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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OFProxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
[ ] Preliminary proxy statementProxy Statement
[ ] Confidential, for Use of the
Commission Only (as permitted by
RuleCONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive proxy statementProxy Statement
[ ] Definitive additional materialsAdditional Materials
[ ] Soliciting material pursuantMaterial Pursuant to Rule 14a-11(c) or Rule 14a-12
Lakes Entertainment, Inc.Section 240.14a-12
LAKES ENTERTAINMENT, INC.
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(Name of Registrant as Specified inIn Its Charter)
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SEC 1913 (02-02)
[LAKES(LAKES GAMING LOGO]LOGO)
130 CHESHIRE LANE
MINNETONKA, MINNESOTA 55305
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 2, 200311, 2004
TO THE SHAREHOLDERS OF LAKES ENTERTAINMENT, INC.:
Please take notice that the Annual Meetingannual meeting of Shareholdersshareholders of Lakes
Entertainment, Inc. will be held, pursuant to due call by theour Board of
Directors,
of the Company, at the Doubletree Park Place Hotel, 1500 Park Place Boulevard,
Minneapolis, Minnesota 55416 at 3:00 p.m. local time on Monday,Friday, June 2, 2003,11, 2004,
or at any adjournment or adjournments thereof, for the purpose of considering
and taking appropriate action with respect to the following:
1. To elect five directors;The election of six directors to our Board of Directors;
2. To ratifyAmendments to the Lakes Entertainment, Inc. 1998 Stock Option and
Compensation Plan that will maximize Lakes Entertainment's future tax
deductions for stock option-related compensation of certain executive
officers;
3. Amendments to the Lakes Entertainment, Inc. 1998 Director Stock Option
Plan that will increase the number of shares issuable under that plan
from 400,000 to 500,000 shares (adjusted to reflect the Stock Split
described in the attached Proxy Statement) and adjust the number of
shares underlying options granted to new members of our Board of
Directors;
4. Ratification of the appointment of Deloitte & Touche LLP as independent
auditors of the Company for 2003;
3. To consider2004; and
vote upon a shareholder proposal seeking to grant full
voting rights to shares5. The transaction of the Lakes Entertainment, Inc. common stock
held by Mr. Lyle Berman, pursuant to the Minnesota Control Share
Acquisition Act; and
4. To transact any other business as may properly come before the
meeting or any adjournments thereof.
Pursuant to due action of theour Board of Directors, shareholders of record on
April 7, 2003,16, 2004, will be entitled to vote at the meeting or any adjournments
thereof. Adoption of each proposal requires the affirmative vote of the holders
of a majority of the shares of Lakes Entertainment's common stock present in
person or represented by proxy at the annual meeting.
A PROXY FOR THIS MEETING IS ENCLOSED HEREWITH. WE REQUEST THAT YOU FILL IN
AND SIGN THE PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
LAKES ENTERTAINMENT, INC.
/s/ TIMOTHY J. COPE
Timothy J. Cope,
Timothy J. Cope,
Executive Vice
President, Chief Financial Officer,
Treasurer and Secretary
May 1, 200310, 2004
LAKES ENTERTAINMENT, INC.
130 CHESHIRE LANE
MINNETONKA, MINNESOTA 55305
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
JUNE 2, 200311, 2004
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Lakes Entertainment, Inc. ("Lakes
Entertainment"Entertainment," or the "Company") to be used at theour annual meeting of
shareholders of the Company to be held at the Doubletree Park Place Hotel, 1500 Park Place
Boulevard, Minneapolis, Minnesota 55416 at 3:00 p.m. local time on Monday,Friday, June
2, 2003.11, 2004 the purpose of considering and taking appropriate action with respect
to the following:
1. The election of six directors to our Board of Directors;
2. Amendments to the Lakes Entertainment, Inc. 1998 Stock Option and
Compensation Plan that will maximize Lakes Entertainment's future tax
deductions for stock option-related compensation of certain executive
officers;
3. Amendments to the Lakes Entertainment, Inc. 1998 Director Stock Option
Plan that will increase the number of shares issuable under that plan
from 400,000 to 500,000 shares (adjusted to reflect the Stock Split
described below) and adjust the number of shares underlying options
granted to new members of our Board of Directors;
4. Ratification of the appointment of Deloitte & Touche LLP as independent
auditors for 2004; and
5. The transaction of any other business as may properly come before the
meeting or any adjournments thereof.
The approximate date on which we first sent this Proxy Statement and the
accompanying proxy were first sent or given to our shareholders was May 1, 2003.10, 2004.
IMPACT OF TWO-FOR-ONE STOCK SPLIT
On April 16, 2004, the Board of Directors declared a two-for-one stock
split (the "Stock Split") in the form of a 100% stock dividend paid on May 3,
2004 to shareholders of record on April 26, 2004. The Stock Split was paid after
the record date for the annual meeting. Therefore, except as specified, the
numbers of shares and prices per share described in this Proxy Statement have
not been adjusted to reflect the impact of the Stock Split.
PROXIES AND VOTING
Only shareholders of record at the close of business on April 16, 2004 (the
"Record Date" for the annual meeting) will be entitled to vote at the annual
meeting or any adjournments thereof. There were 11,103,817 shares of our common
stock outstanding on the Record Date, each of which entitles the holder thereof
to one vote upon each matter to be presented at the annual meeting. A quorum,
consisting of a majority of the outstanding shares of our common stock entitled
to vote at the annual meeting, must be present in person or represented by proxy
before action may be taken at the annual meeting.
Each proxy returned to the Company will be voted in accordance with the
instructions indicated thereon. Adoption of each proposal requires the
affirmative vote of the holders of a majority of the shares of our common stock
present in person or represented by proxy at the annual meeting. Each
shareholder who signs and returns a proxy in the form enclosed with this Proxy
Statement may revoke the sameproxy at any time prior to its use by giving notice of
such revocation to the Companyour Secretary in writing, in open meeting or by executing and
delivering a new proxy to the Secretary of the Company.our Secretary. Unless so revoked, the shares
represented by each proxy will be voted
1
at the annual meeting and at any adjournments thereof. Presence at the annual
meeting of a shareholder who has signed a proxy does not alone revoke that
proxy.
Only shareholders of record at the close of
business on April 7, 2003 (the "Record Date") will be entitled to vote at the
annual meeting or any adjournments thereof. All shares which are entitled to
vote and are represented at the annual meeting by properly executed proxies
received prior to or at the annual meeting and not revoked will be voted at the
annual meeting in accordance with the instructions indicated on such proxies.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The Company has outstanding one class of voting securities, common stock,
$0.01 par value, of which 10,638,320 shares were issued and outstanding as of
the close of business on the Record Date. Each share of common stock is entitled
to one vote on all matters put to a vote of shareholders.
The following table sets forth, as of the Record Date, certain information
regarding the beneficial ownership of the Company's shares of common stock by
(i) all persons known by the Company to be the owner (or deemed to be the owner
pursuant to the rules and regulations of the SEC), of record or beneficially, of
more than 5% of the outstanding common stock of the Company, (ii) each of the
directors and nominees for election to the Board of Directors of the Company,
(iii) each Named Executive Officer named in the Summary Compensation Table, and
(iv) all directors and executive officers as a group, in each case based upon
beneficial ownership reporting of Lakes Entertainment common stock as of such
date. Except as otherwise indicated, the address of each shareholder is 130
Cheshire Lane, Minnetonka, Minnesota 55305, and each shareholder has sole voting
and investment power with respect to the shares beneficially owned.
1
SHARES OF LAKES
COMMON STOCK PERCENTAGE OF COMMON
NAME AND ADDRESS BENEFICIALLY OWNED STOCK OUTSTANDING
- ---------------- ------------------ --------------------
Lyle Berman(1)............................................ 2,444,962 21.3
Timothy J. Cope(2)........................................ 199,500 1.8
Joseph Galvin(3).......................................... 169,250 1.6
Morris Goldfarb(4)........................................ 43,330 *
Ronald J. Kramer(5)....................................... 23,500 *
Neil I. Sell(6)........................................... 928,949 8.7
All Lakes Entertainment Directors and Executive Officers
as a Group (6 people including the foregoing)(7)........ 3,809,990 31.9
FMR Corp. ................................................ 1,056,200(8) 9.9
82 Devonshire Street
Boston, MA 02109
Waveland International, Ltd............................... 569,900(9) 5.36
227 W. Monroe, Suite 4800
Chicago Illinois, IL 60606
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* Less than one percent.
(1) Includes 20,625 shares beneficially owned by Mr. Berman's spouse, 11,403
shares held by Berman Consulting Corporation, a corporation wholly owned by
Mr. Berman, and 161,500 shares owned by Mr. Berman through a Berman
Consulting Corporation profit sharing plan. Also includes options to
purchase 650,000 shares and a 200,000 share option held by Berman Consulting
Corporation as security for a loan transaction.
(2) Includes options to purchase 194,500 shares.
(3) Includes options to purchase 169,250 shares.
(4) Includes options to purchase 36,625 shares.
(5) Includes options to purchase 23,500 shares.
(6) Includes an aggregate of 893,000 shares held by four irrevocable trusts for
the benefit of Lyle Berman's children with respect to which Mr. Sell has
shared voting and dispositive powers as a co-trustee. Mr. Sell has
disclaimed beneficial ownership of such shares. Also includes options to
purchase 31,750 shares.
(7) Includes shares held by corporations controlled by such officers and
directors, shares held by the spouses of such officers and directors and
shares held by trusts of which such officers and directors are trustees.
Also includes options to purchase 1,305,625 shares.
(8) Based solely upon the most recent Schedule 13G on file with the Securities
and Exchange Commission. FMR Corp. does not have sole voting power with
respect to any of such shares but has sole dispositive power with respect to
all 1,056,200 shares.
(9) Based solely upon the most recent Schedule 13G on file with the Securities
and Exchange Commission. Includes 14,000 shares owned by an account for
which Waveland Capital Management, L.P. (and Clincher Capital Corporation as
general partner of Waveland Capital Management, L.P.) serves as investment
adviser. The reporting person has sole voting and dispositive power with
respect to 555,900 shares. Waveland Capital Management, L.P. (and Clincher
Capital Corporation) has sole voting and dispositive power with respect to
14,000 shares.
The foregoing footnotes are provided for informational purposes only and
each person disclaims beneficial ownership of shares owned by any member of his
or her family or held in trust for any other person, including family members.
2
PROPOSAL FOR ELECTION OF DIRECTORS
(PROPOSAL ONE)
The Board of Directors has nominated the following individuals to stand for
election to serve as directors of the Company, to hold office until the next
Annual Meeting of Shareholders, or until his successor is elected and qualified.
The five persons listed below are now serving as the current directors of the
Company, and each has consented to serve as a director if elected. In accordance
with the procedures set forth in Lakes' Bylaws, Lakes has previously fixed the
number of members constituting its Board of Directors at eight. The vacancies on
the Board of Directors result from the previous resignation or retirement of
three directors in previous years. The Board of Directors is currently seeking
qualified candidates to serve as directors; however, no such candidates have
been identified to date and no nominees have been named in this proxy statement
to fill the vacancies. Notwithstanding the existing vacancies on the Board of
Directors, proxies cannot be voted for more than five individuals, which number
represents the number of nominees named by the Board of Directors.
NAME AND AGE OF
DIRECTOR AND/OR PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE DIRECTOR
NOMINEE FOR PAST FIVE YEARS AND DIRECTORSHIPS OF PUBLIC COMPANIES SINCE
- --------------- --------------------------------------------------------- --------
Lyle Berman Chairman of the Board and Chief Executive Officer of Lakes
Age 61 since June 1998, President of Lakes since November 1999, and 1998
Chairman of the Board of Directors of Grand Casinos, Inc.
("Grand") from October 1991 through December of 1998. Mr.
Berman is also a director of G-III Apparel Group Ltd.
("G-III") and Wilsons The Leather Experts Inc. ("Wilsons").
Mr. Berman served as Chief Executive Officer of Rainforest
Cafe, Inc. from February 1993 until December 2000.
Timothy J. Cope Executive Vice President, Chief Financial Officer, Secretary
Age 51 and a director of Lakes since June 1998. Mr. Cope also 1998
serves as President of Lakes KAR-Shingle Springs, LLC and
Lakes Kean Argovitz Resorts -- California, LLC, each of
which is a wholly-owned subsidiary of Lakes. Mr. Cope served
as Chief Financial Officer of Grand from January 20, 1994
through December of 1998, and served as Executive Vice
President of Grand from April of 1997 through December of
1998. Mr. Cope also served as a director of Grand from
February 1998 through December 1998.
Morris Goldfarb Director of Lakes since June 1998. Mr. Goldfarb is a
Age 52 director, the President and Chief Executive Officer of 1998
G-III. Mr. Goldfarb has served as either the President or
Vice President of G-III and its predecessors since their
formation in 1974.
Ronald J. Kramer Director of Lakes since June 1998. Mr. Kramer is President
Age 44 and a Director of Wynn Resorts, Limited and has been 1998
employed in that capacity since October 2002. Mr. Kramer
served as President of Wynn Resorts Holdings from April 2002
through October 2002. Mr. Kramer previously served as a
Managing Director at the investment banking firm of Dresdner
Kleinwort Wasserstein beginning in July 1999. From February
1986 to July 1999, Mr. Kramer was the Chairman of the Board
and Chief Executive Officer of Ladenburg Thalmann Group
Inc., an investment banking firm that provided investment
banking services to Grand. Mr. Kramer is also a Director of
Griffon Corporation, New Valley Corporation and TMP
Worldwide Inc.
Neil I. Sell Director of Lakes since June 1998. Since 1968, Mr. Sell has
Age 61 been engaged in the practice of law in Minneapolis, 1998
Minnesota with the firm of Maslon Edelman Borman & Brand,
LLP, which has rendered legal services to Grand and Lakes.
PROXIES AND VOTING -- PROPOSAL ONE
Assuming that a quorum is present for the election of directors (which
requires the presence in person or by proxy of at least a majority of the
outstanding shares entitled to vote on such matter), the affirmative vote of the
holders of a majority of the outstanding shares of common stock of the Company
present and entitled to vote on the election of directors is required for
election to the Board of Directors for each of the five nominees
3
named above. A shareholder who abstains with respect to the election of
directors is considered to be present and entitled to vote on the election of
directors at the meeting, and is in effect casting a negative vote, but a
shareholder (including a broker) who does not give authority to a proxy to vote,
or withholds authority to vote, on the election of directors, shall not be
considered present and entitled to vote on the election of directors.
All shares represented by proxies will be voted FORfor the election of the
foregoing nominees for the Board of Directors named in this Proxy Statement, for the
proposed amendments to the Lakes Entertainment, Inc. 1998 Stock Option and
Compensation Plan, for the proposed amendments to the Lakes Entertainment, Inc.
1998 Director Stock Option Plan and for ratification of Deloitte & Touche LLP's
appointment as the Company's independent auditors unless a contrary choice is
specified. If any nominee should withdraw or otherwise become unavailable for
reasons not presently known, the proxies which would have otherwise been voted
for such nominee will be voted for such substitute nominee as may be selected by
the Board of Directors. A shareholder who abstains with respect to any proposal
is considered to be present and entitled to vote on such proposal and is in
effect casting a negative vote, but a shareholder (including a broker) who does
not give authority to a proxy to vote, or withholds authority to vote, on any
proposal, shall not be considered present and entitled to vote on such proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
ELECTION OF ALL NOMINEES FOR ALLTHE BOARD OF DIRECTORS NAMED IN THIS PROXY
STATEMENT, "FOR" THE PROPOSED AMENDMENTS TO THE LAKES ENTERTAINMENT, INC. 1998
STOCK OPTION AND COMPENSATION PLAN, "FOR" THE PROPOSED AMENDMENTS TO THE LAKES
ENTERTAINMENT, INC. 1998 DIRECTOR STOCK OPTION PLAN AND "FOR" THE RATIFICATION
OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT AUDITORS OF THE NOMINEES LISTED ABOVE.
SUMMARYCOMPANY FOR FISCAL
2004.
While the Board of Directors knows of no other matters to be presented at
the annual meeting or any adjournment thereof, all proxies returned to the
Company will be voted on any such matter in accordance with the judgment of the
proxy holders.
2
PROPOSAL FOR ELECTION OF DIRECTORS
(PROPOSAL ONE)
Our Board of Directors currently consists of six (6) directors, each of
which has been nominated for re-election by the Board of Directors. If
re-elected, each nominee has consented to serve as a director of the Company, to
hold office until the next annual meeting of the shareholders, or until his
successor is elected and shall have qualified.
The names and ages of the nominees, and their principal occupations and
tenure as directors, which are set forth below, are based upon information
furnished to us by each nominee.
NAME AND AGE OF
DIRECTOR AND/OR PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE DIRECTOR
NOMINEE FOR PAST FIVE YEARS AND DIRECTORSHIPS OF PUBLIC COMPANIES SINCE
- --------------- --------------------------------------------------------- --------
Lyle Berman Chairman of the Board and Chief Executive Officer of Lakes
Age 62 Entertainment, Inc. since January 1999 and Chairman of the 1998
Board of Directors of Grand Casinos, Inc. (the predecessor
to Lakes Entertainment) from October 1991 through December
of 1998. Mr. Berman served as President of Lakes
Entertainment from November 1999 until May 2003. Mr. Berman
also serves as a governor of World Poker Tour, LLC, a
company in which Lakes Entertainment owns a majority
interest. Mr. Berman is also a director of Wilsons The
Leather Experts Inc. Mr. Berman served as Chief Executive
Officer of Rainforest Cafe, Inc. from February 1993 until
December 2000.
Timothy J. Cope President of Lakes Entertainment, Inc. since May 12, 2003
Age 52 and Chief Financial Officer, Treasurer, Secretary and a 1998
director of Lakes Entertainment since June 1998. Mr. Cope
also serves as Chief Financial Manager and a governor of
World Poker Tour, LLC. Mr. Cope served as an Executive Vice
President of Lakes Entertainment from June 1998 until May
11, 2003.
Morris Goldfarb Director of Lakes Entertainment, Inc. since June 1998. Mr.
Age 52 Goldfarb is a director, Co-Chairman of the Board and Chief 1998
Executive Officer of G-III Apparel Group Ltd. Mr. Goldfarb
has served as either the President or Vice President of
G-III and its predecessors since its formation in 1974.
Ronald J. Kramer Director of Lakes Entertainment, Inc. since June 1998. Mr.
Age 45 Kramer is President of Wynn Resorts and has been employed in 1998
that capacity since April 2002. Mr. Kramer previously served
as a Managing Director at the investment banking firm of
Dresdner Kleinwort Wasserstein beginning in July 1999. From
February 1986 to July 1999, Mr. Kramer was the Chairman of
the Board and Chief Executive Officer of Ladenburg Thalmann
Group Inc. Mr. Kramer is also a director of Griffon
Corporation, New Valley Corporation Limited and Monster
Worldwide Inc.
Ray Moberg Director of Lakes Entertainment, Inc. since December 2003.
Age 55 Mr. Moberg retired from Ernst & Young in 2003 after serving 2003
for 33 years, including as managing partner of its Reno
office from 1987 until his retirement.
Neil I. Sell Director of Lakes Entertainment, Inc. since June 1998. Since
Age 62 1968, Mr. Sell has been engaged in the practice of law in 1998
Minneapolis, Minnesota with the firm of Maslon Edelman
Borman & Brand, LLP, which has rendered legal services to
Lakes Entertainment.
EXECUTIVE COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by (i) each of theindividual that
served as our Chief Executive Officer of the Companyduring fiscal 2003; and the two
other most highly compensated executive officers(ii) each
individual who served as an executive officersofficer at the end of the Company whosefiscal 2003 who
received in excess of $100,000 in salary and bonus during fiscal 2003 (the Chief
Executive Officer and the fiscal year ended
December 29, 2002 exceeded $100,000 (theother executive officers are collectively referred to
herein as the "Named Executive Officers").
EXECUTIVE3
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION
------------
-------------------------------------------- SECURITIES-----------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($)(2) OPTIONS(#) COMPENSATION($)(3)
- --------------------------------------------- ---- ------------ -------- ------------------ --------------------------- ------------------
Lyle Berman..........Berman....................... 2003 400,000 100,000 63,179(2) 10,742
Chairman, Chief Executive
Officer 2002 400,000 -- 101,024 --0 101,204(2) 10,707
Chairman, Chief
2001 400,000 200,000 -- --0(4) 0 9,507
Executive Officer & 2000 375,000 50,000 -- -- 5,630
President
Timothy J. Cope......Cope................... 2003 250,000 100,000 0 8,861
President, Chief Financial
Officer, 2002 250,000 50,000 -- --0 8,813
Chief FinancialTreasurer and Secretary 2001 250,000 125,000 -- --50,000(4) 0 7,469
Joseph Galvin..................... 2003 225,000 0 0 9,811
Chief Operating Officer and 2002 225,000 0 0 9,775
Executive 2000 241,667 75,000 -- -- 7,469 Vice President and
Secretary
Joseph Galvin........ 2002 225,000 -- -- -- 9,775
Chief Operating 2001 225,000 112,500 -- -- 8,575
Officer 2000 218,750 75,000 -- --0(4) 0 8,575
- ---------------
(1) Includes cash compensation deferred at the election of the executive officer
under the terms of the Company's 401(k) Savings Incentive Plan.
(2) Amounts shown in this column representAmount represents the value of personal use of the Company's corporate jet
based upon the Standard Industry Fare Level (SIFL) rates as published by the
United States Department of Transportation for the six month period from July 1 2002 to
December 31 2002.of 2002 or 2003, as applicable.
(3) Amounts shown in this column represent matching contributions by the Company
under the Company's 401(k) Savings Incentive Plan and payment by the Company
of term life insurance premiums.
4
(4) Represents bonus amount paid (if any) in 2002 based on fiscal 2001.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-ENDYEAR END OPTION VALUES
The following table summarizes information with respect to options held by
the executive officers named in the Summary Compensation Table,Named Executive Officers, and the value of the options held by such persons
at the end of fiscal 2002.2003.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#)(1) AT FY-END(1)($FY-END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#)(1) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------------------- ----------- ----------- ------------- ----------- -------------
Lyle Berman............ -- N/A 550,000 200,000 -- --650,000 100,000 3,812,300 700,500
Timothy J. Cope........ -- N/A 154,500 80,000 -- --190,000 40,000 1,248,800 280,200
Joseph Galvin.......... -- N/A 149,250 80,000 -- --189,250 40,000 1,153,515 257,700
- ---------------
(1) Share amounts do not reflect the adjustments automatically taken as a result
of the Stock Split.
(2) The closing sale price of the Company's common stock on December 27, 2002,26, 2003,
the last trading day prior to the end of the Company's fiscal year, was
$5.50.$15.38.
EMPLOYMENT AGREEMENTS
Effective February 21, 2002, Lakes Entertainmentwe entered into an executive employment
agreement for an indefinite term with each of Timothy J. Cope, Lakes'our President,
Chief Financial Officer, Executive Vice PresidentTreasurer and Secretary, and Joseph Galvin, Lakes'our Chief
Operating Officer and Executive Vice President, each subject to early
termination by either Lakes Entertainment or the executiveparty for any reason or no reason, with or
without cause.reason. The employment
agreements provide for annual base salaries of $250,000 and $225,000 to Messrs.
Cope and Galvin, respectively, or such higher amount as determined by Lakes.our Board
of Directors. In addition, Lakes Entertainment payswe pay each executive an additional $600 per month to
cover travel and other expenses and provide the executives with customary
benefits. The employment agreements provide that if Lakes Entertainment terminateswe terminate either
executive without "cause" or if either executive resigns for "good reason",reason," such
executive will continue to receive his base salary and the two-year average of
his average of his bonus/incentive compensation for a period of twelve months.
If such termination occurs within two years following a "change of control" of Lakes Entertainment,control," as
4
defined in the employment agreements, the executive will instead be entitled to
a lump-sum severance payment equal to two times his "annual compensation",
which is defined astwice his annual base salary and
bonus/incentive compensation plusalong with insurance costs, 401k matching
contributions and certain other benefits. In either case, all options to
purchase shares of Lakes Entertainmentour common stock held by the executive at the time of his
termination will immediately vest in their entirety and remain exercisable for a
period of two years thereafter. The employment agreements provide that neither
executive will compete with Lakes
Entertainmentus for two years after the termination of his
employment.
We have not entered into employment agreements with Lakes
Entertainment.
Noany of our other
executive officer of Lakes Entertainment has an employment
agreement with Lakes Entertainment.officers.
DIRECTOR COMPENSATION
Each directorWe pay an annual fee of Lakes Entertainment$24,000 to each of our directors who is not
otherwise employed by Lakes
Entertainmentus or one of itsour subsidiaries (a "Non-Employee Director") received an
annual fee of $12,500 until January 1, 2003, at which time such annual fee was
increased to $24,000. Lakes Entertainment. We
also payspay each Non-Employee Director a fee of $1,000 for each meeting of the
Board of Directors attended and $1,000 for each committee meeting of the Board
of Directors attended. Beginning in 2003,
the CompanyWe also payspay the Chairman of theour Audit Committee an
additional annual fee of $3,000 for serving in such capacity.
In addition, the Lakes Entertainment, Inc. 1998 Director Stock Option Plan
(the "Lakes Director"Director Plan") provides that each Non-Employee Director who was in office
at the Company'stime of our inception, and each subsequent Non-Employee Director at the
time of his or her initial election to the Board of Directors, receives a
non-qualified stock option to purchase up to 12,500 shares of Lakes
Entertainmentour common stock
at an option exercise price equal to 100%the fair market value of the shares on the
grant date. Each option will have a ten-year term and will generally become
exercisable in five equal installments commencing on the first anniversary of
the grant date. If the proposed amendments to the Director Plan are approved by
our shareholders at the annual meeting (see Proposal Three below), the number of
shares subject to this initial stock option grant will increase to 25,000 to
adjust the grant for the Stock Split.
In addition to the initial option grants, Non-Employee Directors may be
granted, at the discretion of the Board of Directors, additional options to
purchase our common stock. These additional options, if granted, will contain
such terms and provisions as the Board of Directors determines at the time of
the grant. In addition to the 12,500 share option granted to Mr. Moberg upon his
appointment to the Board of Directors in December 2003, the Board made an
additional 17,500 share discretionary option grant to Mr. Moberg upon such
appointment. These options have an exercise price equal to the fair market value
of our common stock on the date of grant. Directors who are also our employees
or employees of our subsidiaries receive no options for their services as
directors.
EXECUTIVE OFFICERS OF LAKES ENTERTAINMENT
NAME AGE POSITION(S) WITH LAKES ENTERTAINMENT
- ---- --- ------------------------------------
Lyle Berman................. 62 See "Proposal for Election of Directors" -- above.
Timothy J. Cope............. 52 See "Proposal for Election of Directors" -- above.
Joseph Galvin............... 65 Chief Operating Officer of Lakes Entertainment, Inc. since
January 1999, Executive Vice President since June 2, 2003,
and Chief Administrative Officer of Grand Casinos, Inc. from
November 1996 through December 1998, and prior thereto, Vice
President of Security of Grand.
5
STOCK PERFORMANCE GRAPH
The Securities and Exchange Commission requires that we include in this
Proxy Statement a line-graph presentation comparing cumulative, five-year
shareholders' returns (based on appreciation of the market price of our common
stock) on an indexed basis with (i) a broad equity market index and (ii) an
appropriate published industry or line-of-business index, a peer group index
constructed by us, or issuers with similar market capitalizations. The following
presentation compares our common stock price during the period from January 4,
1999, to December 31, 2003, to the NASDAQ Stock Market and the Russell 2000
Index.
We do not feel that we can reasonably identify a peer group and we believe
there is no published industry or line-of-business index that provides a
meaningful comparison of shareholder returns. Therefore, we have elected to use
the Russell 2000 Index in compiling our stock performance graph because we
believe the Russell 2000 Index provides a better comparison of shareholder
returns for companies with market capitalizations similar to that of ours.
The presentation assumes that the value of an investment in each of our
common stock, the NASDAQ Stock Market and the Russell 2000 index was $100 on
January 4, 1999, and that dividends paid were reinvested in the same security.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL
RETURN* AMONG LAKES ENTERTAINMENT, INC., THE
NASDAQ STOCK MARKET (U.S.) INDEX
AND THE RUSSELL 2000 INDEX
[PERFORMANCE GRAPH]
Cumulative Total Return
1/99 6/99 12/99 6/00 12/00 6/01 12/01 6/02 12/02 6/03 12/03
Lakes Entertainment, Inc 100.00 130.60 94.78 105.97 111.94 88.36 74.03 80.72 64.47 95.39 192.84
Nasdaq Stock Market (U.S.) 100.00 121.76 184.27 180.00 111.13 97.80 88.21 66.62 60.99 73.97 91.18
Russell 2000 100.00 109.45 121.44 125.13 117.77 125.85 120.70 115.03 95.98 113.14 141.33
* $100 Invested on 1/4/99 in stock or index -- including reinvestment of
dividends.
Prices have not been adjusted to reflect the Stock Split.
6
PROPOSAL TO AMEND THE
1998 STOCK OPTION AND COMPENSATION PLAN
(PROPOSAL TWO)
In April 2004, our Board of Directors approved amendments to the Lakes
Entertainment, Inc. 1998 Stock Option and Compensation Plan (the "Employee
Plan"), subject to approval by our shareholders at the annual meeting. These
proposed amendments are identified below under the heading "Proposed Amendments
to Employee Plan."
Immediately below is a summary of the Employee Plan, as currently adopted,
and a discussion of the federal income tax consequences of the issuance and
exercise of options under the Employee Plan to recipients and to the Company.
This summary of the Employee Plan is qualified entirely by reference to the
complete text of the Employee Plan, a copy of which is attached as Appendix A to
this Proxy Statement.
SUMMARY OF THE EMPLOYEE PLAN
General. The purpose of the Employee Plan is to increase shareholder value
and to advance the interests of Lakes Entertainment, Inc. by furnishing a
variety of economic incentives ("Incentives") designed to attract, retain and
motivate employees of Lakes Entertainment.
The Employee Plan currently provides that a committee (the "Committee")
composed of at least two non-interested members of the board of directors of
Lakes Entertainment, Inc. may grant Incentives to employees in the following
forms: (a) stock options; (b) stock appreciation rights; (c) stock awards; (d)
restricted stock; (e) performance shares; and (f) cash awards. Incentives may be
granted only to our employees (including our officers and directors, but
excluding directors who are not also employees or consultants) selected from
time to time by the Committee.
On the Record Date, the maximum number of shares of our common stock that
could be issued under the Employee Plan was 2,500,000 shares (subject to
adjustment in the event of a merger, recapitalization or other corporate
restructuring), which represented approximately 22.5% of the then outstanding
shares of our common stock. As of the Record Date, there were outstanding
options to purchase 2,049,200 shares under the Employee Plan. On May 3, 2004, as
a result of the Stock Split, the maximum number of shares of our common stock
that could be issued under the Employee Plan was automatically increased to
5,000,000 shares and the number of outstanding options was increased to
4,098,400.
Stock Options. Under the Employee Plan, the Committee may grant
non-qualified and incentive stock options to eligible employees to purchase
shares of common stock from us. The Employee Plan confers on the Committee
discretion, with respect to any such stock option, to determine the number and
purchase price of the shares subject to the option, the term of each option and
the time or times during its term when the option becomes exercisable. The
purchase price for incentive stock options may not be less than the fair market
value of the shares subject to the option on the date of grant. The number of
shares subject to an option will be reduced proportionately to the extent that
the optionee exercises a related Stock Appreciation Right ("SAR"). The term of a
non-qualified option may not exceed 10 years and one day from the date of grant
and the term of an incentive stock option may not exceed 10 years from the date
of grant. Any option shall become immediately exercisable in the event of
specified changes in corporate ownership or control. The Committee may
accelerate the exercisability of any option or may determine to cancel stock
options in order to make a participant eligible for the grant of an option at a
lower price. The Committee may approve a redemption of an unexercised stock
option for the difference between the exercise price and the fair market value
of the shares covered by such option.
The option price may be paid in cash, check, bank draft or by delivery of
shares of common stock valued at their fair market value at the time of exercise
or by withholding from the shares issuable upon exercise of the option shares of
common stock valued at their fair market value or as otherwise authorized by the
Committee.
7
In the event that an optionee ceases to be an employee of ours or of any
subsidiary for any reason, including death, any stock option or unexercised
portion thereof which was otherwise exercisable on the date of termination of
employment shall expire at the time or times established by the Committee.
Stock Appreciation Rights. A stock appreciation right, or a "SAR," is a
right to receive, without payment, a number of shares, cash or any combination
thereof, the amount of which is determined pursuant to the formula described
below. A SAR may be granted with respect to any stock option granted under the
Employee Plan, or alone, without reference to any stock option. A SAR granted
with respect to a stock option may be granted concurrently with the grant of
such option or at such later time as determined by the Committee and as to all
or any portion of the shares subject to the option.
The Employee Plan confers on the Committee discretion to determine the
number of shares as to which a SAR will relate as well as the duration and
exercisability of a SAR. In the case of a SAR granted with respect to a stock
option, the number of shares of common stock to which the SAR pertains will be
reduced in the same proportion that the holder exercises the related option. The
term of a SAR may not exceed ten years and one day from the date of grant.
Unless otherwise provided by the Committee, a SAR will be exercisable for the
same time period as the stock option to which it relates is exercisable and will
become immediately exercisable in the event of specified changes in corporate
ownership or control. The Committee may accelerate the exercisability of any
SAR.
Upon exercise of a SAR, the holder is entitled to receive an amount which
is equal to the aggregate amount of the appreciation in the shares of common
stock as to which the SAR is exercised. For this purpose, the "appreciation" in
the shares consists of the amount by which the fair market value of the shares
of common stock on the exercise date exceeds (a) in the case of a SAR related to
a stock option, the exercise price of the shares under the option or (b) in the
case of a SAR granted alone, without reference to a related stock option, an
amount determined by the Committee at the time of grant. The Committee may pay
the amount of this appreciation to the holder of the SAR by the delivery of
common stock, cash, or any combination of common stock and cash.
Restricted Stock. Restricted stock consists of the sale or transfer to an
eligible employee of one or more shares of common stock which are subject to
restrictions on their sale or other transfer by the employee. The price at which
restricted stock will be sold will be determined by the Committee, and it may
vary from time to time and among employees and may be less than the fair market
value of the shares at the date of sale. All shares of restricted stock will be
subject to such restrictions as the Committee may determine. Subject to these
restrictions and the other requirements of the Employee Plan, a participant
receiving restricted stock shall have all of the rights of a shareholder as to
those shares.
Stock Awards. Stock awards consist of the transfer to an eligible employee
of shares of common stock, without payment, as additional compensation for
services rendered to us. The number of shares transferred pursuant to any stock
award will be determined by the Committee.
Performance Shares. Performance shares consist of the grant to an eligible
employee of a contingent right to receive cash or payment of shares of common
stock. The performance shares shall be paid in shares of common stock to the
extent performance objectives set forth in the grant are achieved. The number of
shares granted and the performance criteria will be determined by the Committee.
Cash Awards. A cash award consists of a monetary payment made to an
eligible employee as additional compensation for services rendered to us.
Payment may depend on the achievement of specified performance objectives. The
amount of any monetary payment constituting a cash award shall be determined by
the Committee.
Non-transferability of Most Incentives. No stock option, SAR, performance
share or restricted stock granted under the Employee Plan will be transferable
by its holder, except in the event of the holder's death, by will or the laws of
descent and distribution. During an employee's lifetime, an Incentive may be
exercised only by him or her or by his or her guardian or legal representative.
8
Amendment of the Employee Plan. Our Board of Directors may amend or
discontinue the Employee Plan at any time. However, no such amendment or
discontinuance may, subject to adjustment in the event of a merger,
recapitalization, or other corporate restructuring, (a) change or impair,
without the consent of the recipient thereof, an Incentive previously granted,
(b) materially increase the maximum number of shares of our common stock which
may be issued to all employees under the Employee Plan, (c) materially change or
expand the types of Incentives that may be granted under the Employee Plan, (d)
materially modify the requirements as to eligibility for participation in the
Employee Plan, or (e) materially increase the benefits accruing to participants.
Certain Employee Plan amendments require shareholder approval, including
amendments which would materially increase benefits accruing to participants,
increase the number of securities issuable under the Employee Plan, or change
the requirements for eligibility under the Employee Plan.
Federal Income Tax Consequences. The following discussion sets forth
certain United States income tax considerations in connection with any
Incentives granted under the Employee Plan. These tax considerations are stated
in general terms and are based on the Code and judicial and administrative
interpretations thereof. This discussion does not address state or local tax
considerations with respect to the receipt, exercise or ownership of such
Incentives. Moreover, the tax considerations relevant to receipt, exercise or
ownership of such Incentives common stock may vary depending on a holder's
particular status. We urge you to consult your individual tax advisor(s) with
respect to any questions you may have regarding the federal income tax
consequences discussed below, as well as any state and local tax consequences.
Under existing federal income tax provisions, an employee who receives a
stock option or performance shares or a SAR under the Employee Plan or who
purchases or receives shares of restricted stock under the Employee Plan which
are subject to restrictions which create a "substantial risk of forfeiture"
(within the meaning of section 83 of the Code) will not normally realize any
income, nor will we normally receive any deduction for federal income tax
purposes in the year such Incentive is granted. An employee who receives a stock
award under the Employee Plan consisting of shares of common stock will realize
ordinary income in the year of the award in an amount equal to the fair market
value of the shares of common stock covered by the award on the date it is made,
and we will be entitled to a deduction equal to the amount the employee is
required to treat as ordinary income. An employee who receives a cash award will
realize ordinary income in the year the award is paid equal to the amount
thereof, and the amount of the cash will be deductible by us.
When a non-qualified stock option granted pursuant to the Employee Plan is
exercised, the employee will realize ordinary income measured by the difference
between the aggregate purchase price of the shares of common stock as to which
the option is exercised and the aggregate fair market value of shares of the
common stock on the exercise date, and we will be entitled to a deduction in the
year the option is exercised equal to the amount the employee is required to
treat as ordinary income.
Options which qualify as incentive stock options are entitled to special
tax treatment. Under existing federal income tax law, if shares purchased
pursuant to the exercise of such an option are not disposed of by the optionee
within two years from the date of granting of the option or within one year
after the transfer of the shares to the optionee, whichever is longer, then (i)
no income will be recognized to the optionee upon the exercise of the option;
(ii) any gain or loss will be recognized to the optionee only upon ultimate
disposition of the shares and, assuming the shares constitute capital assets in
the optionee's hands, will be treated as long-term capital gain or loss; (iii)
the optionee's basis in the shares purchased will be equal to the amount of cash
paid for such shares; and (iv) we will not be entitled to a federal income tax
deduction in connection with the exercise of the option. We understand that the
difference between the option price and the fair market value of the shares
acquired upon exercise of an incentive stock option will be treated as an "item
of tax preference" for purposes of the alternative minimum tax. In addition,
incentive stock options exercised more than three months after retirement are
treated as non-qualified options.
We further understand that if the optionee disposes of the shares acquired
by exercise of an incentive stock option before the expiration of the holding
period described above, the optionee must treat as ordinary income in the year
of that disposition an amount equal to the difference between the optionee's
basis in the shares and the lesser of the fair market value of the shares on the
date of exercise or the selling price. In
9
addition, we will be entitled to a deduction equal to the amount the employee is
required to treat as ordinary income.
If the exercise price of an option is paid by surrender of previously owned
shares, the basis of the shares received in replacement of the previously owned
shares is carried over. If the option is a non-qualified option, the gain
recognized on exercise is added to the basis. If the option is an incentive
stock option, the optionee will recognize gain if the shares surrendered were
acquired through the exercise of an incentive stock option and have not been
held for the applicable holding period. This gain will be added to the basis of
the shares received in replacement of the previously owned shares.
When a stock appreciation right granted pursuant to the Employee Plan is
exercised, the employee will realize ordinary income in the year the right is
exercised equal to the value of the appreciation which he is entitled to receive
pursuant to the formula described above, and we will be entitled to a deduction
in the same year and in the same amount.
An employee who receives restricted stock or performance shares subject to
restrictions which create a "substantial risk of forfeiture" (within the meaning
of section 83 of the Code) will normally realize taxable income on the date the
shares become transferable or no longer subject to substantial risk of
forfeiture or on the date of their earlier disposition. The amount of such
taxable income will be equal to the amount by which the fair market value of the
shares of common stock on the date such restrictions lapse (or any earlier date
on which the shares are disposed of) exceeds their purchase price, if any. An
employee may elect, however, to include in income in the year of purchase or
grant date.the excess of the fair market value of the shares of common stock (without
regard to any restrictions) on the date of purchase or grant over its purchase
price. We will be entitled to a deduction for compensation paid in the same year
and in the same amount as income is realized by the employee.
PROPOSED AMENDMENTS TO EMPLOYEE PLAN
If approved by our shareholders at the annual meeting, the proposed
amendments to the Employee Plan will (i) limit the number of shares subject to
options that may be granted to any individual under the Employee Plan in a
single fiscal year to 500,000 shares (adjusted to reflect the Stock Split); and
(ii) require that the Committee (as defined below) administering the Employee
Plan be composed solely of outside directors within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended. Shareholder approval of
these amendments to the Plan will enable us to maximize the deductibility of
compensation of our executive officers upon exercise of their future stock
option grants under the Employee Plan.
10
PROPOSAL TO AMEND THE
1998 DIRECTOR STOCK OPTION PLAN
(PROPOSAL THREE)
In April 2004, our Board of Directors approved amendments to the Lakes
Entertainment, Inc. 1998 Director Stock Option Plan (the "Director Plan"),
subject to approval by our shareholders at the annual meeting. These proposed
amendments are identified below under the heading "Proposed Amendments to the
Director Plans".
Immediately below is a summary of the Director Plan, as currently adopted,
and a discussion of the federal income tax consequences of the issuance and
exercise of options under the Director Plan to recipients and to the Company.
This summary of the Director Plan is qualified entirely by reference to the
complete text of the Director Plan, a copy of which is attached as Appendix B to
this Proxy Statement.
SUMMARY OF THE DIRECTOR PLAN
General. The purpose of the Director Plan is to advance the interests of
our shareholders by encouraging increased share ownership by members of our
Board of Directors who are not our employees or employees of our subsidiaries,
in order to promote long-term shareholder value through continued ownership of
our stock.
On the Record Date, the maximum number of shares of common stock that could
be issued under the Director Plan was 200,000 shares (subject to adjustment in
the event of a merger, recapitalization or other corporate restructuring) which
represented approximately 1.8% of the then outstanding shares of our common
stock. As of the Record Date, there were outstanding options to purchase 138,500
shares under the Director Plan. As a result of the Stock Split, on May 3, 2004,
the maximum number of shares of our common stock that could be issued under the
Director Plan was automatically increased to 400,000 shares and the number of
outstanding options was increased to 277,000. If approved by our shareholders at
the annual meeting, the number of shares of common stock reserved for issuance
under the Director Plan will be increased from 400,000 to 500,000. The Director
Plan has a ten-year term and is be administered by our Board of Directors.
Stock Options. The Director Plan provides that each director who is not an
employee of Lakes Entertainment or one of our subsidiaries (a "Non-Employee
Director") that was in office at the time that the Director Plan was initially
adopted, and each subsequent Non-Employee Director at the time of his or her
initial election to the Board, will receive a non-qualified stock option to
purchase up to 12,500 shares of our common stock at an option exercise price
equal to the fair market value of the shares on the date of grant. Each option
5
granted under the Lakes Director Plan will have a ten-year term and will generally
become exercisable in five equal installments commencing on the first
anniversary of the grant date.
In addition to the initial option grants,grant, Non-Employee Directors and former
Non-Employee Directors may be granted, at the discretion of theour Board of
Directors, additional options to purchase Lakes Entertainmentshares of our common stock. Such
options shallwill contain such terms and provisions as theour Board of Directors
determines at the time of each grant. However, the grant.
Lakes Entertainment did not makeoption price will always be
equal to the Fair Market Value (as defined in the Director Plan) on the date the
option is granted.
We will receive no consideration upon the grant of options under the
Director Plan. The exercise price of an option must be paid in full upon
exercise. Payment may be made in cash, check or, in whole or in part, in shares
of our common stock already owned by the person exercising the option, valued at
fair market value.
Amendment of the Director Plan. The Director Plan may be amended at any
time, and from time to time, by our Board of Directors as the Board deems
advisable. However, no amendment to the Director Plan will become effective
without shareholder approval if such additional grantsshareholder approval is required by law,
rule or regulation, and in fiscal 2002.
EXECUTIVE OFFICERS OF LAKES ENTERTAINMENT
Set forth below is certain required informationno event will the Director Plan be amended more than
once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act or the rules thereunder. No amendment of
the Director Plan may be made if the amendment would materially affect any right
of a participant with respect to any option theretofore granted without such
optionee's or participant's written consent.
11
Federal Income Tax Consequences. Under current law, the executive officersfederal income tax
consequences to Non-Employee Directors and to us under the Director Plan should
generally be as follows: A director to whom a non-qualified stock option is
granted will not recognize income at the time of Lakes Entertainment.
NAME AGE POSITION(S) WITH LAKES ENTERTAINMENT
- ---- --- ------------------------------------
Lyle Berman................. 61 See "Proposal for Election of Directors" -- above.
Timothy J. Cope............. 51 See "Proposal for Election of Directors" -- above.
Joseph Galvin............... 64 Chief Operating Officer of Lakes since January 1999 and
Chief Administrative Officer of Grand from November 1996
through December 1998, and prior thereto, Vice President of
Security of Grand.
grant of such option. When a
director exercises the stock option, the director will recognize ordinary
compensation income equal to the difference, if any, between the exercise price
paid and the fair market value, as of the date of option exercise, of the shares
the director receives. The tax basis of such shares to the director will equal
the exercise price paid plus the amount includable in the director's gross
income as compensation, and the director's holding period for such shares will
commence on the day on which the director recognizes taxable income in respect
of such shares. Subject to applicable provisions of the Internal Revenue Code of
1986, as amended, we will generally be entitled to a federal income tax
deduction in respect of non-qualified stock options in an amount equal to the
ordinary compensation income recognized by the director as described above.
The discussion set forth above does not purport to be a complete analysis
of the potential tax consequences relevant to recipients of options or to us or
to describe tax consequences based on particular circumstances. It is based on
federal income tax law and interpretational authorities as of the date of this
Proxy Statement, which are subject to change at any time.
PROPOSED AMENDMENT TO THE DIRECTOR PLAN
If approved by our shareholders at the annual meeting, the proposed
amendments to the Director Plan will increase the number of shares of common
stock that may be issued under the Director Plan from 400,000 to 500,000 shares
(adjusted to reflect the Stock Split). In addition, the Director Plan will
adjust the number of shares subject to the stock option granted to new directors
upon joining the Board of Directors from 12,500 to 25,000 to reflect the Stock
Split. The amendment will also provide that similar adjustments be made
automatically upon the occurrence of future stock splits, stock dividends,
consolidations, recapitalizations or other similar events.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN INFORMATION
The Company maintainsPLANS
We maintain the 1998 Stock Option and CompensationEmployee Plan (the
"Employee Plan") and the 1998 Director Stock Option Plan, (the "Director Plan"),
which arewere approved to
grant up to an aggregatea maximum of 2.5 million2,500,000 shares and 0.2
million200,000 shares of common stock,
respectively.respectively, as of the end of fiscal 2003. The maximum number of shares that
the Employee Plan and the Director Plan were approved to grant increased
automatically to 5,000,000 shares and 400,000 shares, respectively, as a result
of the Stock Split. If proposal three is approved by our shareholders at the
annual meeting, the maximum number of shares of common stock issuable under the
Director Plan will be further increased from 400,000 to 500,000.
The Employee Plan is designed to integrate compensation of the Company'sour executives
(including officers and directors but excluding directors who are not also
full-time employees of the
Company)employees) with theour long-term interests and those of the Company and itsour shareholders
and to assist in the retention of executives and other key personnel. Under the
Director Plan, the Companywe may issue equity awards to members of the Company'sour Board of Directors
who are not also our employees or employees of the Company or any Companyour subsidiaries. The Employee
Plan and the Director Plan have each been approved by the Company'sour shareholders.
In connection with theour establishment of the Company as a public corporation, viawhich
occurred pursuant to a distribution of the Company'sour common stock to the then shareholders
of Grand Casinos, Inc. (the "Distribution"), the Companywe issued options to purchase itsour
common stock to the holders of then-outstanding options to purchase common stock
of Grand Casinos. These Distribution-related options were treated as awards
granted outside of the Employee Plan and the DirectorsDirector Plan, and the
Companywe did not seek
shareholder approval for the Distribution-related option grants apart from the
approval obtained from the shareholders of Grand Casinos for the overall public
distribution of the Company'sour common stock.
612
The following table sets forth certain information as of December 29, 200228, 2003
with respect to the Employee Plan, the Director Plan and the options related to
the distribution:Distribution:
NUMBER OF
SECURITIES
REMAINING
AVAILABLE FOR
NUMBER OF FUTURE ISSUANCES
SECURITIES TO BE UNDER EQUITY
ISSUED UPON WEIGHTED-AVERAGE COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS OUTSTANDING OPTIONS SECURITIES REFLECTED
PLAN CATEGORY (A)(1) (B)(1) IN COLUMN (A))(1)
- ------------- ------------------- ------------------- --------------------
Equity Compensation Plans Approved By
Security Holders:
1998 Stock Option and Compensation
Plan................................. 1,698,6001,549,600 $ 8.39 801,4008.40 873,400
1998 Director Stock Option Plan......... 135,000162,500 $ 7.96 65,0009.14 37,500
--------- ------ -------
Total................................... 1,833,600Total:.................................. 1,712,100 $ 8.36 866,4008.47 910,900
Equity Compensation Plans Not Approved By
Security Holders:
Distribution-related Stock Options...... 650,028 $10.91 --451,201 $11.12 0
--------- ------ -------
TOTAL..................................... 2,483,628TOTAL:.................................... 2,163,301 $ 9.03 866,4009.02 910.900
========= ====== =======
7
STOCK PERFORMANCE GRAPH
The Securities- ---------------
(1) Share amounts and Exchange Commission requires that Lakes Entertainment
include in this Proxy Statementoption exercise prices do not reflect the adjustments
automatically taken as a line-graph presentation comparing cumulative
shareholders' returns (based on appreciationresult of the market price of Lakes
Entertainment common stock) on an indexed basis since the time Lakes
Entertainment common stock became registered under Section 12 of the Exchange
Act with (i) the cumulative total return of a broad equity market index,
assuming reinvestment of dividends, that includes companies whose equity
securities are traded on the NASDAQ National Market or are of comparable market
capitalizations and (ii) the cumulative total return, assuming reinvestment of
dividends, of issuers with similar market capitalizations. The following
presentation compares Lakes Entertainment common stock price during the period
from January 4, 1999, to December 31, 2002, to the NASDAQ Stock Market and the
Russell 2000 Index.
Lakes Entertainment does not feel that it can reasonably identify a peer
group and there is no published industry or line-of-business index that provides
a meaningful comparison of shareholder returns. Therefore, Lakes Entertainment
has elected to use the Russell 2000 Index in compiling its stock performance
graph because it believes the Russell 2000 Index provides a better comparison of
shareholder returns for companies with market capitalizations similar to that of
Lakes Entertainment.
The presentation assumes that the value of an investment in each of Lakes'
common stock, the NASDAQ Stock Market and the Russell 2000 index was $100 on
January 4, 1999, and that dividends paid were reinvested in the same security.
COMPARISON OF 4 YEAR CUMULATIVE TOTAL
RETURN* AMONG LAKES ENTERTAINMENT, INC., THE
NASDAQ STOCK MARKET (U.S.) INDEX
AND THE RUSSELL 2000 INDEX
[PERFORMANCE GRAPH]
Cumulative Total Return
1/4/99 3/99 6/99 9/99 12/99 3/00 6/00 9/00 12/00
Lakes Entertainment,
Inc. 100.00 97.76 130.60 114.93 94.78 94.78 105.97 102.99 111.94
Nasdaq Stock Market
(U.S.) 100.00 111.45 121.91 124.94 184.67 207.32 180.27 165.88 111.08
Russell 2000 100.00 94.72 109.45 102.53 121.44 130.05 125.13 126.51 117.77
Cumulative Total Return
3/01 6/01 9/01 12/01
Lakes Entertainment,
Inc. 111.20 88.36 66.27 74.03
Nasdaq Stock Market
(U.S.) 82.91 97.72 67.80 88.14
Russell 2000 110.11 125.85 99.68 120.70
* $100 Invested on 1/4/99 in stock or index -- including reinvestment of
dividends.
Fiscal year ending December 29, 2002 or December 31, 2002, as applicable.
8Split.
13
PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT AUDITORS
(PROPOSAL TWO)
TheFOUR)
Our Board of Directors and management of Lakes Entertainment are committed to the quality,
integrity and transparency of the Company'sour financial reports. Independent auditors play
an important part in the Company'sour system of financial control. Deloitte & Touche LLP has performed this function since July 31, 2002,
when it replaced Arthur Andersen LLP as the Company's independent auditor.
Arthur Andersen had previously served the Company and Grand Casinos, Inc., as
its predecessor, in such capacity since May 1995. The Board of Directors and
management of Lakes Entertainment have been satisfied with the quality,
integrity and professionalism of Deloitte & Touche's audit team. In accordance with the
duties set forth in its written charter, the Audit Committee of the Company'sour Board of
Directors has appointed Deloitte & Touche as our independent auditors of the Company for the
20032004 fiscal year. Although it is not required to do so, the Audit Committee and
the full Board of Directors wishes to submit the appointment of Deloitte &
Touche for shareholder ratification at the annual meeting. Representatives of
Deloitte & Touche are expected to be present at the annual meeting to answer
your questions and to make a statement if they desire to do so.
If the shareholders do not ratify the appointment of Deloitte & Touche, the
Audit Committee may reconsider its selection, but is not required to do so.
Notwithstanding the proposed ratification of the appointment of Deloitte &
Touche by the shareholders, the Audit Committee, in its discretion, may direct
the appointment of new independent auditors at any time during the year without
notice to, or the consent of, the shareholders, if the Audit Committee
determines that such a change would be in our best interests and the best
interests of the Company and
itsour shareholders.
PROXIES AND VOTING -- PROPOSAL TWO
Assuming that a quorum is present for ratification of the appointment of
independent auditors (which requires the presence in person or by proxy of at
least a majority of the outstanding shares entitled to vote on such matter), the
affirmative vote of the holders of a majority of the outstanding shares of
common stock of the Company present and entitled to vote on the ratification of
the appointment of independent auditors is required to ratify the appointment of
Deloitte & Touche LLP as independent auditors of the Company for the 2003 fiscal
year. A shareholder who abstains with respect to the ratification of Deloitte &
Touche LLP's appointment is considered to be present and entitled to vote on
such ratification at the meeting, and is in effect casting a negative vote, but
a shareholder (including a broker) who does not give authority to a proxy to
vote, or withholds authority to vote, on the ratification of Deloitte & Touche
LLP's appointment, shall not be considered present and entitled to vote on this
matter.
All shares represented by proxies will be voted FOR the ratification of
Deloitte & Touche LLP's appointment as independent auditors of the Company for
the 2003 fiscal year unless a contrary choice is specified.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
RATIFICATION OF THE APPOINTMENT OF AUDITORS.
9
SHAREHOLDER PROPOSAL TO GRANT
VOTING RIGHTS UNDER
MINNESOTA CONTROL SHARE ACQUISITION ACT
(PROPOSAL 3)
SUMMARY OF SHAREHOLDER PROPOSAL
As discussed in detail below, Lyle Berman's current beneficial ownership in
Lakes exceeds 20% of Lakes' outstanding shares of common stock. Under Minnesota
law, shareholders of Minnesota public corporations whose beneficial ownership
surpasses 20%, 33 1/3% or 50% may be prohibited from voting their shares in
excess of such percentages without shareholder approval. Mr. Berman has
submitted a shareholder-sponsored proposal to be considered at the annual
meeting asking Lakes' shareholders to grant him voting rights with respect to
shares representing beneficial ownership in excess of 20% and up to 33 1/3% of
Lakes. The Board of Directors believes that it is in Lakes' best interest to
approve this proposal.
BACKGROUND TO CONTROL SHARE ACQUISITION ACT
Section 302A.671 of the Minnesota Business Corporation Act, and related
definitions (the "Control Share Acquisition Act") can operate to restrict the
voting power of stock held by a shareholder if the stock is acquired in a
"control share acquisition" (as defined) and exceeds a certain percentage voting
threshold. There are three percentage thresholds of outstanding voting power
under the Control Share Acquisition Act: (i) at least 20% but less than 33 1/3%;
(ii) at least 33 1/3% but less than or equal to 50%; and (iii) over 50%.
For example, if an "acquiring person" (as defined) acquires stock in a
control share acquisition that results in the total beneficial ownership of the
acquiring person equaling or exceeding the 20% threshold, the acquiring person
may only exercise voting power with respect to the number of shares that
represents less than 20% of the outstanding voting power of that company. The
Control Share Acquisition Act removes the voting power from the number of shares
acquired in a control share acquisition that is in excess of the 20% threshold.
The voting power is restored only if approved by the required vote of that
company's shareholders.
The acquiring person may request that a resolution be put before the
shareholders to authorize the restoration of voting rights for the shares
acquired in excess of the threshold. In addition, the acquiring person must file
an information statement with the company for inclusion in its proxy statement
materials. If the shareholders approve the restoration of voting power, the
acquiring person will obtain full voting rights with respect to the shares
acquired in excess of the threshold and full voting rights with respect to any
additional shares that may be acquired by the acquiring person up to the next
threshold. For example, an acquiring person who seeks and obtains approval of
the shareholders to vote all shares in excess of the 20% threshold, may only
exercise voting rights with respect to shares acquired up to the 33 1/3%
threshold; if the acquiring person's beneficial ownership through a control
share acquisition exceeds 33 1/3% of the outstanding voting power, the shares
acquired in such control share acquisition in excess of the 33 1/3% threshold
will become non-voting unless voting power is restored by the shareholders. A
COPY OF THE CONTROL SHARE ACQUISITION ACT IS INCLUDED AS APPENDIX A ATTACHED TO
THE PROXY STATEMENT.
In compliance with the Control Share Acquisition Act, Mr. Lyle Berman,
Chairman of the Company's Board of Directors and the Company's President and
Chief Executive Officer, has submitted an information statement and requested
that the Company seek shareholder approval of the above resolution at the Annual
Meeting. A COPY OF THE INFORMATION STATEMENT SUBMITTED BY MR. BERMAN IS INCLUDED
AS APPENDIX B ATTACHED
10
TO THIS PROXY STATEMENT. Shareholders are encouraged to read the information
statement prior to executing their proxy. The following background information
is derived in part from the Information Statement:
INFORMATION ON MR. BERMAN'S OWNERSHIP OF COMMON STOCK OF THE COMPANY(1)
Mr. Berman has been a shareholder of the Company since its inception. Prior
to December 8, 2000, Mr. Berman beneficially owned, directly or indirectly,
2,074,661 shares of the Company's common stock, representing 18.22% of the total
voting power of the Company. Mr. Berman had direct ownership over 1,881,133 of
these shares (including 750,000 shares that were issuable upon exercise of
options). Mr. Berman also had indirect ownership over 193,528 shares of Common
Stock. Of these indirectly-owned shares, (i) 20,625 shares were held by Mr.
Berman's spouse; (ii) 11,403 shares were held by Berman Consulting Corp., a
Minnesota corporation wholly-owned by Mr. Berman; and (iii) 161,500 shares were
held by Berman Consulting Corp.'s profit sharing plan.
On December 8, 2000, Mr. Berman directly purchased 270,300 shares of the
Company's common stock, which acquisition constituted a "control share
acquisition" under the Control Share Acquisition Act because pursuant to his
acquisition, Mr. Berman increased his aggregate beneficial ownership percentage
in the Company from 18.22% to 20.59%. As a result of the control share
acquisition, Mr. Berman acquired voting power in the election of directors that,
except for the application of the Control Share Acquisition Act, would be in the
20% to 33 1/3% range of voting percentage.
Mr. Berman has subsequently increased his beneficial ownership to 21.96% in
a separate transaction, as provided below. On or about January 4, 2001, Berman
Consulting Corp. loaned $1,600,000 to Stanley M. Taube pursuant to a convertible
promissory note. As part of the loan transaction, Mr. Taube pledged 200,000
shares of the Common Stock as security for his payment obligations under the
convertible promissory note. Pursuant to the terms of the convertible promissory
note, Berman Consulting Corp. has the right, at its option, at any time on or
after November 1, 2002, to take legal title to the pledged shares in full
satisfaction of Mr. Taube's payment obligations under the convertible promissory
note. As a result, Mr. Berman acquired indirect beneficial ownership of such
shares on or about January 4, 2001, thereby increasing his aggregate beneficial
ownership percentage in the Company from 20.59% to 21.96%.
Of the 2,544,961 shares beneficially owned by Mr. Berman, 417,298 shares
have no voting rights unless the resolution set forth above is approved by the
requisite votes of the shareholders at the Annual Meeting.
PROPOSED RESOLUTION
At the annual meeting, shareholders will be asked to consider and vote on
the following proposed resolution:
"RESOLVED, that pursuant to Section 302A.671, Subd. 4a of the Minnesota
Business Corporation Act, full voting rights are hereby granted to all shares of
common stock, par value $.01 per share, of Lakes Entertainment, Inc. that are,
or hereafter become, beneficially owned by Lyle Berman or any person or entity
affiliated with Lyle Berman, regardless of whether such shares were or are
acquired in a "control share acquisition," as defined in Section 302A.011, Subd.
38 of the Minnesota Business Corporation Act, or otherwise; provided that, so
long as the provisions of Section 302A.671 of the Minnesota Business Corporation
Act continue to apply to Lakes Entertainment, Inc., in no event shall Lyle
Berman be granted voting rights with respect to shares beneficially owned by him
or any person or entity affiliated with him that exceed 33 1/3% of the
outstanding common stock of Lakes Entertainment, Inc. without a separate vote of
shareholders."
- ---------------
(1) In accordance with the definition of "beneficial ownership" in the Minnesota
Business Corporation Act, the beneficial ownership of Mr. Berman disclosed in
this proposal includes all shares which Mr. Berman has the right to acquire.
This beneficial ownership calculation differs from the calculation used above in
the Section entitled "Voting Securities and Principal Holders Thereof," which
includes only those shares that Mr. Berman has that right to acquire within the
next 60 days and is consistent with the federal securities law requirements.
11
Approval of this resolution would enable Mr. Berman to vote all shares of
common stock that he currently holds, directly or indirectly, and any
subsequently acquired shares up to an aggregate of 33 1/3% of the outstanding
voting power of the Company.
VOTE REQUIRED -- PROPOSAL THREE
The above proposal must receive the following affirmative votes to be
approved:
(1) The affirmative vote, whether in person or by proxy, of the
holders of a majority of all the outstanding common stock; and
(2) The affirmative vote, whether in person or by proxy, of the
holders of a majority of all the outstanding common stock, excluding
"interested shares" as that term is defined in the Minnesota Statutes.
Under Minnesota Statutes, "interested shares" include shares owned by the
acquiring person (i.e., Mr. Berman), by officers of the Company or by any
employee of the Company who is also a director of the Company. As of the Record
Date, (i) 10,638,320 shares of common stock were outstanding and entitled to
vote at the Annual Meeting; and (ii) 1,599,961 shares of common stock were
considered "interested shares," including 1,594,961 shares beneficially owned by
Mr. Berman (which represents all issued and outstanding shares
beneficially-owned by Mr. Berman) and 5,000 shares owned by other officers of
the Company. See "Security Ownership of Certain Beneficial Owners and
Management."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR approval
of the resolution to grant Mr. Berman full voting rights with respect to shares
of the Lakes Entertainment common stock held by Mr. Berman pursuant to the
Control Share Acquisition Act. Although Mr. Berman has not expressed an
intention to acquire additional shares of Lakes' stock at a particular time or
at all, the Board believes that a failure to approve the proposal may discourage
Mr. Berman from acquiring additional shares in the future. Further, Mr. Berman
may divest a portion of his shares in the future to ensure that all of his
shares have voting rights. Therefore, the failure to approve the proposal might
eliminate a potential buyer for the common stock or might cause Mr. Berman to
sell a portion of his holdings at a time when such sales might have an adverse
effect on the market for the Company's common stock. The Board believes approval
of this proposal is in the best interests of the Company.
12
OTHER MATTERS
BOARD OF DIRECTORS AND COMMITTEES
Board of Directors
Our Board of Directors is currently comprised of six members, each of which
is identified under Proposal 1 ("Election of Directors"). The following
directors, which constitute a majority of the Board of Directors, are
"independent directors" as such term is defined in Section 4200(a)(15) of
National Association of Securities Dealers' listing standards: Morris Goldfarb,
Ronald J. Kramer, Ray Moberg and Neil I. Sell. The Board of Directors held fivenine
meetings during the fiscal year ended December 29, 2002,28, 2003, and took action by
written action in lieu of a meeting two times. The Board of Directors has
established an audit committee, a nominating committee and a compensation
committee.
None of our directors attended fewer than 75 percent of the aggregate of
(i) the total number of meetings of the Board of Directors held during fiscal
2003, and (ii) the total number of meetings held by all committees of the Board
on which he served. While not required, we encourage all members of our Board of
Directors to attend our annual shareholders' meetings. At our 2003 annual
shareholders' meeting held on June 2, 2003, three of the five directors serving
on our Board as of the meeting date were in attendance.
Audit Committee of the Board of Directors
The Company's Audit CommitteeBoard of Directors has established a four member audit committee that
consists of Messrs. Morris Goldfarb, Ronald J. Kramer, Neil I.
Sell and Morris Goldfarb. The Audit Committee held six meetings duringRay Moberg
who is the fiscal year ended December 29, 2002. The functionschairperson of the Audit Committee are
described under "Reportaudit committee. Commencing on the date of the
Annual Meeting, Mr. Sell will no longer serve on the Audit Committee" below.Committee. The Audit Committeeaudit
committee operates under a written charter adopted by the Board of Directors. A COPY OF THE WRITTEN CHARTER, AS AMENDED TO DATE, IS ATTACHED AS
APPENDIXDirectors,
which charter was attached as Appendix C TO THIS PROXY STATEMENT. Pursuant to the written charter, it is the
policyproxy statement for our Annual
Meeting of Shareholders held June 2, 2003. The primary functions of the Audit Committeeaudit
committee are (i) to serve as an independent and objective party to monitor our
financial reporting process and internal control system, (ii) to review and
appraise the audit efforts of our independent auditors, and (iii) to provide an
open avenue of communication among the independent auditors, financial and
senior management and the Board of Directors. The charter also requires that the
audit committee (or designated members of the audit committee) review and
pre-approve the performance of all audit and non-audit accounting services to be
performed by the Company'sour independent auditors, other than certain de minimus exceptions
permitted by Section 202 of the Sarbanes-Oxley Act of 2002. The audit committee
held seven meetings during the fiscal year ended December 28, 2003.
14
The Board of Directors has determined that eachat least one member of the three Audit
Committee membersaudit
committee, Ray Moberg, is an "audit committee financial expert" as that term is
defined in Item 401(h)(2) of Regulation S-K promulgated under the Securities
Exchange Act of 1934, as amended. In addition, each member of the audit
committee is an "independent director",director," as such term is defined byin Section
4200(a)(13)(15) of the National Association of Securities Dealers' listing standards.
The Board of Directors has also determined that each of the Audit
Committeeaudit committee
members is able to read and understand fundamental financial statements and that
at least one member of the Audit Committeeaudit committee has past employment experience in
finance or accounting.
Nominating Committee of the Board of Directors
A Nominating Committee of theThe Board of Directors washas established on April
22, 2003 and currentlya two member nominating committee
that consists of Messrs. Morris Goldfarb and Sell.Neil I. Sell, each of whom
satisfies the independence requirements of the NASDAQ Stock Market rules.
The Nominating
Committee assistsprimary role of the nominating committee is to consider and make
recommendations to the full Board of Directors inconcerning the areasappropriate size,
function and needs of the Board, including establishing criteria for Board
membership and considering, recruiting and recommending candidates (including
those recommended by shareholders) to fill new Board positions. The nominating
committee (or a subcommittee thereof) recruits and considers director selectioncandidates
and committee selection and rotation.presents qualified candidates to the full Board for consideration. Qualified
candidates will be considered without regard to race, color, religion, sex,
ancestry, national origin or disability.
The Nominating Committeenominating committee will consider each candidate's general business
and industry experience, his or her ability to act on behalf of shareholders,
overall Board diversity, potential concerns regarding independence or conflicts
of interest and other factors relevant in evaluating Board nominees. If the
nominating committee approves a candidate for further review following an
initial screening, the nominating committee will establish an interview process
for the candidate. Generally, the candidate will meet with the members of the
nominating committee, along with our Chief Executive Officer. Contemporaneously
with the interview process, the corporate governance committee will conduct a
comprehensive conflicts-of-interest assessment of the candidate. The nominating
committee will consider reports of the interviews and the conflicts-of-interest
assessment to determine whether to recommend the candidate to the full Board of
Directors. The nominating committee will also take into consideration the
candidate's personal attributes, including, without limitation, personal
integrity, loyalty to us and concern for our success and welfare, willingness to
apply sound and independent business judgment, awareness of a director's vital
part in good corporate citizenship and image, time available for meetings and
consultation on Company matters and willingness to assume broad, fiduciary
responsibility.
Recommendations for candidates to be considered for election to the Board
at our annual shareholder meetings may be submitted to the nominating committee
by our shareholders. Candidates recommended by our shareholders will be
considered under the same standards as candidates that are identified by the
nominating committee. In order to make such a recommendation, a shareholder must
submit the recommendation in writing to the nominating committee, in care of our
Secretary at our headquarters address, at least 120 days prior to the mailing
date of the previous year's annual meeting proxy statement. To enable the
committee to evaluate the candidate's qualifications, shareholder
recommendations must include the following information:
- The name and address of the nominating shareholder and of the director
candidate;
- A representation that the nominating shareholder is a holder of record of
our common stock and entitled to vote at the current year's annual
meeting;
- A description of any arrangements or understandings between the
nominating shareholder and the director candidate or candidates being
recommended pursuant to which the nomination or nominations for directors. Shareholders who wishare to nominatebe
made by the shareholder;
- A resume detailing the educational, professional and other information
necessary to determine if the nominee is qualified to hold a Board
position;
15
- Such other information regarding each nominee proposed by such
shareholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had each nominee been nominated by the Board of
Directors; and
- The consent of each nominee to serve as a director candidate should contact Timothy J. Cope, Executive Vice President,
Chief Financial Officer and Secretary of Lakes Entertainment, Inc. at the
Company's corporate headquarters.if so elected.
Compensation Committee of the Board of Directors
The Company's Compensation CommitteeBoard of Directors has established a two member compensation committee
that consists of Messrs. Morris Goldfarb and Ronald J. Kramer. The Compensation Committee held one meeting during the fiscal year ended
December 29, 2002. The Compensation Committeecompensation
committee reviews the Company'sour remuneration policies and practices, makes recommendations
to the full Board of Directors in connection with all compensation matters
affecting the Companyus and administers our incentive compensation plans. The compensation
committee met twice during the 1998 Stock
Option and Compensation Plan.
None of the Company's directors attended fewer than 75 percent of the
aggregate of (i) the total number of meetings of the Board during fiscal 2002,
and (ii) the total number of meetings held by all committees of the Board on
which he served.year ended December 29, 2003.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Morris Goldfarb a memberand Ronald J. Kramer served as the members of the
Compensation Committee isfor fiscal year 2003.
ABILITY OF SHAREHOLDERS TO COMMUNICATE WITH THE COMPANY'S BOARD OF DIRECTORS
We have established several means for shareholders and others to
communicate with our Board of Directors. If a director and
executive officer of G-III Apparel Group Ltd. Lyle Berman,shareholder has a director and
executive officerconcern
regarding our financial statements, accounting practices or internal controls,
the concern should be submitted in writing to the Chairperson of the Company,audit
committee in care of our Secretary at our headquarters address. If the concern
relates to our governance practices, business ethics or corporate conduct, the
concern should be submitted in writing to the Chairman of the Board in care of
our Secretary at our headquarters address. If a shareholder is also a directorunsure as to
which category the concern relates, the shareholder may communicate it to any
one of G-III Apparel Group Ltd.
13
the independent directors in care of our Secretary at our headquarters
address. All shareholder communications will be forwarded to the applicable
director(s).
REPORT OF THE AUDIT COMMITTEE
The Company has established a three-member Audit Committee within the Board
of Directors that currently consists of Messrs. Ronald J. Kramer, Neil I. Sell
and Morris Goldfarb. The primary functions of the Audit Committee are (i) to
serve as an independent and objective party to monitor the Company's financial
reporting process and internal control system, (ii) to review and appraise the
audit efforts of the Company's independent accountants and internal audit
department, and (iii) to provide an open avenue of communication among the
independent accountants, financial and senior management, the internal audit
department, and the Board of Directors.
The Audit Committeecommittee has reviewed the Company's audited financial statements of Lakes
Entertainment, Inc. for the last fiscal year and discussed them with management.
The Audit Committeeaudit committee has discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants.
The Audit Committeeaudit committee has received and reviewed the written disclosures and
the letter from the independent auditors required by independence Standard No.
1, Independence Discussions with Audit Committees, as amended, by the
Independence Standards Board, and has discussed with the auditors the auditors'
independence.
The Audit Committee,audit committee, based on the review and discussions described above,
has recommended to the Board of Directors that the audited financial statements
be included in the Company's Annual Report on Form 10-K of Lakes Entertainment, Inc. for the
last fiscal year.
MORRIS GOLDFARB
RONALD J. KRAMER
RAY MOBERG
NEIL I. SELL
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions onregarding the compensation of the Company'sLakes Entertainment, Inc.
executives are generally will be made by the Compensation Committee. Eachcompensation committee, each member of
the Compensation Committeewhich is a Non-Employee Director.non-employee director. All decisions by the Compensation Committeecompensation committee
relating to the compensation of the Company's executive officers are reviewed by the full
Board.Board of
16
Directors. Pursuant to rules designed to enhance disclosure of the Company'sLakes
Entertainment's policies toward executive compensation, set forth below is a
report prepared by the Compensation Committeecompensation committee addressing the compensation
policies for the CompanyLakes Entertainment and its subsidiaries.
The Compensation Committee'scompensation committee's executive compensation policies are designed
to provide competitive levels of compensation that integrate pay with the
Company'sLakes
Entertainment, Inc.'s annual objectives and long-term goals, reward
above-average corporate performance, recognize individual initiative and
achievements, and assist the
CompanyLakes Entertainment in attracting and retaining
qualified executives. Executive compensation will beis set at levels that the
Compensation Committeecompensation committee believes to be consistent with othersother companies in the Company'sLakes
Entertainment's industry.
There are three elements in the Company's executive compensation program, all
determined by individual and corporate performance.
- Base salary compensation
- Annual incentive compensation
- Stock options
Total compensation opportunities are competitive with those offered by
employers of comparable size, growth and profitability in the Company'sLakes
Entertainment, Inc.'s industry.
Base salary compensation is determined by the potential impact the
individual has on the Company,Lakes Entertainment, Inc., the skills and experiences required
by the job, and the performance and potential of the incumbent in the job.
14
Annual incentive compensation for Lakes Entertainment, Inc. executives is
based primarily on corporate earnings and growth as measured by Lakes
Entertainment's EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) results and goals and Lakes Entertainment's positioning for future
results, but also includes an overall assessment by the compensation committee
of executive management's individual and collective performance, as well as
market conditions.
The annualized base salary during fiscal 20022003 for Lyle Berman, the
Company's Chief
Executive Officer and Chairman of the Board, was $400,000. The amount of Mr.
Berman's compensation resulted from the Committee'scompensation committee's assessment of
the Company'sLakes Entertainment, Inc.'s performance and business development during fiscal
2002.2003. The Committeecompensation committee believes that Mr. Berman's salary is
competitive with executives in other industry-related companies of similar size.
The Committee considered
criteria similar to that considered for Mr. Berman when determining the
annualized base salaries for the other Named Executive Officers. None of the
Named Executive Officers received an increase in base salary in fiscal 2002.
Annual incentive compensation for executives of the Company is based
primarily on corporate earnings and growth as measured by the Company's EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization) results and
goals and the Company's positioning for future results, but also includes an
overall assessment by the Compensation Committee of executive management's
individual and collective performance, as well as market conditions. Mr. Berman
did not receive an incentive compensation award in fiscal 2002. Of the Named
Executive Officers, only Timothy J. Cope received an incentive bonus of $100,000 for fiscal 2002,year 2003, based
on his achievement of individual performance.
Awards of stock options underperformance goals set by the compensation
committee.
The Lakes Entertainment, Inc. 1998 Stock Option and Compensation Plan (the
"Employee Plan") permits the compensation committee to grant stock options to
executives of Lakes Entertainment, Inc. Awards of stock options under the
Employee Plan are designed to integrate compensation of the Company's
executives with the
long-term interests of the CompanyLakes Entertainment and its shareholders and assist in
the retention of executives. The 1998 Plan also permits the Committee
to grant stock options to key personnel. Options become exercisable based upon criteria
established by compensation committee, as the Company.administrator of the Employee
Plan. During fiscal 2002,2003, there were no options issued by the Compensation
Committee did not grant options to the executive officers. The Committee granted
84,000 optionscompensation
committee pursuant to the 1998 Plan to new employees hired by the Company
during fiscal 2002.Employee Plan.
While the value realizable from exercisable options is dependent upon the
extent to which the Company'sLakes Entertainment, Inc.'s performance is reflected in the
market price of the Company'sLakes Entertainment's common stock at any particular point in
time, the decision as to whether such value will be realized in any particular
year is determined by each individual executive and not by the Compensation Committee.compensation
committee. Accordingly, when the Committeecompensation committee recommends that an
option be granted to an executive, that recommendation does not take into
account any gains realized that year by that executive as a result of his or her
individual decision to exercise an option granted in a previous year.
The Compensation Committeecompensation committee does not anticipate that any of the compensation
payable to executive officers of the Company in the coming year will exceed the limits and
deductibilities set forth in section 162(m) of the Internal
17
Revenue Code of 1986, as amended, (the "Code").amended. The Compensation Committeecompensation committee has not yet
established a policy regarding compensation in excess of these limits, but
Proposal Two of this Annual Proxy proposes certain changes to the Employee Plan
that will, continueamong other things, limit the compensation payable to monitor this issue.executive
officers in each fiscal year to ensure that we do not exceed the limits and
deductibilities described above in future years.
MORRIS GOLDFARB
RONALD J. KRAMER
INDEPENDENT AUDITORS
CHANGE IN INDEPENDENT AUDITORS
On July 31, 2002, upon the recommendation and approval of itsthe Board of
Directors and its Audit Committee, Lakes Entertainmentthe audit committee, we dismissed Arthur Andersen LLP as the Company'sour
independent auditors. On the same date, the Companywe engaged Deloitte & Touche LLP to
serve as the Company'sour independent auditors.
Arthur Andersen's reports on the Company'sour consolidated financial statements for each
of the fiscal years ended December 31, 2000 and December 30, 2001 did not
contain an adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles. During the
fiscal years ended December 31, 2000 and December 30, 2001 and subsequently
through the date of its dismissal, there were no disagreements with Arthur
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
Arthur Andersen's satisfaction, would have caused them to make reference to the
subject matter in connection with their report on the Company'sour consolidated financial
statements for such years.
15
Except as provided in the following paragraph, during the fiscal years
ended December 31, 2000 and December 30, 2001 and subsequently through the date
of Deloitte & Touche's engagement, the Companywe did not consult Deloitte & Touche with
respect to the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company'sour consolidated financial statements, or any other matters or
reportable events described under Item 304(a)(2)(i) and (ii) of Regulation S-K.
In connection with Deloitte & Touche's completion of its new client
acceptance procedures in July 2002, and prior to Deloitte & Touche's engagement
as the Company'sour auditors, the Companywe consulted with Deloitte & Touche regarding the application
of accounting principles to the Company'sour sale of land held for development in Las Vegas,
Nevada. This transaction was accounted for as a sale in the Company'sour financial statements
for the year ended December 30, 2001.
The Company'sOur management subsequently determined that the transaction did not qualify
for treatment as a sale under the requirements of Statement of Financial
Accounting Standards No. 66, Accounting for Sales of Real Estate and that the
transaction should have been accounted for under the deposit method of
accounting. Deloitte & Touche orally advised the Companyus that, based on the facts,
circumstances, and assumptions presented to Deloitte & Touche, by the
Company, it concurred with
the Company'sour determination on this matter. The
CompanyWe attempted but waswere unable to consult with
Arthur Andersen regarding this matter. In September 2002, the Companywe filed an amendment
to itsour Annual Report on Form 10-K for the year ended December 30, 2001, and
amendments to two subsequent Quarterly Reports on Form 10-Q, restating its
financial statements to adopt the deposit method of accounting for the
transaction.
The CompanyWe provided Arthur Andersen with a copy of the foregoing disclosures and
requested Arthur Andersen to provide a letter indicating its agreement or
disagreement with the above disclosures. The CompanyWe was unable to obtain this letter
from Arthur Andersen.
18
FEES BILLED TO COMPANY BY ITS INDEPENDENT AUDITORS
The following table presents fees for professional audit and other services
rendered by Deloitte & Touche LLP and Arthur Andersen LLP, as applicable, during
fiscal 20022003 and fiscal 2001.2002.
FEES FOR 20022003 FEES FOR 2001
-----------------------------------2002
----------------- -----------------------------------
DELOITTE & TOUCHE ARTHUR ANDERSEN DELOITTE & TOUCHE ARTHUR ANDERSEN
----------------- --------------- ----------------- ---------------
Audit Fees.............. $125,000Fees............................. $104,000 $197,500 $ 21,010
-- $124,972
Audit-Related Fees(1)... --.................. -- -- --
Tax Fees(2)......................................... $343,072 $ 94,700 $123,775
-- $240,315
All Other Fees(3)............................. $ 44,122 -- -- $23,124 --
-------- -------- ------- --------
Total Fees..............Fees............................. $491,194 $219,700 $144,785
$23,124 $365,287
======== ======== ======= ========
- ---------------
(1) Audit-Related Fees consist principally of assurance and related services
that are reasonably related to the performance of the audit or review of the
Company's financial statements but not reported under the caption Audit Fees
above.
(2) Tax Fees consistfor tax services consisted of feestax compliance services, tax transaction
support services and other tax services. Fees for tax compliance services
totaled $213,970 for 2003. Tax compliance services are services rendered
based upon facts already in existence or transactions that have already
occurred to document, compute, and obtain government approval for amounts to
be included in tax advice,filings. The services consisted of federal, state and
local income tax planning.return assistance, sales and use, property and other tax
return assistance and assistance with tax audits and appeals. Fees for tax
transaction support services totaled $95,827 for 2003. Tax transaction
support services are services rendered in support of proposed transactions
such as acquisitions, divestitures, joint ventures, partnerships and
contractual matters. Fees for other tax services totaled $33,275 for 2003.
Other tax services are all other tax planning and consulting services
rendered.
(3) All Other Fees in fiscal 2001 consisted2003 consist of fees paid on behalf of Grand
Casinos, Inc. for special advisorypermitted non-audit
products and services rendered to Grand Casinos in
connection with legal proceedings forprovided which Lakes was required to provide
indemnification.included transaction related
consultation.
The Audit Committeeaudit committee of the Board of Directors has reviewed the fees billed
by Deloitte & Touche LLP during fiscal year 20022003 and, after consideration, has
determined that the receipt of these fees by Deloitte & Touche LLP is compatible
with the provision of independent audit services. The audit committee discussed
these services and fees with Deloitte & Touche LLP's maintainingLLP and our management to
determine that they are permitted under the rules and regulations concerning
auditor independence promulgated by the U.S. Securities and Exchange Commission
to implement the Sarbanes-Oxley Act of 2002, as well as the American Institute
of Certified Public Accountants.
PRE-APPROVAL OF SERVICES BY INDEPENDENT AUDITORS
As permitted under applicable law, our audit committee may pre-approve from
time to time certain types of services, including tax services, to be provided
by our independent auditors. As provided in the charter of the audit committee,
and in order to maintain control and oversight over the services provided by our
independent auditors, it is the policy of the audit committee to pre-approve all
audit and non-audit services to be provided by the independent auditors (other
than with respect to de minimus exceptions permitted by the Sarbanes-Oxley Act
of 2002), and not to engage the independent auditors to provide any non-audit
services prohibited by law or regulation. For administrative convenience, the
audit committee may delegate pre-approval authority to audit committee members
who are also independent member of the Board of Directors, but any decision by
such a member on pre-approval must be reported to the full audit committee at
its independence.
16next regularly scheduled meeting.
19
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
We have outstanding one class of voting securities, common stock, $0.01 par
value, of which 11,103,817 shares were issued and outstanding as of the close of
business on the Record Date. Each share of our common stock is entitled to one
vote on all matters put to a vote of shareholders.
The following table sets forth, as of the Record Date, certain information
regarding the beneficial ownership of our common stock by (i) all persons known
by us to be the owner (or deemed to be the owner pursuant to the rules and
regulations of the SEC), of record or beneficially, of more than 5% of our
outstanding common stock, (ii) each of the directors and nominees for election
to the Board of Directors, (iii) each Named Executive Officer, and (iv) all
directors and executive officers as a group, in each case based upon beneficial
ownership reporting of our common stock as of such date. The share amounts set
forth in the table do not reflect the adjustments automatically taken as a
result of the Stock Split. Except as otherwise indicated, the address of each
shareholder is 130 Cheshire Lane, Minnetonka, Minnesota 55305, and each
shareholder has sole voting and investment power with respect to the shares
beneficially owned.
SHARES OF LAKES
ENTERTAINMENT
COMMON STOCK PERCENTAGE OF COMMON
NAME AND ADDRESS BENEFICIALLY OWNED STOCK OUTSTANDING
- ---------------- ------------------ --------------------
Lyle Berman(1)............................................ 2,522,336 21.3
Timothy J. Cope(2)........................................ 235,000 2.1
Joseph Galvin(3).......................................... 59,250 *
Morris Goldfarb(4)........................................ 51,830 *
Ronald J. Kramer.......................................... 0 0
Ray M. Moberg............................................. 0 0
Neil I. Sell(5)........................................... 972,299 8.8
All Lakes Entertainment, Inc. Directors and Executive
Officers as a Group (7 people including the
foregoing)(6)........................................... 3,840,715 31.0
FMR Corp.(7).............................................. 973,988 8.8
82 Devonshire Street
Boston, MA 02109
- ---------------
* Less than one percent.
(1) Includes 11,403 shares held by Berman Consulting Corporation, a corporation
wholly owned by Mr. Berman, and 161,500 shares owned by Mr. Berman through a
Berman Consulting Corporation profit sharing plan. Also includes options to
purchase 750,000 shares and a 200,000 share option held by Berman Consulting
Corporation as security for a loan transaction.
(2) Includes options to purchase 230,000 shares.
(3) Includes options to purchase 59,250 shares.
(4) Includes options to purchase 32,000 shares.
(5) Includes an aggregate of 968,100 shares held by four irrevocable trusts for
the benefit of Lyle Berman's children with respect to which Mr. Sell has
shared voting and dispositive powers as a co-trustee. Mr. Sell has
disclaimed beneficial ownership of such shares.
(6) Includes shares held by corporations controlled by such officers and
directors and shares held by trusts of which such officers and directors are
trustees. Also includes options to purchase 1,271,250 shares.
(7) Based solely upon the most recent Schedule 13G on file with the Securities
and Exchange Commission. FMR Corp. does not have sole voting power with
respect to any of such shares but has sole dispositive power with respect to
all 973,988 shares.
The foregoing footnotes are provided for informational purposes only and
each person disclaims beneficial ownership of shares owned by any member of his
or her family or held in trust for any other person, including family members.
20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NEW HORIZON KIDS QUEST, INC.
Pursuant to an indemnification agreement entered into in December 1998 by
and between Lakes Entertainment and Mr. Berman, Lakes Entertainment agreed to
indemnify Mr. Berman for any damages incurred by Mr. Berman arising out of his
acts and omissions as a director of New Horizon Kids Quest, a company in which
Lakes Entertainment held an ownership interest and on which Mr. Berman served as
a director until June 2001.
PARK PLACE ENTERTAINMENT CORPORATION
LyleMr. Berman entered into an employment agreement with Park Place
Entertainment, Inc. as of January 1, 1999 (the "Park Place Employment Agreement") pursuant to which he servesserved as a
part-time employee of Park Place. The agreement was for an initial
term of 4 years, which ended as of January 1, 2003, at which time the agreement
was automatically renewed for a one-year term. The agreement will continue to be
renewed for additional one-year terms until terminated by either party on thirty
(30) days' written notice to the other party. Mr. Berman received compensation
during 2002 of Ten Thousand Dollars ($10,000) and will receive compensation in
2003 of an amount not less than Ten Thousand Dollars ($10,000.00). In connection
with his execution of the Park Place Employment Agreement, Mr. Berman received
stock options to purchase an aggregate of four hundred thousand (400,000) shares
of Park Place common stock at a per share exercise price of Six Dollars and
Sixty-Seven cents ($6.67), which options became 100% vested on January 1, 2003.
The Park Place Employment Agreement also containscontained a noncompetition
covenant under which Mr. Berman iswas prohibited, subject to certain exceptions,
from participating in the ownership, management or control of any business
that is
engaged in a gaming enterprise that competes or would competecompeted with Park Place. Additionally, Mr.
Berman must present anywas required to give Park Place a right of first offer on all gaming
opportunities and projects, to
Park Place in the first instance. If Park Place determines not to pursue any
venture or opportunity presented by Mr. Berman, only then may that opportunity
be presented to and pursued by Lakes Entertainment. The following exceptions are
not subject to Mr. Berman's noncompetition agreement: (i) the management of
Indian owned casinos and related amenities; (ii) the development of the Polo
Plaza project in Las Vegas, NV; and (iii) Internet, cable television or other
electronic media-based gaming enterprises. The terms of Mr. Berman's employment
with Park Place maycertain exceptions. These covenants
substantially limitlimited the number and scope of opportunities that Lakes
will beEntertainment was able to consider and pursue. The agreement, which originally
had a four year term ending January 1, 2003 and was renewed for an additional
one year term, expired on January 1, 2004. Mr. Berman received compensation
during 2003 of Ten Thousand Dollars ($10,000).
LOANS TO VIATICARE FINANCIAL SERVICES, LLC; LIVING BENEFITS FINANCIAL SERVICES,
LLC
During 2000 and 2001, Lakeswe made a total of $4.0 million in unsecured loans to
ViatiCare Financial Services, LLC ("ViatiCare"), which has since been acquired
by Living Benefits Financial Services, LLC ("Living Benefits"). In connection
with the Living Benefits' acquisition of Viaticare,ViatiCare, Living Benefits provided an
unsecured guarantee of ViatiCare's obligations to Lakes.Lakes Entertainment, Inc. In
March 2001, theour Board of Directors of Lakes determined not to make further loans to
ViatiCare. Due to theour management's determination of Lakes' management that repayment of the $4.0
million loan was not likely to occur, Lakeswe recorded a $4.0 million reserve in the
financial results for the quarter ended June 30, 2002.
Subsequent to Lakes'our decision not to make further loans to ViatiCare, Mr.
Berman and LB Acquisitions LLC, a limited liability company wholly-owned by Mr.
Berman, have made loans or other advances to Living Benefits from time to time
totaling approximately $7.43 million. As an incentive to make an initial $5.6
million loan, LB Acquisitions was granted a 9 percent voting interest in Living
Benefits and was given an option (the "LB Option") to convert the $5.6 million
loan balance into an additional 46 percent of the voting interest in Living
Benefits. To secure the repayment of the LB Acquisitions loans, which become due
commencing in 2005, Living Benefits granted LB Acquisitions a security interest
in its personal property, including the right of Living Benefits to receive
payments from profits on life insurance policies acquired by Living Benefits on
or after June 15, 2001. LB Acquisitions made an additional loan of approximately
$400,000 to Living Benefits in May 2002. On July 1, 2002, Mr. Berman advanced an
additional $763,000 to Living Benefits in exchange for a portion of Living
Benefits' rights in 50% of a trust holding the distribution rights from certain
life insurance policies (the "Trust"), which Mr. Berman later transferred to LB
Acquisitions. As 17
an inducement for this further advance, Living Benefits agreed
to amend the LB Option to permit the exercise thereof by LB Acquisitions for
$1.00 rather than requiring LB Acquisitions to convert $5.6 million of its loan
amounts. Between October 2002 and February 2003, Mr. Berman and LB Acquisitions
made additional loans to Living Benefits totaling approximately $350,000 and
acquired approximately $230,000 in existing debt previously held by other
investors.
On April 7, 2003, Living Benefits transferred its entire interest in the
Trust (which constitutes the substantial majority of Living Benefits' assets) to
LB Acquisitions in exchange for the forgiveness by LB Acquisitions of $6.9
million of Living Benefits' debt obligations. Formal transfer to LB Acquisitions
of certificates evidencing the Trust interests is subject to the consent of the
third party holding the remaining 50% Trust interest.
TRANSACTIONS WITH SKLANSKY GAMES, LLC AND WORLD POKER TOUR, LLC
We are currently in the process of negotiating a license agreement with
Sklansky Games, LLC ("Sklansky") and World Poker Tour, LLC pursuant to which we
will develop a casino table game jointly with Sklansky utilizing the World Poker
Tour brand name. Sklansky, through a joint venture with an unrelated third
party, is also in negotiations to license the World Poker Tour brand in
connection with the joint venture's
21
development of an electronic poker-related gaming machine. In addition to our
indirect majority ownership in World Poker Tour, LLC through one of our wholly
owned subsidiaries, Mr. Berman and his son, Brad Berman, each own an equity
interest in Sklansky.
LICENSE AGREEMENT WITH G-III APPAREL GROUP, LTD.
Our majority-owned subsidiary, World Poker Tour, LLC, intends to enter into
a non-exclusive license agreement with G-III Apparel Group, Ltd. ("G-III").
G-III will license intellectual property rights from World Poker Tour to produce
certain types of licensed apparel for distribution in authorized channels within
the United States, its territories and possessions and in certain circumstances,
Canada. G-III will pay royalties and certain other fees to World Poker Tour.
Morris Goldfarb, a director of the Company, is a director, Co-Chairman of the
Board and Chief Executive Officer of G-III.
LEGAL SERVICES
Neil I. Sell is a partner in the law firm of Maslon Edelman Borman & Brand,
LLP, which renders legal services to Lakesus from time to time.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company'sour officers
and directors, and persons who own more than ten percent of a registered class
of the Company'sour equity securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the "SEC") and the NASDAQ National
Market. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Companyus with copies of all Section 16(a) forms
they file.
Based solely upon a review of the copies of such forms furnished to the
Company,us, or
written representations that no Form 5(s) were required, the Companywe believes that during
the fiscal year ended December 29, 2002,28, 2003, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were satisfied.
PROPOSALS OF SHAREHOLDERS
Shareholder proposals soughtAny shareholder who desires to besubmit a proposal for action by the
shareholders at the next annual meeting must submit such proposal in writing to
Timothy J. Cope, President, Chief Financial Officer, Treasurer and Secretary,
Lakes Entertainment, Inc., 130 Cheshire Lane, Minnetonka, Minnesota 55305, by
January 11, 2005 to have the proposal included in the Proxy Statementour proxy statement for the
2004 annual meetingmeeting. Due to the complexity of the respective rights of the shareholders mustand
us in this area, any shareholder desiring to propose such an action is advised
to consult with his or her legal counsel with respect to such rights. We suggest
that any such proposal be receivedsubmitted by the Company at its
principal executive offices on or before January 1, 2004.certified mail return receipt requested.
DISCRETIONARY PROXY VOTING AUTHORITY/
UNTIMELY STOCKHOLDER PROPOSALS
Rule 14a-4 promulgated under the Securities and Exchange Act of 1934
governs the Company'sour use of its discretionary proxy voting authority with respect to a
shareholder proposal that the shareholder has not sought to include in the Company'sour proxy
statement. The Rule 14a-4 provides that if a proponent of a proposal fails to notify
the company at least 45 days prior to the month and day of mailing of the prior
year's proxy statement, management proxies will be allowed to use their
discretionary voting authority when the proposal is raised at the meeting,
without any discussion of the matter.
With respect to the Company's 2004our 2005 annual meeting of shareholders, if the
Company iswe are not
provided notice of a shareholder proposal, which the shareholder has not
previously sought to include in the Company'sour proxy statement, by March 17, 2004,26, 2005, the
management proxies will be allowed to use their discretionary authority as
outlined above.
22
SOLICITATION
The CompanyWe will bear the cost of preparing, assembling and mailing the proxy, proxy
statement and other material that may be sent to the shareholders in connection
with this solicitation. Brokerage houses and other custodians, nominees and
fiduciaries may be requested to forward soliciting material to the beneficial
18
owners of stock, in which case they will be reimbursed by the Companyus for their expenses
in doing so. Proxies are being solicited primarily by mail, but, in addition,
our officers and regular employees of the Company may solicit proxies personally, by telephone,
by telegram or by special letter.
OTHER MATTERS
The Board of Directors does not intend to present to the meeting any other
matter not referred to above and does not presently know of any matters that may
be presented to the meeting by others. However, if other matters come before the
meeting, it is the intent of the persons named in the enclosed proxy to vote the
proxy in accordance with their best judgment.
By Order of the Board of Directors
LAKES ENTERTAINMENT, INC.
[/s/ Tiimothy J. Cope]
Timothy J. Cope,
Executive Vice President, Chief Financial Officer,
Treasurer
and Secretary
1923
APPENDIX A
MINNESOTA CONTROL SHARE ACQUISITION ACT
SECTION 302A.671 CONTROL SHARE ACQUISITIONS.
SUBDIVISIONLAKES ENTERTAINMENT, INC.
1998 STOCK OPTION AND
COMPENSATION PLAN
1. APPLICATION. (a) Unless otherwise expressly provided inPURPOSE. The purpose of this lakes Entertainment, Inc. (the "Company")
1998 Stock Option and Compensation Plan (the "Plan") is to increase stockholder
value and to advance the articles or in bylaws approved by the shareholders of an issuing public
corporation, this section applies to a control share acquisition. A
shareholder's proposal to amend the corporation's articles or bylaws to cause
this section to be inapplicable to the corporation requires the vote set forth
in subdivision 4a, paragraph (b), in order for it to be effective, unless it is
approved by a committeeinterests of the board comprised solelyCompany by furnishing a variety of
directors who:
(1) are neither officers noreconomic incentives ("Incentives") designed to attract, retain and motivate
employees and certain key consultants. Incentive may consist of nor were during the five
years preceding the formation of the committee officersopportunities to
purchase or employees of,
the corporation or a related organization;
(2) are neither acquiring persons nor affiliates or associates of an
acquiring person;
(3) were not nominated for election as directors by an acquiring
person or an affiliate or associate of an acquiring person; and
(4) were directors at the time an acquiring person became an acquiring
person or were nominated, elected, or recommended for election as directors
by a majority of those directors.
(b) Thereceive shares of an issuing public corporation acquired by an acquiring
person in a control share acquisition that exceed the threshold of voting power
of any of the ranges specified in subdivision 2, paragraph (d), shall have only
the voting rights as shall be accorded to them pursuant to subdivision 4a.
SUBD. 2. INFORMATION STATEMENT. An acquiring person shall deliver to the
issuing public corporation at its principal executive office an information
statement containing all of the following:
(a) the identity and background of the acquiring person, including the
identity and background of each member of any partnership, limited
partnership, syndicate, or other group constituting the acquiring person,
and the identity and background of each affiliate and associate of the
acquiring person, including the identity and background of each affiliate
and associate of each member of such partnership, syndicate, or other
group; provided, however, that with respect to a limited partnership, the
information need only be given with respect to a partner who is denominated
or functions as a general partner and each affiliate and associate of the
general partner;
(b) a reference that the information statement is made under this
section;
(c) the number and class or series of shares of the issuing public
corporation beneficially owned, directly or indirectly, before the control
share acquisition by each of the persons identified pursuant to paragraph
(a);
(d) the number and class or series of shares of the issuing public
corporation acquired or proposed to be acquired pursuant to the control
share acquisition by each of the persons identified pursuant to paragraph
(a) and specification of which of the following ranges of voting power in
the election of directors that, except for this section, resulted or would
result from consummation of the control share acquisition:
(1) at least 20 percent but less than 33 1/3 percent;
(2) at least 33 1/3 percent but less than or equal to 50 percent;
(3) over 50 percent; and
(e) the terms of the control share acquisition or proposed control
share acquisition, including, but not limited to, the source of funds or
other consideration and the material terms of the financial arrangements
for the control share acquisition; plans or proposals of the acquiring
person (including plans or proposals under consideration) to (1) liquidate
or dissolve the issuing public corporation, (2) sell all or
A-1
a substantial part of its assets, or merge it or exchange its shares with
any other person, (3) change the location of its principal place of
business or its principal executive office or of a material portion of its
business activities, (4) change materially its management or policies of
employment, (5) change materially its charitable or community contributions
or its policies, programs, or practices relating thereto, (6) change
materially its relationship with suppliers or customers or the communities
in which it operates, or (7) make any other material change in its
business, corporate structure, management or personnel; and other objective
facts as would be substantially likely to affect the decision of a
shareholder with respect to voting on the control share acquisition.
If any material change occurs in the facts set forth in the information
statement, including but not limited to any material increase or decrease in the
number of shares of the issuing public corporation acquired or proposed to be
acquired by the persons identified pursuant to paragraph (a), the acquiring
person shall promptly deliver to the issuing public corporation at its principal
executive office an amendment to the information statement containing
information relating to the material change. An increase or decrease or proposed
increase or decrease equal, in the aggregate for all persons identified pursuant
to paragraph (a), to one percent or more of the total number of outstanding
shares of any class or series of the issuing public corporation shall be deemed
"material" for purposes of this paragraph; an increase or decrease or proposed
increase or decrease of less than this amount may be material, depending upon
the facts and circumstances.
SUBD. 3. MEETING OF SHAREHOLDERS. If the acquiring person so requests in
writing at the time of delivery of an information statement pursuant to
subdivision 2, and has made, or has made a bona fide written offer to make, a
control share acquisition and gives a written undertaking to pay or reimburse
the issuing public corporation's expenses of a special meeting, except the
expenses of the issuing public corporation in opposing according voting rights
with respect to shares acquired or to be acquired in the control share
acquisition, within ten days after receipt by the issuing public corporation of
the information statement, a special meeting of the shareholders of the issuing
public corporation shall be called pursuant to section 302A.433, subdivision 1,
for the sole purpose of considering the voting rights to be accorded to shares
referred to in subdivision 1, paragraph (b), acquired or to be acquired pursuant
to the control share acquisition. The special meeting shall be held no later
than 55 days after receipt of the information statement and written undertaking
to pay or reimburse the issuing public corporation's expenses of the special
meeting, unless the acquiring person agrees to a later date. If the acquiring
person so requests in writing at the time of delivery of the information
statement, (1) the special meeting shall not be held sooner than 30 days after
receipt by the issuing public corporation of the information statement and (2)
the record date for the meeting must be at least 30 days prior to the date of
the meeting. If no request for a special meeting is made, consideration of the
voting rights to be accorded to shares referred to in subdivision 1, paragraph
(b), acquired or to be acquired pursuant to the control share acquisition shall
be presented at the next special or annual meeting of the shareholders of which
notice has not been given, unless prior thereto the matter of the voting rights
becomes moot. The issuing public corporation is not required to have the voting
rights to be accorded to shares acquired or to be acquired according to a
control share acquisition considered at the next special or annual meeting of
the shareholders unless it has received the information statement and documents
required by subdivision 4 at least 55 days before the meeting. The notice of the
meeting shall at a minimum be accompanied by a copy of the information statement
(and a copy of any amendment to the information statement previously delivered
to the issuing public corporation) and a statement disclosing that the board of
the issuing public corporation recommends approval of, expresses no opinion and
is remaining neutral toward, recommends rejection of, or is unable to take a
position with respect to according voting rights to shares referred to in
subdivision 1, paragraph (b), acquired or to be acquired in the control share
acquisition. The notice of meeting shall be given at least ten days prior to the
meeting. Any amendments to the information statement received after mailing of
the notice of the meeting must be mailed promptly to the shareholders by the
issuing public corporation.
SUBD. 4. FINANCING. Notwithstanding anything to the contrary contained in
this chapter, no call of a special meeting of the shareholders of the issuing
public corporation shall be made pursuant to subdivision 3 and no consideration
of the voting rights to be accorded to shares referred to in subdivision 1,
paragraph (b), acquired or to be acquired pursuant to a control share
acquisition shall be presented at any special or annual meeting of the
shareholders of the issuing public corporation unless at the time of delivery of
the information
A-2
statement pursuant to subdivision 2, the acquiring person shall have entered
into, and shall deliver to the issuing public corporation a copy or copies of, a
definitive financing agreement or definitive financing agreements, with one or
more responsible financial institutions or other entities having the necessary
financial capacity, for any financing of the control share acquisition not to be
provided by funds of the acquiring person. A financing agreement is not deemed
not definitive for purposes of this subdivision solely because it contains
conditions or contingencies customarily contained in term loan agreements with
financial institutions.
SUBD. 4A. VOTING RIGHTS. (a) Shares referred to in subdivision 1,
paragraph (b), acquired in a control share acquisition shall have the same
voting rights as other shares of the same class or series only if approved by
resolution of shareholders of the issuing public corporation at a special or
annual meeting of shareholders pursuant to subdivision 3.
(b) The resolution of shareholders must be approved by (1) the affirmative
vote of the holders of a majority of the voting power of all shares entitled to
vote including all shares held by the acquiring person, and (2) the affirmative
vote of the holders of a majority of the voting power of all shares entitled to
vote excluding all interested shares. A class or series of shares of the issuing
public corporation is entitled to vote separately as a class or series if any
provision of the control share acquisition would, if contained in a proposed
amendment to the articles, entitle the class or series to vote separately as a
class or series.
(c) To have the voting rights accorded by approval of a resolution of
shareholders, any proposed control share acquisition not consummated prior to
the time of the shareholder approval must be consummated within 180 days after
the shareholder approval.
(d) Any shares referred to in subdivision 1, paragraph (b), acquired in a
control share acquisition that do not have voting rights accorded to them by
approval of a resolution of shareholders shall regain their voting rights upon
transfer to a person other than the acquiring person or any affiliate or
associate of the acquiring person unless the acquisition of the shares by the
other person constitutes a control share acquisition, in which case the voting
rights of the shares are subject to the provisions of this section.
SUBD. 5. RIGHTS OF ACTION. An acquiring person, an issuing public
corporation, and shareholders of an issuing public corporation may sue at law or
in equity to enforce the provisions of this section and section 302A.449,
subdivision 7.
SUBD. 6. REDEMPTION. Unless otherwise expressly provided in the articles
or in bylaws approved by the shareholders of an issuing public corporation, the
issuing public corporation shall have the option to call for redemption all but
not less than all shares referred to in subdivision 1, paragraph (b), acquired
in a control share acquisition, at a redemption price equal to the marketCommon Stock, $.01 par value, of the shares at the time the call for redemption is given, in the event (1) an
information statement has not been delivered to the issuing public corporationCompany
("Common Stock"), monetary payments, or both, on terms determined under this
Plan.
2. ADMINISTRATION. The Plan shall be administered by the acquiring person by the tenth day after the control share acquisition, or
(2) an information statement has been delivered but the shareholders have voted
not to accord voting rights to such shares pursuant to subdivision 4a, paragraph
(b). The call for redemption shall be given by the issuing public corporation
within 30 days after the event giving the issuing public corporation thestock option
to call the shares for redemption and the shares shall be redeemed within 60
days after the call is given.
SECTION 302A.011. DEFINITIONS.
SUBD. 37. ACQUIRING PERSON. "Acquiring person" means a person that makes
or proposes to make a control share acquisition. When two or more persons act as
a partnership, limited partnership, syndicate, or other group pursuant to any
written or oral agreement, arrangement, relationship, understanding, or
otherwise for the purposes of acquiring, owning, or voting shares of an issuing
public corporation, all members of the partnership, syndicate, or other group
constitute a "person."
"Acquiring person" does not include (a) a licensed broker/dealer or
licensed underwriter who (1) purchases shares of an issuing public corporation
solely for purposes of resale to the public and (2) is not acting in concert
with an acquiring person, or (b) a person who becomes entitled to exercise or
direct the exercise of a new range of voting power within any of the ranges
specified in section 302A.671, subdivision 2, paragraph (d), solely as a result
of a repurchase of shares by, or recapitalization of, the issuing public
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corporation or similar action unless (1) the repurchase, recapitalization, or
similar action was proposed by or on behalf of, or pursuant to any written or
oral agreement, arrangement, relationship, understanding, or otherwise with, the
person or any affiliate or associate of the person or (2) the person thereafter
acquires beneficial ownership, directly or indirectly, of outstanding shares
entitled to vote of the issuing public corporation and, immediately after the
acquisition, is entitled to exercise or direct the exercise of the same or a
higher range of voting power under section 302A.671, subdivision 2, paragraph
(d), as the person became entitled to exercise as a result of the repurchase,
recapitalization, or similar action.
SUBD. 38. CONTROL SHARE ACQUISITION. "Control share acquisition" means an
acquisition, directly or indirectly, by an acquiring person of beneficial
ownership of shares of an issuing public corporation that, except for section
302A.671, would, when added to all other shares of the issuing public
corporation beneficially owned by the acquiring person, entitle the acquiring
person, immediately after the acquisition, to exercise or direct the exercise of
a new range of voting power within any of the ranges specified in section
302A.671, subdivision 2, paragraph (d), but does not include any of the
following:
(a) an acquisition before, or pursuant to an agreement entered into
before, August 1, 1984;
(b) an acquisition by a donee pursuant to an inter vivos gift not made
to avoid section 302A.671 or by a distributee as defined in section
524.1-201, clause (10);
(c) an acquisition pursuant to a security agreement not created to
avoid section 302A.671;
(d) an acquisition under sections 302A.601 to 302A.661, if the issuing
public corporation is a party to the transaction;
(e) an acquisition from the issuing public corporation;
(f) an acquisition for the benefit of others by a person acting in
good faith and not made to avoid section 302A.671, to the extent that the
person may not exercise or direct the exercise of the voting power or
disposition of the shares except upon the instruction of others;
(g) an acquisition pursuant to a savings, employee stock ownership, or
other employee benefit plan of the issuing public corporation or any of its
subsidiaries, or by a fiduciary of the plan acting in a fiduciary capacity
pursuant to the plan; or
(h) an acquisition subsequent to January 1, 1991, pursuant to an offer
to purchase for cash pursuant to a tender offer all shares of the voting
stock of the issuing public corporation:
(i) which has been approved by a majority vote of the members of a
committee comprised of the disinterested members(the "Committee") of the board of the
issuing public corporation formed pursuant to section 302A.673,
subdivision 1, paragraph (d), before the commencement of, or the public
announcementdirectors of the intentCompany (the
"Board"). Subject to commence,any provisions of state law which may require that the
tender offer; and
(ii) pursuant to whichCommittee consist of a larger number of members, if the acquiring person will becomeCompany stock is
privately held, the ownerCommittee shall consist of over 50 percentone or more directors of the
voting stockCompany as shall be appointed from time to time by the Chairman of the issuing public corporation
outstanding atBoard. If
the time ofCompany stock becomes the transaction.
For purposes of this subdivision, shares beneficially owned by a plan
described in clause (g), or by a fiduciarysubject of a plan described in clause (g)
pursuantpublic offering, the Committee shall
then consist of not less than two directors who shall be appointed from time to
the plan, are not deemed to be beneficially owned by a person who is
a fiduciary of the plan.
SUBD. 39. ISSUING PUBLIC CORPORATION. "Issuing public corporation" means
either: (1) a publicly held corporation that has at least 50 shareholders; or
(2) any other corporation that has at least 100 shareholders, provided that if,
before January 1, 1998, a corporation that has at least 50 shareholders elects
to be an issuing public corporation by express amendment contained in the
articles or bylaws, including bylaws approvedtime by the board, that corporation is
an issuing public corporation if it has at least 50 shareholders.
SUBD. 40. PUBLICLY HELD CORPORATION. "Publicly held corporation" meansBoard, each of which such appointees shall be a corporation that has a class"non-employee
director" within the meaning to Rule 16b-3 of equity securities registered pursuant to section
12, or is subject to section 15(d), of the Securities Exchange Act of 1934.
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SUBD. 41. BENEFICIAL OWNER; BENEFICIAL OWNERSHIP. (a) "Beneficial owner,"
when used with respect to shares or other securities, includes, but is not
limited to, any person who, directly or indirectly through any written or oral
agreement, arrangement, relationship, understanding, or otherwise, has or shares
the power to vote, or direct the voting of, the shares or securities or has or
shares the power to dispose of, or direct the disposition of, the shares or
securities, except that:
(1) a person shall not be deemed the beneficial owner of shares or
securities tendered pursuant to a tender or exchange offer made by the
person or any of the person's affiliates or associates until the tendered
shares or securities are accepted for purchase or exchange; and
(2) a person shall not be deemed the beneficial owner of shares or
securities with respect to which the person has the power to vote or direct
the voting arising solely from a revocable proxy given in response to a
proxy solicitation required to be made and made in accordance with the
applicable rules and regulations under the Securities Exchange Act of
1934, and the regulations promulgated thereunder (the "1934 Act"), and the Board
may from time to time appoint members of the Committee in substitution for, or
in addition to, members previously appointed, and may fill vacancies, however
caused, in the Committee. If more than one person is on the Committee, the
following shall apply: (a) the Committee shall select one of its members as its
chairman and shall hold its meetings at such times and places as it shall deem
advisable; (b) a majority of the Committee's members shall constitute a quorum;
(c) all action of the Committee shall be taken by the majority of its members;
and (d) any action may be taken by a written instrument signed by majority of
the members and actions so taken shall be fully effective as if they had been
made by a majority vote at a meeting duly called and held. The Committee may
appoint a secretary, shall keep minutes of its meetings and shall make such
rules and regulations for the conduct of its business as it shall deem
advisable. The Committee shall have complete authority to award Incentives under
the Plan, to interpret the Plan, and to make any other determination which it
believes necessary and advisable for the proper administration of the Plan. The
Committee's decisions and matters relating to the Plan shall be final and
conclusive on the Company and its participants.
3. ELIGIBLE PARTICIPANTS. Employees of or consultants to the Company or
its subsidiaries or affiliates (including officers and directors, but excluding
directors who are not then reportablealso employees of or consultants to the Company or its
subsidiaries or affiliates), shall become eligible to receive Incentives under
the Plan when designated by the Committee. Participants may be designated
individually or by groups or categories (for example, by pay grade) as the
Committee deems appropriate. Participation by officers of the Company or its
subsidiaries or affiliates and any performance objectives relating to such
officers must be approved by the Committee. Participation by others and any
performance objectives relating to others may be approved by groups or
categories (for example, by pay grade) and authority to designate participants
who are not officers and to set or modify such targets may be delegated.
4. TYPES OF INCENTIVES. Incentives under the Plan may be granted in any
one or a combination of the following forms: (a) incentive stock options and
non-statutory stock options (section 6); (b) stock appreciation rights ("SARs")
(section 7); (c) stock awards (section 8); (d) restricted stock (section 8); (e)
performance shares (section 9); and (f) cash awards (section 10).
5. SHARES SUBJECT TO THE PLAN.
5.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 11.6,
the number of shares of Common Stock which may be issued under the Plan shall
not exceed 2,500,000 shares of Common Stock.
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5.2 CANCELLATION. To the extent that actcash in lieu of shares of Common
Stock is delivered upon the exercise of a SAR pursuant to Section 7.4, the
Company shall be deemed, for purposes of applying the limitation on the number
of shares, to have issued the greater of the number of shares of Common Stock
which it was entitled to issue upon such exercise or on the exercise of any
related option. In the event that a Schedule 13Dstock option or comparable
report,SAR granted hereunder
expires or ifis terminated or canceled unexercised as to any shares of Common
Stock, such shares may again be issued under the corporationPlan either pursuant to stock
options, SARs or otherwise. In the event that shares of Common Stock are issued
as restricted stock or pursuant to a stock award and thereafter are forfeited or
reacquired by the Company pursuant to rights reserved upon issuance thereof,
such forfeited and reacquired shares may again be issued under the Plan, either
as restricted stock, pursuant to stock awards or otherwise. Subject to the
approval of shareholders, the Committee may also determine to cancel, and agree
to the cancellation of, stock options in order to make a participant eligible
for the grant of stock option at a lower price than the option to be canceled.
5.3 TYPE OF COMMON STOCK. Common Stock issued under the Plan in connection
with stock options, SARs, performance shares, restricted stock or stock awards,
may be authorized and unissued shares.
6. STOCK OPTIONS. A stock option is nota right to purchase shares of Common
Stock from the Company. Each stock option is granted by the Committee under this
Plan shall be subject to the rulesfollowing terms and regulations
underconditions.
6.1 PRICE. The Option price per share shall be determined by the
Securities Exchange ActCommittee, provided that such price shall not be below the Fair Market Value of
1934, would have been required to be
made and would not have been reportable if the corporation had beenCommon Stock subject to the rulesadjustment under Section 11.6.
6.2 NUMBER. The number of shares of Common Stock subject to the option
shall be determined by the Committee, subject to adjustment as provided in
Section 11.6. The number of shares of Common Stock subject to a stock option
shall be reduced in the same proportion that the holder thereof exercises a SAR
if any SAR is granted in conjunction with or related to the stock option.
6.3 DURATION AND TIME FOR EXERCISE. Subject to earlier termination as
provided in Section 11.4, the term of each stock option shall be determined by
the Committee but shall not exceed ten years and regulations.one day from the date of grant.
Each stock option shall become exercisable at such time or times during its term
as shall be determined by the Committee at the time of grant. The Committee may
accelerate the exercisability of any stock option. Subject to the foregoing and
with the approval of the Committee, all or any part of the shares of Common
Stock with respect to which the right to purchase has accrued may be purchased
by the Company at the time of such accrual or at any time or times thereafter
during the term of the option.
6.4 MANNER OF EXERCISE. A stock option may be exercised, in whole or in
part, by giving written notice to the Company, specifying the number of shares
of Common Stock to be purchased and accompanied b the full purchase price for
such shares. The option price shall be payable in United States dollars upon
exercise of the option and may be paid by cash; uncertified or certified check;
bank draft; by delivery of shares of Common Stock in payment of all or any part
of the option price, which shares shall be valued for this purpose at the Fair
Market Value on the date such option is exercised; by instructing the Company to
withhold from the shares of Common Stock issuable upon exercise of the stock
option shares of Common Stock in payment of all or any part of the option price,
which shares shall be valued for this purpose at the Fair Market Value or in
such other manner as may be authorized from time to time by the Committee. Prior
to the issuance of shares of Common Stock upon the exercise of a stock option, a
participant shall have no rights as a stockholder.
6.5 INCENTIVE STOCK OPTIONS. Notwithstanding anything in the Plan to the
contrary, the following additional provisions shall apply to the grant of stock
options which are intended to qualify as Incentive Stock Options, as such term
is defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"):
a) The aggregate Fair Market Value (determined as of the time the
option is granted) of the shares of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by and any
participant during any calendar year (under all of the Company's plans)
shall not exceed $100,000.
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b) Any Incentive Stock Option certificate authorized under the Plan
shall contain such other provisions as the Committee shall deem advisable,
but shall in all events be consistent with and contain all provisions
required in order to qualify the options as Incentive Stock Options.
c) All Incentive Stock Options must be granted within ten years from
the earlier of the date on which this Plan was adopted by the Board or the
date this Plan was approved by the stockholders.
d) Unless sooner exercised, all Incentive Stock Options shall expire
no later than 10 years after the date of grant.
e) The option price of Incentive Stock Options shall be not less than
the Fair Market Value of the Common Stock subject to the option on the date
of grant.
f) No Incentive Stock Options shall be granted to any participant who,
at the time such option is granted, would own (within the meaning of
Section 422 of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the employer
corporation or of its parent of subsidiary corporation.
7. STOCK APPRECIATION RIGHTS. A SAR is a right to receive, without payment
to the Company, a number of shares of Common Stock, cash or any combination
thereof, the amount of which is determined pursuant to the formula set forth in
Section 7.4. A SAR may be granted (a) with respect to any stock option granted
under this Plan, either concurrently with the grant of such stock option or at
such later time as determined by the Committee (as to all or any portion of the
shares of Common Stock subject to the stock option), or (b) "Beneficial ownership" includes,alone, without
reference to any related stock option. Each SAR granted by the Committee under
this Plan shall be subject to the following terms and conditions:
7.1 NUMBER. Each SAR is granted to any participant shall relate to such
number of shares of Common Stock as shall be determined by the Committee,
subject to adjustment as provided in Section 11.6. In the case of a SAR granted
with respect to a stock option, the number of shares of Common Stock to which
the SAR pertains shall be reduced in the same proportion that the holder of the
option exercises the related stock option.
7.2 DURATION. Subject to earlier termination as provided in Section 11.4,
the term of each SAR shall be determined by the Committee but shall not exceed
ten years and one day from the date of grant. Unless otherwise provided by the
Committee, each SAR shall become exercisable at such time or times, to such
extent and upon such conditions as the stock option, if any, to which it relates
is not limitedexercisable. The Committee may in its discretion accelerate the
exercisability of any SAR.
7.3 EXERCISE. A SAR may be exercised, in whole or in part, by giving
written notice to the Company, specifying the number SARs which the holder
wishes to exercise. Upon receipt of such written notice, the Company shall,
within ninety (90) days thereafter, deliver to the exercising holder
certificates for the shares of Common Stock or cash or both, as determined by
the Committee, to which the holder is entitled pursuant to Section 7.4.
7.4 PAYMENT. Subject to the right of the Committee to acquiredeliver cash in lieu
of shares or securities throughof Common Stock (which, as it pertains to officers and directors of
the Company, shall comply with all requirements of the 1934 Act), the number of
shares of Common Stock which shall be issuable upon the exercise of options, warrants, or
rights, ora SAR shall
be determined by dividing:
a) the conversionnumber of convertible securities, or otherwise. The shares or
securitiesof Common Stock as to which the SAR is
exercised multiplied by the amount of the appreciation in such shares (for
this purpose, the "appreciation" shall be the amount by which the Fair
Market Value of the shares of Common Stock subject to the options, warrants, rights, or conversion privileges
held by a person shall be deemed to be outstanding forSAR on the
purpose of computing
the percentage of outstanding shares or securities of the class or series owned
by the person, but shall not be deemed to be outstanding for the purpose of
computing the percentage of the class or series owned by any other person. A
person shall be deemed the beneficial owner of shares and securities
beneficially owned by any relative or spouse of the person or any relative of
the spouse, residingexercise date exceeds (1) in the home of the person, any trust or estate in which the
person owns ten percent or more of the total beneficial interest or serves as
trustee or executor or in a similar fiduciary capacity, any corporation or
entity in which the person owns ten percent or more of the equity, and any
affiliate of the person.
(c) When two or more persons act or agree to act as a partnership, limited
partnership, syndicate, or other group for the purposes of acquiring, owning, or
voting shares or other securitiescase of a corporation, all membersSAR related to a stock option,
the purchase price of the
partnership, syndicate, or other group are deemed to constitute a "person" and
to have acquired beneficial ownership, as of the date they first so act or agree
to act together, of all shares or securities of the corporation beneficially
owned by the person.
SUBD. 42. INTERESTED SHARES. "Interested shares" means the shares of Common Stock under the stock option or
(2) in the case of a SAR granted alone, without reference to a related
stock option, an amount which shall be determined by the Committee at the
time of grant, subject to adjustment under Section 11.6); by
b) the Fair Market Value of a share of Common Stock on the exercise
date.
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In lieu of issuing public corporation beneficially owned by anyshares of Common Stock upon the exercise of a SAR, the
Committee may elect to pay the holder of the following persons:
(1)SAR cash equal to the acquiring person; (2)Fair Market
Value on the exercise date of any officeror all of the issuing public corporation; or
(3) any employeeshares which would otherwise be
issuable. No fractional shares of Common Stock shall be issued upon the exercise
of a SAR; instead, the holder of the issuing public corporation who is alsoSAR shall be entitled to receive a directorcash
adjustment equal to the same fraction of the issuing public corporation.
SUBD. 43. AFFILIATE. "Affiliate" meansFair Market Value of a personshare of
Common Stock on the exercise date or to purchase the portion necessary to make a
whole share at its Fair Market Value on the date of exercise.
8. STOCK AWARDS AND RESTRICTED STOCK. A stock award consists of the
transfer by the Company to a participant of shares of Common Stock, without
other payment therefor, as additional compensation for services to the Company.
A share of restricted stock consists of shares of Common Stock which are sold or
transferred by the Company to a participant at a price determined by the
Committee (which price shall be at least equal to the minimum price required by
applicable law for the issuance of a share of Common Stock) and subject to
restrictions on their sale or other transfer by the participant. The transfer of
Common Stock pursuant to stock awards and the transfer and sale of restricted
stock shall be subject to the following terms and conditions:
8.1 NUMBER OF SHARES. The number of shares to be transferred or sold by
the Company to a participant pursuant to a stock award or as restricted stock
shall be determined by the Committee.
8.2 SALE PRICE. The Committee shall determine the price, if any, at which
shares of restricted stock shall be sold to a participant, which may vary from
time to time and among participants and which may be below the Fair Market Value
of such shares of Common Stock at the date of sale.
8.3 RESTRICTIONS. All shares of restricted stock transferred or sold
hereunder shall be subject to such restrictions as the Committee may determine,
including, without limitation any or all of the following:
a) a prohibition against the sale, transfer, pledge or other
encumbrance of the shares of restricted stock, such prohibition to lapse at
such time or times as the Committee shall determine (whether in annual or
more frequent installments, at the time of the death, disability or
retirement of the holder of such share, or otherwise);
b) a requirement that directlythe holder of shares of restricted stock
forfeit, or indirectly controls, is controlled(in the case of shares sold to a participant) resell back to
the Company at his or her cost, all or part of such shares in the event of
termination of his or her employment or consulting engagement during any
period in which such shares are subject to restrictions;
c) such other conditions or restrictions as the Committee may deem
advisable.
8.4 ESCROW. In order to enforce the restrictions imposed by or is under common controlthe Committee
pursuant to Section 8.3, the participant receiving restricted stock shall enter
into an agreement with the Company setting forth the conditions of the grant.
Shares of restricted stock shall be registered in the name of the participant
and deposited, together with a specified person.
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APPENDIX B
Lyle Berman
c/o Lakes Entertainment, Inc.
130 Cheshire Lane
Minnetonka, Minnesota 55305
January 3, 2003
Boardstock power endorsed in blank, with the Company.
Each such certificate shall bear a legend in substantially the following form:
The transferability of Directors
Lakes Entertainment, Inc.
130 Cheshire Lane
Minnetonka, Minnesota 55305
Re: Information Statement under Control Share Acquisition Act, Minn. Stat.
Section 302A.671, Subd. 2.
Ladiesthis certificate and Gentlemen:
On December 8, 2000, Mr. Lyle Berman directly purchased 270,300the shares of common stock, $.01 par value per share (the "Common Stock"),Common Stock
represented by it are subject to the terms and conditions (including
conditions of forfeiture) contained in the 1998 Stock Option and
Compensation Plan of Lakes Entertainment, Inc. (the "Company"), thereby increasing his aggregate beneficial
ownership percentageand an
agreement entered into between the registered owner and the Company. A copy
of the Plan and the agreement is on file at the office of the secretary of
the Company.
8.5. END OF RESTRICTIONS. Subject to Section 11.5, at the end of any time
period during which the shares of restricted stock are subject to forfeiture and
restrictions on transfer, such shares will be delivered free of all restrictions
to the participant or to the participant's legal representative, beneficiary or
heir.
8.6 STOCKHOLDER. Subject to the terms and conditions of the Plan, each
participant receiving restricted stock shall have all the rights of a
stockholder with respect to shares of stock during any period in which such
shares are subject to forfeiture and restrictions on transfer, including without
limitation, the right to vote such
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shares. Dividends paid in cash or property other than Common Stock with respect
to shares of restricted stock shall be paid to the participant currently.
9. PERFORMANCE SHARES. A performance share consists of an award which
shall be paid in shares of Common Stock, as described below. The grant of
performance share shall be subject to such terms and conditions as the Committee
deems appropriate, including the following:
9.1 PERFORMANCE OBJECTIVES. Each performance share will be subject to
performance objectives for the Company or one of its operating units to be
achieved by the end of a specified period. The number of performance shares
granted shall be determined by the Committee and may be subject to such terms
and conditions, as the Committee shall determine. If the performance objectives
are achieved, each participant will be paid in shares of Common Stock or cash.
If such objectives are not met, each grant of performance shares may provide for
lesser payments in accordance with formulas established in the award.
9.2 NOT STOCKHOLDER. The grant of performance shares to a participant
shall not create any rights in such participant as a stockholder of the Company,
from 18.22%until the payment of shares of Common Stock with respect to 20.59% (the "Control Share
Acquisition"). Mr. Berman has subsequently increased his beneficial ownership to
22.35%an award.
9.3 NO ADJUSTMENTS. No adjustment shall be made in a separate transaction. Mr. Berman is providing the information
contained hereinperformance shares
granted on account of cash dividends which may be paid or other rights which may
be issued to the holders of Common Stock prior to the end of any period for
which performance objectives were established.
9.4 EXPIRATION OF PERFORMANCE SHARE. If any participant's employment or
consulting engagement with the Company is terminated for any reason other than
normal retirement, death or disability prior to the achievement of the
participant's stated performance objectives, all the participant's rights on the
performance shares shall expire and terminate unless otherwise determined by the
Committee. In the event of termination by reason of death, disability, or normal
retirement, the Committee, in its own discretion may determine what portions, if
any, of the performance shares should be paid to the participant.
10. CASH AWARDS. A cash award consists of a monetary payment made by the
Company to a participant as additional compensation for his or her services to
the Company. Payment of a cash award will normally depend on achievement of
performance objectives by the Company or by individuals. The amount of any
monetary payment constituting a cash award shall be determined by the Committee
in its sole discretion. Cash awards may be subject to other terms and
conditions, which may vary from time to time and among participants, as the
Committee determines to be appropriate.
11. GENERAL.
11.1 EFFECTIVE DATE. The Plan will become effective upon its adoption by
the Board.
11.2 DURATION. The Plan shall remain in effect until all Incentives
granted under the Plan have either been satisfied by the issuance of shares of
Common Stock or the payment of cash or been terminated under the terms of the
Plan and all restrictions imposed on shares of Common Stock in connection with
their issuance under the Plan have lapsed. No Incentives may be granted under
the Plan after the tenth anniversary of the date the Plan is approved by the
stockholders of the Company.
11.3 NON-TRANSFERABILITY OF INCENTIVES. No stock option, SAR, restricted
stock or performance award may be transferred, pledged or assigned by the holder
thereof except, in the event of the holder's death, by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code of Title I of the Employee Retirement Income Security Act,
or the rules thereunder, and the Company shall not be required to recognize any
attempted assignment of such rights by any participant.
11.4 EFFECT OF TERMINATION OR DEATH. In the event that a participant
ceases to be an employee of or consultant to the Company for any reason,
including death, any Incentives may be exercised or shall expire at such times
as may be determined by the Committee.
11.5 ADDITIONAL CONDITION. Notwithstanding anything in this Plan to the
contrary: (a) the Company may, if it shall determine it necessary or desirable
for any reason, at the time of award of any Incentive or the issuance of any
shares of Common Stock pursuant to any Incentive, require the recipient of the
Incentive, as a
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condition to the receipt thereof or to the receipt of shares of Common Stock
issued pursuant thereto, to deliver to the Company a written representation of
present intention to acquire the Incentive or the shares of Common Stock issued
pursuant thereto for his or her own account for investment and not for
distribution; and (b) if at any time the Company further determines, in its sole
discretion, that the listing, registration or qualification (or any updating of
any such document) of any Incentive or the shares of Common Stock issuable
pursuant thereto is necessary on any securities exchange or under any federal or
state securities or blue sky law, or that the consent or approval of any
governmental regulatory body is necessary of desirable as a condition of, or in
connection with the Company's annual meetingaward of shareholders andany Incentive, the consideration byissuance of shares of Common
Stock pursuant thereto, or the shareholdersremoval of any restrictions imposed on such
shares, such Incentive shall not be awarded or such shares of Common Stock shall
not be issued or such restrictions shall not be removed, as the case may be, in
whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
11.6 ADJUSTMENT. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations, there
shall be substituted for each of the shares of Common Stock then subject to the
Plan, including shares subject to restrictions, options, or achievement of
performance share objectives, the number and kind of shares of stock or other
securities to which the holders of the shares of Common Stock will be entitled
pursuant to the transaction. In the event of any recapitalization, stock
dividend, stock split, combination of shares or other change in the Common
Stock, the number of shares of Common Stock then subject to the Plan, including
shares subject to restrictions, options or achievements of performance shares,
shall be adjusted in proportion to the change in outstanding shares of Common
Stock. In the event of any such adjustments, the purchase price of any option,
the performance objectives of any Incentive, and the shares of Common Stock
issuable pursuant to any Incentive shall be adjusted as and to the extent
appropriate, in the discretion of the Committee, to provide participants with
the same relative rights before and after such adjustment.
11.7 INCENTIVE PLANS AND AGREEMENTS. Except in the case of stock awards or
cash awards, the terms of each Incentive shall be stated in a resolutionplan or agreement
approved by the Committee. The Committee may also determine to approve voting rightsenter into
agreements with holders of options to reclassify or convert certain outstanding
options, within the terms of the Plan, as Incentive Stock Options or as
non-statutory stock options and in order to eliminate SARs with respect to certain sharesall
or part of common
stock heldsuch options and any other previously issued options.
11.8 WITHHOLDING.
a) The Company shall have the right to withhold from any payments made
under the Plan or to collect as a condition of payment, any taxes required
by Mr. Berman.
Pursuantlaw to be withheld. At any time when a participant is required to pay to
the Minnesota Statutes Section 302A.671 and related definitions
(the "Control Share Acquisition Act"), the following information relatingCompany an amount required to the
direct and indirect ownershipbe withheld under applicable income tax
laws in connection with a distribution of Common Stock or upon exercise of
an option or SAR, the participant may satisfy this obligation in whole or
in part by Mr. Lyle Berman is furnishedelecting (the "Election") to have the Company withhold from the
distribution shares of Common Stock having a value up to the amount
required to be withheld. The value of the shares to be withheld shall be
based on the Fair Market Value of Common Stock on the date that the amount
of tax to be withheld shall be determined ("Tax Date").
b) Each Election must be made prior to the Tax Date. The Committee may
disapprove of any Election, may suspend or terminate the right to make
Elections, or may provide with respect to any Incentive that the right to
make Elections shall not apply to such Incentive. An Election is
irrevocable.
c) If a participant is an officer or director of the Company within
the meaning of Section 16 of the 1934 Act, then an Election must comply
with all of the requirements of the 1934 Act.
11.9 NO CONTINUED EMPLOYMENT, ENGAGEMENT OR RIGHT TO CORPORATE ASSETS. No
participant under the Plan shall have any right, because of his or her
participation, to continue in the employ of, or to continue his or her
consulting engagement for, the Company for any period of time or to any right to
continue his or her present or any other rate of compensation. Nothing contained
in the Plan shall be construed as giving an "information statement"employee, a consultant, such
persons' beneficiaries, or any other person, any equity or interests of any kind
in
A-6
the assets of the Company or creating a trust of any kind or a fiduciary
relationship of any kind between the Company and any such person.
11.10 DEFERRAL PERMITTED. Payment of cash or distribution of any shares of
Common Stock to which a participant is entitled under any Incentive shall be
made as provided in the Incentive. Payment may be deferred at the option of the
participant if provided in the Incentive.
11.11 AMENDMENT OF THE PLAN. The Board may amend or discontinue the Plan
at any time. However, no such amendment or discontinuance shall, subject to
adjustment under Section 302A.671, Subd. 2.
A. IDENTITY AND BACKGROUND.
Mr. Berman,11.6, (a) change or impair, without the consent of the
recipient, an Incentive previously granted, (b) materially increase the maximum
number of shares of Common Stock which may be issued to all participants under
the Plan, (c) materially increase the benefits that may be granted under the
Plan, (d) materially modify the requirements as to eligibility for participation
in the Plan, or (e) materially increase the benefits accruing to participants
under the Plan.
11.12 IMMEDIATE ACCELERATION OF INCENTIVES. Notwithstanding any provision
in this Plan or in any Incentive to the contrary, (a) the restrictions on all
shares of restricted stock awards shall lapse immediately, (b) all outstanding
options and SARs will become exercisable immediately, and (c) all performance
shares shall be deemed to be met and payment made immediately, if subsequent to
the date that the Plan is approved by the Board of Directors of the Company, any
of the following events occur unless otherwise determined by the Board and a
majority of the Continuing Directors (as defined below).
a) any person or group of persons becomes the beneficial owner of
thirty percent (30%) or more of any equity security of the Company entitled
to vote for the election of directors;
b) a majority of the members of the Board is replaced within the
period of less than two (2) years by directors not nominated and approved
by the Board; or
c) the stockholders of the Company approve an agreement to merge or
consolidate with or into another corporation or an agreement to sell or
otherwise dispose of all or substantially all of the Company's assets
(including a plan of liquidation).
For purposes of this Section 11.12, beneficial ownership by a person or
group of persons shall be determined in accordance with Regulation 13D (or any
similar successor regulation) promulgated by the Securities and Exchange
Commission pursuant to the 1934 Act. Beneficial ownership of more than thirty
percent (30%) of an equity security may be established by any reasonable method,
but shall be presumed conclusively as to any person who files a Schedule 13D
report with the Securities and Exchange Commission reporting such ownership. If
the restrictions and forfeitability periods are eliminated by reason of
provision (1), the limitations of this Plan shall not become applicable again
should the person cease to own thirty percent (30%) or more of any equity
security of the Company.
For purposes of this Section 11.12, "Continuing Directors" are directors
(a) who were in office prior to the time any of provisions (1), (2) or (3)
occurred or any person publicly announced an intention to acquire twenty percent
(20%) or more of any equity security of the Company, (b) directors in office for
a period of more than two years, and (c) directors nominated and approved by the
Continuing Directors.
11.13 DEFINITION OF FAIR MARKET VALUE. Whenever "Fair Market Value" of
Common Stock shall be determined for purposes of this Plan, it shall be
determined by reference to that last sale price of a share of Common Stock on
the principal United State Securities Exchange registered under the 1934 Act on
which the Common Stock is listed (the "Exchange"), or, on the National
Association of Securities Dealers, Inc. Automatic Quotation System (including
the National Market System) ("NASDAQ") on the applicable date. If the Exchange
or NASDAQ is closed for trading on such date, or if the Common Stock does not
trade on such date, then the last sale price used shall be the one on the date
the Common Stock last traded on the Exchange or NASDAQ. If the Common Stock is
not listed on an Exchange or on NASDAQ, "Fair Market Value" shall be determined
by the Board of Directors of the Company, which such valuation determination
shall be conclusive.
A-7
APPENDIX B
LAKES ENTERTAINMENT, INC.
1998 DIRECTOR STOCK OPTION PLAN
1. PURPOSE. The purpose of the Lakes Entertainment, Inc. 1998 Director
Stock Option Plan (the "PLAN") is to advance the interests of Lakes
Entertainment, Inc. (the "COMPANY") and its shareholders by encouraging
increased share ownership by members of the Board of Directors of the Company
(the "BOARD") who are not employees of the Company or any of its subsidiaries,
in order to promote long-term shareholder value through his direct and indirectcontinuing ownership of
the Company's Common Stock, is an "acquiring person" as definedStock.
2. ADMINISTRATION. The plan shall be administered by the Control Share
Acquisition Act. Mr. Berman isBoard. The Board
shall have all the Chairman of the Board of Directors and the
Chief Executive Officer of the Company. Mr. Berman has direct ownership over
2,151,433 shares of the Company's Common Stock (including 750,000 shares
issuable upon exercise of options). Mr. Berman also has indirect ownership over
393,528 shares of Common Stock. Of such indirectly-owned shares, (i) 20,625
shares are heldpowers vested in it by Mr. Berman's spouse; (ii) 11,403 shares are held by Berman
Consulting Corp., a Minnesota corporation wholly-owned by Mr. Berman; (iii)
161,500 shares are held by Berman Consulting Corp.'s profit sharing plan; and
(iv) 200,000 may be acquired by Berman Consulting Corp. pursuant to a
convertible promissory note issued to Berman Consulting Corp. by Stanley M.
Taube (as discussed below). This beneficial ownership represents 21.96% of the
Lakes common stock as of November 8, 2002.
During the last five years, Mr. Berman has not been (i) convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors), or
(ii) party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
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The Company was incorporated in the State of Minnesota on June 18, 1998,
and is primarily engaged in the business of developing, constructing and
managing casinos and related hotel and entertainment facilities in emerging and
established gaming jurisdictions. Berman Consulting Corp. was incorporated in
the State of Minnesota on August 31, 1989.
B. REFERENCE TO STATUTORY SECTION.
This information statement is made pursuant to the requirements of the
Minnesota Control Share Acquisition Act contained in Section 302A.671 of the
Minnesota Business Corporation Act.
C. NUMBER AND CLASS OR SERIES OF SHARES OF LAKES ENTERTAINMENT, INC.
BENEFICIALLY OWNED, DIRECTLY OR INDIRECTLY, BEFORE THE CONTROL SHARE
ACQUISITION.
Prior to the consummation of the Control Share Acquisition, Mr. Berman
beneficially owned, directly or indirectly, 2,074,661 shares of the Company's
Common Stock. Based on 10,637,953 shares of Common Stock reported as outstanding
on November 8, 2000 in the Company's Form 10-Q for the quarter ended October 1,
2000, such direct and indirect beneficial ownership represented 18.22% of the
total issued and outstanding shares of the Company's Common Stock.
D. NUMBER AND CLASS OR SERIES OF SHARES OF THE COMPANY ACQUIRED PURSUANT TO THE
CONTROL SHARE ACQUISITION AND SPECIFICATION OF THE RANGE OF VOTING POWER IN
THE ELECTION OF DIRECTORS THAT, EXCEPT FOR SECTION 302A.671, RESULTS FROM THE
CONSUMMATION OF THE CONTROL SHARE ACQUISITION.
Immediately following the Control Share Acquisition, Mr. Berman
beneficially owned, directly or indirectly, 2,344,961 shares of the Company's
Common Stock. Based on 10,637,953 shares of Common Stock reported as outstanding
on November 8, 2000 in the Company's Form 10-Q for the quarter ended October 1,
2000, such direct and indirect ownership represented 20.59% of Lakes' Common
Stock. As a result of the Control Share Acquisition, Mr. Berman has voting power
in the election of directors that, except for the application of the Minnesota
Control Share Act, would be in the 20% to 33 1/3% range, within the meaning of
Section 302A.671, subd. 2(d) of the Minnesota Business Corporation Act.
E. TERMS OF THE CONTROL SHARE ACQUISITION.
On December 8, 2000, Mr. Berman directly purchased 270,300 shares of Common
Stock, which acquisition constituted a "control share acquisition" because
pursuant to such acquisition, Mr. Berman increased his aggregate beneficial
ownership percentage in the Company from 18.22% to 20.59%. Mr. Berman used
personal funds to obtain the shares of Common Stock in the Control Share
Acquisition.
Following the Control Share Acquisition, on or about January 4, 2001,
Berman Consulting Corp. loaned $1,600,000 to Stanley M. Taube pursuant to a
convertible promissory note. As part of the loan transaction, Mr. Taube pledged
200,000 shares of the Common Stock as security for his payment obligations under
the convertible promissory note. Pursuant to the terms of the convertible
promissory note, Berman Consulting Corp. hasPlan, such powers to
include authority (within the right, at its option, at any
time on or after November 1, 2002,limitations described herein) to take legal titleprescribe the
form of the agreement embodying awards of nonqualified stock options made under
the Plan ("OPTIONS"). The Board shall, subject to the pledged shares in
full satisfactionprovisions of Mr. Taube's payment obligationsthe Plan,
grant Options under the convertible
promissory note. As a result, Mr. Berman acquired indirect beneficial ownershipPlan and shall have the power to construe the Plan, to
determine all questions arising thereunder and to adopt and amend such rules and
regulations for the administration of such shares on or about January 4, 2001, thereby increasing his aggregate
beneficial ownership percentagethe Plan as it may deem desirable. Any
decisions of the Board in the Company 20.59% to 21.96%. This ownership
percentage is based on the outstanding shares as of November 8, 2002, as
disclosed in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 29, 2002 and filed on November 13, 2002.
The sharesadministration of the Company's Common Stock beneficially ownedPlan, as described herein,
shall be final and conclusive. The Board may act only by Mr. Berman
are held solely for investment purposes. Although Mr. Berman has not formulateda majority of its
members in office, except that the members thereof may authorize any definitive plan, he may from time to time acquire,one or disposemore
of Common
Stock and/their number or any other securitiesofficer of the Company ifto execute and when he deems it
appropriate. Mr. Berman may formulate other purposes, plans or proposals
relating to any of such securities of
B-2
the Company to the extent deemed advisable in light of market conditions,
investment policies and other factors. Except as indicated in this information
statement, Mr. Berman has no current plans or proposals to (1) liquidate or
dissolve the Company; (2) sell all or a substantial part of its assets or merge
it or exchange its shares with any other person; (3) change the location of its
principal place of business or its principal executive office or of a material
portion of its business activities; (4) change materially its management or
policies of employment; (5) change materially its charitable or community
contributions or its policies, programs, or practices relating thereto; (6)
change materially its relationship with suppliers or customers or the
communities in which it operates; or (7) make any other material change in its
business, corporate structure, management or personnel.
If any material change occurs in the facts set forth in this information
statement, Mr. Berman shall promptly deliver
to the Company at its principal
executive office and amendment to this information statement containing
information relating to the material change.
Very truly yours,
Lyle Berman
B-3
APPENDIX C
LAKES ENTERTAINMENT, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE.
The primary functiondocuments on behalf of the Audit Committee (the "Committee") is to assist
the Board of Directors (the "Board") in fulfilling its oversight
responsibilities by reviewing: the financial reports and other financial
information provided by the Corporation to any governmental body or the public;
the Corporation's systems of internal controls regarding finance, accounting,
legal compliance and ethics that management and the Board have established; and
the Corporation's auditing, accounting and financial reporting processes
generally. Consistent with this function, the Committee should encourage
continuous improvement of, and should foster adherence to, the corporation's
policies, procedures and practices at all levels. The Committee's primary duties
and responsibilities are to:
- Serve as an independent and objective party to monitor the Corporation's
financial reporting process and internal control system.
- Review and appraise the audit performed by the Corporation's independent
accountants, who report directly to the Committee.
- Provide an open avenue of communication among the independent
accountants, financial and senior management and the Board. The Committee will primarily fulfill these responsibilities by carrying out
the activities enumerated in Section IV of this Charter.
II. COMPOSITION.
The Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be independent directors (as defined by all
applicable rules and regulations of the Securities and Exchange Commission (the
"Commission"), Nasdaq and any other appropriate body), and free from any
relationship that, in the opinionNo member of the Board would interfere with the
exercise of hisshall be liable for
anything done or her independent judgement as aomitted to be done by him or by any other member of the Committee. All
members ofBoard
in connection with the Committee shall have a working familiarity with basic finance and
accounting practices, including being able to read and understand financial
statements, and at least onePlan, except for his own willful misconduct or as
expressly provided by statute.
3. PARTICIPATION. Each member of the Committee shall have accounting or
related financial management expertise. The Committee shall endeavor to have,Board who is a non-employee director
(a "NON-EMPLOYEE DIRECTOR") as one of its members, an individual who qualifies as an "audit committee financial
expert"such term is defined in compliance with the criteria established by the Commission and other
relevant regulations at the time the regulations require disclosure of the
existence of an audit committee financial expert. The existence of such audit
committee financial expert, including his or her name and whether or not he or
she is independent, or the lack of an audit committee financial expert, shall be
disclosed in the Corporation's periodic filings as required by the Commission.
Committee members may enhance their familiarity with finance and accounting
by participating in educational programs conducted by the Corporation or an
outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board and shall serve until the next annual
organizational meeting of the Board or until their successors have been duly
elected and qualified. Unless a Chair is elected by the full Board, the members
of the Committee may designate a Chair by majority vote of the full Committee
membership.
C-1
III. MEETINGS.
The Committee shall meet at least two times annually, or more frequently as
circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with management and the independent
accountants in separate executive sessions to discuss any matters that the
Committee or each of these groups believe should be discussed privately.
IV. RESPONSIBILITIES AND DUTIES.
To fulfill its responsibilities and duties, the Committee is expected to:
1. Provide an open avenue of communication between the Corporation,
the independent accountants and the Board.
2. Review the Committee's charter at least annually and recommend to
the Board any necessary or desirable amendments as conditions may dictate.
3. Maintain sole authority and responsibility for hiring and firing
the independent accountants, and maintain direct responsibility for the
appointment, compensation, and oversight of the independent accountants'
work (including resolution of disagreements between management and the
auditor regarding financial reporting) for the purpose of preparing or
issuing an audit report or related work. The independent accountants shall
report directly to the Committee.
4. Assess the effectiveness of the Corporation's internal control
environment, and evaluate the need for an internal audit function; Discuss
with management any significant deficiencies in internal controls that have
been identifies by the Chief Executive Officer or Chief Financial Officer
which could adversely affect the Corporation's ability to record, process,
summarize or report financial data.
5. Confirm and assure the independence of the internal audit function
and the independent accountant, including considering whether the
independent accountant's performance of permissible non-audit services and
the compensations received for such services is compatible with the
independent accountant's independence.
6. Review and pre-approve the performance of all audit and non-audit
accounting services to be performed by the independent accountant (other
than with respect to de minimus exceptions permitted by the Sarbanes-Oxley
Act of 2002), to the extent such services are permitted under applicable
rules and regulation. By action of the Committee, the authority to grant
pre-approval may be delegated to one or more designated members of the
Committee who are independent members of the Board, with any such
pre-approval to be reported to the Committee at its next regularly
scheduled meeting. Approval of non-audit services shall be disclosed to
investor in the Corporation's periodic reports required by Section 13(a)Rule 16b-3 of the
Securities Exchange Act of 1934, as amended.
7. Inquireamended, shall be eligible to receive an
Option in accordance with Paragraph 5 below.
4. AWARDS UNDER THE PLAN.
(a) Awards under the Plan shall include only Options, which are rights
to purchase common stock of management and the independent accountants about
significant risks or exposures and assess the steps management has taken to
minimize such riskCompany having a par value of $0.01 per
share (the "COMMON STOCK"). Such Options are subject to the Corporation.
8. Consider,terms,
conditions and restrictions specified in consultationParagraph 5 below.
(b) There may be issued under the Plan pursuant to the exercise of
Options an aggregate of not more than 200,000 shares of Common Stock,
subject to adjustment as provided in Paragraph 6 below. If any Option is
canceled, terminates or expires unexercised, in whole or in part, any
shares of Common Stock that would otherwise have been issuable pursuant
thereto will be available for issuance under new Options.
(c) A Non-Employee Director to whom an Option is granted (and any
person succeeding to such a Non-Employee Director's rights pursuant to the
Plan) shall have no rights as a shareholder with respect to any Common
Stock issuable pursuant to any such Option until the date of the issuance
of a stock certificate to him for such shares. Except as provided in
Paragraph 6 below, no adjustment shall be made for dividends, distributions
or other rights (whether ordinary or extraordinary, and whether in cash,
securities or other property) for which the record date is prior to the
date such stock certificate is issued.
5. NONQUALIFIED STOCK OPTIONS. Each Option granted under the Plan shall be
evidenced by an agreement in such form as the Board shall prescribe from time to
time in accordance with the independent accountant,Plan and shall comply with the audit scopefollowing terms and
planconditions:
(a) The Option exercise price shall be the "Fair Market Value" (as
herein defined) of the independent accountant.
9. ConsiderCommon Stock subject to such Option on the date the
Option is granted. Fair Market Value shall be the closing sales price of a
share of Common Stock on the date of grant as reported on the Nasdaq
National Market (the "MARKET") or, if the Market is closed on that date, on
the last preceding date on which the Market
B-1
was open for trading, but in no event will such Option exercise price be
less than the par value of the Common Stock.
(b) The Option shall not be transferable by the optionee otherwise
than by will or the laws of descent and reviewdistribution, and shall be
exercisable during his lifetime only by him.
(c) Options shall not be exercisable:
(i) before the expiration of one year from the date they are
granted and after the expiration of ten years from the date they are
granted, and may be exercised during such period as follows: twenty
(20%) of the total number of shares covered by the Option shall become
exercisable each year beginning with the independent accountant:
(a) The adequacyfirst anniversary of the Corporation's internal controls, including
computerized information system controls and security.
(b) Any related significant findings and recommendationsdate
they are granted, provided, however, that the Board of Directors can
approve an accelerated vesting schedule based upon the length of time
that a Non-Employee Director has served in such capacity prior to the
adoption of this Plan. Notwithstanding anything to the contrary herein,
an Option shall automatically become immediately exercisable in full (i)
in the event of the independent accountant together with management's responses thereto.
C-2
10. Reviewdeath of a Non-Employee Director; (ii) upon the
following items with management and the independent
accountant at the completionremoval of the annual examination and recommend toNon-Employee Director from the Board whether the financial statements should be includedwithout cause; (iii)
in the Annual
Report on Form 10-K:
(a) The Corporation's annual financial statements and related
footnotes.
(b) The independent accountant's auditevent the Non-Employee Director is not re-nominated or re-elected
as a Director; (iv) in the event of a "change in control" of the
financial statementsCompany, as defined in any existing agreements between the Company and
hisits senior officers; or her report thereof.
(c) Any significant changes required(v) in the independent
accountant's audit plan.
(d) Any serious difficulties or disputes with management
encountered duringevent the course ofNon-Employee Director
voluntarily resigns from the audit.
(e) Other matters related to the conduct of the audit which are to
be communicated to the Committee under SAS numbers 61 and 90.
11. Review with management, andBoard, if appropriate, with the independent
accountants, the interim financial results that are filed with the
Commission or other regulators.
12. Review with management legal and regulatory matters that may have
a material impact on the financial statements, related company compliance
policies, and programs and reports received from regulators.
13. Review the Corporation's critical accounting policies and
estimates, all alternative treatments of financial information within GAAP
discussed between the independent accounts and management, and all other
material written communications between the independent accounts and
management.
14. Review the internal controls report prepared by management for
insertion into the annual report and the independent accountant's
attestation on the assertions of management that are contained in the
internal controls report.
15. Ensure there is a process for the confidential, anonymous
submission by the Corporation's employees of concerns regarding
questionable accounting and auditing matters.
16. Ensure procedures are established for the receipt, retention and
treatment of complaints received by the Corporation regarding accounting,
auditing, and internal accounting controls.
17. Review and approve (with the concurrence of a majority of the disinterested membersBoard
(excluding the Non-Employee Director) agrees to accelerate the vesting
of the Board) any related partyOption and affiliated party
transactions.
18. Report Committee actionsdetermines in good faith that such acceleration is in
the best interest of the Company;
(ii) unless payment in full is made for the shares of Common Stock
being acquired thereunder at the time of exercise. Such payment shall be
made in United States dollars by cash or check, or in lieu thereof, by
tendering to the BoardCompany Common Stock owned by the person exercising the
Option and having a Fair Market Value equal to the cash exercise price
applicable to such Option, or by a combination of United States dollars
and Common Stock as aforesaid; and
(iii) unless the person exercising the Option has been at all times
during the period beginning with the date of grant of the Option and
ending on the date of such recommendationsexercise, a Non-Employee Director of the
Company, except that
(A) if such person shall cease to be such a Non-Employee
Director for reasons other than death, while holding an Option that
has not expired and has not been fully exercised, such person may, at
any time within three years of the date he ceased to be a
Non-Employee Director (but in no event after the Option has expired
under the provisions of subparagraph 5(c)(i) above), exercise the
Option with respect to any Common Stock as to which he could have
exercised on the date he ceased to be such a Non-Employee Director;
or
(B) if any person to whom an Option has been granted shall die
holding an Option that has not expired and has not been fully
exercised, his executors, administrators, heirs or distributees, as
the Committeecase may deem appropriate.
19. The Committeebe, may, at any time within one year after the date of
such death (but in no event after the Option has expired under the
provisions of subparagraph 5(c)(i) above), exercise the Option with
respect to any shares subject to the Option.
(d) Each Non-Employee Director shall receive an Option to purchase
12,500 shares of Common Stock upon becoming a director of the Company.
(e) In addition to the initial option grants provided for in paragraph
5(d) above, non-employee directors and former non-employee directors may be
granted, at the discretion of the Board, additional options to purchase
Common Stock of Company. Such options shall contain such terms and
provisions as the Board determines at the time of the grant.
6. DILUTION AND OTHER ADJUSTMENT. In the event of any change in the
outstanding Common Stock of the Company by reason of any stock split, stock
dividend, split-up, split-off, spin-off, recapitalization, merger,
consolidation, rights offering, reorganization, combination or exchange of
shares, a sale by the Company of all or part of its assets, any distribution to
shareholders other than a normal cash dividend, or other extraordinary
B-2
or unusual event, the number or kind of shares that may be issued under the Plan
pursuant to subparagraph 4(b) above, and the number or kind of shares subject
to, and the Option price per share under, all outstanding Options shall be
automatically adjusted so that the proportionate interest of the participant
shall be maintained as before the occurrence of such event; such adjustment in
outstanding Options shall be made without change in the total Option exercise
price applicable to the unexercised portion of such Options and with a
corresponding adjustment in the Option exercise price per share, and such
adjustment shall be conclusive and binding for all purposes of the Plan.
7. MISCELLANEOUS PROVISIONS.
(a) Except as expressly provided for in the Plan, no Non-Employee
Director or other person shall have any claim or right to be granted an
Option under the powerPlan. Neither the Plan nor any action taken hereunder
shall be construed as giving any Non-Employee Director any right to conductbe
retained in the service of the Company.
(b) A participant's rights and interest under the Plan may not be
assigned or authorize
investigations intotransferred, hypothecated or encumbered in whole or in part
either directly or by operation of law or otherwise (except in the event of
a participant's death, by will or the laws of descent and distribution),
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any matters withinother manner, and no such right or
interest of any participant in the Committee's scopePlan shall be subject to any obligation
or liability of responsibilities.
20. The Committee hassuch participant.
(c) Common Stock shall not be issued hereunder unless counsel for the
authorityCompany shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign securities, securities
exchange and other applicable laws and requirements.
(d) It shall be a condition to engage and determine fundingthe obligation of the Company to issue
Common Stock upon exercise of an Option, that the participant (or any
beneficiary or person entitled to act under subparagraph 5(c)(iii)(B)
above) pay to the Company, upon its demand, such amount as may be requested
by the Company for outside legal, accountingthe purpose of satisfying any liability to withhold
federal, state, local or foreign income or other advisorstaxes. If the amount
requested is not paid, the Company may refuse to issue such Common Stock.
(e) The expenses of the Plan shall be borne by the Company.
(f) By accepting any Option or other benefit under the Plan, each
participant and each person claiming under or through him shall be
conclusively deemed to obtain advicehave indicated his acceptance and assistance from such outside advisors as deemed appropriateratification of,
and consent to, perform its
duties and responsibilities.
21. The Committee will perform such other functions as assignedany action taken under the Plan by law, the Corporation's charter or bylawsCompany or the
Board.
C-3(g) The appropriate officers of the Company shall cause to be filed
any reports, returns or other information regarding Options hereunder or
any Common Stock issued pursuant hereto as may be required by Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, or any other
applicable statute, rule or regulation.
8. AMENDMENT OR DISCONTINUANCE. The Plan may be amended at any time and
from time to time by the Board as the Board shall deem advisable; provided,
however, that no amendment shall become effective without shareholder approval
if such shareholder approval is required by law, rule or regulation, and in no
event shall the Plan be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code of 1986, as amended, the
Employee Retirement Income Security Act or the rules thereunder. No amendment of
the Plan shall materially and adversely affect any right of any participant with
respect to any Option theretofore granted without such participant's written
consent.
9. TERMINATION. This Plan shall terminate upon the earlier of the
following dates or events to occur upon the adoption of a resolution of the
Board terminating the Plan or ten years from the date the Plan is initially
approved and adopted by the shareholders of the Company. No termination of the
Plan shall materially and adversely affect any of the rights or obligations of
any person, without his consent, under any Option theretofore granted under the
Plan.
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[LAKES10. EFFECTIVE DATE OF PLAN. The Plan will become effective as of the
effective date of the "Grand Distribution" as such term is defined with
reference to the Agreement and Plan of Merger by and among Hilton Hotels
Corporation, Park Place Entertainment Corporation, Gaming Acquisition
Corporation, Lakes Gaming, Inc. and Grand Casinos, Inc. Dated as of June 30,
1998 and Distribution Agreement by and between Grand Casinos, Inc. and Lakes
Gaming, Inc.
B-4
(LAKES ENTERTAINMENT, INC. LOGO]LOGO)
ANNUAL MEETING
Doubletree Park Place Hotel
1500 Park Place Boulevard
Minneapolis, Minnesota
JUNE 2, 200311, 2004
3:00 P.M.
LAKES ENTERTAINMENT, INC.
FOR ANNUAL MEETING OF SHAREHOLDERS --SHAREHOLDERS-- JUNE 2, 200311, 2004 PROXY
- --------------------------------------------------------------------------------
The undersigned, a shareholder of Lakes Entertainment, Inc., hereby
appoints Lyle Berman and Timothy J. Cope, and each of them, as proxies, with
full power of substitution, to vote on behalf of the undersigned the number of
shares which the undersigned is then entitled to vote, at the Annual Meeting of
Shareholders of Lakes Entertainment, Inc. to be held at the Doubletree Park
Place Hotel, 1500 Park Place Boulevard, Minneapolis, Minnesota on June 2, 200311, 2004
at 3:00 p.m., and at any and all adjournments thereof, as specified below on the
matters referred to and in their discretion upon any other matters brought
before the meeting, with all the powers which the undersigned would possess if
personally present.
The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement relating to the Annual Meeting of Shareholders.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
When properly executed, this proxy will be voted on the proposals set forth
herein as directed by the shareholder, but if no direction is made in the space
provided, this proxy will be voted FOR the election of all nominees for
director, FOR the proposed amendments to the Lakes Entertainment, Inc. 1998
Stock Option and Compensation Plan, FOR the proposed amendments to the Lakes
Entertainment, Inc. 1998 Director Stock Option Plan and FOR approvalratification of the
amendment to the articlesappointment of incorporation.Deloitte & Touche.
See reverse for voting instructions.
- Please detach here -
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THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR ALL NOMINEES, FOR
THE PROPOSED AMENDMENTS TO THE LAKES ENTERTAINMENT, INC.
1998 STOCK OPTION AND COMPENSATION PLAN, FOR THE PROPOSED AMENDMENTS TO
THE LAKES ENTERTAINMENT, INC. 1998 DIRECTOR STOCK OPTION PLAN AND
FOR RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS AND FOR THE GRANTING
OF FULL VOTING RIGHTS TO SHARES OF THE COMMON STOCK HELD BY MR. LYLE BERMAN.AUDITORS.
1.Election1. Election of directors: 01 LYLE BERMAN 02 TIMOTHY J. COPE 03 MORRIS GOLDFARB 03 RONALD KRAMER / /[ ] FOR all nominees / /[ ] WITHHOLD
04 RONALD J. KRAMER 05 RAY MOBERG 06 NEIL I. SELL 05 TIMOTHY J. COPE (except as marked vote for all
to the contrary nominees
below) nominees listed
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(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE BOX PROVIDED TO THE RIGHT.)
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(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO --------------------------------
VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE BOX PROVIDED
TO THE RIGHT.) --------------------------------
2. To approve the proposed amendments to the Lakes Entertainment, Inc. 1998
Stock Option and Compensation Plan. [ ] For [ ] Against [ ] Abstain
3. To approve the proposed amendments to the Lakes Entertainment, Inc. 1998
Director Stock Option Plan. [ ] For [ ] Against [ ] Abstain
4. To ratify the appointment of Deloitte & Touche LLP as independent auditors
/ / For / / Against / / Abstain
of the Company for 2003.
3. To grant full voting rights to shares of the Lakes Entertainment, Inc. / /2004. [ ] For / /[ ] Against / /[ ] Abstain
common stock held by Mr. Lyle Berman, pursuant to the Minnesota Control
Share Acquisition Act.
4.5. Upon such other business as may properly come before the meeting or any
adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR ALL NOMINEES IN ITEM 1, FOR THE PROPOSED AMENDMENTS
TO THE LAKES ENTERTAINMENT, INC. 1998 STOCK OPTION AND COMPENSATION PLAN, FOR
THE PROPOSED AMENDMENTS TO THE LAKES ENTERTAINMENT, INC. 1998 DIRECTOR STOCK
OPTION PLAN AND FOR RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE, AND FOR THE GRANTING OF FULL VOTING RIGHTS
TO SHARES OF THE COMMON STOCK HELD BY MR. LYLE BERMAN.
Address Change? Mark Box Indicate changes below: / / Dated: __________, 2003TOUCHE.
Address Change? Mark Box Indicate changes below: [ ] Dated: , 2004
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Signature(s) in Box
(Shareholder must sign exactly as the
name appears at left. When signed as a
corporate officer, executor,
administrator, trustee, guardian, etc.,
please give full title as such. Both
joint tenants must sign.)