0000902664-14-002188.txt : 20140421 0000902664-14-002188.hdr.sgml : 20140421 20140421103324 ACCESSION NUMBER: 0000902664-14-002188 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20140421 DATE AS OF CHANGE: 20140421 GROUP MEMBERS: DANIEL LEWIS GROUP MEMBERS: ORANGE CAPITAL MASTER I, LTD. GROUP MEMBERS: ORANGE CAPITAL, LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PINNACLE ENTERTAINMENT INC. CENTRAL INDEX KEY: 0000356213 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 953667491 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-33517 FILM NUMBER: 14772992 BUSINESS ADDRESS: STREET 1: 3980 HOWARD HUGHES PARKWAY CITY: LAS VEGAS STATE: NV ZIP: 89169 BUSINESS PHONE: 702-541-7777 MAIL ADDRESS: STREET 1: 3980 HOWARD HUGHES PARKWAY CITY: LAS VEGAS STATE: NV ZIP: 89169 FORMER COMPANY: FORMER CONFORMED NAME: PINNACLE ENTERTAINMENT INC DATE OF NAME CHANGE: 20000225 FORMER COMPANY: FORMER CONFORMED NAME: HOLLYWOOD PARK INC/NEW/ DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ORANGE CAPITAL, LLC CENTRAL INDEX KEY: 0001426756 IRS NUMBER: 202365801 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 1370 AVENUE OF THE AMERICAS STREET 2: 23RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 212-375-6040 MAIL ADDRESS: STREET 1: 1370 AVENUE OF THE AMERICAS STREET 2: 23RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 SC 13D 1 p14-1084sc13d.htm P14-1084SC13D

 

SECURITIES AND EXCHANGE COMMISSION  
Washington, D.C. 20549  
   
SCHEDULE 13D
 
Under the Securities Exchange Act of 1934
(Amendment No. )*
 

Pinnacle Entertainment, Inc.

(Name of Issuer)
 

Common Stock, $0.10 par value

(Title of Class of Securities)
 

723456109

(CUSIP Number)
 
 

David Rosewater

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
 

April 10, 2014

(Date of Event Which Requires Filing of This Statement)
 

 

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), Rule 13d-1(f) or Rule 13d-1(g), check the following box. [ ]

(Page 1 of 10 Pages)

______________________________

* The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

 

The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 

 
CUSIP No. 723456109SCHEDULE 13DPage 2 of 10 Pages

 

1

NAME OF REPORTING PERSON

Orange Capital, LLC

2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a) ¨

(b) ¨

3 SEC USE ONLY
4

SOURCE OF FUNDS

AF

5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ¨
6

CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware

NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH:
7

SOLE VOTING POWER

0

8

SHARED VOTING POWER

2,637,983 shares of Common Stock

9

SOLE DISPOSITIVE POWER

0

10

SHARED DISPOSITIVE POWER

2,637,983 shares of Common Stock

11

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON

2,637,983 shares of Common Stock

12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ¨
13

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

4.5%

14

TYPE OF REPORTING PERSON

OO; IA

         

 

 
CUSIP No. 723456109SCHEDULE 13DPage 3 of 10 Pages

 

1

NAME OF REPORTING PERSON

Orange Capital Master I, Ltd.

2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a) ¨

(b) ¨

3 SEC USE ONLY
4

SOURCE OF FUNDS

WC

5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ¨
6

CITIZENSHIP OR PLACE OF ORGANIZATION

Cayman Islands

NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH:
7

SOLE VOTING POWER

0

8

SHARED VOTING POWER

2,637,983 shares of Common Stock

9

SOLE DISPOSITIVE POWER

0

10

SHARED DISPOSITIVE POWER

2,637,983 shares of Common Stock

11

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON

2,637,983 shares of Common Stock

12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ¨
13

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

4.5%

14

TYPE OF REPORTING PERSON

CO

         

 

 
CUSIP No. 723456109SCHEDULE 13DPage 4 of 10 Pages

1

NAME OF REPORTING PERSON

Daniel Lewis

2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a) ¨

(b) ¨

3 SEC USE ONLY
4

SOURCE OF FUNDS

AF

5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ¨
6

CITIZENSHIP OR PLACE OF ORGANIZATION

United States of America

NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH:
7

SOLE VOTING POWER

0

8

SHARED VOTING POWER

2,637,983 shares of Common Stock

9

SOLE DISPOSITIVE POWER

0

10

SHARED DISPOSITIVE POWER

2,637,983 shares of Common Stock

11

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON

2,637,983 shares of Common Stock

12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ¨
13

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

4.5%

14

TYPE OF REPORTING PERSON

IN; HC

         

 

 
CUSIP No. 723456109SCHEDULE 13DPage 5 of 10 Pages

Item 1. SECURITY AND ISSUER
   
This statement on Schedule 13D (this "Schedule 13D") relates to the shares of common stock, $0.10 par value (the "Common Stock") of Pinnacle Entertainment, Inc., a Delaware corporation (the "Issuer").  The principal executive offices of the Issuer are located at 3980 Howard Hughes Parkway, Las Vegas, Nevada 89169.  

 

Item 2. IDENTITY AND BACKGROUND
   
This Schedule 13D is filed by: (i) Orange Capital, LLC, a Delaware limited liability company ("Orange Capital"); (ii) Orange Capital Master I, Ltd., a Cayman Islands exempted company ("Orange Fund"); and (iii) Daniel Lewis ("Mr. Lewis" and together with Orange Capital and Orange Fund, the "Reporting Persons").  The principal business address of Orange Capital and Mr. Lewis is 1370 Avenue of the Americas, 23rd Floor, New York, New York 10019.  The principal business address of Orange Fund is c/o Ogier Fiduciary Services (Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman, KY1-9007, Cayman Islands.  The principal business of Orange Capital is investment management. The Managing Member of Orange Capital is Mr. Lewis, who is primarily engaged in the business of investment management.  The principal business of Orange Fund is to invest in securities.  The name, citizenship, principal occupation and business address for each director of Orange Fund is set forth on Appendix A hereto.
 
None of the Reporting Persons or persons listed on Appendix A has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceedings was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

 

Item 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
   
The Reporting Persons used approximately $61,502,000 (including brokerage commissions) in the aggregate to purchase the shares of Common Stock reported in this Schedule 13D.  
   
The source of the funds used to acquire the Common Stock reported herein is the working capital of Orange Fund.  The shares of Common Stock reported herein are held in commingled margin accounts, which may extend margin credit to the Reporting Persons from time to time, subject to applicable federal margin regulations, stock exchange rules and credit policies. In such instances, the positions held in the margin accounts are pledged as collateral security for the repayment of debit balances in the accounts. The margin accounts bear interest at a rate based upon the broker’s call rate from time to time in effect. Because other securities are held in the margin accounts, it is not possible to determine the amounts, if any, of margin used to purchase the Common Stock reported herein.  
     

Item 4. PURPOSE OF TRANSACTION
   
The Reporting Persons initially acquired beneficial ownership of the shares of Common Stock of the Issuer reported herein for investment purposes because they believed the Common Stock represented an attractive investment opportunity.  

 

 
CUSIP No. 723456109SCHEDULE 13DPage 6 of 10 Pages

 

 
The Reporting Persons have had ongoing discussions with the management of the Issuer (the "Management") regarding opportunities to maximize shareholder value.  The Reporting Persons recommended that the Issuer consider spinning off the Issuer's owned real estate into a separately traded real estate investment trust ("REIT") and distribute it to shareholders via a tax free spin-off ("PropCo Transaction").  On April 16, 2014, the Reporting Persons sent a letter (the "April 16 Letter") to the Chief Executive Officer of the Issuer, which (i) discusses necessary steps to complete the PropCo Transaction; (ii) provides an analysis that describes why the Reporting Persons believe shareholder value will be maximized as a result thereof and (iii) states that subject to agreement with the Board and other typical conditions for transactions of the type, Orange Capital is willing to be an anchor investor in the PropCo Transaction.  The foregoing summary of the April 16 Letter is qualified in its entirety by reference to the full text of the April 16 Letter, a copy of which is attached as Exhibit 1 to this Schedule 13D and is incorporated by reference herein.
 
In addition, the Reporting Persons and their representatives have, from time to time, engaged in discussions with Management and the board of directors of the Issuer (the "Board") regarding, among other things, the Issuer’s business, management and strategic alternatives and direction, including but not limited to the Reporting Persons' recommendations described above.  The Reporting Persons intend to continue to discuss such matters with the Management and the Board as well as other stockholders of the Issuer and third parties and may take other steps seeking to bring about changes to increase shareholder value, including but not limited to changes involving the capital structure, financing and board composition  as well as pursue other plans or proposals that relate to or would result in any of the matters set forth in clauses (a) through (j) of Item 4 of Schedule 13D.
 
Depending upon, among other things, the outcome of the discussions referenced above, current and anticipated future trading prices for the shares of Common Stock, the financial condition, results of operations and prospects of the Issuer and its businesses, other investment opportunities available to the Reporting Persons, conditions in the securities markets, general economic conditions and other factors that the Reporting Persons deem relevant, the Reporting Persons may from time to time acquire additional shares of Common Stock or other securities or sell shares of Common Stock or other securities in the open market, in privately negotiated transactions or otherwise, and may take such other actions with respect to their investment in the Issuer as they may deem appropriate, including, without limitation, changing their intention with respect to any of the matters enumerated in clauses (a) through (j) of Item 4 of Schedule 13D.

 

Item 5. INTEREST IN SECURITIES OF THE ISSUER.
 
(a)  The aggregate number and percentage of shares of Common Stock to which this Schedule 13D relates is 2,637,983 shares of Common Stock, constituting approximately 4.5% of the Issuer's currently outstanding Common Stock.  The aggregate number and percentage of shares of Common Stock reported herein are based upon the 59,197,606 shares of Common Stock outstanding as of February 25, 2014, as reported in the Issuer's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the Securities and Exchange Commission on March 3, 2014.  
 

 

 
CUSIP No. 723456109SCHEDULE 13DPage 7 of 10 Pages

 

Pursuant to certain cash-settled call and put options, the Reporting Persons have economic exposure to approximately 2,700,000 notional shares of Common Stock (in addition to the 2,637,983 shares of Common Stock that are beneficially owned by the Reporting Persons), constituting approximately 4.6% of the outstanding shares of Common Stock, as more fully described in Item 6 of this Schedule 13D.  When taking into account such cash-settled call options on 1,350,000 shares of Common Stock, the Reporting Persons have combined voting power and economic exposure in the Issuer of approximately 4.5% and 6.7%, respectively, of the Common Stock.   The Reporting Persons disclaim beneficial ownership of  the cash-settled call and put options described herein.
 
(b)  Orange Capital has shared voting power and shared dispositive power over the shares held by Orange Fund, by virtue of Orange Capital's role as the investment advisor to Orange Fund, and accordingly Orange Capital may be deemed to be a beneficial owner of such shares.  Mr. Lewis has shared voting power and shared dispositive power over the shares held by Orange Fund, by virtue of his role as Managing Member of Orange Capital, and accordingly Mr. Lewis may be deemed to be a beneficial owner of such shares.  
 
(c)  Appendix B hereto (which is incorporated by reference in this Item 5 as if restated in full herein) sets forth all transactions with respect to the Common Stock effected during the past 60 days by the Reporting Persons.
 
(d) No person (other than the Reporting Persons) is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares of Common Stock reported herein.
 
(e) Not applicable.

 

Item 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER  
     
The Reporting Persons are parties to an agreement with respect to the joint filing of this Schedule 13D and any amendments thereto (the "Joint Filing Agreement").  A copy of the Joint Filing Agreement is attached as Exhibit 2 to this Schedule 13D and is incorporated by reference herein.  
 
Between April 10, 2014 and April 15, 2014,  Orange Capital purchased call options on 1,350,000 shares of the Issuer's Common Stock from Morgan Stanley & Co. International plc ("Morgan Stanley") with a strike price of $25.00 per share; such call options can only be settled for cash and as such, no beneficial ownership (including voting rights) is conferred.  Further, between April 10, 2014 and April 15, 2014, Orange Capital sold put options on 1,350,000 shares of the Issuer's Common Stock to Morgan Stanley with a strike price of $20.00 per share, which can only be settled for cash and as such, if exercised, no beneficial ownership (including voting rights) will be conferred.  The put and call options described herein each have an expiration date of September 19, 2014.
 
Other than the Joint Filing Agreement and the cash-settled call and put options described herein, the Reporting Persons have no contracts, arrangements, understandings or relationships with any persons with respect to securities of the Issuer.

 

Item 7. EXHIBITS
Exhibit Description
1 Letter to Mr. Sanfilippo, dated April 16, 2014.
2 Joint Filing Agreement, dated April 21, 2014.

 
CUSIP No. 723456109SCHEDULE 13DPage 8 of 10 Pages

SIGNATURES

After reasonable inquiry and to the best of its knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.

Date: April 21, 2014

 

  ORANGE CAPITAL, LLC  
   
    By: /s/ Daniel Lewis
      Name:  Daniel Lewis
      Title:  Managing Member
   
  ORANGE CAPITAL MASTER I, LTD.  
   
    By: /s/ Russell Hoffman
      Name:  Russell Hoffman
      Title:  Director
   
  /s/ Daniel Lewis  
  Daniel Lewis  
     
             
 
CUSIP No. 723456109SCHEDULE 13DPage 9 of 10 Pages

Appendix A

 

DIRECTORS AND EXECUTIVE OFFICERS OF CERTAIN REPORTING PERSONS

 

The following sets forth the name, citizenship, principal occupation and business address of each director of Orange Fund. There are no executive officers of Orange Fund.

 

Name Citizenship Principal Occupation Business Address
Russell Hoffman South Africa Chief Operating Officer, Orange Capital, LLC

1370 Avenue of the Americas,

23rd Floor,

New York, NY 10019

Philip Cater New Zealand Director International Management Services Ltd., P.O. Box 61, Harbour Centre, Grand Cayman KY1-11102, Cayman Islands
Christopher Bowring United Kingdom Director International Management Services Ltd., P.O. Box 61, Harbour Centre, Grand Cayman KY1-11102, Cayman Islands

 

 
CUSIP No. 723456109SCHEDULE 13DPage 10 of 10 Pages

Appendix B

 

TRANSACTIONS IN THE COMMON STOCK EFFECTED BY THE REPORTING PERSONS DURING THE PAST 60 DAYS

The following table sets forth all transactions with respect to the shares effected during the past 60 days by any of the Reporting Persons.  Except as otherwise noted, all such transactions in the table were effected in the open market, and the table includes commissions paid in per share prices.

Date of Transaction Shares Purchased (Sold) Price per Share ($)

04/14/2014

 

75,126

 

22.10

04/11/2014

 

275,000

 

21.7701

04/11/2014

 

50,000

 

21.9967

03/28/2014

 

127,900

 

23.1949

03/27/2014

 

67,000

 

22.2493

03/26/2014

 

40,000

 

22.5756

03/26/2014

 

80,000

 

22.7719

03/21/2014

 

39,000

 

23.6532

03/20/2014

 

58,000

 

24.0167

 

EX-99 2 exhibit1.htm EXHIBIT 1

EXHIBIT 1

April 16, 2014

 

Mr. Anthony Sanfilippo

Chief Executive Officer

Pinnacle Entertainment, Inc.

3980 Howard Hughes Parkway

Las Vegas, Nevada, 891

 

Dear Mr. Sanfilippo:

 

Orange Capital, LLC (“Orange Capital” or “We”), a New York based investment fund, is the beneficial owner of approximately 4.4% of Pinnacle Entertainment, Inc.’s (“Pinnacle” or the “Company”) common stock. Further, pursuant to certain derivative agreements which provide for additional cash-settled economic exposure equal to approximately 2.3% of Pinnacle's common stock, we have combined economic exposure equal to approximately 6.7% of the Company’s common stock.

 

It is our view that the Company’s acquisition of Ameristar Casinos, Inc. and the subsequent balance sheet de-leveraging program has generated meaningful value for its shareholders. However, despite the successful Ameristar transaction, the Company is valued at a significant discount to Pinnacle’s closest peer, the combined Penn National Gaming, Inc. (“PENN”) and its real estate owner, Gaming & Leisure Properties, Inc. (“GLPI”).[1]

 

 

Based upon management’s track record and its past communications with investors, we believe Pinnacle is open to ideas that enhance shareholder value. In light of the successful PENN/GLPI spin-off transaction in 2013, we believe there is a compelling case for Pinnacle to separate its owned real estate into an independent publicly listed real estate investment trust (“REIT” or “PropCo”) which would be distributed to shareholders via a tax-free spin-off (“PropCo Transaction”).

 

In this letter, we outline a proposal for a PropCo Transaction with a target effective date of May 31, 2015. Based on our analysis, we believe a PropCo Transaction could result in a 61%-92% increase in Pinnacle's current share price, which translates into a pro-forma valuation of $35-$42 per share. Our methodology conservatively accounts for: (a) additional capital that may be required to de-leverage the balance sheet, (b) transaction and financing costs, and (c) incremental general & administrative expense.

 
 

Importantly, we believe a PropCo Transaction offers several corporate-level benefits, including:

 

1. Accelerated de-leveraging whereby consolidated net debt/EBITDA would improve to approximately 5.1x;
2. Reduction of Pinnacle’s cost of capital allowing the Company to more efficiently invest in existing or new gaming assets and strategic acquisitions; and
3. Additional growth opportunities associated with PropCo’s capability to acquire third-party gaming, entertainment, and lifestyle properties.

 

When evaluating a PropCo Transaction, we believe it is important to consider the possible impact of higher future interest rates and the risk of changes to US tax policy. Given the characteristics of triple-net REITs, we would expect PropCo’s valuation to be negatively impacted by higher future interest rates; however, we believe shareholders would still fare better in such a scenario than under the existing corporate structure.

 

Following the PropCo Transaction, we believe the entities on a combined basis would have an improved credit profile with less exposure to the volatile high-yield debt markets. Poor conditions in the high-yield markets are likely to have a significant negative impact on the valuation of highly leveraged companies, including Pinnacle. The REIT entity will introduce new sources of low cost debt and equity.

 

With respect to tax policy, there is always a risk that future policy changes could adversely impact the Company’s ability to separate its real estate assets in a tax-free spin-off. A more immediate PropCo Transaction would mitigate this risk.

 

PropCo Transaction: Steps

 

1. Pinnacle issues $700 million total of new equity and equity-linked securities to facilitate the PropCo Transaction;  
2. Pinnacle (now “OpCo”) contributes its real estate properties to the newly formed PropCo;
3. OpCo enters into a long term Master Lease Agreement (“MLA”) with PropCo with rent determined by an implied coverage ratio of 1.8x EBITDAR / Rent Expense consistent with the PENN/GLPI MLA;
4. PropCo stock is distributed to shareholders in a tax-free spin-off; and
5. PropCo elects to be taxed as a REIT.

 

Pro-Forma Pinnacle Valuation

 

 
 

 

PropCo Transaction: Key Assumptions

 

1. PropCo would meet the income, ownership and distribution tests required to qualify as a REIT;
2. Pinnacle’s issuance of new common and preferred shares subsequent to the announcement of the PropCo Transaction, but prior to the effective date of the spin-off, will not compromise the tax-free nature of the transaction;[2]
3. All owned properties would be transferred to PropCo;
4. There would be minimal cost associated with the purge of retained earnings;
5. OpCo would be the surviving corporate entity thereby preserving Pinnacle’s substantial net operating loss carry forwards; and
6. PropCo would incur $15 million of annual general & administrative expenses.

 

PropCo Transaction: Source & Uses

 

 

1. Issue $350 million new common equity at the current share price.  The equity capital would be raised as either a common stock offering or a backstopped rights offering open to all shareholders on a pro-rata basis;
2. Issue $350 million 4-year mandatory convertible preferred shares consistent with market terms at a 6.5% interest rate with a conversion price set 25% above the current market price;
 
 

 

3. Issue $195 million of new indebtedness with use of proceeds to redeem certain outstanding senior and subordinated notes;
4. Call the 7.5% Notes ’21 in April 2015 and 8.75% Notes ’20 in May 2015; and
5. Amend the Company’s outstanding bank facilities and offer to exchange its remaining bonds outstanding between OpCo and PropCo.

 

 

Given what we see as the likely significant uplift in shareholder value associated with a PropCo Transaction, we are highly confident that, prior to a transaction announcement, Pinnacle could obtain firm commitments from existing shareholders and other capital providers to facilitate a successful PropCo Transaction. Subject to agreement with the board of directors of Pinnacle and other typical conditions for transactions of this type, Orange Capital is willing to be an anchor investor to facilitate the PropCo Transaction.

 

Securing the requisite capital in advance of a PropCo Transaction announcement would provide the Company with certainty as to the maximum number of shares to be issued and that Pinnacle’s de-leveraging goals would be met. Importantly, we believe the Company could structure a share purchase and sale agreement whereby it would retain the right to issue a portion of the new capital at a higher (less dilutive) price in the event the share price improves following the PropCo Transaction announcement.

 

 

PropCo Transaction: Pro-Forma Leverage

 

We hope this letter demonstrates that we seek to be a constructive stakeholder with the shared goal of enhancing shareholder value. We strongly believe the PropCo Transaction is in the best interests of shareholders.

  

Sincerely,

Daniel Lewis

Managing Partner

Orange Capital, LLC

 

 
 

 

cc:

Mr. Richard J. Goeglein, Chairman

Mr. James L. Martineau, Vice Chairman

Mr. Stephen C. Comer, Director

Mr. Bruce A. Leslie, Director

Ms. Desirée Rogers, Director

Ms. Jaynie Miller Studenmund, Director

Mr. Carlos A. Ruisanchez, Chief Financial Officer

Mr. Vincent J. Zahen, Investor Relations

 

 

 

 

 

 

Exhibits:

  


[1] Sources: Thomson Reuters, Wells Fargo

[2] The total common and preferred stock issuance would represent less than 50% of the pro-forma shares outstanding, therefore neither the "disqualified distribution" rules in Section 355(d) of the Internal Revenue Code nor the "anti-Morris Trust" provisions in Section 355(e) of the Internal Revenue Code would apply.

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EXHIBIT 2

Joint Filing Agreement, dated April 21, 2014

 

PURSUANT TO RULE 13d-1(k)

 

The undersigned acknowledge and agree that the foregoing statement on Schedule 13D is filed on behalf of each of the undersigned and that all subsequent amendments to this statement on Schedule 13D may be filed on behalf of each of the undersigned without the necessity of filing additional joint filing agreements. The undersigned acknowledge that each shall be responsible for the timely filing of such amendments, and for the completeness and accuracy of the information concerning it contained herein and therein, but shall not be responsible for the completeness and accuracy of the information concerning the others, except to the extent that it knows that such information is inaccurate.

 

Dated: April 21, 2014.

 

 

  ORANGE CAPITAL, LLC  
   
    By: /s/ Daniel Lewis
      Name:  Daniel Lewis
      Title:  Managing Member
   
  ORANGE CAPITAL MASTER I, LTD.  
   
    By: /s/ Russell Hoffman
      Name:  Russell Hoffman
      Title:  Director
   
  /s/ Daniel Lewis  
  Daniel Lewis