<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] 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
Lakes Gaming, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
Lakes Gaming Logo
130 CHESHIRE LANE
MINNETONKA, MINNESOTA 55305
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AUGUST 26, 1999
TO THE SHAREHOLDERS OF LAKES GAMING, INC.:
Please take notice that the Annual Meeting of Shareholders of Lakes Gaming,
Inc. will be held, pursuant to due call by the Board of Directors of the
Company, at the Doubletree Park Place Hotel, 1500 Park Place Boulevard,
Minneapolis, Minnesota 55416 at 3:00 p.m. on August 26, 1999, or at any
adjournment or adjournments thereof, for the purpose of considering and taking
appropriate action with respect to the following:
1. To elect eight directors;
2. To ratify the appointment of Arthur Andersen LLP, Certified Public
Accountants, as independent auditors of the Company for 1999;
3. To approve an amendment to the Company's 1998 Stock Option and
Compensation Plan (the "Plan") to increase the number of shares of
Common Stock reserved for issuance thereunder by 1,000,000 shares; and
4. To transact any other business as may properly come before the meeting
or any adjournments thereof.
Pursuant to due action of the Board of Directors, shareholders of record on
July 22, 1999, will be entitled to vote at the meeting or any adjournments
thereof.
A PROXY FOR THE MEETING IS ENCLOSED HEREWITH. YOU ARE REQUESTED TO FILL IN
AND SIGN THE PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
LAKES GAMING, INC.
Timothy J. Cope Signature
Timothy J. Cope,
Executive Vice President, Chief
Financial Officer
and Secretary
July 27, 1999
<PAGE> 3
LAKES GAMING, INC.
130 CHESHIRE LANE
MINNETONKA, MINNESOTA 55305
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
AUGUST 26, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Lakes Gaming, Inc. (the "Company") to be
used at the Annual Meeting of Shareholders of the Company to be held August 26,
1999. The approximate date on which this Proxy Statement and the accompanying
proxy were first sent or given to shareholders was July 29, 1999. Each
shareholder who signs and returns a proxy in the form enclosed with this Proxy
Statement may revoke the same at any time prior to its use by giving notice of
such revocation to the Company in writing, in open meeting or by executing and
delivering a new proxy to the Secretary of the Company. Unless so revoked, the
shares represented by each proxy will be voted at the meeting and at any
adjournments thereof. Presence at the meeting of a shareholder who has signed a
proxy does not alone revoke that proxy. Only shareholders of record at the close
of business on July 22, 1999 (the "Record Date") will be entitled to vote at the
meeting or any adjournments thereof. All shares which are entitled to vote and
are represented at the Annual Meeting by properly executed proxies received
prior to or at the Meeting, and not revoked will be voted at the Meeting in
accordance with the instructions indicated on such proxies.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The Company has outstanding one class of voting securities, common stock,
$0.01 par value, of which 10,592,541 shares were issued and outstanding as of
the close of business on the Record Date. Each share of common stock is entitled
to one vote on all matters put to a vote of shareholders.
The following table sets forth, as of the Record Date, certain information
regarding the beneficial ownership of the Company's shares of common stock by
(i) all persons known by the Company to be the owner (or deemed to be the owner
pursuant to the rules and regulations of the SEC), of record or beneficially, of
more than 5% of the outstanding common stock of the Company, (ii) each of the
directors and nominees for election to the Board of Directors of the Company and
(iii) all directors and executive officers as a group without regard to whether
such persons are also reporting persons for purposes of Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") in each case
based upon beneficial ownership reporting of Lakes Common Stock as of such date.
Except as otherwise indicated, each shareholder has sole voting and
investment power with respect to the shares beneficially owned.
1
<PAGE> 4
<TABLE>
<CAPTION>
SHARES OF LAKES
COMMON STOCK PERCENTAGE OF COMMON
NAME BENEFICIALLY OWNED STOCK OUTSTANDING
---- ------------------ --------------------
<S> <C> <C>
Lyle Berman............................................. 1,382,211(1) 12.7
130 Cheshire Lane
Minnetonka, MN 55305
Thomas J. Brosig........................................ 237,060(2) 2.2
Timothy J. Cope......................................... 34,500(3) *
Morris Goldfarb......................................... 27,830(4) *
Ronald J. Kramer........................................ 8,000(5) *
David L. Rogers......................................... 24,514(6) *
Neil I. Sell, as sole trustee of four irrevocable trusts
for the benefit of Lyle Berman's children............. 310,500(7) 2.9
Neil I. Sell............................................ 19,949(8) *
Joel N. Waller.......................................... 18,808(9) *
All Lakes Directors and Executive Officers as a Group (9
people including the foregoing)....................... 1,787,897(10) 16.1
Highfields Associates, LLC
Highfields Capital Management, LP
Richard L. Grubman...................................... 577,349(11) 5.5
Jonathon S. Jacobson
200 Clarendon Street -- 51st Floor
Boston, MA 02117
</TABLE>
- -------------------------
* Less than one percent.
(1) Includes 20,625 shares beneficially owned by Mr. Berman's spouse. Also
includes 11,403 shares held by Berman Consulting Corporation, a corporation
wholly owned by Mr. Berman and 61,500 shares owned by Mr. Berman through a
Berman Consulting Corporation profit sharing plan. Also includes options to
purchase 250,000 shares.
(2) Includes 22,450 shares beneficially owned by Mr. Brosig's spouse. Also
includes options to purchase 112,500 shares.
(3) Includes options to purchase 34,500 shares.
(4) Includes 500 shares held by Mr. Goldfarb's adult children who reside in his
household. Also includes options to purchase 20,625 shares.
(5) Includes 500 shares beneficially owned by a partnership in which the
general partner is a corporation wholly owned by Mr. Kramer. Also includes
options to purchase 7,500 shares.
(6) Includes 8,250 shares beneficially owned by Mr. Rogers' spouse. Also
includes options to purchase 15,750 shares.
(7) Mr. Sell has disclaimed beneficial ownership of such shares.
(8) Includes options to purchase 15,750 shares.
(9) Includes 513 shares beneficially owned by Mr. Waller's spouse. Also
includes options to purchase 15,750 shares.
(10) Includes shares held by corporations controlled by such officers and
directors. Also includes options to purchase 507,400 shares.
(11) Based solely upon the most recent Schedule 13G on file with the Securities
and Exchange Commission. Messrs. Richard L. Grubman and Jonathon S.
Jacobson share both voting and dispositive power with respect to 577,349
shares directly owned by each of Highfields Capital I LP, Highfields
Capital II LP and Highfields Capital, Ltd. Messrs. Grubman and Jacobson are
each Managing Members of Highfields GP LLC, a Delaware limited liability
company, which is the general partner of Highfields Capital Management LP,
and in that capacity, directs its operations.
The foregoing footnotes are provided for informational purposes only and
each person disclaims beneficial ownership of shares owned by any member of his
or her family or held in trust for any other person, including family members.
2
<PAGE> 5
PROPOSAL FOR ELECTION OF DIRECTORS
Eight directors are to be elected at the meeting, each director to hold
office until the next Annual Meeting of Shareholders, or until his successor is
elected and qualified. All of the persons listed below are now serving as
directors of the Company. All of the persons listed below have consented to
serve as a director, if elected. The Board of Directors proposes for election
the nominees listed below:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE DIRECTOR
AGE OF NOMINEE FOR PAST FIVE YEARS AND DIRECTORSHIPS OF PUBLIC COMPANIES SINCE
-------------- --------------------------------------------------------- --------
<S> <C> <C>
Lyle Berman Chairman of the Board and Chief Executive Officer of Lakes 1998
Age 57 since June 1998 and Chairman of the Board of Directors of
Grand Casinos, Inc. ("Grand") from October 1991 through
December of 1998. Mr. Berman is a director of Park Place
Entertainment Corporation ("Park Place"). Mr. Berman is also
a director of G-III Apparel Group Ltd. ("G-III"), Innovative
Gaming Corporation of America ("IGCA"), New Horizon Kids
Quest, Inc. ("Kids Quest") and Wilsons The Leather Experts
Inc. ("Wilsons"). Mr. Berman is Chairman of the Board and
Chief Executive Officer of Rainforest Cafe, Inc.
("Rainforest"). Mr. Berman was a member of the Board of
Directors of Stratosphere Corporation ("Stratosphere") from
July 1994 to July 1997, and served as the Chairman of the
Board of Directors of Stratosphere from July 1996 to July
1997. From July 1994 through October 1996, Mr. Berman was
Stratosphere's Chief Executive Officer. Stratosphere filed
for reorganization under Chapter 11 of the Bankruptcy Code
on January 27, 1997.
Thomas J. Brosig President of Lakes and a director since June 1998. 1998
Age 49 President, Chief Executive Officer and a director of Grand
from September 1996 through December of 1998. Mr. Brosig was
Executive Vice President of Grand from August 1994 through
September 1996 and President of Grand from May 1993 through
August 1994. Mr. Brosig also served as Grand's Chief
Operating Officer from October 1991 to May 1993. Mr. Brosig
is a director of Famous Dave's of America, Inc., G-III and
Wilsons. Mr. Brosig is currently the President, Mid-South
Region of Park Place.
Timothy J. Cope Chief Financial Officer, Executive Vice President, Secretary 1998
Age 48 and a director of Lakes since June 1998. Chief Financial
Officer of Grand from January 20, 1994 through December of
1998, Executive Vice President of Grand from April of 1997
through December of 1998 and a director of Grand from
February 1998 through December of 1998. Mr. Cope was Grand's
Vice President of Finance from August 1993 through January
1994.
Morris Goldfarb Director of Lakes since June 1998 and a director of Grand 1998
Age 48 from December 1992 through December of 1998. Mr. Goldfarb is
a director, the President and Chief Executive Officer of
G-III. Mr. Goldfarb has served as either the President or
Vice President of G-III and its predecessors since their
formation in 1974. Mr. Goldfarb is a director of Wilsons.
Ronald J. Kramer Director of Lakes since June 1998 and a director of Grand 1998
Age 40 from March 1995 through December of 1998. Mr. Kramer has
been a Managing Director at Wasserstein Perella & Co., Inc.,
an investment banking firm, since July of 1999. Mr. Kramer
previously was the Chairman of the Board and CEO of
Ladenburg Thalmann Group Inc. from February 1986 to July
1999, an investment banking firm that provided investment
banking services to Grand. Mr. Kramer is also a Director of
Griffon Corporation and New Valley Corporation.
David L. Rogers Director of Lakes since June 1998 and a director of Grand 1998
Age 56 from October 1991 through December of 1998. Mr. Rogers has
been President of Wilsons since March 1992. Mr. Rogers is
also a director of Wilsons and Rainforest.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE DIRECTOR
AGE OF NOMINEE FOR PAST FIVE YEARS AND DIRECTORSHIPS OF PUBLIC COMPANIES SINCE
-------------- --------------------------------------------------------- --------
<S> <C> <C>
Neil I. Sell Director of Lakes since June 1998 and a director of Grand 1998
Age 58 from October 1991 through December of 1998. Until July 31,
1997, Mr. Sell was a director of Stratosphere. Since 1968,
Mr. Sell has been engaged in the practice of law in
Minneapolis, Minnesota with the firm of Maslon Edelman
Borman & Brand, LLP, which has rendered legal services to
Grand and Lakes.
Joel N. Waller Director of Lakes since June 1998 and a director of Grand 1998
Age 59 from October 1991 through December of 1998. Mr. Waller has
been Chairman and Chief Executive Officer of Wilsons since
March 1992. Mr. Waller is also a director of Damark
International, Inc. and Rainforest.
</TABLE>
PROXIES AND VOTING
The affirmative vote of the holders of the greater of (a) a majority of the
outstanding shares of common stock of the Company present and entitled to vote
on the election of directors or (b) a majority of the voting power of the
minimum number of shares entitled to vote that would constitute a quorum for
transaction of business at the meeting, is required for election to the Board of
each of the eight nominees named above. A shareholder who abstains with respect
to the election of directors is considered to be present and entitled to vote on
the election of directors at the meeting, and is in effect casting a negative
vote, but a shareholder (including a broker) who does not give authority to a
Proxy to vote, or withholds authority to vote, on the election of directors,
shall not be considered present and entitled to vote on the election of
directors.
All shares represented by proxies will be voted FOR the election of the
foregoing nominees unless a contrary choice is specified. If any nominee should
withdraw or otherwise become unavailable for reasons not presently known, the
proxies which would have otherwise been voted for such nominee will be voted for
such substitute nominee as may be selected by the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL OF THE
NOMINEES LISTED ABOVE.
EXECUTIVE COMPENSATION
Lakes is a publicly held casino management company that was formed through
a distribution to shareholders of Grand effected in December of 1998. Prior
thereto, Lakes was a wholly owned subsidiary of Grand. Lakes did not pay any
compensation to its executive officers in fiscal 1998. Compensation for the
Lakes executive officers will be determined by the Compensation Committee of the
Lakes Board. None of Lakes' executive officers have an employment agreement with
Lakes.
DIRECTOR COMPENSATION
Each director of Lakes who is not otherwise employed by Lakes receives an
annual fee of $7,500. Lakes also pays each director not otherwise employed by it
a fee of $1,000 for each meeting of the Board of Directors and $1,000 for each
committee meeting of the Board of Directors attended.
In addition, the Lakes 1998 Director Stock Option Plan (the "Lakes Director
Plan") provides that each director who was not an employee of Lakes or one of
its subsidiaries (a "Non-Employee Director") and who was in office at the time
of the distribution of all of the outstanding Lakes stock to the shareholders of
Grand, and each subsequent Non-Employee Director at the time of his or her
initial election to the Lakes Board receives a non-qualified stock option to
purchase up to 12,500 shares of Lakes Common Stock at an option exercise price
equal to 100% of the fair market value of the shares on such grant date. Each
option under the 1998 Lakes Director Plan will have a ten-year term and will
generally become exercisable in five equal installments commencing on the first
anniversary of the grant date. In addition to the initial option grants,
non-employee directors and former non-employee directors may be granted, at the
discretion of the Board, additional options to purchase common stock of the
Company. Such options shall contain such terms and provisions as the Board
determines at the time of the grant.
4
<PAGE> 7
EXECUTIVE OFFICERS OF LAKES
Set forth below is certain required information with respect to the
executive officers of Lakes.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH LAKES
---- --- ----------------------
<S> <C> <C>
Lyle Berman.................... 57 See "Proposal for Election of Directors" -- above.
Thomas J. Brosig............... 49 See "Proposal for Election of Directors" -- above.
Timothy J. Cope................ 48 See "Proposal for Election of Directors" -- above.
Joseph Galvin.................. 60 Chief Administrative Officer of Lakes Since June 1998 and
Chief Administrative Officer of Grand from November 1996
through December 1998, and prior thereto, Vice President of
Security of Grand.
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Lakes Compensation Committee is comprised of Messrs. David L. Rogers
and Joel N. Waller. Messrs. Rogers and Waller are directors and executive
officers of Wilsons. Lyle Berman and Tom Brosig, directors and executive
officers of the Company, and Morris Goldfarb, a director of the Company, are
directors of Wilsons. During fiscal 1998, Messrs. Brosig and Berman served on
the Compensation Committee of the Board of Directors of Wilsons.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions on compensation of the Company's executives generally will be
made by the Compensation Committee. Each member of the Compensation Committee is
a non-employee director. All decisions by the Compensation Committee relating to
the compensation of the Company's executive officers are reviewed by the full
Board. Pursuant to rules designed to enhance disclosure of the Company's
policies toward executive compensation, set forth below is a report prepared by
the Compensation Committee addressing the compensation policies for the Company
and its subsidiaries.
The Compensation Committee's executive compensation policies are designed
to provide competitive levels of compensation that integrate pay with the
Company's annual objectives and long-term goals, reward above-average corporate
performance, recognize individual initiative and achievements, and assist the
Company in attracting and retaining qualified executives. Executive compensation
will be set at levels that the Compensation Committee believes to be consistent
with others in the Company's industry.
There are three elements in the Company's executive compensation program,
all determined by individual and corporate performance.
- Base salary compensation
- Annual incentive compensation
- Stock options
Total compensation opportunities are competitive with those offered by
employers of comparable size, growth and profitability in the Company's
industry.
Base salary compensation is determined by the potential impact the
individual has on the Company, the skills and experiences required by the job,
and the performance and potential of the incumbent in the job.
Annual incentive compensation for executives of the Company is based
primarily on corporate earnings and growth as measured by the Company's EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization) results and
goals and the Company's positioning for future results, but also includes an
overall assessment by the Compensation Committee of executive management's
performance, as well as market conditions.
5
<PAGE> 8
As noted above, the Company did not pay its executives any compensation
during fiscal 1998. Lyle Berman, the Company's Chief Executive Officer and
Chairman of the Board will receive a base salary of $100,000 for fiscal 1999.
Mr. Berman is also eligible for an incentive compensation award for fiscal 1999
which is based primarily on the Company's ability to meet EBITDA performance
goals. In January of this year, Mr. Berman was granted an option to purchase
500,000 shares of the Company's common stock at an exercise price of $8.375,
which was not less than the fair market value of the common stock on the grant
date, as measured by the last sale price on the NASDAQ National Market System on
such date. Mr. Berman's option vests in five equal annual installments.
Awards of stock options under the 1998 Stock Option and Compensation Plan
(the "1998 Plan") are designed to integrate compensation of the Company's
executives with the long-term interests of the Company and its shareholders and
assist in the retention of executives. The 1998 Plan also permits the Committee
to grant stock options to key personnel. Options become exercisable based upon
criteria established by the Company. During fiscal 1998, the Compensation
Committee did not grant any options pursuant to the 1998 Plan.
While the value realizable from exercisable options is dependent upon the
extent to which the Company's performance is reflected in the market price of
the Company's common stock at any particular point in time, the decision as to
whether such value will be realized in any particular year is determined by each
individual executive and not by the Compensation Committee. Accordingly, when
the Committee recommends that an option be granted to an executive, that
recommendation does not take into account any gains realized that year by that
executive as a result of his or her individual decision to exercise an option
granted in a previous year.
The Compensation Committee does not anticipate that any of the compensation
payable to executive officers of the Company in the coming year will exceed the
limits and deductibilities set forth in section 162(m) of the Internal Revenue
Code of 1986, as amended, (the "Code"). The Compensation Committee has not
established a policy regarding compensation in excess of these limits, but will
continue to monitor this issue.
DAVID L. ROGERS
JOEL N. WALLER
STOCK PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company include in
this Proxy Statement a line-graph presentation comparing cumulative, five-year
shareholders' returns (based on appreciation of the market price of the
Company's common stock) on an indexed basis with (i) the cumulative total return
of a broad equity market index, assuming reinvestment of dividends, that
includes companies whose equity securities are traded on the NASDAQ National
Market or are of comparable market capitalizations and (ii) an appropriate
published industry or line-of-business index, or peer group of companies in the
casino management and development business (the "Peer Group Index").
Lakes is a publicly held casino management company that was formed through
a distribution to shareholders of Grand effected in December of 1998. Prior
thereto, Lakes was a wholly owned subsidiary of Grand. As a result, shares of
Lakes Common Stock did not trade on the NASDAQ National Market for the first
time until January 4, 1999, while Lakes' fiscal year ended on January 3, 1999.
Consequently, there is no readily determinable market price for Lakes common
stock either during fiscal year 1998 or at the end of such period. Similarly,
the applicable measurement period for any stock performance graph would not
include any days during which Lakes shares traded on the NASDAQ National Market.
Therefore, the presentation of a stock performance graph for Lakes for the
fiscal year ended January 3, 1999 has been omitted.
6
<PAGE> 9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NEW HORIZON KIDS QUEST, INC.
Kids Quest owns and operates Kids Quest(SM) child care entertainment
centers in casinos managed by Lakes. Lakes beneficially owns approximately 27%
of Kids Quest common stock. Lyle Berman, Chairman of the Board and a principal
shareholder of Lakes, is a director of Kids Quest. The agreements under which
Kids Quest operates child care centers typically provide for a minimum
guaranteed management fee to be paid to Kids Quest by each managed property,
which varies by location, as well as a child care rate subsidy from each managed
property against Kids Quest's operating losses at those respective managed
property locations.
Pursuant to an indemnification agreement entered into as of December 1998
by and between Lakes and Mr. Berman, Lakes has agreed to indemnify Mr. Berman
for any damages incurred by Mr. Berman arising out of his acts and omissions as
a director of Kids Quest.
PARK PLACE ENTERTAINMENT CORPORATION
Lyle Berman is a member of the Board of Directors of Park Place and he has
entered into an employment agreement with Park Place as of January 1, 1999 (the
"Park Place Employment Agreement") pursuant to which he will serve as a
part-time employee of Park Place for an initial term of 4 years, unless earlier
terminated by Park Place. As a part-time employee of Park Place, Mr. Berman will
receive compensation in the first year of Two Hundred Thousand Dollars
($200,000.00) and compensation in each of years two, three and four respectively
of an amount not less than Ten Thousand Dollars ($10,000.00). In connection with
his execution of the Park Place Employment Agreement, Mr. Berman received stock
options to purchase an aggregate of four hundred thousand (400,000) shares of
Park Place common stock at a per share exercise price of Six Dollars and
Sixty-Seven cents ($6.67), said options to vest at the rate of One Hundred
Thousand (100,000) shares per year on the anniversary date of the Park Place
Employment Agreement. The Park Place Employment Agreement also contains a
noncompetition covenant under which Mr. Berman is prohibited, subject to certain
exceptions, from participating in the ownership, management or control of any
business which is engaged in a gaming enterprise which competes or would compete
with Park Place. Additionally, Mr. Berman must present any gaming opportunities
and projects to Park Place in the first instance. If Park Place determines not
to pursue any venture or opportunity presented by Mr. Berman, only then may that
opportunity be presented to and pursued by Lakes. The following exceptions are
not subject to Mr. Berman's noncompetition agreement: (i) the management of
Indian owned casinos and related amenities; (ii) the development of the Polo
Plaza project in Las Vegas, NV; and (iii) Internet, cable television or other
electronic media-based gaming enterprises. The terms of Mr. Berman's employment
with Park Place may substantially limit the number and scope of opportunities
which Lakes will be able consider and pursue.
Thomas Brosig, the President and a Director of Lakes is also employed by
Park Place as its President, Mid-South Region. Under the terms of his employment
agreement with Park Place, Mr. Brosig is prohibited from devoting more than 15%
of his time to the Company.
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the shareholders, the Board of Directors has
appointed Arthur Andersen LLP as independent auditors of the Company for the
1999 fiscal year. Arthur Andersen LLP has performed this function for the
Company or Grand Casinos, Inc., as its predecessor, since May 1995. Members of
the firm will be available at the Annual Meeting of Shareholders to answer your
questions and to make a statement if they desire to do so.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
RATIFICATION OF THE APPOINTMENT OF AUDITORS.
7
<PAGE> 10
PROPOSAL TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK RESERVED FOR ISSUANCE UNDER THE COMPANY'S
1998 STOCK OPTION AND COMPENSATION PLAN
On November 24, 1998, the shareholders of the Company approved the Plan
covering 1,500,000 shares of common stock. Subject to the approval of the
shareholders, on May 18, 1999, the Board of Directors of Lakes amended the Plan
to increase the number of shares of common stock reserved for issuance
thereunder by an additional 1,000,000 shares. The brief summary of the Plan
which follows is qualified in its entirety by reference to the complete text of
the plan, a copy of which is attached to this Proxy Statement as Exhibit A.
GENERAL. The purpose of the Plan is to increase shareholder value and to
advance the interests of Lakes by furnishing a variety of economic incentives
("Incentives") designed to attract, retain and motivate employees of Lakes.
The Plan provides that a committee (the "Committee") composed of at least
two members of the board of directors of Lakes who have not received Incentives
under the Plan or any other plan of Lakes for at least one year may grant
Incentives to employees in the following forms: (a) stock options; (b) stock
appreciation rights; (c) stock awards; (d) restricted stock; (e) performance
shares; and (f) cash awards. Incentives may be granted only to employees of
Lakes (including officers and directors of Lakes, but excluding directors of
Lakes who are not also employees of or consultants to Lakes) selected from time
to time by the Committee.
The number of shares of Lakes Common Stock which may be issued under the
Plan if this proposed amendment is approved may not exceed 2,500,000 shares,
subject to adjustment in the event of a merger, recapitalization or other
corporate restructuring. This represents approximately 23.6% of the outstanding
shares of Lakes Common Stock on the Record Date. As of the Record Date, there
were outstanding options to purchase 1,482,500 shares under the Plan.
Accordingly, as of the Record Date, the remaining number of shares which may be
issued under the Plan if this amendment is approved is approximately 9.6% of the
outstanding common stock on the Record Date.
STOCK OPTIONS. Under the Plan, the Committee may grant non-qualified and
incentive stock options to eligible employees to purchase shares of Common Stock
from Lakes. The Plan confers on the Committee discretion, with respect to any
such stock option, to determine the number and purchase price of the shares
subject to the option, the term of each option and the time or times during its
term when the option becomes exercisable. The purchase price for incentive stock
options may not be less than the fair market value of the shares subject to the
option on the date of grant. The number of shares subject to an option will be
reduced proportionately to the extent that the optionee exercises a related
Stock Appreciation Right ("SAR"). The term of a non-qualified option may not
exceed 10 years and one day from the date of grant and the term of an incentive
stock option may not exceed 10 years from the date of grant. Any option shall
become immediately exercisable in the event of specified changes in corporate
ownership or control. The Committee may accelerate the exercisability of any
option or may determine to cancel stock options in order to make a participant
eligible for the grant of an option at a lower price. The Committee may approve
the purchase by Lakes of an unexercised stock option for the difference between
the exercise price and the fair market value of the shares covered by such
option.
The option price may be paid in cash, check, bank draft or by delivery of
shares of Common Stock valued at their fair market value at the time of exercise
or by withholding from the shares issuable upon exercise of the option shares of
Common Stock valued at their fair market value or as otherwise authorized by the
Committee.
In the event that an optionee ceases to be an employee of Lakes for any
reason, including death, any stock option or unexercised portion thereof which
was otherwise exercisable on the date of termination of employment shall expire
at the time or times established by the Committee.
STOCK APPRECIATION RIGHTS. A stock appreciation right or SAR is a right to
receive, without payment to Lakes, a number of shares, cash or any combination
thereof, the amount of which is determined pursuant to the formula described
below. An SAR may be granted with respect to any stock option granted under the
Plan, or alone, without reference to any stock option. An SAR granted with
respect to any stock option may be granted concurrently with the grant of such
option or at such later time as determined by the Committee and as to all or any
portion of the shares subject to the option.
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<PAGE> 11
The Plan confers on the Committee discretion to determine the number of
shares as to which an SAR will relate as well as the duration and exercisability
of an SAR. In the case of an SAR granted with respect to a stock option, the
number of shares of Common Stock to which the SAR pertains will be reduced in
the same proportion that the holder exercises the related option. The term of an
SAR may not exceed ten years and one day from the date of grant. Unless
otherwise provided by the Committee, an SAR will be exercisable for the same
time period as the stock option to which it relates is exercisable. Any SAR
shall become immediately exercisable in the event of specified changes in
corporate ownership or control. The Committee may accelerate the exercisability
of any SAR.
Upon exercise of an SAR, the holder is entitled to receive an amount which
is equal to the aggregate amount of the appreciation in the shares of Common
Stock as to which the SAR is exercised. For this purpose, the "appreciation" in
the shares consists of the amount by which the fair market value of the shares
of Common Stock on the exercise date exceeds (a) in the case of an SAR related
to a stock option, the exercise price of the shares under the option or (b) in
the case of an SAR granted alone, without reference to a related stock option,
an amount determined by the Committee at the time of grant. The Committee may
pay the amount of this appreciation to the holder of the SAR by the delivery of
Common Stock, cash, or any combination of Common Stock and cash.
RESTRICTED STOCK. Restricted stock consists of the sale or transfer by
Lakes to an eligible employee of one or more shares of Common Stock which are
subject to restrictions on their sale or other transfer by the employee. The
price at which restricted stock will be sold will be determined by the
Committee, and it may vary from time to time and among employees and may be less
than the fair market value of the shares at the date of sale. All shares of
restricted stock will be subject to such restrictions as the Committee may
determine. Subject to these restrictions and the other requirements of the Plan,
a participant receiving restricted stock shall have all of the rights of a
shareholder as to those shares.
STOCK AWARDS. Stock awards consist of the transfer by Lakes to an eligible
employee of shares of Common Stock, without payment, as additional compensation
for services to Lakes. The number of shares transferred pursuant to any stock
award will be determined by the Committee.
PERFORMANCE SHARES. Performance shares consist of the grant by Lakes to an
eligible employee of a contingent right to receive cash or payment of shares of
Common Stock. The performance shares shall be paid in shares of Common Stock to
the extent performance objectives set forth in the grant are achieved. The
number of shares granted and the performance criteria will be determined by the
Committee.
CASH AWARDS. A cash award consists of a monetary payment made by Lakes to
an eligible employee as additional compensation for his services to Lakes.
Payment may depend on the achievement of specified performance objectives. The
amount of any monetary payment constituting a cash award shall be determined by
the Committee.
NON-TRANSFERABILITY OF MOST INCENTIVES. No stock option, SAR, performance
share or restricted stock granted under the Plan will be transferable by its
holder, except in the event of the holder's death, by will or the laws of
descent and distribution. During an employee's lifetime, an Incentive may be
exercised only by him or her or by his or her guardian or legal representative.
AMENDMENT OF THE PLAN. The Lakes Board may amend or discontinue the Plan at
any time. However, no such amendment or discontinuance may, subject to
adjustment in the event of a merger, recapitalization, or other corporate
restructuring, (a) change or impair, without the consent of the recipient
thereof, an Incentive previously granted, (b) materially increase the maximum
number of shares of Lakes Common Stock which may be issued to all employees
under the Lakes Option Plan, (c) materially change or expand the types of
Incentives that may be granted under the Plan, (d) materially modify the
requirements as to eligibility for participation in the Plan, or (e) materially
increase the benefits accruing to participants. Certain Plan amendments require
shareholder approval, including amendments which would materially increase
benefits accruing to participants, increase the number of securities issuable
under the Plan, or change the requirements for eligibility under the Plan.
FEDERAL INCOME TAX CONSEQUENCES. The following discussion sets forth
certain United States income tax considerations in connection with any
Incentives granted under the Lakes Option Plan. These tax considerations are
stated in general terms and are based on the Code and judicial and
administrative interpretations
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<PAGE> 12
thereof. This discussion does not address state or local tax considerations with
respect to the receipt, exercise or ownership of such Incentives. Moreover, the
tax considerations relevant to receipt, exercise or ownership of such Incentives
Common Stock may vary depending on a holder's particular status.
Under existing Federal income tax provisions, an employee who receives a
stock option or performance shares or an SAR under the Plan or who purchases or
receives shares of restricted stock under the Plan which are subject to
restrictions which create a "substantial risk of forfeiture" (within the meaning
of section 83 of the Code) will not normally realize any income, nor will Lakes
normally receive any deduction for federal income tax purposes in the year such
Incentive is granted. An employee who receives a stock award under the Plan
consisting of shares of Common Stock will realize ordinary income in the year of
the award in an amount equal to the fair market value of the shares of Common
Stock covered by the award on the date it is made, and Lakes will be entitled to
a deduction equal to the amount the employee is required to treat as ordinary
income. An employee who receives a cash award will realize ordinary income in
the year the award is paid equal to the amount thereof, and the amount of the
cash will be deductible by Lakes.
When a non-qualified stock option granted pursuant to the Plan is
exercised, the employee will realize ordinary income measured by the difference
between the aggregate purchase price of the shares of Common Stock as to which
the option is exercised and the aggregate fair market value of shares of the
Common Stock on the exercise date, and Lakes will be entitled to a deduction in
the year the option is exercised equal to the amount the employee is required to
treat as ordinary income.
Options which qualify as incentive stock options are entitled to special
tax treatment. Under existing federal income tax law, if shares purchased
pursuant to the exercise of such an option are not disposed of by the optionee
within two years from the date of granting of the option or within one year
after the transfer of the shares to the optionee, whichever is longer, then (i)
no income will be recognized to the optionee upon the exercise of the option;
(ii) any gain or loss will be recognized to the optionee only upon ultimate
disposition of the shares and, assuming the shares constitute capital assets in
the optionee's hands, will be treated as long-term capital gain or loss; (iii)
the optionee's basis in the shares purchased will be equal to the amount of cash
paid for such shares; and (iv) Lakes will not be entitled to a federal income
tax deduction in connection with the exercise of the option. Lakes understands
that the difference between the option price and the fair market value of the
shares acquired upon exercise of an incentive stock option will be treated as an
"item of tax preference" for purposes of the alternative minimum tax. In
addition, incentive stock options exercised more than three months after
retirement are treated as non-qualified options.
Lakes further understands that if the optionee disposes of the shares
acquired by exercise of an incentive stock option before the expiration of the
holding period described above, the optionee must treat as ordinary income in
the year of that disposition an amount equal to the difference between the
optionee's basis in the shares and the lesser of the fair market value of the
shares on the date of exercise or the selling price. In addition, Lakes will be
entitled to a deduction equal to the amount the employee is required to treat as
ordinary income.
If the exercise price of an option is paid by surrender of previously owned
shares, the basis of the shares received in replacement of the previously owned
shares is carried over. If the option is a non-qualified option, the gain
recognized on exercise is added to the basis. If the option is an incentive
stock option, the optionee will recognize gain if the shares surrendered were
acquired through the exercise of an incentive stock option and have not been
held for the applicable holding period. This gain will be added to the basis of
the shares received in replacement of the previously owned shares.
When a stock appreciation right granted pursuant to the Plan is exercised,
the employee will realize ordinary income in the year the right is exercised
equal to the value of the appreciation which he is entitled to receive pursuant
to the formula described above, and Lakes will be entitled to a deduction in the
same year and in the same amount.
An employee who receives restricted stock or performance shares subject to
restrictions which create a "substantial risk of forfeiture" (within the meaning
of section 83 of the Code) will normally realize taxable income on the date the
shares become transferable or no longer subject to substantial risk of
forfeiture or on the date of their earlier disposition. The amount of such
taxable income will be equal to the amount by which the fair market value of the
shares of Common Stock on the date such restrictions lapse (or any earlier date
on
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<PAGE> 13
which the shares are disposed of) exceeds their purchase price, if any. An
employee may elect, however, to include in income in the year of purchase or
grant the excess of the fair market value of the shares of Common Stock (without
regard to any restrictions) on the date of purchase or grant over its purchase
price. Lakes will be entitled to a deduction for compensation paid in the same
year and in the same amount as income is realized by the employee.
The foregoing does not purport to be a complete description of the Federal
income tax aspects or consequences of the Incentives. The above discussion is
very general in nature and may omit certain information that may affect the tax
computations of certain persons receiving such Incentives. Such persons should,
therefore, consult their tax advisors with respect to any questions they may
have regarding the above described matters, as well as any state and local tax
consequences.
PROXIES AND VOTING
The affirmative vote of the holders of the greater of (a) a majority of the
outstanding shares of common stock of the Company present and entitled to vote
on the proposed amendment or (b) a majority of the voting power of the minimum
number of shares entitled to vote that would constitute a quorum for transaction
of business at the meeting, is required for adoption of the proposed amendment.
A shareholder who abstains with respect to the adoption of the proposed
amendment is considered to be present and entitled to vote on the amendment at
the meeting, and is in effect casting a negative vote, but a shareholder
(including a broker) who does not give authority to a Proxy to vote, or
withholds authority to vote, on the amendment, shall not be considered present
and entitled to vote on the amendment.
All shares represented by proxies will be voted FOR the adoption of the
amendment unless a contrary choice is specified.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL
AND ADOPTION OF THE AMENDMENT.
OTHER MATTERS
Neil I. Sell is a partner in the law firm of Maslon Edelman Borman & Brand,
LLP, which renders legal services to Lakes from time to time.
PROPOSALS OF SHAREHOLDERS
Shareholder proposals sought to be included in the Proxy Statement for the
2000 Annual Meeting of Shareholders must be received by the Company at its
principal executive offices a reasonable time before the Company begins to print
and mail its proxies. Lakes intends to hold the 2000 Annual Meeting of
Shareholders on or about May 15, 2000. As such, all proposals of shareholders
intended to be presented at the 2000 Annual Meeting of Shareholders of the
Company should be received by the Company at its executive offices on or before
November 28, 1999.
Pursuant to Rule 14a-4(c)(1), as promulgated under the Securities Exchange
Act of 1934, as amended, if a proponent of a proposal fails to notify the
Company a reasonable number of days in advance of the time the Company begins to
print and mail its proxies, the management proxies will be allowed to use their
discretionary voting authority when the proposal is raised at the meeting,
without any discussion of the matter in the proxy statement. With respect to the
Company's 2000 Annual Meeting of Shareholders, if the Company is not provided
notice of a shareholder proposal, which the shareholder has not previously
sought to include in the Company's proxy statement, by February 11, 1999, the
management proxies will be allowed to use their discretionary authority with
respect to such proposal as outlined above.
BOARD OF DIRECTORS AND COMMITTEES
Lakes is a publicly held casino management company that was formed through
a distribution to shareholders of Grand effected in December of 1998. Prior
thereto, Lakes was a wholly owned subsidiary of Grand. As a result, the Board of
Directors held no meetings during the fiscal year ended January 3, 1999. The
Board acted by written action four times during the fiscal year ended January 3,
1999. The Company has an
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<PAGE> 14
audit committee and a compensation and stock option committee, but does not have
a nominating committee of the Board of Directors.
The Company's audit committee, which consisted of Messrs. David L. Rogers,
Neil I. Sell and Joel N. Waller, held no meetings during the fiscal year ended
January 3, 1999. The audit committee recommends to the full Board the engagement
of the independent accountants, reviews the audit plan and results of the audit
engagement, reviews the independence of the auditors, and reviews the adequacy
of the Company's system of internal accounting controls.
The Company's Compensation Committee, which consisted of Messrs. David L.
Rogers and Joel N. Waller, held no meetings during the fiscal year ended January
3, 1999. The Compensation Committee reviews the Company's remuneration policies
and practices, makes recommendations to the Board in connection with all
compensation matters affecting the Company and administers the 1998 Stock Option
and Compensation Plan.
As there were no Board of Directors or committee meetings in fiscal 1998,
no director attended fewer than 75% of the aggregate number of meetings of the
Board and the committees of the Board on which he served.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC") and the NASDAQ National Market. Officers, directors and greater than
ten percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file. Based solely upon a review of
the copies of such forms furnished to the Company, or written representations
that no Form 5(s) were required, the Company believes that during the fiscal
year ended January 3, 1999, all Section 16(a) filing requirements applicable to
its officers, directors and greater than ten-percent beneficial owners were
satisfied.
SOLICITATION
The Company will bear the cost of preparing, assembling and mailing the
proxy, Proxy Statement and other material which may be sent to the shareholders
in connection with this solicitation. Brokerage houses and other custodians,
nominees and fiduciaries may be requested to forward soliciting material to the
beneficial owners of stock, in which case they will be reimbursed by the Company
for their expenses in doing so. Proxies are being solicited primarily by mail,
but, in addition, officers and regular employees of the Company may solicit
proxies personally, by telephone, by telegram or by special letter.
The Board of Directors does not intend to present to the meeting any other
matter not referred to above and does not presently know of any matters that may
be presented to the meeting by others. However, if other matters come before the
meeting, it is the intent of the persons named in the enclosed proxy to vote the
proxy in accordance with their best judgment.
By Order of the Board of Directors
LAKES GAMING, INC.
TIMOTHY COPE
Timothy J. Cope
Executive Vice President, Chief
Financial Officer
and Secretary
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<PAGE> 15
EXHIBIT A
LAKES GAMING, INC.
1998 STOCK OPTION AND
COMPENSATION PLAN
1. Purpose. The purpose of this Lakes Gaming, Inc. (the "Company") 1998
Stock Option and Compensation Plan (the "Plan") is to increase stockholder value
and to advance the interests of the Company by furnishing a variety of economic
incentives ("Incentives") designed to attract, retain and motivate employees and
certain key consultants. Incentive may consist of opportunities to purchase or
receive shares of Common Stock, $.01 par value, of the Company ("Common Stock"),
monetary payments, or both, on terms determined under this Plan.
2. Administration. The Plan shall be administered by the stock option
committee (the "Committee") of the board of directors of the Company (the
"Board"). Subject to any provisions of state law which may require that the
Committee consist of a larger number of members, if the Company stock is
privately held, the Committee shall consist of one or more directors of the
Company as shall be appointed from time to time by the Chairman of the Board. If
the Company stock becomes the subject of a public offering, the Committee shall
then consist of not less than two directors who shall be appointed from time to
time by the Board, each of which such appointees shall be a "non-employee
director" within the meaning to Rule 16b-3 of the Securities Exchange Act of
1934, and the regulations promulgated thereunder (the "1934 Act"), and the Board
may from time to time appoint members of the Committee in substitution for, or
in addition to, members previously appointed, and may fill vacancies, however
caused, in the Committee. If more than one person is on the Committee, the
following shall apply: (a) the Committee shall select one of its members as its
chairman and shall hold its meetings at such times and places as it shall deem
advisable; (b) a majority of the Committee's members shall constitute a quorum;
(c) all action of the Committee shall be taken by the majority of its members;
and (d) any action may be taken by a written instrument signed by majority of
the members and actions so taken shall be fully effective as if they had been
made by a majority vote at a meeting duly called and held. The Committee may
appoint a secretary, shall keep minutes of its meetings and shall make such
rules and regulations for the conduct of its business as it shall deem
advisable. The Committee shall have complete authority to award Incentives under
the Plan, to interpret the Plan, and to make any other determination which it
believes necessary and advisable for the proper administration of the Plan. The
Committee's decisions and matters relating to the Plan shall be final and
conclusive on the Company and its participants.
3. Eligible Participants. Employees of or consultants to the Company or its
subsidiaries or affiliates (including officers and directors, but excluding
directors who are not also employees of or consultants to the Company or its
subsidiaries or affiliates), shall become eligible to receive Incentives under
the Plan when designated by the Committee. Participants may be designated
individually or by groups or categories (for example, by pay grade) as the
Committee deems appropriate. Participation by officers of the Company or its
subsidiaries or affiliates and any performance objectives relating to such
officers must be approved by the Committee. Participation by others and any
performance objectives relating to others may be approved by groups or
categories (for example, by pay grade) and authority to designate participants
who are not officers and to set or modify such targets may be delegated.
4. Types of Incentives. Incentives under the Plan may be granted in any one
or a combination of the following forms: (a) incentive stock options and
non-statutory stock options (section 6); (b) stock appreciation rights ("SARs")
(section 7); (c) stock awards (section 8); (d) restricted stock (section 8); (e)
performance shares (section 9); and (f) cash awards (section 10).
5. Shares Subject to the Plan.
5.1 Number of Shares. Subject to adjustment as provided in Section
11.6, the number of shares of Common Stock which may be issued under the
Plan shall not exceed 1,500,000 shares of Common Stock.
<PAGE> 16
5.2 Cancellation. To the extent that cash in lieu of shares of Common
Stock is delivered upon the exercise of a SAR pursuant to Section 7.4, the
Company shall be deemed, for purposes of applying the limitation on the
number of shares, to have issued the greater of the number of shares of
Common Stock which it was entitled to issue upon such exercise or on the
exercise of any related option. In the event that a stock option or SAR
granted hereunder expires or is terminated or canceled unexercised as to
any shares of Common Stock, such shares may again be issued under the Plan
either pursuant to stock options, SARs or otherwise. In the event that
shares of Common Stock are issued as restricted stock or pursuant to a
stock award and thereafter are forfeited or reacquired by the Company
pursuant to rights reserved upon issuance thereof, such forfeited and
reacquired shares may again be issued under the Plan, either as restricted
stock, pursuant to stock awards or otherwise. Subject to the approval of
shareholders, the Committee may also determine to cancel, and agree to the
cancellation of, stock options in order to make a participant eligible for
the grant of stock option at a lower price than the option to be canceled.
5.3 Type of Common Stock. Common Stock issued under the Plan in
connection with stock options, SARs, performance shares, restricted stock
or stock awards, may be authorized and unissued shares.
6. Stock Options. A stock option is a right to purchase shares of Common
Stock from the Company. Each stock option is granted by the Committee under this
Plan shall be subject to the following terms and conditions.
6.1 Price. The Option price per share shall be determined by the
Committee, provided that such price shall not be below the Fair Market
Value of the Common Stock subject to the adjustment under Section 11.6.
6.2 Number. The number of shares of Common Stock subject to the option
shall be determined by the Committee, subject to adjustment as provided in
Section 11.6. The number of shares of Common Stock subject to a stock
option shall be reduced in the same proportion that the holder thereof
exercises a SAR if any SAR is granted in conjunction with or related to the
stock option.
6.3 Duration and Time for Exercise. Subject to earlier termination as
provided in Section 11.4, the term of each stock option shall be determined
by the Committee but shall not exceed ten years and one day from the date
of grant. Each stock option shall become exercisable at such time or times
during its term as shall be determined by the Committee at the time of
grant. The Committee may accelerate the exercisability of any stock option.
Subject to the foregoing and with the approval of the Committee, all or any
part of the shares of Common Stock with respect to which the right to
purchase has accrued may be purchased by the Company at the time of such
accrual or at any time or times thereafter during the term of the option.
6.4 Manner of Exercise. A stock option may be exercised, in whole or
in part, by giving written notice to the Company, specifying the number of
shares of Common Stock to be purchased and accompanied by the full purchase
price for such shares. The option price shall be payable in United States
dollars upon exercise of the option and may be paid by cash; uncertified or
certified check; bank draft; by delivery of shares of Common Stock in
payment of all or any part of the option price, which shares shall be
valued for this purpose at the Fair Market Value on the date such option is
exercised; by instructing the Company to withhold from the shares of Common
Stock issuable upon exercise of the stock option shares of Common Stock in
payment of all or any part of the option price, which shares shall be
valued for this purpose at the Fair Market Value or in such other manner as
may be authorized from time to time by the Committee. Prior to the issuance
of shares of Common Stock upon the exercise of a stock option, a
participant shall have no rights as a stockholder.
6.5 Incentive Stock Options. Notwithstanding anything in the Plan to
the contrary, the following additional provisions shall apply to the grant
of stock options which are intended to qualify as Incentive
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<PAGE> 17
Stock Options, as such term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"):
a) The aggregate Fair Market Value (determined as of the time the
option is granted) of the shares of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any
participant during any calendar year (under all of the Company's plans)
shall not exceed $100,000.
b) Any Incentive Stock Option certificate authorized under the Plan
shall contain such other provisions as the Committee shall deem
advisable, but shall in all events be consistent with and contain all
provisions required in order to qualify the options as Incentive Stock
Options.
c) All Incentive Stock Options must be granted within ten years
from the earlier of the date on which this Plan was adopted by the Board
or the date this Plan was approved by the stockholders.
d) Unless sooner exercised, all Incentive Stock Options shall
expire no later than 10 years after the date of grant.
e) The option price of Incentive Stock Options shall be not less
than the Fair Market Value of the Common Stock subject to the option on
the date of grant.
f) No Incentive Stock Options shall be granted to any participant
who, at the time such option is granted, would own (within the meaning
of Section 422 of the Code) stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the
employer corporation or of its parent of subsidiary corporation.
7. Stock Appreciation Rights. A SAR is a right to receive, without payment
to the Company, a number of shares of Common Stock, cash or any combination
thereof, the amount of which is determined pursuant to the formula set forth in
Section 7.4. A SAR may be granted (a) with respect to any stock option granted
under this Plan, either concurrently with the grant of such stock option or at
such later time as determined by the Committee (as to all or any portion of the
shares of Common Stock subject to the stock option), or (b) alone, without
reference to any related stock option. Each SAR granted by the Committee under
this Plan shall be subject to the following terms and conditions:
7.1 Number. Each SAR granted to any participant shall relate to such
number of shares of Common Stock as shall be determined by the Committee,
subject to adjustment as provided in Section 11.6. In the case of a SAR
granted with respect to a stock option, the number of shares of Common
Stock to which the SAR pertains shall be reduced in the same proportion
that the holder of the option exercises the related stock option.
7.2 Duration. Subject to earlier termination as provided in Section
11.4, the term of each SAR shall be determined by the Committee but shall
not exceed ten years and one day from the date of grant. Unless otherwise
provided by the Committee, each SAR shall become exercisable at such time
or times, to such extent and upon such conditions as the stock option, if
any, to which it relates is exercisable. The Committee may in its
discretion accelerate the exercisability of any SAR.
7.3 Exercise. A SAR may be exercised, in whole or in part, by giving
written notice to the Company, specifying the number SARs which the holder
wishes to exercise. Upon receipt of such written notice, the Company shall,
within ninety (90) days thereafter, deliver to the exercising holder
certificates for the shares of Common Stock or cash or both, as determined
by the Committee, to which the holder is entitled pursuant to Section 7.4.
7.4 Payment. Subject to the right of the Committee to deliver cash in
lieu of shares of Common Stock (which, as it pertains to officers and
directors of the Company, shall comply with all requirements of the 1934
Act), the number of shares of Common Stock which shall be issuable upon the
exercise of a SAR shall be determined by dividing:
a) the number of shares of Common Stock as to which the SAR is
exercised multiplied by the amount of the appreciation in such shares
(for this purpose, the "appreciation" shall be the amount
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<PAGE> 18
by which the Fair Market Value of the shares of Common Stock subject to
the SAR on the exercise date exceeds (1) in the case of a SAR related to
a stock option, the purchase price of the shares of Common Stock under
the stock option or (2) in the case of a SAR granted alone, without
reference to a related stock option, an amount which shall be determined
by the Committee at the time of grant, subject to adjustment under
Section 11.6); by
b) the Fair Market Value of a share of Common Stock on the exercise
date.
In lieu of issuing shares of Common Stock upon the exercise of a SAR,
the Committee may elect to pay the holder of the SAR cash equal to the Fair
Market Value on the exercise date of any or all of the shares which would
otherwise be issuable. No fractional shares of Common Stock shall be issued
upon the exercise of a SAR; instead, the holder of the SAR shall be
entitled to receive a cash adjustment equal to the same fraction of the
Fair Market Value of a share of Common Stock on the exercise date or to
purchase the portion necessary to make a whole share at its Fair Market
Value on the date of exercise.
8. Stock Awards and Restricted Stock. A stock award consists of the
transfer by the Company to a participant of shares of Common Stock, without
other payment therefor, as additional compensation for services to the Company.
A share of restricted stock consists of shares of Common Stock which are sold or
transferred by the Company to a participant at a price determined by the
Committee (which price shall be at least equal to the minimum price required by
applicable law for the issuance of a share of Common Stock) and subject to
restrictions on their sale or other transfer by the participant. The transfer of
Common Stock pursuant to stock awards and the transfer and sale of restricted
stock shall be subject to the following terms and conditions:
8.1 Number of Shares. The number of shares to be transferred or sold
by the Company to a participant pursuant to a stock award or as restricted
stock shall be determined by the Committee.
8.2 Sale Price. The Committee shall determine the price, if any, at
which shares of restricted stock shall be sold to a participant, which may
vary from time to time and among participants and which may be below the
Fair Market Value of such shares of Common Stock at the date of sale.
8.3 Restrictions. All shares of restricted stock transferred or sold
hereunder shall be subject to such restrictions as the Committee may
determine, including, without limitation any or all of the following:
a) a prohibition against the sale, transfer, pledge or other
encumbrance of the shares of restricted stock, such prohibition to lapse
at such time or times as the Committee shall determine (whether in
annual or more frequent installments, at the time of the death,
disability or retirement of the holder of such share, or otherwise);
b) a requirement that the holder of shares of restricted stock
forfeit, or (in the case of shares sold to a participant) resell back to
the Company at his or her cost, all or part of such shares in the event
of termination of his or her employment or consulting engagement during
any period in which such shares are subject to restrictions;
c) such other conditions or restrictions as the Committee may deem
advisable.
8.4 Escrow. In order to enforce the restrictions imposed by the
Committee pursuant to Section 8.3, the participant receiving restricted
stock shall enter into an agreement with the Company setting forth the
conditions of the grant. Shares of restricted stock shall be registered in
the name of the participant and deposited, together with a stock power
endorsed in blank, with the Company. Each such certificate shall bear a
legend in substantially the following form:
The transferability of this certificate and the shares of Common
Stock represented by it are subject to the terms and conditions
(including conditions of forfeiture) contained in the 1998 Stock Option
and Compensation Plan of Lakes Gaming, Inc. (the "Company"), and an
agreement entered into between the registered owner and the Company. A
copy of the Plan and the agreement is on file at the office of the
secretary of the Company.
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8.5. End of Restrictions. Subject to Section 11.5, at the end of any
time period during which the shares of restricted stock are subject to
forfeiture and restrictions on transfer, such shares will be delivered free
of all restrictions to the participant or to the participant's legal
representative, beneficiary or heir.
8.6 Stockholder. Subject to the terms and conditions of the Plan, each
participant receiving restricted stock shall have all the rights of a
stockholder with respect to shares of stock during any period in which such
shares are subject to forfeiture and restrictions on transfer, including
without limitation, the right to vote such shares. Dividends paid in cash
or property other than Common Stock with respect to shares of restricted
stock shall be paid to the participant currently.
9. Performance Shares. A performance share consists of an award which shall
be paid in shares of Common Stock, as described below. The grant of performance
share shall be subject to such terms and conditions as the Committee deems
appropriate, including the following:
9.1 Performance Objectives. Each performance share will be subject to
performance objectives for the Company or one of its operating units to be
achieved by the end of a specified period. The number of performance shares
granted shall be determined by the Committee and may be subject to such
terms and conditions, as the Committee shall determine. If the performance
objectives are achieved, each participant will be paid in shares of Common
Stock or cash. If such objectives are not met, each grant of performance
shares may provide for lesser payments in accordance with formulas
established in the award.
9.2 Not Stockholder. The grant of performance shares to a participant
shall not create any rights in such participant as a stockholder of the
Company, until the payment of shares of Common Stock with respect to an
award.
9.3 No Adjustments. No adjustment shall be made in performance shares
granted on account of cash dividends which may be paid or other rights
which may be issued to the holders of Common Stock prior to the end of any
period for which performance objectives were established.
9.4 Expiration of Performance Share. If any participant's employment
or consulting engagement with the Company is terminated for any reason
other than normal retirement, death or disability prior to the achievement
of the participant's stated performance objectives, all the participant's
rights on the performance shares shall expire and terminate unless
otherwise determined by the Committee. In the event of termination by
reason of death, disability, or normal retirement, the Committee, in its
own discretion may determine what portions, if any, of the performance
shares should be paid to the participant.
10. Cash Awards. A cash award consists of a monetary payment made by the
Company to a participant as additional compensation for his or her services to
the Company. Payment of a cash award will normally depend on achievement of
performance objectives by the Company or by individuals. The amount of any
monetary payment constituting a cash award shall be determined by the Committee
in its sole discretion. Cash awards may be subject to other terms and
conditions, which may vary from time to time and among participants, as the
Committee determines to be appropriate.
11. General.
11.1 Effective Date. The Plan will become effective upon its adoption
by the Board.
11.2 Duration. The Plan shall remain in effect until all Incentives
granted under the Plan have either been satisfied by the issuance of shares
of Common Stock or the payment of cash or been terminated under the terms
of the Plan and all restrictions imposed on shares of Common Stock in
connection with their issuance under the Plan have lapsed. No Incentives
may be granted under the Plan after the tenth anniversary of the date the
Plan is approved by the stockholders of the Company.
11.3 Non-transferability of Incentives. No stock option, SAR,
restricted stock or performance award may be transferred, pledged or
assigned by the holder thereof except, in the event of the holder's death,
by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as
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defined by the Code of Title I of the Employee Retirement Income Security
Act, or the rules thereunder, and the Company shall not be required to
recognize any attempted assignment of such rights by any participant.
11.4 Effect of Termination or Death. In the event that a participant
ceases to be an employee of or consultant to the Company for any reason,
including death, any Incentives may be exercised or shall expire at such
times as may be determined by the Committee.
11.5 Additional Condition. Notwithstanding anything in this Plan to
the contrary: (a) the Company may, if it shall determine it necessary or
desirable for any reason, at the time of award of any Incentive or the
issuance of any shares of Common Stock pursuant to any Incentive, require
the recipient of the Incentive, as a condition to the receipt thereof or to
the receipt of shares of Common Stock issued pursuant thereto, to deliver
to the Company a written representation of present intention to acquire the
Incentive or the shares of Common Stock issued pursuant thereto for his or
her own account for investment and not for distribution; and (b) if at any
time the Company further determines, in its sole discretion, that the
listing, registration or qualification (or any updating of any such
document) of any Incentive or the shares of Common Stock issuable pursuant
thereto is necessary on any securities exchange or under any federal or
state securities or blue sky law, or that the consent or approval of any
governmental regulatory body is necessary of desirable as a condition of,
or in connection with the award of any Incentive, the issuance of shares of
Common Stock pursuant thereto, or the removal of any restrictions imposed
on such shares, such Incentive shall not be awarded or such shares of
Common Stock shall not be issued or such restrictions shall not be removed,
as the case may be, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Company.
11.6 Adjustment. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations,
there shall be substituted for each of the shares of Common Stock then
subject to the Plan, including shares subject to restrictions, options, or
achievement of performance share objectives, the number and kind of shares
of stock or other securities to which the holders of the shares of Common
Stock will be entitled pursuant to the transaction. In the event of any
recapitalization, stock dividend, stock split, combination of shares or
other change in the Common Stock, the number of shares of Common Stock then
subject to the Plan, including shares subject to restrictions, options or
achievements of performance shares, shall be adjusted in proportion to the
change in outstanding shares of Common Stock. In the event of any such
adjustments, the purchase price of any option, the performance objectives
of any Incentive, and the shares of Common Stock issuable pursuant to any
Incentive shall be adjusted as and to the extent appropriate, in the
discretion of the Committee, to provide participants with the same relative
rights before and after such adjustment.
11.7 Incentive Plans and Agreements. Except in the case of stock
awards or cash awards, the terms of each Incentive shall be stated in a
plan or agreement approved by the Committee. The Committee may also
determine to enter into agreements with holders of options to reclassify or
convert certain outstanding options, within the terms of the Plan, as
Incentive Stock Options or as non-statutory stock options and in order to
eliminate SARs with respect to all or part of such options and any other
previously issued options.
11.8 Withholding.
a) The Company shall have the right to withhold from any payments
made under the Plan or to collect as a condition of payment, any taxes
required by law to be withheld. At any time when a participant is
required to pay to the Company an amount required to be withheld under
applicable income tax laws in connection with a distribution of Common
Stock or upon exercise of an option or SAR, the participant may satisfy
this obligation in whole or in part by electing (the "Election") to have
the Company withhold from the distribution shares of Common Stock having
a value up to the amount required to be withheld. The value of the
shares to be withheld shall be based on the Fair Market Value of Common
Stock on the date that the amount of tax to be withheld shall be
determined ("Tax Date").
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<PAGE> 21
b) Each Election must be made prior to the Tax Date. The Committee
may disapprove of any Election, may suspend or terminate the right to
make Elections, or may provide with respect to any Incentive that the
right to make Elections shall not apply to such Incentive. An Election
is irrevocable.
c) If a participant is an officer or director of the Company within
the meaning of Section 16 of the 1934 Act, then an Election must comply
with all of the requirements of the 1934 Act.
11.9 No Continued Employment, Engagement or Right to Corporate
Assets. No participant under the Plan shall have any right, because of his
or her participation, to continue in the employ of, or to continue his or
her consulting engagement for, the Company for any period of time or to any
right to continue his or her present or any other rate of compensation.
Nothing contained in the Plan shall be construed as giving an employee, a
consultant, such persons' beneficiaries, or any other person, any equity or
interests of any kind in the assets of the Company or creating a trust of
any kind or a fiduciary relationship of any kind between the Company and
any such person.
11.10 Deferral Permitted. Payment of cash or distribution of any
shares of Common Stock to which a participant is entitled under any
Incentive shall be made as provided in the Incentive. Payment may be
deferred at the option of the participant if provided in the Incentive.
11.11 Amendment of the Plan. The Board may amend or discontinue the
Plan at any time. However, no such amendment or discontinuance shall,
subject to adjustment under Section 11.6, (a) change or impair, without the
consent of the recipient, an Incentive previously granted, (b) materially
increase the maximum number of shares of Common Stock which may be issued
to all participants under the Plan, (c) materially increase the benefits
that may be granted under the Plan, (d) materially modify the requirements
as to eligibility for participation in the Plan, or (e) materially increase
the benefits accruing to participants under the Plan.
11.12 Immediate Acceleration of Incentives. Notwithstanding any
provision in this Plan or in any Incentive to the contrary, (a) the
restrictions on all shares of restricted stock awards shall lapse
immediately, (b) all outstanding options and SARs will become exercisable
immediately, and (c) all performance shares shall be deemed to be met and
payment made immediately, if subsequent to the date that the Plan is
approved by the Board of Directors of the Company, any of the following
events occur unless otherwise determined by the Board and a majority of the
Continuing Directors (as defined below).
a) any person or group of persons becomes the beneficial owner of
thirty percent (30%) or more of any equity security of the Company
entitled to vote for the election of directors;
b) a majority of the members of the Board is replaced within the
period of less than two (2) years by directors not nominated and
approved by the Board; or
c) the stockholders of the Company approve an agreement to merge or
consolidate with or into another corporation or an agreement to sell or
otherwise dispose of all or substantially all of the Company's assets
(including a plan of liquidation).
For purposes of this Section 11.12, beneficial ownership by a person
or group of persons shall be determined in accordance with Regulation 13D
(or any similar successor regulation) promulgated by the Securities and
Exchange Commission pursuant to the 1934 Act. Beneficial ownership of more
than thirty percent (30%) of an equity security may be established by any
reasonable method, but shall be presumed conclusively as to any person who
files a Schedule 13D report with the Securities and Exchange Commission
reporting such ownership. If the restrictions and forfeitability periods
are eliminated by reason of provision (1), the limitations of this Plan
shall not become applicable again should the person cease to own thirty
percent (30%) or more of any equity security of the Company.
For purposes of this Section 11.12, "Continuing Directors" are
directors (a) who were in office prior to the time any of provisions (1),
(2) or (3) occurred or any person publicly announced an intention to
acquire twenty percent (20%) or more of any equity security of the Company,
(b) directors in office for a period of more than two years, and (c)
directors nominated and approved by the Continuing Directors.
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11.13 Definition of Fair Market Value. Whenever "Fair Market Value" of
Common Stock shall be determined for purposes of this Plan, it shall be
determined by reference to that last sale price of a share of Common Stock
on the principal United State Securities Exchange registered under the 1934
Act on which the Common Stock is listed (the "Exchange"), or, on the
National Association of Securities Dealers, Inc. Automatic Quotation System
(including the National Market System) ("NASDAQ") on the applicable date.
If the Exchange or NASDAQ is closed for trading on such date, or if the
Common Stock does not trade on such date, then the last sale price used
shall be the one on the date the Common Stock last traded on the Exchange
or NASDAQ. If the Common Stock is not listed on an Exchange or on NASDAQ,
"Fair Market Value" shall be determined by the Board of Directors of the
Company, which such valuation determination shall be conclusive.
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[LAKES GAMING, INC. LOGO]
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD AT:
Doubletree Park Place Hotel
1500 Park Place Boulevard
Minneapolis, Minnesota, 55416
AUGUST 26, 1999
3:00 P.M.
\/ Please detach here \/
- --------------------------------------------------------------------------------
LAKES GAMING, INC.
130 CHESHIRE LANE
MINNETONKA, MN 55305 PROXY
--------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON AUGUST 26, 1999.
The shares of stock you hold in your account or in a dividend reinvestment
account will voted as you specify.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2, AND 3.
By signing the proxy, you revoke all prior proxies and appoint Lyle Berman,
Thomas J. Brosig and Timothy J. Cope, and each of them, with full power of
substitution, to vote your shares on the matters shown on the reverse side and
any other matters which may come before the Annual Meeting and any adjournment
thereof.
See reverse for voting instructions.
<PAGE> 24
<TABLE>
<S><C>
Please detach here
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The Board of Directors of the Company Recommends A Vote For All Nominees, For
Ratification of the Appointment of Independent Auditors and For the Amendment to
the 1998 Stock Option and Compensation Plan.
1. ELECTION OF DIRECTORS 01 Lyle Berman 04 Thomes J. Brosig 07 Morris Goldfarb
02 Ronald Kramer 05 David L. Rogers 08 Neil I. Sell
03 Timothy J. Cope 06 Joel N. Waller
[ ] FOR all nominees (except as [ ] WITHHOLD AUTHORITY to vote
marked to the contrary) for all nominees listed at left
(Instruction: To withhold authority to vote for any indicated nominee, write the ------------------------------------------------
number(s) of the nominee(s) in the box provided to the right.)
------------------------------------------------
2. Proposal to ratify the appointment of Arthur Andersen LLP, Certified Public
Accountants, as independent auditors of the Company for the 1999 fiscal year. [ ] For [ ] Against [ ] Abstain
3. Proposal to amend the Company's 1998 Stock Option and Compensation Plan to
increase the number of shares of common stock reserved issuance thereunder by
1,000,000 shares. [ ] For [ ] Against [ ] Abstain
4. Upon such other business as may properly come before the meeting or any
adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED
FOR EACH PROPOSAL.
Date
------------------------------------------
Address Change? Mark Box [ ]
Indicate changes below:
-----------------------------------------------
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Signature(s) in Box
Please sign exactly as your name(s) appear on
Proxy. If held in joint tenancy, all persons
must sign. Trustees, administrators, etc,
should include title and authority.
Corporations should provide full name of
corporation and title of authorized officer
signing the proxy.
</TABLE>
