<PAGE>
STATION CASINOS, INC.
2411 WEST SAHARA AVENUE
LAS VEGAS, NEVADA 89102
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JULY 28, 1997
TO BE HELD AT THE SUNSET STATION HOTEL & CASINO
1301 WEST SUNSET ROAD
HENDERSON, NEVADA 89014
To the Stockholders:
NOTICE is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Station Casinos, Inc. (the "Company") will be held at Sunset
Station Hotel & Casino on Monday, July 28, 1997 at 10:00 a.m. local time, for
the following purposes:
1. To elect two directors to serve for a term of three years until
the 2000 Annual Meeting of Stockholders and until their respective
successors have been duly elected and qualified;
2. To ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the Company's 1998 fiscal year; and
3. To consider and transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
Holders of the Company's common stock, par value $.01 per share, at the
close of business on June 30, 1997, the record date fixed by the Company's board
of directors (the "Board of Directors"), are entitled to notice of and to vote
at the Annual Meeting. The Board of Directors urges all stockholders of record
to exercise their right to vote at the meeting personally or by proxy.
Accordingly, we are sending you the following Proxy Statement, the enclosed
proxy card and the Annual Report to Stockholders.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SPECIFY YOUR
VOTE ON THE ACCOMPANYING PROXY CARD AND SIGN, DATE AND RETURN IT AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED SELF-ADDRESSED, POSTAGE-PAID ENVELOPE.
Your prompt response will be appreciated.
By Order of the Board of Directors
Scott M. Nielson
Secretary
Las Vegas, Nevada
July 1, 1997
<PAGE>
STATION CASINOS, INC.
2411 WEST SAHARA AVENUE
LAS VEGAS, NEVADA 89102
-------------------
PROXY STATEMENT
-------------------
The accompanying proxy is solicited by the board of directors (the "Board
of Directors") of Station Casinos, Inc. (the "Company") to be used at the Annual
Meeting of Stockholders on Monday, July 28, 1997 (the "Annual Meeting") to be
held at 10:00 a.m. local time at Sunset Station Hotel & Casino, 1301 West Sunset
Road, Henderson, Nevada 89014. This Proxy Statement, the enclosed form of proxy
and the Annual Report to Stockholders are being sent to stockholders on or about
July 1, 1997.
At the Annual Meeting, stockholders will be asked to consider and vote upon
the following matters:
ITEM I: The election of two directors to serve until the 2000 Annual
Meeting.
ITEM II: A proposal to ratify the appointment of Arthur Andersen LLP as
the Company's independent public accountants for the Company's
1998 fiscal year.
Any stockholder giving a proxy may revoke it at any time prior to its
exercise at the Annual Meeting by giving notice of such revocation either
personally or in writing to the Secretary of the Company at the Company's
executive offices, by subsequently executing and delivering another proxy or by
voting in person at the Annual Meeting.
The 1997 Annual Report to Stockholders that accompanies this Proxy
Statement is not to be regarded as proxy soliciting material.
The Board of Directors believes that the election of its director nominees
and the approval of the proposal contained in Item II are in the best interests
of the Company and its stockholders and recommends to the stockholders the
approval of each of the nominees and of the proposal contained in Item II.
VOTING
Shares represented by duly executed and unrevoked proxies in the enclosed
form received by the Board of Directors will be voted at the Annual Meeting in
accordance with the specifications made therein by the stockholders, unless
authority to do so is withheld. If no specification is made, shares represented
by duly executed and unrevoked proxies in the enclosed form will be voted FOR
the election as directors of the nominees listed herein, FOR the proposal
contained in Item II, with respect to any other matter that may properly come
before the meeting, in the discretion of the persons voting the respective
proxies.
The cost of preparing, assembling and mailing the proxy materials will be
borne by the Company. The Company has retained Continental Stock Transfer &
Trust Company to solicit proxies at an estimated cost of $30,000.
Only holders of record at the close of business on June 30, 1997 (the
"Record Date") of the Company's common stock, $.01 par value (the "Common
Stock"), will be entitled to vote at the Annual Meeting. On the Record Date,
there were 35,306,657 shares of Common Stock outstanding. Each share of Common
Stock is entitled to one vote on all matters presented at the Annual Meeting.
1
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VOTE REQUIRED
The election of the director nominees requires a plurality of the votes
cast in person or by proxy at the Annual Meeting. Under Nevada law, the
Company's Amended and Restated Articles of Incorporation and the Company's
Restated Bylaws, shares as to which a stockholder abstains or withholds from
voting on the election of directors and shares as to which a broker indicates
that it does not have discretionary authority to vote ("broker non-votes") on
the election of directors will not be counted as voting thereon and therefore
will not affect the election of the nominees receiving a plurality of the votes
cast.
Ratification of the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the Company's 1998 fiscal year requires the
affirmative vote of a majority of shares present or represented by proxy at the
Annual Meeting and entitled to vote at the Annual Meeting. Under Nevada law,
the Company's Amended and Restated Articles of Incorporation and the Company's
Restated Bylaws, each abstention and broker non-vote on this proposal has the
same legal effect as a vote against such proposal.
The stockholders of the Company have no dissenters' or appraisal rights in
connection with any of Items I and II.
ITEM I
NOMINEES FOR ELECTION OF DIRECTORS
The Company's Amended and Restated Articles of Incorporation and Restated
Bylaws require that the number of directors on the Board of Directors be not
less than three (3) nor more than fifteen (15). Currently, the Board of
Directors has fixed the number of directors at seven (7). The Board of
Directors presently consists of the following persons: Frank J. Fertitta III,
Glenn C. Christenson, Blake L. Sartini, R. Hal Dean, Lorenzo J. Fertitta, Lowell
H. Lebermann, Jr. and Delise F. Sartini. The Board of Directors is staggered
into three classes. Class I consists of R. Hal Dean and Lowell H. Lebermann,
Jr., whose terms expire in 1997. Class II consists of Glenn C. Christenson and
Blake L. Sartini, whose terms expire in 1998. Class III consists of Frank J.
Fertitta III, Lorenzo J. Fertitta, and Delise F. Sartini, whose terms expire in
1999. At each annual meeting, the terms of one class of directors expire. Each
director nominee is elected to the Board of Directors for a term of three years.
At the Annual Meeting two directors are to be elected to serve until the
2000 Annual Meeting and until their successors are elected and qualified.
Unless authority to vote for directors is withheld in the proxy card, it is the
intention of the persons named in the enclosed form of proxy to vote FOR the
re-election of the two nominees listed below. The persons designated as proxies
will have discretion to cast votes for other persons in the event any nominee
for director is unable to serve. At present, it is not anticipated that any
nominee will be unable to serve.
The names and certain information concerning the persons to be nominated as
directors by the Board of Directors at the Annual Meeting are set forth below.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEES
LISTED BELOW.
R. HAL DEAN. Mr. Dean has served as a director of the Company since June
1993 and is chairman of the Human Resources Committee. Mr. Dean presently is a
member of the Board of Directors of LaBarge, Inc. (from 1984) in St. Louis.
Mr. Dean retired in 1982 from the Ralston Purina Company, having served 44 years
in various capacities including Chairman of the Board (1968-1982) and Chief
Executive Officer (1964-1982). Mr. Dean has served on several other Boards of
Directors including those of Gulf Oil Corp., Pittsburgh, Pennsylvania
(1970-1985), Chase Manhattan Bank International Advisory Group, New York, New
York (1965-1970), Mercantile Trust Co., St. Louis, Missouri (1969-1987), General
American Life Insurance Co., St. Louis, Missouri (1972-1987), Barnes Hospital,
St. Louis, Missouri (1979-1985) and Chevron Corp., San Francisco, California
(1985-1989).
2
<PAGE>
LOWELL H. LEBERMANN, JR. Mr. Lebermann has served as a director of the
Company since October 1993 and is chairman of the Audit Committee. He is also a
director of Valero Energy Corporation, San Antonio, serving as a member of the
executive committee. He is a former director of Franklin Federal Bancorp,
Austin (now Norwest), and founding member of the Board of Directors of the Texas
Workers' Compensation Fund. He is president and CEO of Centex Beverage, Inc.,
wholesale distributor of Miller beer and imported beverages. Since 1993, he has
been a member of the Board of Regents of The University of Texas System. He was
a Council Member on the Austin City Council from 1971-1977.
3
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors, executive officers and
certain key management personnel of the Company and certain of its subsidiaries.
All directors hold their positions until their terms expire and until their
respective successors are elected and qualified. Executive officers are elected
by and serve at the discretion of the Board of Directors until their successors
are duly chosen and qualified.
NAME AGE POSITION
---- --- --------
Frank J. Fertitta III(*). . . 35 Chairman of the Board, President, Chief
Executive Officer and Director
Glenn C. Christenson. . . . . 47 Executive Vice President, Chief
Financial Officer, Chief Administrative
Officer, Treasurer and Director
Scott M. Nielson. . . . . . . 39 Executive Vice President, General
Counsel and Secretary
Blake L. Sartini(*) . . . . . 37 Executive Vice President, Chief
Operating Officer and Director
R. Hal Dean . . . . . . . . . 81 Director
Lorenzo J. Fertitta(*). . . . 28 Director
Lowell H. Lebermann, Jr.. . . 58 Director
Delise F. Sartini(*). . . . . 37 Director
- ------------------
(*) Frank J. Fertitta III and Lorenzo J. Fertitta are brothers and Delise F.
Sartini is their sister. Delise F. Sartini is married to Blake L. Sartini.
Set forth below are the Class II and Class III directors whose terms do not
expire this year and executive officers of the Company, along with certain
information regarding these individuals.
FRANK J. FERTITTA III. Mr. Fertitta has served as Chairman of the Board of
the Company since February 1993, Chief Executive Officer since July 1992 and
President of the Company since 1989. He has held senior management positions
since 1985, when he was named General Manager of Palace Station Hotel & Casino,
a subsidiary of the Company ("Palace Station"). He was elected a director of
the company in 1986, at which time he was also appointed Executive Vice
President and Chief Operating Officer. In 1992, he co-founded St. Charles
Riverfront Station, Inc., a subsidiary of the Company ("Station Casino St.
Charles") and has served as Chairman of the Board of Directors of that company
since that time.
GLENN C. CHRISTENSON. Mr. Christenson was appointed Chief Administrative
Officer in March 1997 and has served as Executive Vice President of the Company
since February 1994. From 1989 to 1993, he served as Vice President. He has
served as Chief Financial Officer since 1989, as Treasurer since 1992 and as a
director since 1993. Mr. Christenson is a Certified Public Accountant. From
1983 to 1989, he was a partner of the international accounting firm of Deloitte
Haskins & Sells (now Deloitte & Touche), where he served as partner-in-charge of
audit services for the Nevada practice and National Audit partner for the
Hospitality Industry. Mr. Christenson has served on the Board of Directors of
the Nevada Resort Association and was Chairman of the Nevada Resort
Associations's Internal Revenue Service ("IRS") Liaison Committee.
SCOTT M. NIELSON. Mr. Nielson was appointed Executive Vice President of
the Company in June 1994. In 1991 he was appointed General Counsel and in 1992
he was appointed Secretary of the Company. From 1991 through June 1994, he
served as Vice President of the Company. From 1986 to 1991, Mr. Nielson was in
private legal practice, most recently as a partner in the Las Vegas firm of
4
<PAGE>
Schreck-Morris, (formerly known as Schreck, Jones, Bernhard, Woloson & Godfrey),
where he specialized in gaming law and land use planning and zoning. Mr.
Nielson is a member of the American Bar Association, the Nevada Bar Association
and the International Association of Gaming Attorneys.
BLAKE L. SARTINI. Mr. Sartini was appointed Chief Operating Officer in
March 1997 and has served as Executive Vice President since February 1994. From
February 1994 to March 1997 he also served as President-Nevada Operations of the
Company. From 1991 to 1993, he served as Vice President of Gaming Operations.
He has served as a director since 1993 and has over 14 years of experience in
the hotel and casino industry. From 1985 to 1990, Mr. Sartini held various
management positions at the Company and has served as President of Southwest
Gaming Services, Inc., a subsidiary of the Company ("Southwest Gaming") since
January 1993. In 1992, he co-founded Station Casino St. Charles and serves as
its Vice President.
LORENZO J. FERTITTA. Mr. Fertitta has served as a director of the Company
since 1991. He has served as President and Chief Executive Officer of Fertitta
Enterprises, Inc. since June 1993, where he is responsible for managing an
investment portfolio consisting of marketable securities and real property.
From time to time, the investment portfolio contains investments in other gaming
operations. Mr. Fertitta was a co-founder of Southwest Gaming in 1990 and of
Station Casino St. Charles in 1992 and has served on their respective boards
since their inception. From 1991 to 1993, he served as Vice President of the
Company.
DELISE F. SARTINI. Ms. Sartini was appointed a director of the Company on
August 30, 1995. She has served as Vice President of Community Affairs at
Palace Station in excess of five years. Ms. Sartini was a co-founder of
Southwest Gaming in 1990 and of Station Casino St. Charles in 1992. Ms.
Sartini is involved in various charitable organizations and serves on the Board
of Directors of St. Jude's Ranch for Children.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met six times during fiscal 1997. The Board of
Directors has standing Audit and Human Resources Committees. The Board of
Directors does not have a standing Nominations Committee. None of the members
of the Board of Directors attended less than 75% of the meetings of the Board of
Directors held or of the total number of meetings held by all committees of the
Board of Directors on which various members served during the fiscal year ended
March 31, 1997. The current members of each of the Board of Directors'
committees are listed below.
THE AUDIT COMMITTEE
The current members of the Audit Committee are Lowell H. Lebermann, Jr.,
Chairman, and R. Hal Dean. During the 1997 fiscal year, the Audit Committee met
twice.
The Audit Committee, comprised solely of outside directors, meets
periodically with the Company's independent public accountants, management and
internal auditors to discuss accounting principles, financial and accounting
controls, the scope of the annual audit, internal control, regulatory compliance
and other matters; advises the Board of Directors on matters related to
accounting and auditing; and reviews management's selection of independent
public accountants. The independent public accountants and the internal
auditors have complete access to the Audit Committee without management
5
<PAGE>
present to discuss results of their audit and their opinions on adequacy of
internal controls, quality of financial reporting and other accounting and
auditing matters.
THE HUMAN RESOURCES COMMITTEE
The Human Resources Committee, currently comprised solely of outside
directors, reviews and takes action regarding terms of compensation, employment
contracts and pension matters that concern officers and key employees of the
Company. The Human Resources Committee also reviews and takes action regarding
grants of options and restricted shares to employees that are issued under the
Stock Option Program, other than awards under the Nonemployee Directors Plan.
The Human Resources Committee met five times during fiscal 1997.
COMPENSATION OF DIRECTORS
Directors who are not directly or indirectly affiliated with the Company
received a fee of $1,500 for each board meeting attended, $1,000 for each
committee meeting attended, and a monthly fee of $3,000. All directors are
reimbursed for expenses connected with attendance at meetings of the Board of
Directors. All directors are eligible to participate in the Company's Stock
Compensation Program. See "Stock Compensation Program" as described
hereinafter.
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1997, the Human Resources Committee consisted of R. Hal Dean and
Lowell Lebermann, Jr., both outside directors of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who own more than 10% of the Company's Common Stock to file reports of
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (the
"Commission"). Executive officers, directors and 10% stockholders are required
by the Commission to furnish the Company with copies of all Forms 3, 4 and 5
they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all its executive officers, directors and
greater than 10% beneficial owners complied with all the filing requirements
applicable to them with respect to transactions during fiscal 1997.
LEGAL PROCEEDINGS INVOLVING DIRECTORS, OFFICERS, AFFILIATES OR BENEFICIAL OWNERS
No director, officer, affiliate or beneficial owner of the Company, or any
associate thereof, is a party adverse to the Company or any of its subsidiaries
in any lawsuit nor has a material adverse interest thereto.
6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth as of May 31, 1997 certain information
regarding the shares of Common Stock beneficially owned by each stockholder who
is known by the Company to beneficially own in excess of 5% of the outstanding
shares of Common Stock, by each director and named executive officer and by all
executive officers and directors as a group.
PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER (2) OF CLASS
---------------------------------------- ---------- --------
Frank J. Fertitta III . . . . . . . . . . . . . . . . 5,764,268 16.0
Blake L. Sartini(3) . . . . . . . . . . . . . . . . . 4,852,807 13.7
Lorenzo J. Fertitta . . . . . . . . . . . . . . . . . 4,787,719 13.5
Delise F. Sartini(3) . . . . . . . . . . . . . . . . 4,728,115 13.4
The Capital Group Companies, Inc.(4) . . . . . . . . 3,317,830 9.4
Columbia Funds Management Company(5) . . . . . . . . 2,176,600 6.2
Glenn C. Christenson . . . . . . . . . . . . . . . . 172,335 (*)
Scott M. Nielson . . . . . . . . . . . . . . . . . . 153,816 (*)
R. Hal Dean . . . . . . . . . . . . . . . . . . . . . 41,765 (*)
Lowell H. Lebermann, Jr. . . . . . . . . . . . . . . 18,500 (*)
Executive Officers and Directors as a Group (8 persons) 15,803,642 43.2
- ------------------------------
(*) Less than one percent
(1) Unless otherwise indicated in the footnotes to this table and subject to
the community property laws where applicable, each of the stockholders
named in this table has sole voting and investment power with respect to
the shares shown as beneficially owned. The address of each of the
stockholders named in this table is: c/o Station Casinos, Inc., 2411 West
Sahara Avenue, Las Vegas, Nevada 89102.
(2) Of the total number of shares reported in this table, the following are the
approximate number of vested options beneficially owned by each individual
in the table: Frank J. Fertitta III 742,410; Blake L. Sartini 137,124;
Delise F. Sartini 12,432; Lorenzo J. Fertitta 84,150; Glenn C.
Christenson 134,135; Scott M. Nielson 109,816; R. Hal Dean 20,000 and
Lowell H. Lebermann, Jr. 17,500.
(3) Reflects beneficial ownership shared by Blake and Delise Sartini. Blake
and Delise Sartini do not, however, share beneficial ownership of the
vested options reflected in note (2) and thus have different total
ownership figures.
(4) As reported in a Schedule 13G dated February 14, 1997 and filed with the
Securities and Exchange Commission. Beneficial Ownership is disclaimed. The
Capital Group Companies, Inc. reports that it is the parent holding company
of a group of investment management companies which hold the reported stock
and that Capital Research and Management Company, one of such subsidiaires,
is the beneficial owner of 2,609,470 shares. Includes 1,263,830 shares
resulting from the assumed conversion of the Company's convertible
preferred stock.
(5) As reported in a Schedule 13G dated February 10, 1997 and filed with the
Securities and Exchange Commission. Beneficial Ownership is disclaimed.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to the Chief Executive Officer of the Company and to each of the four
most highly compensated executive officers of the Company (other than the Chief
Executive Officer) for services rendered to the Company in all capacities during
the fiscal years ended March 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------ --------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
SALARY COMPENSATION STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) BONUS($)(2) ($)(3) AWARDS ($)(4) OPTIONS (5) ($)(6)
- -------------------------------- ---- ---------- ------------ ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank J. Fertitta III . . . . . . 1997 $ 999,159 $ 375,000 $ -- $ -- 1,000,000 $ 247,600
Chairman of the Board, 1996 959,423 365,000 -- -- 106,027 227,681
President and Chief Executive 1995 901,231 215,000 -- 1,350,000 125,000 84,622
Officer
Glenn C. Christenson . . . . . . 1997 449,062 135,000 -- -- 65,000 271,234
Executive Vice President, 1996 392,312 130,000 -- -- 174,713 110,938
Chief Financial Officer, 1995 274,965 100,500 -- 324,000 40,000 66,489
Chief Administrative Officer
and Treasurer
Scott M. Nielson . . . . . . . . 1997 374,543 93,750 -- -- 40,000 154,002
Executive Vice President, 1996 342,365 95,000 -- -- 145,223 100,296
General Counsel and Secretary 1995 248,750 90,000 -- 270,000 25,000 30,550
Blake L. Sartini . . . . . . . . 1997 419,159 126,000 96,990 -- 400,000 149,448
Executive Vice President and 1996 367,038 115,000 73,416 -- 39,063 77,539
Chief Operating Officer 1995 253,500 90,000 73,993 216,000 32,500 35,728
Joseph J. Canfora (7) . . . . . . 1997 403,582 23,626 -- -- 50,000 1,207,868
1996 374,731 115,000 -- -- 182,894 372,422
1995 274,965 100,500 -- 324,000 40,000 60,024
- ---------------------
</TABLE>
(1) For the fiscal years ended March 31, 1997, 1996 and 1995, amounts include
salary deferred under the Company's Deferred Compensation Plan of $0,
$70,369 and $51,421 for Mr. Fertitta, $50,927, $0 and $10,803 for
Mr. Christenson, and $35,365, $34,240 and $15,550 for Mr. Nielson.
(2) Each of Messrs. Fertitta, Christenson, Nielson and Sartini is entitled to
a minimum annual bonus equal to 5% of his base salary under his employment
agreement. Amounts shown are the amounts earned for the fiscal years
without consideration as to the year of payment. For fiscal years ended
March 31, 1997, 1996, and 1995 amounts include bonuses deferred under the
Company's Deferred Compensation Plan of $0, $21,500 and $14,783 for
Mr. Fertitta, $117,449, $100,000 and $39,782 for Mr. Christenson, $9,375,
$9,000 and $15,000 for Mr. Nielson and $0, $0 and $15,000 for Mr. Sartini.
(3) For the fiscal years ended March 31, 1997, 1996 and 1995, Other Annual
Compensation did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported, except for Blake L. Sartini during the
fiscal years ended March 31,1997, 1996 and 1995. The Company provides
certain perquisites, including certain personal services, to the named
executive officers. For the fiscal years ended March 31, 1997, 1996 and
1995, the costs of providing these services were approximately $83,000,
$55,000 and $52,000 respectively, for Mr. Sartini.
(4) As of March 31, 1997, the total number of unvested shares of restricted
stock held by Messrs. Fertitta, Christenson, Nielson and Sartini, and the
value of such shares as of such date, was 45,000, 10,800, 9,000 and 7,200,
and $365,625, $87,750, $73,125 and $58,500, respectively. The shares of
restricted stock vest 20% per year through April 4, 1999. Holders of
shares of restricted stock will receive dividends, if any, declared on the
Company's shares of Common Stock.
(5) On May 1, 1995, the Company undertook a repricing of option shares
previously granted in 1995 and 1994 at exercise prices ranging from $13
per share to $20 per share. Messrs. Christenson and Nielson had 175,000
and 145,000 option shares cancelled and 132,860 and 108,951 option shares
issued at an exercise price of $12 per share to replace and cancelled
option shares.
(6) These amounts represent premiums for life and disability insurance
policies provided by the Company and the Company's matching contribution
to the executives' Deferred Compensation Plan for Executives account. For
the fiscal year ended 1997 these amounts include "split dollar" life
insurance premiums for Messrs. Fertitta, Christenson, Nielson and
Sartini. The "split dollar" life insurance premiums for 1996 have been
pro-rated from August 15, 1995, the date of the contract, through March
31, 1996. The policy premiums will be returned to the Company through the
cash surrender value upon termination of the agreement or in the form of
death benefit proceeds. For fiscal year 1996, $250,000 of Mr. Canfora's
amount was a one-time bonus in connection with his relocation to Missouri
pursuant to his employment contract dated October 1995. For fiscal year
1997, $1,066,097 of Mr. Canfora's amount represents amounts accrued in
connection with the termination of his employment.
(7) Mr. Canfora ceased to be employed with the Company on March 5, 1997.
Because Mr. Canfora no longer is employed by the Company, detail with
respect to his compensation generally has not been provided in the
footnotes.
8
<PAGE>
OPTIONS GRANTED IN FISCAL 1997
The following table provides information related to options to purchase the
Company's Common Stock granted to the named executive officers (the "Executive
Officers") during the fiscal year ended March 31, 1997 and the number and value
of such options held as of the end of such fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM
OPTIONS IN FISCAL BASE PRICE EXPIRATION -----------------------------
NAME GRANTED (#)(1) YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- -------------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Fertitta III (2) . . . . . . 1,000,000 46.58% $14.625 5/20/2006 $ 9,197,584 $23,308,483
Glenn C. Christenson . . . . . . . . 65,000 3.03% $14.625 5/20/2006 597,843 1,515,051
Scott M. Nielson . . . . . . . . . . 40,000 1.86% $14.625 5/20/2006 367,903 932,339
Blake L. Sartini (2) . . . . . . . . 400,000 18.63% $14.625 5/20/2006 3,679,034 9,323,393
</TABLE>
(1) Executives receive options pursuant to the Company's Stock Compensation
Program described elsewhere in this Proxy Statement. The material terms of
that program related to recipients, grant timing, number of options, option
price and duration are determined by the Program Administrators, subject to
certain limitations.
(2) Messrs. Fertitta and Sartini's options are performance based and vest in
increments of 20% each time the per share price increases 12% from the
original grant price.
FISCAL YEAR END OPTION VALUES
The following table provides information related to options to purchase the
Company's Common Stock held by the Executive Officers at the end of the fiscal
year ended March 31, 1997. There were no exercises of options to purchase the
Company's Common Stock during the fiscal year ended March 31, 1997.
FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED
OPTIONS AT FISCAL YEAR END (#)(1)
---------------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
Frank J. Fertitta III . . . . . . . . . 571,205 1,409,822
Glenn C. Christenson . . . . . . . . . 91,132 148,581
Scott M. Nielson . . . . . . . . . . . 77,162 108,061
Blake L. Sartini . . . . . . . . . . . 104,812 486,751
(1) At March 31, 1997, no options granted were in-the-money.
9
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EMPLOYMENT AGREEMENTS
The Company and each of Frank J. Fertitta III, Glenn C. Christenson, Scott
M. Nielson and Blake L. Sartini are parties to employment agreements (the
"Employment Agreements") pursuant to which Mr. Fertitta has agreed to serve as
the President and Chief Executive Officer through May 1, 1998, Mr. Christenson
has agreed to serve as the Executive Vice President, Chief Financial Officer,
Chief Administrative Officer and Treasurer through May 1, 1998, Mr. Nielson
has agreed to serve as Executive Vice President, General Counsel and Secretary
of the Company through May 1, 2000 and Mr. Sartini has agreed to serve as Chief
Operating Officer and Executive Vice President through November 30, 1999
(together the "Executive Officers"). The Employment Agreements provide that the
Executive Officers shall devote reasonable time and attention to the business
and affairs of the Company. Mr. Fertitta's Employment Agreement does not
prohibit Mr. Fertitta from engaging in any business or assisting any other
entity in competition with the Company during the term of his employment and
does not affect continuation of his health and welfare benefits thereafter. The
Employment Agreements are subject to automatic 60-month extensions after
completion of their respective terms, unless terminated by the Company or the
respective Executive Officer. Each Employment Agreement provides for a base
salary (to be adjusted upward by the consumer price index as of January 1 of
each calendar year), an annual cash bonus in an amount determined by the Board
of Directors of the Company of at least 5% of the Executive Officer's base
salary as of January 1 of each calendar year, and the inclusion of the Executive
Officer in all plans and programs of the Company made available to the Company's
Executive Officers or salaried employees generally, including group life
insurance, accidental death and dismemberment insurance, hospitalization,
surgical and major medical coverage, long-term disability, vacations and
holidays. The Executive Officers annual base salaries have not been adjusted
for fiscal year 1998 and are currently $1,000,000 for Mr. Fertitta, $450,000 for
Mr. Christenson, $375,000 for Mr. Nielson and $420,000 for Mr. Sartini. The
Executive Officers are also be entitled to life insurance and certain other
benefits and perquisites in addition to those made available to the Company
management generally. These other benefits include participation in the
Supplemental Executive Retirement Plan in the case of Mr. Fertitta, and
participation in the Supplemental Management Retirement Plan in the case of
Messrs. Christenson, Nielson and Sartini. Additionally, each of the Executive
Officers is a participant in the Company's Special Long-Term Disability Plan.
Mr. Christenson, Mr. Nielson and Mr. Sartini also participate in the Company's
Long-Term Stay-On Performance Incentive Plan.
In the event that an Executive Officer's employment is terminated as a
result of his death or Disability (as defined in his Employment Agreement), the
Executive Officer or his legal representative will receive, among other
payments, all amounts owed the Executive Officer under his Employment Agreement
as of the date of his death or Disability, including a pro-rated bonus, and his
then-current salary for 24 months, in the case of Mr. Fertitta, or 12 months, in
the case of the other Executive Officers, or until his disability insurance
payments begin. In the event an Executive Officer's employment is terminated
(i) by the Company other than for Cause (as defined in his Employment Agreement)
or Disability or (ii) by the Executive Officer for Good Reason (as defined in
his Employment Agreement), (including the Company's failure to perform certain
material obligations under his Employment Agreement, a material reduction in the
Executive Officer's responsibilities, a Change of Control (as defined in his
Employment Agreement) or the Company's refusal to extend the initial term of the
Executive Officer's Employment Agreement), the Executive Officer will receive
the amounts payable under his Employment Agreement as of the date of
termination, including a prorated bonus, plus a lump sum payment equal to three
times his base salary and a payment equal to his average annual bonus over the
past three years, in the case of Mr. Fertitta, or a lump sum payment equal to
two times his base salary and a payment equal to his average annual bonus over
the past three years, in the case of the other Executive Officers, any deferred
bonus, expense reimbursement and
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continuation of his health and welfare benefits, at the level in effect at the
time of his termination of employment through the end of the 60th month, in the
case of Mr. Fertitta, or the 36th month, in the case of the other Executive
Officers, following such termination, or the economic equivalent. The Executive
Officers will be obligated to provide consulting services to the Company during
the period covered by any such payment. Immediately upon a Change of Control,
each Executive Officer will receive a payment equal to three times his base
amount (as defined in Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code")) less one dollar. Additionally, in the event an Executive
Officer's employment is terminated within 24 months following a Change of
Control, either without Cause (as defined in the Employment Agreement) or by the
Executive Officer for Good Reason (other than based on a Change of Control), the
Executive Officer will be entitled to five times, in the case of Mr. Fertitta,
or three times, in the case of the other Executive Officers, an amount to equal
to (i) the greater of (x) his annual base salary at the time of the Change of
Control or (y) his annual base salary at the time of termination of his
employment plus (ii) five times, in the case of Mr. Fertitta, or three times, in
the case of the other Executive Officers, an amount equal to the highest annual
bonus received by such Executive Officer within three years preceding the
termination of his employment, immediate vesting of any restricted stock of the
Company held in the Executive's name or for his benefit, immediate vesting of
any stock options and/or stock appreciation rights granted by the Company,
immediate cash-out of any phantom stock units granted to the Executive or
immediate vesting and pay out of incentive share units and continuation of all
employee benefits and perquisites for a period of 60 months, in the case of
Mr. Fertitta, or 36 months, in the case of the other Executive Officers,
following such termination of employment, or the economic equivalent thereof.
In certain circumstances, if any payments pursuant to the termination of
employment provisions of the Employment Agreements constitute certain payments
subject to limitations under Section 280G of the Code, each Executive Officer
will receive a payment equal to three times his base amount (as defined in
Section 280G of the Code) less one dollar. However, not all Change of Control
termination benefits may be subject to the limitations imposed by Section 280G
of the Code because the definition of Change of Control contained in the
Employment Agreements covers more events than the definition of Change of
Control contained in Section 280G of the Code. Certain provisions of the
Employment Agreements could have the effect of delaying or preventing a Change
of Control of the Company.
STOCK COMPENSATION PROGRAM
The Company has adopted a Stock Compensation Program (the "Program") which
includes: (i) an Incentive Stock Option Plan providing for the grant of
incentive stock options, (ii) a Compensatory Stock Option Plan providing for the
grant of nonqualified stock options, (iii) a Restricted Shares Plan providing
for the grant of restricted shares of Common Stock and (iv) a Nonemployee
Directors Stock Option Plan under which directors who are not employees of the
Company are granted nonqualified stock options. Officers, key employees,
directors (whether employees or non-employees) and independent contractors or
consultants of the Company or its subsidiaries are eligible to participate in
the Compensatory Stock Option Plan and the Restricted Shares Plan. However,
only employees of the Company and it subsidiaries are eligible to participate in
the Incentive Stock Option Plan. Only non-employee directors are eligible to
participate in the Nonemployee Directors Stock Option Plan.
The Program is administered by a committee of at least two non-employee
directors (as defined in Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (the "Program Administrators") appointed by the
Board of Directors. Subject to the provisions of the Program, the Program
Administrators have sole authority, in their absolute discretion to determine,
except with regard to awards under the Nonemployee Directors Plan: (a) the
individuals to whom options and restricted shares shall be
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granted under the Program; (b) the time or times at which the options and
restricted shares may be granted under the Program; (c) the number of shares
subject to each option and restricted share, the option price and the duration
of each option granted under the Program; and (d) all of the other terms and
conditions of options and restricted shares granted under the Program.
Under the Nonemployee Directors Plan, each nonemployee director receives
options to acquire shares of the Company's Common Stock pursuant to the
following formula: (a) 10,000 shares of Common Stock upon the effective date of
his or her initial appointment to serve as a member of the Board of Directors
and (b) an additional 2,500 shares of Common Stock upon each anniversary of such
date if the nonemployee director is a member of the Board of Directors on such
anniversary. The options are exercisable immediately and will expire on the
tenth anniversary of the grant. The exercise price of the options is the fair
market value of the shares at the time of the grant of the option.
A maximum of 6,307,000 shares of Common Stock have been reserved for
issuance under the Program. As of March 31, 1997, an aggregate of 4,432,182
shares of Common Stock under the Program were outstanding, 1,408,893 of which
were exercisable as of such date. The Program will terminate on May 21, 2003,
unless terminated earlier by the Board of Directors, and no options or
restricted shares may be granted under the Program after such date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences applicable to the Program. The summary does not reflect any
provisions of the income tax laws of any state or local taxing jurisdiction.
Because the tax consequences of events and transactions under the Program depend
upon various factors, including an employee's own tax status, each employee who
receives a grant or award under the Program should consult his or her own tax
advisor with respect thereto.
INCENTIVE STOCK OPTIONS
Upon the grant of an incentive stock option, an optionee will not recognize
any income. No income will be recognized by an optionee upon the exercise of an
incentive stock option if the requirements of the Program and the Internal
Revenue of 1986, as amended (the "Code") are met, including, without limitation,
the requirement that the optionee remain an employee of the Company during the
period beginning on the date of the grant of the incentive stock option and
ending on the day three months (up to one year in the discretion of the Program
Administrators if the optionee becomes disabled) before the date the incentive
stock option is exercised.
The federal income tax consequences of a subsequent disposition of shares
of Common Stock acquired upon the exercise of an incentive stock option will
depend upon when the disposition occurs and the type of disposition.
If such shares are disposed of by the optionee more than two years after
the date of grant of the incentive stock option, and more than one year after
such shares are transferred to the optionee, any gain or loss realized upon such
disposition will be characterized as long-term capital gain or loss, and the
Company will not be entitled to any income tax deduction in respect of the
incentive stock option or its exercise.
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If such shares are disposed of by the optionee within two years after the
date of grant of incentive stock option, or within one year after such shares
are transferred to the optionee (a "disqualifying disposition") and the
disqualifying disposition is a taxable disposition, the excess, if any, of the
amount realized (up to the fair market value of such shares on the exercise
date) over the option price will be compensation taxable to the optionee as
ordinary income, and the Company will be entitled to a deduction (subject to the
provisions of Section 162 (m) of the Code) equal to the amount of ordinary
income recognized by the optionee. If the amount realized by the optionee upon
such disqualifying disposition exceeds the fair market value of such shares on
the exercise date, the excess will be characterized as short-term capital gain.
If the option price exceeds the amount realized upon such disqualifying
disposition, the difference will be characterized as short-term capital loss.
If the disqualifying disposition is a non-taxable disposition (for example,
a gift or a sale to a related person), the excess, if any, of the fair market
value of such shares on the exercise date over the option price will be
compensation taxable as ordinary income, and the Company will a be entitled to a
deduction (subject to the provisions of Section 162 (m) of the Code) equal to
the amount of ordinary income recognized by the optionee.
If an optionee has not remained an employee of the Company during the
period beginning on the date of the grant of an incentive stock option and
ending on the day three months (up to one year in the discretion of the Program
Administrators if the optionee becomes disabled) before the date the incentive
stock option is exercised, the exercise of such option will be treated as the
exercise of a non-qualified stock option with the tax consequences described
below.
NON-QUALIFIED STOCK OPTIONS
Upon the grant of a non-qualified stock option, an optionee will not
recognize any income. At the time a non-qualified stock option is exercised,
the optionee will recognize compensation taxable as ordinary income, and the
Company will be entitled to a deduction (subject to the provisions of Section
162 (m) of the Code) in an amount equal to the difference between the fair
market value on the exercise date of the shares of Common Stock acquired
pursuant to such exercise and the option price. Upon a subsequent disposition
of such shares, the optionee will realize long-term or short-term capital gain
or loss, depending on the holding period of such shares. For purposes of
determining the amount of such gain or loss, the optionee's tax basis in such
shares will be the sum of the option price and the amount of ordinary income
recognized upon exercise. In order for any such gain or loss to qualify as
long-term capital gain or loss, the shares must be held for more than one year
measured from the exercise date.
EFFECT OF SHARE FOR SHARE EXERCISE
If an optionee elects to tender shares of Common Stock in partial or full
payment of the option price for shares to be acquired upon the exercise of a
non-qualified stock option, the optionee will not recognize any gain or loss on
such tendered shares. The number of shares of Common Stock received by the
optionee upon any such exercise that are equal in number to the number of
tendered shares would retain the tax basis and the holding period of the
tendered shares for capital gain or loss purposes. The optionee will recognize
compensation taxable as ordinary income, and the Company will be entitled to a
deduction (subject to the provisions of Section 162 (m) of the Code), in an
amount equal to the fair market value of the number of shares received by the
optionee upon such exercise that is in excess of the number of tendered shares,
less any cash paid by the optionee. The fair market value of such excess number
of shares would then become
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the tax basis for those shares and the holding period of such shares for capital
gain or loss purposes will begin on the exercise date. If the tendered shares
were previously acquired upon the exercise of an incentive stock option, the
shares of Common Stock received by the optionee upon the exercise of the
non-qualified stock option that are equal in number to the number of tendered
shares will be treated as shares of Common Stock acquired upon the exercise of
such incentive stock option.
Except as discussed in the following paragraph, if an optionee elects to
tender shares of Common Stock in partial or full payment of the option price for
shares to be acquired upon the exercise of an incentive stock option, the
optionee will not recognize any gain or loss on such tendered shares. No
income will be recognized by the optionee in respect of the shares received by
the optionee upon the exercise of the incentive stock option if, as previously
stated, the requirements of the Program and the Code are met. The Internal
Revenue Service has not yet issued final regulations with respect to a
determination of the basis and the holding period of the shares acquired upon
such an exercise. Regulations proposed by the Internal Revenue Service provide
that for all shares of Common Stock acquired upon such an exercise, the
requisite two year and one year holding periods for stock acquired upon exercise
of an incentive stock option (described above) must be satisfied, regardless of
the holding period applicable to the tendered shares. However, the tax basis
(and holding period for all other federal income tax purposes) of the tendered
shares will carry over to the same number of shares acquired upon the exercise.
The number of shares acquired which is in excess of the number of tendered
shares will have a tax basis of zero and a holding period for all purposes
beginning on the date of exercise. Any subsequent disqualifying disposition
will be deemed first to have been a disposition of the shares with a tax basis
of zero, and then to have been a disposition of the shares with a carry over tax
basis. For purposes of determining the amount of compensation taxable to the
optionee upon a subsequent disqualifying disposition, the option price of the
shares with a tax basis of zero will be deemed to be zero, and the option price
of the shares with a carry over basis will be deemed to be the fair market value
of the shares on the exercise date.
If an optionee elects to tender shares of Common Stock that were previously
acquired upon the exercise of an incentive stock option in partial or full
payment of the option price for shares to be acquired upon the exercise of
another incentive stock option, and such exercise occurs within two years of the
date of grant of such incentive stock option, or within one year after such
tendered shares were transferred to the optionee, the tender of such shares will
be a taxable disqualifying disposition with the tax consequences described above
regarding the disposition within two years of the date of grant of an incentive
stock option, or within one year after shares were acquired upon the exercise of
incentive stock options. The shares of Common Stock acquired upon such exercise
will be treated as shares of Common Stock acquired upon the exercise of an
incentive stock option and the holding period of such shares for all purposes
will begin on the exercise date.
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SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Table I below sets forth the total benefits payable to the Chief Executive
Officer as the sole participant in the Supplemental Executive Retirement Plan
(the "SERP"). Amounts shown in Table I represent the annual benefits to which
the Chief Executive Officer is entitled under the SERP. The amounts listed in
Table I are not currently subject to any deductions for social security or other
offset amounts.
TABLE I*
10 or more
Remuneration($) Years of Service
--------------- ----------------
950,000 475,000
975,000 487,500
1,000,000 500,000
1,025,000 512,500
1,075,000 537,500
1,100,000 550,000
1,125,000 562,500
1,150,000 575,000
1,175,000 587,500
* Assumes normal retirement
The SERP, which went into effect on November 30, 1994, is a defined benefit
plan that covers only the Chief Executive Officer of the Company. The SERP
provides a monthly supplemental retirement benefit (the "SRB"), in addition to
any other qualified or non-qualified retirement plan of the Company, equal to
one-twelfth of the product of (a) 50% and (b) the Chief Executive Officer's
final annual compensation, as determined under the SERP. The Chief Executive
Officer will become vested in accrued SRB, upon the latter of (a) the attainment
of age 45 and (b) the completion of ten years of service after the effective
date of the plan, and if a Change of Control (as defined in the SERP) occurs,
the Chief Executive Officer will become fully vested in the SRB.
The SRB is payable upon the later of the Chief Executive Officer's normal
retirement date, the date on which the Chief Executive Officer attains age 55,
or the Chief Executive Officer's termination of employment. Alternatively, the
Chief Executive Officer may elect to commence receiving the SRB upon the later
of the Chief Executive Officer's early retirement date, the date on which the
Chief Executive Officer attains age 45, or the Chief Executive Officer's
termination of employment. In the event of an early retirement election, the
SRB shall be reduced by 6% of such otherwise payable benefit for each year that
the Chief Executive Officer is less than age 55.
The SRB payments shall be made for no less than 15 years after the date on
which the Chief Executive Officer begins to receive payments. If the Chief
Executive Officer dies after the Chief Executive Officer becomes vested and
prior to the date on which the Chief Executive Officer begins to receive SRB
payments, the Company shall pay a survivors benefit to the Chief Executive
Officer's spouse equal to the amount that would have been payable to such spouse
if the Chief Executive Officer had commenced receiving the SRB at age 55 in the
form of a joint and 50% survivor annuity. The Company shall have no duty
whatsoever to set aside or invest any amounts under or in respect of the SERP.
As of June 15, 1997, Frank J. Fertitta III has three years of credited service
under the SERP.
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SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN
Table II below sets forth the total benefits payable to Executive Officers,
other than the Chief Executive Officer, selected by the Human Resources
Committee of the Board of Directors to participate in the Company's Supplemental
Management Retirement Plan (the "SMRP"). Amounts shown in Table II represent
the annual benefits to which the covered Executive Officers are entitled under
the SMRP and are not currently subject to any deductions for social security or
other offset amounts.
TABLE II*
10 or more
Remuneration($) Years of Service
--------------- ----------------
300,000 120,000
350,000 140,000
400,000 160,000
450,000 180,000
500,000 200,000
* Assumes normal retirement
The SMRP, which went into effect on November 30, 1994, is a defined benefit
plan for the Executive Officers, other than the Chief Executive Officer,
selected by the Human Resources Committee of the Company's Board of Directors.
The SMRP provides a monthly supplemental retirement benefit (the "SRB"), in
addition to any other qualified or non-qualified retirement plan of the Company,
equal to one-twelfth of the product of (a) 40% and (b) the Executive Officer's
final annual compensation, as determined under the SMRP. The Executive Officer
will become vested in the accrued SRB, upon the latter of (a) the attainment of
age 55 and (b) the completion of ten years of service after the effective date
of the plan, and if a Change of Control (as defined in the SMRP) occurs, the
Executive Officer will become fully vested in the SRB.
The SRB is payable upon the later of the Executive Officer's normal
retirement date, the date on which the Executive Officer attains age 60, or the
Executive Officer's termination of employment. Alternatively, the Executive
Officer may elect to commence receiving the SRB upon the later of the Executive
Officer's early retirement date, the date on which the Executive Officer attains
age 55, or the Executive Officer's termination of employment. In the event of
an early retirement election, the SRB shall be reduced by 6% of such otherwise
payable benefit for each year that the Executive Officer is less than age 60.
The SRB payments shall be made for no less than 15 years after the date on
which the Executive Officer begins to receive payments. If the Executive
Officer dies after becoming vested and prior to the date on which the Executive
Officer begins to receive SRB payments, the Company shall pay a survivor's
benefit to the Executive Officer's spouse equal to the amount that would have
been payable to such spouse if the Executive Officer had commenced receiving the
SRB at age 60 in the form of a joint and 50% survivor annuity. The Company
shall have no duty whatsoever to set aside or invest any amounts under or in
respect to the SMRP. As of June 15, 1997, Messrs. Glenn C. Christenson, Scott
M. Nielson and Blake L. Sartini have three years of service credited under the
SMRP.
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DEFERRED COMPENSATION PLAN FOR EXECUTIVES
The Deferred Compensation Plan For Executives (the "DCPE"), in effect as of
November 30, 1994, is a deferred compensation plan for Executive Officers whose
base salaries are at a rate in excess of the amount specified in Section
401(a)(17) of the Code, and who are selected for participation by the Human
Resources Committee of the Board of Directors. Executive Officers may defer up
to 50% of their regular base salary and 100% of any special and/or discretionary
bonuses. The Company has agreed to match 100% of the first 10% of any base
salary and bonus deferred under the plan, pursuant to retroactive modifications
of the DCPE adopted by the Company on March 15, 1996. Additionally, the Company
may, in its sole discretion, credit supplemental contributions to an Executive
Officer's account. Earnings on deferrals shall equal the greater of (i) the
annual return on the Company's Common Stock or (ii) an instrument paying 4%
interest per annum. Each participant's deferred compensation account will be
adjusted at the end of the plan year to reflect earnings and the account balance
will be reinvested for the next plan year. An Executive Officer's accrued
balance in a deferred compensation account shall be fully vested at all times.
Matching and supplemental contributions shall vest 20% each year and shall be
fully vested after five years of continuous service. If a Change in Control (as
defined in the DCPE) occurs, the Executive Officer's accrued balance in the
Matching Contributions Account and the Supplemental Contributions Account (both
as defined in the DCPE) become fully vested as of the date of any such Change in
Control. Vested accrued balances shall be paid in cash in one lump sum payment
within 15 days of the termination of employment. If the Executive Officer is
terminated for any reason (other than death) prior to completion of five years
of continuous service, any accrued balance existing under the matching and
supplemental accounts shall be paid in cash. Hardship distributions are
permitted under the plan in the event of an unforeseeable emergency, and will be
limited to the amount shown to be necessary to meet the emergency.
SPECIAL LONG-TERM DISABILITY PLAN
The Special Long-Term Disability Plan provides disability benefits to equal
a combined monthly benefit amount of 66% of the average of base salary plus
bonus for the two plan years immediately preceding (but not including) the plan
year in which the participant's employment is terminated due to disability
divided by twelve; provided, however, that the monthly benefit will be reduced
by any benefit the participant receives from all other Company sponsored
disability plans, if any. Benefits begin on the first day of the second month
succeeding the month in which the participant's termination of employment due to
disability occurs. Individuals eligible to participate in the Plan consist of
the Executive Officers as chosen by the Human Resources Committee of the Board
of Directors from key executives nominated by the Chief Executive Officer. The
Human Resources Committee may, in its sole discretion, terminate the
participation of any participant prior to the disability of such participant.
Current participants are Messrs. Frank J. Fertitta III, Glenn C. Christenson,
Scott M. Nielson and Blake L. Sartini. The Company is currently self-insured as
to these long-term disability benefits.
LONG-TERM STAY-ON PERFORMANCE INCENTIVE PLAN
The Long-Term Stay-On Performance Incentive Plan, as amended as of June 19,
1997, will pay $1,000,000 to each of Messrs. Christenson, Nielson and Sartini
for continuous employment by all three Executive Officers through March 31,
2001. Failure by any such Executive Officer, for any reason, to complete the
length of service specified will result in the forfeiture of such Executive
Officers' award and will reduce each of the remaining two Executive Officers'
awards by 25%. The award will be issued on
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April 1, 2001 in shares of the Company's Common Stock, valued at the award date,
if available, or otherwise in cash. The award will be restricted from April 1,
2001 through April 1, 2004 (the "Restriction Period"). Each Executive Officer
must continue in employment during the Restriction Period to receive the full
amount of his award. The award becomes unrestricted as follows: (1) 50% of the
total number of shares on April 1, 2003 and (2) 50% of the total number of
shares on April 1, 2004. Termination of employment, for any reason during the
Restriction Period, will result in forfeiture of any remaining restricted shares
of the Company.
SPLIT-DOLLAR INSURANCE PROGRAM
In August 1995, split-dollar life insurance agreements were entered into
for the Chief Executive Officer and the Executive Officers whereby the Company
will pay the premiums for such life insurance policies and the Company will have
an interest in the insurance benefits equal to the amount of unreimbursed
premiums it has paid, with the balance payable to the beneficiary as named by
the Executive Officer. The face value of each Executive Officer's individual
policy and second-to-die policy is as follows: $10 million and $30 million for
Mr. Fertitta, $7 million and $0 for Mr. Christenson, $7 million and $0 for Mr.
Nielson and $5 million and $10 million for Mr. Sartini.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Articles of Incorporation eliminate
liability of its directors and officers for breach of fiduciary duty as director
and officer, except to the extent otherwise required by the Nevada Revised
Statutes and where the breach involves intentional misconduct, fraud or a
knowing violation of the law.
Section 78.751 of Chapter 78 of the Nevada Revised Statutes and the
Company's Restated Bylaws contain provisions for indemnification of officers and
directors of the Company and, in certain cases, employees and other persons.
The Restated Bylaws require the Company to indemnify such persons to the full
extent permitted by Nevada law. Each such person will be indemnified in any
proceeding if he acted in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interest of the Company.
Indemnification would cover expenses, including attorneys' fees', judgments,
fines and amounts paid in settlement.
The Company's Restated Bylaws also provide that the Company's Board of
Directors may cause the Company to purchase and maintain insurance on behalf of
any present or past director or officer insuring against any liability asserted
against such person incurred in the capacity of director or officer or arising
out of such status, whether or not the Company would have the power to indemnify
such person. The Company maintains directors' and officers' liability
insurance.
The Company has entered into indemnification agreements (the
"Indemnification Agreements") with each director and certain officers, employees
and agents of the Company. Each Indemnification Agreement provides for, among
other things: (i) indemnification to the fullest extent permitted by law for an
indemnified party (the "Indemnitee") unless it is determined, as provided in the
Indemnification Agreement, that indemnification is not permitted under law; and
(ii) prompt advancement of expenses to any Indemnitee in connection with his or
her defense against any claim.
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REPORT ON EXECUTIVE COMPENSATION(1)
This report is provided by the Human Resources Committee of the Board of
Directors to assist stockholders in understanding the Company's objectives and
procedures in establishing the compensation of the Company's Chief Executive
Officer and other executive officers. The Human Resources Committee is
responsible for (i) reviewing and approving all elements of the total
compensation program for the Company, (ii) aligning the total compensation
program with the Company's business strategy and (iii) assuring stockholders
that the pay delivery programs are effective, responsible, and competitive when
compared to similarly situated organizations.
EXECUTIVE COMPENSATION PROGRAM PHILOSOPHY AND OBJECTIVES
The Human Resources Committee's primary objectives in setting compensation
policies is to develop a program designed to retain the current management team,
reward them for outstanding performance, and attract those individuals needed to
implement its strategy. The Human Resources Committee believes that the Company
will continue to experience significant growth and that the management team that
will best foster and manage such growth is one that is comprised of highly
talented, motivated individuals with a long-term vision for the Company. Thus,
it is the Human Resources Committee's belief that the Company's future success
lies in its ability to recruit and retain individuals with these qualities and
skills that will enable them to manage a business much larger than the Company
is today. The Human Resources Committee also seeks to align the financial
interest of the Company's executives with that of its stockholders and the Human
Resources Committee believes to achieve this goal a significant portion of its
executives' compensation should be "at risk" and tied to the achievement of
annual and long-term corporate performance criteria. The Human Resources
Committee has retained an outside consultant to assist with the design,
implementation, and communication of its compensation program.
BASE SALARY
Base salaries are reviewed annually and may be adjusted based on an
evaluation of the executive's performance in conjunction with a review of
compensation normally received by other individuals holding similar positions at
other organizations with similar revenues and scope of business. For fiscal
year 1997 the Human Resources Committee identified a group of fifteen similar
casino and gaming companies that it believes are the Company's competition for
executive level employees. Due to the limited availability of information, the
group of fifteen similar casino and gaming companies identified by the Human
Resources Committee is a different group of companies from that used to create
the stock performance graph. As part of its strategy to attract and retain high
quality executive employees, the Human Resources Committee has established a
policy to pay executive base salaries between the 50th and 75th percentile of
the range of the base salaries paid by the fifteen similar casino and gaming
companies. Actual salaries are determined based upon an assessment of the
individual's contribution and value to the organization and the competitive
market for that position as reflected by the base salaries paid by the fifteen
similar casino and gaming companies.
- -----------------------------
(1) Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934, the Report on Executive Compensation shall not be
incorporated by reference in any such filings.
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ANNUAL INCENTIVES
The Human Resources Committee also believes that executive compensation
should also be dependent upon the performance of the Company. To create
incentives for superior performance and to allow executives to share in the
success of the Company, the Human Resources Committee makes a portion of an
executive's compensation dependent upon the annual and long-term performance of
the Company.
Annual incentive awards for fiscal year 1997 performance were based upon
the Company's performance and assessments of the individual executive's
contribution to the success of the Company during fiscal year 1997. The Human
Resources Committee targets total cash compensation paid to the Company's
executives to be between the 50th and 75th percentile of that paid by its
competitors for executive level employees. Actual annual incentive payouts are
adjusted for the Company's performance and the individual's contribution during
the performance period.
Executives participate in an annual incentive plan administered by the
Human Resources Committee that was implemented on April 1, 1994. This plan
makes a portion of the participant's compensation dependent upon the annual
performance of the Company and also has a component to reward the individual for
superior performance in the event targets are not met, but the individual's
performance has been exemplary. The purpose of this plan is to focus each
executive on the attainment of financial objectives that the Human Resources
Committee believes are primary determinants of the Company's share price over
time. Each year, specific cash flow and earnings per share goals are approved
by the Human Resources Committee under the plan. To ensure that the award
amounts under the plan are competitive, target award amounts are set at the
beginning of each performance period for each executive based upon the 50th
percentile of comparable award amounts paid by the Company's competitors for
executive employees. The amount of the target award is determined by comparison
of actual cash flow and earnings per share versus the goal cash flow and
earnings per share. The actual award amount may vary from zero to one and a
half times the targeted award amount. The Human Resources Committee has
retained discretion to change the actual award up to 50% of the executive's
target, positively or negatively, based on individual performance.
LONG-TERM INCENTIVES
The Company has provided stock-based incentives to its officers since its
inception. The Human Resources Committee believes that the Company's executives
should have a stake in the long-term success of the business, and that the
Company's executives should have a considerable portion of their total
compensation paid in stock, to give the executive a long-term stake in the
business and to align the executive's interests with those of the Company's
stockholders. These grants of stock options and restricted stock align the
executive's interests with the shareholder's interests as the size of the
executive's reward is dependent on the Company's stock performance. Grants made
to the Company's executives approximate the 75th percentile of expected grant
values for those companies that the Human Resources Committee has identified as
the Company's competition for executive level employees, with the value of any
awards estimated using the Black-Scholes valuation model. Awards have generally
been granted with a vesting schedule of 20% of the award each anniversary from
the date of grant until fully vested.
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OTHER EXECUTIVE PROGRAMS
The Company also maintains certain executive benefits and perquisites that
are considered necessary to offer fully competitive opportunities to its
executives. These include, but are not limited to, supplemental retirement
arrangements, employment agreements, and change in control contracts. The
details of these programs are explained under the "Executive Compensation"
section of this proxy statement.
1997 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
These same philosophies described above for each executive position were
used by the Human Resources Committee to determine the compensation for the
Chairman of the Board, President, and Chief Executive Officer, Mr. Frank J.
Fertitta III.
THE CHIEF EXECUTIVE OFFICER'S 1997 BASE SALARY
The Human Resources Committee established Mr. Fertitta's annual base salary
for the fiscal year 1997 based upon a review of compensation by those fifteen
casino and gaming companies identified as having similar revenues and scope of
operations together with an evaluation of the Company's results in fiscal year
1996. As of June 1, 1996 and retroactive to April 1, 1996, Mr. Fertitta's
salary was increased from $950,000 to $1,000,000. This salary adjustment
represents less than a 6% increase which is less than increases generally made
to the top executive at companies in the casino and gaming industry surveyed.
Although the survey data for fiscal year 1998 showed an increase in base salary,
Mr. Fertitta's base salary was not adjusted for fiscal year 1998. His base
salary will remain at $1,000,000.
THE CHIEF EXECUTIVE OFFICER'S 1997 ANNUAL INCENTIVE
The annual incentive earned by the Chief Executive Officer for fiscal year
1997 performance was $375,000. This annual incentive award reflects the
Company's performance and the Chief Executive Officer's individual contribution
to the Company as evaluated by the Human Resources Committee for the year.
CERTAIN EXECUTIVE OFFICERS' 1997 LONG-TERM INCENTIVES
On May 21, 1996, 1,000,000 performance based options were granted to Mr.
Fertitta and 400,000 performance based options were granted to Mr. Sartini. The
options were granted at $14.25 per share and vest in increments of 20% each time
the publicly traded per share price increases 12% from the original grant price.
This vesting mechanism has the result of rewarding Messrs. Fertitta and Sartini
only when substantial stock price appreciation is achieved. The committee
granted these options with the expectation that long-term incentives would not
be granted during fiscal year 1998.
LIMITATION OF TAX DEDUCTION FOR EXECUTIVE COMPENSATION
The Omnibus Budget Reconciliation Act of 1993 (the "Act") prevents publicly
traded companies from receiving a tax deduction on compensation paid to
proxy-named executive officers in excess of $1 million annually, effective for
compensation paid after 1993. The Human Resources Committee believes
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that there will be little if any impact from this limitation to the Company in
fiscal 1997 due to various exceptions to the $1 million limitation.
The Human Resources Committee believes that the Company's other
compensation programs which will result in amounts of compensation in fiscal
year 1997 will either qualify for exceptions to the $1 million limit or that in
the aggregate such amounts of compensation will not significantly exceed $1
million for each executive. The Human Resources Committee is currently studying
its methodology of bonus awards, as well as conducting a review of severance and
option arrangements for the Company's executives.
Respectfully Submitted,
Station Casinos, Inc.
Human Resources Committee
R. Hal Dean, Chairman
Lowell H. Lebermann, Jr.
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STOCK PERFORMANCE GRAPH(2)
The graph below compares the cumulative total stockholder return of the
Company, with the cumulative total return of the Standard & Poor's 500 Stock
Index ("S&P 500") and the cumulative total return of a peer group with
comparable market capitalization consisting of Ameristar Casinos Inc., Argosy
Gaming Corp., Aztar Corp., Boomtown, Inc., Boyd Gaming Corp., Casino America,
Inc., Casino Magic Corp., Circus Circus Enterprises, Grand Casinos, Inc.,
Hollywood Casino Corp., Jackpot Enterprises, Inc., President Casinos, Inc.,
Primadonna Resorts, Inc., Rio Hotel & Casino, Inc. and Showboat, Inc. The
performance graph assumes that $100 was invested on May 25, 1993 (the date of
the Company's initial public offering) in each of the Company's Common Stock,
common stock of the selected peer group, and the S&P 500. The stock price
performance shown in this graph is neither necessarily indicative of nor
intended to suggest future stock price performance.
COMPARISON OF 46 MONTH CUMULATIVE TOTAL RETURN*
AMONG STATION CASINOS, INC., THE S&P 500 INDEX AND A PEER GROUP
RESEARCH TOTAL RETURN -- DATA SUMMARY
STN
Cumulative Total Return
--------------------------------------
5/93 3/94 3/95 3/96 3/97
--------------------------------------
STATION CASINOS INC. STN 100 86 58 58 41
PEER GROUP PPEER1 100 80 66 64 45
S & P 500 I500 100 102 117 155 185
* $100 INVESTED ON 5/25/93 IN STOCK OR INDEX.
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING MARCH 31.
- ----------------------------------
(2) Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934, this Performance Graph shall not be incorporated by
reference in any such filings.
23
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BOULDER STATION LEASE
Boulder Station, Inc. ("Boulder Station") is situated on 40 acres on the
east side of Las Vegas. The Company owns 13 acres and leases the remaining
parcel from a trust pursuant to a long-term ground lease. The trustee of such
trust is Bank of America NT&SA and the beneficiary is KB Enterprises, an
affiliated company owned by Frank J. Fertitta, Jr. and Victoria K. Fertitta (the
"Related Lessor"), the parents of Frank J. Fertitta III, Chairman of the Board
and Chief Executive Officer of the Company. The lease has a term of 65 years
with monthly payments of $125,000 through June 1998. In June 1998, and every
ten years thereafter, the rent will be adjusted to the product of the fair
market value of the land and the greater of (i) the then-prevailing annual rate
of return for comparably situated property or (ii) 8% per year. The rent will
be further adjusted in June 2003 and every ten years thereafter by a cost of
living factor. In no event will the rent for any period be less than the
immediately prior period. Pursuant to the ground lease, Boulder Station has an
option, exercisable at five-year intervals beginning in June 1998, to purchase
the land at fair market value. The Company believes that the terms of the
acquisition and the ground lease are as fair to the Company as could be obtained
from an independent third party.
TEXAS STATION LEASE
Texas Station, Inc. ("Texas Station") is situated on 47 acres located in
North Las Vegas. The Company leases the land from a trust pursuant to a
long-term ground lease. The trustee of such trust is Bank of America NT&SA and
the beneficiary is Texas Gambling Hall & Hotel, an affiliate company of the
Related Lessor. The lease has a term of 65 years with monthly rental payments
of $150,000 until July 2000. In July 2000, and every ten years thereafter, the
rent will be adjusted to the product of the fair market value of the land and
the greater of (i) the then-prevailing annual rate of return for comparably
situated property or (ii) 8% per year. The rent will be further adjusted by a
cost of living factor after the first ten years and every ten years thereafter.
In no event will the rent for any period be less than the immediately prior
period. Pursuant to the ground lease, the Company will have an option,
exercisable at five-year intervals, to purchase the land at fair market value.
The Company believes that the terms of the acquisition and the ground lease are
as fair to the Company as could be obtained from an independent third party.
MCNABB/MCNABB/DESOTO/SALTER & CO.
The Company employs McNabb/McNabb/DeSoto/Salter & Co. ("MMDS") to provide
advertising and marketing research services. Frank J. Fertitta III, Blake L.
and Delise F. Sartini and Lorenzo J. Fertitta collectively own a 50% interest in
MMDS. The Company paid MMDS an aggregate of approximately $27.2 million for its
services and services it procured on behalf of the Company in the fiscal year
ended March 31, 1997. In April 1997, the Company purchased the assets of MMDS
for approximately $800,000. The Company believes that the terms of the
transactions with MMDS were as fair to the Company as could have been obtained
from an independent third party.
GORDON BIERSCH BREWING COMPANY
The Company owns a 50% interest in Town Center Amusements, Inc., a Nevada
limited liability company, doing business as Barley's Casino & Brewing Company
("Barley's"), which operates a casino
24
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and brew pub located in southeast Las Vegas. Barley's commenced operations in
January 1996. Barley's has entered into a consulting agreement with Gordon
Biersch Brewing Company ("Gordon Biersch"). Frank J. Fertitta III, Blake L. and
Delise F. Sartini and Lorenzo J. Fertitta collectively own a 16.2% interest in
Gordon Biersch. The Fertitta Trust owns another 21.6% interest and trusts for
the children of the above named individuals collectively own an 7.4% interest in
Gordon Biersch. The consulting agreement requires Barley's to pay Gordon
Biersch $25 for each barrel of beer brewed, and to reimburse Gordon Biersch for
the brewer's salary and other related costs. Barley's paid Gordon Biersch
approximately $101,000 during the fiscal year ended March 31, 1997.
ITEM II
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP to serve as the
Company's independent public accountants to audit the financial statements of
the Company for the 1998 fiscal year. Arthur Andersen LLP has served as the
Company's independent public accountants since fiscal year 1991. A
representative of Arthur Andersen LLP will attend the Annual Meeting, will be
given an opportunity to make a statement and will be available to answer
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS, ON THE ADVICE OF ITS AUDIT COMMITTEE,
THAT THE STOCKHOLDERS VOTE FOR RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL 1998.
Unless a contrary indication is made on the enclosed proxy card, it is the
intention of the persons named in the enclosed form of proxy to vote FOR the
selected accountants.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be presented at
the meeting. If any other matters should properly come before the meeting, the
persons named in the proxy will vote the proxies according to their best
judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals, if any, which may be considered for inclusion in the
Company's proxy materials for the 1998 Annual Meeting must be received by the
Company at its offices at 2411 West Sahara Avenue, Las Vegas, Nevada 89102 not
later than March 30, 1998.
ANNUAL REPORT
The Annual Report to Stockholders for fiscal 1997 accompanies this proxy
statement. Stockholders may obtain a copy of this report without charge by
writing to the Secretary of the Company.
25
<PAGE>
STATION CASINOS, INC.
2411 WEST SAHARA AVENUE, LAS VEGAS, NEVADA 89102
THIS PROXY IS SOLICITED ON BEHALF OF THE REGISTRANT'S BOARD OF DIRECTORS.
The undersigned hereby appoints FRANK J. FERTITTA, III and SCOTT M. NIELSON,
and each of them, proxies each with full power of substitution, to vote all
stock of the undersigned at the annual meeting of stockholders of Station
Casinos, Inc. (the "Company") to be held July 28, 1997 at 10:00 a.m. local time
at the Sunset Station Hotel & Casino, 1301 West Sunset Road, Henderson, Nevada
89014 and/or at any adjournment of the annual meeting, in the manner indicated
below, all in accordance with and as more fully described in the Notice of
Annual Meeting and accompanying Proxy Statement for the meeting, receipt of
which is hereby acknowledged.
THE SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED AS INDICATED BELOW:
(1) Election of Directors.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary nominees listed below.
below).
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME BELOW.)
R. Hal Dean and Lowell M. Lebermann, Jr.
(2) To ratify the appointment of Arthur Andersen LLP as the Company's
independent accountants for the Company's 1998 Fiscal
Year. / / FOR / / AGAINST / / ABSTAIN
(3) To vote in their discretion on such other business as may properly come
before the annual meeting or any adjournment thereof.
(CONTINUED ON REVERSE SIDE)
<PAGE>
UNLESS AUTHORITY TO VOTE THEREFORE IS WITHHELD IN THIS PROXY CARD, IT IS THE
INTENTION OF THE PROXIES TO VOTE FOR THE REELECTION OF THE TWO NOMINEES LISTED
AND FOR THE OTHER PROPOSAL. IF ANY OTHER BUSINESS IS PRESENTED, THIS PROXY SHALL
BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE AFOREMENTIONED PROXIES.
DATE _____________________________________________
SIGNATURE(S) _____________________________________
PLEASE MARK, DATE AND SIGN AS YOUR NAME APPEARS TO
THE LEFT AND RETURN IN THE ENCLOSED ENVELOPE. IF
ACTING AS EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, STATE YOUR FULL TITLE AND AUTHORITY WHEN
SIGNING. IF THE SIGNER IS A CORPORATION, PLEASE
SIGN THE FULL CORPORATE NAME BY A DULY AUTHORIZED
OFFICER. IF SHARES ARE HELD JOINTLY, EACH
STOCKHOLDER NAMED SHOULD SIGN.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING--JULY 28, 1997
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PRE-PAID
ENVELOPE.
