be subject to specific
tax provisions.

 

It is recommended that you seek independent professional advice
regarding the tax consequences of disposing of your Shares according to your
own particular circumstances.

 

If
you have acquired any Shares, options or rights under an employee share plan, the
tax outcome of accepting this offer may be different to that outlined below.
You should seek your own tax advice in relation to the exercise of any such
options or rights or the sale of any such shares in the light of your
particular circumstances including the terms of any relevant plan and any
elections you have made in relation to your shares, options or rights.

 

6.1                               Characterisation
of shareholding

 

The taxation
treatment in respect of the disposal of the shares will depend on whether you
hold the shares as trading stock on revenue account or on capital account. As
this characterisation will depend on your own specific circumstances, you
should seek your own independent advice on this issue in light of your own
particular circumstances.

 

6.2                               Shareholders
who are Australian residents

 

(a)                                 Disposal of shares held as trading stock

 

If you acquired your Shares for the purposes of sale or exchange in the
ordinary course of a business you carry on, you would generally be regarded as
holding the shares as trading stock. Generally, the trading stock provisions
may apply to shareholders who are in the business of trading or dealing in
shares and/or similar instruments.

 

Where you hold
your Shares as trading stock, the value of the consideration you receive for
disposing of your Shares (cash received) should be included in your assessable
income.

 

(b)                                Disposal of shares held as revenue assets

 

If you
acquired your Shares in the ordinary course of your business other than for the
purpose of sale or exchange, or you acquired your Shares for a profit making or
speculative purpose you should hold your Shares as revenue assets.

 

33

 

If you hold your
Shares as revenue assets you will be required to treat any gain arising on the
disposal of your Shares as assessable income. 
Any net loss incurred on the disposal of your Shares should be an
allowable deduction (subject to the non-commercial loss deferral provisions).

 

The gain or
loss will be calculated as the difference between:

 

(i) the
money value of the consideration (the cash received); and

 

(ii) the
cost of acquiring your Shares.

 

(c)                                 Disposal of shares held as capital investments

 

The disposal
of shares which were acquired after 20 September 1985 and which are held
on capital account, will generally have capital gains tax (CGT)
implications.

 

The CGT
implications of a disposal of your Shares will depend upon a number of factors,
including:

 

•                                         the date your Shares were acquired;

 

•                                         your taxpayer status;

 

•                                         the length of time you have held your Shares.

 

(1)                                 Shares
acquired before 21 September 1999

 

If your Shares
were acquired before 21 September 1999, a capital gain or loss will arise
dependant upon the difference between:

 

(A)                             the value
of the capital proceeds (the cash received); and

 

(B)                               the
cost base of the shares (which would generally include the amount paid to
acquire the shares plus any incidental costs of acquisition, eg brokerage fees
and stamp duty).

 

For the
purpose of calculating a capital gain (but not a capital loss), you may choose
that the cost base of those shares be indexed for inflation to 30 September 1999
(which would only be of any practical effect if the shares were acquired prior
to 1 July 1999).

 

Alternatively,
provided you have held your Shares for at least 12 months, and do not choose to
apply indexation, the discount capital gain provisions may apply. This means
that:

 

(A)                             if you
are an individual or trust, only one-half of the capital gain (without any
allowance for indexation for inflation in the cost base of the shares) will be
taxable; or

 

(B)                               if you
are a complying superannuation entity or a life insurance company holding the
shares as virtual PST assets, only two thirds of the capital gain (without any
allowance for indexation for inflation in the cost base of the shares) will be taxable.

 

The rules relating
to discount capital gains and trusts are complex. Trustees should seek their
own advice as to how the CGT discount applies to them and their beneficiaries,
having regard to their own particular circumstances.  The

 

34

 

discount
capital gain provisions do not apply to shareholders who are companies.

 

The “choice”
to apply indexation rather than the discount capital gain provisions must be
made by you on or before the day you lodge your income tax return for the
income year in which the disposal occurs.

 

A capital loss
may be used to offset capital gains derived in the same or subsequent years of
income (subject to satisfying certain conditions) but cannot be offset against
ordinary income, nor carried back to offset net capital gains arising in
earlier income years. Where you choose to use the discount capital gain method,
any available capital loss will be applied to reduce the realised nominal gain
before multiplying the resulting net amount by the applicable discount
percentage to calculate the amount of the capital gain that is assessable.
Alternatively, if you choose the indexation option, capital losses are applied
after calculating the capital gain using the indexed cost base.

 

(2)                                 Shares
acquired after 21 September 1999

 

If you
acquired your Shares after 21 September 1999 you will not be entitled to
choose indexation of the cost base when calculating any capital gain on
disposal.

 

If you are an
individual, trust, complying superannuation entity or a life insurance company
holding the shares as virtual PST assets that have held shares for at least 12
months, the discount capital gain provisions described above will automatically
apply in calculating any capital gain on disposal.

 

As explained
above, any available capital loss will be applied to reduce the realised
nominal gain before multiplying the resulting net amount by one half or
two-thirds (as applicable) to calculate the capital gain that is assessable.

 

If your Shares
have been held for less than 12 months or you are another category of
shareholder (for example, a company), the discount capital gain method is not
available. A capital gain on the shares, being any excess of the value of the
capital proceeds over the unindexed cost base of the shares will be assessable
in full.

 

(d)                                No double taxation

 

Where you hold your Shares on revenue account and make both an income
gain and a capital gain, your capital gain will be reduced by the amount of the
income gain, thereby avoiding double taxation of the same gain.

 

6.3                               Shareholders
who are not Australian residents

 

If your Shares were acquired as trading stock or are
held as revenue assets, and you are resident in a country with which Australia
has concluded a double tax agreement, you will generally only be subject to
income tax in Australia to the extent that your Shares are held by you in the
course of carrying on business at or through a permanent establishment in
Australia.

 

35

 

If you hold your Shares as trading stock, the capital
gains tax provisions do not apply to the disposal of your Shares.

 

If you hold your Shares on capital account you will
not have a taxable capital gain in Australia unless you (together with any
associates) have at any time during the 5 years immediately preceding the
disposal, owned 10% or more of the issued share capital of Stargames.

 

Where you hold
your Shares on revenue account and make both an income gain and a capital gain,
your capital gain will be reduced by the amount of the income gain, thereby
avoiding double taxation of the same gain.

 

6.4                               Tax
election

 

Shuffle Master
and its affiliates shall be permitted and intend to make an election under section 338(g) of
the U.S. Internal Revenue Code and the Treasury Regulations promulgated
thereunder and any comparable provisions of state or local Tax Laws (Section 338(g) Elections) with respect to any
acquired company. Shuffle Master and/or its affiliates may report the
acquisition of Shares consistent with Section 338(g) Election (and
any comparable elections under state or local Tax Laws).

 

The above
election is required so that SMI may be able to treat the acquisition
of shares by Shuffle Master as an asset purchase for US tax
purposes only and does not affect Stargames, its non-US shareholders,
or certain U.S. shareholders if certain ownership thresholds are not met. If
you have any concerns in relation to this election you should seek you own tax
advice.

 

36

 

7                                        Other material information

 

7.1                               Offers
for Stargames
securities other than Shares

 

Shuffle Master has offered to cancel all Options on
issue for $1.55 per Option less the exercise price for that particular Option.

 

To the extent that Options are exercisable during the
Offer Period, Option holders may choose to exercise their Options and accept
the Offer made in this Bidder’s Statement in respect of the resulting Shares.

 

7.2                               Pre
bid agreement

 

On 15 November 2005
Shuffle Master and Stargames entered into a pre bid agreement under which they
have agreed to various matters in connection with the Takeover Bid. The key
terms of this agreement are summarised below:

 

(a)                                 Agreed Bid Terms – Shuffle
Master and Stargames agreed to the terms of the Offer set out in section 8
of this Bidder’s Statement and Shuffle Master agreed to make the Offer.

 

(b)                                Cost reimbursement –
the agreement provides for reimbursement of Shuffle Master’s costs in relation
to the announcement or making the offer in the amount of A$1,536,000 in the
following circumstances (subject to limited exceptions):

 

(1)                                 the
directors of Stargames (or any one or more of them) makes a recommendation to Stargames
in favour of a proposal or offer with respect to any transaction that would if
completed substantially in accordance with its terms, result in any person  (or group of persons) other than Shuffle
Master (or its related corporations) acquiring control of Stargames (a Competing Bid);

 

(2)                                 the
directors of Stargames (or any one or more of them) fails to make or withdraws
a recommendation in favour of the Offer subject only to the qualifications that
there is no Competing Bid and that the recommendation is and remains consistent
with the directors’ reasonable exercise of their fiduciary duties;

 

(3)                                 a
Competing Bid is made, and that bidder acquires a relevant interest in more
than 50% of the Shares; or

 

(4)                                 Shuffle
Master does not acquire a relevant interest in at least 90% of the Shares by
the end of the Offer Period. The reimbursement amount will not be payable under
this paragraph 7.2(b)(4) if a condition set out in paragraphs 8.7(h),8.7(j),8.7(k)
or 8.7(l) of the Offer is not, or will not be, fulfilled, and no other
condition has not been fulfilled.

 

(c)                                 Facilitation of Offer –
Stargames agreed to provide Shuffle Master with reasonable access to senior
management to assist Shuffle Master to obtain information about current
developments within Stargames and to assist with integration planning.

 

37

 

(d)                                No solicitation – Stargames
must not solicit or encourage a Competing Bid or, unless certain conditions are
met, take part in negotiations or provide information with respect to any offer
or proposal by any person to make a Competing Bid.

 

(e)                                 Regulatory approvals  — Stargames and
Shuffle Master have agreed that they will use reasonable endeavours to perform
all acts and do all other things within its reasonable control to obtain the
regulatory approvals or consents required by the regulatory approval condition
to the Offer.

 

7.3                               Due
Diligence

 

For the
purpose of confirming its assessment of whether or not to offer to acquire all
of the Shares, SMI Group was given access to certain information concerning Stargames
and its subsidiaries which has not been disclosed generally to the market or to
Stargames’ shareholders. Except as set out elsewhere in this Bidder’s
Statement, none of the information to which the SMI Group was given access was,
in the opinion of Shuffle Master, of such a nature and quality that, if the
information were generally available, a reasonable person would expect it to
have a material effect on the price or value of the Shares, or in the opinion
of Shuffle Master and except as disclosed elsewhere in this Bidder’s Statement,
would otherwise be material to a decision by a Stargames Shareholder whether or
not to accept the Offer.

 

7.4                               Other
Regulatory

 

In Australia
and internationally, the gaming sector is regulated by government agencies. A
condition to the Offer is that all necessary approvals, consents or waivers
that are required for the Offer to be lawfully made and accepted are given and
are not modified. As mentioned in section 7.2(e) above, the parties
have agreed to use reasonable endeavours to obtain such approvals.

 

(a)                                 Australian approvals

 

In Australia prior approval is required in the following jurisdictions
and applications for such approvals will be made:

 

(1)                                 New
South Wales

 

In New South Wales, the NSW Licensing Court must approve a change in
officers of the licensee. In New South Wales, Stargames’ wholly owned subsidiary,
Stargames Corporation Pty Limited is the licensee (the Licensee).
As mentioned in the intentions section above and subject to regulatory
approval, it is proposed that Dr Mark Yoseloff and Mr Paul C Meyer will be
appointed as directors of Stargames and each of its subsidiaries if the Offer is
successful.

 

The process for obtaining such consent will include an application to
the Licensing Court. There can be no guarantees as to the time that it will
take to obtain such consents, however, as previously mentioned the parties have
agreed to use reasonable endeavours to obtain the consents.

 

38

 

(2)                                 Victoria

 

In Victoria, the Victorian Commission for Gambling Regulation
must approve the changes
in ownership of Stargames envisaged by the Offer and also any change of
officers in both the Licensee and Stargames.

 

As in New South Wales, the approval process requires information to be
supplied and police checks on incoming directors which may take a period of time.
Accordingly there can be no guarantee as to the expected time as to the
decision from the authority.

 

(3)                                 South
Australia

 

As in Victoria, the South Australian gaming authority must approve any
changes in the ownership of Stargames and any change of officers in both the
Licensee and Stargames.

 

(b)                                Australian notification requirements

 

In all Australian jurisdictions (including New South Wales, Victoria
and South Australia), the proposed changes in directors and in ownership of Stargames
and the Licensee must be notified to the relevant gaming authorities.

 

Shuffle Master and Stargames will notify each authority of the proposed
transaction. Nevertheless there can be no guarantee that a gaming authority
will not take any action which may prevent or delay the fulfilment of a
condition to the Offer.

 

Shuffle Master notes that Dr Mark Yoseloff
and Mr Paul C Meyer have made successful licence applications and/or have been
found suitable in every jurisdiction that SMI or its subsidiaries operate or that
has required licensing for SMI Group activities to be undertaken (including such
jurisdictions as Nevada, New Jersey, Louisiana and Mississippi).

 

(c)                                 International requirements

 

Shuffle Master is not aware of any international pre approvals that are
required for the Offer to complete.

 

7.5                               Date
for determining holders of Shares

 

For the
purposes of section 633 of the Corporations Act, the date for determining
the people to whom information is to be sent under items 6 and 12 of subsection 633(1) is
the Register Date.

 

7.6                               Consents

 

This Bidder’s
Statement contains statements made by, or statements said to be based on
statements made by, SMI. SMI has consented to the inclusion of:

 

•                                         each statement it has made; and

 

•                                         each statement which is said to be based on a statement it has made,

 

in the form
and context in which the statements appear and has not withdrawn that consent
as at the date of this Bidder’s Statement.

 

39

 

This Bidder’s
Statement includes statements which are made in, or based on statements made
in, documents lodged with ASIC or given to ASX. Under the terms of ASIC Class Order
01/1543, the parties making those statements are not required to consent to,
and have not consented to, inclusion of those statements in this Bidder’s
Statement. If you would like to receive a copy of any of those documents, or
the relevant parts of the documents containing the statements, (free of
charge), during the bid period, please contact the Stargames Information Line
on 1300 733 343 (or in the case of international callers, +61 3 9415 4213). For
legal reasons, calls to this number will be recorded.

 

In addition,
as permitted by ASIC Class Order 03/635, this Bidder’s Statement may
include or be accompanied by certain statements:

 

•                                         fairly representing a statement by an official person; or

 

•                                         from a public official document or a published book, journal or
comparable publication.

 

7.7                               Social security and superannuation implications of Offer

 

Acceptance of the Offer may have implications under your superannuation
arrangements or on your social security entitlements. If in any doubt, you
should seek specialist advice.

 

7.8                               Other
material information

 

Except as
disclosed elsewhere in this Bidder’s Statement, there is no other information
that is:

 

(a)                                 material to the making of a decision by a Stargames shareholder whether or not to accept the Offer; and

 

(b)                                known to Shuffle Master,

 

which has not
previously been disclosed to Stargames
shareholders.

 

40

 

8                                        The terms and conditions of the Offer

 

8.1                               Offer

 

(a)                                 Shuffle Master offers to acquire all of Your Shares on and subject to the terms
and conditions set out in section 8 of this Bidder’s Statement.

 

(b)                                The consideration under the Offer is $1.55 per Share.

 

(c)                                 By accepting this Offer, you undertake to transfer to Shuffle Master not only the Shares to
which the Offer relates, but also all Rights attached to those Shares (see section 8.5(c)(5)and
section 8.6(c)).

 

(d)                                This Offer is being made to each person registered as the holder of
Shares in the register of Stargames
shareholders at open of business (Australian Eastern Daylight Time) on
the Register Date. It also extends to:

 

(1)                                 holders
of Options that come to be Shares during the period from the Register date to
the end of the Offer Period due to the exercise of rights conferred by, such
securities the Options and which are on issue as at the Register Date; and

 

(2)                                 any
person who becomes registered, or entitled to be registered, as the holder of
Your Shares during the Offer Period.

 

(e)                                 If, at the time the Offer is made to you, or at any time during the
Offer Period, another person is, or is entitled to be, registered as the holder
of some or all of the Shares to which this Offer relates:

 

(1)                                 a
corresponding offer on the same terms and conditions as this Offer will be
deemed to have been made to that other person in respect of those Shares; and

 

(2)                                 a
corresponding offer on the same terms and conditions as this Offer will be
deemed to have been made to you in respect of any other Shares you hold to
which the Offer relates; and

 

(3)                                 this
Offer will be deemed to have been withdrawn immediately at that time.

 

(f)                                   If at any time during the Offer Period you are registered or
entitled to be registered as the holder of one or more parcels of Shares as
trustee or nominee for, or otherwise on account of, another person, you may
accept as if a separate Offer on the same terms and conditions as this Offer had
been made in relation to each of those parcels and any parcel you hold in your
own right. To validly accept the offer for each parcel, you must comply with
the procedure in subsection 653B(3) of the Corporations Act. If, for
the purposes of complying with that procedure, you require additional copies of
this Bidder’s Statement and/or the Acceptance Form, please call Stargames Information Line on 1300 733 343 (or in the case of international callers, +61 3
9415 4213) to request those additional copies.

 

(g)                                If Your Shares are registered in the name of a broker, investment
dealer, bank, trust company or other nominee you should contact that nominee
for assistance in accepting the Offer.

 

41

 

(h)                                The Offer is dated [     ] 2005.

 

8.2                               Offer
Period

 

(a)                                 Unless withdrawn, the Offer will remain open for acceptance during
the period commencing on the date of this Offer and ending at 7.00pm (Australian Eastern Daylight Time) on
the later of:

 

(1)                                 [       ] 2005; or

 

(2)                                 any
date to which the Offer Period is extended.

 

(b)                                Shuffle Master reserves the right, exercisable in its sole discretion, to extend
the Offer Period in accordance with the Corporations Act.

 

(c)                                 If, within the last seven days of the Offer Period, either of
the following events occurs:

 

(1)                                 the
Offer is varied to improve the consideration offered; or

 

(2)                                 Shuffle Master’ voting power in Stargames increases
to more than 50%,

 

then the Offer Period will be automatically extended so that it ends
14 days after the relevant event.

 

8.3                               How
to accept this Offer

 

(a)                                 General

 

(1)                                 Subject to section 8.1(e) and section 8.1(f),
you may accept this Offer only for all
of Your Shares.

 

(2)                                 You
may accept this Offer at any time during the Offer Period.

 

(b)                                Shares held in your name on Stargames’
issuer sponsored subregister

 

To accept this Offer for Shares held in your
name on Stargames’ issuer sponsored sub-register (in
which case your Securityholder Reference Number will commence with “I”), you
must:

 

(1)                                 complete and sign the Acceptance Form in
accordance with the terms of this Offer and the instructions on the Acceptance
Form; and

 

(2)                                 ensure
that the Acceptance Form (including any documents required by the terms of
this Offer and the instructions on the Acceptance Form) is received before the
end of the Offer Period, at one of the addresses shown on the Acceptance Form.

 

(c)                                 Shares held in your name in a CHESS Holding

 

(1)                                 To
accept this Offer for Shares held in a CHESS Holding (in which case your Holder
Identification Number will commence with “X”) you should:

 

(A)                             instruct
your broker or Controlling Participant (for Stargames shareholders who are not institutions, this is normally
the stockbroker either through whom you bought Your Shares or through whom you
ordinarily acquire shares

 

42

 

on the
ASX) to initiate acceptance of this Offer on your behalf in accordance with Rule 14.14
of the ASTC Settlement Rules before the end of the Offer Period; or

 

(B)                               if you are a Participant, initiate acceptance of this Offer in
accordance with Rule 14.14 of the ASTC Settlement Rules before the
end of the Offer Period.

 

(2)                                 Alternatively, to accept this Offer for
Shares held in a CHESS Holding (in which case your Holder Identification Number
will commence with “X”), you may sign and complete the Acceptance Form in
accordance with the terms of this Offer and the instructions on the Acceptance Form and
ensure that it (including any documents required by the terms of this Offer and
the instructions on the Acceptance Form) is received before the end of the
Offer Period, at one of the addresses shown on the Acceptance Form.

 

(d)                                Shares of which you are entitled to be registered
as holder

 

To accept this Offer for Shares which are not held in your name, but of
which you are entitled to be registered as holder, you must:

 

(1)                                 complete
and sign the Acceptance Form in accordance with the terms of this Offer
and the instructions on the Acceptance Form; and

 

(2)                                 ensure
that the Acceptance Form (including any documents required by the terms of
this Offer and the instructions on the Acceptance Form) is received before the
end of the Offer Period, at one of the addresses shown on the Acceptance Form.

 

(e)                                 Acceptance Form and other documents

 

(1)                                 If
your Acceptance Form (including any documents required by the terms of
this Offer and the instructions on the Acceptance Form) is returned by post, it
will be deemed to be received in time if the envelope in which it is sent is
post-marked before the end of the Offer Period, even if it is received after
that date.

 

(2)                                 If
your Acceptance Form (including any documents required by the terms of
this Offer and the instructions on the Acceptance Form) is returned by
facsimile, it will be deemed to be received in time if the facsimile
transmission is received (evidenced by a confirmation of successful
transmission) before the end of the Offer Period, but you will not be entitled
to receive the consideration to which you are entitled, until your original
Acceptance Form (including any documents required by the terms of this
Offer and the instructions on the Acceptance Form) is received at one of the
addresses shown on the Acceptance Form.

 

(3)                                 When
using the Acceptance Form to accept this Offer in respect of Shares in a CHESS
Holding, you must ensure that the Acceptance Form (and any documents
required by the terms of this Offer and the instruction on the Acceptance Form)
are received by Shuffle Master
in time for Shuffle Master to
instruct your Controlling Participant to initiate acceptance of this Offer on
your behalf in

 

43

 

accordance
with Rule 14.14 of the ASTC Settlement Rules before the end of the
Offer Period.

 

(4)                                 The
transmission of the Acceptance Form and other documents is at your own
risk.

 

(f)                                   Foreign Law

 

It is your sole responsibility to satisfy yourself that you are
permitted by any Foreign Law applicable to you to accept this Offer.

 

8.4                               Validity
of acceptances

 

(a)                                 Subject to this section 8.4,
your acceptance of the Offer will not be valid unless it is made in accordance
with the procedures set out in section 8.3.

 

(b)                                Shuffle Master will determine, in its sole discretion, all questions as to the
form of documents, eligibility to accept the Offer and time of receipt of an
acceptance of the Offer. Shuffle Master
is not required to communicate with you prior to making this determination. The
determination of Shuffle Master
will be final and binding on all parties.

 

(c)                                 Notwithstanding section 8.3(b), section 8.3(c)(2) and
section 8.3(e), Shuffle Master
may, in its sole discretion, at any time and without further communication to
you, deem any Acceptance Form it receives to be a valid acceptance in
respect of Your Shares, even if a requirement for
acceptance has not been complied with.

 

(d)                                If any Shares delivered by you are not exchanged for cash for any
reason pursuant to the terms and conditions of this Offer, they will be
returned to you (at your risk) as promptly as practicable following the
expiration or withdrawal of this Offer. In such case, Shuffle Master will return, at your risk, your Acceptance Form together
with any other documents forwarded by you, to your address as shown on the
Acceptance Form or such other address as you may notify Shuffle Master in writing.

 

8.5                               The
effect of acceptance

 

(a)                                 Once you have accepted this Offer, you will be unable to revoke your
acceptance, the contract resulting from your acceptance will be binding on you
and you will be unable to withdraw Your Shares from
the Offer or otherwise dispose of Your Shares, except
as follows:

 

(1)                                 if,
by the relevant times specified in section 8.5(b), the conditions in section 8.7
have not all been fulfilled or freed, this Offer will automatically terminate
and Your Shares will
be returned to you; or

 

(2)                                 if
the Offer Period is extended for more than one month and, at the time, this
Offer is subject to one or more of the conditions in section 8.7, you may
be able to withdraw your acceptance and Your Shares
in accordance with section 650E of the Corporations Act. A notice will be
sent to you at the time explaining your rights in this regard.

 

(b)                                The relevant times for the purposes of section 8.5(a)(1) are:

 

(1)                                 in
relation to the condition in section 8.7(c), the end of the third business
day after the end of the Offer Period; and

 

44

 

(2)                                 in
relation to all other conditions in section 8.7, the end of the Offer
Period.

 

(c)                                 By signing and returning the Acceptance Form, or otherwise accepting
this Offer pursuant to section 8.3, you will be deemed to have:

 

(1)                                 accepted
this Offer (and any variation of it) in respect of, and, subject to all of the
conditions to this Offer in section 8.7 being fulfilled or freed, agreed
to transfer to Shuffle Master, Your
Shares (even if the number of Shares specified on the Acceptance Form differs
from the number of Your Shares), subject to section 8.1(e) and section 8.1(f);

 

(2)                                 represented
and warranted to Shuffle Master, as a
fundamental condition, going to the root of the contract resulting from your
acceptance, that at the time of acceptance, and the time the transfer of
Your Shares to Shuffle Master is
registered, that all Your Shares are and
will be free from all mortgages, charges, liens, encumbrances and adverse
interests of any nature (whether legal or otherwise) and free from restrictions
on transfer of any nature (whether legal or otherwise), that you have full
power and capacity to accept this Offer and to sell and transfer the legal and
beneficial ownership in Your Shares to Shuffle Master, and that you have paid
to Stargames all amounts which
at the time of acceptance have fallen due for payment to Stargames in respect of Your Shares;

 

(3)                                 irrevocably
authorised Shuffle Master (and
any director, secretary or nominee of Shuffle
Master) to alter the Acceptance Form on your behalf by inserting
correct details of Your Shares,
filling in any blanks remaining on the form and rectifying any errors or
omissions as may be considered necessary by Shuffle Master to make it an effective acceptance of this Offer or
to enable registration of Your Shares in the name of Shuffle Master;

 

(4)                                 if
you signed the Acceptance Form in respect of Shares which are held in a
CHESS Holding, irrevocably authorised Shuffle
Master (or any director, secretary or agent of Shuffle Master) to:

 

(A)                             instruct
your Controlling Participant to initiate acceptance of this Offer in respect of
Your Shares in accordance with Rule 14.14
of the ASTC Settlement Rules; and

 

(B)                               give
any other instructions in relation to Your Shares to your
Controlling Participant, as determined by Shuffle Master acting in its own interests as a beneficial owner
and intended registered holder of those Shares;

 

(5)                                 irrevocably
authorised and directed Stargames to pay to Shuffle
Master, or to account to Shuffle Master for, all Rights in respect of Your Shares,
subject, if this Offer is withdrawn, to Shuffle Master accounting to you for any such Rights received by Shuffle
Master;

 

(6)                                 irrevocably
authorised Shuffle Master to
notify Stargames on your behalf
that your place of address for the purpose of serving notices upon you in
respect of Your Shares is the address specified
by Shuffle Master in the
notification;

 

45

 

(7)                                 with
effect from the date on which all the conditions to this Offer in section 8.7
have been fulfilled or freed:

 

(A)                             irrevocably
appointed Shuffle Master (and
any director, secretary or nominee of Shuffle
Master) severally from time to time as your true and lawful attorney to
exercise all your powers and rights in relation to Your Shares,
including (without limitation) powers and rights to requisition, convene,
attend and vote in person, by proxy or by body corporate representative, at all
general meetings of Stargames
and to request Stargames to
register, in the name of Shuffle Master
or its nominee, Your Shares, as
appropriate, with full power of substitution (such power of attorney, being
coupled with an interest, being irrevocable); and

 

(B)                               agreed
not to attend or vote in person, by proxy or by body corporate representative
at any general meeting of Stargames
or to exercise or purport to exercise any of the powers and rights conferred on
Shuffle Master (and its
directors, secretaries and nominees) in section 8.5(c)(7)(A);

 

(8)                                 agreed
that in exercising the powers and rights conferred by the powers of attorney
granted under section 8.5(c)(7)(A), the attorney will be entitled to act
in the interests of Shuffle Master
as the beneficial owner and intended registered holder of Your Shares;

 

(9)                                 agreed
to do all such acts, matters and things that Shuffle Master may require to give effect to the matters the
subject of this section 8.5(c) (including the execution of a written
form of proxy to the same effect as this section 8.5(c) which
complies in all respects with the requirements of the constitution of Stargames) if requested by Shuffle Master;

 

(10)                           agreed to
indemnify Shuffle Master in
respect of any claim or action against it or any loss, damage or liability
whatsoever incurred by it as a result of you not producing your Holder
Identification Number or Securityholder Reference Number or in consequence of
the transfer of your Acceptance Shares to Shuffle Master being registered by Stargames without production of your Holder Identification Number
or your Securityholder Reference Number for Your Shares;

 

(11)                           represented
and warranted to Shuffle Master
that, unless you have notified it in accordance with section 8.1(f), Your Shares do not consist of separate parcels of Shares;

 

(12)                           irrevocably
authorised Shuffle Master (and
any nominee) to transmit a message in accordance with Rule 14.17 of the
ASTC Settlement Rules to transfer Your Shares to Shuffle Master’s Takeover Transferee
Holding, regardless of whether it has paid the consideration due to you under
this Offer;

 

(13)                           agreed,
subject to the conditions of this Offer in section 8.7 being fulfilled or
freed, to execute all such documents, transfers and

 

46

 

assurances,
and do all such acts, matters and things that Shuffle Master may consider necessary or desirable to convey Your Shares registered in your name and Rights to Shuffle Master;

 

(d)                                The undertakings and authorities referred to in section 8.5(c) will
remain in force after you receive the consideration for Your Shares and after Shuffle
Master becomes registered as the holder of Your Shares.

 

8.6                               Payment
of consideration

 

(a)                                 Subject to this section 8.6 and the Corporations Act, Shuffle Master will provide the
consideration due to you for Your Shares on or
before the earlier of:

 

(1)                                 1 month
after the date of your acceptance or, if this Offer is subject to a defeating
condition when you accept this Offer, within 1 month after this Offer
becomes unconditional; and

 

(2)                                 21 days
after the end of the Offer Period.

 

(b)                                Where the Acceptance Form requires an additional document to be
delivered with your Acceptance Form (such as a power of attorney):

 

(1)                                 if
that document is given with your Acceptance Form, Shuffle Master will provide the consideration in accordance with section 8.6(a);

 

(2)                                 if
that document is given after your Acceptance Form and before the end of
the Offer Period while this Offer is subject to a defeating condition, Shuffle Master will provide the
consideration due to you on or before the earlier of:

 

(A)                             1 month
after this Offer becomes unconditional; and

 

(B)                               21 days
after the end of the Offer Period;

 

(3)                                 if
that document is given after your Acceptance Form and before the end of
the Offer Period while this Offer is not subject to a defeating condition, Shuffle Master will provide the
consideration due to you on or before the earlier of:

 

(A)                             1 month
after that document is given; and

 

(B)                               21 days
after the end of this Offer period; and

 

(4)                                 if
that document is given after the end of the Offer Period, and the Offer is not
subject to a defeating condition, unconditional, Shuffle Master will provide the consideration within 21 days
after that document is delivered. However, if at the time the document is
given, the Offer is still subject to a defeating condition that relates only to
the happening of an event or circumstance referred to in subsection 652C(1) or
(2) of the Corporations Act, Shuffle
Master will provide the consideration due to you within 21 days
after the Offer becomes unconditional.

 

(c)                                 If you accept this Offer, Shuffle
Master is entitled to all Rights in respect of Your Shares.
Shuffle Master may require you
to provide all documents necessary to vest title to those Rights in Shuffle Master, or otherwise to give
it the benefit or value of those Rights. If you do not give those

 

47

 

documents to Shuffle Master, or if you have received the benefit of those
Rights, Shuffle Master will
deduct from the consideration otherwise due to you the amount (or value, as
reasonably assessed by Shuffle Master)
of those Rights, together with the value (as reasonably assessed by Shuffle Master) of the franking
credits, if any, attached to the Rights.

 

(d)                                The consideration payable by Shuffle
Master to you under the Offer will be paid to you by cheque in
Australian currency. Cheques will be posted to you at your risk by ordinary
mail at the address as shown on your Acceptance Form.

 

(e)                                 If at the time you accept the Offer any of the following:

 

(1)                                 Banking
(Foreign) Exchange Regulations 1959 (Cth);

 

(2)                                 Part 4
of the Charter of the United Nations Act 1945 (Cth);

 

(3)                                 Charter
of the United Nations (Terrorism and Dealing with Assets) Regulations 2002
(Cth);

 

(4)                                 Charter
of the United Nations (Sanctions - Afghanistan) Regulations 2001 (Cth);

 

(5)                                 Iraq
(Reconstruction and Repeal of Sanctions) Regulations 2003 (Cth); or

 

(6)                                 any
other law of Australia,

 

require that an authority, clearance or approval of the Reserve Bank of
Australia, the Australian Taxation Office or any other government authority be
obtained before you receive any consideration for Your Shares, or would make it
unlawful for Shuffle Master to
provide any consideration to you for Your Shares, you
will not be entitled to receive any consideration for Your Shares until all requisite authorities, clearances or approvals
have been received by Shuffle Master.
As far as Shuffle Master is
aware, as at the date of this Bidder’s Statement, the persons to whom this section 8.6(e) will
apply are: prescribed supporters of the former government of Yugoslavia;
ministers and senior officials of the Government of Zimbabwe; persons
associated with the former government of Iraq (including senior officials,
immediate family members of senior officials, or an entities controlled by any
of those persons); Usama bin Laden; the Taliban; members of the Al-Qaeda
organisation; and a person named in the list maintained pursuant to paragraph 2
of Resolution 1390 of the Security Council of the United Nations.

 

8.7                               Conditions
of this Offer

 

Subject to section 8.8,
the completion of this Offer and any contract that results from an acceptance
of this Offer, are subject to the fulfilment of the conditions set out below:

 

(a)                                 Regulatory approvals

 

Before the end of the Offer Period, all approvals, consents or waivers
that are required by law, or by any Public Authority, as are necessary to
permit the Offer to be lawfully made to and accepted by Stargames Shareholders
and the nominees of Shuffle Master to be appointed to the Board of Stargames
and any subsidiary of Stargames are granted, given, made or

 

48

 

obtained on a basis which is unconditional (except for any procedural
filing requirements), remain in full force and effect in all respects, and do
not become subject to any notice, intimation or indication of intention to
revoke, suspend, restrict, modify or not renew the same.

 

(b)                                Minimum acceptance condition

 

That at the end of the Offer Period, Shuffle Master and its associates have
a relevant interest in at least 90% (by number) of the Shares in the bid class.

 

(c)                                 No prescribed occurrences

 

That none of the following events occurs during the period beginning on
the date the Bidder’s Statement is given to Stargames and ending at the end of
the Offer Period:

 

(1)                                 Stargames
converts all or any of its shares into a larger or smaller number of shares;

 

(2)                                 Stargames
or a subsidiary of Stargames resolves to reduce its share capital in any way;

 

(3)                                 Stargames
or a subsidiary of Stargames:

 

(A)                             enters
into a buy-back agreement; or

 

(B)                               resolves
to approve the terms of a buy-back agreement under section 257C(1) or
257D(1) of the Corporations Act;

 

(4)                                 Stargames
or a subsidiary of Stargames issues shares (other than Shares issued as the
result of the exercise of Options) or grants an option over its shares, or
agrees to make such an issue or grant such an option other than the issue of
750,000 Stargames Options to the managing director if approved by a resolution of
members at the annual general meeting to be held in November 2005 or any
adjournment of that meeting;

 

(5)                                 Stargames
or a subsidiary of Stargames issues, or agrees to issue, convertible notes;

 

(6)                                 Stargames
or a subsidiary of Stargames disposes, or agrees to dispose, of the whole, or a
substantial part, of its business or property;

 

(7)                                 Stargames
or a subsidiary of Stargames charges, or agrees to charge, the whole, or a
substantial part, of its business or property;

 

(8)                                 Stargames
or a subsidiary of Stargames resolves to be wound up;

 

(9)                                 the
appointment of a liquidator or provisional liquidator of Stargames or of a
subsidiary of Stargames;

 

(10)                           a court
makes an order for the winding up of Stargames or of a subsidiary of Stargames;

 

(11)                           an
administrator of Stargames, or of a subsidiary of Stargames, is appointed under
section 436A, 436B or 436C of the Corporations Act;

 

49

 

(12)                           Stargames
or a subsidiary of Stargames executes a deed of company arrangement; or

 

(13)                           a receiver,
or a receiver and manager, is appointed in relation to the whole, or a
substantial part, of the property of Stargames or of a subsidiary of Stargames.

 

(d)                                No prescribed occurrences between announcement and
service

 

That none of the events referred to in sub-paragraph 8.7(c)(1) to 8.7(c)(13)
happens in relation to Stargames during the period beginning on the
Announcement Date and ending at the end of the day before the Bidder’s
Statement is given to Stargames.

 

(e)                                 No action by Public Authority adversely affecting
the Takeover Bid

 

That during the Condition Period:

 

(1)                                 there is not in effect any preliminary or final decision, order or
decree issued by a Public Authority;

 

(2)                                 no action or investigation is instituted, or threatened by any
Public Authority; or

 

(3)                                 no application is made to any Public Authority (other than an
application by Shuffle Master or any company within the SMI Group, an
application under section 657G of the Corporations Act, or an application
commenced by a person specified in section 659B of the Corporations Act in
relation to the Takeover Bid),

 

in consequence of, or in conjunction with, the Takeover Bid (other than
an application to, or a decision or order of, ASIC or the Takeovers Panel in
exercise of the powers and discretions conferred by the Corporations Act),
which restrains or prohibits or threatens to restrain or prohibit, or may
otherwise materially adversely impact upon, the making of the Takeover Bid or
the objectives of the Takeover Bid (including without
limitation the appointment of Shuffle Master nominees to the board of Stargames
and any subsidiary of Stargames) or seeks to require the divestiture by Shuffle
Master of any Shares, or the divestiture of any assets by any company within
the Stargames Group or the SMI Group.

 

(f)                                   No material acquisitions, disposals, etc.

 

Except for any proposed transaction publicly announced by Stargames
before the Announcement Date and any transaction undertaken by Stargames in its
ordinary course of business, none of the following events occur during the
period from that date to the end of the Offer Period:

 

(1)                                 Stargames,
or any subsidiary of Stargames, acquires, offers to acquire or agrees to
acquire (other than components to be used in the manufacture of Stargames’ goods)  one or more companies or assets (or an
interest in one or more companies or assets) for an amount in aggregate greater
than $200,000 or makes an announcement in relation to such an acquisition;

 

(2)                                 Stargames,
or any subsidiary of Stargames, disposes, offers to dispose or agrees to
dispose of (other than goods manufactured and sold by Stargames in the ordinary
course of business) one or more

 

50

 

companies
or assets (or an interest in one or more companies or assets) for an amount in
aggregate greater than $200,000 or makes an announcement in relation to such a
disposal;

 

(3)                                 Stargames,
or any subsidiary of Stargames, enters into, offers to enter into or announces
that it proposes to enter into any joint venture or partnership, involving a
commitment of greater than $200,000 or makes an announcement in relation to
such a commitment; or

 

(4)                                 Stargames,
or any subsidiary of Stargames, incurs or commits to, or grants to another
person a right the exercise of which would involve a member of the Stargames
Group incurring or committing to any capital expenditure or other liability of
any nature (whether conditional or otherwise) in respect of one or more related
items of greater than $200,000 or makes an announcement in relation to such a
commitment.

 

(g)                                Conduct of Stargames’ business

 

That, during the Condition Period, none of Stargames, or (except in
relation to (g)(1) or (g)(2)) any body corporate which is or becomes a
subsidiary of Stargames, without the written consent of Shuffle Master:

 

(1)                                 declares,
or distributes any dividend, bonus or other share of its profits or assets;

 

(2)                                 makes
any change in its constitution;

 

(3)                                 borrows
or agrees to borrow any money (except for temporary borrowing from its bankers
in the ordinary course of business) in an amount exceeding $50,000;

 

(4)                                 releases,
discharges or modifies any obligation owed to it of a value exceeding $50,000
or agrees to do so (other than in the ordinary course of business by extending
the time for payment under terms for sale);

 

(5)                                 enters
or agrees to enter into any contract of service or varies or agrees to vary any
existing contract of service with any director or manager, or pays (other than
pursuant to the terms existing as at the Announcement Date of a contract of
service) or agrees to pay any retirement benefit or allowance to any director,
manager, or make or agree to make any substantial change in the basis or amount
of remuneration of any director or manager (other than in each case as required
by law or provided under any superannuation, provident or retirement scheme as
in effect on the Announcement Date) to the extent that any of these matters (or
any combination of these matters) would give rise to a liability of Stargames
of an amount exceeding $100,000;

 

(6)                                 conducts
its business otherwise than substantially in the ordinary course (although
Stargames may take such action as is required in connection with the Takeover
Bid);

 

(7)                                 has
commenced or threatened against it any material claims or proceedings in any
court or tribunal (including, but not limited to, a

 

51

 

petition for winding up or an application for
appointment of a receiver or receiver and manager);

 

(8)                                 becomes
subject to investigation under the Australian Securities and Investments
Commission Act 2001 (Cth) or any
corresponding legislation (other than in connection with the Takeover Bid).

 

(h)                                No force majeure event

 

That during the Condition Period no act of war (whether declared or
not) or terrorism, mobilisation of armed forces, civil commotion or labour
disturbance, fire or natural disaster, or other event beyond the control of
Stargames or the relevant subsidiary occurs which has or is likely to have a
materially adverse effect on the assets, liabilities, financial position,
performance, profitability or prospects of Stargames and its subsidiaries taken
as a whole.

 

(i)                                    No material adverse change in Stargames

 

That during the Condition Period no change, event or failure to act
occurs, is discovered, becomes probable or imminent or becomes public which has
or could reasonably be expected to have a material adverse effect on the
assets, liabilities, financial position, performance, profitability or
prospects of Stargames and its subsidiaries taken as a whole, from that as at
the Announcement Date (including without limitation any revocation or
non-renewal of any licence, consent, or approval or permit of a Public
Authority in relation to Stargames, any subsidiary of Stargames, any business
of any of them or any officer or employee of any of them).

 

(j)                                    No material adverse change in SMI

 

That during the Condition Period no change occurs, is discovered,
becomes probable or imminent or becomes public which has or could reasonably be
expected to have a material adverse effect on the assets, liabilities,
financial position, performance, profitability or prospects of SMI and its
subsidiaries taken as a whole, from that as at the Announcement Date (excluding
any change that may arise as a consequence of the announcement or consummation
of the Offer or the financing for the Offer, or that is within the sole control
of, or as a direct result of action by, SMI or its associates).

 

(k)                                 Decline in ASX indices

 

That, at close of trading on the ASX on any five consecutive trading
days during the Condition Period the All Ordinaries Index of ASX is at a level
that is not 15% or more below the level of the index at the close of trading on
14 November 2005.

 

(l)                                    Decline in NASDAQ indices

 

That, at close of trading on NASDAQ on any five consecutive trading
days during the Condition Period the NASDAQ Composite Index is at a level that
is not 15% or more below the level of the index at the close of trading on 11 November 2005.

 

52

 

8.8                               Nature
and benefit of conditions

 

(a)                                 The conditions in section 8.7 are conditions subsequent. The
non-fulfilment of any condition subsequent does not, until the end of the Offer
Period (or in the case of the conditions in section 8.7(c), until the end
of the third business day after the end of the Offer Period), prevent a
contract to sell Your Shares from
arising, but entitles Shuffle Master
by written notice to you, to rescind the contract resulting from your
acceptance of this Offer.

 

(b)                                Subject to the Corporations Act and section 8.7(a), Shuffle Master alone is entitled to
the benefit of the conditions in section 8.7, or to rely on any
non-fulfilment of any of them.

 

(c)                                 Each condition in section 8.7 is a separate, several and
distinct condition. No condition will be taken to limit the meaning or effect
of any other condition.

 

8.9                               Freeing
the Offer of conditions

 

Shuffle Master may free this Offer, and any
contract resulting from its acceptance, from all or any of the conditions
subsequent in clause 8.7, either generally or by reference to a particular
fact, matter, event, occurrence or circumstance (or class thereof), by giving a
notice to Stargames and to ASX
declaring this Offer to be free from the relevant condition or conditions
specified, in accordance with section 650F of the Corporations Act. This
notice may be given:

 

(a)                                 in the case of the condition in section 8.7(c), not later than
3 business days after the end of the Offer Period; and

 

(b)                                in the case of all the other conditions in section 8.7, not
less than 7 days before the end of the Offer Period.

 

If, at the end
of the Offer Period (or in the case of the conditions in section 8.7(c),
at the end of the third business day after the end of the Offer Period), the
conditions in section 8.7 have not been fulfilled and Shuffle Master has not declared the
Offer (or it has not become) free from those conditions, all contracts
resulting from the acceptance of the Offer will be automatically void.

 

8.10                        Notice
on status of conditions

 

The date for
giving the notice on the status of the conditions required by subsection 630(1) of
the Corporations Act is [ ] 2005 (subject to extension
in accordance with subsection 630(2) if the Offer Period is
extended).

 

8.11                        Withdrawal
of this Offer

 

This Offer may
be withdrawn with the consent in writing of ASIC, which consent may be subject
to conditions. If ASIC gives such consent, Shuffle Master will give notice of the withdrawal to ASX and to Stargames and will comply with any
other conditions imposed by ASIC. If Shuffle Master withdraws this Offer, all
contracts arising from its acceptance will automatically be void.

 

8.12                        Variation
of this Offer

 

Shuffle Master may vary this Offer in accordance
with the Corporations Act.

 

53

 

8.13                        No
stamp duty or brokerage

 

(a)                                 Shuffle Master will pay any stamp duty on the transfer of Your Shares
to it.

 

(b)                                As long as Your Shares are registered in your name and you deliver them directly
to Shuffle Master, you will not
incur any brokerage in connection with your acceptance of this Offer.

 

8.14                        Governing
laws

 

This Offer and
any contract that results from your acceptance of it are to be governed by the
laws in force in New South Wales, Australia.

 

54

 

9                                        Definitions and interpretation

 

9.1                               Definitions

 

In this Bidder’s
Statement and in the Acceptance Form unless the context otherwise appears,
the following terms have the meanings shown below:

 

	
  $or A$

  	
   

  	
  Australian dollars, the lawful currency of the Commonwealth of
  Australia

  
	
   

  	
   

  	
   

  
	
  ACCC

  	
   

  	
  Australian Competition and Consumer Commission

  
	
   

  	
   

  	
   

  
	
  Acceptance Form

  	
   

  	
  the acceptance form enclosed with this Bidder’s Statement

  
	
   

  	
   

  	
   

  
	
  Announcement Date

  	
   

  	
  the date of the announcement of the Offer by Shuffle Master, being 15 November 2005

  
	
   

  	
   

  	
   

  
	
  ASIC

  	
   

  	
  the Australian Securities and Investments Commission

  
	
   

  	
   

  	
   

  
	
  ASTC

  	
   

  	
  ASX Settlement and Transfer Corporation Pty Ltd ABN
  49 008 504 532

  
	
   

  	
   

  	
   

  
	
  ASTC Settlement Rules

  	
   

  	
  the operating rules of the ASTC which govern the administration
  of the Clearing House Electronic Sub-register System

  
	
   

  	
   

  	
   

  
	
  ASX

  	
   

  	
  Australian Stock Exchange Limited
  ABN 98 008 624 691

  
	
   

  	
   

  	
   

  
	
  Bidder’s Statement

  	
   

  	
  this document, being the statement of Shuffle Master under Part 6.5 Division 2 of the Corporations
  Act relating to the Offer

  
	
   

  	
   

  	
   

  
	
  Business Day

  	
   

  	
  means a day on which banks are open for business in Sydney, excluding
  a Saturday, Sunday or public holiday

  
	
   

  	
   

  	
   

  
	
  Board

  	
   

  	
  the board of directors of Stargames

  
	
   

  	
   

  	
   

  
	
  CHESS Holding

  	
   

  	
  a number of Shares which are registered on Stargames’ share register being a register administered by the
  ASX Settlement and Transfer Corporation Pty Limited and which records
  uncertificated holdings of Shares

  
	
   

  	
   

  	
   

  
	
  Condition Period

  	
   

  	
  the period beginning on the Announcement Date and ending at the end
  of the Offer Period

  
	
   

  	
   

  	
   

  
	
  Controlling Participant

  	
   

  	
  in relation to Your, has the same meaning as in the ASTC Settlement
  Rules

  
	
   

  	
   

  	
   

  
	
  Corporations Act

  	
   

  	
  the Corporations Act 2001 (Cth);

  
	
   

  	
   

  	
   

  
	
  Foreign Law

  	
   

  	
  a law of a jurisdiction other than an Australian jurisdiction

  
	
   

  	
   

  	
   

  
	
  Issuer Sponsored
  Holdings

  	
   

  	
  a holding of Shares on Stargames
  issuer sponsored subregister

  
	
   

  	
   

  	
   

  
	
  Listing Rules

  	
   

  	
  the Official Listing Rules of ASX, as amended and waived by ASX
  from time to time

  

 

55

 

	
  Offer

  	
   

  	
  the offer for Shares under the terms and conditions contained in section 8
  of this Bidder’s Statement

  
	
   

  	
   

  	
   

  
	
  Offer Period

  	
   

  	
  the period during which the Offer will remain open for acceptance in
  accordance with section 8.2 of this Bidder’s Statement

  
	
   

  	
   

  	
   

  
	
  Options

  	
   

  	
  options to subscribe for Shares as described in section 3.3 of
  this Bidder’s Statement

  
	
   

  	
   

  	
   

  
	
  Participant

  	
   

  	
  an entity admitted to participate in the Clearing House Electronic
  Sub-register system under Rule 4.3.1 and 4.4.1 of the ASTC Settlement
  Rules

  
	
   

  	
   

  	
   

  
	
  Public Authority

  	
   

  	
  any government or any governmental, semi-governmental,
  administrative, statutory, monetary, fiscal or judicial body, entity, agency,
  department, commission, tribunal or authority, whether in Australia or in any
  other part of the world, including the ACCC and any such body, entity,
  agency, department, commission, tribunal or authority that has responsibility
  for the regulation of and/or licensing in the gaming industry (including,
  without limitation, the Department of Gaming and Racing (NSW), Director of
  Liquor and Gaming (NSW), Licensing Court of New South Wales, Queensland
  Office of Gambling Regulation, Department of Racing, Gaming and Liquor (WA),
  Victorian Commission for Gambling Regulation, Office of the Liquor and
  Gambling Commissioner (Qld), ACT Gambling and Racing Commission, Northern
  Territory Licensing Commission, Tasmanian Gaming Commission, Liquor and
  Gaming Branch of the Revenue, Gaming and Licensing Division of the Department
  of Treasury and Finance (Tas), Commissioner for Licensing (Tas) and the
  Licensing Board of Tasmania), but excluding the Takeovers Panel, ASIC and any
  court that hears or determines proceedings under section 657G or
  proceedings commenced by a person specified in section 659B of the Corporations
  Act in relation to the Takeover Bid. It also includes any self-regulatory
  organisation established under statute or any stock exchange

  
	
   

  	
   

  	
   

  
	
  Register Date

  	
   

  	
  the date set by Shuffle
  Master under subsection 633(2) of the Corporations Act,
  being 16 November 2005

  
	
   

  	
   

  	
   

  
	
  Rights

  	
   

  	
  all accretions, rights or benefits of whatever kind attaching or
  arising from Shares directly or indirectly at or after the Announcement Date
  (including, but not limited to, all dividends and all rights to receive them
  or rights to receive or subscribe for shares, notes, bonds, options or other
  securities declared, paid or issued by Stargames or any of its subsidiaries)

  
	
   

  	
   

  	
   

  
	
  Shares

  	
   

  	
  fully paid ordinary shares in the capital of Stargames

  
	
   

  	
   

  	
   

  
	
  Shuffle
  Master

  	
   

  	
  Shuffle Master Australasia Pty Ltd (ACN 117
  058 796)

  
	
   

  	
   

  	
   

  
	
  Shuffle
  Master Holdings

  	
   

  	
  Shuffle Master Australasia Holdings Pty Ltd (ACN 117 054 609)

  

 

56

 

	
  SMI

  	
   

  	
  Shuffle Master Inc.,
  the ultimate holding company of Shuffle
  Master

  
	
   

  	
   

  	
   

  
	
  SMI Group

  	
   

  	
  SMI and all of its subsidiaries

  
	
   

  	
   

  	
   

  
	
  Stargames

  	
   

  	
  Stargames Limited (ABN 54 003 190
  501)

  
	
   

  	
   

  	
   

  
	
  Stargames Group

  	
   

  	
  Stargames Limited and all of its subsidiaries

  
	
   

  	
   

  	
   

  
	
  Takeover Bid

  	
   

  	
  the off-market takeover bid constituted by the dispatch of the Offers
  in accordance with the Corporations Act

  
	
   

  	
   

  	
   

  
	
  Target’s Statement

  	
   

  	
  Stargames’ target statement dated 15 November 2005 in relation
  to the Offer

  
	
   

  	
   

  	
   

  
	
  Your Shares

  	
   

  	
  subject to section 8.1(e) and section 8.1(f), the
  Shares (a) in respect of which you are registered, or entitled to be
  registered, as holder in the register of shareholders of Stargames at the open of business Australian
  Eastern Daylight Time) on the Register Date, or (b) to
  which you are able to give good title at the time you accept this Offer
  during the Offer Period.

  

 

9.2                               Interpretation

 

In this Bidder’s
Statement and in the Acceptance Form, unless the context otherwise appears:

 

(a)                                 other words and phrases have the same meaning (if any) given to them
in the Corporations Act;

 

(b)                                words importing a gender include any gender;

 

(c)                                 words importing the singular include the plural and vice versa;

 

(d)                                an expression importing a natural person includes any company,
partnership, joint venture, association, corporation or other body corporate
and vice versa;

 

(e)                                 a reference to a clause, annexure and schedule is a reference
to a clause of and an annexure and schedule to this Bidder’s Statement as
relevant;

 

(f)                                   a reference to any statute, regulation, proclamation, ordinance or
by-law includes all statutes, regulations, proclamations, ordinances, or
by-laws amending, varying, consolidating or replacing it and a reference to a
statute includes all regulations, proclamations, ordinances and by-laws issued
under that statute;

 

(g)                                headings and boldings are for convenience only and do not affect the
interpretation of this Bidder’s Statement;

 

(h)                                a reference to time is a reference to time in Sydney, Australia;

 

(i)                                    a reference to writing includes facsimile transmissions; and

 

(j)                                    a reference to dollars, $, A$, cents, ¢ and currency is a reference
to the lawful currency of the Commonwealth of Australia.

 

57

 

10                                 Approval of Bidder’s Statement

 

This Bidder’s
Statement has been approved by a resolution passed by the directors of Shuffle Master.

 

Dated: 15 November 2005

 

 

Signed

for and on behalf of Shuffle
Master

 

 

	
   

  	
   

  
	
  Mark Yoseloff

  
	
  Director

  

 

58

 

Annexure A - Announcements in relation to the Offer

 

 

 

	
  

  	
  Stargames Limited

  ABN 54 003 190 501

  Head Office

  1 Sheridan Close, Milperra NSW 2214, Australia

  P 61 2 9773 0299 F 61 2 9773 0828

  

  www.stargames.com.au

  

  All correspondance

  PO Box 4516, Milperra NSW 1891, Australia

  

 

15 November 2005

 

 

RECOMMENDED TAKEOVER OFFER
BY SHUFFLE MASTER FOR STARGAMES

 

 

The Board of Directors of Stargames Limited (“Stargames”) today
announced that the company had reached an agreement with US gaming company,
Shuffle Master, Inc. (“SMI”), in relation to an off-market takeover offer by
SMI, through the company’s wholly owned, indirect subsidiary, Shuffle Master
Australasia Pty Ltd (“Shuffle Master”) for 100% of the outstanding shares of
Stargames at $1.55 cash per share.

 

The Shuffle Master Offer has the full support of Stargames’ Directors
who intend to recommend that Stargames shareholders ACCEPT the Offer, in the
absence of a superior offer.  All of the
Stargames Directors who own Stargames Shares have indicated that they intend to
ACCEPT the Offer within seven (7) days in respect of their own
shareholdings.  Combined, the Directors
of Stargames hold approximately 13% of the issued share capital of Stargames.

 

SMI has also entered into a call option agreement with CVC Limited and
CVC Communication and Technology Pty Limited, in relation to approximately 17.8%
of the issued share capital of Stargames.

 

A copy of SMI’s announcement in relation to this transaction is
attached as Appendix 4.

 

THE SHUFFLE MASTER OFFER

 

Shuffle Master is offering Stargames shareholders A$1.55 cash for each
ordinary share, valuing Stargames at approximately A$150 million on a fully
diluted basis.

 

The Offer of $1.55 cash per Stargames share represents:

 

•                                a 19.2% premium to the Stargames
share price on 11 November, the last trading day immediately prior to Shuffle
Master announcing the Offer;

•                                a 18.9% premium to the volume
weighted price of Stargames shares for the three months to 11 November; and

•                                a 31.6% premium to the volume
weighted price of Stargames shares for the six months to 11 November.

 

The Offer is subject to a number of conditions including gaming and
other regulatory approvals, consents or waivers; a minimum acceptance condition
of 90%; and various other conditions. 
These conditions are outlined in Appendix 2.

 

60

 

STARGAMES BOARD RECOMMENDATION

 

The Stargames Board considers acceptance of the Offer to be in the best
interests of Stargames’ shareholders.  Consequently,
the Board intends to unanimously recommend that Stargames shareholders ACCEPT
the Shuffle Master Offer, in the absence of a superior offer.  In reaching their conclusion, the Stargames
Directors have had regard to the following:

 

•                                the Shuffle Master Offer
represents a material premium to Stargames recent trading price;

 

•                                the Shuffle Master Offer
represents an attractive multiple of 25x 2005 reported net profit, which
compares favourably with Stargames small cap peer group; and

 

•                                the Shuffle Master Offer provides
all shareholders with the opportunity to realise their investment in Stargames
at a premium to market.

 

The Chairman of Stargames, John Messara, said today that:

 

“We are pleased to have received an offer from Shuffle Master which is capable of being
put to shareholders and which will give them an opportunity to realise their
investment in Stargames at a material premium”.

 

“Stargames has achieved a great deal in its six year
history and for that, the company, its employees and shareholders should feel
proud.  However, over the past year the
Board has recognised that Stargames international growth
opportunities will be able to be achieved more quickly, and with greater
certainty, if Stargames was part of a larger international gaming group.”

 

“After all of these years of involvement with
Stargames, it is with mixed emotion that we recommend shareholders realise
their investment.  However, we believe
that the certainty of cash today at a premium to market is in the best
interests of all Stargames’ shareholders.”

 

Mark Yoseloff, Ph.D., Chairman and Chief Executive Officer of SMI, stated:

 

“We look forward to Stargames
joining the Shuffle Master family.  The
marriage of their innovative multi-terminal products with our branded content
will provide significant synergies, and their experienced management team and
talented employees will superbly position our company to compete even more
effectively in the fast-growing Australasian region.”

 

“Stargames Rapid line of products
is the clear industry leader in the region, and the Vegas Star system, combined
with our Table Master system, will provide us with a globally approved platform
for our proprietary content. All in all, we will now have the broadest line of
Entertainment Products of any gaming supply company in the world. We look
forward to completing this acquisition and a very smooth integration process,
given how complementary our two companies are.”

 

61

 

EXCLUSIVITY AND BREAK FEES

 

As a result of Stargames’ agreement with SMI, Stargames has agreed not
to directly or indirectly solicit, initiate or encourage any person to make
a competing takeover bid for the company for a period of 120 days. 
Stargames has also agreed, subject to standard fiduciary duty
carve-outs, that during this period the company will not participate
in discussions with, or provide any information to, any other person in
relation to a competing takeover bid. 
Stargames has also agreed to a break fee of A$1.536 million.

 

Detailed descriptions of the terms of the exclusivity and break fee arrangements
are included in Appendix 3.

 

INDICATIVE TIMETABLE

 

The Offer Period must remain open for a minimum of one month.

 

The Directors will formally outline their recommendation and views in
Stargames’ Target’s Statement which, along with Shuffle Master’s Bidder’s
Statement, will be lodged with ASIC today. 
It is envisaged that shareholders will be sent both the Shuffle Master
Bidder’s Statement and the Stargames Target’s Statement together within the
next week.  Stargames shareholders should
wait until they receive and consider those documents before making any decision
or taking any action.

 

Stargames is being advised by Gresham Advisory Partners Limited as
financial adviser and Deacon’s as legal adviser.

 

Contact details:

 

	
  John Messara

  	
   

  	
  John Rouse

  
	
  Chairman

  	
   

  	
  Chief Executive Officer

  
	
  Ph: (02) 9223 8277

  	
   

  	
  Ph: (02) 8707 6318

  

 

62

 

APPENDIX 1: 
BACKGROUND INFORMATION

 

STARGAMES LIMITED

 

Stargames designs, manufactures and markets Stargames eStar®
video gaming machines and Vegas Star® multi-terminal gaming machine
products. Stargames, in a joint venture with Crown Limited, develops Rapid
Table GamesTM including Rapid Roulette®. Stargames markets these
products to Australian gaming venues and, through its international
distributors, to gaming venues around the world. Stargames also develops gaming
products for other gaming entertainment applications.  Stargames is
licensed in Australia and New Zealand to manufacture and market gaming products
incorporating games developed by WMS Gaming Inc, Waukegan, Illinois, USA.
Additional information about the Company and its products can be found on the
Internet at www.stargames.com.au.

 

SHUFFLE MASTER INC

 

Shuffle Master, Inc. is a gaming supply company specializing in
providing its casino customers Utility Products, including automatic card
shufflers, intelligent table systems, and roulette chip sorters, to improve
their profitability, productivity and security, and Entertainment Products,
including proprietary table games and Table MasterTM games to expand their
gaming entertainment content. The Company is included in the S&P Smallcap
600 Index. Additional information about the Company and its products can be
found on the Internet at www.shufflemaster.com.

 

63

 

APPENDIX 2: 
TAKEOVER CONDITIONS

 

The offer will be subject only to conditions substantially on the terms
set out below.

 

(a)                  Regulatory approvals

 

Before the end of the offer period, all approvals, consents or waivers
that are required by law, or by any public authority, as are necessary to
permit the offer to be lawfully made to and accepted by Stargames shareholders
and the nominees of SMI to be appointed to the board of Stargames and any
subsidiary of Stargames are granted, given, made or obtained on a basis which
is unconditional (except for any procedural filing requirements), remain in
full force and effect in all respects, and do not become subject to any notice,
intimation or indication of intention to revoke, suspend, restrict, modify or not
renew the same.

 

(b)                  Minimum acceptance
condition

 

That at the end of the offer period, Shuffle Master and its associates
have a relevant interest in at least 90% (by number) of the Stargames shares in
the bid class.

 

(c)                  No prescribed occurrences

 

That none of the following events occurs during the period beginning on
the date the Bidder’s Statement is given to Stargames and ending at the end of
the offer period:

 

(1)                          Stargames converts all or any of
its shares into a larger or smaller number of shares;

 

(2)                          Stargames or a subsidiary of
Stargames resolves to reduce its share capital in any way;

 

(3)                          Stargames or a subsidiary of
Stargames:

 

(A)                      enters into a buy-back agreement;
or

 

(B)                        resolves to approve the terms of a
buy-back agreement under section 257C(1) or 257D(1) of the
Corporations Act;

 

(4)                          Stargames or a subsidiary of
Stargames issues shares (other than shares issued as the result of the exercise
of options) or grants an option over its shares, or agrees to make such an
issue or grant such an option other than the issue of 750,000 options to the
managing director if approved by a resolution of members at the annual general
meeting to be held in November 2005 or any adjournment of that meeting;

 

(5)                          Stargames or a subsidiary of
Stargames issues, or agrees to issue, convertible notes;

 

(6)                          Stargames or a subsidiary of
Stargames disposes, or agrees to dispose, of the whole, or a substantial part,
of its business or property;

 

(7)                          Stargames or a subsidiary of
Stargames charges, or agrees to charge, the whole, or a substantial part, of
its business or property;

 

64

 

(8)                          Stargames or a subsidiary of
Stargames resolves to be wound up;

 

(9)                          the appointment of a liquidator or
provisional liquidator of Stargames or of a subsidiary of Stargames;

 

(10)                    a court makes an order for the
winding up of Stargames or of a subsidiary of Stargames;

 

(11)                    an administrator of Stargames, or
of a subsidiary of Stargames, is appointed under section 436A, 436B or
436C of the Corporations Act;

 

(12)                    Stargames or a subsidiary of
Stargames executes a deed of company arrangement; or

 

(13)                    a receiver, or a receiver and
manager, is appointed in relation to the whole, or a substantial part, of the
property of Stargames or of a subsidiary of Stargames.

 

(d)                  No prescribed occurrences
between announcement and service

 

That none of the events referred to in sub-paragraph 2(c)(1) to
(c)(13) of this Appendix 2 happens in relation to Stargames during the period
beginning on 15 November 2005(“Announcement Date”) and ending at the end
of the day before the Bidder’s Statement is given to Stargames.

 

(e)                  No action by Public
Authority adversely affecting the Takeover Bid

 

That during the period commending on the Announcement Date and ending
at the end of the offer period (“Condition Period”):

 

(1)                          there is not in effect any
preliminary or final decision, order or decree issued by a public authority;

 

(2)                          no action or investigation is
instituted, or threatened by any public authority; or

 

(3)                          no application is made to any
public authority (other than an application by SMI or any company within the
SMI Group, an application under section 657G of the Corporations Act, or
an application commenced by a person specified in section 659B of the
Corporations Act in relation to the takeover bid),

 

in consequence of, or in conjunction with, the takeover bid (other than
an application to, or a decision or order of, ASIC or the Takeovers Panel in
exercise of the powers and discretions conferred by the Corporations Act),
which restrains or prohibits or threatens to restrain or prohibit, or may
otherwise materially adversely impact upon, the making of the takeover bid or
the objectives of the takeover bid (including without limitation the
appointment of SMI nominees to the board of Stargames and any subsidiary of
Stargames) or seeks to require the divestiture by Shuffle Master of any
Stargames shares, or the divestiture of any assets by any company within the
Stargames Group or the SMI Group.

 

65

 

(f)                    No
material acquisitions, disposals, etc.

 

Except for any proposed transaction publicly announced by Stargames
before the Announcement Date and any transaction undertaken by Stargames in its
ordinary course of business, none of the following events occur during the
period from that date to the end of the offer period:

 

(1)                          Stargames, or any subsidiary of
Stargames, acquires, offers to acquire or agrees to acquire (other than
components to be used in the manufacture of Stargames’ goods)  one or more companies or assets (or an
interest in one or more companies or assets) for an amount in aggregate greater
than $200,000 or makes an announcement in relation to such an acquisition;

 

(2)                          Stargames, or any subsidiary of
Stargames, disposes, offers to dispose or agrees to dispose of (other than
goods manufactured and sold by Stargames in the ordinary course of business)
one or more companies or assets (or an interest in one or more companies or
assets) for an amount in aggregate greater than $200,000 or makes an
announcement in relation to such a disposal;

 

(3)                          Stargames, or any subsidiary of
Stargames, enters into, offers to enter into or announces that it proposes to
enter into any joint venture or partnership, involving a commitment of greater
than $200,000 or makes an announcement in relation to such a commitment; or

 

(4)                          Stargames, or any subsidiary of
Stargames, incurs or commits to, or grants to another person a right the
exercise of which would involve a member of the Stargames Group incurring or
committing to any capital expenditure or other liability of any nature (whether
conditional or otherwise) in respect of one or more related items of greater
than $200,000 or makes an announcement in relation to such a commitment.

 

(g)                 Conduct of Target’s
business

 

That, during the Condition Period, none of Stargames, or (except in
relation to (g)(1) or (g)(2)) any body corporate which is or becomes a
subsidiary of Stargames, without the written consent of Shuffle Master:

 

(1)                          declares, or distributes any
dividend, bonus or other share of its profits or assets;

 

(2)                          makes any change in its
constitution;

 

(3)                          borrows or agrees to borrow any
money (except for temporary borrowing from its bankers in the ordinary course
of business) in an amount exceeding $50,000;

 

(4)                          releases, discharges or modifies
any obligation owed to it of a value exceeding $50,000 or agrees to do so
(other than in the ordinary course of business by extending the time for
payment under terms for sale);

 

(5)                          enters or agrees to enter into any
contract of service or varies or agrees to vary any existing contract of
service with any director or manager, or

 

66

 

pays (other than
pursuant to the terms existing as at the date of this announcement of a
contract of service) or agrees to pay any retirement benefit or allowance to
any director, manager, or make or agree to make any substantial change in the
basis or amount of remuneration of any director or manager (other than in each
case as required by law or provided under any superannuation, provident or
retirement scheme as in effect on the Announcement Date) to the extent that any
of these matters (or any combination of these matters) would give rise to a
liability of Stargames of an amount exceeding $100,000;

 

(6)                          conducts its business otherwise
than substantially in the ordinary course (although the Stargames may take such
action as is required in connection with the takeover bid);

 

(7)                          has commenced or threatened
against it any material claims or proceedings in any court or tribunal
(including, but not limited to, a petition for winding up or an application for
appointment of a receiver or receiver and manager);

 

(8)                          becomes subject to investigation
under the Australian Securities and Investments Commission
Act 2001 (Cth) or any corresponding legislation (other than in
connection with the Takeover Bid).

 

(h)                 No force majeure event

 

That during the Condition Period no act of war (whether declared or
not) or terrorism, mobilisation of armed forces, civil commotion or labour
disturbance, fire or natural disaster, or other event beyond the control of
Stargames or the relevant subsidiary occurs which has or is likely to have a
materially adverse effect on the assets, liabilities, financial position,
performance, profitability or prospects of Stargames and its subsidiaries taken
as a whole.

 

(i)                    No material adverse change
in Target

 

That during the Condition Period no change, event or failure to act
occurs, is discovered, becomes probable or imminent or becomes public which has
or could reasonably be expected to have a material adverse effect on the
assets, liabilities, financial position, performance, profitability or
prospects of Stargames and its subsidiaries taken as a whole, from that as at
the Announcement Date (including without limitation any revocation or
non-renewal of any licence, consent, or approval or permit of a public
authority in relation to Stargames, any subsidiary of Stargames, any business
of any of them or any officer or employee of any of them).

 

(j)                    No material adverse change
in Bidder

 

That during the Condition Period no change occurs, is discovered,
becomes probable or imminent or becomes public which has or could reasonably be
expected to have a material adverse effect on the assets, liabilities,
financial position, performance, profitability or prospects of SMI and its
subsidiaries taken as a whole, from that as at the Announcement Date (excluding
any change that may arise as a consequence of the announcement or consummation
of the offer or the financing for the offer, or that is within the sole control
of, or as a direct result of action by, SMI or its associates).

 

67

 

(k)                Decline in ASX indices

 

That, at close of trading on the ASX on any five consecutive trading
days during the Condition Period the All Ordinaries Index of ASX is at a level
that is not 15% or more below the level of the index at the close of trading on
14 November 2005.

 

(l)                    Decline in NASDAQ indices

 

That, at close of trading on NASDAQ on any five consecutive trading
days during the Condition Period the NASDAQ Composite Index is at a level that
is not 15% or more below the level of the index at the close of trading on 11 November 2005.

 

68

 

APPENDIX 3: 
EXCLUSIVITY AND BREAK FEES

 

Stargames entered into a Pre-Bid Agreement
with SMI on 15 November 2005, which, among other things, has the effect of
restricting Stargames, its employees and officers directly or indirectly
soliciting, initiating, encouraging or participating in discussions with, or
providing any information to, any other person in relation to another takeover
bid for a period ending on the earlier of the last day of the Offer Period and
120 days from the date of the Pre-Bid Agreement.  However, this undertaking does not prevent
Stargames from participating in discussions with or providing any information
to any other person if the Directors determine in good faith in reliance on
legal advice that it is necessary to do so to comply with their duties as
Directors of Stargames.

 

Stargames has also agreed to pay A$1.536
million of the costs of SMI if:

•                                         any
Director withdraws their recommendation of the Offer;

•                                         any
Director makes a recommendation in favour of a competing takeover bid;

•                                         a
competing takeover bid is made which results in the offeror acquiring a
relevant interest in more than 50% of the shares in the company; or

•                                         SMI
does not acquire a relevant interest in at least 90% of the shares in the
company by the end of the Offer Period (subject to certain exceptions).

 

The exclusivity and break fee arrangements
were required by SMI and the Stargames Board considered the arrangements
acceptable to ensure that this Offer was made to Shareholders.

 

69

 

APPENDIX 4: 
SHUFFLE MASTER ANNOUNCEMENT

 

	
  FOR IMMEDIATE RELEASE

  	
   

  	
  

  
	
   

  	
   

  	
   

  
	
  FOR FURTHER INFORMATION
  CONTACT:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Tom Ryan

  Investor Relations Advisor

  	
   

  	
  Mark L. Yoseloff, Ph.D.,
  Chairman and CEO

  Richard Baldwin, Sr. Vice, President, CFO

  
	
  ph:

  fax:

  	
  203.682.8200

  203.682.8201

  	
   

  	
  ph:

  fax:

  	
  702.897.7150

  702.270.5161

  
						

 

 

SHUFFLE MASTER, INC.
ANNOUNCES INTENT TO ACQUIRE

STARGAMES LIMITED

 

Transaction will expand
the company’s Australasian presence

and provide global platform
for company’s proprietary Entertainment Products

 

LAS VEGAS . . . November 14, 2005 . . .
Shuffle Master, Inc. (NASDAQ National Market: SHFL) announced today that it, through a
wholly owned indirect Australian subsidiary, has submitted formal offer documents
to the Australian Securities and Investment Commission outlining its intent to
purchase all of the outstanding shares of Stargames Limited for $1.55 AU
($1.14US) per share. The transaction, which is subject to Stargames’
shareholder acceptance, regulatory approval and the satisfaction of certain
other conditions, is expected to close during the first quarter of 2006. The
purchase price is approximately $108 million US.  The transaction is anticipated to be modestly
accretive immediately, both from an operating cash flow and earnings per share
perspective, with larger gains expected starting in the second full combined
year.  Details of the offer will be filed
by Shuffle Master as an 8K.

 

Stargames is based in Sydney, Australia and develops, manufactures and
distributes a wide range of innovative electronic entertainment gaming products
to worldwide markets. Its product offerings include Rapid Table GamesTM,
Vegas StarÒ Multi-Terminal Gaming Machines, and a broad
line of traditional video slot machines designed most specifically for the
Australian and Asian gaming markets.  The
Rapid series of games, which Shuffle Master already distributes in the Americas
and the Caribbean, combines a live dealer with multi-terminal electronic
wagering.  Current offerings include
Rapid RouletteÒ, Rapid Sic-BoÒ and Rapid Big WheelÒ. 
Vegas StarÒ Multi-Terminal Gaming Machines feature
animated dealers and a selection of public domain table games. The Vegas StarÒ Nova line utilizes Stargames
existing slot cabinet to extend the number of wagering terminals for a Vegas
Star game, while minimizing the footprint required on the gaming floor.
Stargames, with approximately 190 employees including 80 in design and
development, generated $48 million US in profitable gaming revenues in its
fiscal year ended June 30, 2005.

 

“We look forward to Stargames joining the Shuffle Master family,”
stated Mark Yoseloff, Ph.D., Chairman of the Board and Chief Executive Officer.
“The marriage of their innovative

 

70

 

multi-terminal products with our branded content will provide
significant synergies, and their experienced management team and talented employees
will superbly position our company to compete even more effectively in the
fast-growing Australasian region. Their Rapid line of products is the clear
industry leader in the region, and the Vegas Star system, combined with our
Table Master system, will provide us with a globally approved platform for our
proprietary content. All in all, we will now have the broadest line of
Entertainment Products of any gaming supply company in the world. We look
forward to completing this acquisition and a very smooth integration process,
given how complementary our two companies are.”

 

The Chief Executive Officer of Stargames, John Rouse, added: “we are
pleased to have received the offer from Shuffle Master and the Board of
Directors of Stargames has unanimously recommended this offer to Stargames’
shareholders. Stargames has outstanding technology and products, and has grown
to become a world leader in multi-terminal gaming machine development. However,
the Stargames Board has recognised that Stargames international growth
opportunities will be able to be achieved more quickly, and with greater
certainty, if Stargames were part of a larger international gaming group such
as Shuffle Master. Indeed, the potential synergies with Shuffle Master are
significant and we are confident that Stargames will be an important
contributor to Shuffle Master’s future success.”

 

Stargames’ announcement in relation to this transaction is attached as
the Appendix to this announcement.

 

Shuffle Master, Inc. is a gaming supply company specializing in
providing its casino customers Utility Products, including automatic card
shufflers, intelligent table systems, and roulette chip sorters, to improve
their profitability, productivity and security, and Entertainment Products,
including proprietary table games and Table Master TM games to expand their
gaming entertainment content. The Company is included in the S&P Smallcap
600 Index. Information about the Company and its products can be found on the
Internet at www.shufflemaster.com.

 

Stargames
designs, manufactures and markets Stargames eStar ® video gaming machines and
Vegas Star ® multi-terminal gaming machine products. Stargames, in a joint
venture with Crown Limited, develops Rapid Table Games TM  including Rapid Roulette ®. Stargames markets
these products to Australian gaming venues and, through its international
distributors, to gaming venues around the world. Stargames also develops gaming
products for other gaming entertainment applications.  Stargames is licensed in Australia and New
Zealand to manufacture and market gaming products incorporating games developed
by WMS Gaming Inc, Waukegan, Illinois, USA. Information about the Company and
its products can be found on the Internet at www.stargames.com.au.

 

##

 

This release contains forward-looking
statements that are based on management’s current beliefs and expectations
about future events, as well as on assumptions made by and information
available to management. The Company considers such statements to be made under
the safe harbor created by the federal securities laws to which it is subject,
and assumes no obligation to update or supplement such

 

71

 

statements. Forward-looking
statements reflect and are subject to risks and uncertainties that could cause
actual results to differ materially from expectations. Factors that could cause
actual results to differ materially from expectations include, but are not
limited to, the following: changes in the level of consumer or commercial
acceptance of the Company’s existing products and new products as introduced;
advances by competitors; acceleration and/or deceleration of various product
development, promotion and distribution schedules; product performance issues;
higher than expected manufacturing, service, selling, administrative, product
development, promotion and/or distribution costs; changes in the Company’s
business systems or in technologies affecting the Company’s products or
operations; reliance on strategic relationships with distributors and
technology and manufacturing vendors; results from current and/or future
litigation or claims; tax matters, including changes in tax legislation or
assessments by taxing authorities; acquisitions or divestitures by the Company
or its competitors of various product lines or businesses and, in particular,
integration of businesses that the Company may acquire; changes to the Company’s
intellectual property portfolio, such as the issuance of new patents, new
intellectual property licenses, loss of licenses, claims of infringement or
invalidity of patents; regulatory and jurisdictional issues (e.g., technical
requirements and changes, delays in obtaining necessary approvals, or changes
in a jurisdiction’s regulatory scheme or approach, etc.) involving the Company
and its products specifically or the gaming industry in general; general and
casino industry economic conditions; the financial health of the Company’s
casino and distributor customers, suppliers and distributors, both nationally
and internationally; the Company’s ability to meet its debt service
obligations, including the Notes, and to refinance its indebtedness, which will
depend on its future performance and other conditions or events and will be
subject to many factors that are beyond the Company’s control; and various
risks related to the Company’s customers’ operations in countries outside the
United States, including currency fluctuation risks, which could increase the
volatility of the Company’s results from such operations. Additional
information on these and other risk factors that could potentially affect the
Company’s financial results may be found in documents filed by the Company with
the Securities and Exchange Commission, including the Company’s current reports
on Form 8-K, quarterly reports on Form 10-Q and annual report on Form 10-K.

 

###

 

72

 

 

 

This
is an important document and requires your immediate attention.

If
you are in any doubt as to how to deal with it, you should consult your legal,

financial or other professional adviser.

 

 

 

 

TARGET’S STATEMENT

 

 

THE
DIRECTORS OF STARGAMES LIMITED ACN 003 190 501

UNANIMOUSLY RECOMMEND THAT, IN THE ABSENCE OF A

SUPERIOR PROPOSAL, YOU

 

 

ACCEPT

 

 

THE
$1.55 PER SHARE CASH OFFER BY SHUFFLE MASTER

AUSTRALASIA PTY LTD

TO
ACQUIRE ALL OF YOUR SHARES IN STARGAMES LIMITED

 

 

	
  Financial
  Adviser:

  	
   

  	
  Legal
  Adviser:

  
	
   

  	
   

  	
   

  
	
  

  	
   

  	
  

  

 

 

CONTENTS

 

	
  1. Director’s
  review of the Offer

  	
   

  	
   

  
	
  2.
  Information about Stargames

  	
   

  	
   

  
	
  3. The Offer

  	
   

  	
   

  
	
  4. Interests of
  Directors

  	
   

  	
   

  
	
  5. Additional
  Information

  	
   

  	
   

  
	
  6. Glossary

  	
   

  	
   

  

 

KEY
POINTS

 

•                  The Directors of Stargames Limited (“Stargames”)
unanimously recommend that, in the absence of a superior proposal, you ACCEPT the Offer by Shuffle Master Australasia Pty Ltd (“Shuffle Master”) to acquire all of your shares in Stargames.
Each Director who owns Shares has indicated that he intends to ACCEPT the Offer
within seven (7) days in respect of his own Shares.

 

•                  The offer expires at 7.00 pm AEDT on [  ] December 2005, unless
withdrawn or extended by Shuffle Master.

 

DIRECTORY

 

Stargames
Limited

 

1
Sheridan Close

Milperra
NSW 2214

Tel.
02 9773 0299

 

Financial
Adviser to Stargames Limited

 

Gresham
Advisory Partners Limited

Level
17, 167 Macquarie Street

SYDNEY  NSW  2000

Tel.
02 9221 5133

 

Legal
Adviser to Stargames Limited

 

Deacons

Level 8, 1 Alfred Street

SYDNEY  NSW  2000

Tel. 02 9330 8000

 

Acceptance enquiries

 

Shareholder Information Line

1300 733 636  (within Australia)

+61 3 9415 4247  (international)

 

 

SECTION 1

 

DIRECTORS’ REVIEW OF OFFER

 

1.1                               The Offer

 

Shuffle Master is
offering to acquire all of your Shares for $1.55 cash per Share.

 

The Offer is open for
acceptance until 7pm (AEDT) on [  ] December 2005
(unless extended by Shuffle Master) and is subject to a number of
conditions.  In particular, the Offer is
subject to Shuffle Master having a relevant interest in at least 90% of
Stargames Shares by the close of the Offer Period.

 

Details of the Offer and
the conditions are set out in section 8 of the Bidder’s Statement.

 

1.2                               Your choices

 

As a Shareholder, you
have the following choices:

 

•                  you may accept the Offer, in which case you
should follow the instructions on the acceptance form enclosed with this
booklet;

 

•                  you may sell your Shares on ASX at any time,
in which case you should not accept the Offer and should instruct your broker
at the time you wish to sell; or

 

•                  you may choose not to accept the Offer, in
which case you do not need to take any action.

 

Shareholders should
carefully consider the Directors’ recommendation and other important issues set
out in the sections below.

 

1.3                               The Directors

 

The directors of
Stargames at the date of this Target’s Statement are:

 

•                  John Messara (Non-Executive Chairman)(1);

 

•                  Walter Bugno (Non-Executive Director);

 

•                  Stephen Cohn (Non-Executive Director);

 

•                  Joseph Crepaldi (Non-Executive Director);

 

•                  Ian Lambert (Non-Executive Director);

 

•                  John Rouse (Managing Director and Chief
Executive Officer); and

 

•                  Paul Ward (Non-Executive Director)(1)

 

(1)          Messrs Messara and Ward will retire by
rotation and have indicated that they will not stand for re-election to the
Board at Stargames’ Annual General Meeting to be held on 24 November 2005.

 

 

75

 

1.4                               Director’s Recommendation

 

THE DIRECTORS OF STARGAMES UNANIMOUSLY RECOMMEND
THAT YOU ACCEPT THE SHUFFLE MASTER OFFER, IN THE ABSENCE OF A SUPERIOR
PROPOSAL. EACH DIRECTOR WHO OWNS SHARES HAS INDICATED THAT HE INTENDS TO ACCEPT
THE OFFER WITHIN SEVEN (7) DAYS IN RESPECT OF HIS OWN SHARES

 

The
Directors’ recommendation that, in the absence of a superior proposal, you
should ACCEPT Shuffle Master’s Offer, is based on the following:

 

(i) The Offer Price represents a material premium to Stargames’
recent trading price

 

The Offer Price of A$1.55 per share provides a material cash premium to
the levels at which Stargames shares have recently been trading:

 

•                                A 19.2%
premium to the closing price for Stargames shares on 11 November 2005, the
last trading day before the Shuffle Master Offer was announced;

 

•                                A 17.4%
premium to the volume weighted average price of Stargames shares for the one
month prior to 11 November 2005;

 

•                                A 18.9%
premium to the volume weighted average price of Stargames shares for the three
months prior to 11 November 2005; and

 

•                                A 31.6%
premium to the volume weighted average price of Stargames shares for the six
months prior to 11 November 2005.

 

(ii) The Offer price
places an attractive multiple on Stargames’ current earnings

 

The Offer Price of A$1.55 per Stargames share values the company at a
price-earnings multiple of 25x the company’s 2005 reported net profit after tax.  This multiple is higher than the current
average multiple of Stargames listed small cap peer group(2).

 

(iii) Stargames international
expansion plans as a stand alone entity will require substantial capital
expenditure in the short term

 

The Stargames business has evolved from a domestic business focused
primarily on stand alone gaming machines, to a company where major growth
opportunities lie with the sale of the company’s multi-terminal gaming machines
and other gaming machine products into international markets.

 

Against this background, the global gaming industry has recently
undergone significant consolidation, with larger global gaming companies
substantially increasing both their competitive positioning and reach.

 

(2)          The historic price-earnings multiple for the
S&PASX small ordinaries Index is 21x

 

76

 

While Stargames’ Directors believe that it is possible for an
independent, Australian based company to capture these international growth
opportunities over time, this would require substantial capital expenditure in
the short term (and would not be without risk). 
However, the Directors recognise that the potential of the Stargames
business will be able to be achieved more quickly, and with greater certainty,
if Stargames were part of a larger international gaming group with a deeper
sales network and a larger territory of existing gaming approvals.

 

SMI, an international gaming supply company with significant
relationships and licences globally, is better positioned to guide the
Stargames business through the next stage of its international expansion, and
to reinforce the company’s business in domestic markets.

 

In the view of Stargames’ Directors, the price offered by Shuffle Master
appropriately values the existing operations of the company, as well as the
company’s prospects as a stand alone entity.

 

(iv) The Offer provides
a liquidity event for all Stargames’ shareholders

 

Stargames has traditionally been a lightly traded stock with low
liquidity levels, which has meant that some shareholders have not been in a
position to actively trade their shareholdings on market.  Stargames’ Directors have sought
opportunities to improve the liquidity of the company’s stock and have
communicated this intention to the market. 
The Shuffle Master Offer achieves this objective, providing a liquidity
event for all Stargames shareholders.

 

(v) You will receive
the certainty of cash consideration for your Shares

 

Once the Offer becomes unconditional you will receive cash consideration
of $1.55 per share.

 

This cash consideration provides immediate and certain value recognition
for your Stargames Shares, compared with a less predictable stand alone
international expansion option should you elect not to accept the Offer.

 

(vi) No superior bidder
has been found

 

As previously advised to shareholders, Stargames has held discussions
with a number of potential business partners about a possible corporate
transaction.

 

While considerable interest has been shown in Stargames, to date no
other party has provided an offer, which in the opinion of the Stargames
Directors, is as good as, or superior to the Shuffle Master Offer.

 

The Directors recommend that you obtain your own
professional advice with respect to the taxation implications of accepting the
Offer in relation to your specific circumstances.

 

77

 

1.5                               Other Important Considerations For Stargames’ Shareholders

 

In making a decision whether to accept the
Offer, the Directors believe that Stargames Shareholders should also consider
carefully and have regard to the following matters:

 

Higher Offer

 

If you accept the Offer, you may forfeit the opportunity to benefit from
any higher offer made by another bidder for your Stargames Shares, should such
an offer eventuate.

 

There is no certainty that another takeover offer will be made or
announced for Stargames Shares.  Should
another takeover offer be announced during the Offer Period, Stargames will
issue a supplementary Target’s Statement to Shareholders.

 

Market Trading

 

Shareholders who
accept the Offer (even while the Offer is conditional) may give up certain
rights to sell or otherwise deal with their Shares.

 

The Offer Is Conditional

 

The Offer and any contracts resulting from acceptance of the Offer are
subject to the fulfilment (or in certain circumstances, the waiver) of a number
of conditions (refer to section 8.7 of the Bidder’s Statement).  Shareholders should note that the Offer is
subject to a 90% minimum acceptance condition and that the Offer will lapse if
this condition is not satisfied or waived prior to the end of the Offer Period.

 

No payment will be made for the Shares tendered into the Offer until
after the Offer becomes unconditional. If the Offer becomes unconditional, you
will be paid by the earlier of:

 

•                  one
month after the date of your acceptance of the Offer or, if the Offer is
subject to a defeating condition when you accept the Offer, within one month
after the Offer becomes unconditional; and

 

•                  21 days
after the end of the Offer Period.

 

Transaction
Costs

 

The Offer has resulted in Stargames incurring significant expenses that
would not otherwise arise from carrying on business in the normal course.  Expenses include legal, financial and tax
advisers engaged to assist in this transaction and other transaction related
expenses which will have a negative impact on the after tax earnings in the current
financial year.

 

Exclusivity Arrangement and Cost Reimbursement

 

Stargames entered into a Pre-Bid Agreement with SMI on 15 November 2005,
which, among other things, has the effect of restricting Stargames, its
employees and officers directly or indirectly soliciting, initiating,
encouraging or participating in discussions with, or providing any information
to, any other

 

78

 

person in relation to another takeover bid for a period ending on the
earlier of the last day of the Offer Period and 120 days from the date of the
Pre-Bid Agreement.  However, this
undertaking does not prevent Stargames from participating in discussions with
or providing any information to any other person if the Directors determine in
good faith in reliance on legal advice that it is necessary to do so to comply
with their duties as Directors of Stargames.

 

Stargames has also agreed to pay A$1.536 million of the costs of SMI if:

•                                          any
Director withdraws their recommendation of the Offer; 

•                                          any
Director makes a recommendation in favour of a competing takeover bid;

•                                          a
competing takeover bid is made which results in the offeror acquiring a
relevant interest in more than 50% of the shares in the company; or 

•                                          SMI
does not acquire a relevant interest in at least 90% of the shares in the
company by the end of the Offer Period (subject to certain exceptions).

 

The exclusivity and break fee arrangements were required by SMI and the
Stargames Board considered the arrangements acceptable to ensure that this
Offer was made to Shareholders. 

 

Further information concerning the Pre-Bid Agreement is set out in section 5
below.

 

Status of
Regulatory Approvals

 

The Offer is conditional on all legal and regulatory approvals, consents
or waivers necessary for the Offer to be made and accepted by Shareholders and
the nominees of SMI to be appointed as directors of Stargames and its
subsidiaries.  In particular, but not
limited to, approvals from:

 

•                  the
Victorian Commissioner of Gambling Regulation in respect of all directors and
officers of Shuffle Master becoming ‘Associates’ pursuant to the Gaming
Machines Act of Stargames Corporation Pty Limited.  In addition, the approval of SMI as an “Associate”
may be required; 

 

•                  the
South Australian Liquor and Gambling Commissioner in respect of Shuffle Master
and its directors and officers, and Stargames Corporation Pty Limited’s
continuing proprietary and fitness to hold a Gaming Machine Dealers Licence
under the South Australian Gaming Machines
Act 1992.  Stargames
Corporation Pty Limited is a wholly owned subsidiary of Stargames; and

 

•                  the
Director of Liquor and Gaming and the Licensing Court of New South Wales in
respect of the appointment of Shuffle Master’s nominees as directors of
Stargames.  In addition, the approval of
SMI as the ultimate parent company of Stargames may be required.

 

Stargames will notify each of the Victorian Commissioner of Gambling
Regulation, the Director of Liquor and Gaming and the South Australian Liquor
and Gambling Commissioner of the Offer on the date of this Target’s Statement
and will make applications for the different approvals, consents or

 

79

 

waivers in respect of the relevant directors, officers and/or entities
of Shuffle Master as soon as possible after the date of this Target’s
Statement.

 

Although the Offer remains conditional, the Stargames Board considers it
likely that these conditions will be satisfied if the Closing Date is extended
by Shuffle Master.  However, the
Directors believe that it is unlikely that this condition will be satisfied
before the Closing Date, if not extended by Shuffle Master.  There is no guarantee that the necessary
approvals, consents or waivers will be given before the end of the Offer Period,
or at all.

 

Stargames notes from the Bidder’s Statement that Shuffle Master’s
nominated directors, Dr Mark Yoseloff and Mr Paul Meyer have made successful
licence applications and/or have been found suitable in every jurisdiction that
SMI or its subsidiaries operates that requires licensing for SMI Group
activities to be undertaken (including such jurisdictions as Nevada, New
Jersey, Louisiana and Mississippi).

 

Refer to section 7.4 of the Bidder’s Statement for further
information in relation to the approval processes.

 

Taxation

 

Depending on their individual circumstances, Shareholders who are
Australian residents and hold their Shares on capital account may realise a
gain or a loss and may incur a liability for taxation by selling their Shares
to Shuffle Master.  The extent of any tax
liability will depend on each Shareholder’s individual circumstances (refer to section 6
of the Bidder’s Statement).

 

Shareholders who are individuals, certain trusts or superannuation funds
may be eligible to claim a capital gains tax discount on any net gains arising
on Shares acquired at least 12 months before disposal.  Shareholders should also be aware that they
will not be eligible to discount any capital gain they may make by accepting
the Offer if that acceptance is made within 12 months of the date of
acquisition of those Shares.

 

Shareholders should seek their own taxation advice, having regard to
their own circumstances.

 

80

 

SECTION 2

 

INFORMATION ABOUT STARGAMES

 

Overview

 

Stargames Limited is an
Australia company specialising in the design, manufacture and marketing of
Stargames eStar® video gaming machines and Vegas Star®
multi-terminal gaming machine products. 
Stargames, in a joint venture with Crown Limited, develops Rapid Table
GamesTM including Rapid Roulette®.  

 

Stargames markets these
products to Australian gaming venues and, through its international
distributors, to gaming venues around the world.  Stargames also develops gaming products for
other gaming entertainment applications.  Stargames is licensed in
Australia and New Zealand to manufacture and market gaming products
incorporating games developed by WMS Gaming Inc, Waukegan, Illinois, USA. 

 

Stargames is listed on the
Australian Stock Exchange and as at 11 November had a market
capitalisation of approximately A$125 million.

 

Stargames
employs approximately 190 staff.

 

Additional information about
the Company and its products can be found on the Internet at
www.stargames.com.au.

 

Operations

 

Stargames’ head office is
located in Sydney, Australia and includes an extensive research and development
department, game development studio, assembly plant, warehouse, showroom and
administration offices. The plant has an annual assembly capacity of up to
7,500 machines on a single shift basis.  

 

Stargames also has offices in
Newcastle and Brisbane, Australia, and Christchurch and Auckland, New Zealand.
As well as selling products in Australia and New Zealand, the company has sold
products, directly or through distributors, to the following international
locations:

 

•                  Asia – Macau,
Vietnam, Cambodia, Malaysia, Singapore, Philippines; 

•                  North America – Nevada,
California, British Columbia; 

•                  South America – Venezuela,
Peru; 

•                  South Africa; and

•                  Europe – United Kingdom,
Russia, Czech Republic.

 

Licensing

 

Stargames is presently
licensed or holds approvals in:- 

 

•                  All Australian states and
territories

•                  New Zealand

•                  British Columbia, Canada.

•                  Michigan, USA

•                  California, USA

 

81

 

Company History

 

Stargames listed on the ASX in 1990 as Kolback
Group Limited, which was formed through the merger of three listed public
companies – Kolback Securities Ltd, a company involved in property development;
Kulim Ltd, whose activities were in waste management and investment; and Epoch
Mining NL, a gold and mineral explorer. During the 1990’s Kolback progressively
restricted its activities to waste management.

 

On 1 July 1999, Kolback bought privately owned
gaming company Vidco Distributors Pty Limited and its related entities. Kolback
changed its name to Stargames Limited on 10 March 2000.  The waste management assets
of the company were divested during 2001.

 

Since
2001, Stargames has been focused on its gaming equipment and technology
business, and also operates a small vending machine distribution business.

 

Stargames Director’s Profiles

 

John Maurice
Messara (Non Exec. Chairman) B.Comm., CPA, ASIA

John
Messara has been a non-executive director of Stargames Limited since September 1997
and Chairman since 1998. John is a member of the Audit and Regulatory
Compliance Committee. John is executive Chairman of Arrowfield Group Limited,
one of Australia’s most prestigious horse studs. Prior to his role at
Arrowfield, John had a successful career in stockbroking and was a member of
the Sydney Stock Exchange from 1973 to 1993.

 

Walter Giacomo Bugno (Non Exec. Director)
B.Comm., M.Comm

Walter
Bugno was appointed as a non-executive director in November 2003 (subject
to gaming regulatory approval) and is a member of the Nomination and
Remuneration Committee. Walter is President of Campbell Arnott’s Asia Pacific,
one of the largest food companies in the region boasting a portfolio of market
leading brands. Prior to joining Campbell Arnott’s in 2002, Walter was managing
director of brewing giant Lion Nathan Limited.

 

Stephen Michael Cohn (Non Exec. Director)
BA maj AC, MAICD

Stephen
Cohn was appointed as a non-executive director in June 2005 (subject to
gaming regulatory approval) and is a member of the Audit and Regulatory
Compliance Committee. Stephen has a background in finance and general
management with a number of high profile companies including Australian
Consolidated Press and Aristocrat Leisure. He served as an Executive Director
of Aristocrat for six years and brings a wealth of gaming and public company
experience.

 

Joseph Ronald Crepaldi (Non Exec. Director)
MBA cum laude, B.Ec, Economics/Sociology degree, winner of Fulbright
scholarship.

Joseph
Crepaldi is a non-executive director and was appointed in April 2001.
Joseph is a principal of strategic consulting group, Crescendo Partners, and
was formerly the managing director of A.T. Kearney Australia Pty Limited.
Joseph adds to the board considerable experience in the gaming sector. Further,
he assists both the board and the management team by leveraging his experience
in corporate strategy and growth, acquired in many years of consulting
experience across four continents.

 

82

 

Ian Heath Lambert (Non Exec. Director) B.Comm., ACA, CPA, FTIA,
AAIM

Ian
Lambert has been a non-executive director of Stargames Limited since September 1994
and is chairman of the Audit and Regulatory Compliance Committee. Ian has had
substantial experience in accounting and financial management over a period of
more than 25 years. Ian is the principal of a Sydney firm of chartered
accountants.

 

John Gregory Rouse (Managing Director and
Chief Executive Officer) B.Ec., BA, FAICD. 

John
Rouse is managing director and chief executive officer of Stargames Limited. He
is also a member of the Nomination and Remuneration Committee. Following his
close involvement in the establishment of Stargames gaming business, John was
appointed a director in June 2000. Prior to joining Stargames, John worked
in senior management roles with CSR and BHP, was chief executive officer of the
Australian Jockey Club and managing director of AWA Limited.

 

Paul Joseph Ward (Non Exec. Director) FVLE.

Since
joining the Stargames Board in 1997 Paul Ward has had a watching brief over the
Vending Division and is also the Chairman of the Nomination &
Remuneration Committee. Paul has had extensive experience in the commercial
property market, specialising in the institutional investment and development
sectors. As a founding partner of Colliers International he was instrumental in
the management and the growth across Australia and Asia throughout the period
1971 to 1999. Paul is currently a director of J.P. Morgan Real Estate Services
Limited.

 

83

 

SECTION 3

 

THE
OFFER

 

3.1                               Offer Period

 

The
Offer will remain open for acceptance during the period commencing [  ] November 2005 and ending at 7.00pm
(AEDT) on [  ] December 2005, unless
withdrawn or extended.  To accept the
Offer, your Acceptance Form should be received by Shuffle Master before
the end of the Offer Period.

 

Instructions
on how to accept the Offer are set out in section 8.3 of the Bidder’s
Statement.

 

3.2                               Conditions of the Offer

 

Further
information in relation to the terms and conditions of the Offer is set out in
sections 7.4 and 8.7 of the Bidder’s Statement, including:

 

•                  circumstances in which the Offer Period may be extended;

 

•                  circumstances in which the Offer may be withdrawn; and

 

•                  limited rights to withdraw your acceptance.

 

3.3                               Compulsory acquisition

 

Shuffle
Master has indicated in its Bidder’s Statement that it intends to proceed to
compulsorily acquire outstanding Shares under Part 6A.1 of the
Corporations Act, if it becomes entitled to do so.

 

Shuffle
Master will be able to compulsorily acquire any outstanding Shares for which
its has not received acceptances on the same terms as the Offer described in section 1.1
of this Target’s Statement, if during, or at the end of the Offer Period Shuffle
Master (together with its associates) has:

 

•                  a relevant interest in at least 90% (by number) of the Shares; and

 

•                  acquired at least 75% of the Shares for which it has made an Offer.

 

If
these thresholds are satisfied Shuffle Master will have one month from the end
of the Offer Period within which to give compulsory acquisition notices to
Shareholders who have not accepted the Offer.

 

Shareholders’
may challenge any compulsory acquisition, but this would require the relevant
Shareholders to establish to the satisfaction of a court that the terms of the
Offer do not represent fair value for the Shares.  If Shares are compulsorily acquired,
Shareholders are not likely to receive payment until at least one month after
the compulsory acquisition notices are sent.

 

84

 

SECTION 4

 

INTERESTS OF DIRECTORS

 

Directors’ relevant interests in Stargames and intentions

 

The
Directors of Stargames have the following relevant interests in Stargames
Shares and options:

 

	
  Director

  	
   

  	
  No. of Shares

  	
   

  	
  No. of Options

  	
   

  
	
  John Messara

  	
   

  	
  8,247,000

  	
  (1)

  	
  —

  	
   

  
	
  Walter Bugno

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Stephen Cohn

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Joseph Crepaldi

  	
   

  	
  37,000

  	
   

  	
  —

  	
   

  
	
  Ian Lambert

  	
   

  	
  28,000

  	
   

  	
  —

  	
   

  
	
  John Rouse

  	
   

  	
  2,557,558

  	
   

  	
  1,250,000

  	
  (2)

  
	
  Paul Ward

  	
   

  	
  1,218,500

  	
   

  	
  —

  	
   

  

 

Notes:

 

(1)                                  John
Messara is also a director of the trustee, and member of the Arrowfield Group
Staff Superannuation Fund, which is the holder of 100,000 Shares.

(2)                                  750,000
of these options will be issued if Shareholders approve the issue of these
options at the annual general meeting of Stargames to be held on 24 November 2005,
or at any adjournment of that meeting. 
The options will be exercisable at A$1.30 in two to five years.  The balance of the options are exercisable at
A$1.20 before 30 June 2006.

 

Each
Director who has an interest in Stargames Shares has decided to accept the
Offer in relation to the Stargames Shares owned or controlled by him, or on his
behalf, in the absence of a superior proposal.

 

Directors who did not approve this Target’s Statement

 

No
Director voted against the relevant resolution authorising this Target
Statement.

 

Directors’ relevant interests in Shuffle Master or SMI

 

At
the date of this Target’s Statement, no Director has a relevant interest in any
securities of Shuffle Master or SMI.  

 

Shuffle Master’s Dealings in Stargames Shares

 

There
were no acquisitions or disposals of any shares in Stargames by Shuffle Master
or any associate of Shuffle Master in the 4 months ending on the day
immediately before the day on which the Bidder’s Statement was served on
Stargames.  However, on 15 November 2005
SMI entered into options to acquire an aggregate of 16,914,512 Shares (being approximately
17.8% of Stargames Shares) with CVC Limited and CVC Communication and
Technology Pty Limited.  The exercise price
under the options is $1.55 per Share. 
Refer to section 3.5 of the Bidder’s Statement for further details.

 

85

 

Stargames’ Dealings in Shuffle Master or SMI Shares

 

To
the knowledge of both Stargames or any Director, there were no acquisitions or
disposals of any securities in Shuffle Master or SMI by Stargames or any
Director in the 4 months ending on the day immediately before the day on which
the Bidder’s Statement was served on Stargames.

 

Directors’ Dealings in Stargames Shares

 

To
the knowledge of both Stargames or any Director, no Stargames Shares were
acquired or disposed of by the Directors in the period of 4 months immediately
preceding this Target’s Statement, other than in the following dealings made by
the Directors or their associates:

 

John
Rouse exercised 500,000 options to subscribe for Shares at $1.10 per Share on
30 June 2005. The company provided Mr Rouse with a loan to pay the
exercise price of these options.  The
Shares issued upon the exercise of the options are currently escrowed until one
month before the repayment date of the loan, after which time the Shares may be
sold and the proceeds applied towards repayment of the loan.  However, provided the Share price is at least
$1.10, Mr Rouse may sell the Shares and apply the proceeds towards repayment of
the loan.  If at the expiration of the
term of the loan the value of the Shares is less than the balance of the loan,
the amount repayable is limited to the value of the Shares.  If Mr Rouse accepts the Shuffle Master Offer
in respect of these Shares, the proceeds will be applied towards repayment of
the loan to the extent that it is outstanding.

 

No Benefits to Directors of Stargames

 

No
benefit will or may be given in connection with the Offer to a Director in
connection with the retirement of that person from office in Stargames or a
related body of Stargames.

 

John
Rouse has an employment contract with Stargames, the early termination of which
would entitle him to a payment equivalent to 6 months remuneration.  Mr Rouse’s executive services agreement with
Stargames also entitles him to a bonus equal to 25% of his remuneration if he
continues to be employed by Stargames for a period of at least 3 months after a
change in control of Stargames occurs, provided that the change of control
occurs by 30 April 2006.

 

Directors’ Interests in Agreements

 

To
the knowledge of both Stargames or any Director, no Director is a party to any
agreement in connection with, or conditional upon, the Offer.

 

86

 

SECTION 5

 

ADDITIONAL INFORMATION

 

Financial Position of Stargames

 

There
has not, within the knowledge of the Directors, been any material change in the
financial position of Stargames since 30 June 2005, being the date of the
last financial statements that were sent to Stargames’ shareholders except as
contained in the information contained in Stargames’ releases to the ASX since
30 June 2005. 

 

Impact of Shuffle Master Offer on Major Customers

 

As indicated on page 9 of
this Booklet, Stargames has been interested in pursuing corporate proposals for
some time.  As a result, Stargames has held discussions with a number of
potential business partners.

 

One such party is a major
customer of Stargames.  This customer has indicated that it would
significantly increase product orders from Stargames if a strategic alliance
involving an equity interest or similar in Stargames could be agreed.  The
customer has also indicated that if such a strategic alliance is not agreed,
they may reduce or cease ordering Stargames products.  To date, there has
not been any proposed corporate transaction with this customer that the Board
of Stargames could recommend to shareholders in preference to the offer which
has been made by Shuffle Master. Stargames is not able at this time to quantify
the impact on profit of any changes in the level of product orders from this
customer as Stargames remains uncertain what commercial arrangements will be
agreed with this customer in the future.

 

Impact of Shuffle Master Offer on Material Contracts

 

Stargames
has entered into a number of material agreements including the following:

 

•                  A
License Agreement with WMS Gaming Inc (“WMS”) dated 28 August 2002 under
which, among other things, WMS grants Stargames the right to utilise a number
of WMS’s games in Stargames’ products;

 

•                  A
Distribution Agreement with RGB Limited (“RGB”) dated 19 April 2005 under
which RGB acts as Stargames’ distributor in numerous Asian countries; and

 

•                  A
Banking Facility Agreement with Australia and New Zealand Banking Group Limited
(“ANZ”) dated 8 April 2003 under which ANZ makes certain financing
facilities available to Stargames.

 

These
agreements provide the respective counterparties with various rights in the
event that there is a change of control of Stargames, including providing that
counterparty, in certain circumstances, with the right to terminate the
relevant agreement.  At the date of this
Target’s Statement, the Target Directors have not obtained the consent of any
of these counterparties.  The Target
Directors have no reason to believe that any counterparty would withhold
consent to the change of control of Stargames or otherwise seek to terminate
the relevant agreement. 

 

87

 

Pre-Bid Agreement

 

In
consideration of Shuffle Master announcing that it would make a takeover bid
for all the Shares in Stargames, Stargames entered into a Pre-Bid Agreement
with SMI on 15 November 2005.

 

The
agreement prohibits Stargames, its employees and officers directly or
indirectly soliciting, initiating, encouraging, participating in discussions
with or providing any information to any other person in relation to another
takeover bid for a period ending on the earlier of the last day of the Offer
Period and 120 days from the date of the Pre-Bid Agreement.

 

However,
this prohibition does not prevent Stargames from participating in discussions
with or providing any information to any other person if the Directors
determine in good faith in reliance on legal advice that it is necessary to do
so to comply with their duties as Directors of Stargames

 

Stargames
also agrees to pay A$1.536 million of the costs of Shuffle Master if:

•                  any
Director withdraws their recommendation of the Offer;

•                  any
Director makes a recommendation in favour of a competing takeover bid;

•                  a
competing takeover bid is made which results in the offeror acquiring a
relevant interest in more than 50% of the shares in the company; or 

•                  Shuffle
Master does not acquire a relevant interest in at least 90% of the shares in
the company by the end of the Offer Period (subject to certain exceptions).  

 

If
there is a dispute as to whether Stargames is obliged to make the payment, it
is to be settled under the Rules of Arbitration of the International
Chamber of Commerce, with the arbitration to be held in New York.  

 

Each
party also warrants to the other that they are not aware of any information
which would result in one or more of the defeating conditions to the Offer
being triggered, except as disclosed to the other party.

 

Refer
to section 7.2 of the Bidder’s Statement for further details.

 

Executive Incentives

 

Pursuant
to an Executive Retention Scheme implemented in February 2005, a number of
senior executives of Stargames (including the Managing Director, John Rouse)
are entitled to a bonus equal to 25% of their remuneration if they continue to
be employed by Stargames for a period of at least 3 months after a change in
control of Stargames occurs, subject to certain conditions, including the
change of control taking place before 30 April 2006.

 

Impact of Shuffle Master’s Offer on Director and Employee Equity
Incentive Schemes

 

Deferred
Employee Share Plan 

 

Stargames
implemented a Deferred Employee Share Plan (“DESP”) in 2002.  Pursuant to the terms of the DESP Stargames
has made contributions to Stargames Employee Share Plan Managers Pty Limited (a
wholly owned subsidiary, “Trustee”) to fund the acquisition of Stargames Shares
for the benefit of participating Stargames employees.  Shares are held by the Trustee for the
benefit of employees until the employee requests that they be transferred to
the employee or sold after any

 

88

 

performance,
vesting or other criteria applicable to the Shares have been satisfied or
waived.

 

If
a takeover offer for all of the Stargames Shares is announced and the bidder
acquires control (as defined in section 50AA of the Corporations Act) of
Stargames, subject to the terms on which the Shares were offered, employees
whose Shares are held by the Trustee may require the Shares held on their
behalf to be transferred to them or sold within 6 months after the offer
becomes unconditional, notwithstanding that any performance, vesting or other
criteria applicable to the Shares have not been satisfied or waived.

 

Exempt
Employee Share Plan 

 

Stargames
also implemented an Exempt Employee Share Plan (“EESP”) in 2002.  Pursuant to the terms of the EESP Stargames
has made contributions of no more than $1,000 per participating employee to the
Trustee to fund the acquisition of Stargames Shares for the benefit of
participating employees.  Shares are held
by the Trustee for the benefit of employees until the employee requests that
they be transferred to the employee or sold. 
Subject to any administrative guidelines, such a request can be made
three years after the acquisition of the Shares or at any time after the
relevant employee ceases to be an employee of the Stargames Group.

 

The
Board has varied the rules of the EESP to allow participating employees to
submit a notice of withdrawal directing the Trustee to accept the offer in
respect of the Shares held by the Trustee on their behalf once holders of at
least 50% of Stargames Shares have accepted the Shuffle Master Offer and the
Offer has become unconditional.

 

Employee
Share Option Plan and Senior Executive Share Option Plans 

 

Stargames
adopted an Employee Share Option Plan (“ESOP”) in 2000.  Stargames adopted Senior Executive Share
Option Plans in 2000 (“2000 SESOP”), 2003 (“2003 SESOP”) and 2005 (“2005 SESOP”).  The options issued pursuant to the ESOP, 2000
SESOP, 2003 SESOP and 2005 SESOP may not be capable of exercise until certain
conditions of issue (such as the elapse of time and performance hurdles) have
been satisfied and are generally not transferable without the consent of the
Board.

 

If
a takeover offer for the Shares is announced or made:

 

•                  Stargames
must give notice of the offer to each holder of an option issued pursuant to
the ESOP, after which each holder of options issued under the ESOP has 120 days
to exercise their options, notwithstanding any other terms and conditions
applicable to the options.  If the
options are not exercised within the period of 120 days of the date of
notification of the offer, the options may be exercised at any other time
according to their terms of issue; and 

 

•                  the
options issued under the 2000 SESOP and the 2003 SESOP become capable of
exercise, notwithstanding any other terms and conditions applicable to the
options.

 

The
options issued under the 2005 SESOP will not become capable of exercise before
their original vesting date in circumstances where there is a takeover offer
for Stargames Shares until holders of 85% of the Shares accept the offer, after
which time the options may be exercised until the end of the offer period
(except if holders

 

89

 

of
50% of the Shares do not accept the offer until the last 7 days of the offer
period, the date 7 days after the close of the offer period).  The options will lapse if not exercised
within this period.

 

It
is proposed to issue Stargames’ Managing Director, John Rouse, 750,000 options
under the 2005 SESOP if shareholders approve the issue at the company’s annual
general meeting on 24 November 2005, or at any adjournment of that
meeting.

 

Executive
Director’s Share Option Plan 

 

Options
have been issued to Stargames’ Managing Director, John Rouse pursuant to its
Executive Director’s Share Option Plan (“EDSOP”).  These options are currently capable of
exercise.

 

Shuffle
Master’s Intentions for Options 

 

Stargames
notes from the Bidder’s Statement that Shuffle Master intends to make
contemporaneous offers to cancel all options on issue for $1.55 per option,
less the exercise price.  Shuffle Master
has also stated that it intends to compulsorily acquire or cancel any options
and Shares issued upon exercise of options if it becomes entitled to do so.

 

Further
information in relation to the options issued under these equity incentive schemes
is set out in sections 3.3 and 3.8 of the Bidder’s Statement.  Further information in relation to Shuffle
Masters’ proposal to make offers to cancel the options is set out in section 7.1. 

 

Disclaimer regarding forward-looking statements

 

This Target’s
Statement contains various forward-looking statements.  All statements other than statements of
historical fact are forward-looking statements. 
Shareholders should note that forward-looking statements are inherently
subject to uncertainties in that they may be affected by a variety of known and
unknown risks, variables and other factors which could cause actual values or
results, performance or achievements to differ materially from implied values
or anticipated results, performance or achievements expressed or implied in
those forward-looking statements.  These
risks, variables and other factors include, but are not limited to:

 

•                  economic and financial market conditions;

 

•                  legislative, fiscal or regulatory developments;

 

•                  Stargames’ share price performance, including the risk of possible
decline in the absence of the Offer;

 

•                  changes in the competitive environment and other competition-related
risks; and 

 

•                  risks associated with the businesses and operations of Stargames.

 

While Stargames believes its current expectations of future results and
events reflected in the forward-looking statements in this Target’s Statement
are reasonable, no assurance can be given that such expectations will be
achieved.

 

90

 

Consents

 

This Target’s Statement contains statements made by, or statements based
on statements made by, the Directors. 
Each of the Directors has consented to the inclusion in this Target’s
Statement of each statement they have made and each statement which is based on
a statement they have made in the form and context in which those statements
are included.

 

Deacons has given and not withdrawn before the date of this Target’s
Statement its consent to being named in this Target’s Statement as legal adviser
to Stargames.

 

Gresham Advisory Partners Limited has given and not withdrawn before the
date of this Target’s Statement its consent to being named in this Target’s
Statement as financial adviser to Stargames. 

 

Each party named above as having given its consent to the inclusion of a
statement or being named in this Target’s Statement:

 

•                  does not make or purport to make any statement that is included in this
Target’s Statement and there is no statement in this Target’s Statement which
is based on any statement of that party, other than, in the case of a person
referred to above as having given their consent to the inclusion of a
statement, that statement; and

 

•                  to the maximum extent permitted by law, specifically disclaims
responsibility for any statement included in this Target’s Statement other than
references to its name and, in the case of a person referred to above as having
given their consent to the inclusion of a statement, that statement.

 

Stargames Announcements

 

Since 30 June 2005, Stargames has made the following ASX
announcements:

 

	
  Date

  	
   

  	
  Subject

  
	
  15
  Nov 2005

  	
   

  	
  Announcement
  of Offer

  
	
  14
  Nov 2005

  	
   

  	
  Trading
  Halt Request

  
	
  30
  Sep 2005

  	
   

  	
  2005
  Annual Report

  
	
  22
  Sep 2005

  	
   

  	
  Appointment
  of New Chief Financial Officer - Gary Jenkins

  
	
  13
  Sep 2005

  	
   

  	
  Appendix
  3B

  
	
  07
  Sep 2005

  	
   

  	
  Corporate
  Activities Update

  
	
  06
  Sep 2005

  	
   

  	
  2005
  Full Year Results

  
	
  06
  Sep 2005

  	
   

  	
  Preliminary
  Final Report

  
	
  30
  Aug 2005

  	
   

  	
  Appendix
  3B

  
	
  30
  Aug 2005

  	
   

  	
  Change
  of Director’s Interest Notice

  
	
  04
  Jul 2005

  	
   

  	
  Stargames
  releases Profit Outlook

  

 

No other material information

 

This Target’s Statement is required to contain all the information that
Shareholders and their professional advisors would reasonably require to make
an informed assessment of whether to accept the Offer, but:

 

•                  only to the extent to which it is reasonable for investors and their
professional advisors to expect to find this information in this Target’s
Statement; and

 

•                  only if the information is known to any of the Directors.

 

91

 

The Directors of Stargames are of the opinion that the information that
Shareholders and their professional advisors would reasonably require to make
an informed assessment of whether to accept the Offer is:

 

•                  the information contained in the Bidder’s Statement;

 

•                  the information contained in Stargames releases to ASX prior to the date
of this Target’s Statement; and 

 

•                  the information contained in this Target’s Statement

 

Authorisation

 

This Target’s Statement was approved by a resolution of the Directors on
14 November 2005.

 

Dated  15 November 2005

 

 

	
   

  	
   

  	
   

  	
   

  
	
  John Rouse

  	
  Stephen Cohn

  
	
  Managing Director

  	
  Director

  

 

92

 

SECTION 6

 

GLOSSARY

 

In
this Target’s Statement:

 

“ASX” means the Australian Stock Exchange
Limited ACN 008 624 691;

 

“Bidder’s Statement” means the bidder’s
statement (including the Offer) dated 15 November 2005, issued by Shuffle
Master in respect of the off-market bid by Shuffle Master to acquire all the
Stargames Shares on issue;

 

“Board” means the Board of Directors of
Stargames;

 

“Condition Period” means the period commencing on 15 November 2005
and ending on the Closing Date;

 

“Corporations Act” means the Corporations Act 2001 (Cth);

 

“Directors” means the directors of
Stargames;

 

“Offer” means the offer constituted by section 8
of the Bidder’s Statement and includes a reference to that offer as varied in
accordance with the Corporations Act;

 

“Offer Period” means the period commencing
on [  ] November 2005 and ending on
[  ] December 2005, or such later
date to which the Offer has been extended;

 

“Shareholder” means a person who holds
Shares in Stargames;

 

“Shares” and “Stargames Shares” means fully paid ordinary shares in the
capital of Stargames;

 

“Shuffle Master” means Shuffle Master Australasia
Pty Ltd ACN 117 058 796;

 

“Shuffle Master’s Offer” means the Offer;

 

“SMI” means Shuffle Master, Inc.;

 

“Stargames” means Stargames Limited ACN 003
190 501; and

 

“Target’s Statement” means this target’s
statement issued by Stargames in relation to Shuffle Master’s Offer.

 

93

 

 

	
  

  	
   

  	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  	
  Please
  return completed form to:

  
	
  Shuffle Master Australasia
  Pty Ltd

  	
   

  	
  Computershare Investor Services Pty Limited

  
	
  ABN 117 058 796

  	
   

  	
  GPO Box 1903
  Adelaide

  
	
   

  	
   

  	
  SA 5001
  Australia          

  
	
   

  	
   

  	
  Enquiries
  (within Australia) 1300 556 161

  
	
   

  	
   

  	
  (outside
  Australia) 61 3 9415 4000

  
	
   

  	
   

  	
  Facsimile 61
  8 8236 2305

  
	
  A

  	
  

  	
   

  	
  web.queries@computershare.com.au

  
	
   

  	
  www.computershare.com

  
	
   

  	
  SAMPLE CUSTOMER

  	
   

  	
   

  
	
   

  	
  SAMPLE STREET

  	
   

  	
   

  	
  Securityholder
  Reference Number (SRN)

  
	
   

  	
  SAMPLE STREET

  	
   

  	
   

  
	
   

  	
  SAMPLE STREET

  	
   

  	
  

  
	
   

  	
  SAMPLE STREET

  	
   

  
	
   

  	
  SAMPLETOWN TAS 7000

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  |
  1234567890                                     IND

  
						

 

Use a black pen.

Print in CAPITAL letters

Inside the grey areas.         A             B             C             1              2              3

 

Transfer and Acceptance Form - Cash Offer

 

This is an important document and requires your
immediate attention.  If you are in doubt
about how to deal with it, please consult your financial or other professional
advisor.

 

Use this form to accept Shuffle Master Offer
for your Stargames Limited Ordinary Shares

 

	
  B

  	
  Consideration

  	
   

  	
  Securityholder
  details:

  
	
   

  	
  The
  consideration applicable under the terms of this offer

  	
   

  	
  Subregister

  	
   

  
	
   

  	
   

  	
   

  	
  Issuer/CHESS

  
	
   

  	
  This consideration applicable under the
  terms of this Offer is $1.55 per Ordinary Share.

  	
   

  	
  Your holding in

  Stargames Limited

  	
  123456789012

  
	
   

  	
  Please note that by accepting the Offer you
  are accepting for ALL of your Stargames Shares. You cannot accept the offer
  for only part of your holding.

  	
   

  
	
   

  	
   

  	
   

  	
  Cash consideration payable to you at $1.55
  per Ordinary Share

  	
  $000.00

  

 

C               To be completed by
Securityholder

You will be
deemed to have accepted the Offer in respect of all your Stargames Limited
Ordinary Shares if you sign and return the form.

 

If you hold
your Stargames Limited Ordinary Shares in a CHESS holding (see “subregister”
above), to accept the offer you can either:

 

•                  Instruct your
Controlling Participant directly - normally your stockbroker

or

•                  Authorise Shuffle Master to contact your
Controlling Participant on your behalf, which you can do by signing and
returning the form.  By signing and
returning the form you will be deemed to have authorised Shuffle Master to
contact your Controlling Participant directly via the CHESS system.

 

D               Contact details

Please provide your contact
details in case we need to speak to you about this form.

 

	
  Name of contact person

  	
  Contact person’s daytime
  telephone number

  
	
   

  	
   

  

 

E                 Sign here - this section must be
signed before we can process this form.

I/We accept the offer made
by Shuffle Master in respect of Ordinary Shares in Stargames Limited I/we hold
and I/we agree to be bound by the terms and conditions of the offer (including the instructions as to acceptance of the
offer on the back of this form) and transfer all of my/our
Stargames Limited Ordinary Shares to Shuffle Master for the above consideration

 

	
  Individual or Securityholder 1

  	
  Individual or Securityholder 2

  	
  Individual or Securityholder 3

  
	
   

  	
   

  	
   

  
	
  Sole
  Director and Sole Company Secretary

  	
  Director

  	
  Director/Company
  Secretary

  

 

The directors
reserve the right to make amendments to this form where appropriate.  Please refer to the lodgement instructions
overleaf.

	
   

  	
  See back
  of form for completion guidelines

  

 

	
  ASXAAASXAAA

  	
  1TKAC

  	
  <Broker
  PID>

  

 

 

How to complete this form

 

Acceptance of the takeover offer:

 

A. Registration Details

 

The Ordinary Shares are currently registered in the name(s) printed on
this form. Your consideration will be issued in the names as it appears on the
Stargames Limited register.

 

If you have already sold all your Stargames Limited Ordinary Shares
shown overleaf, do not keep or return this form. Please send this form to the
broker who sold them for you

 

B. Consideration

 

The cash consideration payable under the takeover offer is $1.55 per
Ordinary Share.

 

C. How to accept the Offer

 

If your Stargames Limited Ordinary Shares are held in an Issuer
Sponsored Holding, simply complete and return this form to the Shuffle Master
Registry so that it is received by no later than<Time> <Time Zone>
on <Date> unless the offer is extended or withdrawn.

 

If your Stargames Limited Ordinary Shares are in a CHESS holding you
may contact your Controlling Participant directly (normally your stockbroker)
with instructions to accept the offer. If you do this you will need to sign and
return this Transfer and Acceptance Form to your Controlling Participant. If
you want Shuffle Master to contact your Controlling Participant on your behalf
via the CHESS system, sign and return the form to the Shuffle Master Registry
so that it is received no later than <Time> <Time Zone> on
<Date> unless the offer is extended or withdrawn.

 

If you sign and return this Transfer and Acceptance Form to the
Registry either in respect of an Issue Sponsored Holding so that contact may be
made with your Controlling Participant on your behalf, you warrant to Shuffle
Master (and authorise Shuffle Master to warrant on your behalf) that you have
full legal and beneficial ownership of the Stargames Limited Ordinary Shares
and that Shuffle Master will acquire them free from all mortgages, charges,
liens, encumbrances (whether legal or equitable), restrictions on transfer of
any kind and free from any third party rights.

 

Neither Shuffle Master or Computershare
Investor Services Pty. Limited (‘CIS’) will be responsible for any delays
incurred by this process. You should allow sufficient time for the preferred
party to initiate the acceptance of this offer on your behalf.

 

 

D. Contact details

 

Enter the name of a contact person and telephone number. These details
will only be used in the event that the registry has a query regarding this
form.

 

E. Signature(s)

 

You must sign the form as follows in the space provided.

 

Joint holding :   where the holding is in more than one name all
of the securityholders must sign.

 

Power of Attorney:   to sign
under Power of Attorney, you must have already lodged this document with the
Shuffle Master registry. Alternatively, attach a certified copy of the Power of
Attorney to this form when you return it.

 

Deceased Estate:   all executors
must sign and, if not already noted by the Shuffle Master registry, a certified
copy of Probate or Letters of Administration must accompany this form.

 

Companies:   this form must be signed by either 2 Directors
or a Director and a Company Secretary. Alternatively, where the company has a
Sole Director and, pursuant to the Corporations Act, there is no Company
Secretary, or where the Sole Director is also the Sole Company Secretary, that
Director may sign alone. Delete titles as applicable.

 

 

Lodgement of Transfer and Acceptance Form

 

This Transfer and Acceptance Form must be received at the Adelaide
office of CIS by no later than <Time> <Time Zone> on <Date>
unless the offer is extended or withdrawn. Return this Transfer and Acceptance Form to:

 

Postal Address

Computershare Investor Services Pty. Limited

GPO Box 1903

ADELAIDE, SA 5001

 

OR

 

Hand Delivery

Computershare Investor Services Pty Limited

Level 5

115 Grenfell Street

ADELAIDE, SA 5000

 

 

Privacy Statement

 

Personal information is collected on this form by CIS as registrar for
securities issuers (“the issuer”), for the purpose of maintaining registers of
security holders, facilitating distribution payments and other corporate
actions and communications. Your personal information may be disclosed to our
related bodies corporate, to external service companies such as print or mail
service providers, or as otherwise required or permitted by law. If you would
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contact CIS. In accordance with the Corporations Act 2001, you may be sent
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general corporate communications. You may elect not to receive marketing
material by contacting CIS. You can contact CIS using the details provided on
the front of this form or E-mail privacy@computershare.com.au

 

 

For legal reasons, all calls to this number
will be recorded.

 

Please note this form may not be used to change your address.

 

Please return the completed form in the

envelope provided or to the address opposite:

 

Computershare Investor Services Pty Limited

GPO Box 1903

Adelaide SA 5001

AustraliaExhibit 10.1

 

STAPLES, INC.

 

AMENDED AND RESTATED 2004
STOCK INCENTIVE PLAN

 

1.                                       Purpose

 

The purpose of this Amended and Restated 2004 Stock
Incentive Plan (the “Plan”) of Staples, Inc., a Delaware corporation (the “Company”),
is to advance the interests of the Company’s stockholders by enhancing the
Company’s ability to attract, retain and motivate persons who make (or are
expected to make) important contributions to the Company by providing such
persons with equity ownership opportunities and performance-based incentives
and thereby better aligning the interests of such persons with those of the
Company’s stockholders.  Except where the
context otherwise requires, the term “Company” shall include any of the Company’s
present or future parent or subsidiary corporations as defined in
Sections 424(e) or (f) of the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder (the “Code”), and any other
business venture (including, without limitation, joint venture or limited
liability company) in which the Company has a controlling interest, as
determined by the Board of Directors of the Company (the “Board”).

 

2.                                       Eligibility

 

All of the Company’s employees, officers, directors,
consultants, advisors, and other service providers (including persons who have
entered into an agreement with the Company under which they will be employed by
the Company in the future) are eligible to be granted options, restricted
stock, restricted stock units, stock appreciation rights or other stock-based
awards (each, an “Award”) under the Plan. 
Each person who has been granted an Award under the Plan shall be deemed
a “Participant”.

 

3.                                       Administration and Delegation

 

(a)                                  Administration
by Board of Directors.  The Plan will
be administered by the Board.  The Board
shall have authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable.  The Board may correct
any defect, supply any omission or reconcile any inconsistency in the Plan or
any Award in the manner and to the extent it shall deem expedient to carry the
Plan into effect and it shall be the sole and final judge of such
expediency.  All decisions by the Board
shall be made in the Board’s sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award.  No director or person acting pursuant to the
authority delegated by the Board shall be liable for any action or determination
relating to or under the Plan made in good faith.

 

(b)                                 Appointment
of Committees.  To the extent permitted by
applicable law, the Board may delegate any or all of its powers under the Plan
to one or more committees or subcommittees of the Board (a “Committee”).  All references in the Plan to the “Board”
shall mean the Board or a Committee of the Board or the officers referred to in
Section 3(c) to the extent that the Board’s powers or authority under
the Plan have been delegated to such Committee or officers.

 

 

(c)                                  Delegation
to Officers.  To the extent permitted
by applicable law, the Board may delegate to one or more officers of the
Company the power to grant Awards to employees or officers of the Company or
any of its present or future subsidiary corporations and to exercise such other
powers under the Plan as the Board may determine, provided that the Board shall
fix the terms of the Awards to be granted by such officers (including the
exercise price of such Awards, which may include a formula by which the
exercise price will be determined) and the maximum number of shares subject to
Awards that the officers may grant; provided further, however, that no officer
shall be authorized to grant Awards to himself or herself.

 

4.                                       Available for Awards

 

(a)                                  Number
of Shares.

 

(1)                                  Subject
to adjustment under Section 9, Awards may be made under the Plan for up to
62,330,000 shares of common stock, $.0006 par value per share, of the Company
(the “Common Stock”).  For purposes of
counting the number of shares available for the grant of Awards under the Plan,
(i) shares of Common Stock covered by independent SARs shall be counted
against the number of shares available for the grant of Awards under the Plan; (ii) if
any Award (A) expires or is terminated, surrendered or canceled without
having been fully exercised or is forfeited in whole or in part (including as
the result of shares of Common Stock subject to such Award being repurchased by
the Company at the original issuance price pursuant to a contractual repurchase
right) or (B) results in any Common Stock not being issued because the
Award (other than a SAR) is settled for cash, the unused Common Stock covered
by such Award (other than a SAR) shall again be available for the grant of
Awards under the Plan; provided, however, in the case of Incentive Stock
Options (as hereinafter defined), the foregoing shall be subject to any
limitations under the Code; and (iii) shares of Common Stock tendered to
the Company by a Participant to (A) purchase shares of Common Stock upon
the exercise of an Award or (B) satisfy tax withholding obligations
(including shares retained from the Award creating the tax obligation) shall
not be added back to the number of shares available for the future grant of
Awards under the Plan.

 

(2)                                  In
addition, if any option or restricted stock award granted under the 1992 Plan
expires, is terminated, surrendered or canceled without having been fully
exercised, is forfeited in whole or in part (including as the result of shares
of Common Stock subject to such restricted stock award being repurchased by the
Company at the original issuance price pursuant to a contractual repurchase
right), then in each such case the unused Common Stock covered by such option
or restricted stock award shall be available for the grant of Awards under the
Plan, subject, however, in the case of Incentive Stock Options, to any
limitations under the Code; and further provided that shares of Common Stock
tendered to the Company to (A) purchase shares of Common Stock upon the
exercise of any such option or (B) satisfy tax withholding obligations
(including shares retained from the option or restricted stock award creating
the tax obligation) shall not be added back to the number of shares available
for the future grant of Awards under the Plan and that the aggregate number of
shares of Common Stock available for grant of Awards pursuant to this sentence
shall not exceed 51,000,000.  Shares
issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.

 

2

 

(b)                                 Sub-limits.  Subject to adjustment under Section 9,
the following sub-limits on the number of shares of Common Stock subject to
Awards shall apply:

 

(1)                                  Section 162(m)
Per-Participant Limit.  The maximum
number of shares of Common Stock with respect to which Awards may be granted to
any Participant under the Plan in any calendar year shall be 3,450,000.  The
per-Participant limit described in this Section 4(b)(1) shall be
construed and applied consistently with Section 162(m) of the Code (“Section 162(m)”).

 

(2)                                  Limit
on Awards other than Options and SARs. 
The maximum number of shares with respect to which Awards other than
Options and SARs may be granted shall be one-half of the total number of shares
of Common Stock covered by the Plan (including any shares that may become
available under this Plan pursuant to Section 4(a)(2) hereof).

 

(3)                                  Limits
on Awards to Directors.  The maximum
number of shares with respect to which Awards may be granted during the term of
the Plan to directors who are not employees of the Company shall be 2,000,000
and the maximum number of shares of Common stock with respect to which Awards
may be granted in any calendar year to any director who is not an employee of
the Company shall be 150,000.

 

5.                                       Stock Options

 

(a)                                  General.  The Board may grant options to purchase
Common Stock (each, an “Option”) and determine the number of shares of Common
Stock to be covered by each Option, the exercise price of each Option and the
conditions and limitations applicable to the exercise of each Option, including
conditions relating to applicable federal or state securities laws, as it
considers necessary or advisable.  An
Option which is not intended to be an Incentive Stock Option (as hereinafter
defined) shall be designated a “Nonstatutory Stock Option”.

 

(b)                                 Incentive
Stock Options.  An Option that the
Board intends to be an “incentive stock option” as defined in Section 422
of the Code (an “Incentive Stock Option”) shall only be granted to employees of
Staples, Inc., any of Staples, Inc.’s present or future parent or
subsidiary corporations as defined in Sections 424(e) or (f) of the
Code, and any other entities the employees of which are eligible to receive
Incentive Stock Options under the Code, and shall be subject to and shall be
construed consistently with the requirements of Section 422 of the
Code.  The Company shall have no
liability to a Participant, or any other party, if an Option (or any part
thereof) that is intended to be an Incentive Stock Option is not an Incentive
Stock Option.

 

(c)                                  Exercise
Price.  The Board shall establish the
exercise price at the time each Option is granted and specify it in the
applicable option agreement; provided, however, that the exercise price shall
be not less than 100% of the fair market value (the “Fair Market Value”) of the
Common Stock, as determined by the Board, at the time the Option is granted.

 

(d)                                 No
Reload Rights.  Options granted under
this Plan shall not contain any provision entitling the optionee to the
automatic grant of additional Options in connection with any exercise of the
original Option.

 

3

 

(e)                                  No
Repricing.  Unless such action is
approved by the Company’s stockholders: (i) no outstanding Option granted
under the Plan may be amended to provide an exercise price per share that is
lower than the then-current exercise price per share of such outstanding Option
(other than adjustments pursuant to Section 9), and (ii) the Board
may not cancel any outstanding Option and grant in substitution therefor new
Options under the Plan covering the same or a different number of shares of
Common Stock and having an exercise price per share lower than the then-current
exercise price per share of the cancelled Option.

 

(f)                                    Duration
of Options.  Each Option shall be
exercisable at such times and subject to such terms and conditions as the Board
may specify in the applicable option agreement provided, however, that no
Option will be granted for a term in excess of 10 years.

 

(g)                                 Exercise
of Option.  Options may be exercised
by delivery to the Company of a written notice of exercise signed by the proper
person or by any other form of notice (including electronic notice) approved by
the Company, together with payment in full as specified in Section 5(h) for
the number of shares for which the Option is exercised. Shares of Common Stock
subject to the Option will be delivered by the Company following exercise
either as soon as practicable or, to the extent permitted by the Company in its
sole discretion, on a deferred basis (with the Company’s obligation to be
evidenced by an instrument providing for future delivery of the deferred shares
at the time or times specified by the Board).

 

(h)                                 Payment
Upon Exercise.  Common Stock
purchased upon the exercise of an Option granted under the Plan shall be paid
for as follows:

 

(1)                                  in
cash or by check, payable to the order of the Company;

 

(2)                                  except
as the Board may, in its sole discretion, otherwise provide in an option
agreement, by (i) delivery of an irrevocable and unconditional undertaking
by a creditworthy broker to deliver promptly to the Company sufficient funds to
pay the exercise price and any required tax withholding or (ii) delivery
by the Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to promptly pay to the Company the
exercise price and any required tax withholding;

 

(3)                                  if
provided for in the option agreement or approved by the Company, in its sole
discretion, by delivery (either by actual delivery or attestation) of shares of
Common Stock owned by the Participant valued at their Fair Market Value,
provided (i) such method of payment is then permitted under applicable
law, (ii) such Common Stock, if acquired directly from the Company was
owned by the Participant for such minimum period of time, if any, as may be
established by the Board in its discretion, and (iii) such Common Stock is
not subject to any repurchase, forfeiture, unfulfilled vesting or other similar
requirements;

 

(4)                                  if
provided for in the option agreement or approved by the Company, in its sole
discretion,  by payment of such other lawful consideration as the Board
may determine, but in no event may such consideration include delivery of a
promissory note of the Participant to the Company; or

 

(5)                                  by
any combination of the above permitted forms of payment.

 

4

 

(i)                                     Substitute
Options.  In connection with a merger
or consolidation of an entity with the Company or the acquisition by the
Company of property or stock of an entity, the Board may grant Options in
substitution for any options or other stock or stock-based awards granted by
such entity or an affiliate thereof. 
Substitute Options may be granted pursuant to this Section 5(i) on
such terms as the Board deems appropriate in the circumstances, notwithstanding
any limitations on Options contained in the other sections of this Section 5
or in Section 2.

 

(j)                                     Amendment
of Options.  Subject to the provisions
of Section 10(f), the Board may amend an Option to convert it into a Stock
Appreciation Right.

 

6.                                       Stock Appreciation Rights

 

(a)                                  Nature of Stock Appreciation Rights.
A Stock Appreciation Right, or SAR, is an Award entitling the holder on
exercise to receive an amount in cash or Common Stock or a combination thereof
(such form to be determined by the Board) determined in whole or in part by
reference to appreciation, from and after the date of grant, in the fair market
value of a share of Common Stock. SARs may be based solely on appreciation in
the fair market value of Common Stock or on a comparison of such appreciation
with some other measure of market growth such as (but not limited to)
appreciation in a recognized market index. The date as of which such
appreciation or other measure is determined shall be the exercise date unless
another date is specified by the Board.

 

(b)                                 Grant of Stock Appreciation Rights. Stock Appreciation Rights may be granted
in tandem with, or independently of, Options granted under the Plan.

 

(1)                                  Rules Applicable to Tandem Awards. When Stock Appreciation Rights are
granted in tandem with Options, (a) the Stock Appreciation Right will be
exercisable only at such time or times, and to the extent, that the related
Option is exercisable (except to the extent designated by the Board in
connection with an Acquisition Event or a Change in Control Event) and will be
exercisable in accordance with the procedure required for exercise of the
related Option; (b) the Stock Appreciation Right will terminate and no
longer be exercisable upon the termination or exercise of the related Option,
except to the extent designated by the Board in connection with an Acquisition
Event or a Change in Control Event and except that a Stock Appreciation Right
granted with respect to less than the full number of shares covered by an
Option will not be reduced until the number of shares as to which the related
Option has been exercised or has terminated exceeds the number of shares not
covered by the Stock Appreciation Right; (c) the Option will terminate and
no longer be exercisable upon the exercise of the related Stock Appreciation
Right; and (d) the Stock Appreciation Right will be transferable only with
the related Option.

 

(2)                                  Exercise of Independent Stock Appreciation Rights. A Stock Appreciation Right not granted
in tandem with an Option will become exercisable at such time or times, and on
such conditions, as the Board may specify. The Board may at any time accelerate
the time at which all or any part of the Right may be exercised.

 

5

 

(c)                                  Exercise
of Stock Appreciation Rights.  Stock
Appreciation Rights may be exercised by delivery to the Company of a written
notice of exercise signed by the proper person or by any other form of notice
(including electronic notice) approved by the Company.

 

7.                                       Restricted Stock; Restricted Stock Units

 

(a)                                  Grants.  The Board may grant Awards entitling
recipients to acquire shares of Common Stock (“Restricted Stock”), subject to
the right of the Company to repurchase all or part of such shares at their
issue price or other stated or formula price (or to require forfeiture of such
shares if issued at no cost) from the recipient in the event that conditions
specified by the Board in the applicable Award are not satisfied prior to the
end of the applicable restriction period or periods established by the Board
for such Award.  Instead of granting
Awards for Restricted Stock, the Board may grant Awards entitling the recipient
to receive shares of Common Stock to be delivered in the future (“Restricted
Stock Units”) subject to such terms and conditions on the delivery of the
shares of Common Stock as the Board shall determine (each Award for Restricted
Stock or Restricted Stock Units, a “Restricted Stock Award”). The Board may
also permit an exchange of unvested shares of Common Stock that have already
been delivered to a Participant for an instrument evidencing the right to
future delivery of Common Stock at such time or times, and on such conditions,
as the Board shall specify.

 

(b)                                 Terms
and Conditions.  The Board shall
determine the terms and conditions of any such Restricted Stock Award,
including the conditions for repurchase (or forfeiture) and the issue price, if
any.

 

(c)                                  Limitations
on Vesting.

 

(1)                                  Restricted
Stock Awards that vest based on the passage of time alone shall be zero percent
vested prior to the first anniversary of the date of grant, no more than 33-1/3%
vested after the said first anniversary of the date of grant and before the
second anniversary of the date of grant, and no more than 66-2/3% vested after
the second anniversary of the date of grant and before the third anniversary of
the date of grant.  Restricted Stock
Awards that vest based on performance alone shall not vest earlier than the
first anniversary of the date of grant. 
Restricted Stock Awards that vest upon the passage of time and provide
for accelerated vesting based on performance shall not vest earlier than the
first anniversary of the date of grant. 
Notwithstanding the preceding provisions of this Section 7(c)(1),
the Board may grant Restricted Stock Awards that are not subject to any
limitations on vesting with respect to up to 5% of the total number of shares
of Common Stock covered by the Plan (excluding any shares that may become
available under this Plan pursuant to Section 4(a)(2) hereof).

 

(2)                                  Notwithstanding
any other provision of this Plan, the Board may, in its discretion, either at
the time a Restricted Stock Award is made or at any time thereafter, waive its
right to repurchase shares of Common Stock (or waive the forfeiture thereof) or
remove or modify any part or all of the restrictions applicable to the
Restricted Stock Award, provided that the Board may only exercise such rights
in extraordinary circumstances which shall include, without limitation, death
or disability of the Participant; estate planning needs of the Participant; a
merger, consolidation, sale, reorganization, recapitalization, or change in
control of the

 

6

 

Company; or any other nonrecurring significant event affecting the
Company, a Participant or the Plan.

 

8.                                       Other Stock-Based Awards

 

Other Awards of shares of Common Stock and other
Awards that are valued in whole or in part by reference to, or are otherwise
based on, shares of Common Stock or other property, including without
limitation rights to purchase shares of Common Stock (“Other Stock Unit Awards”),
may be granted hereunder to Participants. 
Such Other Stock Unit Awards shall also be available as a form of
payment in the settlement of other Awards granted under the Plan or as payment
in lieu of compensation to which a Participant is otherwise entitled.  Other Stock Unit Awards may be paid in shares
of Common Stock or cash, as the Board shall determine.  Subject to the provisions of the Plan, the
Board shall determine the conditions of each Other Stock Unit Awards, including
any purchase price applicable thereto; provided, however, that the limitations
on vesting and exceptions thereto contained in Section

7(c)(1) of the Plan shall also apply to all Other Stock Unit Awards. 

 

9.                                       Adjustments for Changes in Common Stock and
Certain Other Events

 

(a)                                  Changes
in Capitalization.  In the event of
any stock split, reverse stock split, stock dividend, recapitalization,
combination of shares, reclassification of shares, spin-off or other similar
change in capitalization or event, or any distribution to holders of Common
Stock other than an ordinary cash dividend, (i) the number and class of
securities available under this Plan, (ii) the sub-limits set forth in Section 4(b),
(iii) the number and class of securities and exercise price per share
subject to each outstanding Option, (iv) the repurchase price per share
subject to each outstanding Restricted Stock Award and (v) the terms of
each other outstanding stock-based Award shall be appropriately adjusted by the
Company (or substituted Awards may be made, if applicable) to the extent the
Board shall determine, in good faith, that such an adjustment (or substitution)
is necessary and appropriate.  If this Section 9(a) applies
and Section 9(c) also applies to any event, Section 9(c) shall
be applicable to such event, and this Section

9(a) shall not be applicable.

 

(b)                                 Liquidation
or Dissolution.  In the event of a
proposed liquidation or dissolution of the Company, the Board shall upon
written notice to the Participants provide that all then unexercised Options
will (i) become exercisable in full as of a specified time at least 10
business days prior to the effective date of such liquidation or dissolution
and (ii) terminate effective upon such liquidation or dissolution, except
to the extent exercised before such effective date.  The Board may specify the effect of a liquidation
or dissolution on any Restricted Stock Award granted under the Plan at the time
of the grant.

 

(c)                                  Reorganization
Events.

 

(1)                                  Definition.  A “Reorganization Event” shall mean:  (a) any merger or consolidation of the
Company with or into another entity as a result of which all of the outstanding
shares of Common Stock are converted into or exchanged for the right to receive
cash, securities or other property or (b) any exchange of all of the
Common Stock for cash, securities or other property pursuant to a share
exchange transaction.

 

7

 

(2)                                  Consequences
of a Reorganization Event on Awards. 
In connection with a Reorganization Event, the Board shall take any one
or more of the following actions as to all or any outstanding Awards on such
terms as the Board determines:  (i) provide
that Awards shall be assumed, or substantially equivalent Awards shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), (ii) upon written notice to a Participant, provide that the
Participant’s unexercised Options or other unexercised Awards shall become
exercisable in full and will terminate immediately prior to the consummation of
such Reorganization Event unless exercised by the Participant within a
specified period following the date of such notice, (iii) in the event of
a Reorganization Event under the terms of which holders of Common Stock will
receive upon consummation thereof a cash payment for each share surrendered in
the Reorganization Event (the “Acquisition Price”), make or provide for a cash
payment to a Participant equal to (A) the Acquisition Price times the
number of shares of Common Stock subject to the Participant’s Options or other
Awards (to the extent the exercise price does not exceed the Acquisition Price)
minus (B) the aggregate exercise price of all such outstanding Options or
other Awards, in exchange for the termination of such Options or other Awards, (iv) provide
that outstanding Awards shall become exercisable or realizable, or restrictions
applicable to a Restricted Stock Award or other Award shall lapse, in whole or
in part, prior to or upon such Reorganization Event, (v) provide that, in
connection with a liquidation or dissolution of the Company, Awards shall convert
into the right to receive liquidation proceeds (if applicable, net of the
exercise price thereof) and (vi) any combination of the foregoing.  To the extent all or any portion of an Award
becomes exercisable solely as a result of clause (ii) above, the Board may
provide that upon exercise of such Award the Participant shall receive shares
subject to a right of repurchase by the Company or its successor at the Award
exercise price; such repurchase right (A) shall lapse at the same rate as
the Award would have become exercisable under its terms and (B) shall not
apply to any shares subject to the Award that were exercisable under its terms
without regard to clause (ii) above.

 

10.                                 General Provisions Applicable to Awards

 

(a)                                  Transferability
of Awards.  Awards shall not be sold,
assigned, transferred, pledged or otherwise encumbered by the person to whom
they are granted, either voluntarily or by operation of law, except by will or
the laws of descent and distribution or, other than in the case of an Incentive
Stock Option, pursuant to a qualified domestic relations order, and, during the
life of the Participant, shall be exercisable only by the Participant;
provided, however, that the Board may permit or provide in an Award for the
gratuitous transfer of the Award by the Participant to or for the benefit of
any immediate family member, family trust or family partnership established
solely for the benefit of the Participant and/or an immediate family member
thereof if, with respect to such proposed transferee, the Company would be
eligible to use a Form S-8 for the registration of the sale of the Common
Stock subject to such Award under the Securities Act of 1933, as amended;
provided, further, that the Company shall not be required to recognize any such
transfer until such time as the Participant and such permitted transferee
shall, as a condition to such transfer, deliver to the Company a written
instrument in form and substance satisfactory to the Company confirming that
such transferee shall be bound by all of the terms and conditions of the
Award.  References to a Participant, to
the extent relevant in the context, shall include references to authorized
transferees.

 

8

 

(b)                                 Documentation.  Each Award shall be evidenced in such form
(written, electronic or otherwise) as the Board shall determine.  Each Award may contain terms and conditions
in addition to those set forth in the Plan.

 

(c)                                  Board
Discretion.  Except as otherwise
provided by the Plan, each Award may be made alone or in addition or in
relation to any other Award.  The terms
of each Award need not be identical, and the Board need not treat Participants
uniformly.

 

(d)                                 Termination
of Status.  The Board shall determine
the effect on an Award of the disability, death, retirement, authorized leave
of absence or other change in the employment or other status of a Participant
and the extent to which, and the period during which, the Participant, the
Participant’s legal representative, conservator or guardian may exercise rights
under the Award.

 

(e)                                  Withholding.  The Company may require each Participant to
pay to the Company, or make provision satisfactory to the Company for payment
of, an amount sufficient to pay any taxes, social security contributions, or other
similar amounts required by law to be withheld in connection with an Award to
such Participant.  If provided for in an
Award or approved by the Company, in its sole discretion, a Participant may
satisfy such tax obligations in whole or in part by delivery of shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value; provided, however, that except
as otherwise provided by the Board, the total tax withholding where stock is
being used to satisfy such tax obligations cannot exceed the Company’s minimum
statutory withholding obligations (based on minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes, that are
applicable to such supplemental taxable income).  Shares surrendered to satisfy tax withholding
requirements cannot be subject to any repurchase, forfeiture, unfulfilled
vesting or other similar requirements. 
The Company may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to a Participant.

 

(f)                                    Amendment
of Award.  Except as prohibited by Section 5(e),
the Board may amend, modify or terminate any outstanding Award, including but
not limited to, substituting therefor another Award of the same or a different
type, changing the date of exercise or realization, converting an Incentive
Stock Option to a Nonstatutory Stock Option and converting an Option into a
SAR, provided that, in each such case, the Participant’s consent to such action
shall be required unless the Board determines that the action, taking into
account any related action, would not materially and adversely affect the
Participant.

 

(g)                                 Conditions
on Delivery of Stock.  The Company
will not be obligated to deliver any shares of Common Stock pursuant to the
Plan or to remove restrictions from shares previously delivered under the Plan
until (i) all conditions of the Award have been met or removed to the
satisfaction of the Company, (ii) in the opinion of the Company’s counsel,
all other legal matters in connection with the issuance and delivery of such
shares have been satisfied, including any applicable securities laws and any
applicable stock exchange or stock market rules and regulations, and (iii) the
Participant has executed and delivered to the Company such representations or
agreements as the Company may consider appropriate to satisfy the requirements
of any applicable laws, rules or regulations.

 

9

 

(h)                                 Acceleration.  The Board may at any time provide that any
Award shall become immediately exercisable in full or in part, free of some or
all restrictions or conditions, or otherwise realizable in full or in part, as
the case may be; provided, however, that this sentence shall apply to a
Restricted Stock Award only to the extent consistent with Sections 7(c)(2) and
10(j).

 

(i)                                     Deferral.  The Board may provide in an Award or in an
amendment to an Award that the Participant may elect to defer the delivery of
shares of Common Stock that would otherwise be delivered pursuant to such
Award.  The Board may establish such
conditions on the Participant’s election as it deems appropriate.

 

(j)                                     Performance
Conditions.

 

(1)                                  Notwithstanding
any other provision of the Plan, if the Committee determines at the time a
Restricted Stock Award or an Other Stock Unit Award is granted to a Participant
who is then an officer, that such Participant is, or is likely to be as of the
end of the tax year in which the Company would claim a tax deduction in connection
with such Award, a Covered Employee (as defined in Section 162(m) of the
Code), then the Committee may provide that this Section 10(j) is
applicable to such Award.

 

(2)                                  If
a Restricted Stock Award or an Other Stock Unit Award is subject to this Section 10(j),
then the lapsing of restrictions thereon and the distribution of Shares
pursuant thereto, as applicable, shall be subject to the achievement of one or
more objective performance goals established by the Committee, which shall be
based on one or more of the following measures: sales, earnings per share,
return on net assets, return on equity, and customer service levels.  The Committee may determine that special
one-time or extraordinary gains and/or losses and/or other one-time or
extraordinary events should or should not be included or considered in the
calculation of such measures.  In
addition, customer service target levels will be based on predetermined tests
of customer service levels such as scores on blind test (“mystery”) shopping,
customer comment card statistics, customer relations statistics (e.g., number
of customer complaints), and delivery response levels.  The Committee believes that disclosure of
further detail concerning the performance criteria may be confidential
commercial or business information, the disclosure of which would adversely
affect the Company.  Such performance
goals may vary by Participant and may be different for different Awards.  Such performance goals shall be set by the
Committee within the time period prescribed by, and shall otherwise comply with
the requirements of, Section 162(m) of the Code, or any successor
provision thereto, and the regulations thereunder.

 

(3)                                  The
Committee shall have the power to impose such other restrictions on Awards
subject to this Section

10(j) as it may deem necessary or appropriate to ensure that such Awards
satisfy all requirements for “performance-based compensation” within the
meaning of Section 162(m)(4)(C) of the Code, or any successor
provision thereto.

 

11.                                 Miscellaneous

 

(a)                                  No
Right To Employment or Other Status. 
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a

 

10

 

Participant the right to continued employment or any other relationship
with the Company.  The Company expressly
reserves the right at any time to dismiss or otherwise terminate its
relationship with a Participant free from any liability or claim under the
Plan, except as expressly provided in the applicable Award.

 

(b)                                 No
Rights As Stockholder.  Subject to
the provisions of the applicable Award, no Participant shall have any rights as
a stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.  Notwithstanding the foregoing, in the event
the Company effects a split of the Common Stock by means of a stock dividend
and the exercise price of and the number of shares subject to such Option are
adjusted as of the date of the distribution of the dividend (rather than as of
the record date for such dividend), then an optionee who exercises an Option
between the record date and the distribution date for such stock dividend shall
be entitled to receive, on the distribution date, the stock dividend with
respect to the shares of Common Stock acquired upon such Option exercise,
notwithstanding the fact that such shares were not outstanding as of the close
of business on the record date for such stock dividend.

 

(c)                                  Effective
Date and Term of Plan.  The Plan
shall become effective on the date on which it is approved by stockholders of
the Company and shall remain in full force and effect until terminated by the
Board.  No Awards shall be granted under
the Plan after the completion of ten years from the date on which the Plan is
adopted or was approved by the Company’s stockholders, whichever is earlier,
but Awards previously granted may extend beyond that date.

 

(d)                                 Amendment
of Plan.  The Board may amend,
suspend or terminate the Plan or any portion thereof at any time, provided that
no amendment requiring the approval of the Company’s stockholders under any
applicable tax requirement, including without limitation Sections 162(m) and
422 of the Code, shall become effective until such approval of the Company’s
stockholders is obtained and provided further that without approval of the
Company’s stockholders, no amendment may (i) increase the number of shares
authorized under the Plan (other than pursuant to Section 9), (ii) materially
increase the benefits provided under the Plan, (iii) materially expand the
class of participants eligible to participate in the Plan, (iv) expand the
types of Awards provided under the Plan or (v) make any other changes
which require stockholder approval under the rules of the Nasdaq National
Market, Inc.  No Award shall be made
that is conditioned on the approval of the Company’s stockholders of any
amendment to the Plan.

 

(e)                                  Provisions
for Foreign Participants.  The Board
may modify the terms and conditions of Awards granted to Participants who are
foreign nationals or employed outside the United States, establish subplans
under the Plan, or adopt such modifications or procedures as the Board may
determine to be necessary or advisable to recognize differences in laws, rules,
regulations or customs of such foreign jurisdictions with respect to tax,
securities, currency, employee benefit, accounting or other matters.

 

(f)                                    Compliance
With Code Section 409A.  No
Award shall provide for deferral of compensation that does not comply with Section 409A
of the Code, unless the Board, at the time of grant, specifically provides that
the Award is not intended to comply with Section 409A of the Code.

 

11

 

(g)                                 Governing
Law.  The provisions of the Plan and
all Awards made hereunder shall be governed by and interpreted in accordance
with the laws of the State of Delaware, without regard to any applicable
conflicts of law.

 

Adopted
by the Board, subject to stockholder approval, on March 2, 2004; approved
by the stockholders on June 17, 2004; 
amended by the Board on September 8, 2004;  amended and restated by the Board, subject to
stockholder approval,  on April 27, 2005;
 approved by the stockholders on June 13,
2005; and amended by the Board on September 13, 2005.

 

12

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