SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Confidential, for Use of the
[_] Preliminary Proxy Statement Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-12
PINNACLE ENTERTAINMENT, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[PINNACLE LOGO]
PINNACLE ENTERTAINMENT, INC.
330 NORTH BRAND BOULEVARD, SUITE 1100
GLENDALE, CALIFORNIA 91203
April 6, 2001
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Pinnacle Entertainment, Inc. ("Pinnacle" or the "Company"), to be held at the
Hilton Hotel, 100 West Glenoaks Boulevard, Glendale, California on May 22,
2001 at 9:00 a.m. local time.
At the annual meeting, you will be asked to consider and vote on the
election of nine directors to serve for the coming year on the Company's Board
of Directors until the Company's next annual meeting of stockholders (and
until such director's successor shall have been duly elected and qualified)
and on the approval of a new stock option plan. Accompanying this letter is
the formal Notice of Annual Meeting, Proxy Statement and Proxy Card relating
to the meeting. The Proxy Statement contains important information concerning
the directors to be elected at the annual meeting and the new stock option
plan we would like you to approve. We hope you will take the time to study it
carefully.
Your vote is very important, regardless of how many shares you own. We hope
you can attend the annual meeting in person. However, whether or not you plan
to attend the annual meeting, please complete, sign, date and return the Proxy
Card in the enclosed envelope. If you attend the annual meeting, you may vote
in person if you wish, even though you have previously returned your Proxy
Card.
Sincerely,
/s/ R.D. Hubbard
R.D. Hubbard
Chairman of the Board of Directors
PINNACLE ENTERTAINMENT, INC.
330 NORTH BRAND BOULEVARD, SUITE 1100
GLENDALE, CALIFORNIA 91203
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 2001
TO THE STOCKHOLDERS OF PINNACLE ENTERTAINMENT, INC.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of Pinnacle
Entertainment, Inc., a Delaware corporation ("Pinnacle" or the "Company"),
will be held on May 22, 2001, at 9:00 a.m. local time, at the Hilton Hotel,
100 West Glenoaks Boulevard, Glendale, California and at any adjournments or
postponements thereof (the "Annual Meeting"). At the Annual Meeting, the
Company's stockholders will be asked to consider and vote upon:
1. The election of nine directors to serve on the Company's Board of
Directors for the coming year, each to hold office until the next annual
meeting of stockholders (and until such director's successor shall have
been duly elected and qualified);
2. The approval of the Company's 2001 Stock Option Plan (the "2001 Stock
Option Plan"); and
3. Such other business as may properly come before the Annual Meeting or
before any adjournments or postponements thereof.
The 2001 Stock Option Plan is described in the accompanying Proxy
Statement, which you are urged to read carefully. A copy of the 2001 Stock
Option Plan is attached as Appendix A to such Proxy Statement.
Only stockholders of record of the Company's common stock at the close of
business on April 6, 2001 are entitled to notice of and to vote at the Annual
Meeting or any adjournments or postponements thereof.
Your vote is very important. TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT
THE ANNUAL MEETING, YOU ARE URGED TO COMPLETE, DATE, AND SIGN THE ENCLOSED
PROXY CARD AND MAIL IT PROMPTLY IN THE POSTAGE PAID ENVELOPE PROVIDED, WHETHER
OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. YOUR PROXY CAN BE
WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS VOTED.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Loren S. Ostrow
Loren S. Ostrow
Secretary
Glendale, California
April 6, 2001
PINNACLE ENTERTAINMENT, INC.
330 NORTH BRAND BOULEVARD, SUITE 1100
GLENDALE, CALIFORNIA 91203
PROXY STATEMENT RELATING TO
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 22, 2001
This Proxy Statement is being furnished to the stockholders of Pinnacle
Entertainment, Inc., a Delaware corporation ("Pinnacle" or the "Company"), in
connection with the solicitation of proxies by the Company's Board of
Directors for use at the Annual Meeting of the Company's stockholders to be
held on May 22, 2001, at 9:00 a.m. local time, at the Hilton Hotel, 100 West
Glenoaks Boulevard, Glendale, California, and at any adjournments or
postponements thereof (the "Annual Meeting").
At the Annual Meeting, holders of the Company's common stock, $0.10 par
value per share ("Pinnacle Common Stock"), will vote to elect nine directors
to serve on the Company's Board of Directors until the Company's next annual
meeting of stockholders (and until such director's successor shall have been
duly elected and qualified) and will vote on the approval of the Company's
2001 Stock Option Plan (the "2001 Stock Option Plan").
This Proxy Statement and the accompanying Proxy Card are first being mailed
to the Company's stockholders on or about April 17, 2001. The address of the
principal executive offices of the Company is 330 North Brand Boulevard, Suite
1100, Glendale, California 91203.
ANNUAL MEETING
Purpose
At the Annual Meeting, holders of Pinnacle Common Stock will be asked to
vote upon: (i) the election of nine directors to serve on the Company's Board
of Directors for the coming year, each to hold office until the next annual
meeting of stockholders (and until such director's successor shall have been
duly elected and qualified), (ii) the approval of the 2001 Stock Option Plan
and (iii) any other business that properly comes before the Annual Meeting.
Record Date; Outstanding Shares; Quorum
Only holders of record of Pinnacle Common Stock at the close of business on
April 6, 2001 (the "Record Date") will be entitled to notice of and to vote at
the Annual Meeting. As of the close of business on the Record Date, there were
26,046,744 shares of Pinnacle Common Stock outstanding and entitled to vote,
held of record by 3,046 stockholders. Pursuant to the Company's By-Laws, a
majority, or 13,023,373 of these shares, present in person or represented by
proxy, will constitute a quorum for the transaction of business. Each of the
Company's stockholders is entitled to one vote for each share of Pinnacle
Common Stock held as of the Record Date.
Voting of Proxies; Votes Required
Stockholders are requested to complete, date, sign and return the
accompanying Proxy Card in the enclosed envelope. All properly executed,
returned, and unrevoked Proxy Cards will be voted in accordance with the
instructions indicated thereon. Executed but unmarked Proxy Cards will be
voted FOR the election of each director nominee listed on the Proxy Card and
FOR the approval of the 2001 Stock Option Plan. The Company's Board of
Directors does not presently intend to bring any business before the Annual
Meeting other than that referred to in this Proxy Statement and specified in
the Notice of the Annual Meeting. Since the Company did not receive notice
prior to March 18, 2001 of any other matter to come before the Annual Meeting,
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as to any such other matter that may properly come before the Annual Meeting,
including any motion made for adjournment of the Annual Meeting, by signing
the Proxy Cards, stockholders confer discretionary authority on the proxies
(who are persons designated by the Board of Directors) to vote all shares
covered by the Proxy Cards on any such matter in their discretion.
Any stockholder who has given a proxy may revoke it at any time before it
is exercised at the Annual Meeting by (i) filing a written revocation with, or
delivering a duly executed proxy bearing a later date to, the Secretary of the
Company, 330 North Brand Boulevard, Suite 1100, Glendale, California 91203, or
(ii) attending the Annual Meeting and voting in person (although attendance at
the Annual Meeting will not, by itself, revoke a proxy).
Elections of directors are determined by a plurality of shares of Pinnacle
Common Stock represented in person or by proxy and voting at the Annual
Meeting. The proposal to approve the 2001 Stock Option Plan requires approval
by the affirmative vote of the holders of a majority of the shares of Pinnacle
Common Stock represented in person or by proxy and entitled to vote at the
Annual Meeting.
Abstentions; Broker Non-Votes
If an executed proxy is returned and the stockholder has specifically
abstained from voting on any matter, the shares represented by such proxy will
be considered present at the Annual Meeting for purposes of determining a
quorum and for purposes of calculating the vote, but will not be considered to
have been voted in favor of such matter. If an executed proxy is returned by a
broker holding shares in street name that indicates that the broker does not
have discretionary authority as to certain shares to vote on one or more
matters, such shares will be considered present at the meeting for purposes of
determining a quorum on all matters, but will not be considered to have cast
votes with respect to such matter or matters. Thus, while abstentions and
broker non-votes will have no effect on the outcome of the election of
directors, abstentions will have the same effect as negative votes on the
proposal to approve the 2001 Stock Option Plan. Broker non-votes will have no
effect on the proposal to approve the 2001 Stock Option Plan.
Solicitation of Proxies and Expenses
The Company will bear the cost of the solicitation of proxies from its
stockholders in the enclosed form. The directors, officers and employees of
the Company may solicit proxies by mail, telephone, telegram, letter,
facsimile or in person. Following the original mailing of the proxies and
other soliciting materials, the Company will request that brokers, custodians,
nominees and other record holders forward copies of the Proxy Statement and
other soliciting materials to persons for whom they hold shares of Pinnacle
Common Stock and request authority for the exercise of proxies. In such cases,
the Company will reimburse such record holders for their reasonable expenses.
In addition, the Company has retained D.F. King & Co., Inc. to assist in the
solicitation of proxies at a cost (including brokers' expenses) of
approximately $22,000, plus certain out-of-pocket expenses.
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PROPOSAL 1
ELECTION OF DIRECTORS
(Item No. 1 on Proxy Card)
At the Annual Meeting, holders of Pinnacle Common Stock will be asked to
vote on the election of nine directors who will constitute the full Board of
Directors of the Company. The nine nominees receiving the highest number of
votes from holders of shares of Pinnacle Common Stock represented and voting
at the Annual Meeting will be elected to the Board of Directors. Abstentions
and broker non-votes will not be counted as voting at the meeting and
therefore will not have an effect on the election of the nominees listed
below.
Each director elected will hold office until the next annual meeting of the
Company (and until his successor is elected and qualified).
The nominees listed below all currently serve on the Board of Directors of
the Company.
General
Each proxy received will be voted for the election of the persons named
below, unless the stockholder signing such proxy withholds authority to vote
for one or more of these nominees in the manner described in the proxy.
Although it is not contemplated that any nominee named below will decline or
be unable to serve as a director, in the event any nominee declines or is
unable to serve as a director, the proxies will be voted by the proxy holders
as directed by the Board of Directors.
There are no family relationships between any director, nominee or
executive officer and any other director, nominee or executive officer of the
Company. There are no arrangements or understandings between any director,
nominee or executive officer and any other person pursuant to which he has
been or will be selected as a director and/or executive officer of the
Company. See "--Information Regarding the Director Nominees of the Company."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION OF ALL OF THE
NOMINEES LISTED BELOW.
Information Regarding the Director Nominees of the Company
The following table lists the persons nominated by the Board of Directors
for election as directors of the Company and provides their ages and current
positions with the Company. The nominees all currently serve on the Board of
Directors of the Company and together constitute the entire Board of
Directors. Biographical information for each nominee is provided below.
Name Age Position with the Company
---- --- -------------------------
R.D. Hubbard(a)............ 65 Chairman of the Board of Directors
Paul R. Alanis............. 52 Director, Chief Executive Officer, President
and Chief Operating Officer
Robert T. Manfuso(b)....... 63 Director
James L. Martineau(b)...... 60 Director
Gary G. Miller(c).......... 50 Director
Michael Ornest(c).......... 43 Director
Timothy J. Parrott(a),(c).. 53 Director
Lynn P. Reitnouer(a),(b)... 68 Director
Marlin Torguson............ 56 Director
- --------
(a) Member of the Executive Committee
(b) Member of the Compensation Committee
(c) Member of the Audit Committee
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Mr. Hubbard has been a Director of the Company since 1990; Chairman of the
Board of Directors of the Company since September 1991; Chief Executive
Officer of the Company from September 1991 to June 2000; Chairman of the Board
and Chief Executive Officer, Hollywood Park Operating Company from February
1991 to September 1999; President, Hollywood Park Operating Company from
February to July 1991; Chairman, AFG Industries, Inc. and its parent company,
Clarity Holdings Corp. (glass manufacturing), and director of AFG Industries,
Inc.'s subsidiaries, from 1978 to July 1993; Chairman of the Board (and 60%
stockholder until March 1994), Sunflower (The Woodlands Race Tracks--greyhound
racing and horse racing) from 1988 to March 1994; President, Director, and
majority owner, Ruidoso Downs Racing, Inc. (horse racing) since 1988; Chairman
of the Board, Chief Executive Officer and sole stockholder, Multnomah Kennel
Club, Inc. (greyhound racing) from December 1991 to April 1998; and owner and
breeder of numerous thoroughbreds and quarter horses since 1962.
Mr. Alanis has been a Director of the Company since October 1999; Chief
Executive Officer of the Company since June 2000; President and Chief
Operating Officer of the Company since January 1999; President, Horseshoe
Gaming, Inc. (gaming operations), which is the manager and a member of
Horseshoe Gaming, LLC, and Horseshoe GP, Inc., a wholly-owned subsidiary of
Horseshoe Gaming, LLC, from January 1996 to December 1998; President, KII-
Pasadena, Inc. from December 1988 to December 1998 (real estate and casino
consulting); and President, Koar International, Inc. from 1991 to 1997 (real
estate and casino consulting).
Mr. Manfuso has been a Director of the Company since 1991; Director,
Hollywood Park Operating Company from February 1991 to January 1992; Director
and Member of Executive Committee, Howard County Economic Authority Board
since 1998; Partner, Manfuso Brothers Investments (personal investments) since
1980; Co-Chairman of the Board, Laurel Racing Association (horse race track
management) from 1984 to February 1994; Vice Chairman of the Board, The
Maryland Jockey Club (horse racing) from 1986 to February 1994; Executive Vice
President, Laurel Racing Association from 1984 to May 1990; Executive Vice
President, The Maryland Jockey Club from 1986 to June 1990; Director, Maryland
Horse Breeders Association from 1984 to 1992; and Member, Executive Committee,
Maryland Million since 1991.
Mr. Martineau has been a Director of the Company since May 1999; President
(and Founder), Viracon, Inc. (auto glass corporation) from 1970 to 1996;
Executive Vice President, Apogee Enterprises, Inc. (which acquired Viracon,
Inc. in 1973) from 1996 to 1998; Director, Apogee Enterprises, Inc. since
1973; Director, Northstar Photonics (telecommunications business) since
December 1998; Chairman, Genesis Portfolio Partners, LLC, (start-up company
development) since August 1998; Director, Borgen Systems since 1994; and
Trustee, Owatonna Foundation since 1973.
Mr. Miller has been a Director of the Company since May 1999; Chairman and
Chief Executive Officer, Fore Star Golf (golf management) since 1993;
President, Cumberland Capital Corporation (personal investments) since 1990;
Executive Vice President--Finance and Administration, Treasurer, Director, AFG
Industries, Inc. from 1977 to 1993; Director, Nordic Tugs since January 1999;
and Director, United Stationers, Inc. from 1992 to October 1998.
Mr. Ornest has been a Director of the Company since October 1998 (and his
family has been a stockholder of the Company since 1962); private investor
since 1983; Director of the Ornest Family Partnership since 1983; Director of
the Ornest Family Foundation since 1993; Director of the Toronto Argonauts
Football Club from 1988 to 1990; President of the St. Louis Arena and Vice
President of the St. Louis Blues Hockey Club from 1983 to 1986; and Managing
Director of the Vancouver Canadians Baseball Club, Pacific Coast League from
1979 to 1980.
Mr. Parrott has been a Director of the Company since June 1997; Consultant
to the Company from November 1998 to present; President and Chief Executive
Officer, On Stage Entertainment since October 2000; Chairman of the Board and
Chief Executive Officer, Boomtown, Inc. ("Boomtown") (gaming operations) from
September 1992 to October 1998; President and Treasurer, Boomtown from June
1987 to September 1992; Director, Boomtown from 1987 to October 1998; Chairman
of the Board and Chief Executive Officer, Boomtown
4
Hotel & Casino, Inc. since May 1988; Chief Executive Officer, Parrott
Investment Company (a family-held investment company with agricultural
interests in California) since April 1995; and Director, The Chronicle
Publishing Company since April 1995.
Mr. Reitnouer has been a Director of the Company since 1991; Director,
Hollywood Park Operating Company from September 1991 to January 1992; Partner,
Crowell Weedon & Co. (stock brokerage) since 1969; Director and Chairman of
the Board, COHR, Inc. from 1986 to 1999; Director and Chairman, Forest Lawn
Memorial Parks Association since 1975; and Trustee, University of California
Santa Barbara Foundation (and former Chairman) since 1992.
Mr. Torguson has been a Director of the Company since October 1998;
Chairman of the Board, Casino Magic Corp. ("Casino Magic") (gaming operations)
since 1994; President and Chief Executive Officer, Casino Magic from April
1992 through November 1994; Chief Financial Officer and Treasurer, Casino
Magic from April 1992 to February 1993; 50% owner and a Vice President, G.M.T.
Management Co. (casino management and operations) from December 1983 to
December 1994; and entrepreneur and private investor since 1995.
Board Meetings, Board Committees and Director Compensation
The full Board of Directors of the Company had six formal meetings in 2000
and acted by unanimous written consent on one occasion. During 2000, each
incumbent director of the Company attended at least 75% of the aggregate of
(i) the six meetings of the Board of Directors, and (ii) the total number of
meetings of the committees on which he served (during the periods that he
served).
The Company has a standing Executive Committee, which is chaired by Mr.
Hubbard and currently consists of Messrs. Hubbard, Reitnouer, and Parrott. The
Executive Committee has and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Company to the fullest extent authorized by Delaware law. The Executive
Committee had one formal meeting in 2000 and acted by unanimous written
consent on twelve occasions.
The Company has a standing Audit Committee, which is chaired by Mr. Miller
and currently consists of Messrs. Miller, Ornest, and Parrott. Among the
functions of the Audit Committee are to recommend to the Board of Directors
each year the independent public accounting firm to be engaged to audit the
Corporation's financial statements, discuss with the independent auditors
their independence, review and discuss with the Corporation's independent
auditors and management the Corporation's audited financial statements, and
recommend to the Corporation's Board of Directors whether the Corporation's
audited financial statements should be included in the Corporation's Annual
Report on Form 10-K for the last fiscal year for filing with the Securities
and Exchange Commission (the "SEC").
Messrs. Miller and Ornest are independent as that term is defined in
Section 303.01 of the New York Stock Exchange ("NYSE") listing standards. Mr.
Parrott may not be considered independent as that term is defined, however, as
result of his having been an executive officer of Boomtown, Inc., a subsidiary
of the Company, within the past three years, through October 31, 1998 and
having a business relationship with the Company by virtue of his acting as a
consultant to the Company. The Board of Directors has appointed Mr. Parrott to
the Audit Committee in reliance on the override provision of Section 303.02(D)
of the NYSE listing standards because the Board of Directors has resolved that
Mr Parrott's business relationship with the Company does not interfere with
his exercise of independent judgment and that Mr. Parrott's presence on the
Audit Committee is beneficial to the Company in view of Mr. Parrott's
financial experience and his experience in running a public company. The Board
of Directors has adopted a written Charter for the Audit Committee, attached
hereto as Appendix B. The Audit Committee met three times in 2000 and did not
act by unanimous written consent.
The Company has a standing Compensation Committee, which is chaired by Mr.
Reitnouer and currently consists of Messrs. Reitnouer, Martineau and Manfuso.
The functions of the Compensation Committee are to make recommendations to the
Board of Directors regarding the annual salaries and other compensation of the
officers of the Company, to provide assistance and recommendations with
respect to the compensation policies and practices of the Company and to
assist with the administration of the Company's compensation plans. The
Compensation Committee did not meet in 2000 and acted by unanimous written
consent on five occasions.
5
During 2000, the Company established a Special Committee, which was chaired
by Mr. Reitnouer and consisted of Messrs. Reitnouer, Miller, Ornest,
Martineau, Torguson, Parrott and Manfuso. The Special Committee had full
authority to act for and on behalf of the Company in evaluating and acting
upon the proposal of an acquisition of the Company by PH Casino Resorts, Inc.,
an affiliate of Harveys Casino Resorts and any other proposal to acquire the
Company which might be received as a result of the announcement of the
proposal. The Board of Directors appointed the Special Committee to negotiate
and evaluate the proposed merger agreement and to recommend to the full Board
of Directors whether to proceed with the proposed merger because certain
members of the Company's senior management would be entitled to obtain an
ownership interest in PH Casino Resorts following the merger. The merger
agreement was entered into, but was ultimately terminated by mutual consent of
the parties without consummation of the merger. The Special Committee met
eleven times in 2000.
The Executive Committee acts as the Company's nominating committee. The
Executive Committee generally does not consider nominees recommended by the
Company's stockholders.
All directors hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualified, or until his earlier
death, retirement, resignation or removal from office. Directors are entitled
to receive an annual retainer of $25,000 per year plus $1,000 for each Board
meeting attended, which they may take in cash or in deferred compensation
under the Company's Amended and Restated Directors Deferred Compensation Plan
as outlined below. In addition, non-employee directors are entitled to receive
a minimum of 2,000 Pinnacle Stock Options (as defined below) per year, but no
such options were granted in 2000. Members of the Executive Committee, Audit
Committee and Compensation Committee also receive $1,000 for each committee
meeting attended, and such amounts are also eligible for the Amended and
Restated Directors Deferred Compensation Plan. The Company paid $150,000 to
Mr. Reitnouer for his service as chairman of the Special Committee and $50,000
to each other member of the Special Committee.
Amended and Restated Directors Deferred Compensation Plan
Participation in the Company's Amended and Restated Directors Deferred
Compensation Plan (the "Directors Plan") is limited to directors of the
Company, and each eligible director may elect to defer all or a portion of his
annual retainer and any fees for meetings attended. Any such deferred
compensation is credited to a deferred compensation account, either in cash or
in shares of Pinnacle Common Stock, at each director's election. As of the
date the director's compensation would otherwise have been paid, and depending
on the director's election, the director's deferred compensation account will
be credited with either (i) cash, (ii) the number of full and/or fractional
shares of Pinnacle Common Stock obtained by dividing the amount of the
director's compensation for the calendar quarter or month which he elected to
defer, by the average of the closing price of Pinnacle Common Stock on the
principal stock exchange on which Pinnacle Common Stock is listed (or, if the
common shares are not listed on a stock exchange, the Nasdaq National Market
System) on the last ten business days of the calendar quarter or month for
which such compensation is payable or (iii) a combination of cash and shares
of Pinnacle Common Stock as described in clause (i) and (ii). All cash amounts
credited to the director's deferred compensation account bear interest at an
amount to be determined from time to time by the Board of Directors. For 2000,
no director elected a cash deferral under the Directors Plan.
If a director has elected to receive shares of Pinnacle Common Stock in
lieu of his retainer and the Company declares a dividend, such director's
deferred compensation account is credited at the end of each calendar quarter
with the number of full and/or fractional shares of Pinnacle Common Stock
obtained by dividing the dividends which would have been paid on the shares
credited to the director's deferred compensation account as of the dividend
record date, if any, occurring during such calendar quarter if such shares had
been shares of issued and outstanding Pinnacle Common Stock on such date, by
the closing price of Pinnacle Common Stock on the principal stock exchange on
which Pinnacle Common Stock is listed (or, if the common shares are not listed
on a stock exchange, the Nasdaq National Market System) on the date such
dividend(s) was paid. In addition, if the Company declares a dividend payable
in shares of Pinnacle Common Stock, the director's deferred compensation
account is credited at the end of each calendar quarter with the number of
full and/or fractional shares of Pinnacle
6
Common Stock which such shares would have been entitled to if such shares had
been shares of issued and outstanding Pinnacle Common Stock on the record date
for such stock dividend(s).
Participating directors do not have any interest in the cash and/or
Pinnacle Common Stock credited to their deferred compensation accounts until
distributed in accordance with the Directors Plan, nor do they have any voting
rights with respect to such shares until shares credited to their deferred
compensation accounts are distributed. The rights of a director to receive
payments under the Directors Plan are no greater than the rights of an
unsecured general creditor of the Company. Each participating director may
elect to have the aggregate amount of cash and shares credited to his deferred
compensation account distributed to him in one lump sum payment or in a number
of approximately equal annual installments over a period of time not to exceed
fifteen years. The lump sum payment or the first installment will be paid as
of the first business day of the calendar quarter immediately following the
cessation of the director's service as a director of the Company. Prior to the
beginning of any calendar year, a director may elect to change the method of
distribution, but amounts credited to a director's account prior to the
effective date of such change may not be affected, but rather will be
distributed in accordance with the election at the time such amounts were
credited to the director's deferred compensation account.
The maximum number of shares of Pinnacle Common Stock that can be issued
pursuant to the Directors Plan is 275,000 shares. The Company is not required
to reserve or set aside funds or shares of Pinnacle Common Stock for the
payment of its obligations pursuant to the Directors Plan. The Company is
obligated to make available, as and when required, a sufficient number of
shares of Pinnacle Common Stock to meet the needs of the Directors Plan. The
shares of Pinnacle Common Stock to be issued under the Directors Plan may be
either authorized and unissued shares or reacquired shares.
Amendment, modification or termination of the Directors Plan may not (i)
adversely affect any eligible director's rights with respect to amounts then
credited to his account or (ii) accelerate any payments or distributions under
the Directors Plan (except with regard to bona fide financial hardships).
Compensation Committee Interlocks and Insider Participation
Messrs. Reitnouer, Martineau and Manfuso served on the Compensation
Committee from January 1, 2000 to December 31, 2000. None of the members of
the Compensation Committee were officers or employees or former officers or
employees of the Company or its subsidiaries.
Executive Officers
Executive officers serve at the discretion of the Board of Directors,
subject to rights, if any, under contracts of employment. See "--Executive
Compensation." The current executive officers of the Company are as follows:
Name Age Position
---- --- --------
R.D. Hubbard......... 65 Chairman of the Board of Directors
Paul R. Alanis....... 52 Chief Executive Officer, President and Chief
Operating Officer
J. Michael Allen..... 53 Senior Vice President, Chief Operating Officer of
Gaming Operations
G. Michael Finnigan.. 52 President and Chief Executive Officer of Realty
Investment Group, Inc., a wholly-owned subsidiary
of the Company
Bruce C. Hinckley.... 54 Vice President, Chief Financial Officer and
Treasurer
Loren S. Ostrow...... 49 Senior Vice President, Secretary and General
Counsel
Biographical information for Mr. Hubbard and Mr. Alanis is provided above.
See "--Information Regarding Director Nominees of the Company."
7
Mr. Allen has served as the Company's Senior Vice President and Chief
Operating Officer, Gaming Operations, since January 1999; Chief Operating
Officer, Horseshoe Gaming, Inc. (gaming operations) from October 1, 1995 to
December 31, 1998 and, prior to that, General Manager, Horseshoe Casino Center
(gaming operations) from May 1994 to October 1995 and Principal of Gaming
Associates, Inc. from September 1992 to May 1994.
Mr. Finnigan has served as the President and Chief Executive Officer of
Realty Investment Group, Inc., a wholly-owned subsidiary of the Company which
conducts all of the Company's real estate business and related development
activities, since December 1998; Chief Financial Officer and Executive Vice
President of the Company and Hollywood Park Operating Company from March 1989
to March 31, 1999; President, Sports and Entertainment, from January 1996 to
December 1998; President, Gaming and Entertainment, from February 1994 to
January 1996; Treasurer of the Company and Hollywood Park Operating Company
from March 1992 to March 31, 1999; Chairman of the Board, Southern California
Special Olympics since 1996; Chairman of the Board, Centinela Hospital since
1996; and Director, Shoemaker Foundation since 1993.
Mr. Hinckley joined the Company in February 1999 and has served as its
Chief Financial Officer, Vice President and Treasurer since April 1, 1999;
Executive Vice President, Chief Financial Officer and Secretary, Iwerks
Entertainment, Inc. (movie simulation theaters) from September 1996 to
February 1999; financial consultant from September 1995 to September 1996; and
Vice President, Controller and Chief Accounting Officer, Caesars World, Inc.
(casino and hotel company) from November 1985 to September 1995. Mr. Hinckley
is a certified public accountant.
Mr. Ostrow joined the Company in January 1999 and has served as its Senior
Vice President, Secretary and General Counsel since January 1, 1999; General
Counsel, Horseshoe Gaming from January 1996 through December 1998; Senior Vice
President, KII--Pasadena, Inc. from December 1988 to December 1998 (real
estate and casino consulting); and Senior Vice President, KOAR International,
Inc. from 1991 to 1997 (real estate and casino consulting).
8
Executive Compensation
The following tables summarize the annual and long-term compensation of,
and Pinnacle Stock Options held by, the Company's Chief Executive Officer and
the four additional most highly compensated executive officers whose annual
salaries and bonuses exceeded $100,000 in total during the fiscal year ended
December 31, 2000 (collectively, the "Named Officers"). None of the Named
Officers held stock appreciation rights during the years reported in the
tables.
Summary Compensation Table
Long Term
Compensation
------------
Awards
------
Annual
Compensation
----------------- Securities
Salary Bonus Other Annual Underlying All Other
Name and Principal Position Year ($) ($) Compensation Options Compensation
--------------------------- ---- -------- -------- ------------ ------------ ------------
R.D. Hubbard....................... 2000 $500,000 $500,000 $ 0 0 $ 7,486(a)
Chairman of the Board and 1999 $500,000 $700,000 $ 0 100,000 $ 1,339(b)
Former Chief Executive Officer 1998 $500,000 $160,000 $ 0 50,000 $ 2,370(c)
Paul R. Alanis..................... 2000 $600,000 $300,000 $ 0 0 $ 4,695(d)
Chief Executive Officer, President 1999 $600,000 $400,000 $ 0 0 $ 1,735(e)
and Chief Operating Officer 1998 $0 $0 $ 0 400,000 $ 0
J. Michael Allen................... 2000 $400,000 $100,000 $ 0 0 $ 4,514(f)
Senior Vice President and Chief 1999 $400,000 $125,000 $ 0 0 $ 1,735(g)
Operating Officer of Gaming 1998 $0 $0 $ 0 200,000 $ 0
Operations
G. Michael Finnigan................ 2000 $400,000 $400,000 $ 0 0 $ 4,616(h)
President and Chief Executive 1999 $400,000 $500,000 $ 0 40,000 $ 1,003(i)
Officer of Realty Investment 1998 $307,600 $ 75,000 $ 0 35,000 $23,633(j)
Group, Inc.
Bruce C. Hinckley.................. 2000 $250,000 $ 50,000 $ 0 0 $ 4,121(k)
Vice President, Chief Financial 1999 $192,514 $ 75,000 $ 0 25,000 $ 1,756(l)
Officer and Treasurer 1998 $0 $0 $ 0 0 $ 0
Loren S. Ostrow.................... 2000 $300,000 $ 50,000 $ 0 0 $ 3,394(m)
Senior Vice President, Secretary 1999 $300,000 $ 75,000 $ 0 0 $ 1,905(n)
and General Counsel 1998 $0 $0 $ 0 125,000 $ 0
- --------
(a) Includes the Company matching contribution under the Company's 401(k) Plan
of $3,371, and $4,115 of payment by the Company for premiums with respect
to term life insurance.
(b) Includes the Company matching contribution under the Company's 401(k) Plan
of $790, and $549 of payment by the Company for premiums with respect to
term life insurance.
(c) Reflects the Company matching contributions under the Company 401(k) Plan.
(d) Includes the Company matching contribution under the Company's 401(k) Plan
of $3,626, and $1,069 of payment by the Company for premiums with respect
to term life insurance.
(e) Includes the Company matching contribution under the Company's 401(k) Plan
of $1,666, and $69 of payment by the Company for premiums with respect to
term life insurance.
(f) Includes the Company matching contribution under the Company's 401(k) Plan
of $3,626, and $888 of payment by the Company for premiums with respect to
term life insurance.
(g) Includes the Company matching contribution under the Company's 401(k) Plan
of $1,666, and $69 of payment by the Company for premiums with respect to
term life insurance.
9
(h) Includes the Company matching contribution under the Company's 401(k) Plan
of $3,755 and $861 of payment by the Company for premiums with respect to
term life insurance.
(i) Includes the Company matching contribution under the Company's 401(k) Plan
of $790, and $213 of payment by the Company for premiums with respect to
term life insurance.
(j) Includes the Company matching contribution under the Company's 401(k) Plan
of $2,370, and $21,262 of distribution related to the termination of the
Hollywood Park's Supplemental Executive Retirement Plan.
(k) Includes the Company matching contribution under the Company's 401(k) Plan
of $3,531, and $590 of payment by the Company for premiums with respect to
term life insurance.
(l) Includes the Company matching contribution under the Company's 401(k) Plan
of $1,687, and $69 of payment by the Company for premiums with respect to
term life insurance.
(m) Includes the Company matching contribution under the Company's 401(k) Plan
of $2,822, and $512 of payment by the Company for premiums with respect to
term life insurance.
(n) Includes the Company matching contribution under the Company's 401(k) Plan
of $1,875, and $30 of payment by the Company for premiums with respect to
term life insurance.
Executive Deferred Compensation Plan
Effective March 15, 2000, the Company adopted the First Amendment to the
Executive Deferred Compensation Plan ("Executive Plan"), which allows certain
highly compensated employees of the Company and its subsidiaries (each an
"Employer") to defer, on a pre-tax basis, a portion of their base annual
salaries, bonuses, and cash payments received upon a change in control (as
defined in the Executive Plan) in consideration of the cancellation of stock
options held by such persons ("Option Cancellation Payment"). The Executive
Plan is administered by the Compensation Committee of the Board of Directors
and participation in the Executive Plan is limited to employees who are (i)
determined by an Employer to be includable within a select group of management
or highly compensated employees, (ii) specifically selected by an Employer and
(iii) approved by the Compensation Committee. A participating employee may
elect to defer up to 75% of his or her base annual salary, up to 100% of his
or her bonus per year and up to 100% of his or her Option Cancellation
Payment. Any such deferred compensation is credited to a deferral contribution
account. A participating employee is at all times fully vested in his or her
deferred contributions, as well as any appreciation or depreciation
attributable thereto. The Company does not make contributions to the Executive
Plan for the benefit of such employees.
For purposes of determining the rate of return credited to a deferral
contribution account, each participating employee must select from a list of
hypothetical investment funds among which deferred contributions shall be
allocated. Although a participating employee's deferred compensation will not
be invested directly in the selected hypothetical investment funds, his or her
deferral compensation account shall be adjusted according to the performance
of such funds. The Company doesn't believe the participants in the Executive
Plan are entitled to a preferential return on amounts deferred in relation to
the return available to employees generally under the Company's 401(k) plan.
The payment of benefits under the Executive Plan is an unsecured obligation of
the Company. The Company is not obligated to acquire or hold any investment
fund assets.
Participating employees may elect in advance to receive their deferral
contribution account balances upon retirement in a lump sum or in annual
payments of five, ten or fifteen years (except that, if an employee's account
balance is less than $50,000, such balance will be paid as a lump sum). A
participating employee may make an advance election to defer retirement
distributions until age 75. In the event a participating employee dies or
suffers a disability (as defined in the Executive Plan) during employment,
such employee's account balance shall be paid (i) in one lump sum if the
account balance is less than $50,000, or (ii) if the account balance is
$50,000 or more, in five annual installments unless the employee has elected,
in advance and with the Compensation Committee's approval, to receive a lump
sum distribution. In the event of a voluntary or involuntary termination of
employment for any reason other than retirement, disability or death, a
participating employee shall receive his or her account balance (i) in one
lump sum if the account balance is less than $50,000, or (ii) if the account
balance is $50,000 or more, in five annual installments unless the employee
has elected, in advance and with the Compensation Committee's approval, to
receive a lump sum distribution; provided, however, that if such termination,
retirement, disability or death occurs within 18 months of a change in control
(as defined in the
10
Executive Plan), then the employee's deferral contribution account balance
shall be paid in the form of one lump sum payment not later than 30 days after
the termination, retirement, disability or death.
A participating employee may make an advance election to receive interim
distributions from a deferral compensation account prior to retirement, but
not earlier than three years after the election is made. Such interim
distributions are distributed as lump sum payments. In the event of a
financial emergency (such as a sudden illness or accident, a loss of property
due to casualty or other extraordinary and unforeseeable events beyond the
employee's control), a participating employee may petition the Compensation
Committee to suspend deferrals and/or to request withdrawal of a portion of
the account to satisfy the emergency. A participating employee may request to
receive all of his or her account balance, without regard to whether benefits
are due or the occurrence of a financial emergency; any distribution made
pursuant to such a request shall be subject to forfeiture of 10% of the total
account balance and temporary suspension of the employee's participation in
the Executive Plan.
An Employer may terminate, amend or modify the Executive Plan with respect
to its participating employees at any time, except that (i) no termination,
amendment or modification may decrease or restrict the value of a
participating employee's account balance and (ii) no amendment or modification
shall be made after a change in control which adversely affects the vesting,
calculation or payment of benefits or any other rights or protections of any
participating employee. Upon termination of the Executive Plan, all amounts
credited to participating employees' accounts shall be distributed in lump
sums.
Stock Options Plans
In 1993 and 1996, the stockholders of the Company adopted stock option
plans ("Stock Option Plans"), which provided for the issuance of up to 625,000
and 900,000 shares of the Company's Pinnacle Common Stock upon exercise of
options to purchase Pinnacle Common Stock ("Pinnacle Stock Options"),
respectively. Except for the provisions governing the number of shares
issuable thereunder, and except for certain provisions which reflect changes
in tax and securities laws, the provisions of the Stock Option Plans are
substantially similar. The Stock Option Plans are administered and terms of
option grants are established by the Compensation Committee of the Board of
Directors. Under the Stock Option Plans, Pinnacle Stock Options alone or
coupled with stock appreciation rights may be granted to selected key
employees, directors, consultants and advisors of the Company. Pinnacle Stock
Options become exercisable according to a vesting period as determined by the
Compensation Committee at the date of grant, and expire on the earlier of one
month after termination of employment, six months after the death or permanent
disability of the optionee, or the expiration of the fixed option term set by
the Compensation Committee at the grant date (not to exceed ten years from the
grant date). The exercise prices of all Pinnacle Stock Options granted under
the Stock Option Plans are determined by the Compensation Committee on the
grant date, provided that the exercise price of an incentive stock option may
not be less than the fair market value of Pinnacle Common Stock at the date of
the grant.
Under the Stock Option Plans, as of March 23, 2001, there were
approximately 1,043,000 shares subject to outstanding Pinnacle Stock Options.
As of such date, options covering all of the shares eligible for issuance
under the 1993 Stock Option Plan had been granted and options covering all but
approximately 16,000 shares had been granted under the 1996 Stock Option Plan.
11
Options Grants in Last Fiscal Year
There were no Pinnacle Stock Options granted to Named Officers in 2000.
Aggregated Options Exercises in Last Fiscal Year and Fiscal Year-End Options
Values
The following table sets forth information with respect to the exercise of
Pinnacle Stock Options during the year ended December 31, 2000, and the final
year end value of unexercised Pinnacle Stock Options. None of the Named
Officers held stock appreciation rights during the year ended December 31,
2000.
Number of Securities
Underlying Unexercised Value of Unexercised In-
Shares Options At Fiscal The-Money Options At
Acquired On Value Year-End (#) Fiscal Year-End ($)
Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- -------- ------------------------- -------------------------
R. D. Hubbard........... 0 $ 0 198,667/83,333 $436,167/$258,333
Paul R. Alanis.......... 0 $ 0 300,000/100,000 $745,313/$248,438
J. Michael Allen........ 0 $ 0 150,000/50,000 $372,656/$124,219
G. Michael Finnigan..... 0 $ 0 96,667/38,333 $174,167/$103,333
Bruce C. Hinckley....... 0 $ 0 8,333/16,667 $ 31,771/$ 63,542
Loren S. Ostrow......... 0 $ 0 93,750/31,250 $248,438/$ 82,813
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
The Company has entered into a three-year employment agreement with Paul R.
Alanis, effective January 1, 1999. Mr. Alanis' annual compensation is
$600,000, with an annual bonus of not less than $100,000 and up to $600,000.
The bonus is payable as follows: (a) $100,000 if Mr. Alanis remains employed
by the Company for the year in question; (b) $200,000 based on the Company's
actual earnings before interest, taxes, depreciation and amortization as
compared to budget, and not exceeding the capital budget; and (c) the
remaining $300,000 to be awarded at the discretion of the Board of Directors.
If Mr. Alanis terminates his employment for good reason, or if the Company
terminates Mr. Alanis without cause, and so long as he does not compete with
the Company or its subsidiaries in the gaming business prior to the end of the
employment contract term, Mr. Alanis will receive an annual salary of $700,000
through the balance of the contract period, and retain his health and
disability insurance for six months after termination. Mr. Alanis will also
immediately vest in all Pinnacle Stock Option grants.
The Company has entered into a three-year employment agreement with J.
Michael Allen, effective January 1, 1999. Mr. Allen's annual compensation is
$400,000, with a possible bonus of up to $200,000. The bonus is payable as
follows: (a) $100,000 based on the Company's actual earnings before interest,
taxes, depreciation and amortization as compared to budget, and not exceeding
the capital budget, and (b) $100,000 at the discretion of the Board of
Directors. If Mr. Allen terminates his employment for good reason, or if the
Company terminates him without cause, and so long as he does not compete with
the Company or its subsidiaries in the gaming business prior to the end of the
employment contract term, he will be entitled to $400,000 per year for the
balance of the employment contract term, with health and disability insurance
coverage for six months. Mr. Allen will also immediately vest in all Pinnacle
Stock Option grants.
The Company has entered into a three-year employment agreement with G.
Michael Finnigan, effective January 1, 1999. Mr. Finnigan's annual
compensation is $400,000 with an annual bonus at the discretion of the Board
of Directors. If Mr. Finnigan terminates his employment for good reason
(defined for present purposes as a material breach of the employment agreement
by the Company and failure to timely remedy such breach), or if the Company
terminates him without cause, Mr. Finnigan will receive his annual
compensation for one year (including salary and bonus), with health and
disability coverage for six months. Mr. Finnigan will also immediately vest in
all of his Pinnacle Stock Options.
12
The Company has entered into a three-year employment agreement with Loren
S. Ostrow, effective January 1, 1999. Mr. Ostrow's annual compensation is
$300,000 with an annual bonus of up to $100,000. The bonus is payable at the
discretion of the Board of Directors. If Mr. Ostrow terminates his employment
for good reason, or if the Company terminates him without cause, and so long
as he does not compete with the Company or its subsidiaries in the gaming
business prior to the end of the employment contract term, he will be entitled
to $300,000 per year for the balance of the employment contract term, with
health and disability insurance coverage for six months. Mr. Ostrow will also
immediately vest in all Pinnacle Stock Option grants.
The Audit Committee Report
The following is the report of the Audit Committee with respect to the
Company's audited financial statements for the fiscal year ended December 31,
2000, and the notes thereto.
The Audit Committee assists the Board of Directors in overseeing and
monitoring the Company's financial reporting process and the quality of its
internal and external audit process.
Review with Management
The Audit Committee has reviewed and discussed with management the
Company's audited financial statements for the fiscal year ended December 31,
2000, and the notes thereto.
Review and Discussions with Independent Accountants
The Audit Committee has discussed with Arthur Andersen LLP, the Company's
independent accountants, the matters required to be discussed by Statement on
Auditing Standards No. 61, which includes, among other items, the auditors'
responsibilities, any significant issues arising during the audit, and any
other matters related to the conduct of the audit of the Company's financial
statements.
The Audit Committee has received written disclosures and the letter from
Arthur Andersen LLP regarding its independence as required by Independence
Standards Board Standard No. 1 and has discussed with Arthur Andersen LLP
their independence from the Company.
Conclusion
Based on the review and discussions referred to above, the Audit Committee
recommended to the Company's Board that the Company's audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.
SUBMITTED BY AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
Gary G. Miller
Michael Ornest
Timothy J. Parrott
March 23, 2001
13
Audit and Related Fees
Audit Fees
The aggregate fees billed by Arthur Andersen LLP for professional services
for the audit of the Company's annual financial statements for the fiscal year
ended December 31, 2000 and the review of the financial statements included in
the Company's Forms 10-Q for the fiscal year ended December 31, 2000 were
$470,000.
Financial Information System Design and Implementation Fees
There were no fees billed by Arthur Andersen LLP to the Company for
financial information systems design and implementation for the fiscal year
ended December 31, 2000.
All Other Fees
The aggregate fees billed to the Company for all other services rendered by
Arthur Andersen LLP for the fiscal year ended December 31, 2000 were $740,000,
which consisted of services related primarily to internal audit and tax
services. The Audit Committee believes that the provision of these services is
compatible with maintaining Arthur Andersen LLP's independence.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors, which is composed
entirely of independent outside directors, is responsible for making
recommendations to the Board regarding the annual salaries and other
compensation of the officers of the Company and providing assistance and
recommendations with respect to compensation plans.
In order to attract and retain well-qualified executives, which the
Compensation Committee believes is crucial to the Company's success, the
Compensation Committee's general approach to compensating executives is to pay
cash salaries which are commensurate with the executives' experience and
expertise and, where relevant, are competitive with the salaries paid to
executives in the Company's main industries and primary geographic locations,
which are currently land based, dockside and riverboat casinos in Nevada,
Louisiana, Indiana, Mississippi and Argentina. In addition, to align its
executives' compensation with the Company's business strategies, values and
management initiatives, both short and long term, the Compensation Committee
may, with the Board's approval, authorize the payment of discretionary bonuses
based upon an assessment of each executive's contributions to the Company. In
general, the Compensation Committee believes that these discretionary bonuses
should be related to the Company's and the executive's performance, although
specific performance criteria have not been established.
The Compensation Committee also believes that stock ownership by key
executives provides a valuable incentive for such executives and helps align
executives' and stockholders' interests. To facilitate these objectives, the
Company adopted Stock Option Plans in 1993 and 1996, pursuant to which the
Company may grant stock options to executives (as well as other employees and
directors) to purchase up to 625,000 shares and 900,000 shares, respectively,
of Pinnacle Common Stock. The Compensation Committee believes that the key
officers of the Company have provided excellent services and been diligent in
their commitment to the Company. The Compensation Committee believes that
stock ownership by such officers provides an important incentive for their
continued efforts and diligence.
The Compensation Committee, in accordance with each executive officer's
employment agreement, and based upon the excellent services that such
executive officer performed during 2000, approved bonus awards, as follows:
Paul R. Alanis, $300,000; G. Michael Finnigan, $400,000; J. Michael Allen,
$100,000; Bruce C. Hinckley, $50,000; and Loren S. Ostrow, $50,000.
Mr. Hubbard's annual salary was $500,000 for 2000. The Compensation
Committee based Mr. Hubbard's annual salary on the following factors: (a) the
annual salary of senior executives at other gaming companies; (b) the annual
salaries of the Company's Named Officers; and (c) the prominence of Mr.
Hubbard in the business
14
community. The Compensation Committee determined to pay Mr. Hubbard a bonus in
the amount of $500,000 based upon the following factors: (a) the long-term
contribution of Mr. Hubbard to the Company; and (b) the fact that Mr. Hubbard
is willing to accept an annual salary substantially lower than the
Compensation Committee believes Mr. Hubbard could command based on his
business experience and expertise.
On March 15, 2000, the Company adopted the First Amendment to the Executive
Plan benefiting certain highly compensated employees of the Company and its
subsidiaries (including executive officers). Pursuant to the Plan, the Company
does not make contributions to the Plan for the benefit of such employees.
February 28, 2001 Compensation Committee
Lynn P. Reitnouer (Chairman)
Robert T. Manfuso
James L. Martineau
15
Performance Graph
Set forth below is a graph comparing the cumulative total stockholder
return for the Company's Pinnacle Common Stock with the cumulative total
returns for the Dow Jones Industry Group CNO--Casinos & Gambling ("Peer Group
Index") and the New York Stock Exchange Market Index ("NYSE Market Index").
The total cumulative return calculations are for the period commencing
December 31, 1995 and ending December 31, 2000, and include the reinvestment
of dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN* AMONG
THE COMPANY, NYSE MARKET INDEX &
PEER GROUP INDEX
[PERFORMANCE GRAPH APPEARS HERE]
Pinnacle Dow Jones
Entertainment, Inc. Casinos Index NYSE Market
- ------------------------------------------------------------------------------
- -
12/31/95 100 100 100
12/31/96 149.06 107.37 120.47
12/31/97 218.63 97.34 158.48
12/31/98 82.61 70.37 188.59
12/31/99 223 111.99 206.5
12/31/2000 134.18 214.18 208.59
The above graph shows historical stock price performance (including
reinvestment of dividends) and is not necessarily indicative of future
performance.
- --------
* Assumes $100 invested on January 1, 1995 in Pinnacle Common Stock, Peer
Group Index and NYSE Market Index. Total return assumes reinvestment of
dividends. Values are as of December 31 of each year.
Certain Relationships and Related Transactions
Transactions in Connection with Terminated Merger Agreement
On April 17, 2000, the Company, PH Casino Resorts, Inc. ("Holding"), a
wholly-owned subsidiary of Harveys Casino Resorts ("Harveys"), and Pinnacle
Acquisition Corp. ("PAC"), a wholly-owned subsidiary of Holding, entered into
an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which PAC
would merge with and into the Company (the "Merger") and each share of the
Company's Common Stock would be converted into the right to receive $24 per
fully diluted share in cash, plus up to an additional $1 per fully diluted
share, which additional amount was contingent upon the sale of the Company's
97 acres of surplus land in Inglewood, California for net after tax proceeds
of at least $40.75 million.
16
In connection with the Merger Agreement, certain members of Company's
management entered into a Voting and Contribution Agreement with Holding (the
"Voting and Contribution Agreement") pursuant to which they agreed to vote
their shares in favor of the Merger, granted a proxy to Holding to vote all of
their shares in favor of the Merger and agreed to vote their shares against
any competing proposal or certain other proposals involving the purchase of
certain assets of the Company and against charter amendments or other
proposals that would impede, interfere with, or materially delay the Merger.
In connection therewith, the same members of management entered into a
Memorandum of Understanding ("MOU") with Holding pursuant to which such
members of management would be entitled to obtain an ownership interest in
Holding following the Merger.
On January 22, 2001, the Merger Agreement was terminated by the mutual
written consent of each of the Company, Holding and PAC. Pursuant to their
respective terms, the Voting Agreement and the MOU terminated effective as of
the termination of the Merger Agreement. All other transaction agreements
entered into in connection with the Merger Agreement also have been
terminated.
Other Transactions
On June 2, 1998, the Company and R.D. Hubbard Enterprises, Inc. ("Hubbard
Enterprises"), which is wholly owned by Mr. Hubbard, entered into a new
Aircraft Time Sharing Agreement. The former agreement was entered into in
November 1993. The June 2, 1998 Aircraft Time Sharing Agreement is identical
to the former agreement in all aspects, except for the type of aircraft
covered by the agreement. The Aircraft Time Sharing Agreement expired on
December 31, 1999, and automatically renews each month unless written notice
of termination is given by either party at least two weeks before a renewal
date. The Company reimburses Hubbard Enterprises for expenses incurred as a
result of the Company's use of the aircraft, which totaled approximately
$97,000 in 2000, $176,000 in 1999, and $72,000 in 1998.
On August 31, 1998, the Company received a promissory note for up to
$3,500,000 from Paul R. Alanis. As of December 31, 1998, the Company had
loaned Mr. Alanis $3,232,000, who used the funds to purchase 300,000 shares of
Pinnacle Common Stock. The principal amount of the promissory note, along with
accrued interest, was paid in full in June 1999.
Timothy J. Parrott purchased 270,738 shares of Boomtown common stock in
connection with Boomtown's 1988 acquisition of Boomtown Hotel & Casino, Inc.
(which operates Boomtown Reno). Mr. Parrott paid an aggregate purchase price
for the common stock of $222,000, of which $1,000 was paid in cash and
$221,000 was paid by a promissory note secured by pledge to Boomtown of all of
the shares owned by Mr. Parrott. As of October 31, 1998, Mr. Parrott resigned
his position as Chairman of Boomtown, and was retained by the Company as a
consultant to provide services relating to gaming and other business issues.
Mr. Parrott was retained for a three-year period, with an annual retainer of
$350,000 with health and disability benefits equivalent to those he received
as Chairman of Boomtown. Mr. Parrott's $221,000 note will be forgiven in three
equal parts on each anniversary of the consulting agreement.
Marlin Torguson, who beneficially owned approximately 21.5% of the
outstanding common shares of Casino Magic prior to the Company's acquisition
of Casino Magic, agreed, in connection with such acquisition, to vote his
Casino Magic shares in favor of the acquisition by the Company. In addition,
Mr. Torguson agreed to continue to serve as an employee of Casino Magic for
three years following the acquisition and, during such three-year period, not
to compete with the Company or Casino Magic in any jurisdiction in which
either the Company or Casino Magic operates. Mr. Torguson and the Company have
agreed that if Mr. Torguson requests an early termination of such agreement
not to compete, the Company will agree to such early termination and Mr.
Torguson shall resign from the Company's Board of Directors. The Company
issued to Mr. Torguson 60,000 shares of the Company's Pinnacle Common Stock as
compensation for his three-year service as an employee, and will pay him
$300,000 per year, during a three-year period, for his non-compete agreement.
In addition, the Company issued Mr. Torguson 30,000 Pinnacle Stock Options to
acquire Pinnacle Common Stock as of the October 15, 1998 acquisition of Casino
Magic, priced at the closing price of Pinnacle Common Stock on that date. The
foregoing payments will be made to Mr. Torguson whether or not the Company or
Casino Magic terminates Mr. Torguson's employment, except for termination for
cause.
17
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of reports furnished to the Company during or
with respect to the year ended December 31, 2000 pursuant to Rule 16a-3(e) of
the Exchange Act, all required reports on Form 3, Form 4 and Form 5 were
timely filed by the Company's directors, officers and 10% stockholders.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the name, address (address is provided for
persons listed as beneficial owners of 5% or more of the outstanding Pinnacle
Common Stock), number of shares and percent of the outstanding Pinnacle Common
Stock beneficially owned as of March 23, 2001 (except where a different date
is indicated below) by each person known to the Board of Directors of the
Company to be the beneficial owner of 5% or more of the outstanding shares of
Pinnacle Common Stock, each director, each Named Officer, and all current
directors and executive officers as a group.
Shares Percent of
Beneficially Shares
Name and Address of Beneficial Owner Owned Outstanding(a)
- ------------------------------------ ------------ -------------
R.D. Hubbard.................................... 2,868,487(b) 10.9%
Pinnacle Entertainment, Inc.
330 North Brand Boulevard, Suite 1100
Glendale, California 91203
Legg Mason, Inc................................. 2,813,913(c) 10.8%
111 South Calvert Street
Baltimore, Maryland 21202
Paul R. Alanis.................................. 600,000(d) 2.3%
Timothy J. Parrott.............................. 366,423(e) 1.4%
Michael Ornest.................................. 304,166(f) 1.2%
Marlin Torguson................................. 20,928(g) *
Lynn P. Reitnouer............................... 65,333(h) *
Robert T. Manfuso............................... 43,666(i) *
James L. Martineau.............................. 9,191(j) *
Gary G. Miller.................................. 6,000(k) *
G. Michael Finnigan............................. 147,082(l) *
J. Michael Allen................................ 150,000(m) *
Bruce C. Hinckley............................... 21,667(n) *
Loren S. Ostrow................................. 143,750(o) *
Current directors and executive officers as a
group (13 persons)............................. 4,746,693(p) 17.4%
- --------
* Less than one percent (1%) of the outstanding common shares.
(a) Assumes exercise of stock options beneficially owned by the named
individual or entity into shares of Pinnacle Common Stock. Based on
26,046,744 shares outstanding as of March 23, 2001.
(b) Includes 248,666 shares of Pinnacle Common Stock, which Mr. Hubbard has
the right to acquire upon the exercise of options, which are exercisable
within 60 days of March 23, 2001. These shares also include 249,990 shares
of Pinnacle Common Stock owned by the R.D. and Joan Dale Hubbard
Foundation, a non-profit organization; Mr. Hubbard may be deemed to have
beneficial ownership of such shares.
(c) Based upon information provided by the stockholder in Schedule 13G/A filed
with the Securities and Exchange Commission on March 14, 2001.
18
(d) Includes 300,000 shares of Pinnacle Common Stock held by MBJJP, Ltd., a
family limited partnership for which Mr. Alanis and his wife Allison
Alanis act as general partners. Also includes 300,000 shares of Pinnacle
Common Stock, which Mr. Alanis has the right to acquire upon the exercise
of options, which are exercisable within 60 days of March 23, 2001.
(e) Includes 167,396 shares of Pinnacle Common Stock which Mr. Parrott has the
right to acquire upon exercise of options which are exercisable within 60
days of March 23, 2001, including 164,063 options assumed by the Company
in connection with the Boomtown merger.
(f) Includes 5,000 shares of Pinnacle Common Stock, which Mr. Ornest has the
right to acquire upon the exercise of options, which are exercisable
within 60 days of March 23, 2001.
(g) Includes 20,928 shares of Pinnacle Common Stock, which Mr. Torguson has
the right to acquire upon the exercise of options, which are exercisable
within 60 days of March 23, 2001, including 17,595 shares covered by
options assumed by the Company in connection with the Casino Magic merger.
(h) Includes 15,333 shares of Pinnacle Common Stock, which Mr. Reitnouer has
the right to acquire upon the exercise of options, which are exercisable
within 60 days of March 23, 2001.
(i) Includes 15,333 shares of Pinnacle Common Stock, which Mr. Manfuso has the
right to acquire upon the exercise of options, which are exercisable
within 60 days of March 23, 2001.
(j) Includes 6,191 shares of Pinnacle Common Stock owned by Mr. Martineau's
wife, beneficial ownership of which is disclaimed by Mr. Martineau, and
3,000 shares of Pinnacle Common Stock which Mr. Martineau has the right to
acquire upon the exercise of options, which are exercisable within 60 days
of March 23, 2001.
(k) Includes 3,000 shares of Pinnacle Common Stock, which Mr. Miller has the
right to acquire upon the exercise of options, which are exercisable
within 60 days of March 23, 2001.
(l) Includes 121,666 shares of Pinnacle Common Stock, which Mr. Finnigan has
the right to acquire upon the exercise of options, which are exercisable
within 60 days of March 23, 2001.
(m) Includes 150,000 shares of Pinnacle Common Stock, which Mr. Allen has the
right to acquire upon the exercise of options, which are exercisable
within 60 days of March 23, 2001.
(n) Includes 16,666 shares of Pinnacle Common Stock, which Mr. Hinckley has
the right to acquire upon the exercise of options, which are exercisable
within 60 days of March 23, 2001.
(o) Includes 50,000 shares of Pinnacle Common Stock held by the Ostrow Family
Partnership, of which Mr. Ostrow is the general and a limited partner.
Also, includes 93,750 shares of Pinnacle Common Stock, which Mr. Ostrow
has the right to acquire upon the exercise of options, which are
exercisable within 60 days of March 23, 2001.
(p) Includes 1,160,738 shares of Pinnacle Common Stock of which the directors
and executive officers may be deemed to have beneficial ownership with
respect to options to purchase Pinnacle Common Stock, which are
exercisable within 60 days of March 23, 2001. Excluding such shares, the
directors and executive officers of the Company have beneficial ownership
of 3,585,955 shares of Pinnacle Common Stock, which represents 13.8% of
the shares of Pinnacle Common Stock outstanding as of March 23, 2001.
19
PROPOSAL 2
APPROVAL OF 2001 STOCK OPTION PLAN
(Item No. 2 on Proxy Card)
The stockholders of the Company are being asked to approve the adoption of
the Company's 2001 Stock Option Plan (the "2001 Stock Option Plan" or the
"Plan"). The 2001 Stock Option Plan has been adopted by the Company's Board of
Directors, but no options have yet been granted under the Plan.
Purpose of the Plan
The Board of Directors believes that adoption of the Plan is necessary to
insure that the Company maintains the ability in the future to continue to
attract and retain highly qualified officers and other employees by providing
adequate incentives through the issuance of stock options. As of March 23,
2001, of the 900,000 shares originally available for issuance under the
Company's 1996 Stock Option Plan, only approximately 16,000 remained available
for grants under options, and no options remain available for grant under the
Company's 1993 Stock Option Plan. The adoption of the Plan is therefore
necessary to insure that enough shares will be available for the issuance of
stock options so as to incentivize and retain key employees of the Company,
which can assist in maximizing the full potential of shareholder value. Also,
the Plan will embody certain technical provisions which the Board of Directors
believes are improvements over the provisions of the 1996 Stock Option Plan.
Required Vote
Affirmative votes representing a majority of shares of Pinnacle Common
Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on this proposal will be required to approve this proposal.
Abstentions will count as votes against this proposal because they will be
counted as present at the meeting and entitled to vote on this proposal.
However, broker non-votes will not be so considered and thus will not affect
the determination as to whether the requisite majority approval has been
obtained with respect to this proposal.
Summary of the Plan
The principal features of the Plan are summarized below. This summary,
however, is not intended to be a complete discussion of all of the terms of
the Plan. A copy of the Plan is attached hereto as Appendix A.
Shares Subject to the Plan
Up to an aggregate of 900,000 shares of Pinnacle Common Stock are
authorized for issuance under the Plan. Shares which are not issued before the
expiration or termination of an option will thereafter be available for future
options under the Plan. The aggregate number of shares available under the
Plan and the number of shares subject to outstanding options will be increased
or decreased to reflect any changes in the outstanding Pinnacle Common Stock
of the Company by reason of any recapitalization, reorganization,
reclassification, stock dividend, stock split, reverse stock split, or similar
transaction.
The Plan has been approved by the Board of Directors, but no options have
yet been granted under the Plan.
20
Type of Options
Two types of options may be granted under the Plan: options intended to
qualify as incentive stock options ("ISOs") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and options not so qualified
for favorable federal income tax treatment ("NSOs"). Each option granted shall
be subject to a stock option agreement between the participant and the
Company. Such agreements shall contain such terms and provisions as the
Committee (as defined below) may determine in its discretion, and need not be
uniform.
Eligibility and Participation
All employees (including officers), directors, and consultants of the
Company or any subsidiary are eligible for selection to participate in the
Plan, subject to two restrictions: (1) no ISO may be granted to any person
who, at the time of grant, is not an employee of the Company, and (2) no
participant may receive grants of options with respect to more than 100,000
shares of Pinnacle Common Stock (subject to adjustment in the event of a
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split, or similar transaction) during any fiscal year of
the Company or portion thereof. If an option expires or terminates for any
reason without having been exercised in full, the unpurchased shares subject
to that expired or terminated option continue to be counted against the
maximum number of shares for which options may be granted to a participant
during a fiscal year of the Company or portion thereof. Subject to such
limitations, an individual who has been granted an option may, if such
individual is otherwise eligible, be granted additional options as the
Committee may determine.
The actual benefits, if any, to the holders of stock options issued under
the Plan are not determinable as all grants to be made under the Plan are
discretionary and, prior to exercise, the value, if any, of such stock options
to their holders is represented by the difference between the market price of
a share of the Company's Common Stock on the date of exercise and the exercise
price of a holder's stock option.
Administration of the Stock Plan
The Plan shall be administered by a Committee of the Board of Directors
(the "Committee") consisting of two or more directors of the Company who are
both (a) "non-employee directors" within the meaning of Rule 16b-3 of the
Exchange Act, and (b) "outside directors" within the meaning of Section 162(m)
of the Code. The Committee has extremely wide discretion and power in
interpreting and operating the Plan and in determining the terms of individual
options.
Option Price; Exercisability of Options
The purchase price for shares of Pinnacle Common Stock covered by each
option shall be determined by the Committee, but, in the case of an ISO, shall
not be less than 100% of the fair market value of such shares on the date of
grant, or, if the ISO is granted to a 10% shareholder of the Company (measured
by ownership of voting power), not less than 110% of the fair market value of
such shares on the date of grant. The Committee shall determine when and under
what conditions any option shall become exercisable. However, the aggregate
fair market value of shares of Pinnacle Common Stock (determined at the date
of grant) for which ISOs (whenever granted) are exercisable for the first time
by a participant during any calendar year shall not exceed $100,000; any
options in excess of this limit shall be treated as NSOs. The purchase price
of shares on the exercise of an option shall be paid in full at the time of
exercise in cash or by check payable to the order of the Company, or, subject
to the approval of the Committee, by the delivery of shares of Pinnacle Common
Stock already owned by the participant, by the participant's promissory note,
through a "broker's" exercise involving the immediate sale or pledge of shares
with a value sufficient to pay the exercise price, or by any other method
permitted by applicable law.
21
Duration of Option
Each option shall expire on the date specified by the Committee, but all
options shall expire within 10 years of the date of grant. ISOs granted to 10%
shareholders of the Company (measured by ownership of voting power) shall
expire within five years from the date of grant.
Termination of Employment; Death or Disability
If a participant ceases to be employed by the Company or any of its
subsidiaries for any reason other than termination for cause, death or
permanent disability, the participant's ISOs shall be exercisable for a
maximum period of three months, and the participant's NSOs shall be
exercisable for a maximum period of one month, after the termination of
employment (unless otherwise determined by the Committee in an individual
option agreement). If a participant's employment is terminated for cause, all
of his options will be immediately terminated and canceled. If a participant
dies or becomes permanently disabled, the participant's ISOs shall be
exercisable for a maximum period of 12 months, and the participant's NSOs
shall be exercisable for a maximum period of six months, after the date of
death or permanent disability (unless otherwise determined by the Committee in
an individual option agreement). After a participant's death, any ISOs which
remained exercisable on the date of death may be exercised by the person or
persons to whom the participant's rights pass by will or the laws of descent
and distribution.
Certain Corporate Transactions
Upon the happening of a merger, reorganization or sale of substantially all
of the assets of the Company, the Committee, may, in its sole discretion, do
one or more of the following: (i) shorten the period during which options are
exercisable (provided they remain exercisable for at least 30 days after the
date notice of such shortening is given to the participants); (ii) accelerate
any vesting schedule to which an option is subject; (iii) arrange to have the
surviving or successor entity or any parent entity thereof assume the options
or grant replacement options with appropriate adjustments in the option prices
and adjustments in the number and kind of securities issuable upon exercise;
or (iv) cancel options upon payment to the participants in cash of an amount
that is the equivalent of the excess of the fair market value of the Pinnacle
Common Stock (at the effective time of the merger, reorganization, sale or
other event) over the exercise price of the option. The Committee may also
provide for one or more of the foregoing alternatives in any particular option
agreement.
Rights as a Stockholder; Assignability
The recipient of an option will have no rights as a stockholder with
respect to shares of Pinnacle Common Stock covered by the option until the
date such recipient becomes a holder of record of such shares. An ISO granted
under the Plan shall, by its terms, be non-transferable by the option holder,
either voluntarily or by operation of law, other than by will or the laws of
descent and distribution, and shall be exercisable during the option holder's
lifetime only by him or her. An NSO issued under the Plan shall be
nontransferable by the participant, either voluntarily or by operation of law,
other than by will or the laws of descent and distribution, except that, with
the consent of the Committee, it may be transferred pursuant to a "qualified
domestic relations order" as defined in the Code, or to a member of the
holder's immediate family or a trust exclusively for the benefit of one or
more of the holder's immediate family as part of the holder's estate plan.
Duration, Termination and Amendment of the Plan
The Plan shall continue in effect until 10 years after the earlier of its
adoption by the Board of Directors or its approval by the stockholders. The
Board of Directors, however, may suspend or terminate the Plan at any time.
The suspension or termination of the Plan will generally not affect the
validity of any option outstanding on the date of termination. The Board of
Directors may also amend the Plan at any time, except that the Company will
obtain stockholder approval for any amendment to the extent such approval is
necessary or desirable to preserve the favorable tax status of ISOs and to
comply with applicable law or the requirements of any exchange
22
or quotation system. For example, an amendment to increase the maximum number
of shares which may be issued under the Plan, change the minimum exercise
price of ISOs, increase the maximum term of ISOs, or permit the granting of
options to anyone other than those eligible under the terms of the Plan, will
be submitted for stockholder approval. Furthermore, no amendment of the Plan
shall amend or impair any rights or obligations under any option theretofore
granted under the Plan without the written consent of the holder of the
affected option.
Federal Income Tax Matters
The following discussion of federal income tax consequences does not
purport to be a complete analysis of all of the potential tax effects of the
Plan. It is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change. No information is provided with respect to
persons who are not citizens or residents of the United States, or foreign,
state or local tax laws, or estate and gift tax considerations. In addition,
the tax consequences to a particular participant may be affected by matters
not discussed above. ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT HIS TAX
ADVISOR CONCERNING THE TAX CONSEQUENCES TO HIM OF THE PLAN, INCLUDING THE
EFFECTS OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND OF CHANGES IN THE TAX
LAWS.
The Plan is not subject to any of the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA") and is not qualified under Section
401(a) of the Code.
Non-Qualified Stock Options
Under current federal income tax law, the grant of an NSO has no tax effect
on the Company or the optionee to whom it is granted. If the shares of
Pinnacle Common Stock received on the exercise of an NSO are not subject to
restrictions on transfer or risk of forfeiture, the exercise of the NSO will
result in ordinary income to the optionee equal to the excess of the fair
market value of the shares at the time of exercise over the option price. The
optionee's tax basis in the shares will be equal to the aggregate exercise
price paid by the optionee plus the amount of taxable income recognized upon
the exercise of the option. Upon any subsequent disposition of the shares, any
gain or loss recognized by the optionee will be treated as capital gain or
loss and will be long-term capital gain or loss if the shares are held for
more than one year after exercise. At the time of recognition of ordinary
income by the optionee upon exercise, the Company will normally be allowed to
take a deduction for federal income tax purposes in an amount equal to such
recognized income.
Incentive Stock Options
The federal income tax consequences associated with ISOs are generally more
favorable to the optionee and less favorable to the Company than those
associated with NSOs. Under current federal income tax law, the grant of an
ISO does not result in income to the optionee or in a deduction for the
Company at the time of the grant. Generally, the exercise of an ISO will not
result in income for the optionee if the optionee does not dispose of the
shares within two years after the date of grant or within one year after the
date of exercise. If these requirements are met, the basis of the shares of
Pinnacle Common Stock upon a later disposition will be the option price, any
gain on the later disposition will be taxed to the optionee as long-term
capital gain, and the Company will not be entitled to a deduction. The excess
of the market value on the exercise date over the option price is an
adjustment to regular taxable income in determining alternative minimum
taxable income, which could cause the optionee to be subject to the
alternative minimum tax, thereby in effect depriving the optionee of the tax
benefits of ISO treatment. If the optionee disposes of the shares before the
expiration of either of the holding periods described above (a "Disqualifying
Disposition"), the optionee will have compensation taxable as ordinary income,
and the Company will normally be entitled to a deduction, equal to the lesser
of (a) the fair market value of the shares on the exercise date minus the
option price, or (b) the amount realized on the disposition minus the option
price. If the price realized in any such Disqualifying Disposition of the
shares exceeds the fair market value of the shares on the exercise date, the
excess will be treated as long-term or short-term capital gain, depending on
the optionee's holding period for the shares.
23
$1,000,000 Limit on Deductible Compensation
Section 162(m) of the Code provides that any publicly-traded corporation
will be denied a deduction for compensation paid to certain executive officers
to the extent that the compensation exceeds $1,000,000 per officer per year.
However, the deduction limit does not apply to "performance-based
compensation," as defined in Section 162(m). Compensation is performance-based
compensation if (i) the compensation is payable on account of the attainment
of one or more performance goals; (ii) the performance goals are established
by a compensation committee of the Board of Directors of directors consisting
of "outside directors"; (iii) the material terms of the compensation and the
performance goals are disclosed to and approved by the stockholders in a
separate vote; and (iv) the compensation committee certifies that the
performance goals have been satisfied. The Company believes that, if the
stockholders approve the Plan, the stock options granted thereunder (unless
granted for purchase prices below the fair market value of the stock subject
to the options) will satisfy the requirements to be treated as performance-
based compensation, and accordingly will not be subject to the deduction limit
of Section 162(m) of the Code.
Excess Parachute Payments
Under Section 4999 of the Code, certain officers, stockholders, or highly-
compensated individuals ("Disqualified Individuals") will be subject to an
excise tax (in addition to federal income taxes) of 20% of the amount of
certain "excess parachute payments" which they receive as a result of a change
in control of the Company. Furthermore, Section 280G of the Code prevents the
Company from taking a deduction for any "excess parachute payments." The cash
out or acceleration of the vesting of stock options upon a corporate
transaction may cause the holders of such stock options who are Disqualified
Individuals to recognize certain amounts as "excess parachute payments" on
which they must pay the 20% excise tax, and for which the Company will be
denied a tax deduction.
Special Rules; Withholding of Taxes
Special tax rules may apply to a participant who is subject to Section 16
of the Exchange Act. Other special tax rules will apply if a participant
exercises a stock option by delivering shares of Pinnacle Common Stock which
he or she already owns, or through a "broker's exercise."
The Company may take whatever steps the Committee deems appropriate to
comply with any applicable withholding tax obligation, including requiring any
participant to pay the amount of any applicable withholding tax to the Company
in cash. The Committee may, in its discretion, authorize "cashless
withholding."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE 2001 STOCK OPTION PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP served as the Company's independent public
accountants for the fiscal year ended December 31, 2000 and continue to serve
as the Company's independent public accountants. Representatives of Arthur
Andersen LLP are expected to be present at the Annual Meeting and will be
available to respond to appropriate questions and to make a statement if they
so desire.
24
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Under the Company's By-Laws, stockholders who wish to present proposals for
action, or to nominate directors, at the next annual meeting of stockholders
of the Company (that is, the next annual meeting following the Annual Meeting
to which this Proxy Statement relates) must give written notice thereof to the
Secretary of the Company at the address set forth on the cover page of this
Proxy Statement in accordance with the then current provisions of the
Company's By-Laws. The By-Laws currently require that such notice be given not
more than 120 days nor less than 90 days prior to the first anniversary of
this year's Annual Meeting. Therefore, the deadline would be February 21,
2002. If, however, the Company advances the date of the next annual meeting by
more than 30 days or delays such date by more than 60 days, notice by the
stockholder must be given not earlier than 120 days and not later than 90 days
in advance of such meeting or, if later, the tenth day following the first
public announcement of the date of such meeting. Stockholder notices must
contain the information required by Section 1 of Article I of the Company's
By-Laws.
In order to be eligible for inclusion in the Company's proxy statement and
proxy card for the next annual meeting pursuant to Rule 14a-8 under the
Exchange Act, stockholder proposals would have to be received by the Secretary
of the Company no later than December 18, 2001 if the next annual meeting were
held on or near May 22, 2002. In the event that the Company elects to hold its
next annual meeting more than 30 days before or after the anniversary of this
Annual Meeting, such stockholder proposals would have to be received by the
Company a reasonable time before the Company's solicitation is made. If the
Company does not have notice of a matter to come before the next annual
meeting by February 21, 2002 (or, in the event the next annual meeting is held
more than 30 days before or 60 days after the anniversary of this Annual
Meeting, then by the date described in the preceding paragraph), the Company's
proxy for such meeting will confer discretionary authority to vote for such
matter. Further, in order for such stockholder proposals to be eligible to be
brought before the stockholders at the next annual meeting, the stockholder
submitting such proposals must also comply with the procedures, including the
deadlines, required by the Company's then current By-Laws, as referenced in
the preceding paragraph. Stockholder nominations of directors are not
stockholder proposals within the meaning of Rule 14a-8 and are not eligible
for inclusion in the Company's proxy statement.
ANNUAL REPORT TO STOCKHOLDERS AND FORM 10-K AND OTHER MATTERS
The Company's Annual Report to Stockholders, which was mailed to
stockholders with or preceding this Proxy Statement, contains financial and
other information about the Company, but is not incorporated into this Proxy
Statement and is not to be considered a part of these proxy soliciting
materials or subject to Regulation 14A or 14C or to the liabilities of Section
18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The information contained in the "Compensation Committee Report on Executive
Compensation," "The Audit Committee Report" and "Performance Graph" shall not
be deemed "filed" with the Securities and Exchange Commission or subject to
Regulations 14A or 14C or to the liabilities of the Section 18 of the Exchange
Act, and shall not be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended (the "1933 Act"), or the Exchange
Act, whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
THE COMPANY WILL PROVIDE WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT TO
STOCKHOLDERS FOR 2000 AND ITS ANNUAL REPORT ON FORM 10-K, INCLUDING THE
FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES, FILED WITH THE SEC
FOR FISCAL YEAR 2000 TO ANY BENEFICIAL OWNER OF PINNACLE COMMON STOCK AS OF
THE RECORD DATE UPON WRITTEN REQUEST TO PINNACLE ENTERTAINMENT, INC., 330
NORTH BRAND BOULEVARD, SUITE 1100, GLENDALE, CALIFORNIA 91203, ATTENTION:
STOCKHOLDER RELATIONS.
25
APPENDIX A
PINNACLE ENTERTAINMENT, INC.
2001 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Plan are:
(a) to attract and retain the best available personnel for positions of
substantial responsibility,
(b) to provide additional incentive to selected key Employees, Consultants
and Directors, and
(c) to promote the success of the Company's business.
2. Definitions. For the purposes of this Plan, the following terms will have
the following meanings:
(a) "Administrator" means the Board or any of its Committees that administer
the Plan, in accordance with Section 4.
(b) "Applicable Laws" means the legal requirements relating to the
administration of and issuance of securities under stock incentive plans,
including, without limitation, the requirements of state corporations law,
federal and state securities law, federal and state tax law, and the
requirements of any stock exchange or quotation system upon which the Shares
may then be listed or quoted. For all purposes of this Plan, references to
statutes and regulations shall be deemed to include any successor statutes and
regulations, to the extent reasonably appropriate as determined by the
Administrator.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" shall have the meaning set forth in an Optionee's employment or
consulting agreement with the Company (if any), or if not defined therein,
shall mean (i) acts or omissions by the Optionee which constitute intentional
material misconduct or a knowing violation of a material policy of the Company
or any of its subsidiaries, (ii) the Optionee personally receiving a benefit in
money, property or services from the Company or any of its subsidiaries or from
another person dealing with the Company or any of its subsidiaries, in material
violation of applicable law or Company policy, (iii) an act of fraud,
conversion, misappropriation, or embezzlement by the Optionee or his conviction
of, or entering a guilty plea or plea of no contest with respect to, a felony,
or the equivalent thereof (other than DUI), or (iv) any material misuse or
improper disclosure of confidential or proprietary information of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended. For all
purposes of this Plan, references to Code sections shall be deemed to include
any successor Code sections, to the extent reasonably appropriate as determined
by the Administrator.
(f) "Committee" means a Committee appointed by the Board in accordance with
Section 4.
(g) "Common Stock" means the common stock, $0.10 par value per share, of the
Company.
(h) "Company" means Pinnacle Entertainment, Inc., a Delaware corporation.
(i) "Consultant" means any natural person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render bona fide services and who is
compensated for such services, provided that the term "Consultant" does not
include (i) Employees or (ii) Directors who are paid only a director's fee by
the Company or who are not compensated by the Company for their services as
Directors.
(j) "Continuous Status as an Employee, Director or Consultant" means that
the employment, director or consulting relationship is not interrupted or
terminated by the Company, any Parent or Subsidiary, or by the
A-1
Employee, Director or Consultant. Continuous Status as an Employee, Director
or Consultant will not be considered interrupted in the case of: (i) any leave
of absence approved by the Board, including sick leave, military leave, or any
other personal leave, provided, that for purposes of Incentive Stock Options,
any such leave may not exceed 90 days, unless reemployment upon the expiration
of such leave is guaranteed by contract (including certain Company policies)
or statute; or (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor.
(k) "Director" means a member of the Board.
(l) "Disability" means total and permanent disability as defined in Section
22(e)(3) of the Code.
(m) "Employee" means any person, including Officers and Directors employed
as a common law employee by the Company or any Parent or Subsidiary of the
Company. Neither service as a Director nor payment of a director's fee by the
Company will be sufficient, in and of itself, to constitute "employment" by
the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation, the
National Market System of NASDAQ, the Fair Market Value of a Share
of Common Stock will be the closing sales price for such stock (or
the closing bid, if no sales are reported) as quoted on that
system or exchange (or the system or exchange with the greatest
volume of trading in Common Stock) on the last market trading day
prior to the day of determination, as reported in the Wall Street
Journal or any other source the Administrator considers reliable.
(ii) If the Common Stock is quoted on the NASDAQ System (but not on the
NASDAQ National Market System) or is regularly quoted by
recognized securities dealers but selling prices are not reported,
the Fair Market Value of a Share of Common Stock will be the mean
between the high bid and low asked prices for the Common Stock on
the last market trading day prior to the day of determination, as
reported in the Wall Street Journal or any other source the
Administrator considers reliable.
(iii) If the Common Stock is not traded as set forth above, the Fair
Market Value will be determined in good faith by the Administrator
with reference to the earnings history, book value and prospects
of the Company in light of market conditions generally, and any
other factors the Administrator considers appropriate, such
determination by the Administrator to be final, conclusive and
binding.
(p) "Family Member" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
Optionee's household (other than a tenant or employee), a trust in which these
persons (or the Optionee) control the management of assets, and any other
entity in which these persons (or the Optionee) own more than fifty percent of
the voting interests.
(q) "Grant Notice" shall mean a written notice evidencing certain terms and
conditions of an individual Option grant. The Grant Notice is part of the
Option Agreement.
(r) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(s) "NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
(t) "Nonqualified Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
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(u) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(v) "Option" means a stock option granted under this Plan.
(w) "Option Agreement" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement is subject to the terms and conditions of this Plan.
(x) "Optioned Stock" means the Common Stock subject to an Option.
(y) "Optionee" means an Employee, Consultant or Director who holds an
outstanding Option.
(z) "Parent" means a "parent corporation" with respect to the Company,
whether now or later existing, as defined in Section 424(e) of the Code.
(aa) "Plan" means this 2001 Stock Option Plan.
(bb) "Section" means, except as otherwise specified, a section of this
Plan.
(cc) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 14.
(dd) "Subsidiary" means a "subsidiary corporation" with respect to the
Company, whether now or later existing, as defined in Section 424(f) of the
Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
the Plan, the maximum aggregate number of Shares which may be issued under the
Plan will be 900,000 Shares of Common Stock. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been exercised
in full, the Shares that were not purchased which were subject thereto will
become available for future grant under the Plan (unless the Plan has
terminated). If the Company reacquires Shares which were issued pursuant to
the exercise of an Option, however, those reacquired Shares will not be
available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Composition of the Administrator. The Plan will be administered by (A)
the Board, or (B) a Committee designated by the Board, which Committee
will be constituted to satisfy Applicable Laws. Once appointed, a
Committee will serve in its designated capacity until otherwise
directed by the Board. The Board may increase the size of the Committee
and appoint additional members, remove members (with or without cause)
and substitute new members, fill vacancies (however caused), and remove
all members of the Committee and thereafter directly administer the
Plan. Notwithstanding the foregoing, unless the Board expressly
resolves to the contrary, from and after such time as the Company is
registered pursuant to Section 12 of the Exchange Act, the Plan will be
administered only by a Committee, which will then consist solely of
persons who are both "non-employee directors" within the meaning of
Rule 16b-3 promulgated under the Exchange Act and "outside directors"
within the meaning of Section 162(m) of the Code; provided, however,
the failure of the Committee to be composed solely of individuals who
are both "non-employee directors" and "outside directors" shall not
render ineffective or void any awards or grants made by, or other
actions taken by, such Committee.
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(ii) Multiple Administrative Bodies. The Plan may be administered by
different bodies with respect to Directors, Officers who are not
Directors, and Employees and Consultants who are neither Directors nor
Officers.
(b) Powers of the Administrator. Subject to the provisions of the Plan, and
in the case of a Committee, subject to the specific duties delegated by the
Board to that Committee, the Administrator will have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(o);
(ii) to select the Consultants, Employees or Directors to whom Options
may be granted;
(iii) to determine whether and to what extent Options are granted, and
whether Options are intended as Incentive Stock Options or
Nonqualified Stock Options;
(iv) to determine the number of Shares to be covered by each Option
granted;
(v) to approve forms of Grant Notices, Option Agreements;
(vi) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any grant of Options, including, but not
limited to, (A) the Options' exercise price, (B) the time or times
when Options may be exercised, which may be based on performance
criteria or other reasonable conditions such as Continuous Status as
an Employee, Director or Consultant, (C) any vesting acceleration or
waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Optioned Stock, based in each case on
factors that the Administrator determines in its sole discretion,
including but not limited to a requirement subjecting the Optioned
Stock to (i) certain restrictions on transfer (including without
limitation a prohibition on transfer for a specified period of time
and/or a right of first refusal in favor of the Company), and (ii) a
right of repurchase in favor of the Company upon termination of the
Optionee's Continuous Status as an Employee, Director or Consultant;
(vii) to determine whether, to what extent and under what circumstances
Common Stock and other amounts payable with respect to a grant of
Options under this Plan will be deferred either automatically or at
the election of the participant (including providing for and
determining the amount, if any, of any deemed earnings on any
deferred amount during any deferral period);
(viii) to construe and interpret the terms of this Plan;
(ix) to prescribe, amend, and rescind rules and regulations relating to
the administration of this Plan;
(x) to modify or amend each Option, subject to Section 16(c);
(xi) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option previously
granted by the Administrator;
(xii) to accelerate the vesting or exercisability of an Option;
(xiii) to determine the terms and restrictions applicable to Options; and
(xiv) to make all other determinations it considers necessary or advisable
for administering this Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations will be final and binding on all holders of
Options.
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5. Eligibility. Options granted under this Plan may be Incentive Stock
Options or Nonqualified Stock Options, as determined by the Administrator at
the time of grant. Nonqualified Stock Options may be granted to Employees,
Consultants and Directors. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee, Consultant or Director who has
been granted an Option may be granted additional Options.
6. Limitations on Grants of Incentive Stock Options. Each Option will be
designated in the Grant Notice as either an Incentive Stock Option or a
Nonqualified Stock Option. However, notwithstanding such designations, if the
Shares subject to an Optionee's Incentive Stock Options (granted under all
plans of the Company or any Parent or Subsidiary), which become exercisable
for the first time during any calendar year, have a Fair Market Value in
excess of $100,000, the Options accounting for this excess will be treated as
Nonqualified Stock Options. For purposes of this Section 6, Incentive Stock
Options will be taken into account in the order in which they were granted,
and the Fair Market Value of the Shares will be determined as of the time of
grant.
7. Limit on Annual Grants to Individuals. From and after such time as the
Company is required to be registered pursuant to Section 12 of the Exchange
Act, no Optionee may receive grants, during any fiscal year of the Company or
portion thereof, of Options which, in the aggregate, cover more than 100,000
Shares, subject to adjustment as provided in Section 14. If an Option expires
or terminates for any reason without having been exercised in full, the
unpurchased shares subject to that expired or terminated Option will continue
to count against the maximum numbers of shares for which Options may be
granted to an Optionee during any fiscal year of the Company or portion
thereof.
8. Term of the Plan. Subject to Section 20, this Plan will become effective
upon the earlier to occur of its adoption by the Board or its approval by the
shareholders of the Company as described in Section 20. It will continue in
effect for a term of ten years unless terminated earlier under Section 16.
Unless otherwise provided in this Plan, its termination will not affect the
validity of any Option outstanding at the date of termination.
9. Term of Option. The term of each Option will be stated in the Option
Agreement; provided, however, that in no event may the term be more than ten
years from the date of grant. In addition, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent of the voting power of
all classes of capital stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option will be five years from the date of grant
or any shorter term specified in the Option Agreement.
10. Option Exercise Price and Consideration.
(a) Exercise Price of Incentive Stock Options. The exercise price for
Shares to be issued pursuant to exercise of an Incentive Stock Option will be
determined by the Administrator provided that the per Share exercise price
will be no less than 100% of the Fair Market Value per Share on the date of
grant; provided, further that in the case of an Incentive Stock Option granted
to an Employee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent of the voting power of all classes of
capital stock of the Company or any Parent or Subsidiary, the per Share
exercise price will be no less than 110% of the Fair Market Value per Share on
the date of grant.
(b) Exercise Price of Nonqualified Stock Options. In the case of a
Nonqualified Stock Option, the exercise price for Shares to be issued pursuant
to the exercise of any such Option will be determined by the Administrator.
(c) Waiting Period and Exercise Dates. At the time an Option is granted,
the Administrator will fix the period within which the Option may be exercised
and will determine any conditions which must be satisfied before the Option
may be exercised. Exercise of an Option may be conditioned upon performance
criteria or other reasonable conditions such as Continuous Status as an
Employee, Director or Consultant.
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(d) Form of Consideration. The Administrator will determine the acceptable
form of consideration for exercising an Option, including the method of
payment. Such consideration may consist partially or entirely of:
(i) cash;
(ii) a promissory note made by the Optionee in favor of the Company;
(iii) other Shares which have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which an
Option will be exercised;
(iv) delivery of a properly executed exercise notice together with any
other documentation as the Administrator and the Optionee's broker,
if applicable, require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay
the exercise price; or
(v) any other consideration and method of payment for the issuance of
Shares to the extent permitted by Applicable Laws.
11. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder will be exercisable according to the terms of the Plan and at times
and under conditions determined by the Administrator and set forth in the
Option Agreement; provided, however, that an Option may not be exercised for a
fraction of a Share.
An Option will be deemed exercised when the Company receives: (i) written
notice of exercise (in accordance with the Option Agreement) from the person
entitled to exercise the Option, (ii) full payment for the Shares with respect
to which the Option is exercised, and (iii) all representations,
indemnifications and documents reasonably requested by the Administrator. Full
payment may consist of any consideration and method of payment authorized by
the Administrator and permitted by the Option Agreement and this Plan. Shares
issued upon exercise of an Option will be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse. Until the stock certificate evidencing such Shares is issued (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder will exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. Subject to the
provisions of Sections 13, 17, and 18, the Company will issue (or cause to be
issued) such stock certificate promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as provided
in Section 14 of the Plan. Notwithstanding the foregoing, the Administrator in
its discretion may require the Company to retain possession of any certificate
evidencing Shares of Common Stock acquired upon exercise of an Option, if
those Shares remain subject to repurchase under the provisions of the Option
Agreement or any other agreement between the Company and the Optionee, or if
those Shares are collateral for a loan or obligation due to the Company.
Exercising an Option in any manner will decrease the number of Shares
thereafter available, both for purposes of this Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship or
Directorship. If an Optionee holds exercisable Options on the date his or her
Continuous Status as an Employee, Director or Consultant terminates (other
than because of termination due to Cause, death or Disability), the Optionee
may exercise the Options that were vested and exercisable as of the date of
termination for a period of 90 days following such termination in the case of
an Incentive Stock Option, or 30 days following such termination in the case
of a Nonqualified Stock Option (or such other period as is set forth in the
Option Agreement or determined by the Administrator). If the Optionee is not
entitled to exercise his or her entire Option at the date of such termination,
the Shares covered by the unexercisable portion of the Option will revert to
the Plan. If the Optionee does not exercise an Option within the time
specified above after termination, that Option will expire, and the Shares
covered by it will revert to the Plan.
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(c) Disability of Optionee. If an Optionee holds exercisable Options on the
date his or her Continuous Status as an Employee, Director or Consultant
terminates because of Disability, the Optionee may exercise the Options that
were vested and exercisable as of the date of termination for a period of
twelve months following such termination in the case of an Incentive Stock
Option, or six months following such termination in the case of a Nonqualified
Stock Option (or such other period as is set forth in the Option Agreement or
determined by the Administrator). If the Optionee is not entitled to exercise
his or her entire Option at the date of such termination, the Shares covered
by the unexercisable portion of the Option will revert to the Plan. If the
Optionee does not exercise an Option within the time specified above after
termination, that Option will expire, and the Shares covered by it will revert
to the Plan.
(d) Death of Optionee. If an Optionee holds exercisable Options on the date
his or her death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance may exercise the Options that
were vested and exercisable as of the date of death for a period of twelve
months following the date of death in the case of an Incentive Stock Option,
or six months following death in the case of a Nonqualified Stock Option (or
such other period as is set forth in the Option Agreement or determined by the
Administrator). If the Optionee is not entitled to exercise his or her entire
Option at the date of death, the Shares covered by the unexercisable portion
of the Option will revert to the Plan. If the Optionee's estate or a person
who acquired the right to exercise the Option by bequest or inheritance does
not exercise an Option within the time specified above after termination, that
Option will expire, and the Shares covered by it will revert to the Plan.
(e) Termination for Cause. If an Optionee's Continuous Status as an
Employee, Director or Consultant is terminated for Cause, then all Options
(including any vested Options) held by Optionee shall immediately be
terminated and cancelled.
(f) Disqualifying Dispositions of Incentive Stock Options. If Common Stock
acquired upon exercise of any Incentive Stock Option is disposed of in a
disposition that, under Section 422 of the Code, disqualifies the holder from
the application of Section 421(a) of the Code, the holder of the Common Stock
immediately before the disposition will comply with any requirements imposed
by the Company in order to enable the Company to secure the related income tax
deduction to which it is entitled in such event.
12. Non-Transferability of Options.
(a) No Transfer. An Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. Notwithstanding the foregoing,
to the extent that the Administrator so authorizes at the time a Nonqualified
Stock Option is granted or amended, (i) such Option may be assigned pursuant
to a qualified domestic relations order as defined by the Code, and exercised
by the spouse of the Optionee who obtained such Option pursuant to such
qualified domestic relations order, and (ii) such Option may be assigned, in
whole or in part, during the Optionee's lifetime to one or more Family Members
of the Optionee. Rights under the assigned portion may be exercised by the
Family Member(s) who acquire a proprietary interest in such Option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the Option immediately before such assignment and shall
be set forth in such documents issued to the assignee as the Administrator
deems appropriate.
(b) Designation of Beneficiary. An Optionee may file a written designation
of a beneficiary who is to receive any Options that remain unexercised in the
event of the Optionee's death. If a participant is married and the designated
beneficiary is not the spouse, spousal consent will be required for the
designation to be effective. The Optionee may change such designation of
beneficiary at any time by written notice to the Administrator, subject to the
above spousal consent requirement.
(c) Effect of No Designation. If an Optionee dies and there is no
beneficiary validly designated and living at the time of the Optionee's death,
the Company will deliver such Optionee's Options to the executor or
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administrator of his or her estate, or if no such executor or administrator
has been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such Options to the spouse or to any one or more
dependents or relatives of the Optionee, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
(d) Death of Spouse or Dissolution of Marriage. If an Optionee designates
his or her spouse as beneficiary, that designation will be deemed
automatically revoked if the Optionee's marriage is later dissolved.
Similarly, any designation of a beneficiary will be deemed automatically
revoked upon the death of the beneficiary if the beneficiary predeceases the
Optionee. Without limiting the generality of the preceding sentence, the
interest in Options of a spouse of an Optionee who has predeceased the
Optionee or (except as provided in Section 12(a) regarding qualified domestic
relations orders) whose marriage has been dissolved will automatically pass to
the Optionee, and will not be transferable by such spouse in any manner,
including but not limited to such spouse's will, nor will any such interest
pass under the laws of intestate succession.
13. Withholding Taxes. The Company will have the right to take whatever
steps the Administrator deems necessary or appropriate to comply with all
applicable federal, state, local, and employment tax withholding requirements,
and the Company's obligations to deliver Shares upon the exercise of an Option
will be conditioned upon compliance with all such withholding tax
requirements. Without limiting the generality of the foregoing, upon the
exercise of an Option, the Company will have the right to withhold taxes from
any other compensation or other amounts which it may owe to the Optionee, or
to require the Optionee to pay to the Company the amount of any taxes which
the Company may be required to withhold with respect to the Shares issued on
such exercise. Without limiting the generality of the foregoing, the
Administrator in its discretion may authorize the Optionee to satisfy all or
part of any withholding tax liability by (a) having the Company withhold from
the Shares which would otherwise be issued on the exercise of an Option that
number of Shares having a Fair Market Value, as of the date the withholding
tax liability arises, equal to or less than the amount of the Company's
withholding tax liability, or (b) by delivering to the Company previously-
owned and unencumbered Shares of the Common Stock having a Fair Market Value,
as of the date the withholding tax liability arises, equal to or less than the
amount of the Company's withholding tax liability.
14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, if the outstanding shares of Common Stock are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company or a successor entity, or for other
property (including without limitation, cash), through reorganization,
recapitalization, reclassification, stock combination, stock dividend, stock
split, reverse stock split, spin-off or other similar transaction, an
appropriate and proportionate adjustment will be made in the maximum number
and kind of shares as to which Options may be granted under this Plan. A
corresponding adjustment changing the number or kind of shares and/or property
allocated to unexercised Options which have been granted prior to any such
change will likewise be made. Any such adjustment in the outstanding Options
will be made without change in the aggregate purchase price applicable to the
unexercised portion of the Options but with a corresponding adjustment in the
price for each share or other unit of any security covered by the Option. Such
adjustment will be made by the Administrator, whose determination in that
respect will be final, binding, and conclusive.
Where an adjustment under this Section 14(a) is made to an Incentive Stock
Option, the adjustment will be made in a manner which will not be considered a
"modification" under the provisions of subsection 424(h)(3) of the Code.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, to the extent that an Option had not been
previously exercised, it will terminate immediately prior to the consummation
of such proposed dissolution or liquidation. In such instance, the
Administrator may, in the exercise of its sole discretion, declare that any
Option will terminate as of a date fixed by the Administrator and give each
Optionee the right to exercise his or her Option as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable.
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(c) Corporate Transaction. Upon the happening of a merger, reorganization
or sale of substantially all of the assets of the Company, the Administrator,
may, in its sole discretion, do one or more of the following: (i) shorten the
period during which Options are exercisable (provided they remain exercisable
for at least 30 days after the date notice of such shortening is given to the
Optionees); (ii) accelerate any vesting schedule to which an Option is
subject; (iii) arrange to have the surviving or successor entity or any parent
entity thereof assume the Options or grant replacement options with
appropriate adjustments in the option prices and adjustments in the number and
kind of securities issuable upon exercise or adjustments so that the Options
or their replacements represent the right to purchase the shares of stock,
securities or other property (including cash) as may be issuable or payable as
a result of such transaction with respect to or in exchange for the number of
Shares of Common Stock purchasable and receivable upon exercise of the Options
had such exercise occurred in full prior to such transaction; or (iv) cancel
Options upon payment to the Optionees in cash, with respect to each Option to
the extent then exercisable (including, if applicable, any Options as to which
the vesting schedule has been accelerated as contemplated in clause (ii)
above), of an amount that is the equivalent of the excess of the Fair Market
Value of the Common Stock (at the effective time of the merger,
reorganization, sale or other event) over the exercise price of the Option.
The Administrator may also provide for one or more of the foregoing
alternatives in any particular Option Agreement.
15. Date of Grant. The date of grant of an Option will be, for all
purposes, the date as of which the Administrator makes the determination
granting such Option, or any other, later date determined by the Administrator
and specified in the Option Agreement. Notice of the determination will be
provided to each Optionee within a reasonable time after the date of grant.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter or
suspend or terminate the Plan.
(b) Shareholder Approval. The Company will obtain shareholder approval of
any Plan amendment that increases the number of Shares for which Options may
be granted, or to the extent necessary and desirable to comply with Section
422 of the Code (or any successor statute) or other Applicable Laws, or the
requirements of any exchange or quotation system on which the Common Stock is
listed or quoted. Such shareholder approval, if required, will be obtained in
such a manner and to such a degree as is required by the Applicable Law or
requirement.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan will impair the rights of a Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator.
Any such agreement must be in writing and signed by the Optionee and the
Company.
17. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares will not be issued pursuant to the exercise of
an Option unless the exercise of such Option and the issuance and delivery of
such Shares will comply with all Applicable Laws, and will be further subject
to the approval of counsel for the Company with respect to such compliance.
Any securities delivered under the Plan will be subject to such restrictions,
and the person acquiring such securities will, if requested by the Company,
provide such assurances and representations to the Company as the Company may
deem necessary or desirable to assure compliance with all Applicable Laws. To
the extent permitted by Applicable Laws, the Plan and Options granted
hereunder will be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
(b) Investment Representation. As a condition to the exercise of an Option,
the Company may require the person exercising such Option to represent and
warrant at the time of any such exercise that the Shares are being acquired
only for investment and without any present intention to sell, transfer, or
distribute such Shares.
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18. Liability of Company.
(a) Inability to Obtain Authority. If the Company cannot, by the exercise
of commercially reasonable efforts, obtain authority from any regulatory body
having jurisdiction for the sale of any Shares under this Plan, and such
authority is deemed by the Company's counsel to be necessary to the lawful
issuance of those Shares, the Company will be relieved of any liability for
failing to issue or sell those Shares.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by an
Option exceed, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, that Option
will be contingent with respect to such excess Shares, unless and until
shareholder approval of an amendment sufficiently increasing the number of
Shares subject to this Plan is timely obtained in accordance with Section
16(b).
(c) Rights of Participants and Beneficiaries. The Company will pay all
amounts payable under this Plan only to the Optionee, or beneficiaries
entitled thereto pursuant to this Plan. The Company will not be liable for the
debts, contracts, or engagements of any Optionee or his or her beneficiaries,
and rights to cash payments under this Plan may not be taken in execution by
attachment or garnishment, or by any other legal or equitable proceeding while
in the hands of the Company.
19. Reservation of Shares. The Company will at all times reserve and keep
available for issuance a number of Shares sufficient to satisfy this Plan's
requirements during its term.
20. Shareholder Approval. Continuance of this Plan will be subject to
approval by the shareholders of the Company within 12 months before or after
the date of its adoption. Such shareholder approval will be obtained in the
manner and to the degree required under Applicable Laws. Options may be
granted but Options may not be exercised prior to shareholder approval of the
Plan. If any Options are so granted and shareholder approval is not obtained
within 12 months of the date of adoption of this Plan by the Board, those
Options will terminate retroactively as of the date they were granted.
21. Legending Stock Certificates. In order to enforce any restrictions
imposed upon Common Stock issued upon exercise of an Option granted under this
Plan or to which such Common Stock may be subject, the Administrator may cause
a legend or legends to be placed on any certificates representing such Common
Stock, which legend or legends will make appropriate reference to such
restrictions, including, but not limited to, a restriction against sale of
such Common Stock for any period of time as may be required by Applicable
Laws. Additionally, and not by way of limitation, the Administrator may impose
such restrictions on any Common Stock issued pursuant to the Plan as it may
deem advisable.
22. No Employment Rights. Neither this Plan nor any Option will confer upon
an Optionee any right with respect to continuing the Optionee's employment or
consulting relationship with the Company, or continuing service as a Director,
nor will they interfere in any way with the Optionee's right or the Company's
right to terminate such employment or consulting relationship or directorship
at any time, with or without cause.
23. Governing Law. The Plan will be governed by, and construed in
accordance with the laws of the State of Delaware (without giving effect to
conflicts of law principles).
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APPENDIX B
PINNACLE ENTERTAINMENT, INC.
CHARTER FOR AUDIT COMMITTEE
ARTICLE I
FORMATION
The Board of Directors of Pinnacle Entertainment, Inc. (the "Corporation")
has established the Audit Committee pursuant to Section 141(c)(2) of the
Delaware General Corporation Law and Article III, Section 4 of the
Corporation's Bylaws. Any action permitted to be taken by the Board of
Directors, pursuant to this Charter, may be taken instead by a duly authorized
committee of the Board of Directors.
ARTICLE II
COMPOSITION
The Audit Committee shall be comprised of not less than three members of
the Corporation's Board of Directors. Subject to the foregoing, the exact
number of members of the Audit Committee shall be fixed and may be changed
from time to time by resolution duly adopted by the Board of Directors. No
member shall have any relationship to the Corporation that, in the
determination of the Board of Directors, may interfere with his or her
exercise of independence from management and the Corporation.
ARTICLE III
FUNCTIONS
The independent public accounting firm engaged by the Corporation to audit
the Corporation's financial statements shall be accountable ultimately to the
Corporation's Board of Directors and the Audit Committee.
The Audit Committee shall:
A. Independent Auditors
. Recommend to the Board of Directors each year the independent public
accounting firm to be engaged to audit the Corporation's financial
statements.
. Meet with the independent auditors to review and approve the plan and
scope for each audit of the Corporation's financial statements and
related services, including proposed fees to be incurred with respect
thereto.
. Review and recommend action with respect to the results of each
independent audit of the Corporation's financial statements, including
problems encountered in connection with such audit and recommendations
of the independent auditors arising as a result of such audit.
. Discuss with the Corporation's independent auditors the matters required
to be communicated pursuant to Statement on Auditing Standards No. 61
("SAS 61"), as may be amended or supplemented.
. At least annually, discuss with the independent auditors their
independence and receive each of the following in writing:
. Disclosure of all relationships between the auditors and their
related entities and the Corporation and its related entities that
in the auditors' professional judgment may reasonably be thought to
bear on independence; and
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. Confirmation that, in the auditors' professional judgment, the
independent auditors are independent of the Corporation within the
meaning of the federal securities laws.
. Discuss with the Corporation's independent auditors any relationships or
services disclosed by the independent auditors that may impact the
objectivity and independence of the independent auditors and recommend
to the Board of Directors any actions in response to the independent
auditors' disclosures to satisfy itself of the independent auditors'
independence.
B. Financial Statements
. Review and discuss with the Corporation's independent auditors and
management the Corporation's audited financial statements.
. Based on (1) its review and discussions with management of the
Corporation's audited financial statements; (2) its discussion with the
independent auditors of the matters to be communicated pursuant to SAS
61; and (3) the written disclosures from the Corporation's independent
auditors regarding independence, recommend to the Corporation's Board of
Directors whether the Corporation's audited financial statements should
be included in the Corporation's Annual Report on Form 10-K for the last
fiscal year for filing with the Securities and Exchange Commission (the
"SEC").
C. Internal Accounting
. Review with the Corporation's independent auditors and financial
management the adequacy and effectiveness of the Corporation's system of
internal accounting controls.
D. Other Duties
. At least annually, review the adequacy of this Charter and recommend to
the Corporation's Board of Directors any changes to this Charter that
the Audit Committee deems necessary or desirable.
. Perform such other specific functions as the Corporation's Board of
Directors may from time to time direct, and make such investigations and
reviews of the Corporation and its operations as the Chief Executive
Officer or the Board of Directors may from time to time request.
ARTICLE IV
PROCEDURES
The Audit Committee shall keep regular minutes of its meetings. Meetings
and actions of the Audit Committee shall be governed by, and held and taken in
accordance with, the provisions of the Corporation's Bylaws, with such changes
in the context of those Bylaws as are necessary to substitute the Audit
Committee, the Chairman of the Audit Committee and its members for the Board
of Directors, the Chairman of the Board and its members. Regular meetings of
the Audit Committee may be held at such time and such place as the Audit
Committee determines from time to time.
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PROXY
PINNACLE ENTERTAINMENT, INC.
PROXY FOR 2001 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders of Pinnacle Entertainment, Inc. (the "Company") and the
accompanying Proxy Statement relating to the above-referenced Annual Meeting,
and hereby appoints Paul R. Alanis or Loren S. Ostrow, or either of them, with
full power to each of substitution in each, as attorneys and proxies of the
undersigned.
Said proxies are hereby given authority to vote all shares of common stock
of the Company which the undersigned may be entitled to vote at the 2001
Annual Meeting of Stockholders of the Company, and at any and all adjournments
or postponements thereof on behalf of the undersigned on the matters set forth
on the reverse side hereof and in the manner designated thereon.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY, AND WHEN
PROPERLY EXECUTED, THE SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE
WITH THE INSTRUCTIONS IN THIS PROXY. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF ALL NOMINEES NAMED AS DIRECTORS OF THE COMPANY
AND FOR THE APPROVAL OF THE 2001 STOCK OPTION PLAN.
PLEASE DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY
IN THE ENCLOSED ENVELOPE
(See reverse side)
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FOLD AND DETACH HERE
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Please mark [X]
your votes
as
indicated
in this
example
1. Election of Nine Directors: WITHHOLD
Nominees: Paul R. Alanis, R.D. Hubbard, FOR AUTHORITY
Robert T. Manfuso, James L. Martineau, ALL FROM ALL
Gary G. Miller, Michael Ornest, Timothy J. [_] [_]
Parrott, Lynn P. Reitnouer, Marlin Torguson
For all nominees except:
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW).
________________________________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of Company's 2001 Stock Option Plan [_] [_] [_]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, THE
PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION "FOR" THE ELECTION OF THE
ABOVE-LISTED NOMINEES OR SUCH SUBSTITUTE NOMINEE(S) FOR DIRECTORS AS THE BOARD
OF DIRECTORS OF PINNACLE ENTERTAINMENT, INC. SHALL SELECT AND "FOR" APPROVAL OF
THE COMPANY'S 2001 STOCK OPTION PLAN. THIS PROXY ALSO CONFERS DISCRETIONARY
AUTHORITY ON THE PROXIES TO VOTE AS TO ANY OTHER MATTER THAT IS PROPERLY BROUGHT
BEFORE THE ANNUAL MEETING THAT THE BOARD OF DIRECTORS DID NOT HAVE NOTICE OF
PRIOR TO THE DATE SPECIFIED IN THE PROXY STATEMENT.
Signature ____________________ Dated ______________, 2001 Title________________
Signature if held jointly ________________________ Dated _________________, 2001
Note: Please date and sign exactly as your name(s) appear on this proxy card.
If shares are registered in more than one name, all such persons should sign.
A corporation should sign in its full corporate name by a duly authorized
officer, stating his title. When signing as attorney, executor, administrator,
trustee or guardian, please sign in your official capacity and give your full
title as such. If a partnership, please sign in the partnership name by an
authorized person.
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