SEPARATION AGREEMENT AND GENERAL RELEASE
This Separation Agreement (the “Separation Agreement”) is made as of this 3 rd day of March, 2011 by and among Pinnacle Entertainment, Inc. (the “Company”) and Stephen H. Capp (“Executive,” and together with the Company, the “Parties”).
WHEREAS, Executive has been employed by the Company under terms set forth in the Amended and Restated Employment Agreement dated as of December 22, 2008 as amended by the First Amendment to Amended and Restated Employment Agreement dated December 18, 2009 and the Amendment to Stock Option Agreements and Employment Agreement dated December 22, 2009 by and between Executive and the Company (collectively, the “Employment Agreement”);
WHEREAS, Executive’s employment with the Company will end by Executive’s separation of employment (the “Separation”) on March 31, 2011 (the “Separation Date”); and
WHEREAS, the Parties desire to enter into this Separation Agreement in order to set forth the definitive rights and obligations of the Parties in connection with the Separation.
NOW, THEREFORE, in consideration of the mutual covenants, commitments and agreements contained herein, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Parties intending to be legally bound hereby agree as follows:
1. Acknowledgment of Separation . The Parties acknowledge and agree that the Separation will occur on the Separation Date and that the Separation shall be treated as a termination without cause other than in connection with a change of control for all purposes under the Employment Agreement (other than with respect to surviving provisions of the Employment Agreement as set forth below). In addition, notwithstanding anything to the contrary, the Parties acknowledge and agree that all provisions of the Employment Agreement will terminate effective as of the Separation Date (including specifically, but not limited to, Appendix A relating to tax gross-up payments), with the exception of the provisions of Sections 4.4, 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 9.7, 9.8., 9.14, 9.15 and Article 8 of the Employment Agreement (collectively, the “Surviving Employment Agreement Provisions”), which shall survive the Separation and the effectiveness of this Separation Agreement and will remain in full force and effect after the Separation Date in accordance with their terms, regardless of the reason for this termination of employment. The post-separation provisions of the Employment Agreement, including specifically Sections 7.3, 7.4, 7.5, 7.6 and 7.7, with respect to periods after the “Term” (as such term is used in the Employment Agreement) shall be considered effective as of and shall run from the Separation Date. Upon the Separation, Executive shall be treated as having resigned from all positions Executive held with the Company and its subsidiaries, whether as a director, officer, manager or any other position.
2. Executive’s Acknowledgment of Consideration . Executive specifically acknowledges that the obligations and payments set forth in Section 3(a) below were agreed to by the Parties upon entering into the Employment Agreement, and the other obligations and payments of the Company set forth in Section 3 hereof and the release of the Company granted in Section 6 hereof are being provided by the Company in consideration for the release granted by Executive in Section 6 hereof.
3. Payments and Benefits Upon and After the Separation .
(a) Accrued Salary, Expenses and Bonus . The Company shall pay or cause to be paid to Executive all accrued but unpaid base salary. In addition, promptly upon submission by Executive of his unpaid expenses incurred prior to the Separation Date as described in Article 5 of the Employment Agreement, reimbursement for such expenses shall be made. The Company shall pay these amounts within ten (10) days of the Separation Date. In addition, Executive shall receive an annual bonus for the year 2010 in the amount of Seven Hundred Thirty Thousand Dollars ($730,000) payable along with other management bonuses no later than March 15, 2011. Executive shall not be eligible for any bonus for the year 2011 or any subsequent year.
(b) Severance . The severance to be paid to Executive shall be Executive’s annual base salary of Five Hundred Thousand Dollars ($500,000), payable in equal semi-monthly installments over twelve (12) months immediately following the Separation Date in accordance with the Company’s regular salary payment schedule from time to time.
(c) Stock Options, Restricted Stock and Restricted Stock Units . All of Executive’s vested stock options as of the Separation Date shall survive the Separation Date until the earlier of (i) June 29, 2012 or (ii) the expiration of the original ten-year term of the vested stock options (the “Exercise Period”). During the Exercise Period, Executive may exercise such vested stock options and any of such stock options which remain unexercised shall expire thereafter and be cancelled and terminated. All unvested stock options, unvested restricted stock and unvested restricted stock units on the Separation Date are hereby cancelled and terminated.
(d) Other Stock Unit Awards . Effective March 1, 2010, Executive was granted Other Stock Unit Awards covering 37,500 Shares under the Company’s 2005 Equity and Performance Incentive Plan (the “Plan”) to vest in two annual equal installments on the first and second anniversaries on the date of the grant (the “2010 Grant”). Fifty-percent (50%) of the Other Stock Unit Awards have vested as of March 1, 2011 and the 18,750 Shares corresponding to such vested portion of the 2010 Grant shall be issued to Executive within ninety (90) days of the second anniversary of the grant date, subject to the provisions of the 2010 Grant and the Plan. The remaining portion of the 2010 Grant that would otherwise vest on March 1, 2012 if Executive were still employed is hereby cancelled and terminated.
(e) Other Benefits Payments . The Company shall pay or make available to Executive all benefits described under Section 6.5.3(c) of the Employment Agreement with respect to “Health and Disability Coverage Continuation” described therein for a maximum period of twelve (12) months from the Separation Date, conditioned upon Executive’s timely election of COBRA coverage. Executive shall promptly advise the Company if he becomes covered under other insurance plans. Any reimbursement that is taxable to the Executive shall be made not later than December 31 of the calendar year following the calendar year in which Executive or family member incurred the expense.
(f) Tax Withholding . The Company shall be entitled to withhold from any amounts otherwise payable hereunder to Executive any amounts required to be withheld in respect of federal, state or local taxes and Executive shall be responsible for all taxes on amounts received under or related to this Separation Agreement.
(g) No Duty to Mitigate . The payments contemplated herein shall not be subject to any duty of mitigation by Executive nor to offset for any income earned by Executive following Separation.
4. Consulting Services; Cooperation .
(a) Consulting . For a period of twelve (12) months beginning on the Separation Date (the “Consulting Period”), the Company will retain Executive to act on a part-time basis as an independent consultant (for no additional compensation), as reasonably directed by the Company, in assisting the Company as determined in the discretion of the Chief Executive Officer, including, but not limited to the Company’s Baton Rouge project. If Executive takes another executive position during the Consulting Period (subject to his non-competition restrictions as set forth in Section 7.4 of his employment agreement), Executive shall have the right to terminate his obligation to provide consulting services upon written notice to the Company. Executive shall make himself reasonably available during the Consulting Period, but the parties agree that said commitment shall not exceed twenty-five (25) hours per month. The Company expressly agrees that Executive shall only be liable for breach of Executive’s obligations under this Section 4(a) to the extent Executive engages in gross negligence or willful misconduct with respect to those services and, in such event, the Company expressly agrees that it shall not be entitled to seek money damages in excess of $10,000 for all such breaches.
(b) Reimbursement of Expenses; Independent Contractor Status. The Company agrees to reimburse Executive for all reasonable out-of-pocket costs and expenses incurred in connection with the consulting services provided under this Section upon presentation of appropriate documentation thereof. In connection with the Executive’s activities on behalf of the Company as an independent consultant pursuant to this Section, Executive acknowledges and agrees that he is acting as an independent contractor, engaged in the conduct of his own separate business and is not a partner, joint venturer, an agent or employee of the Company for any purpose. Executive also acknowledges and agrees that Executive has no right or authority or ability to enter into any contracts or assume any obligations or give any warranties or make any representations on behalf of the Company or to bind the Company in any way, and Executive will not convey or represent that he has any such authority. Executive agrees that, other than the consulting services described in this Section, Executive will not otherwise hold himself out as acting for or on behalf of the Company. The Company shall indemnify and hold Executive harmless from any claim or liability arising from actions taken by Executive in good faith in performing the services required under this Section 4, including any costs of defense or attorney’s fees; provided that (1) the Company shall have the right, at its expense, to assume or participate in the defense of any claim or action covered by such indemnity, (2) the Company shall not be liable for any settlement or compromise of any claim or action covered by such indemnity
unless the Company has consented in writing to such settlement or compromise (which consent shall not be unreasonably withheld) and (3) the Company shall not be liable under this indemnity to the extent that it is determined in a final judgment by a court of competent jurisdiction or final arbitration proceeding that such claim or liability resulted from any acts or failures to act undertaken or omitted to be taken by Executive through his gross negligence or willful misconduct.
(c) Cooperation . Executive also agrees to cooperate with the Company and its attorneys in any current or future litigation or claims involving the Company or any of its subsidiaries in which Executive might be a witness or for which Executive may have material information including, but not limited to, any and all meetings, depositions, arbitrations, mediations, trials, etc. This cooperation obligation shall be limited to forty (40) hours per year and it shall expire on March 31, 2014.
5. Confidential Information; Prohibitions on Certain Actions by Executive; Cooperation .
(a) Disclosure of Separation Agreement . In addition to and without limiting the provisions of Section 7.1 of the Employment Agreement, the Executive shall, and the Company agrees to cause each of the Chief Executive Officer, Chief Financial Officer, General Counsel and any executive and senior vice president of the Company (the “Designated Company Executives”) to, keep this Separation Agreement, and the terms and subject matter hereof, strictly confidential, and no disclosure or public announcement will be made by any of them (except as required by applicable law, including but not limited to any securities laws and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”)) with respect to this Separation Agreement (including the existence thereof, or the terms or subject matter hereof) without the prior agreement of the other Party; provided, however, that (i) the Company may issue a mutually agreed upon press release announcing Executive’s departure and from time to time may comment on, or make public disclosures regarding, the Separation in a manner consistent with such press release; (ii) the Company and Executive may provide this Separation Agreement to and share such information with applicable gaming regulatory authorities; and (iii) the Company and Executive may share such information with their legal, tax and accounting advisors. Executive agrees to direct all inquiries concerning Executive’s employment with the Company to the Company’s Chief Executive Officer or General Counsel, who will represent that Executive resigned to pursue other opportunities. Executive acknowledges that the Company intends to file this Separation Agreement with the SEC as an exhibit to its periodic reports filed with the SEC and to describe its terms in its SEC filings. The Company acknowledges that Executive may disclose the existence of this Separation Agreement and any details related thereto to the extent that such information has been filed by the Company with the SEC or if the Company has otherwise released such information to the public.
(b) Prohibition on Certain Actions by Executive . Executive acknowledges that, given Executive’s position with the Company prior to the Separation, Executive possesses substantial non-public information and other confidential information regarding the Company which has substantial economic value to the Company, including without limitation information relating to the Company’s development plans, prospects, and financial, organizational, managerial, administrative, customer andmarketing information
regarding the Company, much of which the Company considers highly sensitive information. Executive has agreed, pursuant to Section 7.1 of the Employment Agreement, to, among other things, not directly or indirectly disclose, divulge, communicate, use or otherwise disclose any such information. In order to better ensure that such information is not used inappropriately by Executive, in addition to Executive’s obligations under Section 7.1 of the Employment Agreement, which survives the Separation and the effectiveness of this Separation Agreement, for a period of three (3) years from the Separation Date, Executive shall not, nor shall it permit any Affiliate or Associate (as such terms are hereinafter defined) or representative of Executive (such Affiliates, Associates and representatives, collectively and individually, the “Executive Affiliates”) to, directly or indirectly:
(i) effect or seek, offer or propose (whether publicly or otherwise) to effect, or cause or participate in or in any way assist any other person to effect or seek, offer or propose (whether publicly or otherwise) to effect or participate in:
(1) any solicitation of proxies or written consents of stockholders, or conduct any other type of referendum (binding or non-binding) with respect to, or from the holders of, the common stock of the Company (the “Common Stock”) (other than by voting his or its shares of Common Stock in a way that does not violate this Separation Agreement), or become a participant in any contested solicitation with respect to the Company, including without limitation relating to the removal or the election of directors of the Company or seek representation on the Company’s Board of Directors or a change in the composition or size of the Company’s Board of Directors;
(2) any acquisition of any securities (or beneficial ownership thereof) or assets of the Company or any of its subsidiaries (other than the exercise by Executive of stock options held by Executive as of the Separation Date, and excluding personal, passive investments by Executive in the Company’s securities from time to time),
(3) any tender or exchange offer, merger or other business combination involving the Company or any of its subsidiaries, or
(4) any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to the Company or any of its subsidiaries; or
(ii) form, join or participate in a partnership, limited partnership, limited liability company, syndicate, person or other group, including without limitation a group as defined under Section 13(d) of the Exchange Act (as defined below), with respect to the Common Stock, or otherwise assist, support or participate in any effort by any person with respect to the matters set forth in subparagraph (i) above, or deposit any shares of Common Stock in a voting trust or subject any shares of Common Stock to any voting agreement;
(iii) otherwise act, al