SCHEDULE 14A INFORMATION
(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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO] PINNACLE ENTERTAINMENT
PINNACLE ENTERTAINMENT, INC.
330 NORTH BRAND BOULEVARD, SUITE 1100
GLENDALE, CALIFORNIA 91203
May 13, 2002
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Pinnacle Entertainment, Inc. (the "Company"), to be held at the Hilton Hotel,
100 West Glenoaks Boulevard, Glendale, California on June 18, 2002 at 9:00 a.m.
local time.
At the annual meeting, you will be asked to consider and vote upon three
matters: first, the election of seven directors to serve for the coming year on
the Company's Board of Directors, each to hold office until the Company's next
annual meeting of stockholders (and until each such director's successor shall
have been duly elected and qualified); second, a proposal to approve an option
to purchase shares of the Company's common stock granted to me by the Board of
Directors in connection with my employment as the Company's new Chief Executive
Officer; and third, a proposal to approve a new stock option plan to help the
Company continue to recruit and motivate talented management personnel.
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, the option granted to me in connection with my employment with the
Company and the new stock option plan we would like you to approve.
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 may have previously returned your Proxy
Card.
Sincerely,
Daniel R. Lee
Chairman of the Board of Directors
and Chief Executive Officer
PINNACLE ENTERTAINMENT, INC.
330 NORTH BRAND BOULEVARD, SUITE 1100
GLENDALE, CALIFORNIA 91203
-----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 18, 2002
-----------------
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 June 18, 2002, 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 seven 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 each such director's successor shall have
been duly elected and qualified);
2. The approval of an option to purchase 515,000 shares of the Company's
common stock granted to Daniel R. Lee, the Company's new Chief Executive
Officer and Chairman of the Board of Directors, pursuant to his employment
agreement;
3. The approval of the Company's 2002 Stock Option Plan pursuant to which
the Company may grant options to purchase up to 1,000,000 shares of the
Company's common stock; and
4. Such other business as may properly come before the Annual Meeting or
before any adjournments or postponements thereof.
The 2002 Stock Option Plan is described in the accompanying Proxy Statement,
which you are urged to read carefully. A full copy of the 2002 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 25, 2002 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
Loren S. Ostrow
Secretary
Glendale, California
May 13, 2002
PINNACLE ENTERTAINMENT, INC.
330 NORTH BRAND BOULEVARD, SUITE 1100
GLENDALE, CALIFORNIA 91203
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PROXY STATEMENT RELATING TO
ANNUAL MEETING OF STOCKHOLDERS
To Be Held On June 18, 2002
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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 June
18, 2002, 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 be asked to vote upon: (i) the
election of seven 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 each such director's successor shall have been duly
elected and qualified), (ii) the approval of an option to purchase 515,000
shares of Pinnacle Common Stock granted to Daniel R. Lee, the Company's new
Chief Executive Officer and Chairman of the Board of Directors, pursuant to his
employment agreement (the "Option Grant"), (iii) the approval of the Company's
2002 Stock Option Plan (the "2002 Stock Option Plan") and (iv) any other
business that properly comes before the Annual Meeting.
This Proxy Statement and the accompanying Proxy Card are first being mailed
to the Company's stockholders on or about May 15, 2002. The address of the
principal executive offices of the Company is 330 North Brand Boulevard, Suite
1100, Glendale, California 91203.
ANNUAL MEETING
Record Date; Outstanding Shares; Quorum
Only holders of record of Pinnacle Common Stock at the close of business on
April 25, 2002 (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
25,760,655 shares of Pinnacle Common Stock outstanding and entitled to vote,
held of record by 2,915 stockholders. A majority, or 12,880,329, of these
shares, present in person or represented by proxy, will constitute a quorum for
the transaction of business at the Annual Meeting. 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, FOR the
approval of the Option Grant and FOR the approval of the 2002 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. 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 in their discretion on any other matter that may properly come
before the Annual Meeting, including any motion made for adjournment of the
Annual Meeting.
1
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 proposals to approve the Option Grant and the 2002 Stock Option
Plan require 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
proposals to approve the Option Grant and the 2002 Stock Option Plan. Broker
non-votes will have no effect on the proposals to approve the Option Grant and
the 2002 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 seven directors who will constitute the full Board of
Directors of the Company. The seven 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
stockholders (and until his successor shall have been duly elected and
qualified). All of the nominees listed below 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 (other than
arrangements or understandings with any such director, nominee and/or executive
officer acting in his capacity as such). 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. All of the nominees currently serve on the Board of
Directors of the Company. Biographical information for each nominee is provided
below.
Name Age Position with the Company
---- --- -------------------------
Daniel R. Lee (a)............ 45 Chairman of the Board of Directors and Chief Executive Officer
James L. Martineau (b)....... 61 Director
Gary G. Miller (c)........... 51 Director
Michael Ornest (c)........... 44 Director
Timothy J. Parrott (a), (c).. 54 Director
Lynn P. Reitnouer (a), (b)... 69 Director
Marlin Torguson.............. 57 Director
- --------
(a) Member of the Executive Committee
(b) Member of the Compensation Committee
(c) Member of the Audit Committee
3
Mr. Lee has been Chairman of the Board of Directors and Chief Executive
Officer of the Company since April 10, 2002; owner of LVMR, LLC (developer of
casino hotels) from 2001 to 2002; Chief Financial Officer and Senior Vice
President of HomeGrocer.Com, Inc. (internet grocery service) from 1999 until
the sale of the company in 2000; and Chief Financial Officer, Treasurer and
Senior Vice President of Finance and Development of Mirage Resorts,
Incorporated (major operator and developer of casino resorts) from 1992 to 1999.
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. (a glass design and
development corporation that 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; 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; Chief Executive Officer and
Director, On Stage Entertainment (entertainment production company) since
October 2000, President, October 2000 to January 2002; 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 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 and a
consultant to the Company since October 2001; 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 private investor.
4
Board Meetings, Board Committees and Director Compensation
The full Board of Directors of the Company had four formal meetings in 2001
and acted by unanimous written consent on one occasion. During 2001, each
incumbent director of the Company attended at least 75% of the aggregate of (i)
the four 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. Lee
and currently consists of Messrs. Lee, 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. During 2001, the Executive Committee
acted by unanimous written consent on eight 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
Company's financial statements, discuss with the independent auditors their
independence, review and discuss with the Company's independent auditors and
management the Company's audited financial statements, and recommend to the
Company's Board of Directors whether the Company's audited financial statements
should be included in the Company'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 amended the written Charter for the Audit Committee, a copy of
which, as amended, is attached as Appendix B. The Audit Committee met four
times in 2001 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 and Martineau. 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 met one time in 2001 and acted by unanimous written consent on seven
occasions.
The Executive Committee acts as the Company's nominating committee. The
Executive Committee generally does not consider nominees recommended by the
Company's stockholders.
Each director holds office until the next annual meeting of stockholders and
until his successor is 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 2001. Members of the Executive Committee, Audit
Committee and Compensation Committee and directors serving on the Company's
Compliance Committee (which monitors the Company's compliance with gaming
5
laws in the jurisdictions in which it operates) receive an additional $1,000
for each committee meeting attended, and such amounts are also eligible for the
Amended and Restated Directors Deferred Compensation Plan. Mr. Reitnouer
currently serves on the Company's Compliance 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 New York Stock
Exchange 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 2001,
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 New York Stock Exchange 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 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.
6
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 Robert T. Manfuso served on the
Compensation Committee from January 1, 2001 to December 31, 2001. None of the
members of the Compensation Committee were officers or employees or former
officers or employees of the Company or its subsidiaries. No executive officer
of the Company served (i) on the compensation committee of another entity, one
of whose executive officers served as a director of, or on the Compensation
Committee of, the Company or (ii) as a director of another entity, one of whose
executive officers served on the Compensation Committee of the Company.
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
---- --- --------
Daniel R. Lee................ 45 Chairman of the Board of Directors and Chief Executive Officer
Wade W. Hundley.............. 36 Executive Vice President and Chief Operating Officer
G. Michael Finnigan.......... 53 President and Chief Executive Officer of Realty Investment Group,
Inc., a wholly-owned subsidiary of the Company
Bruce C. Hinckley............ 55 Senior Vice President, Chief Financial Officer and Treasurer
Loren S. Ostrow.............. 50 Senior Vice President, Secretary and General Counsel
Biographical information for Mr. Lee is provided above. See "--Information
Regarding the Director Nominees of the Company."
Mr. Hundley has served as the Company's Executive Vice President and Chief
Operating Officer since September 2001; Executive Vice President and Office of
the CEO, Harveys Casino Resorts (gaming operations) from December 2000 through
July 2001; Principal, Colony Capital (private equity investment), June 1993
through November 2000.
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 from 1993 to 2001.
Mr. Hinckley joined the Company in February 1999 and has served as its Chief
Financial Officer, Senior 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 (gaming operations) from January 1996 through
December 1998; Senior Vice President, KII--Pasadena, Inc. (real estate and
casino consulting) from December 1988 to December 1998; and Senior Vice
President, KOAR International, Inc. (real estate and casino consulting) from
1991 to 1997.
7
Executive Compensation
The following table summarizes the annual and long-term compensation of, and
options to purchase Pinnacle Common Stock ("Pinnacle Stock Options") granted
to, the Company's Chief Executive Officer during the fiscal year ended December
31, 2001, the five additional most highly compensated executive officers whose
annual salaries and bonuses exceeded $100,000 in total during the fiscal year
ended December 31, 2001, and J. Michael Allen, who served as an executive
officer during the fiscal year ended December 31, 2001 but left the Company in
July 2001 (collectively, the "Named Officers"). None of the Named Officers held
stock appreciation rights during the years reported in the table.
Summary Compensation Table
Long Term
Compensation
Annual Compensation (a) Awards All Other Compensation ($)
--------------------- ------------ --------------------------
Securities
Underlying 401(k) Term Life
Name & Principal Position Year Salary ($) Bonus ($) Options (#) Match (b) Insurance (c)
------------------------- ---- ---------- --------- ------------ --------- -------------
R.D. Hubbard.................... 2001 $500,000 $ 0 0 $3,134 $3,183
Chairman of the Board (through 2000 $500,000 $500,000 0 $3,371 $4,115
April 10, 2002) and Director 1999 $500,000 $700,000 100,000 $ 790 $ 549
(through April 26, 2002)
Paul R. Alanis.................. 2001 $600,000 $100,000 0 $3,825 $1,035
Chief Executive Officer, 2000 $600,000 $300,000 0 $3,626 $1,069
President and Director 1999 $600,000 $400,000 0 $1,666 $ 69
(through April 10, 2002)
Wade W. Hundley................. 2001 $133,333(d) $ 85,000(e) 200,000 $ 0 $ 162
Executive Vice President and 2000 $ 0 $ 0 0 $ 0 $ 0
Chief Operating Officer 1999 $ 0 $ 0 0 $ 0 $ 0
(since September 2001)
G. Michael Finnigan............. 2001 $400,000 $ 0 0 $3,825 $ 675
President and Chief Executive 2000 $400,000 $400,000 0 $3,755 $ 861
Officer of Realty Investment 1998 $400,000 $500,000 40,000 $ 790 $ 213
Group, Inc.
Bruce C. Hinckley............... 2001 $250,000 $ 0 10,000 $3,776 $ 473
Senior Vice President, Chief 2000 $250,000 $ 50,000 0 $3,531 $ 590
Financial Officer and 1999 $192,514 $ 75,000 25,000 $1,687 $ 69
Treasurer
Loren S. Ostrow................. 2001 $300,000 $ 0 0 $ 734 $ 446
Senior Vice President, Secretary 2000 $300,000 $ 50,000 0 $2,822 $ 512
and General Counsel 1999 $300,000 $ 75,000 0 $1,875 $ 30
J. Michael Allen................ 2001 $375,000 $ 0 0 $3,825 $ 686
Former Senior Vice-President 2000 $400,000 $100,000 0 $3,626 $ 888
and Chief Operating Officer, 1999 $400,000 $125,000 0 $1,666 $ 69
Gaming Division
- --------
(a) During the fiscal years shown, no Named Officer received perquisite
compensation having an aggregate value equal to or in excess of $50,000 or
10% of such Named Officer's salary and bonus for the applicable fiscal year.
(b) Reflects the Company's matching contribution under the Company's 401(k)
Plan.
(c) Reflects the premium paid by the Company with respect to term life
insurance.
(d) Mr. Hundley was employed at the Company as of September 1, 2001. Reflects
the proportionate share of his annual salary of $400,000.
(e) Includes one-time signing bonus of $15,000 and guaranteed bonus of $70,000
for 2001.
8
Equity Compensation Plan Information
The following table sets forth information relating to equity securities
authorized for issuance under the Company's equity compensation plans as of
December 31, 2001:
Number of securities remaining
Number of securities to be Weighted-average available for future issuance
issued upon exercise of exercise price under equity compensation plans
outstanding options, of outstanding options, (excluding securities reflected in
Plan Category warrants and rights warrants and rights column (a))
------------- -------------------------- ----------------------- ----------------------------------
(a) (b) (c)
Equity compensation plans approved
by security holders
Stock options(1)............... 2,595,569 $ 11.73 735,000
Directors plan................. 88,000(2) $ 13.83(3) 105,000
--------- -------------- -------
Total...................... 2,683,569 $ 11.80 840,000
Equity compensation plans not
approved by security holders(4). 204,375 $ 10.1875 0
--------- -------------- -------
Total............................. 2,887,944 $ 11.68 840,000
========= ============== =======
- --------
(1) Consists of (i) shares of Pinnacle Common Stock to be issued upon the
exercise of options granted pursuant to the Company's 1993 Stock Option
Plan, 1996 Stock Option Plan and 2001 Stock Option Plan; (ii) 585,000
shares of Pinnacle Common Stock to be issued upon the exercise of options
granted pursuant to a pre-merger stock option plan of Boomtown, Inc. which
the Company assumed; (iii) 174,000 shares of Pinnacle Common Stock to be
issued upon the exercise of options granted pursuant to a pre-merger stock
option plan of Casino Magic Corp. which the Company assumed; and (iv)
shares of Pinnacle Common Stock to be issued upon the exercise of certain
options granted to certain members of the Company's management team in
September 1998 and approved by the Company's stockholders in May 1999. The
Boomtown, Inc. and Casino Magic Corp. stock option plans were approved by
the stockholders of Boomtown, Inc. and Casino Magic Corp., respectively,
prior to the Company's acquisition of such companies.
(2) Consists of shares of Pinnacle Common Stock credited to directors' deferred
compensation accounts to be issued pursuant to the Directors Plan,
described under "Amended and Restated Directors Deferred Compensation Plan"
above. The price for such shares has been fully paid by virtue of the
directors' deferral of their directors fees pursuant to the Directors Plan.
The only condition to each director's receipt of shares credited to his
deferred compensation account is cessation of such director's service as a
director of the Company.
(3) Based on the purchase price of the shares credited to the directors'
deferred compensation accounts.
(4) Consists of shares of Pinnacle Common Stock to be issued upon the exercise
of certain options granted to certain members of the Company's management
team in September 1998, which options have an exercise price of $10.1875,
vest in four equal annual installments beginning January 1, 1999 and will
expire on January 1, 2009. For additional information regarding such
options, see Note 3 and Note 17 to the Company's Consolidated Financial
Statements filed with the Company's Annual Report on Form 10-K, as amended,
for the year ended December 31, 2001.
Executive Deferred Compensation Plan
The Company has adopted 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,
9
(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. Although the fund investment alternatives under the Executive Plan
are different from those under the Company's 401(k) plan, 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 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 over 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 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 Option Plans
In 1993, 1996 and 2001, the stockholders of the Company adopted stock option
plans ("Stock Option Plans"), which provided for the issuance of up to 625,000,
900,000 and 900,000 shares of Pinnacle Common Stock upon
10
exercise of Pinnacle Stock Options, respectively. Except for the provisions
governing the number of shares issuable thereunder, the provisions of the Stock
Option Plans are similar. The most important differences between the Stock
Options Plans are (a) the 1993 and 1996 Stock Option Plans, but not the 2001
Stock Option Plan, permit the granting of stock appreciation rights coupled
with the grants of Pinnacle Stock Options, (b) under the 2001 Stock Option
Plan, but not the 1993 and 1996 Stock Option Plans, an optionee whose
employment is terminated for "cause" cannot exercise any Pinnacle Stock
Options, even if they are vested, (c) the 2001 Stock Option Plan permits more
forms of payment of the option price than the 1996 Stock Option Plan, which in
turn permits more forms of payment of the option price than the 1993 Stock
Option Plan, and (d) a number of technical changes have been made in the later
Stock Option Plans, many of which reflect changes in tax and securities laws.
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 (under the 1993 and 1996
Stock Option Plans) 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, unless
otherwise determined by the Compensation Committee, expire on the earlier of
one month after termination of employment (three months in the case of an
incentive stock option), six months after the death or permanent disability
(one year in the case of an incentive stock option) 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, or five years from the
grant date in the case of an incentive stock option granted to a holder of more
than ten percent of the outstanding Pinnacle Common Stock). 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 (or not less
than 110% of the fair market value of Pinnacle Common Stock at the date of the
grant of an incentive stock option granted to a holder of more than ten percent
of the outstanding Pinnacle Common Stock).
Under the Stock Option Plans, as of May 8, 2002, there were approximately
1,801,000 shares subject to outstanding Pinnacle Stock Options. As of such
date, options covering all of the shares eligible for issuance under the 1993
and 1996 Stock Option Plans had been granted and options covering approximately
754,000 shares had been granted under the 2001 Stock Option Plan. In addition,
as of May 8, 2002, there were approximately 407,000 shares subject to
outstanding options under the pre-merger Boomtown, Inc. and Casino Magic Corp.
stock option plans. No additional options will be granted under these plans.
Finally, as of May 8, 2002, there were approximately 617,500 shares subject to
outstanding options granted to Messrs. Alanis, Allen, Ostrow and Cliff Kortman
pursuant to their respective employment agreements.
Options Grants in Last Fiscal Year
The following table summarizes the option grants to Named Officers during
the year ended December 31, 2001. No stock appreciation rights were granted to
Named Officers during the year ended December 31, 2001.
Individual Grants
- - ---------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Total Annual Rates of Stock
Securities Options Price Appreciation for
Name Underlying Granted to Exercise or Option Term
---- Options Employees in Base Price Expiration ----------------------
Granted (#) the Fiscal Year ($/Sh) Date 5% ($) 10% ($)
----------- ---------------- ----------- ---------- -------- --------
Wade Hundley (1)..... 100,000 16.81% $ 8.08 9/1/2011 $174,000 $756,000
50,000 8.40% 9.70 9/1/2011 6,000 297,000
50,000 8.40% 11.31 9/1/2011 -- 217,000
Bruce C. Hinckley (2) 10,000 1.68% 10.65 3/13/2011 -- 50,000
- --------
(1) The options granted to Mr. Hundley vest in three equal annual installments
beginning on September 1, 2002.
(2) The options granted to Mr. Hinckley vest in three equal annual installments
beginning on March 13, 2002.
11
Aggregated Options Exercises in Last Fiscal Year and Fiscal Year-End Options
Values
The following table sets forth information with respect to the exercise of
Pinnacle Stock Options by Named Officers during the year ended December 31,
2001, and the final year-end value of unexercised Pinnacle Stock Options. None
of the Named Officers held stock appreciation rights during the year ended
December 31, 2001.
Number of Securities Value of Unexercised
Underlying Unexercised Options In-The-Money Options at
Shares at Fiscal Year-End (#) Fiscal Year-End ($)
Acquired on Value ------------------------------ -------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ----------- ------------- ----------- -------------
R.D. Hubbard....... -- -- 248,660 33,340 -- --
Paul R. Alanis..... -- -- 400,000 -- -- --
Wade Hundley....... -- -- -- 200,000 -- --
G. Michael Finnigan -- -- 121,664 13,336 -- --
Bruce C. Hinckley.. -- -- 16,665 18,335 -- --
Loren S. Ostrow.... -- -- 125,000 -- -- --
J. Michael Allen... -- -- 200,000 -- -- --
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
The Company has entered into a sixteen-month employment agreement with Wade
W. Hundley, effective September 1, 2001. Mr. Hundley's annual compensation is
$400,000, with an annual 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 the Company not
exceeding its capital budget and (b) the remaining $100,000 to be awarded at
the discretion of the Board of Directors. If Mr. Hundley terminates his
employment for good reason, or if the Company terminates Mr. Hundley 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.
Hundley will (a) receive an annual salary of $400,000 through the balance of
the contract period, (b) retain his health and disability insurance for six
months after termination, and (c) immediately vest in all Pinnacle Stock
Options granted to Mr. Hundley under his employment agreement. If either Mr.
Hundley or the Company terminates Mr. Hundley's employment in connection with a
change of control (as defined in the employment agreement), then Mr. Hundley
will (a) receive $400,000 plus the maximum bonus payable under the employment
agreement, (b) retain his health, life and disability benefits for one year
after termination, and (c) immediately vest in all Pinnacle Stock Options.
The Company has entered into a four-year employment agreement with Daniel R.
Lee, effective April 10, 2002. Mr. Lee's annual compensation is $600,000, with
annual bonuses of $300,000 based on Mr. Lee's service to the Company during the
applicable year and, in addition, at least $100,000 in targeted bonuses based
upon meeting performance targets established annually by the Board of Directors
in consultation with Mr. Lee. Pursuant to the employment agreement, Mr. Lee's
compensation includes grants of options to purchase an aggregate of 865,801
shares of Pinnacle Common Stock at an exercise price of $8.45 (the per share
fair market value of Pinnacle Common Stock on the day of the grants). The
options vest in four equal annual installments beginning April 10, 2003 and
expire on April 10, 2012. The option to purchase 100,000 of such shares is
intended to qualify as an incentive stock option within the meaning of Section
422 of the Internal Revenue Code. The option to purchase an additional 515,000
shares is subject to the approval of the Company's stockholders at the Annual
Meeting. If such approval is not obtained by the earlier of the date on which
Mr. Lee wishes to exercise the option and the end of the employment contract
term, Mr. Lee will receive a cash bonus equal to the difference between $8.45
and the per share fair market value of Pinnacle Common Stock (as determined by
the closing sales price of Pinnacle Common Stock) on the relevant date. Such
bonus will be payable only with respect to shares as to which Mr. Lee could
have exercised the option on the relevant date if stockholder approval had been
obtained.
If Mr. Lee terminates his employment for good reason (including in the event
of a change of control as defined in the employment agreement), or if the
Company terminates Mr. Lee without cause, Mr. Lee will (a) so
12
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, (i) receive an
annual salary of $900,000 through the end of the employment contract term or,
if the balance of the contract term is less than one year, for one year (which
amount shall be payable in a lump sum in the event of termination by the
Company or by Mr. Lee after a change of control), and (ii) retain his health
and disability insurance until the earlier of (x) the end of the contract term
or, if the balance of the contract term is less than one year, for one year,
and (y) the date on which Mr. Lee obtains health or disability coverage under a
plan not maintained by the Company or its subsidiaries, and (b) immediately
vest in all Pinnacle Stock Options held by Mr. Lee.
The Company has entered into an employment and consulting agreement with G.
Michael Finnigan, effective as of April 11, 2002. Under the agreement, Mr.
Finnigan's current employment as President and Chief Executive Officer of
Realty Investment Group, Inc. ("Realty"), a wholly-owned subsidiary of the
Company, will continue on its current terms until December 31, 2002. Effective
January 1, 2003, Mr. Finnigan will be retained by the Company as a consultant
for a five-year term during which he will provide consulting services for the
Company on a non-exclusive basis. During the term of the consultancy, Mr.
Finnigan's annual compensation will be $400,000, plus fringe benefits
comparable to those provided by Realty. He will be eligible for bonuses or
additional option grants at the discretion of the Board of Directors. In the
event of a change of control (as defined in the agreement), Mr. Finnigan will
receive a lump sum payment equal to his compensation through the end of the
contract term (but not less than one year) and will have any unvested Pinnacle
Stock Options held by him vested.
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,
2001, 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, 2001, 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 its
independence from the Company.
Conclusion
Based on the review and discussions referred to above, the Audit Committee
recommended to the Company's Board of Directors 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, 2001.
SUBMITTED BY AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
Gary G. Miller
Michael Ornest
Timothy J. Parrott
March 22, 2002
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, 2001 and the review of the financial statements included in
the Company's quarterly reports on Form 10-Q for the fiscal year ended December
31, 2001 were $423,000.
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, 2001.
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, 2001 were $507,000,
which consisted of services related primarily to internal audit, tax services,
and litigation support. 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 for Fiscal Year 2001
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, 1996, and 2001 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, 900,000 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.
For the fiscal year ended December 31, 2001, the Compensation Committee
approved a bonus award to Wade W. Hundley, in accordance with his employment
agreement in the amount of $85,000 (of which $15,000 was a signing bonus).
Except for the bonus paid to Mr. Alanis (as described below), no other bonuses
were paid for year 2001.
For 2001, Mr. Alanis's annual salary and bonus were $600,000 and $100,000,
respectively, both in accordance with the terms of his employment agreement.
Compensation Committee
February 27, 2002
Lynn P. Reitnouer (Chairman)
Robert T. Manfuso
James L. Martineau
14
Performance Graph
Set forth below is a graph comparing the cumulative total stockholder return
for 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, 1996 and ending
December 31, 2001, and include the reinvestment of dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN* AMONG THE COMPANY, NYSE MARKET INDEX &
PEER GROUP INDEX
[CHART]
Pinnacle Entertainment, Inc. Dow Jones Casinos Index NYSE Market
12/31/1996 $100.00 $100.00 $100.00
12/31/1997 $146.67 $90.66 $131.55
12/31/1998 $55.42 $65.54 $156.55
12/31/1999 $149.60 $104.30 $171.41
12/31/2000 $90.02 $199.48 $173.15
12/31/2001 $40.21 $185.33 $155.47
The above graph shows historical stock price performance (including
reinvestment of dividends) and is not necessarily indicative of future
performance.
- --------
* Assumes $100 invested on December 31, 1996 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
In April 2000, the Company entered into a definitive agreement with PH
Casino Resorts ("PHCR"), a newly formed subsidiary of Harveys Casino Resorts,
and Pinnacle Acquisition Corporation ("Pinnacle Acq Corp"), a newly formed
subsidiary of PHCR, pursuant to which PHCR would have acquired by merger (the
"Merger") all of the outstanding capital stock of the Company for cash
consideration (the "Merger Agreement"). Certain members of the Company's
management were expected to have equity interests in PCHR if the Merger had
been consummated. Consummation of the Merger was subject to numerous
conditions, including PHCR obtaining the
15
necessary financing for the transaction and regulatory approvals. In January
2001, the Company announced that it had been notified by PHCR that PHCR did not
intend to further extend the outside closing date (previously extended to
January 31, 2001) of the Merger. Since all of the conditions to consummation of
the Merger would not be met by such date, the Company, PHCR and Pinnacle Acq
Corp mutually agreed that the Merger Agreement would be 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 $55,000 in 2001,
$97,000 in 2000, and $176,000 in 1999. On May 3, 2002, the Company provided
notice to terminate the Aircraft Time Sharing Agreement.
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 ended October 31, 2001, 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 was
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 until
October 15, 2001 and, during such period, not to compete with the Company or
Casino Magic in any jurisdiction in which either the Company or Casino Magic
operates. The Company issued to Mr. Torguson 60,000 shares of Pinnacle Common
Stock as compensation for his three-year service as an employee, and paid 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. All
of the foregoing payments have been made to Mr. Torguson as of December 31,
2001.
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, 2001 pursuant to Rule 16a-3(e)
under the Securities Exchange Act of 1934, as amended (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, except that Mr. Miller
failed to file on a timely basis one Form 4 with respect to one acquisition of
3,000 shares of Pinnacle Common Stock.
16
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 May 8, 2002 (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 directors and
executive officers as a group.
Shares
Beneficially Percent of Shares
Name and Address of Beneficial Owner Owned Outstanding (a)
- ------------------------------------ ------------ -----------------
R.D. Hubbard.............................................................. 2,522,699(b) 9.6%
73405 El Paseo, Suite 32D
Palm Desert, California 92260
Legg Mason, Inc........................................................... 1,869,236(c) 7.2%
100 Light Street
Baltimore, Maryland 21202
AXA Financial, Inc........................................................ 1,350,200(d) 5.2%
1290 Avenue of the Americas
New York, New York 10104
Paul R. Alanis............................................................ 506,414(e) 1.9%
Michael Ornest............................................................ 376,500(f) 1.5%
Timothy J. Parrott........................................................ 343,973(g) 1.3%
Lynn P. Reitnouer......................................................... 83,115(h) *
Marlin Torguson........................................................... 37,188(i) *
James L. Martineau........................................................ 18,841(j) *
Gary G. Miller............................................................ 19,680(k) *
Daniel R. Lee............................................................. 3,700 *
Loren S. Ostrow........................................................... 185,000(l) *
G. Michael Finnigan....................................................... 160,415(m) *
Bruce C. Hinckley......................................................... 38,333(n) *
Wade W. Hundley........................................................... 15,000 *
J. Michael Allen.......................................................... 0 *
Directors and executive officers as of May 8, 2002 as a group (11 persons) 1,281,745(o) 4.9%
- --------
* 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
25,904,812 shares outstanding as of May 8, 2002.
(b) Includes 282,000 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 May 8, 2002. 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 February 11, 2002.
(d) Based upon information provided by the stockholder in Schedule 13G filed
with the Securities and Exchange Commission on February 11, 2002. According
to such Schedule 13G, Alliance Capital Management L.P. ("Alliance"), an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940 and a majority-owned subsidiary of AXA Financial, Inc., holds
the shares of Pinnacle Common Stock solely for investment purposes on
behalf of client discretionary investment advisory accounts. Alliance has
sole voting power as to 1,145,500 of the shares, shares voting power as to
12,900 of the shares and has sole dispositive power as to 1,350,200 of the
shares. AXA Financial, Inc. is owned by
17
AXA, a French company. AXA is controlled by AXA Assurances I.A.R.D.
Mutuelle, AXA Assurances Vie Mutuelle, AXA Conseil Vie Assurance Mutuelle
and AXA Courtage Assurance Mutuelle, each a French company.
(e) Includes 100,000 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 400,000 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 May 8, 2002.
(f) Includes 7,334 shares of Pinnacle Common Stock, which Mr. Ornest has the
right to acquire upon exercise of options, which are exercisable within 60
days of May 8, 2002. These shares also include 70,000 shares of Pinnacle
Common Stock owned by the Ornest Family Foundation, a non-profit
organization; Mr. Ornest may be deemed to have beneficial ownership of such
shares.
(g) Includes 168,063 shares of Pinnacle Common Stock, which Mr. Parrott has the
right to acquire upon exercise of options which are exercisable within 60
days of May 8, 2002, including 164,063 options assumed by the Company in
connection with the Boomtown merger.
(h) Includes 16,000 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 May 8, 2002.
(i) Includes 27,460 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 May 8, 2002, including 23,460 options assumed by the Company in
connection with the Casino Magic merger.
(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
5,334 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 May 8, 2002.
(k) Includes 5,334 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 May 8, 2002.
(l) Includes 60,000 shares of Pinnacle Common Stock held by the Ostrow Family
Partnership, of which Mr. Ostrow is the general and a limited partner.
Also, includes 125,000 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 May 8, 2002.
(m) Includes 135,000 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 May 8, 2002.
(n) Includes 28,333 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 May 8, 2002.
(o) Includes 517,858 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 May 8, 2002. Excluding such shares, the directors and executive
officers of the Company have beneficial ownership of 763,887 shares of
Pinnacle Common Stock, which represents 2.9% of the shares of Pinnacle
Common Stock outstanding as of May 8, 2002. The number of shares shown does
not include shares owned by Messrs. Hubbard, Alanis or Allen as such
persons were neither directors nor executive officers of the Company as of
May 8, 2002.
18
PROPOSAL 2
APPROVAL OF OPTION GRANT
(Item No. 2 on Proxy Card)
Background
Effective April 10, 2002, the Company hired Daniel R. Lee to be its Chief
Executive Officer and Chairman of the Board of Directors. Pursuant to the terms
of Mr. Lee's employment agreement, the Company granted to Mr. Lee, as an
additional element of compensation, options to purchase 865,801 shares of
Pinnacle Common Stock. With respect to 100,000 of such shares, the Company
granted to Mr. Lee an option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Internal Revenue Code pursuant to the
Company's 2001 Stock Option Plan. Options to purchase the remaining 765,801
shares of Pinnacle Common Stock were granted outside of the 2001 Stock Option
Plan. An option covering 515,000 of such remaining shares was granted subject
to approval by the Company's stockholders at the Annual Meeting.
Proposal
The Company's stockholders are being requested to approve the grant of an
option to purchase 515,000 shares of Pinnacle Common Stock to Mr. Lee (the
"Option Grant"). The Company believes that grants of stock options motivate
high levels of performance, align the economic interests of the Company's
officers and executives with those of the stockholders and provide an effective
method of recognizing employee contributions to the success of the Company. The
Company also believes that the Option Grant was critical to its success in
attracting Mr. Lee. Thus, the Company believes it is necessary and in the best
interests of the Company and its stockholders to approve the Option Grant as
described above.
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.
Approval of the Option Grant is being sought to satisfy the requirements for
listing on the New York Stock Exchange.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE OPTION GRANT.
Summary of the Option Grant
Under the terms of his employment agreement, Mr. Lee's compensation includes
grants of options to purchase 865,801 shares of Pinnacle Common Stock which
have an exercise price of $8.45 (the per share fair market value of Pinnacle
Common Stock on the day of the grants). The grant of the option to purchase
515,000 of the shares is subject to approval by the Company's stockholders at
the Annual Meeting.
The option that the Company's stockholders are being asked to approve vests
in four equal annual installments beginning April 10, 2003 and expires on April
10, 2012. However, if Mr. Lee terminates his employment for good reason
(including in the event of change of control as defined in the employment
agreement), or if the Company terminates Mr. Lee without cause, in each case
prior to the expiration of Mr. Lee's employment agreement with the Company, the
option will vest and become immediately exercisable. Moreover, if Mr. Lee's
employment with the Company is terminated by reason of his death or disability
prior to
19
the expiration of his employment agreement with the Company, the option will
vest, in addition to any prior vesting, pro rata based on the number of days in
the year prior to the date of such death or disability.
If the Company's stockholders do not approve the Option Grant by the earlier
of the date on which Mr. Lee wishes to exercise the option and the end of the
term of Mr. Lee's employment agreement, Mr. Lee will receive a cash bonus equal
to the difference between $8.45 and the per share fair market value of Pinnacle
Common Stock (as determined by the closing sales price of Pinnacle Common
Stock) on the relevant date. Such bonus will be payable only with respect to
shares as to which Mr. Lee could have exercised the option on the relevant date
if stockholder approval had been obtained.
As of May 8, 2002, the per share market value of the shares of the Pinnacle
Common Stock underlying the option was $12.12.
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 option. 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 estate
or gift tax considerations, or state tax considerations. In addition, the tax
consequences to Mr. Lee may be affected by matters not discussed herein.
The option under the Option Grant is a non-qualified stock option.
Therefore, under current federal income tax law, its grant has no tax effect on
the Company or the optionee. The exercise of an option will result in ordinary
income to the optionee equal to the excess of the fair market value of the
shares of Pinnacle Common Stock at the time of exercise over the option price.
The optionee's tax basis in the shares will be equal to the aggregate option
price 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 the applicable period
after exercise. At the time of recognition of ordinary income by the optionee
upon exercise of the option or, in the event the option is not approved by the
Company's stockholders, upon payment of the cash bonus as described above, the
Company will normally be allowed to take a deduction for federal income tax
purposes in an amount equal to such recognized income, subject to the
limitations of Section 162(m) of the Internal Revenue Code. However, the
limitations of Section 162(m) of the Internal Revenue Code may disallow all or
part of such deduction.
On the exercise of the option, the Company shall have the right to require
the optionee to pay the Company the amount of any taxes which the Company may
be required to withhold with respect to shares.
20
PROPOSAL 3
APPROVAL OF 2002 STOCK OPTION PLAN
(Item No. 3 on Proxy Card)
The stockholders of the Company are being asked to approve the adoption of
the Company's 2002 Stock Option Plan (the "2002 Stock Option Plan" or the
"Plan"). The 2002 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 May 8, 2002,
of the 900,000 shares originally available for issuance under the Company's
2001 Stock Option Plan, only approximately 146,000 remained available for
grants under options, and no options remain available for grant under the
Company's 1993 Stock Option Plan or 1996 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.
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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 2002 STOCK
OPTION PLAN.
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 1,000,000 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.
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
21
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 1,000,000 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 under 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.
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.
22
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 options shall be exercisable for a
maximum period of 90 days after the termination of employment (unless otherwise
determined by the Committee in an individual option agreement or otherwise). If
a participant's employment is terminated for cause, all of his options will be
immediately terminated and canceled (unless otherwise determined by the
Committee in an individual option agreement or otherwise). If a participant
dies or becomes permanently disabled, the participant's options shall be
exercisable for a maximum period of 12 months after the date of death or
permanent disability (unless otherwise determined by the Committee in an
individual option agreement or otherwise). After a participant's death, any
options 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 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.
23
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.
$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
24
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."
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP served as the Company's independent public
accountants for the fiscal year ended December 31, 2001 and continues to serve
as the Company's independent public accountants. Representatives of Arthur
Andersen LLP are not expected to be present at the Annual Meeting. In light of
recent highly publicized events involving Arthur Andersen LLP, the Board of
Directors and Audit Committee are monitoring the status of Arthur Andersen LLP
and will take whatever action is necessary to ensure the continuity of the
Company's auditing function, including the appointment of a different
independent public accounting firm if such a change is determined to be in the
best interests of the Company and its stockholders.
25
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 March 20, 2003. 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 January 13, 2003 if the next annual meeting were
held on or near June 18, 2003. 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 March 20, 2003 (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 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 2001 AND ITS ANNUAL REPORT ON FORM 10-K, AS AMENDED, INCLUDING
THE FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES, FILED WITH THE
SEC FOR FISCAL YEAR 2001 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.
26
APPENDIX A
PINNACLE ENTERTAINMENT, INC. 2002
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 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
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leave is guaranteed by contract (including certain Company policies) or
statute; (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor; or (iii) in the case
of a Nonqualified Stock Option, the ceasing of a person to be an Employee
while such person remains a Director or Consultant, the ceasing of a person
to be a Director while such person remains an Employee or Consultant or the
ceasing of a person to be a Consultant while such person remains an Employee
or Director.
(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 (i) 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
or (ii) any 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 day
of determination, as the Administrator may select, in each case 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 (i) the last market trading
day prior to the day of determination or (ii) the day of determination,
as the Administrator may select, in each case 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 2002 Stock Option Plan.
(bb) "Section" means, except as otherwise specified, a section of this
Plan.
(cc) "Share" means, except as otherwise specified, a section of this Plan.
(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 1,000,000 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.
(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.
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(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.
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
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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 1,000,000
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.
(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
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(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, except as permitted by the Administrator in its
sole discretion.
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 (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, unless
otherwise set forth in the Option Agreement or determined by the
Administrator. The Administrator may determine in its sole discretion that
such unexercisable portion of the Option will become exercisable at such
times and on such terms as the Administrator may determine in its sole
discretion. 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, except as otherwise determined by the
Administrator.
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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 (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, unless otherwise set forth in the Option
Agreement or determined by the Administrator. The Administrator may
determine in its sole discretion that such unexercisable portion of the
Option will become exercisable at such times and on such terms as the
Administrator may determine in its sole discretion. 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,
except as otherwise determined by the Administrator.
(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 (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, unless otherwise set forth in the Option Agreement
or determined by the Administrator. The Administrator may determine in its
sole discretion that such unexercisable portion of the Option will become
exercisable at such times and on such terms as the Administrator may
determine in its sole discretion. 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,
except as otherwise determined by the Administrator.
(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 (unless otherwise set forth in the Option Agreement
or determined by the Administrator).
(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
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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
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.
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(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.
(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
A-9
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.
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:
i. 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
B-1
ii. 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 and Auditors
. Review with the Corporation's independent and internal auditors as
well as financial management the adequacy and effectiveness of the
Corporation's system of internal accounting controls.
. Review recommendations from management regarding changes in the
senior internal audit position for approval by the Committee.
. Review the activities, annual plan and budget of the internal audit
function.
. Review recommendations and reportable findings of the internal
auditors and review such recommendations with the independent
auditors and management.
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 function 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
action 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 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.
B-2
PROXY
PINNACLE ENTERTAINMENT, INC.
PROXY FOR 2002 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 Daniel R. Lee and Loren S. Ostrow, or either of them, with
full power 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 2002 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 ON THIS PROXY. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION OF ALL NOMINEES NAMED AS DIRECTORS OF THE COMPANY,
"FOR" APPROVAL OF THE OPTION GRANT AND "FOR" APPROVAL OF THE 2002 STOCK OPTION
PLAN.
PLEASE DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
(See reverse side)
FOLD AND DETACH HERE
Please mark votes as in this example [X]
1. Election of Seven Directors:
WITHHOLD
FOR AUTHORITY Nominees: Daniel R. Lee,
ALL FOR ALL James L. Martineau,
[_] [_] Gary G. Miller,
Michael Ornest,
Timothy J. Parrott,
Lynn P. Reitnouer and
Marlin Torguson
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
2. Approval of the Option Grant FOR AGAINST ABSTAIN
[_] [_] [_]
3. Approval of the Company's 2002 Stock Option Plan FOR AGAINST ABSTAIN
[_] [_] [_]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, THE
PROXIES ARE AUTHORIZED TO VOTE "FOR" THE ELECTION OF THE ABOVE-LISTED NOMINEES
OR SUCH SUBSTITUTE NOMINEE(S) FOR DIRECTORS AS THE BOARD OF DIRECTORS OF THE
COMPANY SHALL SELECT, "FOR" APPROVAL OF THE OPTION GRANT AND "FOR"
APPROVAL OF THE COMPANY'S 2002 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 FEBRUARY 21, 2002.
Signature ________________ Dated ______________, 2002 Title________________
Signature if held jointly ________________________ Dated ____________, 2002
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.
- FOLD AND DETACH HERE -