<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:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[LAKES GAMING LOGO]
130 CHESHIRE LANE
MINNETONKA, MINNESOTA 55305
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 3, 2000
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 May 3, 2000, or at any adjournment
or adjournments thereof, for the purpose of considering and taking appropriate
action with respect to the following:
1. To elect six directors;
2. To ratify the appointment of Arthur Andersen LLP, Certified Public
Accountants, as independent auditors of the Company for 2000; and
3. 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
March 7, 2000, 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.
/s/ Timothy J. Copee
Timothy J. Cope,
Executive Vice President, Chief
Financial Officer
and Secretary
April 5, 2000
<PAGE> 3
LAKES GAMING, INC.
130 CHESHIRE LANE
MINNETONKA, MINNESOTA 55305
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
MAY 3, 2000
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 May 3,
2000. The approximate date on which this Proxy Statement and the accompanying
proxy were first sent or given to shareholders was April 6, 2000. 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 March 7, 2000 (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 10,630,453 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.
1
<PAGE> 4
Except as otherwise indicated, each shareholder has sole voting and
investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
SHARES OF LAKES
COMMON STOCK PERCENTAGE OF COMMON
NAME BENEFICIALLY OWNED STOCK OUTSTANDING
---- ------------------ --------------------
<S> <C> <C>
Lyle Berman............................................... 1,482,211(1) 13.5
130 Chesire Lane
Minnetonka, MN 55305
Thomas J. Brosig.......................................... 307,060(13) 2.8
Timothy J. Cope........................................... 74,500(2) *
Morris Goldfarb........................................... 30,330(3) *
Ronald J. Kramer.......................................... 10,500(4) *
David L. Rogers........................................... 27,014(5) *
Neil I. Sell, as sole trustee of four irrevocable trusts
for the benefit of Lyle Berman's children............... 793,000(6) 7.5
Neil I. Sell.............................................. 22,449(7) *
Joel N. Waller............................................ 21,308(8) *
All Lakes Directors and Executive Officers as a Group (9
people including the foregoing)......................... 2,030,397(9) 17.8
FMR Corp. ................................................ 1,065,500(10) 10.0
82 Devonshire Street
Boston, MA 02109
Highfields Associates, LLC
Highfields Capital Management, LP
Richard L. Grubman........................................ 577,349(11) 5.4
Jonathon S. Jacobson
200 Clarendon Street -- 51st Floor
Boston, MA 02117
Dimensional Fund Advisors, Inc. .......................... 539,325(12) 5.1
1299 Ocean Avenue -- 11th Floor
Santa Monica, CA 90401
</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 350,000 shares.
(2) Includes options to purchase 74,500 shares.
(3) Includes 500 shares held by a trust for the benefit of Mr. Goldfarb's
children of which he is a trustee. Also includes options to purchase 23,125
shares.
(4) 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 10,000 shares.
(5) Includes 8,250 shares beneficially owned by Mr. Rogers' spouse. Also
includes options to purchase 18,250 shares.
(6) Mr. Sell has disclaimed beneficial ownership of such shares.
(7) Includes options to purchase 18,250 shares.
(8) Includes 513 shares beneficially owned by Mr. Waller's spouse. Also
includes options to purchase 18,250 shares.
(9) Includes shares held by corporations controlled by such officers and
directors, shares held by the spouses of such officers and directors and
shares held by trusts of which such officers and directors are trustees.
Also includes options to purchase 749,900 shares.
2
<PAGE> 5
(10) Based solely upon the most recent Schedule 13G on file with the Securities
and Exchange Commission. FMR Corp. has sole voting power with respect to
8,300 shares and sole dispositive power with respect to all 1,065,500
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.
(12) Based solely upon the most recent Schedule 13G on file with the Securities
and Exchange Commission. The reporting person sole voting and dispositive
power with respect to all 539,325 shares.
(13) Includes 22,450 shares beneficially owned by Mr. Brosig's spouse. Also
includes options to purchase 182,500 shares.
The foregoing footnotes are provided for informational purposes only and
each person disclaims beneficial ownership of shares owned by any member of his
or her family or held in trust for any other person, including family members.
3
<PAGE> 6
PROPOSAL FOR ELECTION OF DIRECTORS
Six 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 AGE OF
DIRECTOR AND/OR PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE DIRECTOR
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 58 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"), 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.
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.
Morris Goldfarb Director of Lakes since June 1998 and a director of Grand 1998
Age 49 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 41 from March 1995 through December of 1998. Mr. Kramer is a
Managing Director at the investment banking firm of
Wasserstein Perella & Co., Inc. and has been employed in
that capacity since July of 1999. Mr. Kramer was the
Chairman of the Board and Chief Executive Officer 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.
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 60 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 Rainforest.
</TABLE>
4
<PAGE> 7
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 six 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.
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation awarded to
or earned by each of the Chief Executive Officer of the Company and the three
other most highly compensated executive officers who served as executive
officers of the Company whose salary and bonus during the fiscal year ended
January 2, 2000 exceeded $100,000 (the "Named Executive Officers"). Lakes was
formed through a distribution to shareholders of Grand effected in December of
1998. Prior thereto, Lakes was a wholly owned subsidiary of Grand. Lakes did not
pay any compensation to its executive officers in fiscal 1998.
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- ---------------------
NAME AND OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION(2)($)
------------------ ---- ------------ -------- --------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Lyle Berman........... 1999 100,000 72,800 -- 500,000 3,859
Chairman, Chief
Executive Officer &
President(3)
Thomas J. Brosig...... 1999 100,000 -- -- 70,000 573
President(3)
Timothy J. Cope....... 1999 150,000 23,520 -- 200,000 4,432
Chief Financial
Officer, Executive
Vice President and
Secretary
Joseph Galvin......... 1999 150,000 24,080 -- 200,000 3,043
Chief Administrative
Officer
</TABLE>
- -------------------------
(1) Includes cash compensation deferred at the election of the executive officer
under the terms of the Company's 401(k) Savings Incentive Plan.
(2) Amounts shown in this column represent matching contributions by the Company
under the Company's 401(k) Savings Incentive Plan and payment by the Company
of term life insurance premiums.
(3) Mr. Brosig served as President of the Company through November 12, 1999.
5
<PAGE> 8
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the number of individual grants of stock
options made during fiscal year 1999 to the executive officers named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED RATES OF STOCK
SHARES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------
NAME GRANTED(#) FISCAL YEAR(%) ($/SHARE) DATE 5%($)(3) 10%($)(3)
---- ---------- -------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lyle Berman(1)............ 500,000 34.1 $8.375 1/4/2009 $2,633,496 $6,673,797
Thomas J. Brosig(1)....... 70,000 4.8 $8.375 1/4/2009 $ 368,689 $ 934,332
Timothy J. Cope(1)........ 200,000 13.6 $8.375 1/4/2009 $1,053,399 $2,669,519
Joseph Galvin(1).......... 100,000 6.8 $8.375 1/4/2009 $ 526,699 $1,334,759
Joseph Galvin(2).......... 100,000 6.8 $ 9.50 9/18/2009 $ 597,450 $1,514,055
</TABLE>
- -------------------------
(1) The fair market value of the Company's common stock on the date of grant was
$8.375. Options vest in 5 equal increments beginning on 1/4/2000.
(2) The fair market value of the Company's common stock on the date of grant was
$9.50. Options vest in five equal increments beginning on 9/18/2000.
(3) The hypothetical appreciation shown in these columns for the named executive
officers is required by the rules of the SEC. These amounts do not represent
either the historical or anticipated future performance of the Company's
common stock price appreciation.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table summarizes information with respect to options held by
the executive officers named in the Summary Compensation Table, and the value of
the options held by such persons at the end of fiscal 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END(#) OPTIONS AT FY-END(1)($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lyle Berman................ -0- N/A 250,000 500,000 (2) (2)
Thomas J. Brosig........... -0- N/A 112,500 70,000 (2) (2)
Timothy J. Cope............ -0- N/A 34,500 200,000 (2) (2)
Joseph Galvin.............. -0- N/A 35,025 200,000 854 (2)
</TABLE>
- -------------------------
(1) The closing sale price of the Company's common stock on December 31, 1999,
the last trading day prior to the end of the Company's fiscal year, was $
7.9375.
(2) As of January 2, 2000, the exercise price of all of the corresponding
options exceeded the fair market value of the underlying Company common
stock.
EMPLOYMENT AGREEMENTS
None of the 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.
6
<PAGE> 9
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.
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.................... 58 See "Proposal for Election of Directors" -- above.
Timothy J. Cope................ 48 See "Proposal for Election of Directors" -- above.
Joseph Galvin.................. 60 Chief Operating Officer of Lakes since January 1999 and
Chief Administrative Officer of Grand from November 1996
through December 1998, and prior thereto, Vice President of
Security of Grand.
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Lakes Compensation Committee during the fiscal year ended January 2,
2000 was comprised of Messrs. David L. Rogers and Joel N. Waller. Messrs. Rogers
and Waller are directors and executive officers of Wilsons. Lyle Berman, a
director and executive officer of the Company, and Morris Goldfarb, a director
of the Company, are also 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.
7
<PAGE> 10
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.
The Compensation Committee established an annual base salary for Lyle
Berman, the Company's Chief Executive Officer and Chairman of the Board, of
$100,000 for fiscal 1999. Mr. Berman also received an incentive compensation
award of $72,800 for fiscal 1999, which amount was based primarily on the
Company's ability to meet its EBITDA performance goals. In January, 1999, 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 1999, the Compensation
Committee granted 1,468,000 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
shareholders' returns (based on appreciation of the market price of the
Company's common stock) on an indexed basis since the time the Company's stock
became registered under Section 12 of the Exchange Act with (i) the cumulative
total return of a broad equity market index, assuming reinvestment of dividends,
that includes companies whose equity securities are traded on the NASDAQ
National Market or are of comparable market capitalizations and (ii) the
cumulative total return, assuming reinvestment of dividends, of issuers with
similar market capitalizations. The following presentation compares the
Company's common stock price during the period from January 4, 1999, to January
2, 2000, to the NASDAQ Stock Market and the Russell 2000 Index.
Lakes has elected to use the Russell 2000 Index in compiling its stock
performance graph because the Company believes the Russell 2000 Index provides a
better comparison of shareholder returns for companies with market
capitalizations similar to that of Lakes, the Company does not feel that it can
reasonably identify
8
<PAGE> 11
a peer group and there is no published industry or line-of-business index that
provides a meaningful comparison of shareholder returns.
The presentation assumes that the value of an investment in each of the
Company's common stock, the NASDAQ Stock Market and the Russell 2000 index was
$100 on January 4, 1999, and that dividends paid were reinvested in the same
security.
COMPARISON OF 12 MONTH CUMULATIVE TOTAL RETURN*
AMONG LAKES GAMING, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE RUSSELL 2000 INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Cumulative Total Returns*
1/4/99 3/99 6/99 9/99 12/99
<S> <C> <C> <C> <C> <C>
Lakes Gaming, Inc. 100.00 97.76 130.60 114.93 94.78
Russell 2000 100.00 90.31 105.26 97.03 98.51
Nasdaq Stock Market (U.S.) 100.00 111.86 122.39 125.18 180.66
</TABLE>
* $100 invested on 1/4/99 in stock or on 12/31/98 in Index -- including
reinvestment of dividends. Fiscal year ending December 31.
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.
9
<PAGE> 12
PARK PLACE ENTERTAINMENT CORPORATION
Lyle Berman entered into an employment agreement with Park Place as of
January 1, 1999 (the "Park Place Employment Agreement") pursuant to which he
serves 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 received compensation during 1999 of Two Hundred Thousand Dollars
($200,000.00) and will receive compensation in each of 2000, 2001 and 2002
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.
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
2000 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.
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
2001 Annual Meeting of Shareholders must be received by the Company at its
principal executive offices on or before December 6, 2000.
DISCRETIONARY PROXY VOTING AUTHORITY/
UNTIMELY STOCKHOLDER PROPOSALS
Rule 14a-4 promulgated under the Securities and Exchange Act of 1934
governs the Company's use of its discretionary proxy voting authority with
respect to a shareholder proposal which the shareholder has not sought to
include in the Company's proxy statement. The Rule provides that if a proponent
of a proposal fails to notify the company at least 45 days prior to the month
and day of mailing of the prior year's proxy statement, management proxies will
be allowed to use their discretionary voting authority when the proposal is
raised at the meeting, without any discussion of the matter.
10
<PAGE> 13
With respect to the Company's 2001 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 19, 2001, the management proxies will be allowed to use their
discretionary authority as outlined above.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held ten meetings during the fiscal year ended
January 2, 2000, and took action by written action in lieu of a meeting one time
during the fiscal year ended January 2, 2000. The Company has an 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 two meetings during the fiscal year ended
January 2, 2000. 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 two meetings during the fiscal year ended
January 2, 2000. 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. Due to the fact that Mr. Rogers will not stand for
re-election to the Lakes board of directors, for the coming year, the board will
appoint a successor to replace Mr. Rogers on the Compensation Committee.
Mr. Brosig and Mr. Rogers attended fewer than 75 percent of the aggregate
number of meetings of the board of directors during fiscal 1999.
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 2, 2000, all Section 16(a) filing requirements applicable to
its officers, directors and greater than ten-percent beneficial owners were
satisfied; except for a late Form 4 filing by Lyle Berman, Chairman of the
Board, Chief Executive Officer and President.
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.
11
<PAGE> 14
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.
/s/ Timothy J. Cope
Timothy J. Cope
Executive Vice President, Chief
Financial Officer
and Secretary
12
<PAGE> 15
[LAKES GAMING, INC. LOGO]
ANNUAL MEETING
Doubletree Park Place Hotel
1500 Park Place Boulevard
Minneapolis, Minnesota
MAY 3, 2000
3:00 P.M.
LAKES GAMING,INC.
FOR ANNUAL MEETING OF SHAREHOLDERS -- MAY 3,2000 PROXY
The undersigned, a shareholder of Lakes Gaming, Inc., hereby appoints Lyle
Berman and Timothy J. Cope, and each of them, as proxies, with full power of
substitution, to vote on behalf of the undersigned the number of shares which
the undersigned is then entitled to vote, at the Annual Meeting of Shareholders
of Lakes Gaming, Inc. to be held at the Doubletree Park Place Hotel, 1500 Park
Place Boulevard, Minneapolis, Minnesota on May 3, 2000 at 3:00 p.m., and at any
and all adjournments thereof, as specified below on the matters referred to and
in their discretion upon any other matters brought before the meeting, with all
the powers which the undersigned would possess if personally present.
The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement relating to the Annual Meeting of Shareholders.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
When properly executed, this proxy will be voted on the proposals set forth
herein as directed by the shareholder, but if no direction is made in the space
provided, this proxy will be voted FOR the election of all nominees for director
and FOR ratification of the appointment of auditors.
See reverse for voting instructions.
<PAGE> 16
\/ Please detach here \/
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THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR ALL NOMINEES,
AND FOR RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS.
<TABLE>
<S><C>
1. Election of directors: 01 Lyle Berman 02 Morris Goldfarb 03 Ronald Kramer [ ] FOR all nominees [ ] WITHHOLD vote
04 Neil I. Sell 05 Timothy J.Cope 06 Joel N.Waller (except as marked to the for all nominees
contrary below) listed
(Instructions:To withhold authority to vote for any individual nominee, write
that nominee's name 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 2000 fiscal year. [ ] For [ ] Against [ ] Abstain
3.Upon such other business as may properly come before the meeting or any
adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR ALL NOMINEES IN ITEM 1 AND FOR RATIFICATION OF THE
APPOINTMENT OF AUDITORS.
Address Change? Mark Box [ ]
Indicate changes below:
Dated: , 2000
Signature(s) in Box
(Shareholder must sign exactly as the name
appears at left. When signed as a corporate
officer, executor, administrator, trustee,
guardian, etc., please give full title as
such. Both joint tenants must sign.)
</TABLE>
