COOPERATION AND STANDSTILL AGREEMENT
EXECUTION VERSION
dated as of
March 10, 2023
by and among
REDSTONE GAMING CORP., a Delaware corporation,
PINNACLE HARBOR CAPITAL PARTNERS, LP, a Delaware limited partnership,
PINNACLE HARBOR CAPITAL MANAGEMENT, LLC, a Delaware limited liability company, as general partner of Pinnacle Harbor Capital Partners, LP,
and
VIKTOR S. KESSLER, an individual
COOPERATION AND STANDSTILL AGREEMENT
This COOPERATION AND STANDSTILL AGREEMENT (this "Agreement") is entered into as of March 10, 2023 (the "Effective Date"), by and among:
(1) Redstone Gaming Corp., a corporation incorporated under the laws of the State of Delaware (the "Company" or "RGC");
(2) Pinnacle Harbor Capital Partners, LP, a Delaware limited partnership ("Pinnacle Harbor" or "PHCP");
(3) Pinnacle Harbor Capital Management, LLC, a Delaware limited liability company, in its capacity as the sole general partner of PHCP ("PHCM" or the "General Partner"); and
(4) Viktor S. Kessler, an individual, in his capacity as the Managing Partner and Chief Investment Officer of PHCM ("Kessler").
PHCP, PHCM, and Kessler are collectively referred to herein as the "Investor Group." The Company and the Investor Group are each a "Party" and collectively the "Parties."
RECITALS
WHEREAS, Redstone Gaming Corp. is a corporation duly organized and existing under the laws of the State of Delaware, with its principal executive offices located at 8700 Las Vegas Boulevard South, Suite 2200, Las Vegas, Nevada 89123, and its shares of common stock, par value $0.01 per share, are listed and traded on The Nasdaq Stock Market LLC under the ticker symbol "RGC," and, as of the date hereof, 104,700,000 shares of Common Stock (as defined below) are issued and outstanding;
WHEREAS, as of the date hereof, members of the Investor Group collectively Beneficially Own (as defined below) 7,119,600 shares of Common Stock of the Company, representing approximately 6.8% of the outstanding shares of Common Stock, which shares were acquired between June 2022 and November 2022 at a weighted-average purchase price of $26.42 per share, and the Investor Group filed a preliminary Schedule 13D with the U.S. Securities and Exchange Commission (the "SEC") on November 10, 2022, and an amended Schedule 13D (Amendment No. 1) on January 6, 2023, disclosing such ownership and certain intentions with respect to the Company;
WHEREAS, on October 28, 2022, Pinnacle Harbor sent a private letter (the "Private Letter") to Diane K. Sheridan, the independent Chair of the Board of Directors of the Company (the "Board"), demanding, among other things, (i) the appointment of two Pinnacle Harbor-designated nominees to the Board, (ii) a formal strategic review of the Company's interactive gaming division, and (iii) the return of approximately $300 million to shareholders through share repurchases or special dividends;
WHEREAS, on November 30, 2022, Pinnacle Harbor issued a public open letter (the "Open Letter") reiterating the demands set forth in the Private Letter, criticizing the Company's capital allocation practices, and calling into question the adequacy of the Board's oversight of the Company's interactive gaming division;
WHEREAS, on December 8, 2022, counsel to 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 "Nomination Notice");
WHEREAS, on January 9, 2023, Pinnacle Harbor submitted a nomination notice (the "Nominations") nominating Dr. Sandra Trevelyan and Hugh Desmond Grayson for election as directors at the Company's 2023 Annual Meeting of Stockholders (the "2023 Annual Meeting"), together with all information and materials required by Article II, Section 2.11 of the Bylaws;
WHEREAS, the Company and the Investor Group desire to resolve their differences and come to a mutually agreeable arrangement without the expense and distraction of a contested proxy solicitation at the 2023 Annual Meeting, which is currently anticipated to be held on or about May 18, 2023, and the Board of Directors of the Company, upon the recommendation of a Special Committee composed of independent directors James Delacroix (Chair), Carmen Vasquez, and Randall Morse (the "Special Committee"), formed on November 14, 2022, for the purpose of evaluating and responding to the Investor Group's proposals, has authorized the execution of this Agreement; 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:
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ARTICLE I — DEFINITIONS
Section 1.1 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended. 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 any annual meeting of stockholders of the Company, including any adjournment, postponement, rescheduling, or continuation thereof.
"Associate" shall have the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.
"Beneficial Ownership" and "Beneficially Own" (and correlative terms such as "Beneficial Owner") shall have the meanings ascribed to such terms in Rule 13d-3 promulgated under the Exchange Act; provided, however, that, for purposes of this Agreement, a person shall also be deemed to Beneficially Own any securities that such person has the right to acquire pursuant to any agreement, arrangement, or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, warrants, options, or otherwise, regardless of whether such right is exercisable immediately or only after the passage of time or the occurrence of a condition.
"Board" means the Board of Directors of the Company, as constituted from time to time.
"Business Day" means any day other than (a) Saturday, (b) Sunday, or (c) a day on which commercial banking institutions in New York, New York or Las Vegas, Nevada are authorized or required by law, regulation, or executive order to close.
"Bylaws" means the Amended and Restated Bylaws of the Company, as last amended on September 12, 2021, as may be further amended, restated, supplemented, or otherwise modified from time to time in accordance with applicable law and the terms of this Agreement.
"Certificate of Incorporation" means the Amended and Restated Certificate of Incorporation of the Company, as currently on file with the Secretary of State of the State of Delaware under file number 5734821, as may be further amended, restated, supplemented, or otherwise modified from time to time in accordance with applicable law and the terms of this Agreement.
"Change of Control" means (a) any merger, consolidation, statutory share exchange, or business combination involving the Company in which the stockholders of the Company immediately prior to such transaction do not, immediately after such transaction, own, directly or indirectly, more than fifty percent (50%) of the outstanding voting securities of the surviving or resulting entity; (b) any sale, lease, exchange, transfer, or other disposition (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; (c) any transaction or series of related transactions resulting in any person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) acquiring Beneficial Ownership of more than fifty percent (50%) of the outstanding voting securities of the Company; or (d) any contested or uncontested election of directors resulting in a majority of the Board being composed of individuals who were not members of the Board as of the date of this Agreement or who were not nominated or approved by the Board.
"Common Stock" means the common stock, par value $0.01 per share, of the Company.
"Company Nominees" means the slate of director nominees recommended by the Board for election at any Annual Meeting during the Standstill Period.
"Cooperation Agreement" or "Agreement" means this Cooperation and Standstill Agreement, as it may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.
"Investor Group" means, collectively, Pinnacle Harbor Capital Partners, LP, Pinnacle Harbor Capital Management, LLC, Viktor S. Kessler, and their respective Affiliates and Associates (as defined in Rule 12b-2 under the Exchange Act) to the extent acting in concert with any member of the Investor Group with respect to the Common Stock or the matters that are the subject of this Agreement. A list of members of the Investor Group as of the date hereof is attached hereto as Exhibit B.
"Joint Director Selection Committee" means the joint committee established by the Parties pursuant to Section 2.2, composed of one representative designated by the Special Committee and one representative designated by Pinnacle Harbor, for the purpose of identifying and selecting the Mutually Agreed Director.
"Maximum Percentage" or "Ownership Cap" means 9.9% of the issued and outstanding shares of Common Stock of the Company, as determined from time to time in accordance with Section 4.2.
"Minimum Ownership Threshold" means 3.5% of the issued and outstanding shares of Common Stock of the Company.
"Mutually Agreed Director" means Franklin Chu, age 52, former Chief Executive Officer of Prism Digital Entertainment, LLC, selected by the Joint Director Selection Committee as described in Section 2.2 hereof, whose biography is attached hereto as Exhibit C.
"Nominations" means the nomination of Dr. Sandra Trevelyan and Hugh Desmond Grayson submitted by Pinnacle Harbor on January 9, 2023, pursuant to Article II, Section 2.11 of the Bylaws, for election as directors at the 2023 Annual Meeting.
"SEC" means the United States 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, each of whom is an independent director of the Company.
"Standstill Period" means the period commencing on the date of this Agreement (March 10, 2023) and ending at 11:59 p.m. Eastern Time on September 10, 2024, which is eighteen (18) months from the date hereof, subject to earlier termination pursuant to Article VII hereof.
"Strategic Review" means the internal review of strategic alternatives with respect to the Company's interactive gaming division, as described in Section 3.1 hereof.
"Transfer Agent" means Continental Share Services, Inc., or any successor transfer agent appointed by the Company and notified to the Investor Group in writing.
ARTICLE II — BOARD MATTERS
Section 2.1 Withdrawal of Nominations.
(a) Pinnacle Harbor hereby irrevocably withdraws the Nominations of Dr. Sandra Trevelyan and Hugh Desmond Grayson for election as directors at the Company's 2023 Annual Meeting of Stockholders. Such withdrawal is effective as of the date of this Agreement and shall be unconditional and irrevocable during the Standstill Period.
(b) Pinnacle Harbor shall promptly take all actions necessary to effectuate such withdrawal, including, without limitation, (i) delivering written notice of such withdrawal to the Corporate Secretary of the Company in accordance with the provisions of Article II, Section 2.11 of the Bylaws, and (ii) filing an amendment to its Schedule 13D (Amendment No. 2) with the SEC reflecting such withdrawal and the entry into this Agreement no later than five (5) Business Days after the date hereof (i.e., by March 15, 2023). Such Schedule 13D amendment shall be in a form reasonably satisfactory to the Company and shall attach this Agreement (or a summary thereof in form and substance reasonably satisfactory to both Parties) as an exhibit thereto.
(c) During the Standstill Period, Pinnacle Harbor shall not, and shall cause each member of the Investor Group not to, directly or indirectly, nominate, recommend, support, or encourage the nomination or candidacy of any person for election to the Board at any Annual Meeting or special meeting of stockholders of the Company, other than voting in favor of the Company Nominees in accordance with Article V hereof.
(d) For the avoidance of doubt, the withdrawal of the Nominations pursuant to this Section 2.1 shall not prejudice or waive any rights of Pinnacle Harbor or any member of the Investor Group arising after the expiration or termination of the Standstill Period to submit nominations for the election of directors in accordance with the Bylaws and applicable law.
Section 2.2 Appointment of Mutually Agreed Director.
(a) The Company agrees to appoint one (1) new independent director, mutually agreed upon by the Company and Pinnacle Harbor, to the Board. The Parties acknowledge and agree that the mutually agreed independent director shall be neither a nominee originally proposed by Pinnacle Harbor (i.e., neither Dr. Sandra Trevelyan nor Hugh Desmond Grayson) nor a current insider, officer, employee, or director of the Company.
(b) In connection with the negotiation of this Agreement, the Parties established the Joint Director Selection Committee, composed of one representative designated by the Special Committee (Carmen Vasquez) and one representative designated by Pinnacle Harbor (Nadia Johar, Head of Activism/Portfolio Manager at PHCP). The Joint Director Selection Committee identified and evaluated a pool of three (3) candidates meeting the criteria set forth in Section 2.2(a) above and satisfying applicable independence and qualification requirements under Nasdaq listing standards, SEC rules, and the Company's Corporate Governance Guidelines.
(c) From such pool, the Parties have mutually agreed to appoint Franklin Chu, age 52, former Chief Executive Officer of Prism Digital Entertainment, LLC, as the Mutually Agreed Director. A biography of Mr. Chu is attached hereto as Exhibit C. The Board has determined, based upon the information provided by Mr. Chu and reviewed by the Nominating and Corporate Governance Committee of the Board, that Mr. Chu qualifies as an independent director under Nasdaq Listing Rule 5605(a)(2) and applicable SEC rules, and that Mr. Chu satisfies all other qualification standards applicable to directors of the Company.
(d) Mr. Chu shall be appointed to the Board effective as of April 1, 2023. The Company shall take all actions necessary to effectuate such appointment, including, without limitation, adopting resolutions of the Board appointing Mr. Chu to fill a newly created directorship resulting from the increase in the size of the Board described in Section 2.3 below.
(e) Mr. Chu shall serve as a director of the Company from the date of his appointment until the Company's 2025 Annual Meeting of Stockholders. The Company agrees that Mr. Chu shall be included in the Company's slate of nominees recommended by the Board for election at the 2025 Annual Meeting, subject to (i) Mr. Chu's continued satisfaction of all applicable independence requirements and qualification standards, (ii) Mr. Chu's willingness to continue serving as a director, and (iii) the Board's exercise of its fiduciary duties in good faith. Nothing in this Section 2.2(e) shall require the Board to include Mr. Chu on its slate of nominees if the Board determines in good faith, after consultation with outside counsel, that doing so would be inconsistent with its fiduciary duties to the Company and its stockholders.
(f) Mr. Chu shall serve as an independent director of the Company and shall not be considered a representative, designee, or nominee of Pinnacle Harbor or any other member of the Investor Group for any purpose under this Agreement, the Certificate of Incorporation, the Bylaws, or applicable law. Mr. Chu shall owe fiduciary duties exclusively to the Company and all of its stockholders and shall not have any obligation to consult with, inform, or act at the direction of, any member of the Investor Group.
(g) Upon his appointment, Mr. Chu shall be eligible to serve on committees of the Board as determined by the Board (or the Nominating and Corporate Governance Committee thereof) in its sole discretion. Mr. Chu shall receive the same compensation and benefits, including cash retainers, equity grants, and expense reimbursement, as other non-employee independent directors of the Company, as described in the Company's Non-Employee Director Compensation Policy.
(h) In the event that Mr. Chu is unable or unwilling to serve as a director prior to or at any time during his term (whether due to death, disability, resignation, removal, or any other reason), the Joint Director Selection Committee shall reconvene within thirty (30) days of such event to select a replacement director from the remaining candidates in the pool identified pursuant to Section 2.2(b). If no candidates remain available or willing to serve, the Joint Director Selection Committee shall identify and evaluate a new pool of candidates mutually agreed upon by the Parties, and the Parties shall use reasonable best efforts to agree upon a replacement director within sixty (60) days of such event. Pending the selection of a replacement, the Company shall not be required to maintain the Board at ten (10) directors. If the Parties are unable to agree upon a replacement director within such sixty (60) day period, the Board shall fill any resulting vacancy in its sole discretion, and neither Pinnacle Harbor nor any member of the Investor Group shall have any further rights under this Section 2.2 with respect to such vacancy.
Section 2.3 Board Size.
(a) As of the date hereof, the Board consists of nine (9) directors. Following the appointment of Franklin Chu in accordance with Section 2.2, the Board shall consist of ten (10) directors.
(b) 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. Any request by the Company for such consent shall be made in writing and shall describe the reason for the proposed increase and the identity of the proposed director(s), to the extent known.
(c) For the avoidance of doubt, nothing in this Section 2.3 shall restrict the ability of the Board to decrease the size of the Board during the Standstill Period, provided that such decrease does not result in the removal of the Mutually Agreed Director (unless such removal is for cause, as determined by the Board in good faith).
Section 2.4 No Additional Board Representation.
Except as expressly provided in Section 2.2, neither Pinnacle Harbor nor any member of the Investor Group shall have the right to designate, nominate, recommend, or request the appointment of any person to the Board during the Standstill Period. The Investor Group acknowledges that the appointment of the Mutually Agreed Director constitutes the sole and exclusive Board representation right of the Investor Group under this Agreement and that the Investor Group has no further rights of Board designation, consultation, or observer rights.
ARTICLE III — STRATEGIC REVIEW
Section 3.1 Interactive Gaming Division Strategic Review.
(a) The Board agrees to cause an internal review of strategic alternatives with respect to the Company's interactive gaming division (the "Interactive Gaming Division") to be conducted in accordance with this Section 3.1. The Parties acknowledge that 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 revenue of approximately $2.87 billion for such period, and that a comprehensive review of strategic alternatives for such division is warranted.
(b) The Strategic Review shall be conducted under the oversight and direction of the Board (or a committee thereof designated by the Board for such purpose) and shall be completed within one hundred twenty (120) days of the date of this Agreement (i.e., by July 8, 2023), unless the Board determines in good faith that an extension of such period is necessary or advisable to complete the review, in which case the Board may extend the completion deadline by up to an additional thirty (30) days.
(c) The Strategic Review may consider, among other things, (i) the potential sale of the Interactive Gaming Division to a third party, whether through an auction process, a negotiated transaction, or otherwise; (ii) a spin-off of the Interactive Gaming Division as a separately traded public company; (iii) a joint venture or strategic partnership involving the Interactive Gaming Division; (iv) the contribution of the Interactive Gaming Division to a newly formed entity in which the Company and/or its stockholders would retain an ownership interest; (v) the continuation of the current operating structure; and (vi) any other strategic alternatives that the Board or its advisors deem appropriate to evaluate.
(d) The Company shall engage its financial advisor, Calloway Pinnacle Trust Bank (Thomas V. Ashford, Managing Director), to assist in the Strategic Review, to the extent the Board deems appropriate. The Board shall also have the right to engage such additional financial, legal, or other advisors as it may deem necessary or advisable in connection with the Strategic Review.
Section 3.2 Reporting.
(a) Upon completion of the Strategic Review, the Board (or a committee thereof) shall receive a comprehensive summary report of the findings, analyses, and recommendations resulting from the Strategic Review, prepared by the Company's management and its financial advisor(s).
(b) The Company shall have no obligation to disclose the conclusions, recommendations, analyses, or any details of the Strategic Review, the report described in Section 3.2(a), or any related materials or deliberations, to Pinnacle Harbor or any other member of the Investor Group. The Investor Group acknowledges and agrees that all information relating to the Strategic Review, including the conclusions reached and any actions taken or not taken as a result thereof, shall be treated as confidential information of the Company.
(c) Notwithstanding the foregoing, if the Company publicly discloses the results of the Strategic Review or any strategic transaction resulting from the Strategic Review, such disclosure shall be made in accordance with applicable law, SEC rules, and Nasdaq listing requirements.
Section 3.3 No Obligation to Transact.
(a) Nothing in this Article III shall be construed as an obligation of the Company to effect any sale, spin-off, joint venture, or other strategic transaction with respect to the Interactive Gaming Division or any other division, business unit, subsidiary, or asset of the Company. The Company retains full discretion to determine, in its sole judgment, whether to pursue any strategic alternative, and the decision not to pursue any particular strategic alternative shall not constitute a breach of this Agreement.
(b) The Board's fiduciary duties to the Company and all of its stockholders, as determined under the laws of the State of Delaware, shall govern any decisions relating to the Strategic Review, and the exercise of such fiduciary duties shall in no event be deemed inconsistent with the Company's obligations under this Article III.
(c) The Investor Group acknowledges and agrees that it shall have no claim against the Company, the Board, or any director, officer, or advisor of the Company arising from or relating to the conduct, conclusions, or results of the Strategic Review, or the Board's decision to pursue or not pursue any particular strategic alternative.
ARTICLE IV — STANDSTILL PROVISIONS
Section 4.1 Standstill Period.
The standstill provisions set forth in this Article IV shall be effective during the Standstill Period, commencing on March 10, 2023 and ending at 11:59 p.m. Eastern Time on September 10, 2024 (eighteen (18) months from the date hereof), unless earlier terminated pursuant to Article VII. Upon expiration or termination of the Standstill Period, all restrictions and prohibitions set forth in this Article IV shall immediately cease to apply, and the Investor Group shall be free to take any actions not otherwise prohibited by applicable law or regulation.
Section 4.2 Ownership Cap.
(a) During the Standstill Period, the Investor Group shall not, directly or indirectly, acquire, offer to acquire, or agree to acquire, by purchase, tender, exchange, or otherwise, Beneficial Ownership of any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, shares of Common Stock (including warrants, options, rights, convertible notes, and other derivative securities) if, after giving effect to such acquisition, the Investor Group's aggregate Beneficial Ownership would exceed 9.9% of the outstanding shares of Common Stock (the "Maximum Percentage" or "Ownership Cap").
(b) For purposes of calculating the Maximum Percentage, the number of outstanding shares of Common Stock shall be determined by reference to (i) the most recently filed periodic report (Annual Report on Form 10-K or Quarterly Report on Form 10-Q) or current report (Form 8-K) filed by the Company with the SEC, or (ii) the most recent written confirmation of outstanding shares provided by the Transfer Agent, Continental Share Services, Inc., whichever is more recent. The Company agrees to promptly provide to Pinnacle Harbor, upon reasonable written request (not more frequently than once per calendar quarter), a written confirmation from the Transfer Agent of the number of shares of Common Stock then issued and outstanding.
(c) In the event that the Investor Group's aggregate Beneficial Ownership exceeds the Maximum Percentage as a result of any action taken by the Company (including stock repurchases, share cancellations, or other reductions in the number of outstanding shares) rather than as a result of any acquisition by the Investor Group, the Investor Group shall not be deemed to be in breach of this Section 4.2, but the Investor Group shall not acquire any additional shares of Common Stock until its Beneficial Ownership is reduced to at or below the Maximum Percentage.
Section 4.3 Prohibited Activities.
During the Standstill Period, the Investor Group shall not, directly or indirectly, and shall not encourage, advise, assist, finance, or knowingly provide information to, any other person to:
(a) solicit proxies or written consents, or become a "participant" in a "solicitation" (as such terms are defined under Regulation 14A promulgated under the Exchange Act), with respect to any matter before any meeting of stockholders of the Company, except as expressly provided in Section 5.1 hereof (it being understood that the public or private statement of how the Investor Group intends to vote its shares shall not be deemed a "solicitation" for purposes of this clause (a));
(b) seek to call, or request the calling of, a special meeting of the stockholders of the Company, or take any action to act by written consent of the stockholders of the Company without a meeting;
(c) submit any stockholder proposal for consideration at any Annual Meeting or special meeting of stockholders of the Company, whether pursuant to Rule 14a-8 promulgated under the Exchange Act or pursuant to the advance notice provisions of the Bylaws, or otherwise seek to have any proposal included in the Company's proxy materials;
(d) seek election or appointment to, or representation on, the Board, or nominate or propose to nominate any person for election as a director of the Company, other than as expressly provided in Section 2.2 hereof;
(e) seek the removal of any director of the Company, whether by vote of stockholders, written consent, or otherwise;
(f) make, or cause to be made, any public proposal, public announcement, or public statement with respect to any extraordinary transaction involving the Company or its securities or subsidiaries, including, without limitation, any merger, tender offer, exchange offer, business combination, recapitalization, restructuring, liquidation, dissolution, sale of assets, spin-off, split-off, or similar transaction, or any change in the capitalization or dividend policy of the Company;
(g) form, join, participate in, or encourage the formation or participation in, a "group" (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to the Beneficial Ownership or voting of Common Stock, other than a group consisting solely of the members of the Investor Group identified on Exhibit B hereto;
(h) deposit any shares of Common Stock in a voting trust, or subject any shares of Common Stock to any voting agreement, voting arrangement, pooling agreement, or similar arrangement, other than as expressly provided in this Agreement;
(i) seek, alone or in concert with others, to amend, waive, modify, or repeal any provision of the Certificate of Incorporation or the Bylaws, whether by stockholder proposal, written consent, or otherwise;
(j) make any request for stockholder lists, transfer agent records, or other Company books and records, whether pursuant to Section 220 of the Delaware General Corporation Law, Rule 14a-7 under the Exchange Act, or otherwise, except as reasonably necessary for compliance with the Investor Group's obligations under this Agreement or applicable law;
(k) take any action, or make any public statement or disclosure, that would reasonably be expected to require the Company to make a public announcement regarding any of the types of matters described in clauses (a) through (j) above; or
(l) enter into any discussions, negotiations, agreements, arrangements, or understandings (whether written or oral, binding or non-binding) with any third party regarding any of the foregoing, or advise, finance, or otherwise encourage any third party to take any action described in clauses (a) through (k) above.
Section 4.4 Short Sales and Hedging.
During the Standstill Period, the Investor Group shall not, directly or indirectly, (a) engage in any short sale (as defined in Regulation SHO promulgated under the Exchange Act) of Common Stock, (b) acquire any put options, equity swaps, total return swaps, contracts for difference, or other derivative instruments with respect to Common Stock that are designed to, or that would reasonably be expected to, hedge or offset decreases in the market value of Common Stock Beneficially Owned by the Investor Group, or (c) enter into any other transaction, agreement, or arrangement that has the effect of creating a net short position with respect to Common Stock. For the avoidance of doubt, this Section 4.4 shall not restrict the sale of shares of Common Stock by the Investor Group in open-market transactions, provided that such sales do not reduce the Investor Group's aggregate Beneficial Ownership below the Minimum Ownership Threshold as described in Section 7.4.
ARTICLE V — VOTING COMMITMENTS
Section 5.1 Voting in Favor of Company Nominees.
During the Standstill Period, at each Annual Meeting and at any special meeting of stockholders of the Company at which directors are to be elected, the Investor Group shall vote (or cause to be voted) all shares of Common Stock Beneficially Owned by the Investor Group as of the record date for such meeting in favor of all Company Nominees recommended by the Board for election at such meeting. The Investor Group shall not vote for, or deliver proxies in favor of, any person who is not a Company Nominee at any such meeting, and shall not withhold its vote or abstain with respect to any Company Nominee, except to the extent required by a court order or applicable law.
Section 5.2 Voting on Other Matters.
(a) During the Standstill Period, at each Annual Meeting and any special meeting of stockholders of the Company, the Investor Group shall vote (or cause to be voted) all shares of Common Stock Beneficially Owned by the Investor Group as of the record date for such meeting in accordance with the Board's recommendations on all proposals submitted to a vote of stockholders at such meeting, including, without limitation, advisory votes on executive compensation ("say-on-pay" proposals), ratification of the Company's independent registered public accounting firm, equity compensation plan proposals, and any other management proposals.
(b) Notwithstanding the foregoing provisions of Section 5.2(a), the Investor Group shall not be required to vote in accordance with the Board's recommendation on any proposal that relates to:
(i) an amendment to the Certificate of Incorporation or the Bylaws that would materially and adversely affect the rights, preferences, privileges, or economic interests of the Investor Group in a manner disproportionate to the effect on other holders of Common Stock similarly situated; or
(ii) a Change of Control transaction, including any merger, tender or exchange offer, sale of substantially all assets, or other business combination.
(c) With respect to any proposal described in Section 5.2(b)(i) or Section 5.2(b)(ii), the Investor Group may vote its shares of Common Stock in its sole discretion.
Section 5.3 Quorum.
During the Standstill Period, the Investor Group shall cause all shares of Common Stock Beneficially Owned by the Investor Group as of the record date for each Annual Meeting and any special meeting of stockholders of the Company to be present, in person or by proxy, at each such meeting so that such shares are counted for purposes of determining the presence of a quorum in accordance with the Certificate of Incorporation, the Bylaws, and applicable law. The Investor Group shall deliver a proxy card or voting instruction form, as applicable, with respect to all such shares in a timely manner in advance of each meeting.
ARTICLE VI — NON-DISPARAGEMENT AND CONFIDENTIALITY
Section 6.1 Mutual Non-Disparagement.
(a) During the Standstill Period, neither the Company (including its directors, officers, employees, and authorized spokespersons acting in their official capacity) nor any member of the Investor Group shall make, or cause to be made, any public statement, announcement, communication, or publication (whether written, oral, electronic, or otherwise) that constitutes an ad hominem attack on, or that disparages, defames, slanders, or is reasonably likely to damage the reputation or goodwill of:
(i) in the case of statements by the Investor Group: the Company, any of its subsidiaries, or any of the Company's directors, officers, employees, agents, or authorized representatives, or the Company's business operations, products, services, strategies, financial performance, or corporate governance practices; or
(ii) in the case of statements by the Company: any member of the Investor Group, or the Investor Group's principals, general partners, limited partners, managing members, portfolio managers, employees, agents, or investment activities.
(b) Notwithstanding the foregoing, the non-disparagement obligations set forth in this Section 6.1 shall not restrict or prohibit either Party from:
(i) making truthful statements, providing truthful testimony, or producing documents in connection with any legal proceeding, arbitration, governmental investigation, regulatory inquiry, or examination, or as required by applicable law, regulation, subpoena, civil investigative demand, or other compulsory legal process;
(ii) making factual statements that are not disparaging in nature in response to unsolicited inquiries from members of the press, financial analysts, or investors; provided, that, in the case of responses by the Investor Group, such statements shall not include commentary on the Company's strategic direction, capital allocation, corporate governance, management performance, or Board composition; or
(iii) communicating internally with its directors, officers, employees, partners, advisors, and agents on a confidential basis.
Section 6.2 Confidentiality.
(a) Each Party shall keep confidential, and shall cause its respective directors, officers, employees, partners, agents, and representatives to keep confidential, the specific terms of this Agreement, the negotiations leading to this Agreement (including any term sheets, draft agreements, correspondence, and communications exchanged between the Parties or their advisors), and any non-public information exchanged between the Parties in connection with the negotiation and execution of this Agreement, except:
(i) as required by applicable law, rule, regulation, or legal process, including the filing of amendments to Schedules 13D, Current Reports on Form 8-K, proxy statements, and any other filings required by the SEC or Nasdaq;
(ii) disclosures to each Party's respective legal counsel, financial advisors, accountants, proxy solicitors, and other professional advisors who have a bona fide need to know and who are bound by confidentiality obligations no less restrictive than those set forth in this Section 6.2 (or, in the case of attorneys, by applicable rules of professional conduct);
(iii) disclosures contained in the joint press release to be issued by the Parties in connection with this Agreement on or about March 13, 2023, in the form attached hereto as Exhibit A;
(iv) disclosures by the Company to its Board of Directors and senior officers who have a need to know, and disclosures by the Investor Group to its limited partners, investors, and advisory board members who have a need to know, in each case on a confidential basis; and
(v) the filing of this Agreement (or a summary thereof) as an exhibit to any required SEC filing, as contemplated by this Agreement.
(b) In the event that either Party is required by applicable law, regulation, or legal process to disclose any confidential information described in this Section 6.2, such Party shall, to the extent legally permissible and reasonably practicable, provide prompt written notice to the other Party of such requirement prior to making such disclosure, so that the other Party may seek a protective order or other appropriate remedy. Each Party shall cooperate in good faith with the other Party in seeking any such protective order or remedy.
ARTICLE VII — TERMINATION
Section 7.1 Expiration.
This Agreement shall terminate automatically, without any action by either Party, upon the expiration of the Standstill Period at 11:59 p.m. Eastern Time on September 10, 2024, unless earlier terminated pursuant to Section 7.2, Section 7.3, or Section 7.4 of this Article VII.
Section 7.2 Termination for Material Breach.
(a) Either Party may terminate this Agreement upon written notice to the other Party if the other Party commits a material breach of any provision of this Agreement and such breach remains uncured for a period of fifteen (15) Business Days after written notice of such breach is delivered to the breaching Party in accordance with Section 8.3 hereof.
(b) Any notice of breach delivered pursuant to this Section 7.2 shall (i) describe the alleged breach with reasonable specificity, (ii) identify the provision(s) of this Agreement alleged to have been breached, (iii) describe the facts and circumstances giving rise to the alleged breach, and (iv) expressly reference this Section 7.2 and state that such notice is a notice of material breach for purposes of termination.
(c) If the breaching Party cures the breach to the reasonable satisfaction of the non-breaching Party within the fifteen (15) Business Day cure period, the notice of breach shall be deemed withdrawn and this Agreement shall continue in full force and effect. If the breach is not cured within such period, the non-breaching Party may terminate this Agreement by delivering a written notice of termination to the breaching Party, and termination shall be effective upon receipt of such notice.
Section 7.3 Termination Upon Change of Control.
This Agreement shall terminate automatically, without any action by either Party, upon the closing (or other 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, by itself, trigger termination under this Section 7.3; termination shall occur only upon the actual closing or consummation of such transaction.
Section 7.4 Termination Upon Investor Group Ownership Decrease.
(a) This Agreement shall terminate automatically, without any action by either Party, if the Investor Group's aggregate Beneficial Ownership of Common Stock decreases to below 3.5% of the outstanding shares of Common Stock (the "Minimum Ownership Threshold") at any time during the Standstill Period.
(b) For purposes of this Section 7.4, the Investor Group's Beneficial Ownership shall be determined by reference to (i) the most recent Schedule 13D or Schedule 13D/A filed by the Investor Group with the SEC, or (ii) the records of the Transfer Agent, Continental Share Services, Inc., whichever reflects the more current information. In the event of any dispute regarding the Investor Group's Beneficial Ownership for purposes of this Section 7.4, the determination of the Transfer Agent shall be conclusive and binding upon the Parties.
(c) Pinnacle Harbor shall promptly notify the Company in writing if the Investor Group's aggregate Beneficial Ownership decreases to below the Minimum Ownership Threshold, and the Company shall promptly notify Pinnacle Harbor if the Company becomes aware (through any SEC filing or otherwise) that the Investor Group's aggregate Beneficial Ownership has decreased to below the Minimum Ownership Threshold.
Section 7.5 Effect of Termination.
Upon termination or expiration of this Agreement, all rights and obligations of the Parties hereunder shall immediately cease and be of no further force or effect, except that:
(i) Article VI (Non-Disparagement and Confidentiality) shall survive the termination or expiration of this Agreement for a period of twelve (12) months following the date of such termination or expiration;
(ii) Section 8.6 (Expense Reimbursement) shall survive the termination or expiration of this Agreement to the extent obligations thereunder have accrued but not yet been fulfilled as of the date of termination or expiration;
(iii) the provisions of Article VIII (Miscellaneous) that by their nature are intended to survive termination or expiration, including, without limitation, Section 8.2 (Specific Performance), Section 8.7 (Governing Law), Section 8.8 (Jurisdiction and Venue), Section 8.11 (Severability), and Section 8.14 (No Third-Party Beneficiaries), shall survive termination or expiration; and
(iv) neither the termination nor the expiration of this Agreement shall relieve any Party of liability for any breach of this Agreement occurring prior to such termination or expiration.
ARTICLE VIII — MISCELLANEOUS
Section 8.1 Representations and Warranties.
(a) Each Party hereby represents and warrants to each other Party, as of the date hereof, as follows:
(i) Such Party has full power, authority, and legal capacity to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby.
(ii) The execution, delivery, and performance of this Agreement by such Party has been duly authorized by all necessary action. In the case of the Company, this Agreement has been authorized by resolutions duly adopted by the Board of Directors of the Company, upon the recommendation of the Special Committee. In the case of Pinnacle Harbor Capital Partners, LP, this Agreement has been authorized by Pinnacle Harbor Capital Management, LLC, as its sole general partner. In the case of Pinnacle Harbor Capital Management, LLC, this Agreement has been authorized by its managing member, Viktor S. Kessler. In the case of Viktor S. Kessler, he is executing this Agreement in his individual capacity and has full legal capacity to do so.
(iii) This Agreement constitutes a legal, valid, and binding obligation of such Party, enforceable against such Party in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and similar laws affecting creditors' rights generally, and to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
(iv) The execution, delivery, and performance of this Agreement by such Party does not and will not (A) violate any law, statute, rule, regulation, order, judgment, decree, or injunction applicable to such Party, (B) conflict with, result in a breach of, or constitute a default under, any agreement, contract, indenture, or other instrument to which such Party is a party or by which such Party is bound, or (C) require any consent, approval, order, or authorization of, or registration, filing, or declaration with, any governmental authority or regulatory body, except for filings with the SEC contemplated by this Agreement.
(b) Pinnacle Harbor Capital Partners, LP, Pinnacle Harbor Capital Management, LLC, and Viktor S. Kessler, jointly and severally, additionally represent and warrant to the Company, as of the date hereof, as follows:
(v) As of the date hereof, the Investor Group Beneficially Owns an aggregate of 7,119,600 shares of Common Stock, representing approximately 6.8% of the 104,700,000 shares of Common Stock currently issued and outstanding. A complete and accurate list of the members of the Investor Group and their respective share holdings is set forth on Exhibit B hereto.
(vi) Except as set forth in the Schedule 13D filings referenced in the Recitals hereto, no member of the Investor Group is a party to, or has any agreement, arrangement, or understanding (whether written or oral, formal or informal) with, any other person with respect to the voting, acquisition, disposition, or Beneficial Ownership of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for shares of Common Stock.
(vii) Pinnacle Harbor Capital Management, LLC (EIN: 47-3928154) is the sole general partner of Pinnacle Harbor Capital Partners, LP, and Viktor S. Kessler is the Managing Partner and Chief Investment Officer of Pinnacle Harbor Capital Management, LLC. No other person has been granted authority to act on behalf of, or to bind, Pinnacle Harbor Capital Partners, LP or Pinnacle Harbor Capital Management, LLC with respect to the matters that are the subject of this Agreement, other than as disclosed herein.
(c) The Company additionally represents and warrants to the Investor Group, as of the date hereof, as follows:
(viii) As of the date hereof, 104,700,000 shares of Common Stock, par value $0.01 per share, are issued and outstanding. The Company has no shares of preferred stock issued or outstanding.
(ix) The Board of Directors has duly authorized the entry into this Agreement and the appointment of Franklin Chu to the Board as set forth in Section 2.2, by resolutions duly adopted at a meeting at which a quorum was present, upon the recommendation of the Special Committee.
Section 8.2 Specific Performance.
The Parties acknowledge and agree that irreparable harm would result from a breach of any provision of this Agreement and that monetary damages alone would be an inadequate remedy for any such breach. Accordingly, in addition to all other remedies available at law or in equity, each Party shall be entitled to seek and obtain specific performance, temporary and permanent injunctive relief, and other equitable remedies from any court of competent jurisdiction in the event of any breach or threatened breach of any provision of this Agreement by any other Party, without the necessity of proving actual damages, demonstrating the inadequacy of monetary damages, or posting any bond, undertaking, or other security.
Section 8.3 Notices.
All notices, requests, demands, consents, waivers, and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given (a) when delivered by hand or by nationally recognized overnight courier service, (b) on the date of delivery if sent by email (with confirmation of receipt), or (c) on the third (3rd) Business Day after being deposited in the United States mail, postage prepaid, registered or certified, return receipt requested, in each case addressed as follows (or to such other address as a Party may specify by written notice given in accordance with this Section 8.3):
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: pnakamura@redstonegaming.com
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: dfairchild@calderwoodharkness.com
If to the Investor Group:
Pinnacle Harbor Capital Partners, LP 590 Madison Avenue, 34th Floor New York, NY 10022
Attention: Viktor S. Kessler, Managing Partner
Email: vkessler@pinnacleharbor.com
With a copy (which shall not constitute notice) to:
Hargrove Sloane & Birch LLP 1585 Broadway, 40th Floor New York, NY 10036
Attention: Jonathan Birch III
Email: jbirch@hsblaw.com
Section 8.4 Entire Agreement.
This Agreement (including the Exhibits attached hereto, which are incorporated herein by reference) constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations, discussions, representations, and warranties, whether oral or written, among the Parties with respect to such subject matter, including, without limitation, the framework term sheet dated February 14, 2023, exchanged between Calderwood & Harkness LLP and Hargrove Sloane & Birch LLP.
Section 8.5 Amendments and Waivers.
(a) This Agreement may not be amended, modified, supplemented, or restated except by a written instrument duly executed by the Company and Pinnacle Harbor Capital Partners, LP (acting through its General Partner). No amendment shall be effective unless it expressly references this Section 8.5 and states that it is an amendment to this Agreement.
(b) No waiver of any provision of this Agreement or any right or remedy hereunder shall be effective unless set forth in a written instrument signed by the Party to be charged with such waiver. No waiver of any provision of this Agreement shall be deemed a waiver of any other provision, nor shall any waiver of any provision on one occasion operate as a waiver of such provision on any other or subsequent occasion. The failure of any Party to enforce any provision of this Agreement shall not be construed as a waiver of such Party's right to enforce such provision in the future.
Section 8.6 Expense Reimbursement.
(a) The Company shall reimburse the Investor Group for its reasonable, documented, out-of-pocket legal fees and expenses actually incurred in connection with the matters that are the subject of this Agreement, including the fees and disbursements of Hargrove Sloane & Birch LLP, in an aggregate amount not to exceed Seven Hundred Fifty Thousand Dollars ($750,000).
(b) Pinnacle Harbor shall submit to the Company documentation of such fees and expenses (including reasonably detailed invoices or fee statements, which may be redacted to protect attorney-client privileged or work product information) within thirty (30) days following the date of this Agreement. The Company shall pay such reimbursement to Pinnacle Harbor by wire transfer of immediately available funds to an account designated by Pinnacle Harbor within thirty (30) days after receipt of reasonably satisfactory documentation from Pinnacle Harbor.