PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
COOPERATION AND STANDSTILL AGREEMENT
DRAFT — For Discussion Purposes Only — February 22, 2023
Prepared by: Calderwood & Harkness LLP 3960 Howard Hughes Parkway, Suite 1400 Las Vegas, NV 89169
Circulated to: Hargrove Sloane & Birch LLP 1585 Broadway, 40th Floor New York, NY 10036
COOPERATION AND STANDSTILL AGREEMENT
This COOPERATION AND STANDSTILL AGREEMENT (this "Agreement") is entered into as of [●], 2023 (the "Effective Date"), by and among:
(i) Redstone Gaming Corp., a Delaware corporation (the "Company"), with its principal executive offices located at 8700 Las Vegas Boulevard South, Suite 2200, Las Vegas, NV 89123;
(ii) Pinnacle Harbor Capital Partners, LP, a Delaware limited partnership ("Pinnacle Harbor" or the "Investor"), with its principal offices located at 590 Madison Avenue, 34th Floor, New York, NY 10022;
(iii) Pinnacle Harbor Capital Management, LLC, a Delaware limited liability company and the general partner of Pinnacle Harbor ("PHCM" or the "General Partner"), with its principal offices located at 590 Madison Avenue, 34th Floor, New York, NY 10022; and
(iv) Viktor S. Kessler, an individual, in his capacity as Managing Partner and Chief Investment Officer of PHCM and Pinnacle Harbor ("Kessler").
Pinnacle Harbor, PHCM, and Kessler are collectively referred to herein as the "Investor Group." The Company and the Investor Group are each sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, the Company is a Delaware corporation whose common stock, par value $0.01 per share (the "Common Stock"), is listed on the Nasdaq Stock Market LLC ("Nasdaq") under the ticker symbol "RGC." As of the date hereof, there are approximately 104,700,000 shares of Common Stock issued and outstanding;
WHEREAS, the Investor Group beneficially owns 7,119,600 shares of Common Stock, representing approximately 6.8% of the outstanding shares of Common Stock, as disclosed in the Schedule 13D initially filed by Pinnacle Harbor with the U.S. Securities and Exchange Commission (the "SEC") on November 10, 2022, and as subsequently amended on January 6, 2023 (as so amended, the "Schedule 13D");
WHEREAS, on October 28, 2022, Pinnacle Harbor sent a private letter to the Company's Board Chair, Diane K. Sheridan, requesting, among other things, the appointment of two Pinnacle Harbor-designated nominees to the Company's Board of Directors (the "Board") and a strategic review of the Company's interactive gaming division (the "Interactive Gaming Division");
WHEREAS, on November 30, 2022, Pinnacle Harbor sent a public open letter to the Company demanding that the Company appoint Dr. Sandra Trevelyan and Hugh Desmond Grayson to the Board or face a proxy contest at the Company's 2023 Annual Meeting of Stockholders (the "2023 Annual Meeting");
WHEREAS, on December 8, 2022, counsel for Pinnacle Harbor, Hargrove Sloane & Birch LLP, submitted a formal notice of intent to nominate directors pursuant to Article II, Section 2.11 of the Company's Amended and Restated Bylaws (the "Bylaws"), and on January 9, 2023, Pinnacle Harbor submitted a formal nomination notice (the "Nomination Notice") within the advance-notice window established by the Bylaws (December 12, 2022 through January 11, 2023), nominating Dr. Sandra Trevelyan and Hugh Desmond Grayson (collectively, the "Nominees") for election to the Board at the 2023 Annual Meeting;
WHEREAS, the Parties have engaged in extensive discussions regarding Pinnacle Harbor's proposals, including through meetings between representatives of the Company and Pinnacle Harbor, and have determined that entering into this Agreement, which provides for, among other things, a standstill, the appointment of a mutually agreed independent director, an internal strategic review of the Company's Interactive Gaming Division, and certain other undertakings, is in the best interests of the Company and its stockholders; and
WHEREAS, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows.
ARTICLE I DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below:
"Affiliate" means, with respect to any specified person, any other person that, directly or indirectly, controls, is controlled by, or is under common control with, such specified person. For purposes of this definition, "control" (including the terms "controlling," "controlled by," and "under common control with") has the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.
"Annual Meeting" means any annual meeting of stockholders of the Company, including any adjournment, postponement, or continuation thereof.
"Associates" has the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.
"Beneficial Ownership" means beneficial ownership as defined in Rule 13d-3 promulgated under the Exchange Act, and the terms "Beneficially Own," "Beneficially Owned," and "Beneficially Owning" shall have correlative meanings.
"Board" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which commercial banks in New York, New York or Las Vegas, Nevada are authorized or obligated by law or executive order to close.
"Bylaws" means the Company's Amended and Restated Bylaws, as last amended on September 12, 2021, as may be further amended, supplemented, or restated from time to time.
"Certificate of Incorporation" means the Company's Amended and Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware (file number 5734821), as may be further amended, supplemented, or restated from time to time.
"Change of Control" means the occurrence of any of the following events: (i) the consummation of any merger, consolidation, or similar business combination involving the Company in which the holders of the outstanding shares of Common Stock immediately prior to such transaction do not hold, directly or indirectly, at least fifty percent (50%) of the voting power of the surviving or resulting entity immediately after such transaction; (ii) the consummation of any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to any person or Group other than a wholly-owned subsidiary of the Company; (iii) the consummation of any tender offer or exchange offer by any person or Group for fifty percent (50%) or more of the outstanding shares of Common Stock; or (iv) any other similar transaction or series of related transactions that results in any person or Group acquiring, directly or indirectly, Beneficial Ownership of fifty percent (50%) or more of the voting power of the outstanding securities of the Company.
"Common Stock" means the common stock, par value $0.01 per share, of the Company, listed on the Nasdaq Stock Market under the ticker symbol "RGC."
"Cooperation Period" means the period commencing on the Effective Date and ending on the Standstill Termination Date.
"Effective Date" means the date of execution and delivery of this Agreement by all Parties hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Group" has the meaning ascribed to such term in Section 13(d)(3) of the Exchange Act.
"Independent Director" means a director of the Company who satisfies the independence requirements for directors established by the Nasdaq Stock Market listing rules (including Nasdaq Listing Rule 5605(a)(2)) and who is independent under all applicable rules and regulations of the SEC, including Rule 10A-3 under the Exchange Act.
"Interactive Gaming Division" means the Company's business segment engaged in interactive and online gaming operations and sports wagering operations, as described in the Company's most recently filed Annual Report on Form 10-K with the SEC.
"Investor Group" means, collectively, Pinnacle Harbor Capital Partners, LP, Pinnacle Harbor Capital Management, LLC, Viktor S. Kessler, and each of their respective controlled Affiliates and Associates, whether acting individually or in concert.
"Mutually Agreed Director" has the meaning ascribed to such term in Section 2.1.
"Nomination Notice" means the nomination notice submitted by Pinnacle Harbor on January 9, 2023, pursuant to Article II, Section 2.11 of the Bylaws, nominating the Nominees for election to the Board at the 2023 Annual Meeting.
"Nominees" means Dr. Sandra Trevelyan and Hugh Desmond Grayson, the individuals nominated by Pinnacle Harbor for election to the Board pursuant to the Nomination Notice.
"Ownership Cap" means 9.9% of the outstanding shares of Common Stock, calculated in the manner set forth in Section 3.2.
"Proxy Advisory Firms" means Centurion Governance Services, Inc. and Hartley Shareholder Advisory Group, LLC, and any successor entities thereto.
"SEC" means the U.S. Securities and Exchange Commission.
"Special Committee" means the special committee of the Board formed on November 14, 2022, consisting of James Delacroix (Chair), Carmen Vasquez, and Randall Morse, established to evaluate and respond to Pinnacle Harbor's proposals and related matters.
"Standstill Period" means the period commencing on the Effective Date and ending on the Standstill Termination Date.
"Standstill Termination Date" means the date that is eighteen (18) months after the Effective Date. For the avoidance of doubt, if the Effective Date is March 10, 2023, the Standstill Termination Date shall be September 10, 2024.
"Strategic Review" means the internal review of strategic alternatives for the Interactive Gaming Division as described in Article IV of this Agreement.
"Transfer Agent" means Continental Share Services, Inc., or any successor transfer agent appointed by the Company.
"2023 Annual Meeting" means the Company's 2023 annual meeting of stockholders, which is anticipated to be held on or about May 18, 2023, including any adjournment, postponement, or continuation thereof.
Section 1.2 Interpretation. In this Agreement, unless the context otherwise requires:
(a) The headings and captions contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
(b) Words importing the singular shall include the plural and vice versa, and words importing any gender shall include all genders.
(c) All references to statutes, rules, and regulations shall be deemed to include all amendments, modifications, and successor provisions thereto, unless the context otherwise requires.
(d) The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation."
(e) All references to Sections, Articles, Exhibits, and Schedules are to Sections, Articles, Exhibits, and Schedules of or to this Agreement, unless otherwise specified.
(f) All references to "dollars" or "$" shall mean United States dollars.
(g) The words "herein," "hereof," "hereunder," "hereby," and "hereto" refer to this Agreement as a whole and not to any particular Article, Section, or provision of this Agreement.
(h) The word "person" means any individual, corporation, limited liability company, partnership, limited partnership, association, trust, unincorporated organization, governmental authority, or other entity.
(i) The Parties have participated jointly in the negotiation and drafting of this Agreement, and the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.
ARTICLE II BOARD MATTERS
Section 2.1 Appointment of Mutually Agreed Director.
(a) Within fifteen (15) Business Days following the Effective Date, the Board shall appoint one (1) new Independent Director (the "Mutually Agreed Director") to serve as a member of the Board, effective as of the date of such appointment.
(b) The Mutually Agreed Director shall be selected from a pool of no fewer than three (3) candidates identified through a joint selection process as follows: the Board shall designate two (2) members (at least one of whom shall be a member of the Special Committee or the Governance and Nominating Committee of the Board) and Pinnacle Harbor shall designate one (1) member to form a joint selection committee (the "Selection Committee"). The Selection Committee shall identify and evaluate candidates, and the Mutually Agreed Director shall be a candidate approved by a majority of the members of the Selection Committee. In the event that the Selection Committee is unable to agree upon a Mutually Agreed Director within ten (10) Business Days following the Effective Date, the Board and Pinnacle Harbor shall each submit the name of one (1) additional candidate and the Board shall select from among all candidates who have been identified by the Selection Committee.
(c) The Mutually Agreed Director shall not be any of the following: (i) a current officer, employee, or Affiliate of any member of the Investor Group; (ii) either of the Nominees (i.e., neither Dr. Sandra Trevelyan nor Hugh Desmond Grayson); (iii) a current officer or employee of the Company; or (iv) any person who has served as an officer, director, employee, or consultant of Pinnacle Harbor, PHCM, or any of their respective Affiliates at any time within the three (3)-year period preceding the date of appointment.
(d) The Mutually Agreed Director shall satisfy all of the following qualifications: (i) the independence requirements for directors under the Nasdaq Stock Market listing rules, including Nasdaq Listing Rule 5605(a)(2); (ii) the independence requirements under all applicable rules and regulations of the SEC; and (iii) eligibility for licensing under applicable gaming regulatory requirements in the State of Nevada and in all other jurisdictions in which the Company or any of its subsidiaries holds gaming licenses, permits, or approvals. The Mutually Agreed Director shall promptly submit all applications, forms, and disclosures required by applicable gaming regulatory authorities and shall cooperate fully with any background investigations or suitability determinations conducted by such authorities.
(e) The Mutually Agreed Director shall serve as a member of the Board from the date of appointment until the Company's annual meeting of stockholders to be held in calendar year 2025 (the "2025 Annual Meeting"), subject to earlier resignation, removal, death, or incapacity.
(f) The Company shall use its reasonable best efforts to include the Mutually Agreed Director on the Board's recommended slate of nominees for election by stockholders at the 2025 Annual Meeting.
(g) The Mutually Agreed Director shall be entitled to the same compensation, indemnification, insurance coverage, and expense reimbursement as other non-employee directors of the Company, in accordance with the Company's director compensation policies as in effect from time to time.
[Note for execution version: The Parties anticipate that the Mutually Agreed Director will be Franklin Chu, age 52, a resident of San Francisco, California, and the former Chief Executive Officer of Prism Digital Entertainment, LLC, with an anticipated effective appointment date of April 1, 2023. Mr. Chu's biographical information and qualifications will be confirmed prior to execution and included in the Joint Press Release and the Company's Form 8-K filing.]
Section 2.2 Committee Assignments.
(a) Within thirty (30) days following the appointment of the Mutually Agreed Director, the Governance and Nominating Committee of the Board shall cause the Mutually Agreed Director to be appointed to at least one (1) standing committee of the Board.
(b) The selection of the specific committee or committees to which the Mutually Agreed Director shall be appointed shall be determined by the Governance and Nominating Committee in its sole discretion, consistent with all applicable Nasdaq listing requirements, SEC rules and regulations, and applicable gaming regulatory requirements. For the avoidance of doubt, nothing in this Agreement shall require the appointment of the Mutually Agreed Director to any particular committee, including the Audit Committee, the Compensation Committee, or the Governance and Nominating Committee.
Section 2.3 Board Size.
(a) As of the Effective Date, the Board consists of nine (9) directors, of whom seven (7) are Independent Directors and two (2) are members of management (Gerald R. Whitmore, Chief Executive Officer, and Diane K. Sheridan, Board Chair and former Chief Executive Officer). Following the appointment of the Mutually Agreed Director in accordance with Section 2.1, the Board shall consist of ten (10) directors.
(b) During the Cooperation Period, the Board shall not increase the size of the Board above eleven (11) directors without the prior written consent of Pinnacle Harbor, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that the foregoing limitation shall not apply to any increase in the size of the Board that is required by applicable law, regulation, or the Company's contractual obligations existing as of the Effective Date. Any request for Pinnacle Harbor's consent pursuant to this Section 2.3(b) shall be made in writing and shall describe in reasonable detail the reasons for the proposed increase and the identity of any proposed new director(s). Pinnacle Harbor shall respond to any such request within ten (10) Business Days of receipt thereof, and the failure to respond within such period shall be deemed consent to the proposed increase.
Section 2.4 Withdrawal of Nominations.
(a) Effective simultaneously with the execution and delivery of this Agreement, Pinnacle Harbor hereby irrevocably withdraws the Nomination Notice dated January 9, 2023, and all nominations of the Nominees (Dr. Sandra Trevelyan and Hugh Desmond Grayson) for election to the Board at the 2023 Annual Meeting or at any other annual or special meeting of stockholders of the Company.
(b) Promptly following execution of this Agreement, and in no event later than two (2) Business Days following the Effective Date, Pinnacle Harbor shall take all actions necessary and appropriate to effectuate such withdrawal, including: (i) delivering the Nomination Withdrawal Letter in the form attached hereto as Exhibit B to the Corporate Secretary of the Company (Patricia Nakamura); and (ii) filing or causing to be filed an amendment to its Schedule 13D with the SEC reflecting such withdrawal and the entry into this Agreement.
(c) For the avoidance of doubt, following the withdrawal described in this Section 2.4, no member of the Investor Group shall have any director nominees standing for election at the 2023 Annual Meeting, and the Company shall have no obligation to include any nominee of the Investor Group on the Company's proxy card or in its proxy statement for the 2023 Annual Meeting.
ARTICLE III STANDSTILL PROVISIONS
Section 3.1 Standstill Obligations of the Investor Group.
During the Standstill Period (commencing on the Effective Date and continuing through the Standstill Termination Date), no member of the Investor Group shall, and each member of the Investor Group shall cause its controlled Affiliates and Associates not to, directly or indirectly, in any manner, alone or in concert with any other person:
(a) acquire, offer or agree to acquire, or encourage, facilitate, or assist any third party to acquire, Beneficial Ownership of any shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock if, after giving effect to such acquisition, the Investor Group would Beneficially Own in the aggregate shares of Common Stock in excess of the Ownership Cap (9.9% of the then-outstanding shares of Common Stock), as calculated in accordance with Section 3.2;
(b) submit, or cause or encourage any other person to submit, any stockholder proposal pursuant to Rule 14a-8 under the Exchange Act or any nomination of any person for election as a director of the Company pursuant to Article II, Section 2.11 of the Bylaws or any other provision of the Bylaws, the Certificate of Incorporation, or applicable law;
(c) solicit proxies or written consents of stockholders, or become a "participant" in any "solicitation" (as such terms are defined or used in Regulation 14A under the Exchange Act), with respect to any matter submitted or proposed to be submitted to a vote of stockholders of the Company, except in accordance with the voting commitments set forth in Section 5.1 of this Agreement;
(d) form, join, encourage the formation of, or in any way participate in, a Group (as defined in Section 13(d)(3) of the Exchange Act) with respect to shares of Common Stock or other voting securities of the Company, other than a Group consisting solely of the members of the Investor Group as described herein;
(e) seek, propose, or make any public or private statement with respect to, or solicit, negotiate with, or provide any information to any person with respect to: (i) any merger, acquisition, tender offer, exchange offer, business combination, recapitalization, restructuring, liquidation, dissolution, or other extraordinary transaction involving the Company or any of its subsidiaries; or (ii) any change in the management, Board composition, or corporate governance of the Company, in each case except as expressly permitted under this Agreement;
(f) call, request, or seek to call a special meeting of stockholders of the Company, or seek to make, or make, a stockholder proposal at any annual or special meeting of stockholders of the Company, whether pursuant to Rule 14a-8 under the Exchange Act or otherwise;
(g) seek election or appointment to, or representation on, the Board, or seek the removal of any member of the Board, in each case except as expressly provided in Article II of this Agreement;
(h) make any public request or submit any public proposal to amend, waive, or terminate any provision of this Agreement, or take any action that would reasonably be expected to require the Company to make a public announcement regarding any potential amendment, waiver, or termination of any provision of this Agreement;
(i) take any action that would reasonably be expected to require the Company to make a public announcement regarding any of the types of matters set forth in clauses (a) through (h) of this Section 3.1;
(j) enter into any discussions, negotiations, agreements, arrangements, or understandings (whether written or oral, binding or non-binding) with any third party with respect to any of the matters set forth in clauses (a) through (i) of this Section 3.1; or
(k) contest the validity or enforceability of any provision of this Agreement in any action, suit, or proceeding, or encourage, assist, or facilitate any third party in doing so.
Notwithstanding the foregoing, nothing in this Section 3.1 shall prohibit any member of the Investor Group from (A) communicating privately with the Company's officers and directors regarding any matter, so long as such communication is not intended to, and would not reasonably be expected to, require the Company to make any public disclosure regarding such communication, or (B) exercising any rights specifically granted to the Investor Group under this Agreement.
Section 3.2 Ownership Cap.
(a) The Investor Group shall not acquire Beneficial Ownership of shares of Common Stock if, after giving effect to such acquisition, the Investor Group would Beneficially Own in the aggregate more than 9.9% of the then-outstanding shares of Common Stock (the "Ownership Cap").
(b) As of the Effective Date, the Investor Group Beneficially Owns 7,119,600 shares of Common Stock, which represents approximately 6.8% of the 104,700,000 shares of Common Stock currently issued and outstanding. Based on the current number of shares outstanding, the Ownership Cap is equal to approximately 10,365,300 shares of Common Stock.
(c) For purposes of calculating the Ownership Cap, the number of shares of Common Stock outstanding shall be determined by reference to the most recently filed periodic report of the Company with the SEC (including any Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K that discloses the number of shares outstanding) or, if more recent information is available, as confirmed by the Transfer Agent (Continental Share Services, Inc.) upon written request by either Party.
(d) In the event that the Investor Group inadvertently acquires Beneficial Ownership of shares of Common Stock in excess of the Ownership Cap as a result of a share repurchase or similar transaction by the Company that reduces the total number of outstanding shares, the Investor Group shall not be in violation of this Section 3.2 so long as the Investor Group does not acquire Beneficial Ownership of any additional shares of Common Stock and, within ten (10) Business Days of becoming aware of such excess ownership, takes steps to reduce its Beneficial Ownership to or below the Ownership Cap.
Section 3.3 Disposition of Shares.
Nothing in this Agreement shall prohibit or restrict any member of the Investor Group from selling, transferring, or otherwise disposing of any or all shares of Common Stock Beneficially Owned by the Investor Group, in open-market transactions, privately negotiated transactions, or otherwise; provided, however, that no such sale, transfer, or disposition shall be made to any person or Group that any member of the Investor Group knows (based on publicly available information or actual knowledge) to be engaged in, or planning to engage in, an activist campaign, proxy contest, tender offer, or similar campaign directed at the Company. For the avoidance of doubt, ordinary course sales through a broker-dealer on the Nasdaq Stock Market or other public exchange shall not be subject to the proviso in the preceding sentence so long as the selling member of the Investor Group does not have actual knowledge that the purchaser is such a person or Group.
ARTICLE IV STRATEGIC REVIEW
Section 4.1 Interactive Gaming Division Strategic Review.
(a) The Board shall cause the Company to conduct a comprehensive internal review of the strategic alternatives available for the Interactive Gaming Division (the "Strategic Review"). The Strategic Review shall include an evaluation of, at a minimum, the following alternatives:
(i) continued operation of the Interactive Gaming Division as a wholly-owned division of the Company, including an assessment of the capital expenditure requirements, growth prospects, and competitive positioning of the division;
(ii) a potential spin-off, split-off, or other separation transaction pursuant to which the Interactive Gaming Division would become an independent publicly traded company or a separately held private entity;
(iii) a potential sale, divestiture, or other disposition of all or a portion of the Interactive Gaming Division to a third party; and
(iv) potential partnerships, joint ventures, licensing arrangements, or other strategic transactions involving the Interactive Gaming Division.
(b) For reference, the Interactive Gaming Division generated revenue of approximately $412 million in the Company's fiscal year ended December 31, 2021, representing approximately 14.4% of the Company's total consolidated revenue of approximately $2.87 billion for such fiscal year. The Interactive Gaming Division's performance for the fiscal year ended December 31, 2022, is expected to be reported in the Company's forthcoming Annual Report on Form 10-K.
(c) The Strategic Review shall be conducted under the oversight of the Board or a committee of the Board designated for such purpose, and the Board shall have sole discretion to engage such financial advisors, investment banks, consultants, and other advisors as the Board determines appropriate to assist in the conduct of the Strategic Review.
Section 4.2 Timeline for Completion.
(a) The Strategic Review shall be commenced promptly following the Effective Date and shall be completed no later than one hundred twenty (120) days following the Effective Date (the "Strategic Review Deadline"). If the Effective Date is March 10, 2023, the Strategic Review Deadline shall be July 8, 2023.
(b) Upon completion of the Strategic Review, the Board or the committee overseeing the Strategic Review shall cause a summary report of the Board's conclusions and any recommended actions to be prepared and delivered to the full Board. The Board shall consider such report and any recommendations contained therein in good faith and in the exercise of its fiduciary duties.
Section 4.3 No Obligation to Disclose or Act.
(a) The Company shall have no obligation to disclose the results, conclusions, recommendations, or any other details of the Strategic Review to Pinnacle Harbor, any member of the Investor Group, or any other third party, except to the extent required by applicable law, regulation, or the rules of the Nasdaq Stock Market.
(b) Nothing in this Article IV shall be deemed to require the Board to pursue, recommend, approve, or implement any particular strategic alternative or course of action as a result of the Strategic Review. All decisions regarding the Interactive Gaming Division, including whether to pursue any transaction, separation, or other strategic alternative, shall remain in the sole and absolute discretion of the Board, acting in the exercise of its fiduciary duties to the Company and its stockholders. No provision of this Agreement shall be construed to limit or modify in any way the fiduciary duties of any member of the Board.
Section 4.4 Confidentiality of Strategic Review.
All information regarding the Strategic Review, including without limitation its existence, scope, process, participants, analyses, findings, conclusions, and recommendations, shall be treated as strictly confidential by each Party and shall not be disclosed by any Party or any of their respective representatives, officers, directors, employees, agents, or advisors to any third party (including the media, analysts, investors, the Proxy Advisory Firms, or any other person), except (i) as required by applicable law, regulation, or legal process (including any subpoena or similar demand), (ii) with the prior written consent of the other Party, or (iii) as otherwise required by the rules of the Nasdaq Stock Market or the SEC. In the event that any Party is required by applicable law or regulation to make a disclosure regarding the Strategic Review, such Party shall, to the extent legally permissible, provide the other Party with prompt written notice of such requirement and shall cooperate with the other Party to limit the scope and content of such disclosure.
ARTICLE V VOTING COMMITMENTS
Section 5.1 Voting in Favor of Board Recommendations.
During the Standstill Period, at each Annual Meeting and at any special meeting of stockholders of the Company, the Investor Group shall, and shall cause each of its controlled Affiliates and Associates to, appear in person or by proxy at such meeting and vote, or cause to be voted, all shares of Common Stock Beneficially Owned by the Investor Group as of the applicable record date for such meeting:
(a) in favor of the Company's management-recommended slate of director nominees, as set forth in the Company's definitive proxy statement for such meeting;
(b) in accordance with the Board's recommendations on all other proposals submitted to a vote of stockholders at such meeting, including but not limited to: (i) advisory votes on executive compensation ("say-on-pay"); (ii) proposals regarding the ratification of the Company's independent registered public accounting firm (currently Kettering Marsh & Associates LLP); (iii) proposals to amend the Certificate of Incorporation or Bylaws; (iv) proposals regarding equity compensation plans; and (v) any other management-sponsored proposals; and
(c) against any stockholder proposals that are not recommended or supported by the Board, including without limitation any proposal submitted by a stockholder pursuant to Rule 14a-8 under the Exchange Act that the Board recommends stockholders vote against.
The Investor Group shall not grant any proxy, consent, or power of attorney with respect to any shares of Common Stock Beneficially Owned by the Investor Group that is inconsistent with the voting commitments set forth in this Section 5.1, and the Investor Group shall promptly revoke any such proxy, consent, or power of attorney that may have been previously granted and that is inconsistent with such commitments.
Section 5.2 No Withhold / Against Campaigns.
During the Standstill Period, no member of the Investor Group shall, and each member of the Investor Group shall cause its controlled Affiliates and Associates not to, directly or indirectly, publicly or privately: (a) initiate, encourage, support, participate in, or assist in any "withhold" or "vote no" campaign with respect to any director nominee recommended by the Board for election at any Annual Meeting or special meeting of stockholders of the Company; or (b) make any public or private communication to other stockholders of the Company encouraging or recommending that any stockholder withhold its vote from, or vote against, any director nominee recommended by the Board. The foregoing shall not restrict the Investor Group from engaging in private communications with the Company's officers and directors regarding any matter, subject to the limitations set forth elsewhere in this Agreement.
ARTICLE VI NON-DISPARAGEMENT
Section 6.1 Mutual Non-Disparagement.
(a) During the Standstill Period and for a period of six (6) months following the termination or expiration of this Agreement (the "Non-Disparagement Period"), neither Party nor any of its respective officers, directors, employees, agents, Affiliates, or representatives shall, directly or indirectly, make, cause to be made, or encourage any other person to make, any public statement, public communication, or public disclosure that disparages, defames, criticizes in a personally derogatory manner, or impugns the reputation, business practices, competence, integrity, or character of the other Party or any of its respective current or former officers, directors, or employees.
(b) For the avoidance of doubt, the obligations set forth in this Section 6.1 shall not restrict or prohibit:
(i) any Party from making truthful statements that are compelled by legal process or are reasonably necessary in connection with any legal proceeding, regulatory inquiry, governmental investigation, arbitration, or mediation;
(ii) any Party from making internal communications to its directors, officers, employees, advisors, or representatives that are not intended for public dissemination and that are made in the ordinary course of business;
(iii) any member of the Board from making any statement or taking any action that such director determines in good faith, after consultation with outside counsel, is necessary or appropriate in the fulfillment of his or her fiduciary duties to the Company and its stockholders; or
(iv) any Party from making factual statements about the terms of this Agreement to the extent such terms have been publicly disclosed in the Joint Press Release or in filings with the SEC.
Section 6.2 Scope.
The non-disparagement obligations set forth in Section 6.1 apply to all public statements, whether written or oral, made to the press, media, analysts, investors, stockholders, the Proxy Advisory Firms (including Centurion Governance Services, Inc. and Hartley Shareholder Advisory Group, LLC), social media platforms, blogs, podcasts, or any other public forum or third party. Each Party shall use reasonable best efforts to cause its respective officers, directors, employees, agents, Affiliates, and representatives to comply with the non-disparagement obligations set forth in this Article VI.
ARTICLE VII PUBLIC ANNOUNCEMENTS
Section 7.1 Joint Press Release.
(a) Promptly following the execution and delivery of this Agreement (and in no event later than the first Business Day following the Effective Date), the Parties shall issue a mutually agreed joint press release announcing the material terms of this Agreement, substantially in the form attached hereto as Exhibit A (the "Joint Press Release"). The Joint Press Release shall be finalized and mutually approved by the Parties prior to the Effective Date.
(b) Neither Party shall issue, or cause to be issued, any press release, public statement, or public communication regarding this Agreement or the subject matter hereof, other than the Joint Press Release, without the prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that either Party may make public statements or disclosures regarding this Agreement to the extent required by applicable law, regulation, the rules of the Nasdaq Stock Market, or the rules of the SEC, in which case the disclosing Party shall, to the extent legally permissible and reasonably practicable, provide the other Party with advance notice of and an opportunity to review and comment upon such disclosure prior to its release.
Section 7.2 SEC Filings.
(a) Pinnacle Harbor shall, within two (2) Business Days following the Effective Date, file or cause to be filed an amendment to its Schedule 13D with the SEC reflecting the entry into this Agreement, the withdrawal of all director nominations as described in Section 2.4, and the standstill and voting commitments undertaken by the Investor Group hereunder. A copy of this Agreement shall be filed as an exhibit to such Schedule 13D amendment. The Company shall have the opportunity to review and comment on such filing prior to its submission to the SEC, and Pinnacle Harbor shall consider in good faith any comments provided by the Company.
(b) The Company shall, promptly following the Effective Date and the appointment of the Mutually Agreed Director, file a Current Report on Form 8-K with the SEC disclosing the entry into this Agreement and the appointment of the Mutually Agreed Director, as required by applicable law, regulation, and the rules of the Nasdaq Stock Market. A copy of this Agreement shall be filed as an exhibit to such Form 8-K. Pinnacle Harbor shall have the opportunity to review and comment on such filing prior to its submission to the SEC, and the Company shall consider in good faith any comments provided by Pinnacle Harbor.
ARTICLE VIII REPRESENTATIONS AND WARRANTIES
Section 8.1 Representations and Warranties of the Company. The Company hereby represents and warrants to each member of the Investor Group as follows:
(a) Organization and Standing. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has all necessary corporate power and authority to own, operate, and lease its properties and to carry on its business as presently conducted.
(b) Corporate Power and Authority. The Company has all necessary corporate power and authority to execute, deliver, and perform its obligations under this Agreement.
(c) Due Authorization. The execution and delivery of this Agreement and the performance of the Company's obligations hereunder have been duly authorized by all necessary corporate action on the part of the Company, including approval by the Board. No other corporate proceedings on the part of the Company are necessary to authorize the execution, delivery, and performance of this Agreement.
(d) Valid and Binding Obligation. This Agreement constitutes a legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, and similar laws of general applicability relating to or affecting creditors' rights and to general equitable principles (whether considered in a proceeding in equity or at law).
(e) No Conflicts. The execution, delivery, and performance of this Agreement by the Company do not and will not (i) conflict with or violate the Certificate of Incorporation or the Bylaws, (ii) conflict with or violate any applicable law, regulation, order, judgment, or decree to which the Company is subject, or (iii) result in a breach of, or constitute a default under, any material agreement, contract, or instrument to which the Company is a party or by which it is bound.
(f) Capitalization. As of the date hereof, there are 104,700,000 shares of Common Stock issued and outstanding. The Company has no knowledge of any facts or circumstances that would cause such number to be materially inaccurate as of the date hereof.
Section 8.2 Representations and Warranties of the Investor Group. Each member of the Investor Group hereby represents and warrants, jointly and severally, to the Company as follows:
(a) Organization and Standing. Each of Pinnacle Harbor and PHCM is duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has all necessary organizational power and authority to own its properties and carry on its business as presently conducted.
(b) Power and Authority. Each member of the Investor Group has all necessary power and authority (including, in the case of Kessler, full legal capacity) to execute, deliver, and perform its or his obligations under this Agreement.
(c) Valid and Binding Obligation. This Agreement constitutes a legal, valid, and binding obligation of each member of the Investor Group, enforceable against each member in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, and similar laws of general applicability relating to or affecting creditors' rights and to general equitable principles (whether considered in a proceeding in equity or at law).
(d) Beneficial Ownership. As of the date hereof, the Investor Group Beneficially Owns 7,119,600 shares of Common Stock, representing approximately 6.8% of the outstanding shares of Common Stock, and, except as disclosed in the Schedule 13D as amended through the date hereof, does not Beneficially Own any other securities of the Company, and no member of the Investor Group has any interest in or right to acquire any securities of the Company, whether through options, warrants, convertible securities, swap agreements, contracts for differences, or other derivative instruments or economic interests.
(e) Accuracy of Schedule 13D. The Schedule 13D, as amended through the date hereof, as filed by Pinnacle Harbor with the SEC, is accurate and complete in all material respects as of the date of its most recent filing.
(f) Authority of Kessler. Kessler has the full power and authority to bind each of Pinnacle Harbor and PHCM to the terms and conditions of this Agreement, and the execution and delivery of this Agreement by Kessler on behalf of Pinnacle Harbor and PHCM constitutes the valid and binding act of each such entity.
ARTICLE IX EXPENSE REIMBURSEMENT
Section 9.1 Reimbursement of Investor Group Legal Expenses.
(a) Within thirty (30) days following the Effective Date, the Company shall reimburse Pinnacle Harbor for its documented, reasonable, and actual out-of-pocket legal fees and expenses incurred in connection with: (i) the negotiation, drafting, and execution of this Agreement; and (ii) the activist campaign giving rise to this Agreement, including the preparation and submission of the Nomination Notice, correspondence with the Company, and related SEC filings. Such reimbursement shall include the fees and expenses of Pinnacle Harbor's counsel, Hargrove Sloane & Birch LLP, but shall not include fees or expenses of any financial advisor, public relations advisor, proxy solicitor, or other non-legal advisor retained by the Investor Group.
(b) The aggregate amount of such reimbursement shall not exceed Seven Hundred Fifty Thousand Dollars ($750,000) (the "Expense Reimbursement Cap"), and the Company shall have no obligation to reimburse any amount in excess of the Expense Reimbursement Cap.
(c) To receive reimbursement, Pinnacle Harbor shall submit to the Company reasonable documentation of such fees and expenses, which may be in the form of redacted invoices or fee summaries sufficient to confirm the nature, date, and amount of the expenses without disclosing privileged attorney-client communications, attorney work product, or litigation strategy. Such documentation shall be submitted to the Company's General Counsel (Patricia Nakamura) no later than twenty (20) days following the Effective Date.
(d) The Company shall have ten (10) Business Days following its receipt of such documentation to review the submitted materials and raise any good faith objections thereto. In the event of any such objection, the Parties shall cooperate in good faith to resolve any disputed amounts. Following the resolution of any such objections (or if no objections are raised within such ten (10) Business Day period), payment of the undisputed amount shall be made by wire transfer of immediately available funds to a bank account designated by Pinnacle Harbor in writing to the Company.
ARTICLE X TERMINATION
Section 10.1 Expiration. This Agreement shall expire automatically upon the Standstill Termination Date (i.e., the date that is eighteen (18) months after the Effective Date), unless earlier terminated in accordance with this Article X. For the avoidance of doubt, if the Effective Date is March 10, 2023, this Agreement shall expire automatically on September 10, 2024.
Section 10.2 Termination for Material Breach.
(a) Either Party may terminate this Agreement upon written notice to the other Party if the other Party materially breaches any provision of this Agreement and such breach remains uncured for a period of fifteen (15) Business Days following written notice of such breach from the non-breaching Party to the breaching Party, specifying in reasonable detail the nature of the breach and the actions reasonably required to cure such breach.
(b) For the avoidance of doubt, a material breach by any individual member of the Investor Group (whether Pinnacle Harbor, PHCM, or Kessler) shall be deemed a material breach by all members of the Investor Group for purposes of this Section 10.2.
(c) In the event that the Company terminates this Agreement pursuant to this Section 10.2 as a result of a material breach by the Investor Group, the Investor Group shall not be relieved of any standstill obligations during the pendency of the cure period.
Section 10.3 Termination upon Change of Control. This Agreement shall terminate automatically, without the requirement of any action or notice by either Party, upon the consummation of a Change of Control of the Company. For the avoidance of doubt, the mere announcement or execution of a definitive agreement providing for a Change of Control shall not, in and of itself, trigger automatic termination under this Section 10.3; termination shall occur only upon the actual consummation (i.e., closing) of such Change of Control.
Section 10.4 Termination upon Ownership Decline. This Agreement shall terminate automatically, without the requirement of any action or notice by either Party, if at any time the Investor Group's Beneficial Ownership of Common Stock falls below 3.5% of the then-outstanding shares of Common Stock, calculated in the manner set forth in Section 3.2(c). In the event that the Investor Group's Beneficial Ownership falls below 3.5% and subsequently increases to 3.5% or above, such increase shall not reinstate this Agreement following its termination under this Section 10.4.
Section 10.5 Effect of Termination.
(a) Upon the termination or expiration of this Agreement pursuant to this Article X, neither Party shall have any further obligation to the other Party hereunder, except as expressly provided in this Section 10.5.
(b) Notwithstanding the foregoing, the following provisions shall survive the termination or expiration of this Agreement:
(i) Section 6.1 (Mutual Non-Disparagement) shall survive for a period of six (6) months following the date of termination or expiration;
(ii) Article IX (Expense Reimbursement) shall survive to the extent that any obligation thereunder has not been fully satisfied as of the date of termination or expiration;
(iii) Article XI (Miscellaneous), including without limitation the provisions relating to governing law, jurisdiction and venue, waiver of jury trial, specific performance, and notices, shall survive indefinitely; and
(iv) No termination or expiration of this Agreement shall relieve any Party from liability for any willful and material breach of this Agreement occurring prior to such termination or expiration.
ARTICLE XI MISCELLANEOUS
Section 11.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
Section 11.2 Jurisdiction and Venue.
(a) Each Party irrevocably and unconditionally submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or, if the Court of Chancery declines to accept jurisdiction over a particular matter, the Superior Court of the State of Delaware, or, if subject matter jurisdiction over such matter is vested exclusively in the federal courts, the United States District Court for the District of Delaware) for any action, suit, or proceeding arising out of or relating to this Agreement, and each Party agrees that any such action, suit, or proceeding shall be brought only in such courts.
(b) Each Party irrevocably waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such action, suit, or proceeding: (i) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason; (ii) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in any such court (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution, or otherwise); and (iii) any claim that such action, suit, or proceeding has been brought in an inconvenient forum, that venue of such action, suit, or proceeding is improper, or that this Agreement may not be enforced in or by such courts.
Section 11.3 Waiver of Jury Trial. EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT: (I) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, SUIT, OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER; (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER; (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY; AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.3.
Section 11.4 Specific Performance. Each Party acknowledges and agrees that a breach of any provision of this Agreement would cause irreparable harm to the other Party for which monetary damages would not be an adequate remedy. Accordingly, in addition to any other rights and remedies available at law or in equity, each Party shall be entitled to seek and obtain specific performance, injunctive relief, and any other equitable remedies to enforce the provisions of this Agreement in any court of competent jurisdiction, without the necessity of proving actual damages, posting any bond or other security, or establishing that monetary damages would be inadequate. The right to seek specific performance, injunctive relief, or other equitable remedies shall not be deemed to be the exclusive remedy for any breach of this Agreement, and all such rights and remedies shall be cumulative and in addition to any other rights and remedies available to the Parties.
Section 11.5 Notices. All notices, requests, demands, claims, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given and effective: (i) when delivered by hand; (ii) one (1) Business Day after being sent by nationally recognized overnight courier service (with tracking capability); or (iii) when sent by email (with confirmation of receipt by the recipient), in each case, to the following addresses (or to such other address as a Party may designate by written notice to the other Parties in accordance with this Section 11.5):
If to the Company:
Redstone Gaming Corp. 8700 Las Vegas Boulevard South, Suite 2200 Las Vegas, NV 89123
Attention: Patricia Nakamura, General Counsel & Corporate Secretary
Email: [●]
with a copy (which shall not constitute notice) to:
Calderwood & Harkness LLP 3960 Howard Hughes Parkway, Suite 1400 Las Vegas, NV 89169
Attention: Douglas Fairchild
Email: [●]
If to any member of the Investor Group:
Pinnacle Harbor Capital Partners, LP 590 Madison Avenue, 34th Floor New York, NY 10022