NOTICE OF INTENDED PROXY CONTEST OVER SHAREHOLDER PROPOSALS
First released to shareholders March/__/05
UNITE HERE
1630 S. Commerce St.
Las Vegas, NV 89102
Tel.: (702) 386-5231
Fax: (702) 386-5241
RE: ANNUAL MEETING OF SHAREHOLDERS OF STATION CASINOS, INC.
(NYSE: STN)
Est. Date: May 18, 2005
Est. Location: Las Vegas, NV
STOCKHOLDER PROPOSALS WILL BE PRESENTED TO:
(1) Strengthen shareholder rights by changing
the "supermajority" voting provisions in the
bylaws to simple majority;
(2) Declassify the Board and institute annual
election of Directors; and
(3) Allow shareholders to vote on the
Company's "poison pill" or redeem it.
To Fellow Station Casino, Inc. Shareholders:
We will be putting three proposals up for a vote
at the next shareholders meeting. If you think
you might support one of them, then please hold
off returning a proxy card to management (unless
such card gives you the opportunity to vote on
the proposals). Instead, wait until you receive
our proxy card containing these
proposals.
Station Casinos has been one of the leading
performers in the gaming industry. However, we
are concerned about the Company's poor corporate
governance practices and restrictions on
shareholder rights. We believe the Company's
arsenal of anti-takeover devices a classified
board, a stockholder rights plan (or "poison
pill"), blank check preferred stock,
supermajority voting requirements, and
restrictions on shareholders' ability to call
special meetings or act by written consent
serve to potentially entrench management and
the Board of Directors from shareholders.
It is our opinion that enhancing shareholder
rights at Station Casinos, rather than
maintaining the Company's current entrenchment
devices, is the best guarantee to ensure the
continuing success of the Company.
Removing the Company's draconian anti-takeover
devices is especially important given the
unprecedented merger-and-acquisition activity in
the gaming industry. In 2004, over $22 billion
in gaming deals were announced, and Boyd Gaming
completed its $1.4 billion acquisition of Coast
Resorts, a major Station Casinos' competitor.
We believe the trend of consolidation among
gaming operators is likely to continue a view
backed by top gaming industry analysts:
"We believe that the industry
could continue to experience
consolidation, particularly among the
small-cap operators, as the gap between
them and the large caps continues to
widen." (Lehman Brothers Global Equity
Research, "Opportunity Knocks", Aug. 24,
2004)
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: None of the publications or authors cited
in this proxy statement are participants in this
proxy solicitation. We have not requested nor
obtained the consent of any of these sources for
referring to these materials in our proxy
statement.
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"We expect consolidation to
continue as smaller operators need scale
to compete with the larger casino
operators, although we anticipate that
the rate of M&A will slow from 2004's
torrid pace." (Bear Stearns Equity
Research, "U.S. Gaming: Let the Games
Begin", January, 2005)
"Casino operators remain in a
period of strong secular growth but are
likely to face momentum concerns as
growth slows....In this environment,
consolidation will likely become an
increasingly important component of
growth, which presents both opportunity
and risk." (Citigroup Smith Barney
Equity Research, "United States, Gaming
and Lodging, 2004 Midyear Update: What's
Next?" Jun. 18, 2004)
Given this environment, we believe that the
Company's current anti-takeover devices provide
our Board of Directors and management with too
much power to potentially reject offers that may
be in the best interests of shareholders.
ACCORDINGLY, WE URGE SHAREHOLDERS TO VOTE FOR
OUR PROPOSALS RECOMMENDING THE BOARD TO DO THE
FOLLOWING:
1. Strengthen shareholder rights by
changing the "supermajority" voting
provisions in the bylaws to simple
majority.
2. Declassify the Board and institute
annual election of Directors.
3. Allow shareholders to vote on the
Company's "poison pill" or redeem it.
Below is the full text of our proposals, along
with supporting statements for each proposal.
1. ESTABLISH SIMPLE MAJORITY VOTING BY SHAREHOLDERS
RESOLVED, that the shareholders of Station
Casinos, Inc. urge the Board of Directors to
increase shareholder rights by lowering the
voting requirement to amend the Company's
Restated Bylaws from the current "supermajority"
to a simple majority.
Supporting Statement
We believe shareholders' ability to exercise
their rights to be fundamental to good corporate
governance, including the ability of
shareholders to enact bylaw amendments or take
other action by a majority of shares
outstanding. A simple majority of shareholder
votes should be sufficient to mandate changes to
the Company's bylaws.
Currently, the Company has a "supermajority" requirement
for bylaw amendments (66 2/3% of the outstanding shares). We
believe this requirement unduly limit shareholders'
influence and role in our company, particularly given
the significant insider ownership (more than 20%) of
the Company's common stock. The supermajority
requirement creates an unreasonably high threshold for
outside shareholders to affect fundamental changes to the
Company's Restated Bylaws.
We believe the restoration of simple majority
rule by shareholders is the first step toward
meaningful corporate governance reform at the
Company. We urge the Board of Directors to
increase shareholder rights and establish simple
majority voting by shareholders with respect to
amending the Company's Restated Bylaws.
2. INSTITUTE ANNUAL ELECTION OF DIRECTORS
RESOLVED, that shareholders of Station Casinos,
Inc. urge the Board of Directors to take
necessary steps, in compliance with state law,
to declassify the board and institute annual
election of directors. The board's new election
system shall be instituted in a manner that does
not affect the unexpired terms of directors
previously elected.
Supporting Statement
Station Casinos' Board of Directors is divided
into three classes of directors serving
staggered three-year terms. This means an
individual director faces election only once
every three years, and shareholders only vote on
approximately a third of the board each year.
We believe this director classification system
is not in the best interests of shareholders
because it reduces the accountability of the
board to shareholders and is an unnecessary
takeover defense. Shareholders should have the
opportunity to vote on the performance of the
entire Board each year. Replacing the current
classification system with annual elections of
all directors would give shareholders an
opportunity to register their views on the
performance of the board collectively and each
director individually.
A study by researchers at Harvard Business
School and the University of Pennsylvania's
Wharton School titled "Corporate Governance and
Equity Prices" (Quarterly Journal of Economics,
February 2003) looked at the relationship
between corporate governance practices
(including classified boards) and firm
performance. The study found a significant
positive link between governance practices
favoring shareholders (such as annual director
elections) and firm value, though the study did
not break out the impact of individual
governance practices.
Many institutional investors increasingly favor
requiring annual elections for all directors.
The Council of Institutional Investors, the
California Public Employees' Retirement System,
and Institutional Shareholder Services support
this reform.
We urge shareholders to demand that Station
Casinos, Inc. declassify its Board of Directors
and adopt annual director elections.
3. SHAREHOLDER APPROVAL OF POISON PILLS
RESOLVED, that shareholders of Station Casinos,
Inc. urge the Board of Directors to submit the
Company's Rights Agreement to shareholders for
approval or, if such approval is not granted by
a majority vote of shareholders, redeem it, and
to seek shareholder approval for extending this
"poison pill" or adopting other similar plans in
the future.
Supporting Statement
On October 6, 1997, the Company's Board of
Directors adopted, without shareholder approval,
a "Rights Agreement" (which was last amended on
December 1, 1998). The agreement provides that
the Board can thwart a potential takeover bid by
giving all other shareholders an additional one
one-hundredth share of preferred stock for each
share owned. The Board adopted this agreement
unilaterally and without seeking prior approval
of shareholders. Unless redeemed, the share
purchase rights set forth in the Rights
Agreement will expire on October 21, 2007,
unless the expiration date is extended or the
rights are earlier redeemed.
We do not believe the possibility of an
unsolicited bid justifies the unilateral
implementation of such a device by the board.
Therefore, we urge the board to submit the
Rights Agreement to a shareholder vote for
approval and not to extend it or adopt other
poison pills in the future without first seeking
shareholder approval.
According to the 1991 book Power and
Accountability by Nell Minow and Robert Monks:
"All poison pills raise questions of shareholder
democracy and the robustness of the corporate
governance process. They amount to major de
facto shifts of voting rights away from
shareholders to management, on matters
pertaining to the sale of the corporation. They
give target boards of directors absolute veto
power over any proposed business combination, no
matter how beneficial it might be for the
shareholders. "
We urge all shareholders to vote FOR this
resolution.
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VOTING PROCEDURES:
IF YOU THINK YOU MIGHT SUPPORT ANY OF OUR
PROPOSALS, DO NOT RETURN A PROXY CARD TO
MANAGEMENT UNLESS IT GIVES YOU THE RIGHT TO VOTE
ON THE PROPOSAL. YOU SHOULD INSTEAD WAIT UNTIL
YOU RECEIVE OUR PROXY CARD. We cannot release
our proxy card until after management announces
what else will be up for a vote this year
including the names of the nominees for director
so that you can direct us how to vote your stock
on such matters. That means you probably will
not receive our proxy card until after you
receive management's card. In corporate
elections, simply submitting a new proxy card
with a later date on it revokes your prior card.
A proxy vote may be revoked any time prior to
the tally at the shareholders meeting by signing
and submitting a new proxy card, by sending
written notice of revocation to the proxy
holder, or by appearing at the meeting and
voting in person. If management provides you a
card which does not list these proposals, then
by returning it you may be giving management
discretion to vote against these proposals.
We intend to solicit at least a majority of the
voting power of the outstanding stock. The
record date for eligibility to vote will be
announced by the Board in its proxy statement,
but based on past dates, it will fall in late
February. We do not have a candidate we intend
to support against the incumbent board's
nominees, nor will we seek any discretionary
voting authority for the meeting (meaning that
we will vote all proxy cards strictly as you
direct, and if matters come up on which you have
not given us instructions, we will not vote your
shares on those matters. The board election
and these proposals are the only matters we
believe will come up for a vote at the meeting
this year.) We incorporate by reference all
other information concerning the board of
directors and voting procedures contained in
management's last proxy statement at pages 1-8.
More current information will be contained in
the proxy statement you will receive from the
Company in the next few weeks.
INFORMATION ON PARTICIPANTS IN THIS SOLICITATION:
The participants in this solicitation will be
UNITE HERE, its research analyst Chris Bohner,
Culinary Workers Union Local 226 (a UNITE HERE
affiliate commonly known as "The Culinary") and
its research analyst Ken Liu. All have offices
at the above address. UNITE HERE represents
approximately 440,000 active members and more
than 400,000 retirees throughout North America.
UNITE HERE owns 262 shares of Station Casino
Inc. common stock. UNITE HERE and its
affiliates have engaged in shareholder
solicitations on corporate governance issues at
several companies over the past decade.
Station Casino Inc.'s workforce is not
unionized. The Culinary, which represents
approximately 50,000 employees of Las Vegas
resorts in collective bargaining, has an ongoing
organizing drive at Station properties in Las
Vegas. Neither UNITE HERE nor the Culinary have
undertaken picketing or boycott activities
against the Company. We do not seek your
support in labor matters, and do not believe
that enactment of the proposals would have any
impact on such matters. The proposals and UNITE
HERE's proxy cards will be presented at the
meeting regardless of any developments in such
matters.
UNITE HERE and the Culinary will bear all
solicitation costs (anticipated at $10,000) and
will not seek reimbursement from the Company.
They will solicit proxies by mail, phone,
e-mail, fax and in person using its regular
staff, who shall not receive any additional
compensation, but they may also hire an outside
solicitor. They will reimburse banks, brokers,
and other custodians, nominees or fiduciaries
for reasonable expenses incurred in forwarding
proxy material to beneficial owners.