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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MANDALAY RESORT GROUP
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(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
[LOGO OF MANDALAY RESORT GROUP]
Proxy Statement
And
Notice Of 2002 Annual
Meeting of Stockholders
Mandalay Resort Group
3950 Las Vegas Boulevard South
Las Vegas, Nevada 89119
----------------
Notice of 2002 Annual Meeting of Stockholders
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TIME: 10:30 A.M., Las Vegas time, on Thursday, June 20,
2002
PLACE: The Islander Ballroom at Mandalay Bay Resort & Casino,
3950 Las Vegas Boulevard South,
Las Vegas, Nevada 89119
ITEMS OF BUSINESS: . To elect two directors.
. To approve the 2002 Stock Incentive Plan.
. To ratify the appointment of Deloitte & Touche LLP
as independent auditors to examine and report on
our financial statements for the fiscal year ending
January 31, 2003.
. To transact any other business properly brought
before the meeting.
WHO MAY VOTE: You can vote at the meeting or any adjournment(s) of
the meeting if you were a stockholder of record at
the close of business on April 22, 2002.
ANNUAL REPORT: A copy of the Annual Report to Stockholders is
enclosed.
By Order of the Board of Directors
/s/ Michael S. Ensign
Michael S. Ensign
Chairman of the Board
Las Vegas, Nevada
May 14, 2002
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Mandalay Resort Group
3950 Las Vegas Boulevard South
Las Vegas, Nevada 89119
-------------------------
Proxy Statement
-------------------------
This proxy statement is being furnished to our stockholders in connection
with the solicitation of proxies on behalf of our Board of Directors for use at
our Annual Meeting of Stockholders to be held in the Islander Ballroom at
Mandalay Bay Resort & Casino, 3950 Las Vegas Boulevard South, Las Vegas,
Nevada, at 10:30 A.M., Las Vegas time, on Thursday, June 20, 2002, and at any
and all adjournments of the meeting, for the purpose of considering and acting
upon the matters referred to in the accompanying Notice of Annual Meeting of
Stockholders and more fully discussed below. The terms "we," "our," "us," and
"Mandalay," as used in this proxy statement, refer to Mandalay Resort Group.
This proxy statement and the accompanying form of proxy are first being
mailed to stockholders on or about May 17, 2002.
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Information Concerning the Annual Meeting
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What matters will be voted on at the meeting?
At the meeting stockholders will vote on three matters. They are:
. The election of nominees to serve on our Board of
Directors;
. Approval of the 2002 Stock Incentive Plan; and
. Ratification of the appointment of Deloitte & Touche
LLP as our independent auditors for our fiscal year
ending January 31, 2003.
How does the Board recommend I vote on the proposals?
The Board recommends that you vote:
. FOR each of the two nominees named in this proxy
statement; and
. FOR approval of the 2002 Stock Incentive Plan; and
. FOR ratification of the appointment of Deloitte &
Touche LLP as our independent auditors for our fiscal
year ending January 31, 2003.
Who is entitled to vote?
Our stockholders of record as of the close of business on April 22,
2002, the record date for the meeting, are entitled to vote at the
meeting or any adjournment(s) of the meeting.
How do I cast my vote?
There are two different ways you may cast your vote. You can vote by:
. marking, signing and dating a proxy card and returning
it in the envelope provided; or
. attending the meeting (if you are the registered owner
of your shares, or, if your shares are held through a
broker, bank or other nominee, you must bring to the
meeting a copy of a brokerage statement reflecting
your stock ownership as of April 22, 2002).
If I have given a proxy, how do I revoke that proxy?
Your presence at the meeting will not revoke any proxy you may have
given. However, you may revoke your proxy (to the extent it has not
already been voted at the meeting) if you:
. give written notice of the revocation to Mandalay's
Corporate Secretary, Yvette E. Landau, at 3950 Las
Vegas Boulevard South, Las Vegas, Nevada 89119, which
will not be effective until it is received;
. submit a properly signed proxy with a later date; or
. vote in person at the meeting (if your shares are
registered directly on Mandalay's books and not held
through a broker, bank, or other nominee).
How will my proxy be voted?
If your proxy in the accompanying form is properly executed, returned to
and received by us prior to the meeting and is not revoked, it will be
voted in accordance with your instructions. If you return your signed
proxy but do not mark the boxes to show how you wish to vote on one or
more of the proposals, the shares for which you have given your proxy
will, in the absence of your instructions to the contrary, be voted
"FOR" each of the nominees named in the proxy, "FOR" approval of the
2002 Stock Incentive Plan, and "FOR" ratification of the appointment of
Deloitte & Touche LLP as our independent auditors for our fiscal year
ending January 31, 2003.
Will my shares be voted if I do not provide my proxy?
Your shares may be voted under certain circumstances if they are held in
the name of a brokerage firm or nominee. Brokerage firms and nominees
that are members of the New York Stock Exchange have the authority under
the exchange's rules to vote their customers' unvoted shares on certain
"routine" matters if the customers have not furnished voting
instructions within a specified period prior to the meeting. Under these
rules, the election of directors, approval of the 2002 Stock Incentive
Plan and ratification of the appointment of Deloitte & Touche LLP as our
independent auditors are considered to be "routine" matters. If you hold
your shares directly in your own name, they will not be voted if you do
not provide a proxy or attend the meeting and vote the shares yourself.
How many votes are needed to elect directors?
The two nominees receiving the highest number of "FOR" votes will be
elected as directors. This is referred to as a plurality.
What if a nominee is unwilling or unable to serve?
That is not expected to occur. If it does, proxies will be voted for a
substitute nominee designated by our Board of Directors.
-2-
How many votes are needed to approve the 2002 Stock Incentive Plan and to
ratify the selection of Deloitte & Touche LLP to examine and report on our
financial statements for the fiscal year ending January 31, 2003?
Each of these two proposals will be considered separately. The approval
of each of these proposals requires that the number of shares voted
"FOR" the proposal exceed the number of shares voted "AGAINST" the
proposal.
Are dissenters' rights applicable to either of the matters to be voted on at
the meeting?
No. Dissenters' rights do not apply to either matter.
Who will count the vote?
Representatives of Wells Fargo Bank Minnesota, National Association, our
transfer agent, will tabulate the votes cast at the meeting.
What does it mean if I get more than one proxy card?
If you have your shares registered in multiple accounts with one or more
brokers and/or our transfer agent, you will receive more than one card.
Please complete and return each of the proxy cards you receive to ensure
that all of your shares are voted.
How many shares can be voted?
As of April 22, 2002, the record date for the meeting, 68,316,988 shares
of Mandalay common stock were issued and outstanding. Every holder of
Mandalay common stock is entitled to one vote for each share held of
record on the record date.
What is a "quorum"?
A "quorum," for purposes of the meeting, means a majority of the shares
of Mandalay common stock outstanding on the record date. This quorum of
our shares must be present at the meeting in order for the meeting to be
held. For purposes of determining the presence of a quorum, shares will
be counted if they are present in person or by proxy. Shares present by
proxy will be counted as present for purposes of determining the
presence of a quorum even if the proxy does not have authority to vote
on all matters.
Abstentions: Abstentions are not counted in the tally of votes "FOR" or
"AGAINST" a proposal. A "WITHHELD" vote is the same as an abstention.
Abstentions and withheld votes are counted as shares present at the
meeting for purposes of determining the presence of a quorum.
Broker Non-Votes: Broker non-votes occur when shares held by a broker
are not voted with respect to a proposal because (1) the broker has not
received voting instructions from the beneficial owner of the shares,
and (2) the broker lacks the authority to vote the shares at the
broker's discretion. Broker non-votes will not affect the outcome of any
of the matters being voted upon at the meeting, but will be counted as
shares present and entitled to be voted for purposes of determining the
presence of a quorum.
Who can attend the Annual Meeting?
All stockholders of Mandalay who owned shares on April 22, 2002 can
attend. Just check the box on your proxy and bring the Admission Ticket
included in your proxy statement with you to the meeting.
-3-
Please note that the Admission Ticket will be required in order to
obtain admission to the meeting. Accordingly, the Admission Ticket
should not be returned with your proxy. If your shares are held in a
brokerage account, you will also need to bring a copy of your brokerage
account statement (which you can obtain from your broker) reflecting
your stock ownership as of April 22, 2002.
How will voting on any other business be conducted?
We do not know of any business to be considered at the meeting other
than the proposals described in this proxy statement. However, if any
other business is presented at the meeting, a proxy in the accompanying
form will give authority to Michael S. Ensign and Yvette E. Landau to
vote on such matters at their discretion and they intend to do so in
accordance with their best judgment on any such matter.
Who will pay the cost of this proxy solicitation and how will the solicitation
be conducted?
Mandalay will pay the expenses of soliciting proxies in the form
included with this proxy statement, including the cost of preparing,
assembling and mailing material in connection with the solicitation. In
addition to the use of the mail, Mandalay's directors, executive
officers and employees may solicit proxies personally or by telephone or
telegraph. Mandalay has also hired Altman Group, Inc. to assist in the
solicitation of votes at an estimated cost of $5,000, plus its out-of-
pocket expenses. We will also reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses for forwarding proxy and solicitation materials to
stockholders.
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Item 1 - Election of Directors and Nominee Biographies
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What is the makeup of the Board of Directors?
Our Board of Directors has not less than six and not more than 11
members as determined from time to time by the Board of Directors. The
directors, which currently number eight, are divided into three classes,
with each class serving for a three-year period. The stockholders elect
the members of one of the three classes each year.
Is there any member of the class of directors to be elected at the meeting who
is not standing for re-election?
No. Each incumbent director whose term expires this year has been
nominated for election to serve for an additional three-year term and
has agreed to serve if elected.
Who are the Board's nominees this year?
William A. Richardson and Donna B. More are our nominees for election to
the Board of Directors. Each nominee, if elected, would hold office
until our 2005 annual meeting of stockholders and until his or her
successor is elected and qualified.
-4-
What is the background of this year's nominees?
Our nominees for election to the Board are:
WILLIAM A. RICHARDSON
Director since 1995
Age 55
.. Vice Chairman of the Board of Mandalay since June 18, 1998
.. Member of the Board of Directors of Mandalay since June 1, 1995
.. Member of the Directors' Nominating Committee of Mandalay's Board of
Directors
.. Executive Vice President of Mandalay from June 1, 1995 until June 18, 1998
.. Involved in an executive capacity in the management and operations of the
entities we refer to as the "Gold Strike Entities" for a period of more than
five years prior to Mandalay's acquisition of those entities and their hotel
and casino properties in June 1995
DONNA B. MORE
Director since 1998
Age 44
.. President of More Law Group, P.C., a Chicago, Illinois law firm, since
January 2001 and a member of such firm since May 2000
.. Partner in the Chicago, Illinois law firm of Freeborn & Peters from July 1994
until May 2000
.. Chief Legal Counsel for the Illinois Gaming Board, where she participated in
the development and administration of the regulatory process for riverboat
casinos in Illinois, from November 1990 until July 1994
.. Assistant United States Attorney, Criminal Division of the United States
Attorney's Office for the Northern District of Illinois from May 1989 until
November 1990
.. Chairman of the Directors' Nominating Committee, and a member of the
Compliance Review Committee, of Mandalay's Board of Directors
.. Member of the Board of Directors:
. WMS Industries, Inc.
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Biographies of Directors Not Standing For Election This Year
--------------------------------------------------------------------------------
Our incumbent directors whose terms expire in 2003 are:
MICHAEL S. ENSIGN
Director since 1995
Age 64
.. Chairman of the Board and Chief Executive Officer of Mandalay since January
16, 1998
.. Chief Operating Officer of Mandalay since June 1, 1995
.. Member of the Executive Committee of Mandalay's Board of Directors
.. Vice Chairman of the Board of Mandalay from June 1, 1995 until January 16,
1998
.. Involved in an executive capacity in the management and operations of the
entities we refer to as the "Gold Strike Entities" for a period of more than
five years prior to Mandalay's acquisition of those entities and their hotel
and casino properties in June 1995
GLENN W. SCHAEFFER
Director since 1996
Age 48
.. President, Chief Financial Officer and Treasurer of Mandalay since June 1,
1995
.. Member of the Board of Directors of Mandalay since March 4, 1996
-5-
.. Member of the Compliance Review Committee of Mandalay's Board of Directors
.. Involved in an executive capacity in the management and operations of the
entities we refer to as the "Gold Strike Entities" from 1993 until Mandalay's
acquisition of those entities and their hotel and casino properties in June
1995
.. President of Mandalay from June 1991 until February 1993
.. Chief Financial Officer and a director of Mandalay from 1984 until February
1993
.. Member of the Board of Directors:
. Pulte Homes
MICHAEL D. McKEE
Director since 1996
Age 56
.. Vice Chairman of The Irvine Company, a real estate development and investment
company, since July 1999
.. Chief Operating Officer of The Irvine Company since June 2001
.. Chief Financial Officer of The Irvine Company from December 1997 until June
2001
.. Executive Vice President of The Irvine Company from April 1994 until July
1999
.. Chief Legal Officer of The Irvine Company from April 1994 until December 1997
.. Partner in the law firm of Latham & Watkins from 1987 until April 1994
.. Chairman of the Audit Committee, and a member of the Compensation Committee,
of Mandalay's Board of Directors
.. Member of the Board of Directors:
. Health Care Property Investors, Inc.
. Realty Income Corporation
Our incumbent directors whose terms expire in 2004 are:
ARTHUR H. BILGER
Director since 1997
Age 49
.. Managing Member of Shelter Capital Partners LLC, a venture capital firm of
which he is a founder, since December 2000
.. Private investor from 1997 to 2000
.. President and Chief Operating Officer of New World Communications Group
Incorporated, a television broadcasting and production company, for a period
of two years until January 1997
.. Principal of Apollo Advisors, L.P. and Lion Advisors, L.P., entities engaged
in the investment of capital in acquisitions and corporate restructurings,
from 1990 until he assumed his position with New World Communications Group
Incorporated
.. Chairman of the Executive Committee, and a member of the Audit Committee, of
Mandalay's Board of Directors
.. Director of Mandalay from 1983 until 1989
.. Member of the Board of Directors:
. Akamai Technologies, Inc.
WILLIAM E. BANNEN, M.D.
Director since 1998
Age 52
.. Vice President of Nevada Health Care Management, a division of Anthem Blue
Cross Blue Shield ("Blue Cross Nevada"), since January 2000
.. Vice President of Blue Cross Nevada from January 1998 until January 2000
.. Medical Director with Blue Cross Nevada since 1991
-6-
.. Director - Network Administration and Health Management with Blue Cross
Nevada since 1993
.. Current positions with Blue Cross Nevada include responsibility for medical
management and network contracting in the State of Nevada
.. Chairman of the Compensation Committee, and a member of the Audit Committee,
of Mandalay's Board of Directors
ROSE McKINNEY-JAMES
Director since 1999
Age 50
.. Principal--Energy Works Consulting since March 2002
.. President--Brown & Partners, a public relations firm, from August 2001 until
February 2002
.. President--Government Affairs of Faiss Foley Merica, a public relations and
government affairs firm, from May 2000 until June 2001
.. President and Chief Executive Officer of the Corporation for Solar Technology
and Renewable Resources, a not-for-profit corporation engaged in the
development of solar technology, from January 1996 until May 2000
.. Director of the Nevada Department of Business and Industry, which has
administrative oversight of 29 state regulatory agencies, boards and
commissions, from October 1993 until December 1995
.. Member of the Nevada Public Service Commission from January 1989 until
October 1993
.. Chairman of the Compliance Review Committee and the Diversity Committee of
Mandalay's Board of Directors
.. Member of the Board of Directors:
. Employers Insurance Company of Nevada
. New Ventures Capital Development Corp.
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Executive Officers Other Than Nominees and Directors
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Our executive officers serve in that capacity at the pleasure of our
Board of Directors. Set forth below is information concerning each of the
individuals (other than those who are also directors of Mandalay) currently
serving as our executive officers.
YVETTE E. LANDAU
Age 45
.. Vice President, General Counsel and Secretary of Mandalay since June 1996
.. Member of the Executive Committee of the Circus and Eldorado Joint Venture,
in which Mandalay owns a 50% interest
.. Member of the Management Committee of Detroit Entertainment, L.L.C., in which
Mandalay owns a 53.5% interest
.. Associate General Counsel of Mandalay from January 1993, when she joined
Mandalay, until June 1996
.. Private practice of law in Phoenix, Arizona as a partner in the law firm of
Snell & Wilmer from 1984 until January 1993
LES MARTIN
Age 45
.. Vice President and Chief Accounting Officer of Mandalay since June 1997
.. Corporate Controller of Mandalay since November 1994
.. Manager of Financial Reports of Mandalay from April 1984, when he joined
Mandalay, until June 1997
.. Certified Public Accountant with a national public accounting firm prior to
joining Mandalay
-7-
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Compensation of Directors
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Any director who is also an employee of Mandalay or one of its
subsidiaries is not separately compensated for his or her services as a
director.
Each director who is not an employee of Mandalay or one of its
subsidiaries receives $35,000 each year for his or her services as a director.
Each nonemployee director also receives $1,500 for each meeting of the Board he
or she attends and $1,000 ($1,500 in the case of the committee chairperson) for
each meeting of a committee of the Board attended. They are also reimbursed for
out-of-pocket expenses associated with attending meetings.
Our 1991 Stock Incentive Plan provided for the annual grant of formula
awards in the form of stock options to our nonemployee directors during the
term of the plan, which expired on June 19, 2001. Under this plan, each of our
nonemployee directors received an option to purchase 10,000 shares of Mandalay
common stock on June 15, 2001, the date of our 2001 annual meeting of
stockholders (each a "2001 award"). The exercise price for each 2001 award is
$26.44 per share, representing the average of the Fair Market Values (as
defined) for the fifth (5th) through the ninth (9th) "business days" following
the date of grant. Each 2001 award will become exercisable when, and only if,
the optionee continues to serve as a director until this year's annual meeting
of stockholders. Unless forfeited in accordance with its terms, each 2001 award
will become exercisable as to 4,000 shares on June 20, 2002, as to another
3,000 shares on the date of our 2003 annual meeting of stockholders, and as to
the remaining 3,000 shares on the date of our 2004 annual meeting of
stockholders. Unless earlier exercised or forfeited, each 2001 award will
remain exercisable until June 15, 2011. In the event of the termination of a
2001 award holder's service as a director, other than "by reason of retirement"
(as defined), total and permanent disability or death, his or her 2001 award
and any other formula awards received under the plan in prior years (whether or
not then vested and whether or not then exercisable) will automatically expire
on (and may not be exercised on) the effective date of the termination. As
defined, the phrase "by reason of retirement" means mandatory retirement
pursuant to Board policy or termination of service at a time when the optionee
would, if an employee of Mandalay, be entitled to receive a retirement benefit
under our 401(k) plan. If a termination of service is by reason of retirement,
total and permanent disability or death, the terminated director's 2001 award
and any other then-outstanding formula awards that have vested (including any
awards which vest on the date of termination) will become exercisable, whether
or not they were previously exercisable, and each such award will expire one
year after the date of termination or on its stated expiration date, whichever
is earlier.
On October 2, 2001 the Board of Directors granted to each of the
individuals then serving as a nonemployee director, William E. Bannen, Arthur
H. Bilger, Rose McKinney-James, Michael D. McKee and Donna B. More, an option
to purchase 5,000 shares of Mandalay common stock at a per share exercise price
of $17.25, representing the closing price of our common stock on the New York
Stock Exchange Composite Tape on the date of the grants. Each option, which has
a term of ten years subject to earlier termination upon the occurrence of
certain events, becomes exercisable on October 2, 2002.
-8-
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Board Committees and Meeting Attendance
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Our Board of Directors has six committees. They are the Executive, Audit,
Compensation, Directors' Nominating, Compliance Review and Diversity
Committees. The Diversity Committee was not established until after the end of
the fiscal year. The Board of Directors has adopted a charter for the Audit
Committee, a copy of which is included as Appendix A to this proxy statement.
Each committee reports its actions to the full Board at the Board's next
regular meeting. A description of the duties of each committee follows the
table below.
Committee Membership and Meetings Held in Fiscal 2001
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Directors' Compliance
Name Executive Audit* Compensation Nominating Review Diversity
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Michael S. Ensign X
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William A. Richardson X
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Glenn W. Schaeffer X
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William E. Bannen X X**
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Arthur H. Bilger X** X
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Rose McKinney-James X** X**
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Michael D. McKee X** X
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Donna B. More X** X
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Number of Meetings in
Fiscal 2002*** 1 6 5 0 4 0
X Member
* Each member of the Audit Committee is "independent" as the term
"independence" is defined in Section 303.01(B)(2)(a) and (3) of the New
York Stock Exchange listing standards.
** Chairperson
*** The Board of Directors held seven meetings in fiscal 2002. Each director
attended at least 75% of the meetings of the Board and its committees of
which he or she was a member held during fiscal 2002.
The Executive Committee:
.. Has the full power of the Board during the period between meetings of the
Board, except those powers reserved to the Board or delegated by our Bylaws
or by the Board to another standing or special committee of the Board or as
may be prohibited by law.
The Audit Committee:
.. Examines the activities of our independent auditors and internal audit
department to determine whether these activities are reasonably designed to
assure the soundness of accounting and financial procedures;
.. Reviews our accounting policies and the objectivity of our financial
reporting;
.. Receives reports from our internal auditors and reviews the scope of our
internal audit program; and
-9-
.. Considers annually the qualifications of our independent auditors and the
scope of their audit and makes recommendations to the Board as to their
selection.
The Compensation Committee:
.. Reviews on a periodic basis, as it determines, the compensation of our
officers;
.. Recommends to the Board appropriate levels (and the appropriate forms) of
compensation for our officers; and
.. Performs such additional functions as the Board may authorize from time to
time relating to any stock option, incentive or other benefit plan approved
by the Board, including the administration of each of our stock option and
stock incentive plans currently in effect.
The Directors' Nominating Committee:
.. Evaluates and presents to the Board for its consideration candidates to fill
positions on the Board; and
.. Will consider individuals recommended by stockholders. Any stockholder who
wishes to recommend to the committee for its consideration a prospective
nominee for election to the Board may write to Yvette E. Landau, General
Counsel, Mandalay Resort Group, 3950 Las Vegas Boulevard South, Las Vegas,
NV 89119.
The Compliance Review Committee:
.. Assists the Board in the implementation and administration of our Gaming
Compliance Program;
.. Performs due diligence in respect of proposed transactions and associations;
and
.. Advises the Board of any gaming law compliance problems or situations which
may adversely affect the objectives of gaming control.
The Diversity Committee:
.. Reviews and recommends policies to encourage the inclusion of persons from
all backgrounds in employment, purchasing and development.
--------------------------------------------------------------------------------
Item 2 - Proposal to Approve the 2002 Stock Incentive Plan
--------------------------------------------------------------------------------
In the opinion of our Board of Directors, Mandalay and its stockholders
have in the past benefited substantially from having certain of its directors,
officers and key employees acquire shares of Mandalay common stock pursuant to
stock options granted as part of our compensation of those individuals. Those
awards, in the opinion of the Board, have been a highly effective incentive,
reinforcing the identity of interest of our directors, officers and other key
employees with that of our stockholders with respect to our strategies for
profitable growth and share-value appreciation. At the present time, we only
have approximately 7,190 shares remaining available for future issuance under
our existing plans, excluding shares subject to currently outstanding options.
Our ability to provide share-value incentives to our directors, officers, key
employees, consultants and advisors in the future will, in the opinion of our
Board, benefit our long-term financial performance and assist us in continuing
to compete for, motivate and retain the services of high caliber executive,
managerial and professional employees, directors, consultants, and advisors.
-10-
On May 6, 2002, our Board of Directors adopted the 2002 Stock Incentive
Plan (the "Incentive Plan"), subject to the approval of the plan by our
stockholders. If the Incentive Plan is not approved by our stockholders at the
meeting, any stock options or other awards granted under the plan will be null
and void. As of the date of this proxy statement, no stock options or other
awards have been granted under the Incentive Plan.
Description of the Incentive Plan
The purposes of the Incentive Plan are to enable Mandalay and its
affiliates to attract and retain the services of individuals with managerial,
professional or supervisory skills as employees, officers, directors,
consultants or advisors of Mandalay or any of its affiliates, and to motivate
them to use their best efforts on behalf of Mandalay and its affiliates by
granting them stock options and/or other awards permitted by the plan. The
Incentive Plan authorizes grants of stock options, including options that are
intended to qualify as "incentive stock options", as defined under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), as well as
options that are not intended to so qualify. The Incentive Plan also authorizes
the grant of restricted stock awards, which may, but need not, be linked to the
achievement of performance goals. Subject to adjustment in certain events,
described below, the maximum number of shares of Mandalay common stock that may
be issued under the Incentive Plan is 3,400,000, and the maximum number of such
shares for which stock options or other awards may be granted under the plan to
any individual in any calendar year is 1,500,000.
If a stock option granted under the Incentive Plan or a portion thereof
expires or is terminated, canceled or surrendered for any reason without being
exercised in full, or if an award of restricted stock is forfeited, in part or
in full, the shares of common stock which were subject to the unexercised
portion of the stock option and the restricted stock which was forfeited under
the terms of the plan or the applicable award agreement will again become
available for issuance under the plan.
The Incentive Plan will initially be administered by our Compensation
Committee, but the Board may subsequently designate one or more other
committees of our directors for this purpose, or may designate itself to
administer the plan, either alone or along with one or more committees. Our
Compensation Committee's current members are William E. Bannen and Michael D.
McKee, each of whom is a "non-employee director" (as that term is defined for
purposes of Rule 16b-3) and an "outside director" (as that term is defined for
purposes of Section 162(m) of the Code). In the event the administration of the
Incentive Plan is from time to time shared by the Board and/or one or more
committees of the Board, the Board will designate the respective
responsibilities of each body sharing in the plan's administration. In the
description of the Incentive Plan which follows, our references to the
"Administrator" refer to the body or bodies from time to time administering the
plan.
The Administrator (which currently is our Compensation Committee) has
full power, within the limits of the Incentive Plan, to determine the persons
to whom stock options or other awards are to be granted, the number of shares
to be subject to each award, and to establish the terms and conditions of each
award. Stock options and other awards under the Incentive Plan may be granted
by the Administrator to those employees, officers, members of the Board,
consultants or advisors of Mandalay or any of its affiliates that the
Administrator determines, at its sole discretion, qualify for such stock
options or awards. Approximately 2,800 employees of Mandalay and its
affiliates, including our five executive officers, and our directors are
currently eligible to receive grants of stock options or other awards under the
Incentive Plan, at the Administrator's discretion and subject to approval of
the plan by our stockholders.
Each stock option granted under the Incentive Plan will be designated as
either an "incentive stock option" or as an option that is not an "incentive
stock option" (a "nonqualified stock option"). Options will generally be
granted with an exercise price that is set by the Administrator at an amount at
least equal to the fair market value of the stock subject to the option as of
the date the option is granted. The term of each option will be set by the
Administrator, but cannot extend for more than ten years from the date the
option is granted.
-11-
Each option will become exercisable at the time or times established by the
Administrator for that option, which need not be the same for all options under
the plan. In the event of a Change of Control, as defined in Section 2.1(e) of
the Incentive Plan, all options granted pursuant thereto that are outstanding
as of the date of the Change of Control shall, to the extent not then
exercisable, become immediately exercisable in full. In all other respects, and
subject to the authority granted to the Administrator to adjust the terms of
options, the options shall remain in full force and effect and without any
other change of their terms or conditions. An option may be exercised, to the
extent it is then exercisable, in whole or in part by notice of exercise
accompanied by payment of the purchase price for the shares as required under
the terms of the option grant. The Incentive Plan generally permits the payment
of the purchase price in cash or by the delivery or withholding of Mandalay
common stock having a fair market value on the date of payment equal to the
purchase price required to be paid, or by a combination of cash and shares. The
Administrator may, however, impose limitations, conditions and prohibitions on
the use of shares of Mandalay common stock for these purposes. The
Administrator may amend the terms of any option granted under the Incentive
Plan in a manner consistent with the plan's terms but
. the optionee's consent will be required if the amendment is not
favorable to the optionee; and
. the approval of our stockholders will be required if the amendment would
constitute a repricing of the option.
In general, if an optionee's employment terminates, options that are then
exercisable will continue to be exercisable for a period of up to three months
(but not beyond the expiration of the original option term), while any options
that are not then exercisable will expire immediately upon termination of
employment. If, however, an optionee's employment terminates as a result of the
optionee's total disability, because of the optionee's death, because of the
optionee's retirement in accordance with Mandalay's policies, or because of a
termination of the optionee without "cause" or because the optionee terminates
for "good reason" (as these terms are defined in an optionee's employment
agreement or in the agreement evidencing the option) the optionee's outstanding
options will immediately become fully exercisable and may be exercised for a
period of up to six months (but not beyond the expiration of the original
option term). The Administrator may, however, vary any or all of the terms and
conditions relating to the termination or continuation of any option granted
under the Incentive Plan by including other terms and conditions in the
applicable option grant, at its discretion.
Under the terms of the Incentive Plan, any option not previously
exercised will, unless the terms of the grant provide otherwise, terminate
immediately if the participant ceases to be the employee, director, consultant
or advisor of Mandalay or an affiliate of Mandalay for certain stated reasons,
including but not limited to (i) dishonesty, (ii) breach of a material
provision of any employment or other written agreement with Mandalay or an
affiliate of Mandalay, or (iii) the inability to continue under any law or
governmental regulation, including any Nevada gaming law or regulation.
Any restricted stock award granted under the Incentive Plan may, at the
Administrator's discretion, require the payment of a purchase price by the
recipient, and may be subject to restrictions and conditions which will cause
the award to be forfeited if the conditions are not met. Any restricted stock
award may restrict transfer prior to the satisfaction of the terms and
conditions established for the award. The terms and conditions of each
restricted stock award will be established at the Administrator's discretion
and can be varied for each restricted stock award granted. The recipient of a
restricted stock award will, on the grant of the award and compliance with any
requirements for transfer of the shares subject to the award, have all of the
rights of a stockholder with respect to the shares subject to the award,
including the right to vote the shares and receive any dividends and other
distributions attributable to the shares, unless the Administrator, in its sole
discretion, establishes different terms or conditions.
The Administrator also has the authority to make restricted stock awards
under a performance-based arrangement that may be established under the
Incentive Plan and which is intended to result in compensation that is exempt
from the limitations otherwise imposed on the deduction of certain executive
compensation under Section 162(m) of the Code, as discussed below. If a
determination is made to grant such performance
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based stock awards, the Administrator will consist exclusively of two or more
members of the Board who are "outside directors," as that term is defined for
purposes of Section 162(m). That Administrator will establish performance goals
with respect to the specific performance period for which the award is to be
made. This action will be in writing and will be within or prior to the first
90 days (or within the first 25%, if that is less than 90 days) of the
performance period. If that performance goal is not achieved during the
performance period, the stock award will either be forfeited, or if the
issuance of the stock was contingent on the achievement of the performance
goal, the award will not be made. In general, the performance period will be
Mandalay's fiscal year, unless some other period is selected as a performance
period by the Administrator. The performance goals will be based on one or more
of the following: stock price, market share, gross revenue, net revenue, pretax
income, operating income, cash flow, earnings per share, return on equity,
return on invested capital or assets, cost reductions and savings, return on
revenues, productivity, or any variations of the preceding criteria. The
Administrator may also, to the extent consistent with the performance based
compensation rules applicable under Code Section 162(m), include in the
performance goal the attainment by the award recipient of personal objectives
with respect to the criteria noted above or with respect to the implementation
of policies and plans, negotiating transactions and sales, developing long-term
business goals or exercising managerial responsibility. The achievement of the
performance goals established with respect to an award must be certified in
writing before the award can vest or the grant can be made, if the grant itself
is contingent on achievement of the performance goals. The Administrator also
has the discretion to place other terms, conditions or restrictions on
performance awards that are not inconsistent with the specific provisions that
relate to performance awards or to awards generally under the Incentive Plan.
The Incentive Plan may be suspended, terminated or reinstated, in whole
or in part, at any time by the Board, and may be amended at the Board's
discretion, but the amendment will require the approval of Mandalay's
stockholders if it:
. increases the maximum number of shares of common stock which may be
issued under the plan;
. extends the term of the plan;
. increases the period during which a stock option may be exercised
beyond ten years from the date of grant;
. materially increases the benefits accruing to participants under the
plan; or
. materially modifies the requirements for eligibility to receive
options or restricted stock awards under the plan.
In addition, the Board generally cannot amend or terminate the Incentive Plan
without the consent of the optionee or recipient of any outstanding stock
option or restricted stock award adversely affected by the Board's action.
With limited exceptions, options and restricted stock awards (other than
awards that have vested and as to which all restrictions have lapsed) granted
pursuant to the Incentive Plan cannot be transferred or assigned except by will
or by the laws of descent and distribution and such options cannot be exercised
during the optionee's lifetime by any person other than the optionee or the
optionee's guardian or legal representative. Any option that is not an
incentive stock option (an "ISO") will be transferable pursuant to a "domestic
relations order" as defined in the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder, and may, at the Administrator's
discretion, be transferable without payment of consideration to one or more of
the optionee's immediate family members (i.e., spouse or former spouse,
parents, issue, including adopted and "step" issue, or siblings), trusts for
the benefit of one or more immediate family members, partnerships whose
partners are immediate family members, or to any transferee permitted by a rule
adopted by the Administrator or approved by the Administrator in an individual
case. Any transferee will be subject to all of the conditions set forth in the
agreement evidencing the option.
The purchase price, if applicable, and the number and kind of shares that
may be purchased upon exercise of options or acquired under restricted stock
awards granted pursuant to the Incentive Plan, and the
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number of shares which may be issued pursuant to the Incentive Plan, are
subject to adjustment in certain events, including any stock split,
recapitalization or reorganization.
On May 13, 2002, the closing price of the Mandalay common stock, as
reported on the New York Stock Exchange Composite Tape, was $34.30 per share.
Certain Federal Income Tax Aspects of the Plan
Incentive Stock Options. In general, the grantee of an ISO will not
recognize regular taxable income upon either the grant or the exercise of the
option. The grantee will recognize capital gain or loss on a disposition of the
shares acquired upon exercise of an ISO, provided the grantee does not dispose
of the shares within two years after the date the option was granted or within
one year after the date the shares were transferred to the grantee. For regular
federal income tax purposes, the maximum rate of tax applicable to capital
gains is dependent on the length of time the shares have been held at the time
of sale. If the shares have been held for more than one year, the maximum
regular federal tax rate applicable to the gain on the sale will be 20% (18% if
held more than five years). If the shares have been held for one year or less,
the gain on the sale will be taxed at the same tax rate (a maximum of 38.6% for
income reported for 2002) applicable to other taxable income generally. If the
option holder satisfies both of the foregoing holding periods, then Mandalay
will not be allowed a deduction by reason of the grant or exercise of an ISO.
As a general rule, if the grantee disposes of shares acquired through
exercise of an ISO before satisfying both holding period requirements (a
"disqualifying disposition"), the gain recognized by the grantee on the
disposition will be taxed as ordinary income to the extent of the difference
between the fair market value of the shares on the date of exercise and the
adjusted basis of the shares, and Mandalay will be entitled to a deduction in
that amount. The income recognized will not, however exceed the difference
between the amount actually realized on the disposition and the adjusted basis
of the shares (which would limit the amount of income recognized if, for
example, the value of the shares declined subsequent to the date the option was
exercised). The gain (if any) in excess of the amount treated as ordinary
income will be treated as a long or short term capital gain (based on the
length of time the grantee held the shares as of the date of the disposition).
The amount by which the fair market value of a share at the time of
exercise exceeds the option exercise price will be included in the computation
of the option holder's "alternative minimum taxable income" in the year the ISO
is exercised. Currently, the maximum alternative minimum tax rate is 28%. If
the holder of an ISO pays alternative minimum tax with respect to the exercise
of an incentive stock option, then the amount of such tax paid will be allowed
as a credit against regular tax liability in subsequent years. The option
holder's basis in the shares for purposes of the alternative minimum tax will
be adjusted when income from a disposition of the shares is included in
alternative minimum taxable income.
Nonqualified Stock Options. A grantee of a nonqualified stock option
(which is an option other than an option that qualifies as an ISO or which is
designated as not intended to be an ISO) will not recognize taxable income at
the time the option is granted, and Mandalay will not be allowed a deduction by
reason of the grant. The grantee will generally recognize ordinary income in
the taxable year in which he or she exercises the option. The amount of income
will be generally equal to the excess of the fair market value of the shares
received upon exercise (determined at the time of exercise) over the option
exercise price paid for the shares. Mandalay will, subject to various
limitations, be allowed a deduction in the same amount. Upon disposition of
these shares, the grantee will recognize a long or short term capital gain or
loss equal to the difference between the amount realized on disposition and his
or her basis in the share (which ordinarily would be the fair market value of
the shares on the date the option was exercised).
Other Awards. The recipient of a restricted stock award will become
vested as provided for by the Administrator when making the award. Under
applicable provisions of the Code, the recipient will, for federal
-14-
income tax purposes, be required to include in his or her taxable income (as
ordinary compensation income) the value of the shares subject to the award as
of the time they become vested (reduced by the amount, if any, that was
required to be paid for the shares). The fair market value of the shares as of
the vesting date establishes the basis for determining capital gains or losses
on a subsequent sale of the shares, and the holding period for purposes of
determining the long or short-term character of a capital gain starts on the
vesting date (not on the date the shares were granted).
If a recipient of a restricted stock award makes a special election under
Section 83(b) of the Code, however, he or she will recognize as ordinary income
the fair market value of the stock subject to the award as of the date the
shares are granted, even though the shares have not yet vested. An election
under this Code provision must be made within 30 days of the transfer of the
shares, and the fair market value of the shares must be determined without
regard to the vesting restrictions that otherwise could cause the shares to be
forfeited. If the shares are forfeited, the award recipient will not be able to
claim a tax loss for the forfeiture except to the extent he or she was required
to pay a purchase price for the shares. As a consequence of making an
Section 83(b) election, however, the award recipient will have no income as a
result of the later vesting of the shares, and when the shares are sold, the
difference between the amount realized from the sale and the fair market value
on the date of grant (i.e., the value used in reporting income as a result of
the Section 83(b) election), will be a capital gain or loss, and will be either
long or short term by reference to the original grant date.
Deductibility of Executive Compensation Under Code Section
162(m). Section 162(m) of the Code sets limits on the deductibility of
compensation in excess of $1,000,000 paid by publicly held companies to certain
employees (the "million dollar cap"). The IRS has also issued Treasury
Regulations which provide rules for the application of the "million dollar cap"
deduction limitations. Income which is treated as "performance-based
compensation" under these rules will not be subject to the limitation on
deductibility imposed by Code Section 162(m).
The Incentive Plan has been designed to permit option grants to qualify
under the performance-based compensation rules so that income attributable to
the exercise of a nonqualified option may be exempt from the million dollar cap
limits on deduction. The Plan's provisions are consistent in form with the
performance-based compensation rules, so that if the Administrator that grants
options consists exclusively of members of the Board who qualify as "outside
directors" the compensation income arising on exercise of those options should
qualify as performance-based compensation which is deductible even if that
income would be in excess of the otherwise applicable limits on deductible
compensation income under Code Section 162(m). In addition, if the
Administrator determines to make performance-based stock awards, as described
above, the income attributable to those stock awards should also be treated as
performance-based compensation that is exempt from the limitations of Code
Section 162(m).
The foregoing description of the Incentive Plan is qualified in all
respects by the actual provisions of the plan, a copy of which is included with
this proxy statement as Appendix B.
-15-
Equity Compensation Plan Information
The following table gives information about our common stock that may be
issued upon the exercise of options outstanding under all of our existing
equity compensation plans as of January 31, 2002. As of that date, we did not
have any warrants or other rights to acquire our common stock outstanding under
our plans. The table does not include the additional shares which will be
authorized for issuance under the 2002 Stock Incentive Plan if that plan is
approved by stockholders.
Equity Compensation Plan Information
----------------------------------------------------------------------------------------------------
Number of securities
Number of securities remaining available for
to be issued Weighted-average future issuance under
upon exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
----------------------------------------------------------------------------------------------------
(a) (b) (c)
Equity compensation
plans approved by
security holders 7,714,610 $16.45 5,017(2)
----------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by
security holders(1) 2,182,761 $15.51 1,773
----------------------------------------------------------------------------------------------------
Total 9,897,371 $16.24 6,790
--------
(1) These plans are our 1998 Stock Option Plan and our 1999 Non-Employee
Directors Stock Option Plan which are described below.
(2) All of these shares are available under our 1993 Stock Option Plan.
No awards other than stock options may be granted under the 1993
Stock Option Plan.
On April 23, 1998 our Board of Directors adopted the 1998 Stock Option
Plan (the "1998 Plan"), which provides for the issuance of options to purchase
shares of Mandalay common stock to full-time salaried employees of Mandalay and
its subsidiaries (other than excluded individuals) who have managerial,
professional or supervisory responsibilities and consultants and advisors
(other than excluded individuals) who render bona fide services to Mandalay and
its subsidiaries, in each case, where the committee administering the plan
determines that the individual has the capacity to make a substantial
contribution to the success of Mandalay. Individuals who serve as executive
officers of Mandalay (including its Chairman of the Board, its President, its
Vice-Presidents) and directors of Mandalay are not permitted to receive options
under the 1998 Plan, and the plan may not be amended to permit the grant of
options to such individuals without the approval of our stockholders. Except as
otherwise provided in the preceding sentence, the 1998 Plan may be amended by
the Board of Directors without the consent of stockholders, but any amendment
may not, without the consent of the holder of any options granted pursuant
thereto, affect the holder's rights under those options. The number of
individuals who are currently eligible to receive options under the 1998 Plan
is approximately 2,800. The 1998 Plan, which provides for the issuance of
options to purchase up to three million shares, is administered by the
Compensation Committee of Mandalay's Board of Directors which has the
authority, subject to the limits imposed by the terms of the plan, to determine
the persons to whom options are granted and the terms of those options.
On February 12, 1999, our Board of Directors adopted the 1999 Non-
Employee Directors Stock Option Plan (the "1999 Plan"), which provides for the
grant of options to purchase up to 100,000 shares to our non-employee
directors. The Board of Directors has exclusive authority, subject to the
limits imposed by the terms of the 1999 Plan, to determine the individuals to
whom options are to be granted and the terms of those options. On the date the
1999 Plan was adopted, the Board of Directors granted to each of the four
individuals then serving as a non-employee director an option to purchase
25,000 shares of our common stock
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at $14.50 per share, representing the closing price of the common stock on the
New York Stock Exchange Composite Tape on the date of the grants. The 1999 Plan
may be amended by the Board of Directors without the consent of stockholders,
but any amendment may not, without the consent of the holder of any options
granted pursuant thereto, affect the holder's rights under those options.
Subject to the rights reserved to the Board of Directors, the 1999 Plan is
administered by a committee whose members are Michael S. Ensign and Glenn W.
Schaeffer, neither of whom is eligible to receive an award under the 1999 Plan.
No awards other than stock options may be granted under the 1998 Plan or
the 1999 Plan. The options granted under the 1998 Plan and the 1999 Plan are
not intended to qualify as incentive stock options under Section 422 of the
Code. Each option granted under either plan must be granted at an exercise
price which is not less than the fair market value of Mandalay's common stock
on the grant date. The purchase price and the number and kind of shares that
may be purchased upon the exercise of options granted pursuant to either plan,
and the number of shares which may be issued pursuant to either plan, are
subject to adjustment in certain events, including any stock split,
recapitalization or reorganization. Each option granted under either plan may
be for a term of not more than ten years and, by its terms, will not be
transferable except by will or the laws of descent and distribution and may be
exercised during the optionee's lifetime only by the optionee or the optionee's
guardian or legal representative. If a stock option granted under either plan
expires or is terminated, canceled or surrendered for any reason without being
exercised in full, the shares of common stock which were subject to the
unexercised portion of the stock option will again become available for
issuance under that plan. Each option granted under either plan, except as
otherwise provided by the terms of the grant, will continue to be exercisable
in the event of a termination of the optionee's employment or other
relationship with Mandalay (but only to the extent exercisable at the time of
such termination) for a period of three months or until such earlier date as
the option expires by its terms. In the event of the optionee's total
disability, an option becomes immediately exercisable in full for a period of
six months (in the case of the 1998 Plan) or 12 months (in the case of the 1999
Plan) or, in either case, until the earlier date the option expires by its
terms. Each option granted under either plan becomes immediately exercisable in
full for a period of 12 months in the event of the optionee's death or until
the earlier date the option expires by its terms. Specified acts of misconduct,
such as dishonesty, disclosure of confidential information or the inability of
the optionee to continue the optionee's relationship with Mandalay under any
law or governmental regulation, including any Nevada gaming law or regulation,
will result in the immediate termination of an option granted under either
plan. Each plan will remain in effect for a period of ten years following its
adoption by our Board of Directors or until earlier terminated by our Board of
Directors.
Vote Required for Approval of the Incentive Plan
Your Board of Directors has approved the Incentive Plan. However, the
Incentive Plan will become null and void unless at the meeting the number of
shares of common stock voted "FOR" approval of the Incentive Plan exceeds the
number of shares voted "AGAINST" such approval.
Your Board of Directors recommends a vote "FOR" approval of the Incentive
Plan.
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--------------------------------------------------------------------------------
Item 3 - Ratification of Selection of Independent Auditors
--------------------------------------------------------------------------------
On May 14, 2002, the Board of Directors selected Deloitte & Touche LLP
("Deloitte") as Mandalay's independent auditors for the fiscal year ending
January 31, 2003. The selection of Deloitte was recommended to the Board of
Directors by its Audit Committee. Although not required by law or otherwise,
the selection is being submitted to the stockholders for ratification. Deloitte
has been selected to replace Arthur Andersen LLP ("Andersen"), an international
firm of certified public accountants, which has audited Mandalay's financial
statements since 1980.
The decision to change auditors was not the result of any disagreement
with Andersen with respect to any reporting or disclosure requirement
applicable to Mandalay. The reports of Andersen on Mandalay's consolidated
financial statements for the fiscal years ended January 31, 2002 and 2001 did
not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
During our fiscal years ended January 31, 2002 and 2001 and the interim period
from February 1, 2002 through May 14, 2002, there were no disagreements with
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope and procedure which, if not resolved to
the satisfaction of Andersen, would have caused Andersen to make reference to
the matter in their report. During such fiscal years and interim period there
were no "reportable events", as that term is defined in paragraph (a)(1)(v) of
Item 304 of Securities and Exchange Commission Regulation S-K. During such
fiscal years and interim period Andersen did not advise us that the internal
controls necessary for Mandalay to develop reliable financial statements did
not exist, or of any material matters with respect to our reports or financial
statements or of information that had come to its attention that had led it to
no longer be able to rely on our management's representations, or that made it
unwilling to be associated with the financial statements prepared by our
management, or that led it to advise us of the need to expand significantly the
scope of its audit or that led it to question the fairness or reliability of
its previously issued audit reports or the underlying financial statements or
any financial statements that may be issued covering any fiscal period
subsequent to the date of the most recent financial statements covered by an
audit report.
During our fiscal years ended January 31, 2002 and 2001 and the interim
period prior to our engagement of Deloitte, we did not consult Deloitte with
respect to the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on Mandalay's consolidated financial statements, or on any matter on
which there was a disagreement with Andersen or which constituted a reportable
event, as described above.
We anticipate that a representative of Deloitte will be present at the
meeting and, if so, he will be given the opportunity to make a statement if he
desires to do so. We also anticipate that the Deloitte representative, if
present at the meeting, will be available to respond to appropriate questions
from stockholders. We do not expect a representative of Andersen to attend the
meeting but, if an Andersen representative should be present at the meeting, he
will also be given the opportunity to make a statement and to respond to
appropriate questions from stockholders if he desires to do so.
Audit Fees
Audit fees billed to Mandalay by Andersen during the fiscal year ended
January 31, 2002 for the audit of our annual financial statements and the
review of the financial statements included in our quarterly reports on Form
10-Q totaled $475,000.
Financial Information Systems Design and Implementation Fees
Mandalay did not engage Andersen to provide advice regarding financial
information systems design and implementation during the fiscal year ended
January 31, 2002.
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All Other Fees
Fees billed to Mandalay by Andersen during the fiscal year ended January
31, 2002 for all non-audit services rendered to us, including tax related
services, totaled $521,000. The Audit Committee of the Board of Directors
considered whether the provision of these services by Andersen was compatible
with maintaining that firm's independence.
The Board of Directors recommends a vote "FOR" ratification of the
selection of Deloitte & Touche LLP as our independent auditors for the fiscal
year ending January 31, 2003.
--------------------------------------------------------------------------------
Executive Compensation
--------------------------------------------------------------------------------
Summary Compensation Table
This table indicates, for each of our last three fiscal years, the cash and
other compensation paid to our executive officers who are named in the table.
In this proxy statement, we sometimes refer to this group of individuals as our
"Named Executive Officers."
Annual Compensation (1) Long Term Compensation
-----------------------------------------------------------
Name and Fiscal Salary Bonus Restricted Securities All Other
Principal Year ($) ($) Stock Awards Underlying Compensa-
Position ($) Options(2) tion
(#) ($)
----------------------------------------------------------------------------------------------
Michael S. Ensign 2002 983,333 800,000 0 1,400,000 750(3)
Chairman of the Board 2001 900,000 900,000 0 0 625
and Chief Executive 2000 900,000 900,000 0 1,000,000 500
Officer
----------------------------------------------------------------------------------------------
Glenn W. Schaeffer 2002 822,252 540,000 0 450,000 25,194(4)
President, Chief 2001 733,333 800,000 0 0 25,519
Financial
Officer and Treasurer 2000 800,000 800,000 0 350,000 25,837
----------------------------------------------------------------------------------------------
William A. Richardson 2002 933,333 740,000 0 1,400,000 750(5)
Vice Chairman of the 2001 850,000 850,000 0 0 625
Board 2000 850,000 850,000 0 1,000,000 500
----------------------------------------------------------------------------------------------
Yvette E. Landau 2002 200,000 262,500 0 166,000 1,000(6)
Vice President, General 2001 200,000 281,250 0 0 875
Counsel and Secretary 2000 181,250 225,000 0 72,500 750
----------------------------------------------------------------------------------------------
Les Martin 2002 197,177 113,832 0 59,000 6,656(7)
Vice President and 2001 174,500 137,000 0 0 6,716
Chief Accounting 2000 137,000 137,000 0 25,000 6,677
Officer
(1) Certain of the individuals named in this table received personal benefits
that are not reflected in their salary and bonus amounts. The value of the
personal benefits received by each of these individuals did not, in any of our
last three fiscal years, exceed $50,000 or 10% of the individual's total annual
salary and bonus for that fiscal year.
(2) We have not granted any stock appreciation rights ("SARs").
(3) This amount represents a contribution we made to our 401(k) Plan for Mr.
Ensign's benefit.
(footnotes continued on next page)
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(4) Of this amount, $1,419 represents the premium we paid for the term life
portion of a split-dollar life insurance policy, $17,617 represents the present
value (more fully described in Note 8) of the nonterm portion of the premium we
paid for that split-dollar policy, $5,408 represents disability insurance
premiums we paid, and $750 represents a contribution we made to our 401(k) Plan
for Mr. Schaeffer's benefit.
(5) This amount represents a contribution we made to our 401(k) Plan for Mr.
Richardson's benefit.
(6) This amount represents a contribution we made to our 401(k) Plan for Ms.
Landau's benefit.
(7) Of this amount, $177 represents the premium we paid for the term life
portion of a split-dollar life insurance policy, $3,907 represents the present
value (more fully described in Note 8) of the nonterm portion of the premium
paid for that split-dollar policy, $1,572 represents disability insurance
premiums we paid, and $1,000 represents a contribution we made to our 401(k)
Plan for Mr. Martin's benefit.
(8) The present value of the premium we paid on the nonterm portion of each of
the split-dollar life insurance policies referred to in Notes 4 and 7
represents a value equivalent to the interest-free use of that premium over the
period from the date we paid the premium to the earliest date we are expected
to receive a refund of the premium, based on an interest rate of 8.2% per
annum. For fiscal 2000 and fiscal 1999 we reported the amount in the same
manner.
Option Grants In Last Fiscal Year (1)
This table shows the number and value of stock options granted to each of our
Named Executive Officers in fiscal 2002.
% of Total Potential Realizable
Number of Options Value at Assumed
Securities Granted to Exercise Annual Rate of
Underlying Employees or Base Stock Price
Options in Price (2) Expiration Appreciation for
Name Granted (#) Fiscal Year ($/Sh) Date (6) Option Term (7)
5% ($) 10% ($)
--------------------------------------------------------------------------------------------
Michael S. Ensign 1,000,000(3) 21.73 20.20 2/28/11 12,703,671 32,193,598
400,000(4) 8.69 17.25 10/1/11 4,337,870 10,992,150
--------------------------------------------------------------------------------------------
Glenn W. Schaeffer 250,000(5) 5.43 20.20 2/28/11 3,175,918 8,048,399
200,000(4) 4.35 17.25 10/1/11 2,168,935 5,496,075
--------------------------------------------------------------------------------------------
William A. Richardson 1,000,000(3) 21.73 20.20 2/28/11 12,703,671 32,193,598
400,000(4) 8.69 17.25 10/1/11 4,337,870 10,992,150
--------------------------------------------------------------------------------------------
Yvette E. Landau 100,000(5) 2.17 20.20 2/28/11 1,270,367 3,219,360
66,000(4) 1.43 17.25 10/1/11 715,749 1,813,705
--------------------------------------------------------------------------------------------
Les Martin 25,000(5) 0.54 20.20 2/28/11 317,592 804,840
34,000(4) 0.74 17.25 10/1/11 368,719 934,333
(1)No SARs were granted.
(2)Options may be exercised with cash, other shares of our common stock or a
combination of cash and such shares at the discretion of the committee which
administers our stock option plans.
(3)By its terms, the option pursuant to which these shares may be purchased
first became exercisable as to 333,333 shares on the first anniversary of the
grant date, becomes exercisable as to 333,333 shares on the second anniversary
of the grant date and becomes exercisable as to the remaining 333,334 shares on
the third anniversary of the grant date.
(4)By its terms, the option pursuant to which these shares may be purchased
first becomes exercisable as to all of the shares covered thereby on October 2,
2002.
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(5)By its terms, the option pursuant to which these shares may be purchased
first becomes exercisable in five equal annual installments beginning on the
first anniversary of the grant date.
(6)Each option is subject to termination prior to its stated expiration date in
certain instances relating to termination of employment.
(7)These amounts are based on assumed rates of appreciation and are not
intended to forecast future appreciation in the price of our common stock.
Actual gains, if any, on stock option exercises are dependent on the future
performance of our stock. There can be no assurance that the amounts reflected
in these columns will be achieved or, if achieved, that they will exist at the
time of any option exercise.
Aggregated Option Exercises In The Last Fiscal Year And Fiscal Year-End Option
Values (1)
This table shows the number and value of stock options exercised in fiscal
2002, and the value of unexercised options as of the end of fiscal 2002, for
each of our Named Executive Officers.
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money Options at
on Value Options at Fiscal Fiscal Year-End(2)
Exercise Realized Year-End (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
----------------------------------------------------------------------------------------------
Michael S. Ensign 0 N/A 666,666/1,733,334 9,366,657/15,453,343
----------------------------------------------------------------------------------------------
Glenn W. Schaeffer 0 N/A 766,666/566,667 11,704,990/5,311,671
----------------------------------------------------------------------------------------------
William A. Richardson 0 N/A 666,666/1,733,334 9,366,657/15,453,343
----------------------------------------------------------------------------------------------
Yvette E. Landau 0 N/A 75,833/190,167 1,113,579/1,671,346
----------------------------------------------------------------------------------------------
Les Martin 0 N/A 8,333/67,334 117,079/621,543
(1)No SARs were exercised during fiscal 2002 or held as of January 31, 2002.
(2)Represents, with respect to each share, the closing price for our common
stock on the New York Stock Exchange on January 31, 2002, less the exercise
price payable for the share.
Employment Agreements
Mandalay currently employs Michael S. Ensign, Glenn W. Schaeffer and
William A. Richardson pursuant to employment agreements, each of which became
effective on June 1, 1995. While each employment agreement terminates on May
31, 2002, neither Mandalay's continued employment of Messrs. Ensign, Schaeffer
and Richardson nor their respective positions with Mandalay is expected to be
affected by such terminations. Under their agreements, Messrs. Ensign,
Schaeffer and Richardson are entitled to receive current minimum base salaries
of $837,561, $804,057 and 837,561, respectively, plus any discretionary
increases that are determined by the Board of Directors. Each agreement
provides for the employee's eligibility to receive an annual bonus with a
targeted annual bonus of not less than 100% of the employee's then-current base
salary. Each agreement obligates Mandalay to pay the employee's current base
salary and targeted bonus (plus any other amounts due to, or for the benefit
of, the employee) until May 31, 2002. Each agreement also provides that if,
during the remaining term of the agreement, the employee's employment is
terminated because of his removal from his position as an executive officer of
Mandalay, Mandalay's breach of any material provision of the agreement, he is
required to work at any place other than in Las Vegas, a "Change in Control"
occurs or the agreement is terminated by Mandalay without "Cause," the employee
will be entitled to receive his current base salary and targeted bonus plus any
other amounts due to, or for the benefits of, the employee for a period of 12
months. Upon any such termination of employment, any options to purchase
Mandalay's common stock then held by the terminated employee will become
exercisable immediately in accordance with the terms of his employment
agreement. Each employment agreement provides that Mandalay may, with or
without cause, and
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without terminating the employee's employment, remove the employee from his
position as an executive officer of Mandalay upon 60 days' notice. In that
event, the employee may, during the 60-day period, elect to continue as an
employee in a nonexecutive capacity in accordance with the other terms of his
employment agreement, or may elect to terminate the agreement. A "Change of
Control" generally will occur for purposes of the agreement upon the
acquisition by any person of more than 50% of Mandalay's common stock, upon the
consolidation or merger of Mandalay if, as a result, the holders of Mandalay's
common stock immediately prior to the transaction own, directly or indirectly,
less than 50% of the voting power of the voting stock of the surviving entity
immediately after the transaction, or if Mandalay is liquidated or dissolved or
adopts a plan of liquidation. For purposes of the agreement, Mandalay's right
to terminate for "Cause" includes the employee's fraud, misappropriation,
embezzlement, or other act of material misconduct against Mandalay or any of
its affiliates, his willful violation of any rules or regulations of any
governmental or regulatory body which is materially injurious to Mandalay's
financial condition, his conviction of a felony or his loss of any personal
gaming or related regulatory approval or license required to perform his duties
under the agreement.
Executive Officers' Bonus Plan
We have an Executive Officers' Bonus Plan which was adopted by our Board
of Directors on April 26, 2000 and approved by our stockholders on June 15,
2000.
The Bonus Plan is a performance bonus plan which is designed to provide
certain senior executives with incentive compensation based upon the
achievement of pre-established performance goals. The Bonus Plan is intended to
provide an incentive for superior work and to motivate participating officers
toward even higher achievement and business results, to tie their goals and
interests to those of Mandalay and its stockholders and to enable Mandalay to
attract and retain highly qualified executive officers. Executive officers at
the level of vice president or above may be eligible to participate in the
Bonus Plan. Prior to, or at the time of, establishment of the performance
objectives for a performance period, which will generally be the fiscal year,
the Committee designated under the Bonus Plan (currently the Compensation
Committee (the "Committee")) designates the specific executive officers who
will participate in the Bonus Plan for that performance period. Messrs. Ensign,
Schaeffer and Richardson have been designated to participate in the Bonus Plan
for the fiscal year ending January 31, 2003.
The Bonus Plan is designed to comply with Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), as that section relates to
performance-based compensation. Section 162(m) generally limits to $1,000,000
the amount of tax deductible compensation that may be paid by Mandalay in a
fiscal year to each of the officers named in the compensation table of its
proxy statement for that fiscal year. At the beginning of each performance
period and subject to the requirements of Section 162(m), the Committee
establishes performance goals, specific performance objectives and objectively
determinable computation formula or methods for determining each participant's
bonus under the Bonus Plan for that performance period. The performance goals
may include any one or more of the following corporate business criteria: stock
price, market share, gross revenue, net revenue, pretax income, operating
income, cash flow, earnings per share, return on equity, return on invested
capital or assets, cost reductions and savings, return on revenues,
productivity or any variations of the preceding criteria. In addition, to the
extent consistent with the goal of providing for deductibility under Section
162(m) of the Code, performance goals may include a participant's attainment of
personal objectives with respect to any of the foregoing performance goals or
implementing policies and plans, negotiating transactions and sales, developing
long-term business goals or exercising managerial responsibility.
At or after the end of each performance period, the Committee is required
by the terms of the Bonus Plan to certify in writing whether the pre-
established performance goals and objectives have been satisfied in such
performance period. The actual bonus award for any participant for a
performance period will then be determined based upon the pre-established
computation formulae or methods. In no event will any bonus award for any
fiscal year exceed the lesser of 150% of the participant's annual base salary
as in effect at the beginning
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of the fiscal year or $2,500,000. The Committee has no discretion to increase
the amount of any participant's bonus under the Bonus Plan as so determined,
but may reduce the amount of, or totally eliminate, the bonus if the Committee
determines, in its absolute and sole discretion, that such a reduction or
elimination is appropriate in order to reflect the participant's performance or
unanticipated factors. In no event will the aggregate amount of all bonuses
payable in any plan year under the Bonus Plan exceed 10% of Mandalay's average
annual income before taxes during its preceding five fiscal years.
Approved awards under the Bonus Plan are payable in cash as soon as is
practicable after the end of each performance period and after the Committee
has certified in writing that the relevant performance goals were achieved.
Awards that are otherwise payable to a participant who is not employed by
Mandalay as of the last day of a performance period will be prorated or
eliminated pursuant to specified provisions of the Bonus Plan. A participant
will recognize ordinary taxable income upon receipt of payments under the Bonus
Plan.
Pension Plan
The following table shows the estimated annual benefits payable to "Tier
I" participants under Mandalay's Supplementary Executive Retirement Plan (the
"SERP") at normal retirement (which is age 65), based on years of service
credited under the SERP and the participant's final compensation, as determined
under the SERP. The amounts payable to "Tier I" participants represent the
highest level of benefits available under the SERP.
Estimated Annual Benefits
Upon Retirement at Age 65
After Completion of the Following Years of Service*
-----------------------------------------------------------------------------------------
Years of Service
------------------------------------------------------------------------------
Remuneration** Less than 4 4 or 5 6 or 7 8 or 9 10 or 11 12 or 13 14 or more
-----------------------------------------------------------------------------------------
$ 200,000 $ 0 $ 40,000 $ 50,000 $ 60,000 $ 80,000 $ 100,000 $ 120,000
-----------------------------------------------------------------------------------------
$ 450,000 $ 0 $ 90,000 $112,500 $ 135,000 $180,000 $ 225,000 $ 270,000
-----------------------------------------------------------------------------------------
$ 700,000 $ 0 $140,000 $175,000 $ 210,000 $280,000 $ 350,000 $ 420,000
-----------------------------------------------------------------------------------------
$ 950,000 $ 0 $190,000 $237,500 $ 285,000 $380,000 $ 475,000 $ 570,000
-----------------------------------------------------------------------------------------
$1,200,000 $ 0 $240,000 $300,000 $ 360,000 $480,000 $ 600,000 $ 720,000
-----------------------------------------------------------------------------------------
$1,450,000 $ 0 $290,000 $362,500 $ 435,000 $580,000 $ 725,000 $ 870,000
-----------------------------------------------------------------------------------------
$1,700,000 $ 0 $340,000 $425,000 $ 510,000 $680,000 $ 850,000 $1,020,000
-----------------------------------------------------------------------------------------
$1,950,000 $ 0 $390,000 $487,500 $ 585,000 $780,000 $ 975,000 $1,170,000
-----------------------------------------------------------------------------------------
$2,200,000 $ 0 $440,000 $550,000 $ 660,000 $880,000 $1,100,000 $1,320,000
*The amounts set forth in the table are computed as an annual benefit
payable in the form of a straight-life annuity, commencing following the
participant's attainment of age 65, the normal retirement age under the SERP.
The benefits listed in the table are not subject to any deduction for Social
Security or other offset amounts.
**The amount of a participant's remuneration for purposes of determining
benefits under the table is his or her highest annual compensation during any
of the last five full calendar years the participant is employed (or such
smaller number of full calendar years if the participant has not worked for
five years at the time of terminating his or her employment) or the 12-month
period ending on the participant's termination of employment with Mandalay.
Annual compensation for this purpose is the participant's base salary plus his
or her bonus. The SERP limits the amount of bonus that may be taken into
account for this purpose to 150% of base salary. A participant is credited with
a year of service under the SERP for each period of 12 full months of
employment with Mandalay, but service credit for periods prior to enrollment in
the plan is limited to ten years.
-23-
For purposes of determining their respective benefits pursuant to the
SERP, each of our Named Executive Officers will have 14 or more credited years
of service if he or she continues to be employed by Mandalay until age 65, the
normal retirement age under the SERP. The credited years of service under the
SERP for our Named Executive Officers as of January 31, 2001 were as follows:
Name Credited Years of Service
---------------------------------------------
Michael S. Ensign 14
---------------------------------------------
Glenn W. Schaeffer 14
---------------------------------------------
William A. Richardson 14
---------------------------------------------
Yvette E. Landau 9
---------------------------------------------
Les Martin 14
--------------------------------------------------------------------------------
Certain Transactions
--------------------------------------------------------------------------------
Donna B. More, a member of our Board of Directors, is the sole
stockholder of More Law Group, P.C., a Chicago, Illinois law firm. During the
fiscal year ended January 31, 2002, this law firm provided legal services to
the Elgin, Illinois joint venture entity in which Mandalay is a 50%
participant. Of the fees paid for these services, $94,120 was borne by
Mandalay. More Law Group, P.C. has also provided legal services to this joint
venture entity during the current fiscal year and it is anticipated that it
will do so in the future.
-24-
-------------------------------------------------------------------------------
Report of the Board of Directors and the Compensation Committee on Executive
Compensation
-------------------------------------------------------------------------------
Introduction
The Compensation Committee of Mandalay's Board of Directors (the
"Committee") was responsible for establishing the policies and procedures
relating to the compensation of Mandalay's executive officers for the fiscal
year ended January 31, 2002 ("fiscal 2002 "). The Committee also was
responsible for decisions relating to the respective levels and forms of their
compensation, including the awards made pursuant to Mandalay's Executive
Officer Bonus Plan (the "Bonus Plan") and stock option plans, except as we
have otherwise indicated in this report. The individuals who served on the
Committee during fiscal 2002 were selected by Mandalay's Board of Directors
from those directors who are "nonemployee directors" for purposes of Rule 16b-
3 under the Securities Exchange Act of 1934 and are "outside directors" for
purposes of Section 162(m) of the Internal Revenue Code of 1986 (the "Code").
The only individuals who served on the Committee or participated in its
deliberations relating to executive compensation during fiscal 2002 were
William E. Bannen, M.D. and Michael D. McKee, each of whom served as a member
of the Committee for the entire fiscal year. Neither Dr. Bannen nor Mr. McKee
has ever been an officer or employee of Mandalay or any subsidiary of
Mandalay.
Compensation Policies
The Committee's principal objective is to promote growth in stockholder
value through the establishment and implementation of compensation policies
designed to attract, retain and motivate skilled and talented executives. The
Committee's review of the compensation of Mandalay's executives and the
actions taken by the Committee with respect to executive compensation in
fiscal 2002 were guided by the following compensation policies:
. To establish compensation programs designed to attract and retain
highly qualified executives;
. To provide motivation to Mandalay's executives through compensation
that is correlated to the performance of the individual and to the
performance of Mandalay;
. To compensate executives in a manner that rewards both current
performance and longer-term performance; and
. To provide executives with a financial interest in the success of
Mandalay similar to the interests of Mandalay's stockholders.
Fiscal 2002 Compensation
Consistent with the compensation policies of the Committee, the
compensation of Mandalay's executive officers for fiscal 2002 included a
combination of salary and bonuses to reward short-term performance. To
encourage and reward longer-term performance, our executives were also awarded
stock options during fiscal 2001.
In order to more nearly align the compensation of Michael S. Ensign,
Mandalay's Chairman and Chief Executive Officer, William A. Richardson, Vice
Chairman of Mandalay's Board of Directors, and Glenn W. Schaeffer, Mandalay's
President and Chief Financial Officer, with their counterparts at comparable
gaming companies, the Committee increased the salaries of Messrs. Ensign,
Richardson and Schaeffer from the respective levels which had been in effect
for the prior three fiscal years. The base salary of each of the other named
executive officers for fiscal 2002 was fixed by Michael S. Ensign without
reference to any specific
-25-
criteria at a level intended to make such officer's attainment of a level of
total compensation at or above that received for the prior year significantly
dependent on the amount of his or her bonus for the year.
The fiscal 2002 target bonus of each executive officer whose total cash
compensation could exceed $1 million in fiscal 2002 (including Michael S.
Ensign, who is discussed in greater detail under "Compensation of the Chief
Executive Officer," below) was fixed by the Committee at a level equal to his
fiscal 2002 base salary. The bonus paid to each of these officers for fiscal
2002 was determined in part under Mandelay's Executive Officers' Bonus Plan,
which was approved by stockholders on June 15, 2000 (the "Bonus Plan") and in
part at the discretion of the Committee. As originally determined by the
Committee in March 2001, under the Bonus Plan, up to 150% of the target bonus
of each executive officer covered by the Bonus Plan could be earned, with one-
half based on the level of Mandalay's cash flow margin for fiscal 2002 compared
to the average composite cash flow margin of a predetermined group of
Mandalay's competitors, based on publicly available information (the "cash flow
measure of performance"), and one-half based on a comparison of Mandalay's
actual to targeted levels of adjusted net revenue for fiscal 2002 (the
"adjusted net revenue measure of performance").
The terrorist attacks that occurred on September 11, 2001 had a
pronounced impact on gaming operations in Las Vegas, including Mandalay's Las
Vegas properties which generate a significant portion of Mandalay's revenue.
Because of the negative impact of the September 11 attacks, the adjusted net
revenue measure of performance, as originally fixed by the Committee, ceased to
be a meaningful measure of performance. In order to make that portion of the
bonus again meaningful, on October 9, 2001, the Committee established new
target levels of adjusted net revenues for the period from October 1, 2001
through January 31, 2002. The Committee did not change the original cash flow
measure of performance since it involved the comparison of Mandalay's
performance with those of other gaming companies that had been similarly
impacted by the September 11 attacks. Based on Mandalay's performance during
fiscal 2002, as measured by the cash flow measure of performance, and its
performance post-September 11, as measured by the new adjusted net revenue
measure of performance, each of the executive officers eligible to receive a
bonus under the Bonus Plan would, absent his request of the Committee to reduce
his bonus, have been entitled to receive a bonus equal to 120% of his target
bonus. Subsequent to September 11, each of the executive officers eligible to
receive a bonus under the Bonus Plan requested that the Committee reduce by 50%
any bonus to which he might become entitled under the Bonus Plan for fiscal
2002 as part of management's efforts to reduce expenses in the aftermath of
September 11. Accordingly, each fiscal 2002 bonus under the Bonus Plan was
reduced to 60% of the recipient's target bonus.
Based on the Committee's subjective evaluation of these executives'
handling of the negative impact of the September 11 attacks on Mandalay's
operations, Mandalay's better than anticipated performance during the portion
of fiscal 2002 following September 11, and the achievement of increased
stockholder value, as reflected in prices for Mandalay's common stock that
exceeded those achieved at any time during fiscal 2000 or 2001, the Committee
awarded a discretionary bonus to each of the executive officers covered by the
Bonus Plan.
Bonus awards to the executives not covered by the Bonus Plan are
currently paid quarterly and in fiscal 2002 were determined by the Chief
Executive Officer based on his subjective evaluation of these executives
without reference to any specific measure of corporate performance.
In order to retain executives in the competitive environment in which
Mandalay operates and to further motivate and encourage their long-term
performance on behalf of stockholders, the Committee awarded stock options in
March 2001 to each of Mandalay's executive officers, including the Chairman of
the Board. In recognition of their increased responsibilities after September
11, the Committee made a second award of stock options to each such executive
officer in October 2001. Each stock option has a term of ten years and was
granted with an exercise price equal to the closing price of Mandalay's common
stock on the date of the grant in order to make the receipt of any benefit from
the options dependent on an appreciation in the value of the common stock, thus
giving the optionee an interest in Mandalay's performance similar to that of
its
-26-
stockholders. None of the options was exercisable during the first year
following the date of grant and, by their terms, the options vest over periods
ranging from one to five years. Each award of stock options was based on the
Committee's subjective evaluation of the recipient's level of supervisory or
management responsibilities and his or her potential contribution to Mandalay's
long-term success. In arriving at its decisions regarding the stock options
awarded to each recipient, the Committee considered, among other factors, the
number and terms of the options already held by the recipient. Mandalay's past
performance was not a factor in the Committee's decision.
Compensation of the Chief Executive Officer
The compensation of Michael S. Ensign, Mandalay's Chief Executive Officer
who served in that capacity throughout fiscal 2002, consisted of a base salary
and bonus which were determined by the Committee. In order to more nearly align
his compensation with the compensation of similarly situated executives at
comparable gaming companies, Mr. Ensign's salary for fiscal 2002 was increased
by the Committee from the level the Committee had fixed for each of the prior
three fiscal years, following the Committee's review of publicly available
information concerning executive compensation at comparable gaming companies.
Mr. Ensign's target bonus for fiscal 2002 was fixed by the Committee at a
level equal to his fiscal 2002 base salary. The bonus paid to Mr. Ensign for
fiscal 2002 was determined in part under the Bonus Plan and in part at the
discretion of the Committee. As originally determined by the Committee in March
2001, under the Bonus Plan, up to 150% of Mr. Ensign's target bonus could be
earned, with one-half based on the level of Mandalay's cash flow margin for
fiscal 2002 compared to the average composite cash flow margin of a
predetermined group of Mandalay's competitors, based on publicly available
information (the "cash flow measure of performance"), and one-half based on a
comparison of Mandalay's actual to targeted levels of adjusted net revenue for
fiscal 2002 (the "adjusted net revenue measure of performance"). As discussed
earlier in this report, the terrorist attacks that occurred on September 11,
2001 had a pronounced impact on gaming operations in Las Vegas, including
Mandalay's Las Vegas properties which generate a significant portion of
Mandalay's revenue. Because of the negative impact of the September 11 attacks,
the adjusted net revenue measure of performance, as originally fixed by the
Committee, ceased to be a meaningful measure of performance. In order to make
that portion of Mr. Ensign's bonus again meaningful, on October 9, 2001, we
established new target levels of adjusted net revenues for the period from
October 1, 2001 through January 31, 2002. We did not change the original cash
flow measure of performance since it involved the comparison of Mandalay's
performance with those of other gaming companies that had been similarly
impacted by the September 11 attacks. Based on Mandalay's performance during
fiscal 2002, as measured by the cash flow measure of performance, and its
performance post-September 11, as measured by the new adjusted net revenue
measure of performance, Mr. Ensign would, absent his request of the Committee
to reduce his bonus, have been entitled to receive a bonus equal to 120% of his
target bonus. Subsequent to September 11, Mr. Ensign requested that the
Committee reduce by 50% any bonus to which he might become entitled under the
Bonus Plan for fiscal 2002 as part of management's efforts to reduce expenses
in the aftermath of September 11. Accordingly, Mr. Ensign's fiscal 2002 bonus
under the Bonus Plan was reduced to 60% of his target bonus, representing a
reduction of $600,000 from the bonus he otherwise would have been entitled to
receive under the Bonus Plan.
Based on the Committee's subjective evaluation of Mr. Ensign's handling
of the negative impact of the September 11 attacks on Mandalay's operations,
Mandalay's better than anticipated performance during the portion of fiscal
2002 following September 11, and the achievement of increased stockholder
value, as reflected in post-September 11 prices for Mandalay's common stock
that exceeded those achieved at any time during fiscal 2000 or 2001, the
Committee awarded Mr. Ensign a discretionary bonus of $200,000.
To encourage and reward Mr. Ensign's long-term performance on behalf of
Mandalay's stockholders, the Committee awarded him options to purchase
1,000,000 shares of Mandalay common stock on March 1, 2001 and options to
purchase an additional 400,000 shares on October 2, 2001. Each option has a
ten-year term. The March 2001 options were granted with an exercise price of
$20.20 per share and the October 2001
-27-
options were granted with an exercise price of $17.25 per share, each
representing the closing price of Mandalay's common stock on the date of the
grant, as reported on the New York Stock Exchange Composite
Tape, thus making Mr. Ensign's receipt of any benefit from the options
dependent on an increase in the market value of Mandalay's common stock. The
March 2001 options became exercisable as to 333,333 shares on March 1, 2002 and
become exercisable as to 333,333 shares on March 1, 2003 and as to the
remaining 333,334 shares on March 1, 2004. The October 2001 options become
exercisable as to all of the 400,000 shares covered thereby on October 2, 2002.
The number of shares for which Mr. Ensign was granted stock options was based
on the Committee's subjective evaluation of his levels of supervisory and
management responsibilities and his potential contribution to Mandalay's long-
term success. In arriving at its decision with respect to Mr. Ensign's stock
options, the Committee considered, among other factors, the number and terms of
the stock options he already held. The Committee also took into consideration
the fact that, at the time of the March 2001 grant, Mr. Ensign had not been
granted any options since February 1999. Mandalay's past performance was not a
factor in the Committee's decision
Policy Regarding Deductibility of Compensation for Tax Purposes-Compliance with
Code Section 162(m)
Section 162(m) of the Code generally disallows a tax deduction to a
public company for compensation over $1 million paid to its chief executive
officer or to any of its four other most highly compensated executive officers.
Performance-based compensation will not be subject to the deduction limitation
if certain requirements set forth in the Code and applicable Treasury
Regulations are met. The Committee's policy is generally to structure the
performance-based portion the compensation of those executive officers whose
compensation might be subject to the limitations of Code Section 162(m) so as
to permit all of the compensation paid to those executives to be allowed as a
deduction, and this policy was followed with respect to the fiscal 2002
compensation of Mandalay's executives prior to the events of September 11,
2001. To this end, the terms for the bonuses that might be paid to those
officers whose fiscal 2002 compensation might be subject to the Section 162(m)
limitation were established under the Bonus Plan to meet the requirements of
Section 162(m). On October 9, 2001, when the Committee, in response to the
aftermath of the September 11 attacks, established a new adjusted net revenue
measure of performance, it also took that action in a manner intended to
preserve the Section 162(m) deduction for the entire amount of any bonuses that
might be paid for fiscal 2002 under the Bonus Plan. During the course of the
Committee's year-end review of fiscal 2002 relating to its certification of the
bonuses payable under the Bonus Plan, the Committee concluded that those
bonuses (after giving effect to the 50% reductions requested by the
recipients), did not, in the Committee's judgment, adequately compensate those
executives. Accordingly, the Committee awarded the discretionary bonuses
described above, notwithstanding the fact that a portion of these bonuses would
not be deductible under Section 162(m). With the exception of the discretionary
bonus paid to Mr. Ensign, and a portion of the discretionary bonuses paid to
Messrs. Schaeffer and Richardson (in each case, the amount by which the sum of
the recipient's discretionary bonus and his fiscal 2002 salary exceeds $1
million), all of the compensation paid to Mandalay's officers for fiscal 2002
is fully deductible compensation under Section 162(m) of the Code.
To the extent possible, the Committee intends to continue to structure
the compensation of Mandalay's executives to permit all of the compensation
paid to these individuals to be allowed as a deduction for federal income tax
purposes. But, we may choose to provide compensation that is not deductible in
order to retain or to secure the services of key executives, or when we
otherwise determine that it is in the best interest of Mandalay to do so.
Compensation Committee Board of Directors
William E. Bannen, Chairman Michael S. Ensign, Chairman
Michael D. McKee William E. Bannen
Arthur H. Bilger
Michael D. McKee
Rose McKinney-James
Donna B. More
William A. Richardson
Glenn W. Schaeffer
-28-
--------------------------------------------------------------------------------
Compensation Committee Interlocks and Insider Participation
--------------------------------------------------------------------------------
The only individuals who served as members of Mandalay's Compensation
Committee during the fiscal year ended January 31, 2002 are the committee's
current members, William E. Bannen and Michael D. McKee, each of whom served
for all of fiscal 2002. Neither member of the Compensation Committee is an
officer or other employee, or former officer, of Mandalay or any subsidiary of
Mandalay.
The only individual who served on the Board of Directors during the
fiscal year ended January 31, 2002 and participated in the determination of the
compensation of Mandalay's executive officers for such fiscal year while also
serving as an officer or employee of Mandalay was Michael S. Ensign. See
"Report of the Board of Directors and the Compensation Committee on Executive
Compensation." Mr. Ensign served as Mandalay's Chief Executive Officer and as
its Chief Operating Officer for all of fiscal 2002. Glenn W. Schaeffer, who
served as Mandalay's President, Chief Financial Officer and Treasurer for all
of fiscal 2002, and William A. Richardson, who served as Mandalay's Vice
Chairman of the Board for all of fiscal 2002, did not participate in
deliberations concerning the compensation of Mandalay's executive officers for
fiscal 2002.
During the fiscal year ended January 31, 2002, certain of our
subsidiaries provided services to Generation 2000 LLC, a Nevada limited
liability company ("Generation 2000") whose members are certain of the children
and grandchildren of Michael S. Ensign and William A. Richardson, our Chairman
of the Board and Vice Chairman of the Board, respectively. For such services,
we were paid $13,163, representing our cost of providing the services. During
such fiscal year, some of our subsidiaries also sold to Generation 2000
property consisting principally of unused building materials and obsolete
furniture and fixtures, for which we were paid $110,769. While, we did not
obtain bids for all of the property, based on liquidation and other bids
obtained from unrelated third parties for a portion of the assets, we believe
the consideration paid for the property was at least as favorable as could have
been obtained from an unrelated third party. The transactions were reviewed and
approved by the Audit Committee of our Board of Directors.
--------------------------------------------------------------------------------
Report of the Audit Committee
--------------------------------------------------------------------------------
The Audit Committee oversees Mandalay's financial reporting process on
behalf of the Board of Directors. Each member of the Audit Committee, which
acts pursuant to an Audit Committee Charter approved by Mandalay's Board of
Directors, qualifies as an "independent" director under the current listing
standards of the New York Stock Exchange.
The Audit Committee's job is one of oversight. It is not the duty of the
Audit Committee to prepare Mandalay's financial statements, plan or conduct
audits or determine that Mandalay's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
Financial management (including the internal auditing function) of Mandalay is
responsible for preparing the financial statements and maintaining internal
controls and Mandalay's independent auditor is responsible for the audit of the
annual financial statements and rendering an opinion as to whether those
statements were prepared in conformity with generally accepted accounting
principles. In carrying out its oversight responsibilities, the Audit Committee
is not providing any expert or special assurance as to Mandalay's financial
statements or any professional certification as to the outside auditor's work.
In fulfilling its oversight responsibilities, the Audit Committee
reviewed and discussed with management Mandalay's audited financial statements
for the fiscal year ended January 31, 2002. The Audit Committee has discussed
with Arthur Andersen LLP, our independent auditors, the matters required to be
-29-
discussed by Statement of Auditing Standards No. 61, Communication with Audit
Committees, which includes, among other items, matters related to the conduct
of the audit of Mandalay's financial statements. The Audit Committee has
received written disclosures and the letter from Arthur Andersen LLP required
by Independence Standards Board Standard No. 1, which relates to the auditor's
independence from Mandalay and its related entities, and has discussed with
Arthur Andersen LLP their independence from Mandalay. The Audit Committee has
also considered whether the performance of the nonaudit services performed for
Mandalay by Arthur Andersen LLP during the fiscal year ended January 31, 2002
is compatible with maintaining that firm's independence.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that Mandalay's audited
financial statements be included in its Annual Report on Form 10-K for the
fiscal year ended January 31, 2002.
Audit Committee
Michael D. McKee, Chairman
William E. Bannen
Arthur H. Bilger
-30 -
--------------------------------------------------------------------------------
Comparative Stock Price Performance Graph
--------------------------------------------------------------------------------
This graph compares the cumulative total return (assuming reinvestment of
dividends) from January 31, 1997 to January 31, 2002 for (i) our common stock,
(ii) the Dow Jones Industry Group (Casinos), which we refer to as the "Casino
Group," and (iii) the Standard & Poor's 500 Composite Stock Index, which we
refer to as the "S&P 500 Index." The graph assumes the investment of $100 on
January 31, 1997 in each of our common stock, the stocks comprising the Casino
Group and the stocks comprising the S&P 500 Index.
[CHART]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
MANDALAY RESORT GROUP CASINO GROUP INDEX S&P 500 INDEX
1/31/97 $100.00 $100.00 $100.00
1/31/98 65.25 98.45 126.91
1/31/99 38.65 72.26 168.14
1/31/00 43.79 95.82 185.54
1/31/01 61.59 132.32 183.87
1/31/02 76.74 174.46 154.18
-31-
--------------------------------------------------------------------------------
Stock Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------------------------
Certain Beneficial Owners
The following table shows how much of our common stock is beneficially
owned by each person known to us to be the beneficial owner of more than 5% of
Mandalay's common stock. This information is as of April 22, 2002, unless we
have indicated otherwise.
Number of Shares Approximate
Name and Address Beneficially Owned Percentage of Class
--------------------------------------------------------------------------------
Michael S. Ensign 6,333,333(1) 9.09%
3950 Las Vegas Blvd. South
Las Vegas, Nevada 89119
--------------------------------------------------------------------------------
William A. Richardson 6,333,333(2) 9.09%
3950 Las Vegas Blvd. South
Las Vegas, Nevada 89119
--------------------------------------------------------------------------------
Bank of America Corporation 6,658,889(3) 9.75%
NMS Services Inc.
NMS Services (Cayman) Inc.
MBG Trust-Wilmington Trust Owner
Trustee
100 North Tryon Street
Charlotte, North Carolina 28255
--------------------------------------------------------------------------------
Legg Mason, Inc. 7,427,114(4) 10.87%
100 Light Street
Baltimore, Maryland 21202
--------------------------------------------------------------------------------
Iridian Asset Management LLC 6,860,517(5) 10.04%
LC Capital Management, LLC
CL Investors, Inc.
COLE Partners LLC
Iridian Private Business Value
Equity Fund, L.P.
David L. Cohen
Harold J. Levy
(collectively the "Note 5 Filers")
276 Post Road West
Westport, Connecticut 06880-4704
--------------------------------------------------------------------------------
FMR Corp. 8,712,910(6) 12.75%
82 Devonshire Street
Boston, Massachusetts 02109
(1) Includes 5,000,000 shares as to which Mr. Ensign has sole voting and
dispositive power and 1,333,333 shares which he may acquire pursuant to
currently exercisable stock options.
(2) Includes 5,000,000 shares as to which Mr. Richardson has sole voting and
dispositive power and 1,333,333 shares which he may acquire pursuant to
currently exercisable stock options.
-32-
(3) This is the number of shares benefically owned by Bank of America
Corporation ("B of A"), as reported in its Schedule 13G/A filed with the
Securities and Exchange Commission on February 15, 2002. In such filing, B of A
reported shared voting power with respect to 6,596,301 of these shares, and
shared dispositive power with respect to 6,653,889 of these shares, and NMS
Services Inc., NMS Services (Cayman) Inc. and MBG Trust-Wilmington Trust Owner
Trustee each reported shared voting and dispositive power, with respect to
6,251,358 of these shares. The 6,251,358 shares are held under a Trust
Agreement, dated as of September 8, 2000, between NMS Services (Cayman) Inc.
and Wilmington Trust Company, as trustee, pursuant to which the trustee is
obligated to vote the shares at the meeting in the same proportion as the votes
cast by the holders of our other shares.
(4) This is the number of shares beneficially owned by Legg Mason, Inc., as
reported in its Schedule 13G/A filed with the Securities and Exchange
Commission on February 15, 2002. In such filing, shared voting and dispositive
power was reported as to all of the shares.
(5) In a Schedule 13G/A of the Note 5 Filers filed with the Securities and
Exchange Commission on January 29, 2002, David L. Cohen and Harold J. Levy each
reported shared voting and dispositive power with respect to all of these
shares, Iridian Asset Management LLC, LC Capital Management, LLC and CL
Investors, Inc. each reported shared voting and dispositive power with respect
to 6,455,117 of these shares, and COLE Partners LLC and Iridian Private
Business Value Equity Fund, L.P. reported shared voting and dispositive power
with respect to 130,000 of these shares. Each of the Note 5 Filers reported as
beneficially owned by such filer the number of these shares as to which such
filer reported having shared voting and dispositive power.
(6) This is the number of shares beneficially owned by FMR Corp., as reported
in its Schedule 13G/A filed with the Securities and Exchange Commission on
February 14, 2002. In this filing, FMR Corp. reported sole voting power as to
1,142,300 of the shares and sole dispositive power as to all of the shares.
-33-
Management
The following table shows how much of our common stock is beneficially
owned by each director of Mandalay, each executive officer of Mandalay who is
named in the Summary Compensation Table on page 19, and by all of Mandalay's
directors and executive officers as a group. The information in the table is as
of April 22, 2002. The "aggregate number of shares beneficially owned" listed
in the second column includes the number of shares listed in the third column.
Aggregate Number Right to Acquire Approximate
of Shares Within 60 days Percentage
Name Beneficially Owned(1) (Number of Shares) of Class
--------------------------------------------------------------------------------
Michael S. Ensign 6,333,333 1,333,333 9.09
--------------------------------------------------------------------------------
William A. Richardson 6,333,333 1,333,333 9.09
--------------------------------------------------------------------------------
Glenn W. Schaeffer 1,410,728 933,333 2.04
--------------------------------------------------------------------------------
Yvette E. Landau 70,026 70,000 *
--------------------------------------------------------------------------------
Les Martin 22,528 21,667 *
--------------------------------------------------------------------------------
William E. Bannen 89,500 56,000 *
--------------------------------------------------------------------------------
Arthur H. Bilger 67,000 66,000 *
--------------------------------------------------------------------------------
Michael D. McKee 70,100 66,000 *
--------------------------------------------------------------------------------
Rose McKinney-James 37,666 37,666 *
--------------------------------------------------------------------------------
Donna B. More 51,000 51,000 *
--------------------------------------------------------------------------------
All directors and
executive officers
as a group (10 persons) 14,485,214 3,968,332 20.04
* Less than one percent.
(1) With the exception of Michael D. McKee, who shares with his wife the voting
and dispositive power with respect to the shares he owns, the individuals and
group named in the table have sole voting and investment power with respect to
the shares they own.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors and persons who own more than ten percent of a
registered class of our equity securities (collectively, the "reporting
persons") to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and to furnish us with copies of these
reports. Based on our review of the copies of these reports and written
representations received from reporting persons, we believe that all filings
required to be made by the reporting persons for the period from February 1,
2001 through January 31, 2002 were made on a timely basis, other than one gift
which Glenn W. Schaeffer reported late.
--------------------------------------------------------------------------------
General
--------------------------------------------------------------------------------
Availability of Form 10-K and Annual Report to Stockholders
Rules of the Securities and Exchange Commission require us to provide our
Annual Report to Stockholders for fiscal 2002 to each stockholder who receives
this Proxy Statement. We will also provide copies of the Annual Report to
brokers, dealers, banks, voting trustees and their nominees for the benefit of
-34-
their beneficial owners of record. Additional copies of the Annual Report,
along with copies of our Annual Report on Form 10-K for the fiscal year ended
January 31, 2002 (not including documents incorporated by reference), are
available without charge to stockholders upon written request to Mandalay
Resort Group, 3950 Las Vegas Boulevard South, Las Vegas, Nevada 89119,
Attention: Chief Financial Officer.
Stockholder Proposals
To be considered for inclusion in next year's proxy statement, a
stockholder proposal must be in writing and received by us no later than
January 17, 2003. If a stockholder proposal to be considered at next year's
meeting, but not included in the proxy statement, is not received by us on or
before April 2, 2003, the persons appointed as proxies may exercise their
discretionary voting authority with respect to the proposal. All proposals
should be submitted in writing to Mandalay Resort Group, 3950 Las Vegas
Boulevard South, Las Vegas, Nevada 89119, Attention: General Counsel.
--------------------------------------------------------------------------------
A form of proxy is enclosed for your use. Please complete, date, sign and
return the proxy at your earliest convenience in the enclosed envelope, which
requires no postage if mailed in the United States. A prompt return of your
proxy will be appreciated.
By Order of the Board of Directors
/s/ Michael S. Ensign
Michael S. Ensign
Chairman of the Board
Las Vegas, Nevada
May 14, 2002
-35-
--------------------------------------------------------------------------------
Appendix A
--------------------------------------------------------------------------------
Mandalay Resort Group
AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board to assist the Board in
monitoring the integrity of the financial statements of the Company, and the
independence and performance of the Company's internal and external auditors.
The members of the Audit Committee shall meet the requirements relating
to independence and expertise, and any other applicable requirements of the
national stock exchange(s) on which the Company's Common Stock is listed. The
members of the Audit Committee, which shall consist of at least three
directors, shall be appointed by the Board.
The Audit Committee shall have the authority to retain special legal,
accounting or other consultants to advise the Committee. The Audit Committee
may request any officer or employee of the Company or the Company's outside
counsel or independent auditor to attend a meeting of the Committee or to meet
with any members of, or consultants to, the Committee.
The Audit Committee shall make regular reports to the Board.
The Audit Committee shall:
1. Review and reassess the adequacy of this Charter annually and submit
it to the Board for approval.
2. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices as well as the adequacy of internal controls that could significantly
affect the Company's financial statements.
3. Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements.
4. Review with management and the independent auditor in person, at a
meeting, or by conference telephone call, the Company's quarterly financial
statements prior to the release of quarterly earnings. The chair may represent
the entire Committee for the purposes of these discussions.
5. Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to monitor and
control such exposures.
6. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent auditor, internal
auditors or management.
7. Recommend to the Board the appointment of the independent auditor,
which firm is ultimately accountable to the Board and the Audit Committee that
have the ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the independent auditor (or to nominate the outside
auditor to be proposed for stockholder approval in any proxy statement).
8. Approve the fees to be paid to the independent auditor.
A-1
9. Require the submission to the Audit Committee by the independent
auditor on a periodic basis of formal written reports delineating all
relationships between the auditor and the Company, actively engage in a
dialogue with the auditor with respect to any disclosed relationships or
services that may impact the objectivity and independence of the auditor and,
if so determined by the Audit Committee, recommend that the Board take
appropriate action to satisfy itself of the independence of the auditor.
10. Evaluate the performance of the independent auditor and, if so
determined by the Audit Committee, recommend that the Board replace the
independent auditor.
11. Review the appointment and replacement of the senior internal
auditing executive.
12. Review the significant reports to management prepared by the internal
auditing department and management's responses.
13. Meet with the independent auditor prior to the audit to review the
planning and staffing of the audit.
14. Obtain from the independent auditor assurance that Section 10A of the
Private Securities Litigation Reform Act of 1995 has not been implicated.
15. Obtain reports from management, the Company's senior internal
auditing executive and the independent auditor that the Company's
subsidiary/foreign affiliated entities are in conformity with applicable legal
requirements.
16. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the conduct of
the audit.
17. Review with the independent auditor any problems or difficulties the
auditor may have encountered and any management letter provided by the auditor
and the Company's response to that letter. Such review should include:
(a) Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
required information.
(b) Any changes required in the planned scope of the internal
audit.
(c) The internal audit department responsibilities, budget and
staffing.
18. Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy statement.
19. Review with the Company's General Counsel legal matters that may have
a material impact on the financial statements.
20. Meet at least annually with the chief financial officer, the senior
internal auditing executive and the independent auditor in separate executive
sessions.
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with Generally Accepted Accounting Principles.
This is the responsibility of management and the independent auditor. Nor is it
the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations and the Company's compliance
policies.
A-2
-------------------------------------------------------------------------------
Appendix B
-------------------------------------------------------------------------------
Mandalay Resort Group
2002 STOCK INCENTIVE PLAN
ARTICLE I--PURPOSE OF THE PLAN
The purposes of the Mandalay Resort Group 2002 Stock Incentive Plan (the
"Plan") are to enable Mandalay Resort Group (the "Company") and its Affiliates
to attract and retain the services of individuals with managerial,
professional or supervisory skills as employees, officers, members of the
Board, consultants or advisors of the Company and its Affiliates, and to
motivate such persons to use their best efforts on behalf of the Company by
the grant of Stock Options and/or Awards to such individuals as provided under
the terms of the Plan.
ARTICLE II--GENERAL PROVISIONS
2.1 Definitions. As used in the Plan:
(a) "Affiliate" means a corporation which is a parent corporation or a
subsidiary corporation with respect to the Company within the meaning of
Section 424(e) or (f) of the Code, of any successor provision and any other
entity which would be an Affiliate but for the fact that such entity is not a
corporation.
(b) "Award" means a grant of shares of Common Stock pursuant to the
provisions of the Plan, which may or may not be subject to restrictions, and
which may or may not consist of a grant of Performance Shares.
(c) "Award Agreement" means the written agreement establishing the terms
of an Award, as required under Article IV hereof.
(d) "Board of Directors" or "Board" means the Board of Directors of the
Company.
(e) "Change of Control" means any of the events described in clauses
(i), (ii), (iii) or (iv), below:
(i) during any twenty-four (24) month period ending on or after the date
hereof individuals who at the beginning of such period constituted the Board
(together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company was approved by a
vote of at least two thirds of the members of the Board then still in office
who were either members of the Board at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board then in office (a "Clause (i)
Change of Control"); or
(ii) any person (as such term is used in Section 13(d) of the Securities
Exchange Act of 1934 (the "Exchange Act")), other than a trust established for
the purpose of providing retirement benefits for employees of the Company, is
or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such right
is exercisable immediately or only after
B-1
the passage of time), directly or indirectly, of more than 30% of the total
voting power of the voting stock of the Company (unless (A) such ownership
results from an acquisition of Common Stock by the Company, in which case such
ownership shall not constitute a Change of Control unless the person, while
still a more-than-30% beneficial owner, acquires additional Common Stock, or
(B) such ownership is previously approved by a resolution duly adopted by the
Board prior to a Clause (i) Change of Control); or
(iii) the Company consolidates with or merges with or into another
corporation or sells, assigns. conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or any
corporation consolidates with, or merges with or into the Company, in any such
event pursuant to a transaction in which the outstanding voting stock of the
Company is changed into or exchanged for cash, securities or other property;
provided, however, that any such transactions that satisfies the requirements
to be treated as a "Permitted Clause (iii) Transaction" (as hereinafter
defined) shall not be treated as a Change of Control; or
(iv) the Company is liquidated or dissolved or adopts a plan of
liquidation. For purposes of this definition of "Change of Control", a
Permitted Clause (iii) Transaction is any transaction described in clause
(iii), above, if such transaction is previously approved by a resolution duly
adopted by the Board prior to a Clause (i) Change of Control or if as a result
of such transaction, the outstanding voting stock of the Company is changed
into or exchanged for voting stock of the surviving or transferee corporation
(the "Surviving Corporation") and/or for cash, securities (whether or not
including voting stock) or other property, and the holders of the voting stock
of the Company immediately prior to such transaction own, directly or
indirectly, not less than 50% of the voting power of the voting stock of the
Surviving Corporation immediately after such transaction (in substantially the
same proportions as the voting stock of the Company was held by such
stockholders immediately prior to such transaction). In the event a Permitted
Clause (iii) Transaction shall occur, then from and after the time such
transaction becomes effective, all references in the Plan to the Company shall
be deemed. to be reference to the Surviving Corporation and all references in
the Plan to the Board shall be deemed to be references to the Board of the
Surviving Corporation.
(f) "Code" means the Internal Revenue Code of 1986, including any and
all amendments thereto.
(g) "Committee" means the Board acting in its capacity as administrator
of the Plan or the committee or committees appointed by the Board from time to
time to administer the Plan pursuant to Section 2.2.
(h) "Common Stock" means the Company's Common Stock, $.01 2/3 par value.
(i) "Fair Market Value" means, with respect to a specific date, the last
reported sale price of the Common Stock on the NYSE Composite Tape on the date
such Fair Market Value is being determined, and, in the absence of any sale on
such day, the Fair Market Value as determined in good faith by the Committee
on the basis of such quotations and other considerations as the Committee
deems appropriate.
(j) "ISO" means a Stock Option that is intended to qualify as an
"incentive stock option" as that term is used for purposes of Code Section
422.
(k) "Non-qualified Stock Option" means a Stock Option that is not
intended or designated to be an ISO.
(l) "NYSE" means the New York Stock Exchange.
(m) "Option" means either an "ISO" or a "Non-qualified Stock Option."
(n) "Optionee" means the recipient of an "Option."
B-2
(o) "Participant" means a person to whom a Stock Option or Award has been
granted under the Plan.
(p) "Performance Goal" means, with respect to a Performance Period, an
objective performance goal or goals established by the Committee, consistent
with the express terms of the Plan, which must be met as a precondition to the
vesting of any Performance Shares granted with respect to a Performance Period
under the Plan.
(q) "Performance Period" means the Company's fiscal year or such other
period as may be established as a Performance Period by the Committee from time
to time.
(r) "Performance Shares" means the shares of Common Stock granted
pursuant to an Award and designated as Performance Shares by the Committee.
(s) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended from time to time, or any successor rule.
(t) "Stock Option" means a stock option granted under the Plan which may
or may not be intended to qualify as an ISO.
(u) "Stock Option Agreement" means the written agreement evidencing the
terms and conditions of a Stock Option Granted under the Plan, as required
under Article III hereof.
2.2 Administration of the Plan.
(a)The Plan shall be administered by the Board or by any committee or
committees as may be designated by the Board for this purpose, or by a
combination of the Board and one or more such committees, each such committee
and the Board in its capacity as administrator of the Plan being referred to
herein as the "Committee." The Board may, at its discretion, establish a
committee that consists of two (2) or more members of the Board, each of whom
qualifies as a "non-employee director" (as that term is used for purposes of
Rule 16b-3) and an "outside director" (as that term is used for purposes of
Section 162(m) of the Code). In the event the Board establishes more than one
committee under this Section 2.2, the Board shall establish as of the time more
than one such committee is established, and from time to time thereafter, at
its discretion, guidelines that establish the groups of employees, consultants
or advisors whose grants under the Plan are to be administered by such
committees. The Board of Directors may from time to time remove members from,
or add members to, the Committee. Vacancies on the Committee, howsoever caused,
shall be filled by the Board of Directors. The Committee shall select one of
its members as Chairman, and shall hold meetings at such times and places as it
may determine.
(b)The Committee shall have the full power, subject to and within the
limits of the Plan, to: (i) interpret and administer the Plan, and Stock
Options and Awards granted under it; (ii) make and interpret rules and
regulations for the administration of the Plan and to make changes in and
revoke such rules and regulations (and in the exercise of this power, shall
generally determine all questions of policy and expediency that may arise and
may correct any defect, omission, or inconsistency in the Plan or any agreement
evidencing the grant of any Stock Option or Award in a manner and to the extent
it shall deem necessary to make the Plan fully effective); (iii) determine
those persons to whom Stock Options or Awards shall be granted and the number
of Stock Options or Awards to be granted to any person; (iv) determine the
terms of Stock Options and Awards granted under the Plan, consistent with the
provisions of the Plan; and (v) generally, exercise such powers and perform
such acts in connection with the Plan as are deemed necessary or expedient to
promote the best interests of the Company. The interpretation and construction
by the Committee of any provisions of the Plan or of any Stock Option or Award
shall be final, binding and conclusive.
B-3
(c)The Committee may act only by a majority of its members then in
office; however, the Committee may authorize any one (1) or more of its members
or any officer of the Company to execute and deliver documents on behalf of the
Committee.
(d)No member of the Committee shall be liable for any action taken or
omitted to be taken or for any determination made by him or her in good faith
with respect to the Plan, and the Company shall indemnify and hold harmless
each member of the Committee against any cost or expense (including counsel
fees) or liability (including any sum paid in settlement of a claim with the
approval of the Committee) arising out of any act or omission in connection
with the administration or interpretation of the Plan, unless arising out of
such person's own fraud or bad faith.
2.3 Effective Date. The Plan shall become effective upon its adoption
by the Board of Directors, and Stock Options and Awards may be granted upon
such adoption and from time to time thereafter, provided, however, that the
exercisability of Stock Options and the vesting of Awards granted hereunder
shall be subject to approval of the Plan by the stockholders of the Company,
within 12 months after the adoption of the Plan by the Board of Directors, in a
manner consistent with applicable state law prescribing the method and degree
of stockholder approval required for the issuance of corporate stock or
options. If the Plan is not so approved, this Plan and all Stock Options and
Awards previously granted hereunder shall become null and void.
2.4 Duration. If approved by the stockholders of the Company, as
provided in Section 2.3, unless sooner terminated by the Board of Directors,
the Plan shall remain in effect for a period of ten (10) years following its
adoption by the Board of Directors.
2.5 Shares Subject to the Plan. The maximum number of shares of Common
Stock which may be subject to Stock Options and Awards granted under the Plan
shall be 3,400,000, subject to adjustment in accordance with Section 5.1, as
appropriate. Stock Options and Awards shall be subject to adjustment in
accordance with Section 5.1, as appropriate, and shares to be issued upon
exercise of Stock Options or in connection with Awards may be either authorized
and unissued shares of Common Stock or authorized and issued shares of Common
Stock purchased or acquired by the Company for any purpose. If a Stock Option
or portion thereof shall expire or is terminated, canceled or surrendered for
any reason without being exercised in full, or if an Award is forfeited under
the terms of the Plan or an Award Agreement, the unpurchased shares of Common
Stock which were subject to such Stock Option or portion thereof and the
forfeited shares of Common Stock that had been granted as an Award shall be
available for future grants of Stock Options or Awards under the Plan.
2.6 Limitations on Annual Grants. Notwithstanding anything to the
contrary contained herein, the maximum number of shares of Common Stock which
may, in the aggregate, be subject to Stock Options or Awards granted under the
Plan to any individual in any calendar year shall not exceed 1,500,000, subject
to adjustment in accordance with Section 5.1, as appropriate. The method of
counting such shares shall conform to any requirements applicable to
performance-based compensation under Section 162(m) of the Code.
2.7 Amendments. The Plan may be suspended, terminated or reinstated, in
whole or in part, at any time by the Board of Directors. The Board of Directors
may from time to time make such amendments to the Plan as it may deem
advisable; provided, however, that without the approval of the Company's
stockholders no amendment shall be made which:
(a)Increases the maximum number of shares of Common Stock which may be
subject to Stock Options or Awards granted under the Plan (other than as
provided in Section 5.1, as appropriate); or
(b)Extends the term of the Plan; or
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(c)Increases the period during which a Stock Option may be exercised
beyond ten years from the date of grant; or
(d)Otherwise materially increases the benefits accruing to Participants
under the Plan; or
(e)Materially modifies the requirements as to eligibility for
Participants in the Plan.
Except as otherwise provided herein, termination or amendment of the Plan
shall not, without the consent of a Participant, affect such Participant's
rights under any Stock Option or Award previously granted to such Participant.
2.8 Participants and Grants. Stock Options and Awards under this Plan
may be granted by the Committee to those employees, officers, members of the
Board, consultants or advisors of the Company or any of its Affiliates that
the Committee determines, at its sole discretion, qualify for such Stock
Options or Awards. Subject to the limitations on Options and Awards and on the
total number of shares of Common Stock available for grants under the Plan,
the Committee may grant Stock Options and Awards for such number of shares of
Common Stock as the Committee may, in its sole discretion, determine, which
may be established on an individual basis, and may vary from Participant to
Participant, all as the Committee may determine in its sole discretion. The
Committee may amend or modify any term or condition of any Stock Option or
Award Agreement at its discretion; provided, however, that no such amendment
or modification shall be permitted that is detrimental to a grantee without
the grantee's consent; and provided, further, that no such amendment or
modification may be made to an Award Agreement with respect to a Performance
Share that is intended to constitute a grant of performance-based compensation
for purposes of Code Section 162(m), except as is expressly permitted under
the terms of the Plan.
ARTICLE III--STOCK OPTIONS
3.1 General. All Stock Options granted under the Plan shall be evidenced
by a Stock Option Agreement executed by the Company and the Participant to
whom granted, which agreement shall state the number of shares of Common Stock
which may be purchased upon the exercise thereof and shall contain such
investment representations and other terms and conditions as the Committee may
from time to time determine. To the extent required by Section 162(m) of the
Code, shares subject to Stock Options which are canceled shall continue to be
counted against the award limit set forth in Section 2.6 and if, after grant
of a Stock Option, the price of shares subject to such Stock Options is
reduced, the transaction shall be treated as a cancellation of the Stock
Option and a grant of a new Stock Option and both the Stock Option deemed to
be canceled and the Stock Option deemed to be granted shall be counted against
the foregoing award limit.
3.2 Designation as ISO or Non-qualified Stock Option. Each Stock Option
granted shall be designated in the Stock Option Agreement as constituting
either an ISO or a Non-qualified Stock Option. Any Stock Option that is not
designated shall be deemed to have been designated as a Non-qualified Stock
Option. Any Stock Option that is intended to qualify as an ISO shall meet the
following requirements:
(a) In the event an ISO is granted to an employee who then owns, directly
or by attribution under Section 424(d) of the Code, shares possessing more
than ten percent of the total combined voting power of all classes of stock of
the Company or an Affiliate, then, to the extent required by Section 424(d) of
the Code, the option exercise price shall not be less than 110% of the Fair
Market Value of the shares subject to the ISO on the date the ISO is granted.
(b)In the event an ISO is granted to an employee who then owns, directly
or by attribution under Section 424(d) of the Code, shares possessing more
than ten percent of the total combined voting power of all classes of stock of
the Company or an Affiliate, such ISO shall not be exercisable more than five
years from the date of grant of such ISO.
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(c)An ISO shall only become exercisable with respect to shares having a
Fair Market Value of $100,000 or less during any one calendar year. To the
extent any Stock Option that is designated as an ISO becomes exercisable during
any one calendar year with respect to shares of Common Stock with an aggregate
Fair Market Value in excess of $100,000, such Stock Option shall, to the extent
of such excess, be treated as a Stock Option that is not an ISO. For purposes
of the determinations in this paragraph (c), the Fair Market Value of shares of
Common Stock shall be determined at the time the Stock Option is granted, and
in determining the Fair Market Value of the shares as to which a Stock Option
that is intended to be an ISO first becomes exercisable during any one calendar
year, that Stock Option shall be considered as aggregated with all ISOs granted
under any other plan of the Company or its Affiliates.
(d)No Option that is granted after the end of the ten (10) year period
commencing as of the date the Plan was adopted shall be designated as an ISO.
3.3 Exercise and Purchase Prices. Subject to the provisions of Section
5.1, the purchase price per share of Common Stock subject to a Stock Option
shall be set by the Committee; provided, however, that such price shall be no
less than the Fair Market Value of a share of Common Stock on the date the
Stock Option is granted.
3.4 Period. The duration or term of each Stock Option granted under the
Plan shall be for such period as the Committee shall determine but in no event
more than ten (10) years from the date of grant thereof.
3.5 Exercise. Subject to Sections 2.3 and 5.4, Stock Options may be
exercisable immediately upon granting of the Stock Option or at such other time
or times as the Committee shall specify when granting the Stock Option, or at
such other time or times as may be provided for pursuant to an amendment or
modification of a Stock Option Agreement, as permitted under the Plan. Once
exercisable, a Stock Option shall be exercisable, in whole or in part, by
delivery of a written notice of exercise to the Secretary of the Company at the
principal office of the Company specifying the number of shares of Common Stock
as to which the Stock Option is then being exercised together with payment of
the full purchase price for the shares being purchased upon such exercise.
Until the shares of Common Stock as to which a Stock Option is exercised are
issued, the Participant shall have none of the rights of a stockholder of the
Company with respect to such shares.
3.6 Payment. The purchase price for shares of Common Stock as to which
a Stock Option has been exercised and any amount required to be withheld, as
contemplated by Section 5.3, may be paid:
(a)In United States dollars in cash, or by check, bank draft or money
order payable in United States dollars to the order of the Company; or
(b)By the delivery by the Participant to the Company of whole shares of
Common Stock having an aggregate Fair Market Value on the date of payment equal
to the aggregate of the purchase price of Common Stock as to which the Stock
Option is then being exercised or by the withholding of whole shares of Common
Stock having such Fair Market Value upon the exercise of such Stock Option; or
(c)By a combination of both (a) and (b) above.
The Committee may, in its discretion, impose limitations, conditions and
prohibitions on the use by a Participant of shares of Common Stock to pay the
purchase price payable by such Participant upon the exercise of a Stock Option.
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3.7 Termination of Employment or other Relationship.
(a)In the event a Participant's employment by, or other service
relationship with, the Company or an Affiliate shall terminate for any reason
other than those reasons specified in Sections 3.7(b), (c), (d), (e) or (f)
hereof while such Participant holds Stock Options granted under the Plan, then
all rights of any kind under any outstanding Stock Option held by such
Participant which shall not have previously lapsed or terminated and which are
exercisable on the date of the termination of employment or other service
relationship shall remain so exercisable by the Optionee for a period of three
months after such termination unless such Stock Option expires earlier by its
terms.
(b)If a Participant's employment by, or other service relationship with,
the Company or its Affiliates shall terminate as a result of such Participant's
total disability, each Stock Option held by such Participant (which has not
previously lapsed or terminated) shall immediately become fully exercisable as
to the total number of shares of Common Stock subject thereto (whether or not
exercisable to that extent at the time of such termination) and shall remain so
exercisable by such Participant for a period of six months after termination
unless such Stock Option expires earlier by its terms. For purposes of the
foregoing sentence, "total disability" shall mean permanent mental or physical
disability as determined by the Committee.
(c)In the event of the death of a Participant, each Stock Option held by
such Participant (which has not previously lapsed or terminated) shall
immediately become fully exercisable as to the total number of shares of Common
Stock subject thereto (whether or not exercisable to that extent at the time of
death) by the executor or administrator of the Participant's estate or by the
person or persons to whom the deceased Participant's rights thereunder shall
have passed by will or by the laws of descent or distribution, and shall remain
so exercisable for a period of six months after such Participant's death unless
such Stock Option expires earlier by its terms.
(d)If a Participant's employment by or other service relationship with
the Company or an Affiliate shall terminate by reason of such Participant's
retirement in accordance with Company policies, each Stock Option held by such
Participant at the date of termination (which has not previously lapsed or
terminated) shall immediately become fully exercisable as to the total number
of shares of Common Stock subject hereto (whether or not exercisable to that
extent at the time of such termination) and shall remain so exercisable by such
Participant for a period of six months after termination, unless such Stock
Option expires earlier by its terms.
(e)In the event a Participant's relationship with the Company is subject
to an employment or other service agreement that defines a termination without
"Cause" and a termination by the Participant for "Good Reason," and such
Participant's employment or other service relationship is either terminated by
the Company without "Cause" or by the Participant for "Good Reason," (as such
terms are defined in the applicable employment or other service agreement
between the Company and the Participant), each Stock Option held by such
Participant (which has not previously lapsed or terminated) shall immediately
become fully exercisable as to the total number of shares of Common Stock
subject thereto (whether or not exercisable to that extent at the time of such
termination) and shall remain so exercisable for a period of six months after
such termination unless such Stock Option expires earlier by its terms.
(f)If a Participant (i) shall cease to be employed by, or have a
relationship of consultant or advisor to, the Company or an Affiliate because
of his discharge or termination for dishonesty, or because he violated any
material provision of any employment or other agreement between him and the
Company or an Affiliate, or (ii) shall voluntarily resign or terminate his
employment with or relationship as a consultant or advisor to the Company or an
Affiliate under or followed by such circumstances as would constitute a breach
of any material provision of any employment or other agreement between him and
the Company or an Affiliate, or (iii) shall have committed an act of dishonesty
not discovered by the Company or an Affiliate prior to the cessation of his
employment with or relationship as a consultant or advisor to the Company or an
Affiliate, but
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which would have resulted in his discharge or termination if discovered prior
to such date, or (iv) shall, either before or after cessation of his employment
with or relationship as a consultant or advisor to the Company or an Affiliate,
without the written consent of the Company or an Affiliate, use (except for the
benefit of the Company or an Affiliate) or disclose to any other person any
confidential information relating to the continuation or proposed continuation
of the business or any trade secrets of the Company or an Affiliate obtained as
a result of or in connection with such employment or relationship as a
consultant or advisor, or (v) shall, either before or after the cessation of
his employment with or relationship as a consultant or advisor to the Company
or an Affiliate, without the written consent of the Company or an Affiliate,
directly or indirectly, give advice to, or serve as an employee, director,
officer, or trustee of, or in any similar capacity with, or otherwise directly
or indirectly participate in the management, operation, or control of, or have
any direct or indirect financial interest in, any corporation, partnership, or
other organization which directly or indirectly competes in any respect with
the Company or its Affiliates, or (vi) shall cease to be employed by or have a
relationship as a consultant or advisor to the Company or an Affiliate because
of his inability to continue as an employee, consultant or advisor, as the case
may be, under any law or governmental regulation, including any Nevada gaming
law or regulation, or (vii) shall voluntarily resign or terminate his
employment with or relationship as a consultant or advisor to the Company or an
Affiliate under or followed by such circumstances as would have rendered him
unable to have continued as an employee, consultant or advisor, as the case may
be, under any law or governmental regulation, including any Nevada gaming law
or regulation, then forthwith from the happening of any such event, any Stock
Options then held by such Participant shall terminate and become void to the
extent that they then remain unexercised. Additional forfeiture provisions may
be included within the terms of any Stock Option grant to a Participant as may
be determined by the Committee in its discretion, provided such provisions are
set forth in the written agreement evidencing such Stock Option.
Notwithstanding anything to the contrary in this Section 3.7, the
Committee may vary the time at which any Stock Option granted under the Plan
shall terminate by including contrary provisions in the Stock Option Agreement,
at its discretion.
3.8 Effect of Leaves of Absence. Except as provided in the next
sentence, it shall not be considered a termination of employment or other
service relationship when a Participant is on military or sick leave or such
other type of leave of absence which is considered a continuing intact of the
employment or other service relationship of the Participant with the Company or
any of its Affiliates. In case of such leave of absence, the employment or
other service relationship shall be deemed to have continued until the later of
(i) the date when such leave shall have lasted ninety days in duration, or (ii)
the date as of which the Participant's right to reemployment shall have no
longer been guaranteed either by statute or contract.
3.9 Amendment of Outstanding Options. Subject to such other explicit
limitations as may be set forth in the Plan, the Committee shall have the right
to amend the option documents issued to an Optionee, at its discretion;
provided, however, that no such amendment may be made without the Optionee's
consent if such amendment is not favorable to the Optionee; and provided,
further, that no amendment to an Option that has the effect of adjusting or
amending the purchase price otherwise provided under the terms of such Option,
and no other action by the Committee, whether by cancellation and replacement
of Options, or otherwise, that would be treated as resulting in an adjustment
or amendment of the purchase price under the Option, shall be permitted without
the consent of the stockholders of the Company.
3.10 Impact of a Change of Control. In the event of a Change of Control,
all Options granted pursuant to the Plan that are outstanding as of the date of
the Change of Control shall, to the extent not then exercisable, become
immediately exercisable in full. To the extent such acceleration of the
exercisability of ISO's results in a violation of the limitation set forth in
Section 3.2(c), each such ISO shall be treated as a Non-qualified Stock Option
to the extent such Option has vested in excess of the vesting permitted for an
ISO. In all other respects, and subject to the authority granted to the
Committee pursuant to Sections 3.9 and 5.1, all such Options shall remain in
full force and effect and without any other change of terms or conditions.
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ARTICLE IV--AWARDS
4.1 Terms and Conditions of Awards. Awards granted pursuant to the Plan
shall be evidenced by written Award Agreements in such form as the Committee
shall from time to time approve, which Award Agreements shall comply with and
be subject to the following terms and conditions and such other terms and
conditions which the Committee shall from time to time require which are not
inconsistent with the terms of the Plan.
(a)Number of Shares. Each Award Agreement shall state the number of
shares of Common Stock to which it pertains.
(b)Purchase Price. Each Award Agreement shall specify the purchase price,
if any, which applies to the shares subject to the Award. If the Committee
specifies a purchase price, the grantee of such Award shall be required to make
payment on or before the payment date specified in the Award Agreement in cash,
by certified check payable to the order of the Company, or by such other mode
of payment as the Committee may approve.
(c)Grant. In the case of an Award which provides for a grant of shares of
Common Stock without any payment, the grant shall take place on the date or
dates or on the occurrence of such event or events as may be specified in the
Award Agreement. In the case of an Award which provides for a payment, the
grant shall take place on the date the initial payment is delivered to the
Company, unless the Committee or the Award Agreement otherwise specifies. Stock
certificates evidencing shares of Common Stock granted pursuant to an Award
shall be issued in the sole name of the grantee.
(d)Conditions. The Committee may specify in an Award Agreement any
conditions under which the grantee of that Award shall be required to convey to
the Company the shares of Common Stock covered by the Award. Upon the
occurrence of any such specified condition, the grantee of such Award shall
forthwith surrender and deliver to the Company the certificates evidencing such
shares as well as completely executed instruments of conveyance. The Committee,
in its discretion, may provide that certificates for shares of Common Stock
transferred pursuant to an Award be held in escrow by the Company or its
designee until such time as each and every condition has lapsed and that the
grantee of an Award be required, as a condition of the Award, to deliver to
such escrow agent or an officer of the Company duly endorsed transfer powers
covering the shares granted by such Award. Dividends and other distributions
made on shares held in escrow shall, except to the extent otherwise provided by
the Committee or in the Award Agreement, be deposited in escrow, to be
distributed to the party becoming entitled to the Shares on which the
distribution was made. Stock certificates evidencing shares of Common Stock
subject to conditions shall bear a legend to the effect that the shares
evidenced thereby are subject to repurchase by, or conveyance to, the Company
in accordance with the terms applicable to such shares under an Award made
pursuant to the Plan, and that the shares of Common Stock may not be sold or
otherwise transferred, except to the Company in accordance with such
conditions.
(e)Lapse of Conditions. Upon termination or lapse of all forfeiture
conditions, the Company shall cause certificates without the legend referring
to the Company's repurchase or acquisition right (but with any other legends
that may be appropriate) evidencing the shares covered by the Award to be
issued to the grantee upon the grantee's surrender to the Company of the
legended certificates held by the grantee.
(f)Rights as Stockholder. Upon payment of the purchase price, if any, for
shares of Common Stock covered by an Award and compliance with any other
requirements for transfer of such shares, the grantee shall have all of the
rights of a stockholder with respect to the shares of Common Stock covered
thereby, including the right to vote such shares and receive all dividends and
other distributions paid or made with respect thereto, except to the extent
otherwise provided by the Committee or in the Award Agreement.
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4.2 Performance Shares. The Committee may, from time to time, and at
its sole discretion, make an Award of Performance Shares with respect to a
Performance Period, in which case the Committee shall establish in writing
prior to or within the first ninety (90) days of such Performance Period (but
in no event after 25 percent of the period of service represented by the
Performance Period has elapsed) one or more specific Performance Goals which
must be met in order for the Performance Shares to be granted or to become
vested. In connection with an Award of Performance Shares, the Committee shall
specify in the applicable Award Agreement the terms and conditions applicable
to such Award, which shall include the extent to which the Common Stock subject
to such Award shall be granted or shall be eligible to become vested on the
achievement of the applicable Performance Goals, and which may or may not
include such additional terms and conditions, including conditions of
forfeiture and additional vesting requirements, as the Committee deems
appropriate, at its sole discretion.
4.3 Performance Goals. Performance Goals shall be based upon one or
more of the following business criteria for the Company as a whole or any of
its Affiliates, operating divisions or other operating units: Stock price,
market share, gross revenue, net revenue, pretax income, operating income, cash
flow, earnings per share, return on equity, return on invested capital or
assets, cost reductions and savings, return on revenues or productivity, or any
variations of the preceding business criteria, which may be modified at the
discretion of the Committee, to take into account extraordinary items or which
may be adjusted to reflect such costs or expense as the Committee deems
appropriate. In addition, to the extent consistent with the goal of providing
for deductibility under Section 162(m) of the Code, Performance Goals may be
based upon a Participant's attainment of personal objectives with respect to
any of the foregoing Performance Goals or implementing policies and plans,
negotiating transactions and sales, developing long-term business goals or
exercising managerial responsibility. Measurements of the Company's or a
Participant's performance against the Performance Goals established by the
Committee shall be objectively determinable and shall be determined according
to generally accepted accounting principles as in existence on the date on
which the Performance Goals are established and without regard to any changes
in such principles after such date.
4.4 Certification of Achievement of Performance Goals. As soon as
practicable following the end of a Performance Period, the Committee shall
determine whether and to what extent the Company and/or the Participants have
achieved the Performance Goal or Goals established for such Performance Period,
shall determine whether and to what extent the Performance Shares under the
terms of the applicable Award Agreement are to be granted or are vested or
become eligible to be vested, and shall certify such determination in writing,
which certification may take the form of minutes of the Committee documenting
such determination. The Committee shall have the discretion to limit, but not
increase, the extent to which Performance Shares are to be granted or are
eligible to become vested under the terms of an Award and the Plan, in order to
reflect the Participant's individual performance or to take into account any
other factors the Committee deems appropriate.
4.5 Interpretation. The provisions of this Article IV relating to
Performance Shares are intended to permit the grant of Awards that are treated
as meeting the requirements to be treated as performance-based compensation
under Section 162(m) of the Code, and the provisions of this Article IV, and
the other provisions of the Plan as they relate to the grant of Awards that are
Performance Shares, are to be interpreted in a manner that is consistent with
the requirements of Section 162(m) and Treasury Regulations promulgated
pursuant thereto, as they relate to the definition of performance-based
compensation.
ARTICLE V--MISCELLANEOUS PROVISIONS
5.1 Adjustments Upon Changes in Capitalization. In the event of changes
to the outstanding shares of Common Stock of the Company through
reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, stock dividend, stock consolidation or otherwise, or in the
event of a sale of all or substantially all of the assets of the Company, an
appropriate and proportionate adjustment shall be made in the number and kind
of shares as to which Stock Options and Awards may be granted, including with
respect to the share limit provided in Section 2.5 and the award limit provided
in Section 2.6. A corresponding
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adjustment changing the number or kind of shares and/or the purchase price per
share of unexercised Stock Options or Awards or, in either case, portions
thereof which shall have been granted prior to any such change shall likewise
be made. Notwithstanding the foregoing, in the case of a reorganization, merger
or consolidation, or sale of all or substantially all of the assets of the
Company, in lieu of adjustments as aforesaid, the Committee may in its
discretion accelerate the date after which a Stock Option may or may not be
exercised or the stated expiration date thereof and may, in its discretion,
accelerate the vesting or grant of any Award. Adjustments or changes under this
Section shall be made by the Committee, whose determination as to what
adjustments or changes shall be made, and the extent thereof, shall be final,
binding and conclusive.
5.2 Non-Transferability. Except as otherwise provided herein, no Stock
Option and no rights under an Award shall be transferable except by will or the
laws of descent and distribution, nor shall any Stock Option be exercisable
during the Participant's lifetime by any person other than the Participant or
his guardian or legal representative. Notwithstanding the foregoing, any Option
that is not an ISO shall be transferable pursuant to a "domestic relations
order" as defined in the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, and also, if so provided in the option
document by the Committee, at its discretion, shall be transferable without
payment of consideration, to any of the following: immediate family members of
the holder (i.e., spouse or former spouse, parents, issue, including adopted
and "step" issue, or siblings); trusts for the benefit of such immediate family
members; partnerships whose only partners are such immediate family members; or
to any transferee permitted by a rule adopted by the Committee or approved by
the Committee in an individual case. Any transferee will be subject to all of
the conditions set forth in the option document with respect to the Option
prior to its transfer.
5.3 Withholding. The Company's obligations under this Plan shall be
subject to applicable federal, state and local tax withholding requirements.
Federal, state and local withholding tax due at the time of a grant or upon the
exercise of any Stock Option or in connection with an Award may, in the
discretion of the Committee, be paid in shares of Common Stock already owned by
the Participant or through the withholding of shares otherwise issuable to such
Participant, upon such terms and conditions as the Committee shall determine.
If the Participant shall fail to pay, or make arrangements satisfactory to the
Committee for the payment, to the Company of all such federal, state and local
taxes required to be withheld by the Company, then the Company shall, to the
extent permitted by law, have the right to deduct from any payment of any kind
otherwise due to such Participant an amount equal to any federal, state or
local taxes of any kind required to be withheld by the Company.
5.4 Compliance with Law and Approval of Regulatory Bodies. No Stock
Option shall be exercisable and no shares will be delivered under the Plan
except in compliance with all applicable federal and state laws and regulations
including, without limitation, compliance with all federal and state securities
laws and withholding tax requirements and with the rules of the NYSE and of all
other domestic stock exchanges on which the Common Stock may be listed. Any
share certificate which evidences shares issued upon the exercise of a Stock
Option or granted pursuant to an Award may bear legends and statements the
Committee shall deem advisable to assure compliance with federal and state laws
and regulations. No Stock Option shall be exercisable and no shares will be
delivered under the Plan, until the Company has obtained consent or approval
from regulatory bodies, federal or state, having jurisdiction over such matters
as the Committee may deem advisable. In the case of the acquisition of a Stock
Option or an Award by a person or estate acquiring the right to such Stock
Option or Award as a result of the death of the Participant, the Committee may
require reasonable evidence as to the ownership of the Stock Option or Award
and may require consents and releases of taxing authorities that it may deem
advisable.
5.5 No Right to Employment or other Service. Neither the adoption of
the Plan nor its operation, nor any document describing or referring to the
Plan, or any part thereof, nor the granting of any Stock Options or Awards
hereunder, shall confer upon any Participant under the Plan any right to
continue in the employ or other service of the Company or any Affiliate, or
shall in any way affect the right and power of the Company or any Affiliate to
terminate the employment or other service relationship of any Participant at
any time with or without assigning a reason therefor, to the same extent as
might have been done if the Plan had not been adopted.
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5.6 Exclusion from Pension Computations. By acceptance of a grant of a
Stock Option or an Award under the Plan, the recipient shall be deemed to agree
that any income realized upon the receipt or exercise thereof or upon the
disposition of the shares received upon the exercise thereof or in accordance
with the terms thereof will not be taken into account as "base remuneration,"
"wages," "salary" or "compensation" in determining the amount of any
contribution to or payment or any other benefit under any pension, retirement,
incentive, profit-sharing or deferred compensation plan of the Company or any
Affiliate.
5.7 Abandonment of Stock Options and Awards. A Participant may at any
time abandon a Stock Option or Award prior to its expiration date. The
abandonment shall be evidenced in writing, in such form as the Committee may
from time to time prescribe. A Participant shall have no further rights with
respect to any Stock Option or Award so abandoned.
5.8 Severability. If any of the terms or provisions of the Plan
conflict with the requirements of Rule 16b-3, then such terms or provisions
shall be deemed inoperative to the extent they so conflict with the
requirements of Rule 16b-3.
5.9 Interpretation of the Plan. Headings are given to the Sections of
the Plan solely as a convenience to facilitate reference, and headings,
numbering and paragraphing shall not in any case be deemed in any way material
or relevant to the construction of the Plan or any provision hereof. The use of
the masculine gender shall also include within its meaning the feminine. The
use of the singular shall also include within its meaning the plural and vice
versa.
5.10 Use of Proceeds. Funds received by the Company upon the exercise of
Stock Options or payments made in connection with Awards shall be used for the
general corporate purposes of the Company.
5.11 Construction of Plan. The place of administration of the Plan shall
be in the State of Nevada, and the validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined solely in accordance with the
laws of the State of Nevada.
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ADMISSION TICKET
MANDALAY RESORT GROUP
2002 Annual Meeting
Thursday, June 20, 2002
10:30 A.M., Las Vegas time
STOCKHOLDER NAME(S): ___________________________________________
(PLEASE PRINT)
___________________________________________
STOCKHOLDER ADDRESS: ___________________________________________
___________________________________________
If you plan to attend the Annual Meeting of Stockholders, please
so indicate by marking the appropriate box on your proxy card. The
meeting will be held in the Islander Ballroom at Mandalay Bay Resort
& Casino, 3950 Las Vegas Boulevard South, Las Vegas, Nevada. Space
limitations make it necessary to limit attendance to stockholders.
Registration will begin at 8:30 A.M., Las Vegas time. "Street name"
holders will need to bring a copy of a brokerage statement
reflecting stock ownership as of April 22, 2002. You are cordially
invited to attend a brunch, which will be held in the Islander
Ballroom, beginning at 8:30 A.M., Las Vegas time.
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This Admission Ticket should not be returned with your proxy but should
be retained and brought with you to the Annual Meeting.
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/\ DETACH AND RETAIN THIS ADMISSION TICKET /\
ADMISSION TICKET
2002 Annual Meeting
of
MANDALAY RESORT GROUP
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Agenda
1. To elect two directors;
2. To approve the 2002 Stock Incentive Plan;
3. To ratify the appointment of Deloitte & Touche
LLP as independent auditors to examine and
report on the Company's financial statements
for the fiscal year ending January 31, 2003;
and
4. To transact such other business as may properly
be brought before the meeting or any
adjournment(s) thereof.
(See Reverse Side)
ADMISSION TICKET
[LOGO] MANDALAY RESORT GROUP
2002 Annual Meeting
Thursday, June 20, 2002
10:30 A.M., Las Vegas time
If you plan to attend the Annual Meeting of Stockholders, please so indicate by
marking the appropriate box on the attached proxy card. The meeting will be held
in the Islander Ballroom at Mandalay Bay Resort & Casino, 3950 Las Vegas
Boulevard South, Las Vegas, Nevada. Space limitations make it necessary to limit
attendance to stockholders. Registration will begin at 8:30 A.M., Las Vegas
time. "Street name" holders will need to bring a copy of a brokerage statement
reflecting stock ownership as of April 22, 2002. You are cordially invited to
attend a brunch, which will be held in the Islander Ballroom, beginning at 8:30
A.M., Las Vegas time.
------------------------
This Admission Ticket should not be returned with your proxy but should be
retained and brought with you to the Annual Meeting.
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Mandalay Resort Group
[LOGO] MANDALAY RESORT GROUP 3950 Las Vegas Boulevard South
Las Vegas, Nevada proxy
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MANDALAY RESORT
GROUP.
The undersigned, a stockholder of Mandalay Resort Group (the "Company"), a
Nevada corporation, hereby appoints Michael S. Ensign and Yvette E. Landau, and
each of them, as the true and lawful attorneys and proxies of the undersigned,
with full power of substitution, for and in the name of the undersigned, to vote
and otherwise act on behalf of the undersigned at the Annual Meeting of
Stockholders of the Company to be held in the Islander Ballroom at Mandalay Bay
Resort & Casino, 3950 Las Vegas Boulevard South, Las Vegas, Nevada, on Thursday,
June 20, 2002 at 10:30 A.M., Las Vegas time, or at any adjournment or
adjournments thereof, with respect to all shares of the Company's Common Stock
which the undersigned would be entitled to vote, with all powers the undersigned
would posses if personally present, on the matters shown on the reverse side.
This proxy when properly executed will be voted as specified on the reverse
side. If no specification is made, this proxy will be voted FOR each nominee for
director named on the reverse side, FOR approval of the 2002 Stock Incentive
Plan and FOR ratification of the appointment of Deloitte & Touche LLP.
See reverse for voting instructions.
Agenda for 2002 Annual Meeting
1. To elect two directors;
2. To approve the 2002 Stock Incentive Plan;
3. To ratify the appointment of Deloitte & Touche LLP as independent
auditors to examine and report on the financial statements for the
fiscal year ending January 31, 2003; and
4. To transact such other business as may properly be brought before the
meeting or any adjournment(s) thereof.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Mandalay Resort Group, c/o Shareowner
Services/TM/, P.O. Box 64873, St. Paul, MN 55164-0873.
Please detach here
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The Board of Directors Recommends a Vote FOR Each Nominee Listed Below and FOR Proposals 2 and 3.
1. Election of two directors: 01 Donna B. More [_] Vote FOR [_] Vote WITHHELD
02 William A. Richardson both nominees from both nominees
(except as marked)
(Instructions: To withhold authority to vote for any -----------------------------------------------
indicated nominees, write the number(s) of the
nominee(s) in the box provided to the right.) -----------------------------------------------
2. Approval of the 2002 Stock Incentive Plan. [_] For [_] Against [_] Abstain
3. Ratification of the appointment of Deloitte & Touche
LLP as independent auditors to examine and report on [_] For [_] Against [_] Abstain
the Company's financial statements for the fiscal year
ending January 31, 2003.
4. In the discretion of the proxies on any other matters that may properly come before the meeting or any
adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED
FOR EACH NOMINEE LISTED ABOVE AND FOR PROPOSALS 2 AND 3.
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Address Change? Mark Box [_] I/we plan to attend
Indicate changes below: the Annual Meeting [_] Date
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Signature(s) in Box
Please sign exactly as your name(s) appears on
Proxy. If held in joint tenancy, all persons
must sign. Trustees, administrators, etc.,
should include title and authority.
Corporations should provide full name of
corporation and title of authorized officer
signing the proxy.
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