sec document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant /X/
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/_/ Preliminary Proxy Statement
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Rule 14a-6(e)(2))
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/_/ Soliciting Material Pursuant to ss.240.14a-12
Empire Resorts, Inc.
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(Name of Registrant as Specified in Its Charter)
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EMPIRE RESORTS, INC.
Monticello Raceway
Route 17B
Monticello, New York 12701
NOTICE OF MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 17, 2005
To the Stockholders of Empire Resorts, Inc.:
You are cordially invited to attend the annual meeting (the "Meeting") of
the stockholders of Empire Resorts, Inc. (the "Company"), to be held at
Monticello Raceway, on August 17, 2005, at 10:00 a.m. local time for the
following purposes:
(1) to elect two (2) Class II directors to serve on the Company's Board of
Directors until the stockholders' annual meeting in 2008;
(2) to approve the adoption of the Company's 2005 Equity Incentive Plan;
and
(3) to transact any such other business as may properly come before the
Meeting or any postponement or adjournment thereof.
The Board of Directors of the Company has fixed July 19, 2005 as the record
date (the "Record Date") for the determination of stockholders entitled to
notice of, and to vote at, the Meeting or any postponement or adjournment
thereof. Accordingly, only stockholders of record at the close of business on
the Record Date are entitled to notice of, and shall be entitled to vote at, the
Meeting or any postponement or adjournment thereof.
You are requested to fill in, date and sign the enclosed proxy card(s),
which are being solicited by the Company's Board of Directors. Submitting a
proxy will not prevent you from voting in person, should you so desire, but will
help to secure a quorum and will avoid added solicitation costs. You may revoke
your proxy at any time before it is voted at the Meeting.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. YOUR VOTE IS
IMPORTANT. TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, SIGN
AND PROMPTLY MAIL YOUR PROXY IN THE RETURN ENVELOPE PROVIDED.
By Order of the Board of Directors,
/s/ John Sharpe /s/ Robert H. Friedman
------------------------ ----------------------
John Sharpe Robert H. Friedman
Chairman of the Board Secretary
July 26, 2005
EMPIRE RESORTS, INC.
Monticello Raceway
Route 17B
Monticello, New York 12701
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AT 10:00 A.M. AT MONTICELLO RACEWAY, ROUTE 17B
MONTICELLO, NEW YORK 12701 ON AUGUST 17, 2005
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Empire Resorts, Inc. (the "Company") for
use at the Annual Meeting of Stockholders of the Company and at all adjournments
and postponements thereof (the "Meeting"). The Meeting is to be held at 10:00
a.m. local time on August 17, 2005 at Monticello Raceway, Route 17B, Monticello,
New York 12701. This Proxy Statement, with the accompanying Notice of Meeting
and form of proxy, are first being sent to stockholders on or about July 26,
2005.
A proxy card is enclosed. Even if you plan to attend the Meeting in person,
you should date, sign and return the enclosed proxy card as soon as possible to
be sure that your shares will be voted at the Meeting. A postage prepaid
envelope has been provided for your convenience. Please note that even after
submitting your proxy card, you can revoke it and/or change your vote prior to
the Meeting as described below.
The cost of preparing, assembling, printing and mailing this Proxy
Statement and the accompanying form of proxy, and the cost of soliciting proxies
relating to the Meeting, will be borne by the Company. Some banks and brokers
have customers who beneficially own Common Stock listed of record in the names
of nominees. The Company intends to request banks and brokers to solicit such
customers and will reimburse them for their reasonable out-of-pocket expenses
for such solicitations. In addition, the Company has retained Morrow & Co., Inc.
to assist in soliciting proxies for the Meeting for a fee of approximately
$7,500.00, plus reasonable reimbursement of out-of-pocket expenses. If any
additional solicitation of the holders of the Company's outstanding shares of
Common Stock, Series B Preferred Stock and Series E Preferred Stock is deemed
necessary, the Company (through its directors and officers) anticipates making
such solicitation directly. The solicitation of proxies by mail may be
supplemented by telephone, telegram and personal solicitation by officers,
directors and other employees of the Company, but no additional compensation
will be paid to such individuals.
PURPOSE OF THE MEETING
At the Meeting, the Company's stockholders will be asked to consider and
vote upon the following matters: (i) a proposal to elect two (2) Class II
directors until the stockholders' annual meeting in 2008, (ii) a proposal to
approve the adoption of the Company's 2005 Equity Incentive Plan (the "Plan")
and (iii) such other business as may properly come before the Meeting.
VOTING AND SOLICITATION OF PROXIES
All shares of Common Stock, Series B Preferred Stock and Series E Preferred
Stock represented at the Meeting by properly executed proxies, unless received
after the vote at the Meeting or previously revoked as described below, will be
voted in accordance with the instructions thereon, or where a properly signed
proxy is returned and no instructions are given, FOR (1) the election of all
Class II director nominees and (2) the approval of the adoption of the Plan. If
any other matter should come before the Meeting, or any nominee is not available
for election, the person(s) named as a proxy will have authority to vote all
proxies not marked to the contrary in their discretion as they deem advisable.
At this time, the Company does not know of any matters that may properly come
before the Meeting other than the proposals described in this Proxy.
Any proxy may be revoked by the person giving it at any time before it is
voted. A proxy may be revoked by filing with the Secretary of the Company
(Monticello Raceway, Route 17B, Monticello, New York) either (i) a written
notice of revocation bearing a date later than the date of such proxy or (ii) a
subsequent proxy relating to the same shares, or by attending the Meeting and
voting in person (although attendance at the Meeting will not, in and of itself,
constitute revocation of a proxy).
SHARES ENTITLED TO VOTE
The close of business on July 19, 2005 has been fixed as the record date
(the "Record Date") for determining the stockholders entitled to notice of and
to vote at the Meeting. As of the Record Date, there were 26,104,115 shares of
Common Stock, 44,258 shares of Series B Preferred Stock, 1,730,697 shares of the
Company's Series E Preferred Stock issued and outstanding and entitled to vote.
Each share of Common Stock entitles the holder thereof to one vote, each
share of Series B Preferred Stock entitles the holder thereof to eight-tenths
(.8) of a vote and each share of Series E Preferred Stock entitles the holder
thereof to twenty five hundredths (.25) of a vote. Accordingly, a total of
26,572,196 votes may be cast at the Meeting. The holders of shares of Common
Stock, Series B Preferred Stock and Series E Preferred Stock entitled to cast a
majority of all votes that could be cast by the holders of all of the
outstanding shares of Common Stock, Series B Preferred Stock and Series E
Preferred Stock, present in person or represented by proxy at the Meeting,
constitute a quorum.
A broker who holds shares in "street name" will not be entitled to vote
without instructions from the beneficial owner of such shares. This inability to
vote is referred to as a broker non-vote. Stockholder abstentions and broker
non-votes will be counted for purposes of determining the existence of a quorum
at the Meeting.
VOTE REQUIRED
If a quorum is present at the Meeting, either in person or by proxy, then
(1) a plurality of the votes cast will be sufficient to elect the two Class II
director nominees and (2) a majority of the votes cast will be sufficient to
approve the adoption of the Plan.
NO APPRAISAL RIGHTS
Under the General Corporation Law of the State of Delaware, stockholders of
the Company do not have appraisal rights in connection with any of the proposals
upon which a vote is scheduled to be taken at the Meeting.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information concerning beneficial ownership
of Common Stock of the Company outstanding at July 19, 2005 by (i) each director
as of December 31, 2004; (ii) each executive officer of the Company as of
December 31, 2004 (as identified in the Summary Compensation table), (iii) each
stockholder known to be the beneficial owner of more than five percent of any
class of the Company's voting securities and (iv) by all directors and executive
officers of the Company, as a group.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Name and Address of Beneficial Common Stock Beneficially Series B Preferred Stock Series E Preferred Stock
Owner(1) Owned Beneficially Owned Beneficially Owned
------------------------------ ----------------------------- -------------------------- -----------------------
Shares Percentage Shares Percentage Shares Percentage
------ ---------- ------ ---------- ------ ----------
Robert A. Berman 4,490,573(2) 17.02% -- -- -- --
Scott A. Kaniewski 620,730(3) 2.35% -- -- -- --
2412 Central Park Avenue
Evanston, IL 60201
Thomas W. Aro 72,700(4) * -- -- -- --
Paul A. deBary 210,913(5) * -- -- -- --
Morad Tahbaz 1,043,489(6) 3.99% -- -- -- --
26 Broad Street
Weston, CT 06883
David Matheson 75,000(7) * -- -- -- --
John Sharpe 87,000(8) * -- -- -- --
David P. Hanlon 72,500(9) * -- -- -- --
Joseph E. Bernstein 2,227,643(10) 8.52% -- -- -- --
Ralph J. Bernstein 2,256,243(11) 8.63% -- -- -- --
Robert H. Friedman 15,000(12) * -- -- -- --
Directors and Officers as a Group 11,171,791 41.27% -- -- -- --
Patricia Cohen -- -- 44,258 100% -- --
8306 Tibet Butler Drive
Windmere, FL 34786
Bryanston Group, Inc. -- -- -- -- 1,551,213 89.6%
2424 Route 52
Hopewell Junction, NY 12533
Stanley Tollman -- -- -- -- 152,817 8.8%
Bryanston Group, Inc.
2424 Route 52
Hopewell Junction, NY 12533
----------
* less than 1%
(1) Unless otherwise indicated, the address of each stockholder, director, and
executive officer listed above is Empire Resorts, Inc., c/o Monticello
Raceway, Route 17B, P.O. Box 5013, Monticello, New York, 12701.
(2) Includes 3,110,010 shares of common stock owned directly by Robert A.
Berman, options that are currently exercisable into 281,689 shares of
common stock, 1,061,602 shares of common stock held directly by Avon Road
Partners, LP, with respect to which Mr. Berman is its general partner,
12,272 shares of common stock held by the Berman Family Trust and 25,000
shares of common stock held directly by Watertone Holdings, L.P., with
respect to which BKB, LLC is its general partner. Robert A. Berman owns 82%
of BKB, LLC and is its managing member. The beneficiaries of the Berman
Family Trust are Robert A. Berman's children. Debbie N. Berman, Robert A.
Berman's wife, and Philip B. Berman, Robert A. Berman's brother, are
co-trustees of the Berman Family Trust and have joint voting and
dispositive power with respect to its holdings. Robert A. Berman disclaims
beneficial ownership of all shares of common stock held by the Berman
Family Trust.
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(3) Includes 19,182 shares of common stock owned directly by Scott A.
Kaniewski, options that are currently exercisable into 299,689 shares of
common stock, 2,776 shares of common stock held directly by Watertone
Holdings and 299,083 shares of common stock held directly by KFP Trust.
Through BKB, LLC, 15.3% of which is owned by Scott A. Kaniewski, Scott A.
Kaniewski indirectly holds a general partnership interest of .153% of
Watertone Holdings, representing an indirect beneficial ownership interest
in an additional 38 shares of such 2,776 shares of common stock held
directly by Watertone Holdings. Kaniewski Family Limited Partnership, with
respect to which Mr. Kaniewski is a 1% limited partner and the general
partner with sole voting and dispositive power, holds a 4.95% limited
partnership interest in Watertone Holdings, representing an indirect
beneficial ownership interest in 1,238 shares of such 2,776 shares of
common stock held directly by Watertone Holdings, and through BKB, LLC,
0.05% of which is owned by Kaniewski Family Limited Partnership, Kaniewski
Family Limited Partnership indirectly holds a general partnership interest
of .0005% of Watertone Holdings, representing an indirect beneficial
ownership interest in less than 1 share of such 2,776 shares of common
stock held directly by Watertone Holdings. Scott A. Kaniewski disclaims
beneficial ownership of all the shares of common stock owned by Kaniewski
Family Limited Partnership for any purpose other than voting and
dispositive powers. KFP Trust, whose sole trustee is Stacey B. Kaniewski,
Scott A. Kaniewski's wife, and whose sole beneficiaries are Scott A.
Kaniewski's children, holds a 6.00% limited partnership interest in
Watertone Holdings, representing an indirect beneficial ownership interest
in 1,500 shares of such 2,776 shares of common stock held directly by
Watertone Holdings, and through BKB, LLC, 0.05% of which is owned by KFP
Trust, KFP Trust indirectly holds a general partnership interest of .0005%
of Watertone Holdings, representing an indirect beneficial ownership
interest in less than 1 share of such 2,776 shares of common stock held
directly by Watertone Holdings. Scott A. Kaniewski disclaims beneficial
ownership of all shares of common stock held by KFP Trust.
(4) Includes 4,200 shares of common stock owned directly by Thomas W. Aro and
options that are currently exercisable into 68,500 shares of common stock.
(5) Includes 178,318 shares of common stock owned directly by Paul deBary,
12,595 shares of common stock held in an individual retirement account for
Mr. deBary's benefit and options that are currently exercisable into 20,000
shares of common stock.
(6) Includes 1,025,989 shares of common stock owned directly by Morad Tahbaz
and options that are currently exercisable into 17,500 shares of common
stock.
(7) Includes 40,000 shares of common stock owned directly by David Matheson and
options that are currently exercisable into 35,000 shares of common stock.
(8) Includes 2,000 shares of common stock owned directly by John Sharpe and
options that are currently exercisable into 85,000 shares of common stock.
(9) Consists of options that are currently exercisable into 72,500 shares of
common stock.
(10) Includes options that are currently exercisable into 35,000 shares of
common stock and 2,192,643 shares of common stock owned by the JB Trust,
held in the name of Joseph E. Bernstein, trustee of the JB Trust. Mr.
Bernstein disclaims beneficial ownership of the assets of the JB Trust.
4
(11) Includes 2,221,243 shares of common stock owned directly by Ralph J.
Bernstein and options that are currently exercisable into 35,000 shares of
common stock.
(12) Consists of options that are currently exercisable into 15,000 shares of
common stock.
CHANGES IN CONTROL
On March 3, 2005, the Company entered into an Agreement and Plan of Merger
and Contribution by and among the Company, Empire Resorts Holdings, Inc.
("Newco"), Empire Resorts Sub, Inc., Concord Associates Limited Partnership
("Concord"), and Sullivan Resorts, LLC ("Sullivan") (the "Merger Agreement").
The Merger Agreement amends, restates and supersedes the November 12, 2004
letter agreement between the Company, Concord Associates Limited Partnership and
Sullivan Resorts, LLC regarding the acquisition by the Company of certain real
estate assets, including the Concord and Grossinger's resorts, which are located
in the Catskills region of New York. The acquisition is expected to allow the
Company to obtain additional casino and hotel development sites, totaling over
1,200 acres of land which also include the Monster, International, Challenger
and Grossinger's golf courses. The closing of the transaction contemplated by
the Merger Agreement (the "Concord Transaction") is subject to certain
conditions, including the approval of the transaction by the Company's
stockholders and obtaining any required consent of Bank of Scotland and holders
of the Company's $65 million of convertible senior notes. As consideration for
the acquisition, 18 million common shares of Newco will be issued to Concord and
Sullivan, representing approximately 40% of the total number of issued and
outstanding common shares of the Company after the closing, on a fully diluted
basis and the assumption of related debt. In addition, upon the completion of
the transaction, the Board of Directors of the public entity resulting from the
transaction will be comprised of 11 directors with five of the directors being
designated the Company, five of the directors being designated by Concord and
Sullivan and one director being jointly designated.
5
PROPOSAL 1
ELECTION OF DIRECTORS
Pursuant to Proposal No. 1, the nominees listed below have been nominated
to serve as Class II directors until the 2008 Annual Meeting of Stockholders
(subject to their respective earlier removal, death or resignation) and until
their successors are elected and qualified. Unless such authority is withheld,
proxies will be voted for the election of the persons named below, who are all
now serving as directors and each of whom has been designated as a nominee. If,
for any reason not presently known, any person is not available to serve as
director, another person who may be nominated will be voted for in the
discretion of the proxies.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES
NOMINEE INFORMATION
DAVID P. HANLON. David P. Hanlon, 60, is currently the Company's Chief
Executive Officer and President and a member of the Board of Directors. He
previously served as Vice Chairman of the Board of the Company and has been a
director since 2003. Prior to starting his own gaming consulting business in
2000, in which he advised a number of Native American and international gaming
ventures, Mr. Hanlon was President and Chief Operating Officer of Rio Suites
Hotel & Casino from 1996-1999, a period in which the Rio Suites Hotel & Casino
underwent a major expansion. From 1994-1995, Mr. Hanlon served as President and
Chief Executive Officer of International Game Technology, the world's leading
manufacturer of microprocessor gaming machines. From 1988-1993, Mr. Hanlon
served as President and Chief Executive Officer of Merv Griffin's Resorts
International, and prior to that, Mr. Hanlon served as President of Harrah's
Atlantic City (Harrah's Marina and Trump Plaza). Mr. Hanlon's education includes
a B.S. in Hotel Administration from Cornell University, an M.S. in Accounting,
an M.B.A. in Finance from the Wharton School, University of Pennsylvania, and he
completed the Advanced Management Program at the Harvard Business School.
ROBERT H. FRIEDMAN. Robert H. Friedman, 52, has served as the Company's
Secretary since May 2004. Mr. Friedman has been a partner with Olshan Grundman
Frome Rosenzweig & Wolosky LLP, a New York City law firm, since August 1992.
Prior to that time and since September 1983 he was associated with Cahill Gordon
& Reindel, also a New York City law firm. Mr. Friedman specializes in corporate
and securities law matters. Mr. Friedman received his B.A. and J.D. degrees from
Rutgers University, and has been on the faculty of the Practicing Law Institute
since August 2000. Mr. Friedman became a director of the Company in July 2005.
CLASS I DIRECTORS
JOHN SHARPE. John Sharpe, 62, is the Company's Chairman of the Board of
Directors. Most recently, Mr. Sharpe served as President and Chief Operating
Officer of Four Seasons Hotels & Resorts, from which he retired in 1999 after 23
years of service. During his tenure at Four Seasons, the world's largest
operator of luxury hotels, Mr. Sharpe directed worldwide hotel operations,
marketing and human resources, and helped create Four Seasons' renowned
reputation for the highest level of service in the worldwide hospitality
industry. In 1999, Mr. Sharpe was bestowed with the "Corporate Hotelier of the
World" award by Hotels Magazine, Inc. Mr. Sharpe also received the "Silver
Plate" award from the International Food Manufacturers Association, and the
"Gold Award" from the Ontario Hostelry Institute. Mr. Sharpe graduated with a
B.S. in hotel administration from Cornell University and is currently a trustee
of the Culinary Institute of America, and a member and former chair of the
Industry Advisory Council at the Cornell Hotel School. Mr. Sharpe also serves on
the board of Fairmont Hotels & Resorts, Toronto, Canada. Mr. Sharpe previously
served as executive-in-residence, School of Hotel Administration, Cornell
University; chair, board of governors, Ryerson Polytechnic University, Toronto,
Canada, and co-chair, American Hotel Foundation, Washington, D.C. Mr. Sharpe has
served as a director of the Company since August 2003 and became Chairman of the
Board in May 2005.
6
RALPH J. BERNSTEIN. Ralph J. Bernstein, 46, is a co-founder and general
partner of Americas Partners, an investment and venture capital firm, and, since
1981 has been responsible for the acquisition, renovation, development and
financing of several million square feet of commercial space. Mr. Bernstein
started his career in agribusiness with a large European multi-national trading
and real estate development company, where he was later responsible for that
company's U.S. real estate activities. Mr. Bernstein also serves as a director
for Air Methods Corporation, a publicly traded company that provides air medical
emergency transport services and systems throughout the United States of
America. Mr. Bernstein received a B.A. in economics from the University of
California at Davis. Mr. Bernstein has served as a director of the Company since
August 2003.
PAUL A. DEBARY. Paul A. deBary, 58, is a managing director at Marquette
deBary Co., Inc., a New York based broker-dealer, where he serves as a financial
advisor for state and local government agencies, public and private corporations
and non-profit organizations. Prior to assuming his current position, Mr. deBary
was a managing director in the Public Finance Department of Prudential
Securities from 1994 to 1997. Mr. deBary was also a partner in the law firm of
Hawkins, Delafield & Wood in New York from 1975 to 1994. Mr. deBary received an
AB in 1968, and an M.B.A. and J.D. in 1971 from Columbia University. Mr. deBary
is a member of the American Bar Association, the New York State Bar Association,
the Association of the Bar of the City of New York and the National Association
of Bond Lawyers and serves as President and as a director of the Society of
Columbia graduates. Mr. deBary has served as a director of the Company since
March 2002.
CLASS III DIRECTORS
DAVID MATHESON. David Matheson, 52, is a member of the Coeur d'Alene Tribe
of Coeur d'Alene, Idaho, and has served as Tribal Council Leader, Tribal
Chairman, and manager of various tribal operations. Mr. Matheson is also chief
executive officer of the Coeur d'Alene Casino and Resort Hotel in Worley, Idaho,
which was voted #1 casino in the Spokesman Reader Review for three consecutive
years. Mr. Matheson was appointed by President George H. W. Bush, Sr. to serve
as Deputy Commissioner for Indian Affairs, U.S. Department of the Interior, a
position he held for four years, during which time the Indian Gaming Regulatory
Act of 1988 was implemented. In addition, during this period Mr. Matheson
received a commendation from the Secretary of the Interior for outstanding
service. More recently, Mr. Matheson was appointed by President George W. Bush,
Jr. as an advisor to the President's Commission on Reservation Economies. Mr.
Matheson previously served as a delegate to the People's Republic of China's
Native American Trade Mission, and as Chief Executive Officer of Coeur d'Alene
Development Enterprises. Over the past twenty years, he has held many esteemed
positions and has received many honors for his work in preserving cultural
traditions, the native language, and ceremonial practices. He recently published
his first novel, Red Thunder, which depicts the faith, courage and dedication of
the Schi'tsu'umsh Indians, now called the Coeur d'Alene Tribe. Mr. Matheson
received an M.A. in business administration from the University of Washington.
Mr. Matheson has served as a director of the Company since August 2003 and
served as Chairman of the Company's Board of Directors from August 2003 until
May 2005
ROBERT A. BERMAN. Robert A. Berman, 44, has served as a director of the
Company since February 2002, and was named Vice Chairman of the Board of
Directors in May 2005. Mr. Berman previously served as the Company's Chief
Executive Officer from February 2002 until May 2005 and as its Chairman of the
Board of Directors from February 2002 through July 2003. From 1994-2000, Mr.
Berman was the Managing Director of Watermark Investments Limited, where he
oversaw a number of private partnerships investing in real estate, technology
and basic industries. From 1998-1999, Mr. Berman was Vice Chairman and a
director of Executone Information Systems, a telecommunications company and from
1995-1999 Mr. Berman was Chairman of the Board and Chief Executive Officer of
Hospitality Worldwide Services, Inc., a hotel services company with average
annual sales above $150 million.
7
JOSEPH E. BERNSTEIN. Joseph E. Bernstein, 56, started his career as a
corporate tax attorney on Wall Street at Cahill Gordon & Reindel and as an
international tax attorney at Rosenman & Colin. He later started his own
international tax practice. Since the early 1980s, Mr. Bernstein (along with his
brother Ralph, and their partner, Morad Tahbaz, through Americas Tower Partners)
has been involved in the development of three million square feet of commercial
property in Manhattan, including Americas Tower, a 50-story office building on
Avenue of the Americas and 46th Street in New York City, serving as US
headquarters to Israel's largest bank, Bank Hapoalim. Mr. Bernstein has served
as a director of the Company since August 2003.
Ralph J. Bernstein and Joseph E. Bernstein are brothers.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met on thirteen occasions during the fiscal year
ended December 31, 2004. Each of the directors attended at least 75% of the
meetings held by the Board of Directors. The Board of Directors also acted by
unanimous written consent on two occasions. There are three committees of the
Board of Directors: the audit committee, the compensation committee and the
corporate governance and nominations committee.
AUDIT COMMITTEE
The Company has a separately-designated standing audit committee as defined
in Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). In addition, the Company's Board of Directors adopted a written
charter for the audit committee, which is available, free of charge, from the
Company by writing to Investor Relations at Empire Resorts, Inc., c/o Monticello
Raceway, Route 17B, P.O. Box 5013, Monticello, New York 12701 or calling (845)
807-0001.
The members of the audit committee are Paul A. deBary (chairman of the
committee), John Sharpe and Ralph J. Bernstein. Each of Messrs. deBary, Sharpe
and Bernstein is independent from the Company, as independence is defined in
Rule 4200(a)(15) of the listing standards of the National Association of
Securities Dealers (the "NASD"). David P. Hanlon previously served as a member
of the audit committee but resigned following his appointment as Chief Executive
Officer and President of the Company and was replaced by Ralph J. Bernstein. The
primary purpose of the audit committee is to assist the Board of Directors in
fulfilling its responsibility to oversee the Company's financial reporting
activities. The audit committee is responsible for reviewing with both the
Company's independent certified public accountants and management, the Company's
accounting and reporting principles, policies and practices, as well as the
Company's accounting, financial and operating controls and staff. The audit
committee has reviewed and discussed the audited financial statements of the
Company with management, has discussed with the independent auditors the matters
required to be discussed by SAS 61, as may be modified or supplemented.
Additionally, the audit committee has received the written disclosures and the
letter from the independent accountants required by Independence Standards Board
Standard No. 1 (Independence Standards Board Standard No. 1, Independence
Discussions with audit committees), as may be modified or supplemented, and has
discussed with the independent accountant the independent accountant's
independence. Based upon such review and discussion, the audit committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-KSB for the last fiscal year
for filing with the Securities and Exchange Commission (the "SEC").
8
The audit committee met on seventeen occasions during the fiscal year ended
December 31, 2004. Each of the members of the audit committee attended each of
the meetings held by the audit committee, other than Paul A. deBary, who missed
one meeting.
Paul A. deBary, Chairman
John Sharpe
Ralph J. Bernstein
COMPENSATION COMMITTEE
The compensation committee, which is comprised of David Matheson (chairman
of the committee), Paul A. deBary and Joseph E. Bernstein, is responsible for
establishing and reviewing the appropriate compensation of directors and
officers of the Company, for reviewing employee compensation plans and for
considering and making grants and awards under, and administering, the Company's
equity incentive plans.
CORPORATE GOVERNANCE AND NOMINATIONS COMMITTEE
The corporate governance and nominations committee recommends appropriate
governance practices, recommends criteria for service as a director and reviews
candidates to serve as directors. The corporate governance and nominations
committee has adopted a written charter, a copy of which was included as an
appendix to the proxy materials for the Company's 2004 annual meeting of
stockholders. The members of the corporate governance and nominations committee
are John Sharpe and Ralph J. Bernstein. Each of Messrs. Sharpe and Bernstein is
independent from the Company, as independence is defined in Rule 4200(a)(15) of
the NASD listing standards. David P. Hanlon previously served as a member of the
corporate governance and nominations committee but resigned following his
appointment as Chief Executive Officer and President of the Company.
The corporate governance and nominations committee develops, recommends and
oversees implementation of corporate governance principles for the Company. In
addition, it considers recommendations for director nominees from a wide variety
of sources, including members of the Company's board, business contacts,
community leaders, third-party advisory services and members of management. The
corporate governance and nominations also considers stockholder recommendations
for director nominees that are properly received in accordance with applicable
rules and regulations of the SEC.
The board believes that all of its directors should have the highest
personal integrity and have a record of exceptional ability and judgment. The
board also believes that its directors should ideally reflect a mix of
experience and other qualifications. There is no firm requirement of minimum
qualifications or skills that candidates must possess. The corporate governance
and nominations committee evaluates director candidates based on a number of
qualifications, including their independence, judgment, leadership ability,
expertise in the industry, experience developing and analyzing business
strategies, financial literacy, risk management skills, and, for incumbent
directors, his or her past performance. In making its recommendations, the
corporate governance and nominations committee seeks out outstanding talent
among minority groups and women.
9
Stockholders wishing to nominate a candidate for director at the annual
stockholders meeting must give written notice to Empire Resorts, Inc., c/o
Monticello Raceway, Route 17B, Monticello, New York 12701, Attention: Investor
Relations either by personal delivery or by United States mail, postage prepaid.
The stockholder's notice must be received by the Company not later than the
close of business on the 120th calendar day prior to the date on which notice of
the prior year's annual meeting was first mailed to stockholders. The
stockholder's written notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act, including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected; and (b) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination is made
(i) the name and address of such stockholder, as they appear on the Company's
books, and of such beneficial owner, (ii) the class and number of shares of the
Company which are owned beneficially and of record by such stockholder and such
beneficial owner and (iii) a representation that the stockholder is a holder of
record of shares of the Company and intends to appear in person or by proxy at
the meeting to propose such business.
The corporate governance and nominations committee initially evaluates a
prospective nominee on the basis of his or her resume and other background
information that has been made available to the committee. A member of the
corporate governance and nominations committee will contact for further review
those candidates who the committee believes are qualified, who may fulfill a
specific board need and who would otherwise best make a contribution to the
board. If, after further discussions with the candidate, and other further
review and consideration as necessary, the corporate governance and nominations
committee believes that it has identified a qualified candidate, it will make a
recommendation to the board.
The corporate governance and nominations committee met on two occasions
during the fiscal year ended December 31, 2004. Each of the members of the
corporate governance and nominations committee attended each of the meetings
held by the corporate governance and nominations committee.
CODE OF ETHICS
The Company adopted a code of ethics that is available on its internet
website (www.empireresorts.com) and will be provided in print without charge to
any stockholder who submits a request in writing to Empire Resorts, Inc., c/o
Monticello Raceway, Route 17B, P.O. Box 5013, Monticello, New York 12701,
Attention: Investor Relations. The code of ethics applies to each director and
officer, including the Chief Financial Officer and Chief Executive Officer, and
all of other employees of the Company and its subsidiaries. The code of ethics
provides that any waiver of the code of ethics may be made only by the Company's
Board of Directors.
PROCEDURES FOR CONTACTING DIRECTORS
The Board of Directors has established a process for stockholders to send
communications to the Board of Directors. Stockholders may communicate with the
board generally or a specific director at any time by writing to: Empire
Resorts, Inc., c/o Monticello Raceway, Route 17B, Monticello, New York 12701,
Attention: Investor Relations. The Company reviews all messages received, and
forwards any message that reasonably appears to be a communication from a
stockholder about a matter of stockholder interest that is intended for
communication to the Board of Directors. Communications are sent as soon as
practicable to the director to whom they are addressed, or if addressed to the
Board of Directors generally, to the chairman of the corporate governance and
nominations committee. Because other appropriate avenues of communication exist
for matters that are not of stockholder interest, such as general business
complaints or employee grievances, communications that do not relate to matters
of stockholder interest are not forwarded to the Board of Directors.
10
RECENT DEVELOPMENTS
On May 23, 2005, Robert A. Berman resigned as Chief Executive Officer of
the Company, Scott A. Kaniewski resigned as Chief Financial Officer of the
Company, Morad Tahbaz resigned as President and as a director of the Company and
David Matheson resigned as Chairman of the Board of Directors of the Company.
Mr. Berman and Mr. Matheson continue to serve as directors of the Company.
Concurrently, on May 23, 2005, David P. Hanlon was appointed by the Board
of Directors as the Company's Chief Executive Officer and President, to serve as
the principal executive officer of the Company and remain a director of the
Company. Robert A. Berman, however, replaced Mr. Hanlon as the Vice Chairman of
the Company's Board of Directors of the Company. In addition, on May 23, 2005,
Ronald J. Radcliffe was appointed by the Board of Directors as the Company's
Chief Financial Officer, to serve as the principal financial and accounting
officer of the Company. Finally, on May 23, 2005, John Sharpe was appointed by
the Board of Directors to replace Mr. Matheson as Chairman of the Board of
Directors.
EXECUTIVE OFFICERS
The executive officers of the Company are:
David P. Hanlon Chief Executive Officer and President
Ronald J. Radcliffe Chief Financial Officer and Treasurer
Thomas W. Aro Chief Operating Officer
Hilda A. Manuel Senior Vice President for Native American Affairs and Chief
Compliance Officer
Information with respect to Mr. Hanlon is set forth above under "The
Nominees" beginning on page 6.
RONALD J. RADCLIFFE. Ronald J. Radcliffe, 61, joined the Company as its
Chief Financial Officer in May 2005. Mr. Radcliffe was previously Chief
Financial Officer, Treasurer and Vice President of the Rio Suites Hotel & Casino
in Las Vegas from 1996-2000, where he negotiated the sale of the company to
Harrah's Entertainment, Inc. He was also the lead company representative in the
company's $125 million secondary public offering, negotiating a $300 million
revolving line of credit, and a public offering of $125 million in subordinated
debt. In 2001, Mr. Radcliffe started a gaming consultancy business, and in 2002
became Chief Financial Officer, Treasurer, Vice President and Principal of Siren
Gaming, LLC, a management company for a Native American casino. From 1993 to
1995, Mr. Radcliffe was Chief Financial Officer, Treasurer and Vice President of
Mikohn Gaming Corporation, Las Vegas, NV. Prior to this, he was Vice Chairman,
President, Chief Operating Officer and Chief Financial Officer for Sahara
Resorts, Las Vegas, NV. Mr. Radcliffe is a licensed C.P.A. and received a B.S.
in business administration in 1968 from the University of Nevada.
THOMAS W. ARO. Thomas W. Aro, 62, is the Company's Chief Operating Officer
and was a member of its Board of Directors from 1994 through July 2003. Mr. Aro
was also the Company's Executive Vice President since its formation in 1993
through November 11, 2003 and served as its Secretary from 1998 until May 2004.
Mr. Aro also serves as Chief Operating Officer of the Company's gaming
subsidiaries and has over 30 years experience in the hospitality and gaming
industries. Mr. Aro received a B.S. from the University of Arizona and is a
licensed C.P.A.
11
HILDA A. MANUEL. Hilda A. Manuel, 54, joined the Company in March 2005 as
its Senior Vice President for Native American Affairs and Chief Compliance
Officer. From February 2003 through December 2004, Ms. Manuel served as deputy
general counsel for the Gila River Indian Community, where she supervised
general employees and attorneys with respect to civil and criminal matters. From
May 2000 through March 2002, Ms. Manuel served as special counsel to the law
firm of Steptoe & Johnson, LLP, where she oversaw business development with
Indian tribes and Indian organizations, along with supervising the management of
cases for Indian clients. From October 1994 through April 2000, Ms. Manuel
served as the Deputy Commissioner of the Bureau of Indian Affairs for the U.S.
Department of the Interior. As Deputy Commissioner, Ms. Manuel was responsible
for the overall management of the Bureau of Indian Affairs, including the
maintenance of government-to-government relationships with Indian tribes,
protecting trust resources and the trust assets of Indian tribes, the fiscal
administration and expenditure of $2.8 billion in appropriated funds and the
supervision of 12 regional offices, 83 tribe-agencies and over 13,000 employees.
From February 1992 through May 1994, Ms. Manuel served as Staff Director for the
Indian Gaming Management Office of the Bureau of Indian Affairs, where she was
responsible for implementing the responsibilities of the Secretary of the
Interior under the Indian Gaming Regulatory Act of 1988, along with supervising
acts related to the approval of Class III gaming tribal-state compacts, fee to
trust land acquisitions for gaming purposes, revenue allocation plans, including
per capita distributions of gaming revenues, and the development of policy
guidelines and directives on gaming related issues within the authority of the
Secretary of the Interior. Finally, from May 1991 through February 1992, Ms.
Manuel served as Division Chief for Tribal Government Affairs for the Bureau of
Indian Affairs and from February 1990 through July 1991, Ms. Manuel was a
Judicial Services Specialist for the Bureau of Indian Affairs.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all information concerning the compensation
received, for each of the last three years, for services rendered to the Company
by Robert A. Berman, who served as the Company's Chief Executive Officer during
2004 and each of the Company's other most highly compensated executive officers
during the year ended December 31, 2004 whose total compensation in 2004
exceeded $100,000.
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
----------------------------------- -------- ---------- --------- ---------------- -------------- -----------------
Robert A. Berman 2004 $282,000 -- (1) -- --
Chief Executive Officer 2003 300,000 -- (1) 298,189 --
2002 263,150 -- (1) 95,016(2) --
Morad Tahbaz 2004 $286,000 -- (1) -- --
President 2003 173,000 -- (1) 17,500 --
2002 -- -- (1) -- --
Scott A. Kaniewski 2004 $188,000 -- (1) -- --
Chief Financial Officer 2003 200,000 -- (1) 299,689 --
and Treasurer 2002 175,433 -- (1) 95,016(2) --
Thomas W. Aro 2004 $229,000 -- (1) 50,000 --
Chief Operating Officer 2003 210,000 -- (1) 50,000 --
2002 192,000 -- (1) 5,500 --
----------
(1) The aggregate amount of perquisites and other personal benefits, if any,
paid did not exceed the lesser of 10% of the officer's total annual salary
and bonus for this fiscal year or $50,000; so that amount is not included
in the table.
(2) In 2003, these stock options were cancelled at the exercise price of $17.49
and reissued at an exercise price of $2.12.
12
OPTION GRANTS TABLE FOR FISCAL 2004
The following table contains information concerning the grant of stock
options to the Company's executive officers during the fiscal year ended
December 31, 2004. No stock appreciation rights were granted during the year.
Individual Grants
Potential Realizable Value at
Assumed Annual Rates of
Number of Percent of Stock Price Appreciation for
Securities Total Options/ Option Term
Underlying SARs Granted Exercise or Base
Options/SARs to Employees Price Expiration
Name Granted (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- ----------- -------------- ------ ---- ------ -------
Thomas W. Aro 50,000 39% $14.25 May 20, 2014 $448,087 $1,135,542
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding the exercise of stock
options during the last fiscal year by the named officers in the Summary
Compensation Table above and the fiscal year-end value of unexercised options.
Number of Securities
Shares Underlying
Acquired Unexercised Value Of Unexercised In-
on Value Options/SARs At FY- The-Money Options/SARs
Exercise Realized End (#) Exercisable/ At FY-End ($) (1)
Name (#) ($) Unexercisable Exercisable/Unexercisable
------------------- ----------- ------ -------------------- -------------------------
Robert A. Berman -- -- 281,689/-- $2,544,000/--
Morad Tahbaz -- -- 17,500/-- $158,000/--
Scott A. Kaniewski -- -- 299,698/-- $2,706,000/--
Thomas W. Aro -- -- 68,500/25,000 $393,000/--
-------------
(1) Assumes a fair market value for our common stock of $11.15, the closing
market price per share of our common stock as reported by the Nasdaq Small
Cap Market on December 31, 2004.
13
EMPLOYMENT AGREEMENTS
In January 2004, the Company entered into an amended and restated
employment agreement with Robert A. Berman, providing for a base salary of
$300,000, which was voluntarily reduced by 20% in October 2004. This agreement
was terminable by either party upon 30 days prior written notice. Upon
termination, Mr. Berman was entitled to his full salary during the termination
notice period, expense reimbursement and to retain all options previously
granted to him by the Company. Mr. Berman also agreed to certain
confidentiality, non-competition and non-solicitation provisions. Except with
respect to Mr. Berman's obligation to safeguard confidential information, this
employment agreement was terminated upon Mr. Berman's resignation as Chief
Executive Officer in May 2005.
In January 2004, the Company entered into an amended and restated
employment agreement with Scott A. Kaniewski, providing for a base salary of
$200,000, which was voluntarily reduced by 20% in October 2004. This agreement
was terminable by either party upon 30 days prior written notice. Upon
termination, Mr. Kaniewski was entitled to his full salary during the
termination notice period, expense reimbursement and to retain all options
previously granted to him by the Company. Mr. Kaniewski also agreed to certain
confidentiality, non-competition and non-solicitation provisions. Except with
respect to Mr. Kaniewski's obligation to safeguard confidential information,
this employment agreement was terminated upon Mr. Kaniewski's resignation as
Chief Financial Officer in May 2005.
On May 23, 2005, the Company entered into an employment agreement (the
"Hanlon Agreement") with David P. Hanlon, which sets forth terms and provisions
governing Mr. Hanlon's employment as Chief Executive Officer and President of
the Company. The Hanlon Agreement provides for an initial term of three years at
an annual base salary of $500,000, with the right to participate in any annual
bonus plan or equity based incentive programs maintained by the Company for its
senior executives. In connection with his employment, Mr. Hanlon received an
option grant of a 10-year non-qualified stock option to purchase 1,044,092
shares of the Company's common stock pursuant to the 2005 Equity Incentive Plan,
subject to stockholder approval, at an exercise price per share of $3.99,
vesting 33% 90 days following the grant date, 33% on the first anniversary of
the grant and 34% on the second anniversary of the grant date. Mr. Hanlon
received an additional option grant of a non-qualified stock option to purchase
720,000 shares, subject to stockholder approval and the closing of the Concord
Transaction, vesting 33% on the later to occur of (i) the closing of the Concord
Transaction and (ii) 90 days following the date of grant, 33% on the first
anniversary of the grant and 34% on the second anniversary of the grant date.
The Company also issued Mr. Hanlon 261,023 restricted shares, pursuant to the
2005 Equity Incentive Plan, subject to stockholder approval, vesting 33% on the
issue date, 33% on the first anniversary of issue date, and 34% on the second
anniversary of the issue date. Mr. Hanlon was issued an additional 180,000
restricted shares, subject to stockholder approval and the closing of the
Concord Transaction, vesting 33% on the issue date, 33% on the first anniversary
of issue date, and 34% on the second anniversary of the issue date.
In the event that the Company terminates Mr. Hanlon's employment for cause
or Mr. Hanlon resigns without good reason, the Company shall pay Mr. Hanlon (i)
his base salary through the termination date, (ii) any additional compensation
that has been earned through the termination date, (iii) any reimbursement for
reasonable expenses incurred and (iv) any other additional benefits and
entitlements in accordance with applicable plans, programs and arrangements of
the Company (collectively, the "Accrued Compensation"). In the event that the
Company terminates Mr. Hanlon's employment without cause or Mr. Hanlon resigns
with good reason, the Company shall pay Mr. Hanlon (i) the Accrued Compensation,
(ii) pay Mr. Hanlon a pro-rata bonus (payable concurrently with bonus payments
to remaining senior executives), (iii) continue to pay Mr. Hanlon's base salary
and target bonus for the remainder of the term of the Hanlon Agreement (subject
to certain conditions contained in the Hanlon Agreement), (iv) continue to pay
life insurance premiums (for such time period as provided in the Hanlon
Agreement), (v) accelerate the vesting of the options granted at the
commencement of the Hanlon Agreement and extend the exercisable period for such
options for 4 years (but not longer than the scheduled term of the option), (vi)
vesting of the restricted shares issued at the commencement of the Hanlon
Agreement and (vii) in the event Mr. Hanlon terminates his employment for good
reason following a change of control, the Company shall pay the benefits
described in clauses (i), (ii) and (iii) of this paragraph in a lump sum.
14
On May 23, 2005 the Company entered into an employment agreement with
Ronald J. Radcliffe (the "Radcliffe Agreement") with Mr. Radcliffe, which sets
forth terms and provisions governing Mr. Radcliffe's employment as the Company's
Chief Financial Officer. The Radcliffe Agreement provides for an initial term of
three years at an annual base salary of $275,000, with the right to participate
in any annual bonus plan or equity based incentive programs maintained by the
Company for its senior executives. In connection with his employment, Mr.
Radcliffe received an option grant of a 10-year non-qualified stock option to
purchase 150,000 shares of the Company's common stock pursuant to the 2005
Equity Incentive Plan, subject to stockholder approval, at an exercise price per
share of $3.99, vesting 33% 90 days following the grant date, 33% on the first
anniversary of the grant date and 34% on the second anniversary of the grant
date.
In the event that the Company terminates Mr. Radcliffe's employment for
cause or Mr. Radcliffe resigns without good reason, the Company shall pay Mr.
Radcliffe (i) his base salary through the termination date, (ii) any
reimbursement for reasonable expenses incurred and (iii) any other additional
benefits and entitlements in accordance with applicable plans, programs and
arrangements of the Company (collectively, the "Radcliffe Accrued
Compensation"). In the event that the Company terminates Mr. Radcliffe's
employment without cause or Mr. Radcliffe resigns with good reason, the Company
shall (i) pay Mr. Radcliffe the Radcliffe Accrued Compensation, (ii) pay Mr.
Radcliffe a pro-rata bonus (payable concurrently with bonus payments to
remaining senior executives) and (iii) continue to pay Mr. Radcliffe's base
salary for a period of six months following such termination.
REPORT BY THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
GENERAL
The compensation committee determines the cash and other incentive
compensation, if any, to be paid to the Company's executive officers and key
employees. The Compensation Committee consists of David Matheson (chairman of
the committee), Paul A. deBary and Joseph E. Bernstein.. During fiscal 2004,
there were four meetings of the compensation committee. Each of the members of
the compensation committee attended each of the meetings held by the
compensation committee.
COMPENSATION PHILOSOPHY
The compensation committee's executive compensation philosophy is to base
management's pay, in part, on the achievement of the Company's performance
goals, to provide competitive levels of compensation, to recognize and reward
individual initiative, achievement and length of service to the Company, to
assist the Company to retain and attract the best qualified management, and to
enhance long term stockholder value. In retaining and attracting the best
qualified management personnel, the Company targets offering compensation and
benefits that place it near the top quartile of its industry.
The compensation committee strongly believes that the caliber of the
management personnel makes a significant difference in the Company's long term
success and it is the philosophy of the compensation committee to provide
officers with the opportunity to realize potentially significant financial gains
through the grants of stock options and issuance of restricted stock. The
compensation committee also believes that the potential for equity ownership by
management is beneficial in aligning management and stockholders' interest in
the enhancement of stockholder value.
15
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), prohibits a publicly held corporation, such as the Company, from
claiming a deduction on its federal income tax return for compensation in excess
of $1 million paid for a given fiscal year to the chief executive officer (or
person acting in that capacity) at the close of the corporation's fiscal year
and the four most highly compensated officers of the corporation, other than the
chief executive officer, at the end of the corporation's fiscal year. The $1
million compensation deduction limitation does not apply to "performance-based
compensation". The Company believes that, with certain exceptions, any
compensation received by executive officers in connection with the exercise of
options granted under the 1993, 1998 or 2004 stock option plans qualifies as
"performance-based compensation." The policy of the compensation committee is to
the extent reasonable to qualify the Company's executive officers' compensation
for deductibility under Section 162(m) and other applicable tax laws. However,
the compensation committee believes that providing an appropriate level of cash
compensation and maintaining flexibility in determining compensation are also
important issues which must be balanced with preserving a tax deduction for
amounts in excess of $1,000,000.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Robert A. Berman's salary was $282,000 in 2004, which represents a
reduction from his salary of $300,000 as provided under his employment
agreement. Mr. Berman's compensation as contemplated under his employment
agreement was determined by the Compensation Committee based on the factors
described in the "Salaries" and "Annual Bonuses" paragraphs below.
SALARIES
Base salaries for the Company's executive officers are determined initially
by evaluating the responsibilities of the position held and the experience of
the individual, and by reference to the competitive marketplace for management
talent, including a comparison of base salaries for comparable positions at
other companies (base salaries are targeted to be competitive with the top
quartile of the industry). The Company believes that it is necessary to position
executive officers' base salaries at or above these levels in order to attract,
retain and motivate its executive officers. In addition, the compensation
committee considers the recommendations of the Company's Chief Executive Officer
and Chief Financial Officer. Annual salary adjustments are determined by (i)
considering various factors, tangible and intangible, achieved by the Company;
(ii) the overall performance of the executive; (iii) the length of the
executive's service to the Company; and (iv) any increased responsibilities
assumed by the executive. There are no restrictions on salary adjustments of the
Company. The Company has employment agreements with certain of its executive
officers, which sets the base salaries and other terms and conditions of
employment for such individuals. The base salaries of certain of the Company's
senior management increased from 2003 to 2004 due to increased responsibilities
for those individuals.
ANNUAL BONUSES
The compensation committee evaluates the performance of the Company's
executives on an annual basis. Bonuses may be based upon the level of personal
achievement by individual participants and the Company's performance, including,
but not limited to, (i) the Company's actual stock price performance and stock
price performance relative to its competitors and (ii) the Company's actual
performance as compared to the Company's projected performance goals. No bonuses
were awarded to the named executive officers in 2004.
16
COMPENSATION COMMITTEE
This report by the compensation committee on executive compensation is
submitted by the members of the compensation committee:
David Matheson, Chairman
Paul A. deBary
Joseph E. Bernstein
COMPENSATION COMMITTEE INTERLOCKS
There were no transactions between any member of the compensation committee
and the Company during the fiscal year ended December 31, 2004. No member of the
compensation committee was an officer or employee of the Company or any
subsidiary of the Company during fiscal 2004.
COMPENSATION OF DIRECTORS
CASH COMPENSATION
Each non-employee member of the Company's Board of Directors receives
$20,000 per year and $1,000 per meeting. Directors that also serve on committees
of the Board of Directors, other than the audit committee, receive an additional
$1,000 per committee meeting, other than employee members, with the chairperson
receiving $2,500 per meeting. With respect to the audit committee, its
chairperson receives an additional annual payment of $10,000, and each audit
committee member (including the chairperson) receives $2,500 per audit committee
meeting.
STOCK COMPENSATION
Each non-employee member of the Company's Board of Directors receives an
annual grant of 10,000 stock options at the common stock's then current fair
market value, and since August 2003 each newly elected or appointed non-employee
director received a one time grant of 15,000 stock options at the common stock's
then current fair market value. All stock options granted to the members of the
Company's Board of Directors vest immediately. In addition, in recognition of
special and extraordinary services provided by David P. Hanlon and John Sharpe
to the Company, on November 11, 2004, the compensation committee granted to each
of Messrs. Sharpe and Hanlon options to purchase 50,000 shares of common stock,
having a term of three (3) years and an exercise price of $8.11. Messrs. Hanlon
and Sharpe abstained from all votes of the Board of Directors related to the
granting of these stock options.
CHAIRMAN COMPENSATION
On May 23, 2005, the Company's Board of Directors ratified the compensation
committee's approval of compensation of $50,000 per year for the position of
non-executive Chairman of the Board and a grant of 50,000 options to purchase
shares of the Company's common stock vesting immediately with a term of 10 years
at the initiation of service for any new non-executive Chairman of the Board.
John Sharpe, who became the Company's Chairman of the Board on such date,
abstained from all votes of the Board of Directors related to the establishment
of this compensation.
SPECIAL COMMITTEE
On November 11, 2003, the Company's Board of Directors created a special
committee, comprised solely of David Matheson, to assist the Company in
obtaining all federal and state regulatory approvals necessary to develop a
tribal casino in conjunction with the Cayuga Indian Nation of New York. As
consideration for his work on this special committee, the Company issued Mr.
Matheson 20,000 shares of common stock on each of January 30, 2004 and June 30,
2004. Mr. Matheson abstained from all votes of the Board of Directors related to
the creation of this special committee and the establishment of his
compensation.
17
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires executive officers and
directors, and persons who beneficially own more than ten percent of the
Company's common stock, to file initial reports of ownership and reports of
changes in ownership with the SEC. Executive officers, directors and greater
than ten percent beneficial owners are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based upon a
review of the copies of such forms furnished to the Company and written
representations from the Company's executive officers and directors, the Company
believe that during the year ended December 31, 2004 there were no delinquent
filers except as follows: David Matheson filed a late Form 4 for a transaction
that occurred on January 30, 2004; Joseph E. Bernstein filed one late Form 4 for
a transaction that occurred on March 23, 2004; Ralph J. Bernstein filed one late
Form 4 for a transaction that occurred on March 23, 2004; Paul A. deBary filed
one late Form 4 for a transaction that occurred on March 23, 2004; John Sharpe
filed one late Form 4 for a transaction that occurred on March 23, 2004; Arthur
I. Sonnenblick filed one late Form 4 for a transaction that occurred on March
23, 2004; David P. Hanlon filed one late Form 4 for a transaction that occurred
on March 23, 2004; and Thomas W. Aro filed a Form 5 on February 11, 2005 in
which he reported an option grant to him on May 21, 2004 that was not timely
reported on a Form 4.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 29, 2003, Monticello Raceway Management, Inc., the Company's
wholly owned subsidiary, and Catskill Development, L.L.C. entered into a 48 year
ground lease with respect to 232 acres of land in Monticello, New York then
owned by Catskill Development, L.L.C. and all buildings and improvements located
on such land. The principal members of Catskill Development, L.L.C. at the time,
were (i) Americas Tower Partners, which is controlled by Joseph E. Bernstein, a
member of the Company's Board of Directors, Ralph J. Bernstein, a member of the
Company's Board of Directors and Morad Tahbaz, the Company's former president
and a former member of the Company's Board of Directors, (ii) Watertone
Holdings, LP, an entity controlled by Robert A. Berman, the Company's former
chief executive officer and a member of the Company's Board of Directors, and
Scott A. Kaniewski, the Company's former chief financial officer and (iii)
Monticello Realty, LLC, which is controlled by Maurice Dabbah, who formerly had
board observation rights with respect to the Company. Under the terms of the
ground lease, Monticello Raceway Management, Inc. agreed to pay Catskill
Development, L.L.C. $1.8 million per year, subject to annual adjustments
consistent with the consumer price index, payable in equal monthly installments,
and Monticello Raceway Management, Inc. was given a limited option to purchase
these 232 acres of property, subject to the Land Purchase Agreement with the
Cayuga Nation of New York regarding 29 of these acres, for approximately $38
million in immediately available funds. On July 26, 2004, Monticello Raceway
Management, Inc. exercised this option and acquired all 232 acres of land from
Catskill Development, L.L.C.
On January 12, 2004, the Company acquired from the members of both Catskill
Development, L.L.C. and Monticello Raceway Development Company, LLC, all of the
outstanding membership interests and capital stock of Monticello Raceway
Management, Inc., Monticello Casino Management, LLC, Monticello Raceway
Development Company, LLC and Mohawk Management, LLC in exchange for 80.25% of
the Company's common stock, calculated on a post-consolidation, fully diluted
basis. The two members of Monticello Raceway Development Company, LLC were
Americas Tower Partners and BKB, LLC, an entity controlled by Robert A. Berman,
Scott A. Kaniewski and Philip Berman, Robert A. Berman's brother and until April
2005, one of the Company's vice presidents. Monticello Raceway Management, Inc.,
Monticello Casino Management, LLC, Monticello Raceway Development Company, LLC
and Mohawk Management, LLC own all of the development and management rights with
respect to a Native American casino to be developed in conjunction with the
Cayuga Nation of New York on 29 of the 232 acres of land in Monticello, New York
that was acquired by Monticello Raceway Management, Inc. on July 26, 2004. As a
result of this transaction, Americas Tower Partners received 6,599,294 shares of
the Company's common stock, Watertone Holdings, LP received 4,565,010 shares of
the Company's common stock and Monticello Realty, LLC received 5,732,261 shares
of the Company's common stock. In addition, each principal of Americas Tower
Partners (Joseph E. Bernstein, Ralph J. Bernstein and Morad Tahbaz) and BKB, LLC
(Robert A. Berman, Scott A. Kaniewski and Philip Berman) held his respective
board and officer positions with the Company both before and after the above
described transactions.
18
The Company, Catskill Development, L.L.C., the Cayuga Nation of New York,
the Cayuga Catskill Gaming Authority, Robert A. Berman, and Morad Tahbaz entered
into a letter agreement, dated as of April 3, 2003, pursuant to which the
Company agreed to fund the Cayuga Catskill Gaming Authority's purchase of 29
acres of land in Monticello, New York presently owned by Monticello Raceway
Management, Inc. and the development costs of building a class III gaming
enterprise on such land. The Company is to be reimbursed for up to $10 million
of these advances from any third party construction financing that is received
and, to the extent that such third party financing or $10 million cap is
insufficient to fully reimburse the Company, from distributions made to the
Company's casino management subsidiary under its gaming facility management
agreement with the Cayuga Nation of New York.
Under this letter agreement, the Company, Catskill Development, L.L.C.,
Robert A. Berman and Morad Tahbaz, together as a group, on the one hand, and the
Cayuga Nation of New York, on the other hand, also agreed that for 10 years,
each may participate in the development or operation by the other of:
o one or more hotels, motels or other similar facilities providing
overnight accommodations including ancillary beverage, food,
entertainment, commercial and or retail services within a 15 mile
radius of the 29 acres to be acquired by the Cayuga Nation of New York
in Monticello, New York; and
o any other entertainment, sports and/or retail facility within a 5 mile
radius of those 29 acres of land.
In each case, the non-developing party will have the right to purchase up
to 33.33% of the equity in the facility being developed, with the purchase price
being a pro rata share of the costs of such facility less any amount advanced by
any lender for any mortgage or other loan secured by the facility's property or
cash flow. The purchase price for this acquired interest must be paid in cash at
the time the interest is actually purchased. However, with respect to any
acquired interest purchased by the Cayuga Nation of New York prior to the second
anniversary of the primary gaming facility's public opening, the Cayuga Nation
of New York may pay for its acquired interest by delivery of a non-recourse
promissory note, payable over five years, with interest accruing on the unpaid
principal amount at the then existing prime rate. These parties have further
agreed that the first hotel facility to be built that is governed by the letter
agreement will be deemed to be the gaming enterprise's preferred provider, in
that the gaming enterprise shall be obligated to refer its customers to that
hotel.
In consideration of the agreements contained in the letter agreement, each
of the parties has agreed that for a period ending on the earliest of:
19
o approval by the Bureau of Indian Affairs of the application to
transfer the 29 acres of land to the United States of America in trust
for the Cayuga Nation of New York and to use such land for class II
and class III gaming and by a governing commission to be established
between the Company's casino management subsidiary and the Cayuga
Nation of New York under a gaming facility management agreement;
o the termination of the gaming facility management agreement with the
Cayuga Nation of New York because of because of a material breach by
the Company's casino management subsidiary of its obligations;
o the termination of the gaming facility development and construction
agreement with the Cayuga Nation of New York because of a material
breach by the Company's casino development subsidiary of its
obligations; and
o June 30, 2005,
each party, respectively, will refrain from having discussions regarding the
development of another class III gaming facility in Sullivan County, New York.
Finally, under the letter agreement, the Company awarded the Cayuga Nation
of New York 300,000 shares of common stock.
On June 29, 2005, this agreement was amended in order to replace Catskill
Development, L.L.C , as a party with Monticello Raceway Management, Inc., remove
Robert A. Berman and Morad Tahbaz as parties and extend the outside date of the
exclusivity period between the Company and the Cayuga Nation of New York with
respect to their joint development of a class III gaming facility in Sullivan
County, New York until December 31, 2005.
Robert A. Berman executed a guarantee, dated October 29, 2003, in favor of
The Berkshire Bank, guarantying the performance of the Company's wholly owned
subsidiary, Monticello Raceway Management, Inc., under a $3.5 million loan
agreement with The Berkshire Bank. All obligations under this loan agreement
were satisfied on February 4, 2004.
Robert H. Friedman, one of our directors, is a partner in the law firm of
Olshan Grundman Frome Rosenzweig & Wolosky LLP. Olshan Grundman Frome Rosenzweig
& Wolosky LLP provided legal services to the Company and its subsidiaries in
2004. In 2004, the Company paid Olshan Grundman Frome Rosenzweig & Wolosky LLP
fees for legal services that represented less than 5% of Olshan Grundman Frome
Rosenzweig & Wolosky LLP's gross revenues for 2004. The Company expects that
Olshan Grundman Frome Rosenzweig & Wolosky LLP will continue to provide legal
services to the Company and its subsidiaries in 2005.
20
COMPARISON OF TOTAL RETURN FROM DEMBER 31, 1999 TO
DECEMBER 31, 2004 AMONG EMPIRE RESORTS, INC., THE NASDAQ MARKET INDEX
AND THE HEMSCOTT RESORT AND CASINO INDUSTRY INDEX (THE "PEER GROUP").
[OBJECT OMITTED]
COMPANY/INDEX 12/31/99 12/29/00 12/31/01 12/31/02 12/31/03 12/31/04
------------------- -------- -------- -------- -------- -------- --------
Empire Resorts, Inc....... 100 14.00 21.60 3.63 14.42 17.84
Resorts and Casinos....... 100 103.38 109.68 115.28 151.33 256.69
NASDAQ Market Index....... 100 62.85 50.10 34.95 52.55 56.97
Assumes $100 invested on December 31, 1999 in the Company's common stock,
the NASDAQ Market Index and the Peer Group.
The calculations in the table were made on a dividends reinvested basis.
There can be no assurance that the Company's common stock performance will
continue with the same or similar trends depicted in the above graph.
21
PROPOSAL 2
APPROVAL OF THE ADOPTION OF THE COMPANY'S 2005 EQUITY INCENTIVE PLAN
2005 EQUITY INCENTIVE PLAN
On May 23, 2005, the Board of Directors approved a proposal to adopt the
Company's 2005 Equity Incentive Plan (the "Plan"). The purpose of the Plan is to
advance the interests of the Company and its subsidiaries by improving their
ability to attract and retain employees whose services are valuable to the
Company. The Company believes that this result can be achieved by rewarding such
employees' contributions to the success of the Company through ownership of
shares of the Company's common stock.
The Plan includes the issuance of both "options" to purchase stock at a
later date (such options consist of both Incentive Stock Options and
Nonqualified Options), and "restricted stock."
A summary of the Plan is set forth below, and its full text is attached
hereto as APPENDIX A. The following discussion is qualified in its entirety by
reference to APPENDIX A.
ADMINISTRATION OF THE PLAN
The Plan will be administered by the compensation committee of the Board of
Directors of the Company which shall have full power and authority to designate
recipients of options and grantees of restricted stock, to determine the terms
and conditions of respective option and restricted stock agreements and to
interpret the provisions and supervise the administration of the Plan. Any
decision made by all of the members of the compensation committee regarding the
Plan shall be final for all involved parties.
Section 162(m) of the Code places annual limitations on the deductibility
by public companies of compensation in excess of $1,000,000 paid to the chief
executive officer, and to the other four most highly compensated officers.
However, these limitations are not imposed if certain requirements are met. One
major requirement is that the compensation be based on performance. With respect
to the issuance of options under the Plan intended to be performance based, the
Plan must state a maximum number of shares with respect to options granted to an
individual during a specified period and must be approved by the Company's
stockholders, which Plan provides for a maximum of 2,500,000 options during any
calendar year. The grant of restricted stock under the Plan is not required to
be performance based and therefore may be subject to the limitations imposed by
Section 162(m) of the Code.
DESIGNATION OF PARTICIPANTS
Persons eligible to participate in the Plan include employees, officers and
directors of, as well as, consultants and advisors to, the Company or any
subsidiary. In selecting participants, and in determining the number of shares
to be covered by each option granted to optionees or restricted stock grants,
the compensation committee may consider any factors it considers relevant,
including the office or position held by the participant and the participants'
degree of responsibility for and contribution to the success of the Company.
STOCK RESERVED FOR THE PLAN
The Plan provides that a total of 3,500,000 shares of the Company's common
stock shall be subject to the Plan, which shares may be allocated, at the
discretion of the Company, between options and restricted stock. This discretion
is subject only to the occurrence of certain events that require the
compensation committee to fairly and appropriately adjust the number of shares
to be allocated. Such events include a merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in the Company's corporate
structure that affects the Company's common stock. This adjustment is necessary
so that the occurrence of the event does not affect each option holder's
proportionate interest in the Company prior to such event.
22
TERMS AND CONDITIONS OF OPTIONS
OPTION PRICE
The exercise price of each option shall be determined by the compensation
committee, but may not be less than 100% of the fair market value of the
underlying common stock on the option grant date. If an incentive stock option
is granted to an employee who owns more than 10% of the total combined voting
power of the Company's capital stock, then its exercise price may not be less
than 110% of the fair market value of the underlying common stock on the option
grant date.
TERM OF OPTIONS
The compensation committee shall fix the term of each option; provided,
however, that the maximum term for which any option is exercisable shall not
exceed ten years. Moreover, the maximum term of incentive stock options granted
to employees who own more than 10% of the total combined voting power of the
Company's capital stock shall not exceed five years. The Plan provides for the
earlier expiration of options of a participant in the event of certain
terminations of employment or engagement or, if the compensation committee so
determines, in the event of a change in control.
RESTRICTIONS ON TRANSFER AND EXERCISE OF OPTIONS
Options cannot be transferred, and are exercisable only by the optionee
during his lifetime. After the optionee's death, options are assignable only by
will, or through the laws of descent and distribution. Any attempt to transfer,
assign, pledge, or in any other way dispose of an option contrary to these
provisions will be void.
Additionally, the aggregate fair market value of the shares (as determined
at the time the stock option is granted) for which an employee may first
exercise incentive stock options for the calendar year under the Plan, cannot
exceed $100,000. The compensation committee may impose any other conditions to
exercise as it deems appropriate.
TERMINATION
Except as otherwise provided by the compensation committee, if an optionee
dies, an option exercisable immediately prior to death may be exercised by the
optionee's executor, administrator, or transferee for a period ending on the
earlier of one year thereafter, or at the time when the options otherwise would
have expired.
Except as otherwise provided by the compensation committee, if an
optionee's employment is terminated for reasons other than death (disability or
retirement), an option exercisable immediately prior to termination may be
exercised for a period ending on the earlier of thirty days thereafter, or at
the time when the options otherwise would have expired.
23
OTHER TERMS AND CONDITIONS OF RESTRICTED SHARES
Shares of restricted stock issued by the Company cannot be sold,
transferred, pledged, assigned, or similarly disposed of, until one of several
specified events occur. A share of restricted stock becomes freely transferable
by the grantee either at the end of the restricted period, at the end of a
period established by the compensation committee, or when and if the
compensation committee waives the restrictions. During the restricted period,
holders of restricted stock may exercise full voting rights and receive regular
card dividends paid with respect to such shares. In addition, any holder making
an election under Section 83(b) of the Code, must provide a copy of such
election to the Company within 10 days of the filing.
CHANGE OF CONTROL
The compensation committee has the sole discretion to reduce the period
that an optionee or grantee of restricted stock must wait to exercise his
option/restricted stock, where there is a change of control. A change of control
occurs where there is a major corporate event, such as a successful tender
offer, merger, consolidation, sale of substantially all of a corporation's
assets, or where a "person" (where "person" is given a special meaning by the
Exchange Act acquires 50% of the Company's outstanding voting securities.
AMENDMENT AND TERMINATION
The Board of Directors may generally amend, suspend or terminate the Plan,
except that the Plan cannot be changed in a way that would impair the rights of
any participant without the participant's consent. The Plan also cannot be
amended without stockholder consent where doing so would result in a major
change, such as substantially increasing the benefits that participants are to
receive, or decreasing the exercise price beneath certain specified thresholds.
The Plan and any option or restricted stock grant thereunder may be amended to
comply with the new rules applicable to deferred compensation as set forth in
Section 409A of the Code.
REGISTRATION OF SHARES
The Company may file a registration statement under the Securities Act of
1933, as amended, with respect to the common stock issuable pursuant to the Plan
following stockholder approval.
RULE 16b-3 COMPLIANCE
In all cases, the terms, provisions, conditions and limitations of the Plan
shall be construed and interpreted so as to be consistent with the provisions of
Rule 16b-3 of the Exchange Act.
RECENT GRANTS
On May 23, 2005, in connection with his appointment as Chief Executive
Officer and President, David P. Hanlon was granted a ten-year non-qualified
stock option to purchase 1,044,092 of the Company's common stock pursuant to the
Plan at an exercise price of $3.99 per share, vesting 33% 90 days following the
grant date, 33% on the first anniversary of the grant date and 34% on the second
anniversary of the grant date. Mr. Hanlon also received an additional grant of a
non-qualified stock option to purchase 720,000 shares of common stock
conditioned upon the closing of the Concord Transaction vesting 33% on the later
to occur of (i) the closing of the Concord Transaction and (ii) ninety days
following the date of grant date, 33% on the first anniversary of the grant date
and 34% on the second anniversary of the grant date. The Company also issued Mr.
Hanlon 261,023 shares of restricted stock pursuant to the Plan vesting 33% on
the issuance date, 33% on the first anniversary of the issuance date and 34% on
the second anniversary of the issuance date. Mr. Hanlon received an additional
issuance of 180,000 shares of restricted stock conditioned upon the closing of
the Concord Transaction, vesting 33% on the issuance date, 33% on the first
anniversary of the issuance date and 34% on the second anniversary of the
issuance date.
24
On May 23, 2005, in connection with his appointment as Chief Financial
Officer, Ronald J. Radcliffe was granted a ten-year non-qualified stock option
to purchase 150,000 shares of common stock pursuant to the Plan at an exercise
price at $3.99 per share, vesting 33% 90 days following the grant date, 33% on
the first anniversary of the grant date and 34% on the second anniversary of the
grant date.
On May 23, 2005, in connection with his appointment as non-executive
Chairman of the Board, John Sharpe was granted an option to purchase 50,000
shares of common stock pursuant to the Plan at an exercise price at $3.99 per
share.
All options and restricted stock grants described above are subject to
approval of the Plan. If the Plan is not approved, all such grants would become
void.
NEW PLAN BENEFITS
Benefits under the Plan to the named executive officers (as previously
defined) and the Company's other executive officers, non-employee directors and
other employees are not currently determinable because other grants under the
Plan are discretionary. All grants under the Plan have been and will be made in
consideration of services rendered or to be rendered to the Company or any of
its subsidiaries by the recipients. The following table sets forth the options
and restricted stock that have been granted pursuant to the Plan as of the date
hereof, subject to stockholder approval of the Plan.
2005 EQUITY PLAN
Number of Shares of
Name and Position Dollar Amount (1) Restricted Stock Number of Options
----------------- ----------------- ---------------- -----------------
John Sharpe, Chairman $9,500.00 -- 50,000
David P. Hanlon, Chief
Executive Officer and $2,178,653.62
President 441,023 1,764,092
Ronald J. Radcliffe, Chief
Financial Officer $28,500.00 -- 150,000
Executive Group $2,207,153.62 441,023 1,914,092
Non-Executive Director
Group $9,500.00 -- 50,000
(1) Assumes that all options and shares of restricted stock are fully vested.
Dollar amounts were calculated based on the closing price of the Company's
common stock on July 18, 2005 of $4.18 per share.
25
FEDERAL TAX EFFECTS
TAX TREATMENT OF INCENTIVE STOCK OPTIONS
In general, no taxable income for federal income tax purposes will be
recognized by an option holder upon receipt or exercise of an incentive stock
option, and the Company will not then be entitled to any tax deduction. Assuming
that the option holder does not dispose of the option shares before the later of
(i) two years after the date of grant or (ii) one year after the exercise of the
option, upon any such disposition, the option holder will recognize capital gain
equal to the difference between the sale price on disposition and the exercise
price.
If, however, the option holder disposes of his option shares prior to the
expiration of the required holding period, he will recognize ordinary income for
federal income tax purposes in the year of disposition equal to the lesser of
(i) the difference between the fair market value of the shares at the date of
exercise and the exercise price, or (ii) the difference between the sale price
upon disposition and the exercise price. Any additional gain on such
disqualifying disposition will be treated as capital gain. In addition, if such
a disqualifying disposition is made by the option holder, the Company will be
entitled to a deduction equal to the amount of ordinary income recognized by the
option holder provided that such amount constitutes an ordinary and reasonable
expense of the Company.
TAX TREATMENT OF NONQUALIFIED STOCK OPTIONS
No taxable income will be recognized by an option holder upon receipt of a
nonqualified stock option, and the Company will not be entitled to a tax
deduction for such grant.
Upon the exercise of a nonqualified stock option, the option holder will
include in taxable income, for federal income tax purposes, the excess in value
on the date of exercise of the shares acquired pursuant to the nonqualified
stock option over the exercise price. Upon a subsequent sale of the shares, the
option holder will derive short-term or long-term gain or loss, depending upon
the option holder's holding period for the shares (commencing upon the exercise
of the option) and upon the subsequent appreciation or depreciation in the value
of the shares.
The Company generally will be entitled to a corresponding deduction at the
time that the participant is required to include the value of the shares (less
the exercise price) in his or her income.
TAX TREATMENT OF RESTRICTED STOCK
A recipient of a restricted stock grant will not, except as provided below,
recognize income upon the receipt of a grant of restricted stock. The recipient
will recognize taxable income at such time as the restricted stock vests in an
amount equal to the fair market value of the stock upon the vesting date. A
recipient may elect pursuant to Section 83(b) of the Code to treat the
restricted stock as vested on the grant date, if certain conditions are met, in
which case the recipient may recognize taxable income upon the date of grant.
Unless the limitations set forth in Section 162(m) are applicable, the
Company generally will be entitled to a corresponding tax deduction at the time
the recipient is required to include the fair market value of the restricted
stock in his or her taxable income.
26
WITHHOLDING OF TAX
The Company is permitted to deduct and withhold amounts required to satisfy
its withholding tax liabilities with respect to its employees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE ADOPTION OF THE COMPANY'S 2005 EQUITY INCENTIVE PLAN
27
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Friedman LLP ("Friedman") as the
Company's independent auditors for the fiscal year ending December 31, 2005.
The audit committee reviews and approves the audit and non-audit services
to be provided by the Company's independent auditors during the year, considers
the effect that performing those services might have on audit independence and
approves management's engagement of the Company's independent auditors to
perform those services. The audit committee reserves the right to appoint a
different independent auditors at any time during the year if the Board of
Directors and the audit committee believe that a change is in the best interest
of the Company and its stockholders.
Friedman was originally engaged as the Company's independent auditors in
February 2002. Friedman has audited the Company's financial statements for the
fiscal years ended December 31, 2001 through December 31, 2004. A representative
of Friedman will be present at the Annual Meeting, will have an opportunity to
make a statement if he or she desires to do so, and will be available to respond
to questions.
AUDIT FEES
The aggregate fees billed by Friedman for professional fees rendered in
connection with the audit of the Company's annual financial statements and its
review of the Company's financial statements included in the Company's quarterly
reports on Form 10-QSB, including services related thereto, were approximately
$248,100 for the fiscal year ended December 31, 2004 and approximately $176,000
for the fiscal year ended December 31, 2003.
AUDIT-RELATED FEES
The aggregate fees billed by Friedman for assurance and related services
that are reasonably related to the performance of the audit or review of the
Company's financial statements and are not reported as "Audit Fees," including
services rendered in connection with capital raising efforts, preparation of
registration statements and consultations regarding financial accounting and
reporting matters not classified as audit, were approximately $159,051 for the
fiscal year ended December 31, 2004 and approximately $100,000 for the fiscal
year ended December 31, 2003.
TAX FEES
The aggregate fees billed by Friedman for professional services rendered
for tax compliance, tax advice and tax planning were approximately $43,013 for
the fiscal year ended December 31, 2004 and approximately $34,000 for the fiscal
year ended December 31, 2003. The services comprising the fees reported as "Tax
Fees" include tax return preparation in various jurisdictions, consultation
regarding various tax issues, and support provided to management in connection
with income and other tax audits.
ALL OTHER FEES
Other than the fees described above, there were no other fees billed by
Friedman for products and services rendered to the Company.
28
PRE-APPROVAL POLICIES AND PROCEDURES
All audit and non-audit services to be performed by the Company's
independent accountant must be approved in advance by the audit committee.
Consistent with applicable law, limited amounts of services, other than audit,
review or attest services, may be approved by one or more members of the audit
committee pursuant to authority delegated by the audit committee, provided each
such approved service is reported to the full audit committee at its next
meeting.
All of the engagements and fees for the Company's fiscal year ended
December 31, 2004 were approved by the audit committee. In connection with the
audit of the Company's financial statements for the fiscal years ended December
31, 2004 and December 31, 2003, Friedman only used full-time, permanent
employees.
The audit committee of the Board of Directors considered whether the
provision of non-audit services by Friedman was compatible with its ability to
maintain independence from an audit standpoint and concluded that Friedman's
independence was not compromised.
29
STOCKHOLDER PROPOSALS
We expect that the Company's 2006 annual meeting of stockholders will be
held on or about August 1, 2006. The SEC has adopted regulations that govern the
inclusion of stockholder proposals in the Company's annual proxy materials. For
a stockholder proposal to be included in the proxy statement for the Company's
2006 annual meeting of stockholders, as applicable, including a proposal for the
election of a director, the proposal must have been received by the company at
its principal offices no later than March 29, 2006. If the Company is not
notified of a stockholder proposal by March 29, 2006, then its Board of
Directors will have discretionary authority to vote on the stockholder proposal,
even though the stockholder proposal is not discussed in the proxy statement. In
order to curtail any controversy as to the date on which a stockholder proposal
was received by the company, it is suggested that stockholder proposals be
submitted by certified mail, return receipt requested, and be addressed to
Empire Resorts, Inc., c/o Monticello Raceway, Route 17B, P.O. Box 5013,
Monticello, New York 12701, Attention: Investor Relations.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Company's Board of
Directors does not know of any matter that will be presented for consideration
at the meeting other than as described in this proxy statement/prospectus.
Robert H. Friedman
Secretary
July 26, 2005
30