COOPERATION AND STANDSTILL AGREEMENT
REVISED DRAFT — v3
DRAFT — Privileged & Confidential — Subject to Further Negotiation
Prepared by: Calderwood & Harkness LLP 3960 Howard Hughes Parkway, Suite 1400 Las Vegas, NV 89169
March 1, 2023
Matter No. 1033-00003
This draft (v3) incorporates Calderwood & Harkness LLP's responses to comments received from Hargrove Sloane & Birch LLP on behalf of Pinnacle Harbor Capital Partners, LP, dated approximately February 28, 2023. All changes from the prior draft (v2, dated February 22, 2023) are reflected herein. This document remains subject to further negotiation and does not constitute a binding commitment by any party. Distribution is limited to authorized recipients.
COOPERATION AND STANDSTILL AGREEMENT
This COOPERATION AND STANDSTILL AGREEMENT (this "Agreement") is made and entered into as of [●], 2023 (the "Effective Date"), by and among:
(1) Redstone Gaming Corp., a Delaware corporation (the "Company"), with its principal offices located at 8700 Las Vegas Boulevard South, Suite 2200, Las Vegas, NV 89123;
(2) 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;
(3) Pinnacle Harbor Capital Management, LLC, a Delaware limited liability company ("PHCM"), solely in its capacity as the general partner of Pinnacle Harbor, with its principal offices located at 590 Madison Avenue, 34th Floor, New York, NY 10022; and
(4) Viktor S. Kessler, an individual ("Mr. Kessler"), solely in his capacity as Managing Partner and Chief Investment Officer of PHCM and Pinnacle Harbor.
Pinnacle Harbor, PHCM, and Mr. Kessler are collectively referred to herein as the "Investor Group." The Company and the Investor Group are collectively referred to herein as the "Parties" and each individually as a "Party."
RECITALS
WHEREAS, the Company is a Delaware corporation whose shares of common stock, par value $0.01 per share (the "Company Common Stock"), are listed and traded on the Nasdaq Stock Market LLC under the ticker symbol "RGC," and as of the date hereof, there are 104,700,000 shares of Company Common Stock issued and outstanding;
WHEREAS, as of the date hereof, the Investor Group Beneficially Owns (as defined below) 7,119,600 shares of Company Common Stock, representing approximately 6.8% of the Outstanding Shares (as defined below);
WHEREAS, Pinnacle Harbor disclosed its Beneficial Ownership of Company Common Stock and certain plans and proposals with respect thereto in a preliminary Schedule 13D filed with the U.S. Securities and Exchange Commission (the "SEC") on November 10, 2022, as amended by Amendment No. 1 to Schedule 13D filed with the SEC on January 6, 2023;
WHEREAS, Pinnacle Harbor, through its outside counsel, Hargrove Sloane & Birch LLP, submitted a notice of intent to nominate director candidates to the Company's Board of Directors (the "Board") pursuant to Article II, Section 2.11 of the Company's Amended and Restated Bylaws, which notice was received by the Company on January 9, 2023 (the "Nomination Notice"), nominating Dr. Sandra Trevelyan and Hugh Desmond Grayson (collectively, the "Investor Nominees") for election as directors at the Company's 2023 Annual Meeting of Stockholders (the "Annual Meeting");
WHEREAS, in response to Pinnacle Harbor's Schedule 13D filing and the Nomination Notice, the Board formed a Special Committee comprised of independent directors on November 14, 2022, which Special Committee, following deliberation, authorized direct engagement with Pinnacle Harbor to explore a mutually acceptable resolution on January 20, 2023;
WHEREAS, following constructive discussions between the Parties, including in-person meetings held on January 30, 2023 and February 14, 2023, and the exchange of a non-binding framework term sheet dated February 14, 2023, the Parties have reached a mutual understanding regarding the terms and conditions set forth herein;
WHEREAS, the Parties desire to set forth the terms under which they will cooperate during the Standstill Period (as defined below) in furtherance of their shared objective of maximizing long-term stockholder value for the benefit of all stockholders of the Company; and
NOW, THEREFORE, 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 by each Party hereto, 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 Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, as such terms are used in, and construed under, Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended. For the avoidance of doubt, for purposes of this Agreement, no member of the Investor Group shall be deemed an Affiliate of the Company, and the Company shall not be deemed an Affiliate of any member of the Investor Group.
"Annual Meeting" means the Company's annual meeting of stockholders for fiscal year 2022, which is anticipated to be held on or about May 18, 2023, together with any adjournment, postponement, or continuation thereof.
"Associates" means, with respect to any Person, any other Person who is an "associate" of such Person within the meaning of Rule 12b-2 promulgated under the Exchange Act.
"Beneficial Ownership" and "Beneficially Own" (and correlative terms) mean beneficial ownership as defined in Rule 13d-3 promulgated under the Exchange Act, including shares of Company Common Stock that a Person has the right to acquire within sixty (60) days through the exercise of any option, warrant, convertible security, or other right.
"Board" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday, or any day on which banking institutions in New York, New York or Las Vegas, Nevada are required or authorized by law, regulation, or executive order to be closed.
"Bylaws" means the Amended and Restated Bylaws of the Company, as last amended on September 12, 2021, as the same may be further amended, restated, or otherwise modified from time to time in accordance with their terms and applicable law.
"Certificate of Incorporation" means the Amended and Restated Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware under file number 5734821, as the same may be further amended, restated, or otherwise modified from time to time in accordance with its terms and applicable law.
"Change of Control" means the occurrence of any of the following events: (a) any merger, consolidation, or similar business combination involving the Company in which the stockholders of the Company immediately prior to such transaction do not retain, directly or indirectly, at least fifty percent (50%) of the combined voting power of the surviving or resulting entity immediately following such transaction; (b) the consummation of any tender offer or exchange offer by a third party (or group of third parties acting in concert) resulting in such third party (or group) acquiring Beneficial Ownership of more than fifty percent (50%) of the outstanding voting securities of the Company; (c) any sale, lease, exchange, transfer, or other disposition of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to any Person or group of Persons; or (d) any transaction or series of related transactions resulting in a change in the composition of the Board such that a majority of the members of the Board are not individuals who were either (i) members of the Board on the Effective Date or (ii) nominated or appointed by a majority of the individuals described in clause (i).
"Company Common Stock" means the shares of common stock, par value $0.01 per share, of Redstone Gaming Corp.
"Cooperation Period" means the period commencing on the Effective Date and ending on the Termination Date.
"Effective Date" means the date first written above in the preamble of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Independent Director Candidate" means a director candidate who (i) qualifies as "independent" under the listing rules of the Nasdaq Stock Market LLC (including Rule 5605(a)(2) and all related commentary), (ii) is not, and has not been within the preceding three (3) years, an employee, officer, director, consultant, or advisor of, or to, any member of the Investor Group or any of their respective Affiliates, (iii) is not a current employee, officer, or director of the Company, and (iv) has no material financial, familial, or business relationship with any member of the Investor Group or any executive officer of the Company that would, in the reasonable judgment of the Board's Nominating and Corporate Governance Committee, impair such candidate's ability to exercise independent judgment as a member of the Board.
"Interactive Gaming Division" means the Company's business segment engaged in interactive and online gaming, digital sports wagering, and related technology operations, which generated approximately $412 million in net revenue during the Company's fiscal year ended December 31, 2021, as reported in the Company's Annual Report on Form 10-K for such fiscal year filed with the SEC.
"Investor Nominees" means Dr. Sandra Trevelyan and Hugh Desmond Grayson, the individuals nominated by Pinnacle Harbor for election to the Board at the Annual Meeting pursuant to the Nomination Notice.
"Mutual Director" has the meaning set forth in Section 2.1.
"Nomination Notice" means the notice of intent to nominate director candidates submitted by Hargrove Sloane & Birch LLP on behalf of Pinnacle Harbor, which was received by the Company's Corporate Secretary on January 9, 2023.
"Outstanding Shares" means, at any relevant time, the total number of shares of Company Common Stock then issued and outstanding, as determined in accordance with Section 3.2.
"Ownership Cap" means 9.9% of the Outstanding Shares at the applicable time of determination.
"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, governmental authority, or other entity of any kind.
"Proxy Advisory Firm" means Centurion Governance Services, Inc. and/or Hartley Shareholder Advisory Group, LLC, or any successor firm or firms that provide voting recommendations to institutional stockholders of publicly traded companies.
"SEC" means the United States Securities and Exchange Commission.
"Standstill Period" means the period commencing on the Effective Date and ending on the date that is eighteen (18) months after the Effective Date. If the Effective Date is March 10, 2023, the Standstill Period is anticipated to expire on September 10, 2024.
"Strategic Review" means the internal review of the Interactive Gaming Division as described in Article IV of this Agreement.
"Strategic Review Completion Date" means the date that is one hundred twenty (120) days after the Effective Date. If the Effective Date is March 10, 2023, the Strategic Review Completion Date is anticipated to be July 8, 2023.
"Termination Date" means the earlier of (a) the expiration of the Standstill Period and (b) the occurrence of a Termination Event as described in Section 8.1.
Section 1.2 — Interpretation.
In this Agreement, unless the context otherwise requires: (a) the headings of articles, sections, and subsections are included for convenience of reference only and shall not affect the construction or interpretation of this Agreement; (b) the words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation" and shall not be construed to limit any general statement to the specific or similar items or matters immediately following it; (c) references to any statute, law, rule, or regulation shall include any amendments, modifications, successor legislation, or regulations promulgated thereunder, unless the context otherwise requires; (d) words importing the singular shall include the plural and vice versa, and words importing gender shall include all genders; (e) references to "$" or "dollars" shall mean United States dollars; (f) the words "herein," "hereof," "hereby," "hereunder," and other words of similar import refer to this Agreement as a whole and not to any particular section or provision of this Agreement; (g) references to "days" shall mean calendar days unless "Business Days" are specified; and (h) the terms "or" and "and" shall not be construed in the exclusive or conjunctive sense, respectively, except where the context clearly requires otherwise.
ARTICLE II — BOARD MATTERS
Section 2.1 — Appointment of Mutually Agreed Independent Director.
(a) Within twenty (20) Business Days of the Effective Date, the Board shall appoint one (1) new independent director mutually agreed upon by the Company and Pinnacle Harbor (the "Mutual Director"). The Mutual Director shall be selected from a pool of no fewer than three (3) Independent Director Candidates identified by a joint committee (the "Selection Committee") consisting of two (2) representatives designated by the Company (one of whom shall be a member of the Special Committee formed by the Board on November 14, 2022) and one (1) representative designated by Pinnacle Harbor. The Selection Committee shall evaluate candidates based on their qualifications, experience, independence, and ability to contribute to the Board's oversight of the Company's business and strategic initiatives.
(b) The Mutual Director shall not be either of the Investor Nominees and shall not be a current officer, director, or employee of the Company. As of the date hereof, the Parties have identified Franklin Chu, age 52, former Chief Executive Officer of Prism Digital Entertainment, LLC, as the leading candidate for appointment as the Mutual Director. Subject to satisfactory completion of customary background review, due diligence, and compliance questionnaire processes, the Parties anticipate Mr. Chu's appointment to be effective on or about April 1, 2023.
(c) The appointment of the Mutual Director shall increase the size of the Board from nine (9) directors to ten (10) directors. The Mutual Director shall serve on the Board from the date of appointment until the Company's 2025 annual meeting of stockholders, subject to earlier resignation, removal for cause in accordance with the Certificate of Incorporation and Bylaws, or the other terms of this Agreement.
(d) The Mutual Director shall receive the same compensation, including cash retainers, equity awards, meeting fees, and expense reimbursement, as all other non-employee directors of the Company. The Mutual Director shall be entitled to the same indemnification rights as all other directors of the Company under the Certificate of Incorporation, the Bylaws, and any indemnification agreement entered into between the Company and such director, and shall be covered under the Company's directors' and officers' liability insurance program maintained by the Company from time to time, on the same terms and conditions as all other non-employee directors.
Section 2.2 — Board Composition.
(a) During the Standstill Period, the Company shall not increase the size of the Board to more than eleven (11) directors without the prior written consent of Pinnacle Harbor, which consent shall not be unreasonably withheld, conditioned, or delayed. For the avoidance of doubt, this provision shall not restrict the Board from decreasing the size of the Board below ten (10) directors, provided that any such decrease does not result in the removal of the Mutual Director without cause.
(b) If the Mutual Director is unable or unwilling to serve on the Board, or resigns, is removed, becomes incapacitated, or otherwise ceases to serve as a director during the Standstill Period for any reason, the Parties shall cooperate in good faith to identify a replacement Independent Director Candidate using the same Selection Committee process described in Section 2.1(a). The Board shall appoint any such replacement director within thirty (30) Business Days of the vacancy occurring, subject to the mutual agreement of the Company and Pinnacle Harbor. If the Parties are unable to agree on a replacement director within such thirty (30) Business Day period, the Company shall have the right to fill the vacancy in its sole discretion with an individual who meets the definition of Independent Director Candidate.
Section 2.3 — Withdrawal of Nominations.
(a) Immediately upon execution of this Agreement, Pinnacle Harbor shall irrevocably withdraw the Nomination Notice and all director nominations submitted thereunder for the Annual Meeting, including the nominations of Dr. Sandra Trevelyan and Hugh Desmond Grayson. Such withdrawal shall be unconditional and shall be delivered in writing to the Company's Corporate Secretary, Patricia Nakamura, at the address set forth in Section 10.4.
(b) Pinnacle Harbor shall promptly, and in any event within five (5) Business Days following the Effective Date, file or cause to be filed with the SEC an amendment to its Schedule 13D (Amendment No. 2 or such subsequent amendment as may be appropriate) reflecting the withdrawal of the Nomination Notice, the withdrawal of all director nominations, and the entry into this Agreement, together with a copy of this Agreement filed as an exhibit thereto (subject to any request for confidential treatment that Pinnacle Harbor may seek with respect to specific provisions hereof).
(c) During the Standstill Period, no member of the Investor Group shall, directly or indirectly, and each member of the Investor Group shall cause its respective Affiliates and Associates not to, nominate, propose, recommend, or submit any Person for election as a director of the Company, or submit any stockholder proposal pursuant to Rule 14a-8 under the Exchange Act or otherwise for consideration at any annual or special meeting of stockholders of the Company.
Section 2.4 — Committee Appointments.
The Mutual Director shall be appointed to at least one (1) standing committee of the Board, as determined by the Board's Nominating and Corporate Governance Committee in its discretion, consistent with applicable Nasdaq listing rules, SEC regulations, and the committee's charter. The Parties acknowledge that committee assignments are subject to the Mutual Director's qualifications and the applicable independence and expertise requirements for each committee.
ARTICLE III — STANDSTILL PROVISIONS
Section 3.1 — Standstill Restrictions.
During the Standstill Period, neither Pinnacle Harbor nor any other member of the Investor Group shall, directly or indirectly, and each member of the Investor Group shall cause its respective Affiliates and Associates not to, take any of the following actions:
(a) acquire, offer to acquire, agree to acquire, or seek to acquire, whether by purchase, tender offer, exchange, merger, business combination, or otherwise, Beneficial Ownership of shares of Company Common Stock or any securities convertible into, or exercisable or exchangeable for, Company Common Stock (including any derivative instruments, swaps, or other arrangements having similar economic effect), if such acquisition would result in the Investor Group's aggregate Beneficial Ownership exceeding the Ownership Cap (9.9% of Outstanding Shares);
(b) make, participate in, or encourage any "solicitation" of "proxies" or written consents (as such terms are used in the proxy rules of the SEC) with respect to Company Common Stock, or become a "participant" in any "solicitation" (as such terms are defined or used in Regulation 14A under the Exchange Act) of proxies or written consents with respect to Company Common Stock, other than a solicitation by the Company or in support of all of the Board's director nominees and in accordance with the Board's recommendations;
(c) seek, propose, make, or support any public statement or announcement regarding, or submit to the Board or any director, officer, or representative of the Company any proposal or offer (with or without conditions) with respect to, any merger, acquisition, tender offer, exchange offer, recapitalization, restructuring, disposition, spin-off, split-off, or other extraordinary transaction involving the Company or any of its subsidiaries, or any material change in the capitalization, corporate structure, dividend policy, or business of the Company, except to the extent such communications are made privately and on a confidential basis to the Board or senior management and are not intended to, and would not reasonably be expected to, require public disclosure by any Party;
(d) form, join, participate in, or encourage the formation of any "group" (as defined in Section 13(d)(3) of the Exchange Act) with any other Person with respect to Company Common Stock or any other securities of the Company for the purpose of acquiring, holding, voting, or disposing of Company Common Stock;
(e) seek or propose, whether alone or in concert with others, to remove any director from the Board, or to change the size or composition of the Board, except as expressly provided in Sections 2.1 and 2.2 of this Agreement;
(f) call or seek to call, or request the calling of, a special meeting of the Company's stockholders, or seek to make, or make, a stockholder proposal at any annual or special meeting of stockholders, or make a request for a list of the Company's stockholders;
(g) submit any stockholder proposal pursuant to Rule 14a-8 under the Exchange Act or otherwise, or nominate any Person for election as a director of the Company at any annual or special meeting of stockholders or by written consent;
(h) make any public request or public statement to amend, waive, or terminate any provision of this Agreement;
(i) advise, encourage, finance, assist, provide information to, or enter into any discussions, negotiations, agreements, or arrangements with any third party in connection with any of the foregoing activities or transactions described in clauses (a) through (h) above; or
(j) initiate, participate in, or threaten any litigation, arbitration, or other legal or administrative proceeding against the Company or any of its past or present directors, officers, employees, or agents relating to the matters that are the subject of this Agreement, the Nomination Notice, the Company's response thereto, the negotiation of this Agreement, or any of the transactions contemplated hereby, except to enforce the terms of this Agreement.
Section 3.2 — Ownership Cap.
(a) The Ownership Cap shall be 9.9% of Outstanding Shares at any time during the Standstill Period. For purposes of calculating the Investor Group's Beneficial Ownership relative to the Ownership Cap, the number of Outstanding Shares shall be determined based on the most recently publicly reported number of shares of Company Common Stock issued and outstanding, as disclosed in the Company's most recent filing with the SEC on Form 10-K, Form 10-Q, Form 8-K, or proxy statement, or any current report or other filing that discloses the number of shares outstanding.
(b) If the Investor Group's aggregate Beneficial Ownership exceeds the Ownership Cap as a result of a share repurchase, stock buyback program, or other corporate action taken by the Company (rather than as a result of acquisitions of Company Common Stock or other securities by any member of the Investor Group or any of their Affiliates or Associates), such excess ownership shall not constitute a breach of Section 3.1(a) or this Section 3.2; provided, however, that the Investor Group shall not acquire any additional shares of Company Common Stock or any securities convertible into or exercisable or exchangeable for Company Common Stock for so long as the Investor Group's Beneficial Ownership remains in excess of the Ownership Cap.
Section 3.3 — Permitted Activities.
Notwithstanding anything to the contrary in Section 3.1, nothing in this Agreement shall prevent or restrict the Investor Group from:
(a) voting all shares of Company Common Stock Beneficially Owned by any member of the Investor Group at any annual or special meeting of stockholders in accordance with the provisions of Article V;
(b) tendering or exchanging shares of Company Common Stock in connection with any tender offer or exchange offer made to all holders of Company Common Stock, whether by the Company or a third party;
(c) making private, non-public, and confidential communications to the Board (including through the Company's Corporate Secretary or General Counsel) or to the Company's senior management regarding the Company's business, operations, strategy, or financial performance, provided that such communications are not intended to, and would not reasonably be expected to, require public disclosure by any Party;
(d) disposing of any or all shares of Company Common Stock Beneficially Owned by any member of the Investor Group, whether by sale on the open market, in a privately negotiated transaction, or otherwise, in accordance with applicable securities laws and regulations; or
(e) communicating with the Company's independent registered public accounting firm, Kettering Marsh & Associates LLP, solely for purposes related to the exercise of routine stockholder rights under applicable law.
ARTICLE IV — STRATEGIC REVIEW OF INTERACTIVE GAMING DIVISION
Section 4.1 — Commitment to Conduct Strategic Review.
(a) The Board shall cause the Company's management to conduct a comprehensive internal review of the strategic alternatives available with respect to the Interactive Gaming Division (the "Strategic Review"). The Parties acknowledge that the Interactive Gaming Division represents a significant and growing business segment of the Company, and that a rigorous evaluation of the strategic alternatives for such division is in the best interests of all stockholders.
(b) The Strategic Review shall consider, without limitation, the following alternatives:
(i) continued operation of the Interactive Gaming Division within the Company in its current form, including an assessment of the division's competitive position, growth prospects, and capital requirements;
(ii) a potential spin-off, split-off, or other tax-efficient separation of the Interactive Gaming Division into a standalone publicly traded company;
(iii) a potential sale, partial divestiture, or other disposition of all or a portion of the Interactive Gaming Division to a strategic or financial buyer;
(iv) potential strategic partnerships, joint ventures, licensing arrangements, or other collaborative transactions involving the Interactive Gaming Division; and
(v) investment in organic growth initiatives, acquisitions, or technology development designed to enhance the Interactive Gaming Division's competitive position and market share.
(c) The Strategic Review shall be led by the Company's Chief Executive Officer, Gerald R. Whitmore, and Chief Financial Officer, Raymond Choi, with oversight by the Board (including the Mutual Director, once appointed and seated) and the advice of the Company's financial advisor, Calloway Pinnacle Trust Bank (Thomas V. Ashford, Managing Director, serving as lead advisor). Management may, in its discretion and with the Board's approval, retain additional advisors, consultants, or experts as it deems appropriate to assist in the conduct of the Strategic Review.
Section 4.2 — Timeline and Completion.
(a) The Strategic Review shall be completed no later than the Strategic Review Completion Date, which is one hundred twenty (120) days after the Effective Date. If the Effective Date is March 10, 2023, the Strategic Review Completion Date is anticipated to be July 8, 2023. The Board may, in its discretion, complete the Strategic Review at any time prior to the Strategic Review Completion Date.
(b) Upon completion of the Strategic Review, management shall prepare and deliver a summary report of the Strategic Review's findings and recommendations to the Board for its consideration and deliberation. The Board shall review such report and determine, in its sole discretion and consistent with its fiduciary duties, what actions, if any, to take with respect to the Interactive Gaming Division.
Section 4.3 — No Obligation to Share Conclusions.
(a) The Company shall have no obligation to share the conclusions, findings, recommendations, analyses, or other output of the Strategic Review with Pinnacle Harbor, any other member of the Investor Group, or any other stockholder of the Company. All materials, analyses, reports, and deliberations related to the Strategic Review shall constitute confidential business information of the Company and shall be protected accordingly.
(b) The Company shall have no obligation to adopt or implement any particular recommendation, course of action, or transaction resulting from the Strategic Review. The decision whether to take any action with respect to the Interactive Gaming Division following completion of the Strategic Review shall be within the sole and absolute discretion of the Board.
Section 4.4 — Board Discretion.
Nothing in this Article IV shall be construed to limit, modify, or otherwise affect the fiduciary duties of the Board or any individual director under applicable law, including the duty of care and the duty of loyalty under Delaware law. Without limiting the generality of the foregoing, nothing in this Article IV shall require the Board to take, or refrain from taking, any action that the Board determines, in good faith and after consultation with its legal advisors, would be inconsistent with applicable law or its fiduciary duties to the Company and its stockholders.
ARTICLE V — VOTING COMMITMENTS
Section 5.1 — Voting in Favor of Management Nominees.
During the Standstill Period, each member of the Investor Group shall vote, or cause to be voted, all shares of Company Common Stock Beneficially Owned by such member of the Investor Group (including the 7,119,600 shares currently held by the Investor Group and any additional shares acquired up to and including the Ownership Cap) in favor of the Company's full management-recommended slate of director nominees at each annual or special meeting of stockholders at which directors are to be elected, including the Annual Meeting. For the avoidance of doubt, this obligation shall apply to all shares of Company Common Stock Beneficially Owned by any member of the Investor Group at the time of any such meeting, including any shares acquired after the Effective Date and prior to the applicable record date for such meeting.
Section 5.2 — Voting on Other Proposals.
(a) During the Standstill Period, each member of the Investor Group shall vote, or cause to be voted, all shares of Company Common Stock Beneficially Owned by such member of the Investor Group in accordance with the recommendation of the Board (as set forth in the Company's definitive proxy statement or other soliciting materials filed with the SEC) on all other proposals submitted to a vote of stockholders at any annual or special meeting, including:
(i) advisory votes on executive compensation ("say-on-pay" proposals);
(ii) proposals regarding the approval of, or amendments to, equity compensation plans;
(iii) proposals regarding the ratification of the Company's independent registered public accounting firm; and
(iv) any other management-sponsored proposals.
(b) Notwithstanding the foregoing, the Investor Group shall not be required to vote in accordance with the Board's recommendation on: (i) any proposal relating to a Change of Control transaction (including any proposal to approve a merger, acquisition, or similar extraordinary transaction); (ii) any proposal to amend the Certificate of Incorporation or Bylaws in a manner that would disproportionately and adversely affect the economic or governance rights of the Investor Group relative to other holders of Company Common Stock; or (iii) any proposal submitted by a stockholder other than a member of the Investor Group. With respect to any proposal described in clauses (i) through (iii) of this paragraph, each member of the Investor Group shall be free to vote its shares of Company Common Stock in its sole discretion.
Section 5.3 — Proxy Cards.
At each annual or special meeting of stockholders during the Standstill Period, each member of the Investor Group shall deliver, or cause to be delivered, its proxy card, voting instruction form, or other evidence of its vote to Continental Share Services, Inc. (the Company's transfer agent) or the Company's proxy solicitor, Whitfield Morrow Partners, LLC, no later than five (5) Business Days prior to the date of such meeting. The Investor Group shall provide confirmation of such delivery to the Company's General Counsel, Patricia Nakamura, promptly upon delivery.
ARTICLE VI — NON-DISPARAGEMENT AND PUBLIC STATEMENTS
Section 6.1 — Mutual Non-Disparagement.
(a) During the Standstill Period, neither Party shall, and each Party shall cause its respective Affiliates, directors, officers, employees, agents, and representatives not to, directly or indirectly, publicly disparage, or make or publish any public statement or communication (whether oral, written, electronic, or otherwise) that is critical of, or that is or could reasonably be expected to be derogatory or damaging to, the other Party, its Affiliates, or any of the other Party's past or present directors, officers, employees, agents, or representatives.
(b) The restrictions set forth in this Section 6.1 shall apply to all forms of public communication, including press releases, public filings with governmental authorities, media interviews (whether on the record, on background, or off the record), social media posts (including on platforms such as Fenmore Solutions, Westmark Health IT, and similar services), blog posts, podcasts, investor letters, conference presentations, and filings with the SEC, except to the extent that disclosure of factual information is required by applicable law, regulation, or court order.
Section 6.2 — Joint Press Release.
(a) Promptly following execution of this Agreement, and in any event within two (2) Business Days of the Effective Date, the Parties shall issue a mutually agreed joint press release (the "Joint Press Release") announcing the material terms of this Agreement, including the appointment of the Mutual Director, the withdrawal of Pinnacle Harbor's director nominations, and the Company's commitment to conduct the Strategic Review. The Joint Press Release shall be substantially in the form attached hereto as Exhibit A.
(b) The Joint Press Release shall be coordinated with the Company's investor relations advisor, Harlan Ridge Communications, LLC (Philip Navarette, Partner), and shall be issued via a nationally recognized wire service. Neither Party shall issue any other press release, public statement, or public communication regarding this Agreement or the transactions contemplated hereby without the prior written consent of the other Party, except as required by applicable law, regulation, or the rules of any applicable stock exchange.
Section 6.3 — SEC Filings.
(a) Each Party shall have the right to review and comment on any filing to be made by the other Party with the SEC that references this Agreement, the terms hereof, or the transactions contemplated hereby, prior to such filing being submitted to the SEC. The filing Party shall provide the other Party with a copy of any such filing and a reasonable opportunity to review and comment thereon no fewer than two (2) Business Days prior to the anticipated filing date. The filing Party shall consider in good faith any comments provided by the other Party, but shall not be required to adopt such comments.
(b) Pinnacle Harbor shall file, or cause to be filed, an amendment to its Schedule 13D (Amendment No. 2 or such subsequent amendment as may be appropriate) within five (5) Business Days of the Effective Date, reflecting the terms of this Agreement, the withdrawal of all director nominations, and the other matters required to be disclosed under the Exchange Act and the rules and regulations promulgated thereunder. Pinnacle Harbor shall provide the Company with a reasonable opportunity to review and comment on such amendment prior to filing, in accordance with paragraph (a) above.
Section 6.4 — Permitted Communications.
(a) Nothing in this Article VI shall prevent either Party from making factual statements as required by applicable law, regulation, judicial or administrative process, subpoena, or other legal compulsion, or from responding to any inquiry, investigation, or request from a governmental authority, regulatory body, or self-regulatory organization, including the SEC, the Nasdaq Stock Market LLC, or any state gaming commission.
(b) Private, non-public communications between the Parties, or between either Party and institutional stockholders of the Company (whether in person, by telephone, by email, or otherwise), shall not be subject to the restrictions of Section 6.1, provided that such communications are not disparaging of the other Party or any of the other Party's directors, officers, employees, or agents. Each Party shall instruct its representatives to comply with the foregoing in connection with any such private communications.
ARTICLE VII — EXPENSE REIMBURSEMENT
Section 7.1 — Reimbursement of Pinnacle Harbor's Legal Expenses.
(a) Within thirty (30) days of the Effective Date, the Company shall reimburse Pinnacle Harbor for its reasonable, documented, out-of-pocket legal fees and expenses actually incurred in connection with the negotiation, drafting, and execution of this Agreement and the matters leading to this Agreement, including fees and expenses of Hargrove Sloane & Birch LLP. Such reimbursement shall not exceed Seven Hundred Fifty Thousand Dollars ($750,000) in the aggregate (the "Expense Cap").
(b) In order to receive reimbursement, Pinnacle Harbor shall submit invoices and reasonable supporting documentation from Hargrove Sloane & Birch LLP (which invoices may be redacted to preserve attorney-client privilege, provided that they contain sufficient detail to permit reasonable verification of the amounts charged) to the Company's General Counsel, Patricia Nakamura, at the address set forth in Section 10.4. The Company shall review such invoices and approve payment within ten (10) Business Days of receipt, which approval shall not be unreasonably withheld, conditioned, or delayed. Payment shall be made by wire transfer of immediately available funds to an account designated by Pinnacle Harbor in writing.
(c) For the avoidance of doubt, the Expense Cap represents the maximum aggregate reimbursement obligation of the Company under this Section 7.1, and the Company shall have no obligation to reimburse any fees or expenses in excess of the Expense Cap regardless of the actual amount of fees and expenses incurred by Pinnacle Harbor or any member of the Investor Group.
Section 7.2 — No Other Reimbursement.
Except as expressly provided in Section 7.1, each Party shall bear its own costs, fees, and expenses (including the fees and expenses of its legal counsel, financial advisors, and other representatives) incurred in connection with this Agreement and the transactions contemplated hereby.
ARTICLE VIII — TERMINATION
Section 8.1 — Termination Events.
This Agreement shall automatically terminate, without any further action by any Party, upon the earliest to occur of the following events (each, a "Termination Event"):
(a) the expiration of the Standstill Period (i.e., the date that is eighteen (18) months after the Effective Date, which is anticipated to be September 10, 2024, if the Effective Date is March 10, 2023);
(b) a material breach of any provision of this Agreement by either Party that remains uncured for fifteen (15) Business Days after written notice of such breach is delivered to the breaching Party by the non-breaching Party in accordance with Section 8.3;
(c) the consummation of a Change of Control of the Company (for the avoidance of doubt, the mere announcement or execution of a definitive agreement with respect to a Change of Control transaction shall not constitute a Termination Event under this clause (c); only the closing or consummation thereof shall trigger termination);
(d) the Investor Group's aggregate Beneficial Ownership of Company Common Stock falling below 3.5% of the Outstanding Shares (as determined based on the most recently publicly available data, including filings with the SEC by the Investor Group and the Company); or
(e) the mutual written agreement of the Parties to terminate this Agreement.
Section 8.2 — Effect of Termination.
(a) Upon termination of this Agreement, whether by expiration of the Standstill Period or upon the occurrence of a Termination Event, the obligations of the Parties under this Agreement shall cease and be of no further force or effect; provided, however, that the following provisions shall survive any such termination and shall continue in full force and effect in accordance with their respective terms: Section 6.1 (Mutual Non-Disparagement), Section 7.1 (Reimbursement of Pinnacle Harbor's Legal Expenses, to the extent any reimbursement obligations remain outstanding as of the date of termination), Article IX (Representations and Warranties), Article X (Miscellaneous), and any other provisions of this Agreement that by their nature or express terms are intended to survive termination.
(b) Termination of this Agreement shall not relieve any Party from liability for any breach of this Agreement occurring prior to such termination, and the rights and remedies of each Party with respect to any such prior breach shall survive termination.
Section 8.3 — Notice of Termination.
(a) Any Party seeking to terminate this Agreement pursuant to Section 8.1(b) shall provide written notice to the other Party (the "Breach Notice") specifying in reasonable detail the nature of the alleged material breach, including the specific provision(s) of this Agreement that have been breached, the facts and circumstances giving rise to the alleged breach, and the actions that the non-breaching Party believes are necessary to cure such breach.
(b) The fifteen (15) Business Day cure period referenced in Section 8.1(b) shall commence on the date that the Breach Notice is received by the breaching Party in accordance with Section 10.4 (Notices). If the alleged breach is cured to the reasonable satisfaction of the non-breaching Party within such cure period, this Agreement shall continue in full force and effect as if no breach had occurred.
(c) For the avoidance of doubt, in the case of a Termination Event under Section 8.1(a), (c), (d), or (e), no notice shall be required for termination to become effective.
ARTICLE IX — REPRESENTATIONS AND WARRANTIES
Section 9.1 — Representations and Warranties of the Company.
The Company hereby represents and warrants to each member of the Investor Group as follows:
(a) Organization and Good 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 requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as presently conducted.
(b) Corporate Power and Authority. The Company has all requisite corporate power and authority to execute, deliver, and perform its obligations under this Agreement.
(c) Due Authorization. The execution, delivery, and performance of this Agreement by the Company have been duly authorized by all necessary corporate action on the part of the Company, including approval by the Board of Directors at a meeting duly called and held on or about March 9, 2023, and no other corporate action or proceeding on the part of the Company or its stockholders is necessary to authorize this Agreement or the transactions contemplated hereby.
(d) Valid and Binding Obligation. This Agreement constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other similar laws affecting creditors' rights generally and to general principles of equity, whether applied in a court of law or a court of equity.
(e) No Conflicts. The execution, delivery, and performance of this Agreement by the Company do not and will not (i) conflict with or result in a violation or breach of any provision of the Certificate of Incorporation (Delaware Secretary of State file number 5734821) or the Bylaws, (ii) conflict with or result in a violation or breach of any law, statute, regulation, order, judgment, or decree applicable to the Company, or (iii) conflict with, result in a breach of, constitute a default under (with or without the giving of notice or lapse of time, or both), or give rise to a right of termination, cancellation, modification, or acceleration of any obligation under, any material agreement, contract, lease, license, or instrument to which the Company is a party or by which the Company or any of its properties or assets is bound.
(f) Outstanding Shares. As of the date hereof, there are 104,700,000 shares of Company Common Stock issued and outstanding, and no other class or series of capital stock of the Company is outstanding.
Section 9.2 — Representations and Warranties of the Investor Group.
Each member of the Investor Group hereby represents and warrants to the Company, severally and not jointly, as follows:
(a) Organization and Good Standing. Pinnacle Harbor Capital Partners, LP is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Delaware. Pinnacle Harbor Capital Management, LLC is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware. Each of Pinnacle Harbor and PHCM has all requisite power and authority to own, lease, and operate its properties and to carry on its business as presently conducted.
(b) Power and Authority. Each member of the Investor Group has all requisite power and authority (and, in the case of Mr. 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 valid and binding obligation of each member of the Investor Group, enforceable against such member of the Investor Group in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other similar laws affecting creditors' rights generally and to general principles of equity, whether applied in a court of law or a court of equity.
(d) Beneficial Ownership. As of the date hereof, the Investor Group Beneficially Owns an aggregate of 7,119,600 shares of Company Common Stock, representing approximately 6.8% of the Outstanding Shares (based on 104,700,000 shares of Company Common Stock outstanding). No member of the Investor Group Beneficially Owns any other securities of the Company, including any options, warrants, convertible notes, derivative instruments, swaps, or other securities convertible into, or exercisable or exchangeable for, Company Common Stock.
(e) Schedule 13D. Pinnacle Harbor's preliminary Schedule 13D filed with the SEC on November 10, 2022, and Amendment No. 1 thereto filed with the SEC on January 6, 2023, were, to the knowledge of each member of the Investor Group after reasonable inquiry, complete and accurate in all material respects as of their respective filing dates, and did not, as of their respective filing dates, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(f) No Agreements with Third Parties. No member of the Investor Group is a party to, or has any obligation under, any agreement, arrangement, or understanding (whether written or oral, formal or informal) with any third party with respect to the voting, acquisition, holding, or disposition of Company Common Stock, other than customary brokerage, clearing, and custody arrangements entered into in the ordinary course of business.
ARTICLE X — MISCELLANEOUS
Section 10.1 — Governing Law.
This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to the principles of conflicts of laws thereof that would require or permit the application of the laws of any other jurisdiction.
Section 10.2 — Jurisdiction and Venue.
(a) Each Party hereby irrevocably and unconditionally submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware declines to accept jurisdiction over any action, suit, or proceeding, any state or federal court of competent jurisdiction located in the State of Delaware) for any action, suit, or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby, and each Party agrees that any such action, suit, or proceeding shall be brought only in such court(s).
(b) Each Party hereby irrevocably and unconditionally waives (i) any objection that it may now or hereafter have to the laying of venue in any such court, and (ii) any claim that any such action, suit, or proceeding brought in any such court has been brought in an inconvenient forum.
(c) Each Party agrees that service of process in any such action, suit, or proceeding may be effected by the means by which notices are to be given pursuant to Section 10.4 of this Agreement.
Section 10.3 — Specific Performance.
(a) The Parties acknowledge and agree that the rights of each Party under this Agreement are unique and that irreparable harm would result if this Agreement were not specifically enforced, and that money damages would be an insufficient remedy for any breach or threatened breach of this Agreement by any Party.
(b) Accordingly, each Party shall be entitled to seek an injunction, specific performance, or other equitable relief to enforce specifically the terms and provisions of this Agreement in any court referred to in Section 10.2, in addition to any other remedy to which such Party may be entitled at law or in equity. The Parties agree that neither Party shall be required to post any bond or other security in connection with any action for specific performance or injunctive relief hereunder.
Section 10.4 — Notices.
All notices, requests, demands, consents, and other communications hereunder shall be in writing and shall be deemed to have been duly given or made (a) when delivered by hand, (b) one (1) Business Day after being sent by reputable overnight courier service (with tracking and confirmation of delivery), or (c) when sent by email (with confirmation of receipt by the recipient, including by read receipt or written acknowledgment), in each case addressed as follows:
If to the Company:
Patricia "Trish" Nakamura General Counsel & Corporate Secretary Redstone Gaming Corp. 8700 Las Vegas Boulevard South, Suite 2200 Las Vegas, NV 89123
Email: pnakamura@redstonegaming.com
with a copy to (which shall not constitute notice):
Douglas Fairchild Calderwood & Harkness LLP 3960 Howard Hughes Parkway, Suite 1400 Las Vegas, NV 89169
Email: dfairchild@calderwoodharkness.com
If to the Investor Group:
Viktor S. Kessler Managing Partner & Chief Investment Officer Pinnacle Harbor Capital Partners, LP 590 Madison Avenue, 34th Floor New York, NY 10022
Email: vkessler@pinnacleharbor.com
with a copy to (which shall not constitute notice):
Jonathan Birch III Hargrove Sloane & Birch LLP 1585 Broadway, 40th Floor New York, NY 10036
Email: jbirch@hsb-law.com
Any Party may change its address for notices by giving written notice of such change to the other Parties in accordance with this Section 10.4.