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AGREEMENT AND PLAN OF MERGER
between
HILTON HOTELS CORPORATION
and
BALLY ENTERTAINMENT CORPORATION
Dated as of June 6, 1996
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TABLE OF CONTENTS
Section Page
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ARTICLE I
DEFINITIONS
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.3 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II
THE MERGER
2.1 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 11
2.5 Certificate of Incorporation and By-laws. . . . . . . . . . . . . . . 11
2.6 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization, Standing and Corporate Power. . . . . . . . . . . . . . 19
4.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4 Authority; Enforceability; No Conflicts;
and Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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Section Page
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4.5 Vote Required; State Takeover Statutes;
Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.6 Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . 25
4.7 Company SEC Documents; Undisclosed Liabilities. . . . . . . . . . . . 26
4.8 Absence of Changes or Events. . . . . . . . . . . . . . . . . . . . . 27
4.9 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.11 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.12 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.14 Brokers and Intermediaries. . . . . . . . . . . . . . . . . . . . . . 33
4.15 Opinion of Financial Advisor. . . . . . . . . . . . . . . . . . . . . 34
4.16 Company Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
5.1 Organization, Standing and Corporate Power of
Acquiror. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.3 Authority; Enforceability; No Conflicts . . . . . . . . . . . . . . . 36
5.4 The Vote Required; Ownership of Company
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.5 Acquiror SEC Documents; Undisclosed Liabilities . . . . . . . . . . . 39
5.6 Absence of Changes or Events. . . . . . . . . . . . . . . . . . . . . 40
5.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.9 Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . 41
5.10 ERISA Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.11 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 Conduct of Business of the Company. . . . . . . . . . . . . . . . . . 42
6.2 Conduct of Business of Acquiror . . . . . . . . . . . . . . . . . . . 47
6.3 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . 49
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ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Preparation of Form S-4 and the Proxy
Statement/Prospectus; Stockholders' Meeting . . . . . . . . . . . . . 49
7.2 Letter of the Company's Accountants . . . . . . . . . . . . . . . . . 52
7.3 Letter of Acquiror's Accountants. . . . . . . . . . . . . . . . . . . 53
7.4 Reasonable Best Efforts; Notification . . . . . . . . . . . . . . . . 53
7.5 Approval of Gaming Commissions; Regulatory
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.6 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . 54
7.7 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.8 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.9 Indemnification; Directors' and Officers'
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.10 NYSE Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.11 Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.12 Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.13 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.14 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.15 Transfer Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.16 Subsidiary Preferred Stock. . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation to Effect
the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.2 Conditions of Obligations of Acquiror . . . . . . . . . . . . . . . . 62
8.3 Conditions of Obligation of the Company . . . . . . . . . . . . . . . 64
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . 66
9.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 67
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Section Page
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9.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.5 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE X
GENERAL PROVISIONS
10.1 Effectiveness of Representations, Warranties
and Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.5 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.6 Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.7 Headings; References. . . . . . . . . . . . . . . . . . . . . . . . . 71
10.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.9 Parties in Interest; Assignment . . . . . . . . . . . . . . . . . . . 71
10.10 Severability; Enforcement . . . . . . . . . . . . . . . . . . . . . . 71
10.11 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . 71
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EXHIBIT A - Form of Opinion of Latham & Watkins
EXHIBIT B - Form of Opinion of Weil, Gotshal & Manges LLP
EXHIBIT C - Form of Tax Certificate of the Company
EXHIBIT D - Form of Tax Certificate of Acquiror
EXHIBIT E - Form of Tax Certificate of Certain Stockholders
of the Company
EXHIBIT F - Form of Affiliate Letter
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 6, 1996, among HILTON
HOTELS CORPORATION, a Delaware corporation ("Acquiror"), and BALLY ENTERTAINMENT
CORPORATION, a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions set forth in
this Agreement, the Company and Acquiror will enter into a business combination
transaction pursuant to which the Company will merge with and into Acquiror (the
"Merger"), with Acquiror continuing as the surviving corporation (the "Surviving
Corporation");
WHEREAS, the respective Boards of Directors of Acquiror and the
Company have determined that the Merger would be fair to and in the best
interests of their respective stockholders, and such Boards of Directors have
approved this Agreement and the transactions contemplated hereby;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code"); and
WHEREAS, Acquiror and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and
agreements herein contained, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
"ACQUIROR DISCLOSURE SCHEDULE" shall have the meaning set forth in
Section 10.6.
"ACQUIROR SEC DOCUMENTS" shall have the meaning set forth in Section
5.5.
"ACQUIROR COMMON STOCK" shall have the meaning set forth in Section
3.1(c).
"ACQUIROR PREFERRED STOCK" shall have the meaning set forth in Section
5.2.
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
7.8(c).
"ACQUIROR RIGHTS" shall have the meaning set forth in Section 3.1(c).
"ACQUIROR RIGHTS AGREEMENT" shall have the meaning set forth in
Section 3.1(c).
"ACQUIROR SIGNIFICANT SUBSIDIARIES" shall mean any Subsidiary of
Acquiror that constitutes a "Significant Subsidiary" of Acquiror within the
meaning of Regulation S-X of the SEC.
"ACQUIROR STOCK OPTIONS" shall have the meaning set forth in Section
5.2.
"ACQUIROR STOCKHOLDER APPROVAL" shall have the meaning set forth in
Section 5.3(a).
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"ACQUIROR STOCKHOLDERS' MEETING" shall have the meaning set forth in
Section 7.1(e).
"AFFILIATE" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such other Person.
"APPLICABLE LAWS" shall mean, with respect to any Person, all
statutes, laws, ordinances, rules, orders and regulations of any Governmental
Authority applicable to such Person and its business, properties and assets.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to close.
"CASH CONSIDERATION" shall have the meaning set forth in Section
3.1(c).
"CERTIFICATE OF MERGER" shall have the meaning set forth in Section
2.3.
"CERTIFICATES" shall have the meaning set forth in Section 3.2(b).
"CLOSING" shall have the meaning set forth in Section 2.2.
"CLOSING DATE" shall have the meaning set forth in Section 2.2.
"CODE" shall have the meaning set forth in the fourth recital of this
Agreement.
"COMMON CONVERSION NUMBER" shall equal 0.25, as may be adjusted
pursuant to Sections 3.1(c) and 3.1(d).
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"COMPANY CAPITAL STOCK" shall mean the Company Common Stock, the
Series D Preferred and the PRIDES.
"COMPANY COMMON STOCK" shall have the meaning set forth in Section
3.1(c).
"COMPANY DISCLOSURE SCHEDULE" shall have the meaning set forth in
Section 10.6.
"COMPANY PREFERRED STOCK" shall have the meaning set forth in Section
4.3.
"COMPANY REPRESENTATIVES" shall have the meaning set forth in Section
7.8.
"COMPANY RIGHTS" shall have the meaning set forth in Section 4.3.
"COMPANY SEC DOCUMENTS" shall have the meaning set forth in Section
4.7.
"COMPANY SIGNIFICANT SUBSIDIARY" shall mean any Subsidiary of the
Company that constitutes a "Significant Subsidiary" of the Company within the
meaning of Regulation S-X of the SEC.
"COMPANY STOCKHOLDER APPROVAL" shall have the meaning set forth in
Section 4.4(a).
"COMPANY STOCKHOLDERS' MEETING" shall have the meaning set forth in
Section 7.1(d).
"CONFIDENTIALITY AGREEMENT" shall have the meaning set forth in
Section 6.3(c).
"CONTAMINATION" shall mean the introduction into the environment
(including the land, surface water, ground water, underlying or in proximity to
any Real Property and
5
the ambient air above or in the proximity to any Real Property) of any
contaminant, pollutant or other toxic or hazardous substance or waste as those
terms are defined in applicable Environmental Laws (whether or not upon the Real
Property or other property used by the Company or any of its Subsidiaries and
whether or not such pollution, when it occurred, violated any Environmental Law)
as a result of any actual or threatened spill, discharge, leak, emission,
escape, injection, dumping or release of any kind of any substance, in violation
of any Environmental Law, or as a result of which the Company or any of its
Subsidiaries has or is reasonably likely to become liable to any person or by
reason of which the Real Property or any other assets of the Company or any of
its Subsidiaries is reasonably likely to suffer or be subjected to any
Encumbrance or claim.
"CONVERTIBLE DEBENTURES" shall have the meaning set forth in Section
4.3.
"DETERMINATION PRICE" shall mean the average of the daily high and low
sales prices of the Acquiror Common Stock (regular way) as shown on the New York
Stock Exchange Composite Tape (as reported by THE WALL STREET JOURNAL or, if not
reported thereby, any other authoritative source) for the ten consecutive
Trading Days ending on the third Trading Day prior to the Closing Date, as such
Determination Price may be adjusted pursuant to Section 3.1(d).
"DGCL" shall mean the Delaware General Corporation Law.
"DOJ" shall mean the Department of Justice.
"EFFECTIVE TIME" shall have the meaning set forth in Section 2.3.
"EMPLOYEE BENEFIT PLANS" shall have the meaning set forth in Section
4.11(a).
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"ENCUMBRANCES" shall mean any and all mortgages, security interests,
liens, claims, pledges, restrictions, leases, title exceptions, rights of
others, charges or other encumbrances.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in Section
4.6(c).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, and the applicable regulations promulgated thereunder.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"EXCHANGE AGENT" shall have the meaning set forth in Section 3.2(a).
"EXCHANGE FUND" shall have the meaning set forth in Section 3.2(a).
"FORM S-4" shall have the meaning set forth in Section 5.3(c).
"FTC" shall mean the Federal Trade Commission.
"GAAP" shall mean generally accepted accounting principles in effect
in the United States of America as of the date of the applicable determination.
"GAMING COMMISSIONS" shall mean, collectively, the Nevada State
Control Board, the Nevada Gaming Commission, the New Jersey Casino Control
Commission, the Mississippi Gaming Commission and the Louisiana Riverboat Gaming
Commission.
7
"GAMING LAWS" shall mean any Federal, state, local or foreign statute,
ordinance, rule, regulation, policy, permit, consent, approval, license,
judgment, order, decree, injunction or other authorization governing or relating
to the casino and gaming and racetrack activities and operations of the Company
or Acquiror, as applicable, including (i) the New Jersey Casino Control Act and
the rules and regulations promulgated thereunder (the "New Jersey Gaming Laws"),
(ii) the Nevada Gaming Control Act and the rules and regulations promulgated
thereunder, and the Clark County, Nevada Code and the rules and regulations
promulgated thereunder (the "Nevada Gaming Laws"), (iii) the Mississippi Gaming
Control Act and the rules and regulations promulgated thereunder (the
"Mississippi Gaming Laws"), and (iv) the Louisiana Riverboat Economic
Development and Gaming Act and the rules and regulations promulgated thereunder
(the "Louisiana Gaming Laws").
"GAINS TAX" shall have the meaning set forth in Section 4.4(c).
"GOVERNMENTAL AUTHORITY" shall mean any foreign, Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality.
"HAZARDOUS MATERIAL" shall have the meaning set forth in Section
4.6(d).
"HSR ACT" shall have the meaning set forth in Section 4.4(c).
"IMPROVEMENTS" shall mean, with respect to any Real Property, all
buildings, fixtures, improvements and facilities located on or attached to such
Real Property or owned or leased by the Company or any of its Subsidiaries and
used in, on or at such Real Property, together with any and all loading docks,
parking lots, garages, and other
8
facilities serving any such buildings; and landscaping and site improvements.
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in Section
7.9(a).
"INDEMNIFIED PARTIES" shall have the meaning set forth in Section
7.9(a).
"IRS" means the United States Internal Revenue Service.
"LEGAL PROCEEDINGS" means any judicial, administrative or arbitral
actions, suits, proceedings (public or private) or governmental proceedings.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, any
change, occurrence or effect that is or is reasonably likely to be materially
adverse to the assets, business, results of operations or condition (financial
or otherwise) of such party and its Subsidiaries taken as a whole.
"MERGER" shall have the meaning set forth in the first recital to this
Agreement.
"MERGER CONSIDERATION" shall have the meaning set forth in Section
3.2(b).
"NEW PRIDES" shall mean Acquiror's Preferred Redeemable Increased
Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock; the rights,
preferences and terms of which shall be the same as those of the PRIDES, except
that the issuer thereof shall be Acquiror, the vote per share of New PRIDES
shall be the product of 0.80 and the Common Conversion Number, and the
conversion and redemption terms shall reflect the adjustments provided for in
Section
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3(e) of the Certificate of Designations, Preferences, Rights and Limitations of
PRIDES.
"NYSE" shall mean the New York Stock Exchange, Inc.
"OPTION" shall have the meaning set forth in Section 3.1(f).
"PERMITS" shall have the meaning set forth in Section 4.6(a).
"PERMITTED ENCUMBRANCES" shall mean only the following title
exceptions: (a) taxes either not delinquent or being diligently contested;
(b) mechanics', materialmen's or similar statutory liens being diligently
contested; (c) other exceptions that do not and would not, individually or in
the aggregate, have a Material Adverse Effect with respect to the Company; and
(d) Encumbrances related to indebtedness disclosed in the Company SEC Documents
filed and publicly available prior to the date of this Agreement.
"PERSON" shall mean an individual, corporation, partnership, trust or
unincorporated organization or a government or any agency or political
subdivision thereof.
"PRIDES" shall mean the Company's Preferred Redeemable Increased
Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock.
"PROXY STATEMENT/PROSPECTUS" shall mean the joint proxy statement
relating to the Company Stockholder Approval and Acquiror Stockholder Approval
and the prospectus relating to the issuance of shares of the Acquiror Common
Stock and New PRIDES in connection with the consummation of the transactions
contemplated by this Agreement, as such joint proxy statement and prospectus may
be amended or supplemented from time to time.
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"REAL PROPERTY" shall have the meaning set forth in Section 4.12.
"SAR" shall have the meaning set forth in Section 3.1(f).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SEC" shall mean the Securities and Exchange Commission.
"SERIES D PREFERRED" shall mean the Company's Series D Convertible
Exchangeable Preferred Stock.
"STOCK CONSIDERATION" shall have the meaning set forth in Section
3.1(c).
"SUBSIDIARY" shall mean, with respect to any Person, (i) each
corporation, partnership, joint venture, limited liability company or other
legal entity of which such Person owns, either directly or indirectly, 50% or
more of the stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or similar governing
body of such corporation, partnership, joint venture or other legal entity and
(ii) each partnership or limited liability company in which such Person or
another Subsidiary of such Person is the general partner, managing partner or
other otherwise controls (including, without limitation, Belle of Orleans, LLC
and Bally's Olympia Limited Partnership).
"SUBSIDIARY PREFERRED STOCK" shall have the meaning set forth in
Section 4.3.
"SURVIVING CORPORATION" shall have the meaning set forth in the first
recital of this Agreement.
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"TAX" or "TAXES" shall mean all taxes, charges, fees, imposts, levies,
gaming or other assessments, including, without limitation, all net income,
gross receipts, capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation,
property and estimated taxes, customs duties, fees, assessments and charges of
any kind whatsoever, together with any interest and any penalties, fines,
additions to tax or additional amounts imposed by any taxing authority (domestic
or foreign) and shall include any transferee liability in respect of Taxes, any
liability in respect of Taxes imposed by contract, tax sharing agreement, tax
indemnity agreement or any similar agreement.
"TAX RETURN" shall mean any report, return, document, declaration or
any other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) with respect to Taxes, including without
limitation, information returns, any document with respect to or accompanying
payments or estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return document, declaration
or other information.
"TERMINATION DATE" shall have the meaning set forth in Section 9.1(d).
"TERMINATION NOTICE" shall have the meaning set forth in Section
3.1(d).
"THIRD PARTY" shall mean a party or parties unaffiliated with either
the Company or Acquiror.
"TOP-UP INTENT NOTICE" shall have the meaning set forth in Section
3.1(c).
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"TRADING DAY" shall mean a day on which the NYSE is open for the
transaction of business.
1.2 OTHER TERMS. Other terms may be defined elsewhere in the text of
this Agreement and, unless otherwise indicated, shall have such meaning
throughout this Agreement.
1.3 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof,"
"herein," and "hereunder" and words of similar import, when used in this
Agreement, shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.
(b) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States dollars.
ARTICLE II
THE MERGER
2.1 MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the DGCL, the Company shall be merged
with and into Acquiror at the Effective Time. Following the Merger, the
separate corporate existence of the Company shall cease and Acquiror shall
continue as the Surviving Corporation and shall succeed to and assume all the
rights and obligations of the Company in accordance with the DGCL.
2.2 CLOSING. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 9.1, the
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closing of the Merger (the "Closing") will take place at 10:00 a.m., New York
City time, on the third Business Day following the date on which the last of the
conditions set forth in Article VIII is fulfilled or waived (the "Closing
Date"), at the offices of Weil, Gotshal & Manges, 767 Fifth Avenue, New York,
New York 10153, unless another date, time or place is agreed to by the parties
hereto.
2.3 EFFECTIVE TIME. On the Closing Date, or as soon as practicable
thereafter, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the "Certificate of Merger") executed in
accordance with the relevant provisions of the DGCL with the Secretary of State
of the State of Delaware. The Merger shall become effective at such time as the
Certificate of Merger is so duly filed, or at such time thereafter as is
provided in the Certificate of Merger (the "Effective Time").
2.4 EFFECTS OF THE MERGER. The Merger shall have the effects as set
forth in Section 259 of the DGCL.
2.5 CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The Certificate of Incorporation of Acquiror, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation after the Effective Time, until
duly amended in accordance with its terms and the DGCL.
(b) The By-laws of Acquiror, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving Corporation, until
thereafter amended as provided therein, by Applicable Law or the Certificate of
Incorporation of the Surviving Corporation.
2.6 DIRECTORS. The directors of Acquiror immediately prior to the
Effective Time shall be the directors of the Surviving Corporation, until the
earlier of
14
their resignations or removal or until their respective successors are duly
elected and qualified, as the case may be. Immediately after the Effective
Time, Acquiror shall take all action necessary to elect one individual
designated by the Board of Directors of the Company and reasonably acceptable to
Acquiror, as director of the Surviving Corporation.
2.7 OFFICERS. The officers of Acquiror immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Company
Capital Stock or the holder of any shares of the capital stock of Acquiror:
(a) CAPITAL STOCK OF ACQUIROR. Each share of the capital stock of
Acquiror issued and outstanding immediately prior to the Effective Time shall
remain an issued and outstanding share of the same class of capital stock of the
Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND ACQUIROR-OWNED STOCK. Each
share of Company Capital Stock that is directly owned by the Company and each
share of Company Capital Stock that is directly owned by Acquiror or any
subsidiary of Acquiror shall be canceled and retired and
15
shall cease to exist and no consideration shall be delivered or deliverable in
exchange therefor.
(c) CONVERSION OF COMPANY COMMON STOCK.
(i) Each share of Common Stock, par value $.66-2/3 per share
("Company Common Stock"), of the Company, issued and outstanding immediately
prior to the Effective Time (excluding shares cancelled in accordance with
Section 3.1(b)) together with the Company Rights attached thereto or
associated therewith shall be converted into the right to receive a number of
fully paid and non-assessable shares of Common Stock, par value $2.50 per
share, of Acquiror ("Acquiror Common Stock") equal to the Common Conversion
Number (the "Stock Consideration"); PROVIDED, HOWEVER, that in the event the
Determination Price is less than $108 (as adjusted pursuant to Section
3.1(d), the "Target Amount"), each share of Company Common Stock shall be
converted into the right to receive a number of fully paid and non-assessable
shares of Acquiror Common Stock equal to the Common Conversion Number plus an
amount in cash, not to exceed $3.00, equal to (i) the difference between the
Target Amount and the Determination Price multiplied by (ii) the Common
Conversion Number (rounded to the nearest hundredth, or if there shall not be
a nearest hundredth, to the next highest hundredth but in no event greater
than $3.00) (the "Cash Consideration"); AND, PROVIDED, FURTHER, that in the
event the Determination Price is less than $80 (as adjusted pursuant to
Section 3.1(d), the "Floor Amount"), Acquiror shall have the right to give
written notice to the Company (the "Top-Up Intent Notice") that the board of
directors of Acquiror elects to increase the Common Conversion Number such
that the product of the Common Conversion Number and the Determination Price
shall equal $20 (it being understood that notwithstanding such increase in
the Common Conversion Number, the Cash Consideration shall remain the same).
The Top-Up Intent Notice shall be delivered to the Company no later than 2:00
p.m. on the second Business Day prior to the Closing Date. If, in such case,
Acquiror does not deliver a
16
Top-Up Intent Notice, the Company shall have the right to give written notice to
Acquiror (the "Termination Notice") that the Company elects to terminate this
Agreement. The Termination Notice shall be delivered to Acquiror no later than
2:00 p.m. on the Business Day prior to the Closing Date.
(ii) Pursuant to the Rights Agreement, dated as of July 14, 1988 (the
"Acquiror Rights Agreement"), between Acquiror and the First National Bank of
Chicago, as rights agent, one right issued under the Acquiror Rights Agreement
(an "Acquiror Right") will be attached to each share of Acquiror Common Stock
issued upon conversion of Company Common Stock in accordance with Section 3.1(c)
and all references in this Agreement to Acquiror Common Stock shall be deemed to
include the Acquiror Rights. As of the Effective Time, all shares of Company
Common Stock and all Company Rights converted pursuant to Section 3.1(c) shall
no longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate representing any such
shares of Company Common Stock and any such Company Rights shall cease to have
any rights with respect thereto, except the right to receive, upon the surrender
of any such certificates, certificates representing the shares of Acquiror
Common Stock and any cash in lieu of fractional shares of Acquiror Common Stock
to be issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 3.2(e), and any dividends or other
distributions to which such holder is entitled pursuant to Section 3.2(c), in
each case without interest.
(d) CERTAIN ADJUSTMENTS AND DETERMINATIONS. If, between the date of
this Agreement and the Effective Time, the outstanding shares of Acquiror Common
Stock or Company Common Stock shall have been changed into a different number of
shares or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization,
17
split, combination or exchange of shares, the Common Conversion Number, the
Determination Price, the Target Amount and the Floor Amount specified in Section
3.1(c) correspondingly shall be adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares. Acquiror intends to effect a 4 - for - 1 stock split of Acquiror
Common Stock, and upon such stock split, the Common Conversion Number shall be
1.0 (as may be further adjusted pursuant to Section 3.1(c)), the Target Amount
shall be $27 and the Floor Amount shall be $20; and, in the event the
Determination Price is calculated on the basis of pre-split trading prices, the
Determination Price shall be such amount divided by four or, if the
Determination Price is calculated on the basis of pre-split and post-split
trading prices, appropriate adjustments shall be made to calculate a comparable
number.
(e) CONVERSION OF PRIDES. Each share PRIDES issued and outstanding
at the Effective Time (other than shares to be canceled in accordance with
Section 3.1(b)) shall be converted into the right to receive one validly issued,
fully paid and nonassessable share of New PRIDES, subsequent to the Effective
Time. As of the Effective Time, all such shares of PRIDES shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of PRIDES
shall cease to have any rights with respect thereto, except the right to receive
the shares of New PRIDES, to be issued in consideration thereof upon surrender
of such certificate in accordance with Section 3.2(a) and any dividends or other
distributions to which such holder is entitled to pursuant to Section 3.2(c), in
each case without interest.
(f) STOCK OPTIONS; SARS. At the Effective Time, each then
outstanding option to purchase shares of Company Common Stock under the
Company's 1989 Incentive Plan, 1993
18
Non-Employee Directors' Stock Option Plan and 1985 Incentive Plan (collectively,
the "Company Stock Option Plans"), whether or not then vested or exercisable in
accordance with its terms (collectively, the "Options"), shall become
exercisable in full and shall be settled in exchange for an amount of cash equal
to the product of (1) the amount by which (A) the sum of (i) the product of the
Common Conversion Number and the Determination Price plus (ii) the Cash
Consideration (if any) exceeds (B) the exercise price per share of such Option
and (2) the number of shares of Company Common Stock issuable pursuant to the
unexercised portion of such Option, subject to any required withholding of taxes
(such amount being hereinafter referred to as, the "Option Consideration"). At
the Effective Time, each then outstanding stock appreciation right granted by
the Company under any of the Company Stock Option Plans, whether or not then
vested or exercisable in accordance with its terms (collectively, the "SARs"),
shall become exercisable in full and shall be settled in exchange for an amount
of cash equal to the product of (1) the amount by which (A) the sum of (i) the
product of the Common Conversion Number and the Determination Price plus
(ii) the Cash Consideration (if any) exceeds (B) the appreciation base per share
of Company Common Stock for such SAR and (2) the number of shares of Company
Common Stock covered by such SAR, subject to any required withholding of taxes
(such amount being hereinafter referred to as, the "SAR Consideration");
PROVIDED, HOWEVER, that with respect to each SAR issued in tandem with an
Option, the payment pursuant to the immediately preceding sentence with respect
to the corresponding Option shall be deemed to constitute full satisfaction and
settlement of such SAR and the holder of such SAR will be entitled to no
additional payment with respect to the SAR, and such SAR shall be cancelled.
Notwithstanding the foregoing, with respect to any person subject to Section
16(a) of the Exchange Act, any amount of Option Consideration or SAR
Consideration, as the case may be, shall be paid as soon as practicable after
the first date payment can be made without
19
liability to such person under Section 16(b) of the Exchange Act. From and
after the Effective Time, the Options and SARs shall represent only the right of
the holders of such Options and SARs to receive the payments specified above
upon the surrender thereof. Upon receipt of the Option Consideration or the SAR
Consideration (if any), as the case may be, the corresponding Option or the
corresponding SAR, as the case may be, shall be canceled. The surrender of an
Option or a SAR, as the case may be, to the Company in exchange for the Option
Consideration or the SAR Consideration, as the case may be, shall be deemed a
release of any and all rights the holder had or may have had in respect of such
Option or such SAR. Except as otherwise agreed to by the parties hereto,
(i) all Company Stock Option Plans shall terminate as of the Effective Time and
the provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or, except as set forth in Section 3.1(f) of the Company Disclosure
Schedule, any Subsidiary thereof, shall be canceled as of the Effective Time,
and (ii) the Company shall take all permitted action necessary to ensure that
following the Effective Time no participant in any Company Stock Option Plan or
other plans, programs or arrangements shall have any right thereunder to acquire
equity securities of the Company, the Surviving Corporation or any Subsidiary
thereof and to terminate all such plans.
3.2 EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. Prior to the
Effective Time, Acquiror shall designate a bank or trust company to act as
exchange agent in the Merger (the "Exchange Agent"), and Acquiror shall deposit
with the Exchange Agent as of the Effective Time (or otherwise when requested by
the Exchange Agent from time to time in order to effect any exchange pursuant to
this Section 3.2) for the benefit of the holders of shares of Company Common
Stock and PRIDES for exchange in accordance with this Article III, through the
Exchange Agent,
20
certificates evidencing the shares of Acquiror Common Stock and New PRIDES
issuable and the Cash Consideration (if any) deliverable pursuant to Sections
3.1(c) and 3.1(d) in exchange for outstanding shares of Company Common Stock and
PRIDES. Such shares of Acquiror Common Stock and PRIDES and Cash Consideration
(if any), together with any dividends or distributions with respect thereto with
a record date after the Effective Time, shall hereinafter be referred to as the
"Exchange Fund." The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the shares of Acquiror Common Stock and New PRIDES
issuable and the Cash Consideration (if any) deliverable pursuant to Sections
3.1(c) and 3.1(d) out of the Exchange Fund.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, Acquiror shall instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates that immediately prior to the
Effective Time evidenced outstanding shares of Company Capital Stock (the
"Certificates") whose shares were converted into the right to receive shares of
Acquiror Common Stock and Cash Consideration (if any) or New PRIDES, as the case
may be, pursuant to Section 3.1, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Acquiror reasonably may specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates evidencing shares of
Acquiror Common Stock or New PRIDES, as the case may be, and payment of Cash
Consideration, if applicable. Upon surrender of a Certificate for cancellation
to the Exchange Agent, together with such letter of transmittal, duly executed,
and such other customary documents as may be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor
(A) a certificate evidencing that number of whole
21
shares of Acquiror Common Stock or New PRIDES, as applicable, that such holder
has the right to receive pursuant to the provisions of Section 3.1, (B) in the
case of Acquiror Common Stock, payment evidencing the Cash Consideration (if
any) and cash in lieu of fractional shares of Acquiror Common Stock to which
such holder is entitled pursuant to Sections 3.1(c) and 3.2(e), and (C) any
dividends or other distributions to which such holder is entitled pursuant to
Section 3.2(c) (the shares of Acquiror Common Stock or New PRIDES, as the case
may be, cash, dividends and distributions described in clauses (A), (B) and (C)
being hereinafter collectively, the "Merger Consideration"), and the
Certificates so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of shares of Company Capital Stock that is not registered
in the transfer records of the Company, certificates evidencing the proper
number of shares of Acquiror Common Stock or New PRIDES, as applicable, may be
issued in accordance with this Article III to a person other than the person in
whose name the Certificate so surrendered is registered, if the Certificate is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid or are not applicable. Until surrendered as
contemplated by this Section 3.2(b), each Certificate shall be deemed at any
time after the Effective Time to evidence only the right to receive upon such
surrender the appropriate Merger Consideration.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions declared or made after the Effective Time with respect to
Acquiror Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Acquiror Common Stock or New PRIDES evidenced thereby, and no other part of the
Merger Consideration shall be paid to any such holder, until the
22
holder of such Certificate shall surrender such Certificate in accordance with
this Article III. Subject to the effect of Applicable Laws, following surrender
of any such Certificate, there shall be paid to the holder of the certificates
evidencing whole shares of Acquiror Common Stock or New PRIDES, as applicable,
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with both a record
date and payment date after the Effective Time, but prior to surrender, payable
with respect to such whole shares of Acquiror Common Stock or New PRIDES, as
applicable, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to
such whole shares of Acquiror Common Stock or New PRIDES as applicable. No
interest shall be paid on the Merger Consideration or such dividends or other
distributions.
(d) NO FURTHER RIGHTS IN COMPANY CAPITAL STOCK. All shares of
Acquiror Common Stock and New PRIDES issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article III (and any cash paid
pursuant to Section 3.2(c) or, in the case of Acquiror Common Stock, Sections
3.1(c) and 3.2(e)) shall be deemed to have been issued (or paid) in full
satisfaction of all rights pertaining to such shares of Company Capital Stock
and Company Rights exchanged therefor represented by such Certificates; SUBJECT,
HOWEVER, to the Surviving Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective Time which may
have been declared or made by the Company on such shares of Company Capital
Stock in accordance with the terms of this Agreement or prior to the date of
this Agreement and which remain unpaid at the Effective Time and have not been
paid prior to surrender, and there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the
23
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Exchange Agent for any reason, they shall be
canceled and exchanged as provided in this Article III, except as otherwise
provided by law.
(e) NO FRACTIONAL SHARES. (i) No certificates or scrip representing
fractional shares of Acquiror Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the holder thereof to vote or to any rights of a shareholder of
Acquiror.
(ii) Notwithstanding any provision of this Agreement, each holder of
shares of Company Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Acquiror Common
Stock (after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
such fractional part of a share of Acquiror Common Stock multiplied by the
Determination Price.
(f) NO LIABILITY. Neither Acquiror nor the Company shall be liable
to any holder of shares of Company Capital Stock or Acquiror Common Stock, as
the case may be, for such shares of Acquiror Common Stock or New PRIDES (or
dividends or distributions with respect thereto) or cash in lieu of fractional
shares of Acquiror Common Stock which have been delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror as follows:
4.1 ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Company
and each Company Significant Subsidiary is a corporation or partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate or
partnership power and authority to carry on its business as now being conducted.
Each of the Company and its Subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualifications
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) would not have a
Material Adverse Effect with respect to the Company. The Company has delivered
to Acquiror complete and correct copies of its Restated Certificate of
Incorporation and By-laws, in each case as amended to the date of this
Agreement.
4.2 SUBSIDIARIES. Section 4.2 of the Company Disclosure Schedule
sets forth all the Subsidiaries of the Company. Except as set forth in Section
4.2 of the Company Disclosure Schedule, or as described in Section 4.3 or as
disclosed in the Company SEC Documents, all the outstanding shares of capital
stock or other equity interests of each Subsidiary of the Company are duly
authorized, validly issued, fully paid and non-assessable and are owned by the
Company, by another wholly-owned Subsidiary of the Company or by the Company and
another wholly-owned Subsidiary of the Company, free and clear of all
Encumbrances. Subject to compliance with applicable Gaming Laws, the respective
25
certificates of incorporation and bylaws or other organizational documents of
the Company's Subsidiaries do not contain any provision limiting or otherwise
restricting the ability of Acquiror, following the Effective Time, from
controlling such Subsidiaries on the same basis as the Company.
4.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 120,000,000 shares of Company Common Stock and 30,000,000 shares of
preferred stock, par value $1.00 per share ("Company Preferred Stock"). As of
May 31, 1996, (i) 49,763,359 shares of Company Common Stock were issued and
outstanding, (ii) 33,368 shares of Company Common Stock were held by the Company
in its treasury, (iii) 496,988 shares of the Series D Preferred, convertible
into an aggregate of 1,103,313 shares of Company Common Stock, were issued and
outstanding, and 1,103,313 shares of Company Common Stock were reserved for
issuance upon conversion of the Series D Preferred, (iv) 15,525,000 shares of
PRIDES, currently convertible into an aggregate of 14,283,000 shares of Company
Common Stock, were issued and outstanding, and 17,388,000 shares of Company
Common Stock were reserved for issuance upon conversion of the PRIDES,
(v) 4,985,878 shares of Company Common Stock were reserved for issuance upon
exercise of outstanding Options, (vi) no shares of Company Common Stock were
reserved for issuance upon exercise of outstanding SARS (other than 508,334
shares granted in tandem with Options), (vii) 59,600 shares of Company Common
Stock were reserved for issuance in connection with the Company's Employee Stock
Purchase Plans, (viii) 2,618,405 shares of Company Common Stock were reserved
for issuance upon conversion of the Company's 6% Convertible Subordinated
Debentures due 1998 (the "6% Convertible Debentures") and the Company's 10%
Convertible Subordinated Debentures due 2006 (the "10% Convertible Debentures"
and, together with the 6% Convertible Debentures, the "Convertible Debentures"),
the 6% Convertible Debentures being convertible into an aggregate
26
of 69,119 shares of Company Common Stock, and the 10% Convertible Debentures
being convertible into an aggregate of 2,549,286 shares of Company Common Stock,
and (ix) 800,000 shares of Company Preferred Stock (Series B Junior
Participating) were reserved for issuance in connection with the rights to
purchase shares of certain Company Preferred Stock (the "Company Rights") issued
pursuant to the Rights Agreement dated as of December 4, 1986, as amended (as
amended to the date of this Agreement and as further amended from time to time,
the "Rights Agreement"), between the Company and Chemical Bank, as Rights Agent
(the "Company Rights Agent"). Except as set forth above, as of May 31, 1996, no
shares of capital stock or other voting or equity securities of the Company were
issued, reserved for issuance or outstanding. There are no outstanding SARs
which were not granted in tandem with (and which would not terminate upon
exercise of) a related Option and there are no other outstanding contractual
rights the value of which is derived from the financial performance of the
Company or the value of shares of Company Common Stock. All outstanding shares
of capital stock of the Company are duly authorized, validly issued, fully paid
and nonassessable and are not subject to preemptive rights. Except as set forth
above, there are no bonds, debentures, notes or other indebtedness of the
Company or any of its Subsidiaries having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters
on which stockholders of the Company may vote. Except as set forth above or in
Section 4.3 of the Company Disclosure Schedule and other than 1,505,405 shares
of Company Common Stock and 376,351 shares of Common Stock of Bally Total
Fitness Holding Corporation deliverable upon exchange of Bally Casino, Inc.'s
Series A Cumulative Exchangeable Preferred Stock (the "Subsidiary Preferred
Stock"), as of the date of this Agreement, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its Subsidiaries is a
27
party or by which any of them is bound, obligating the Company or any of its
Subsidiaries to issue, deliver or sell or cause to be issued, delivered or sold,
additional shares of capital stock or other voting or equity securities of the
Company or any of its Subsidiaries or obligating the Company or any of its
Subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking. Except
for the redemption of the Series D Preferred, the Company Rights or as set forth
above or in Section 4.3 of the Company Disclosure Schedule and other than
redemptions, purchases and other acquisitions required by applicable provisions
under Gaming Laws or similar provisions contained in the terms of the capital
stock of the Company or any of its Subsidiaries, there are not any outstanding
contractual obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries.
4.4 AUTHORITY; ENFORCEABILITY; NO CONFLICTS; AND CONSENTS. (a)
The Company has the requisite corporate power and authority to enter into
this Agreement and, subject to obtaining the Company Stockholder Approval, to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of the Company,
subject, in the case of the consummation of the Merger, to approval of this
Agreement by the holders of a majority of the voting power of the outstanding
shares of Company Common Stock and the PRIDES, voting as a class (the
"Company Stockholder Approval"), at a special meeting of the holders of
Company Common Stock and the PRIDES. This Agreement has been duly executed
and delivered by the Company and, assuming this Agreement constitutes the
valid and binding obligations of Acquiror, constitutes the valid and binding
28
obligations of the Company, enforceable against the Company in accordance
with its terms.
(b) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or cause loss of a material benefit under, or result in the
creation or maturation of any lien or purchase right upon any of the properties
or assets of the Company or any of its Subsidiaries under, (i) the Restated
Certificate of Incorporation or By-laws of the Company or the comparable charter
or organizational documents of any of its Subsidiaries, (ii) other than
severance agreements, severance plans and employment agreements disclosed in the
Company SEC Documents or in the Company Disclosure Schedule or otherwise
previously disclosed to Acquiror and bank credit agreements, financing leases
and indentures relating to notes and debentures identified under "Long Term
Debt" of the Notes to Consolidated Financial Statements of the Company included
in its 1995 Annual Report or as set forth in Section 4.4 of the Company
Disclosure Schedule and subject to the governmental filings and other matters
referred to in Section 4.4(c), any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Company or any of its Subsidiaries or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in Section 4.4(c), any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company or
any of its Subsidiaries or their respective properties or assets, other than, in
the case of clauses (ii) or (iii), any such conflicts, violations, defaults,
rights or liens that individually or in the aggregate would not (x) have a
29
Material Adverse Effect with respect to the Company, (y) impair, in any material
respect, the ability of the Company to perform its obligations under this
Agreement or (z) prevent or significantly delay the consummation of any of the
transactions contemplated by this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required by the
Company or any of its Subsidiaries in connection with the execution and delivery
of this Agreement by the Company or the consummation by the Company of the
transactions contemplated by this Agreement, except for (i) the filing of a
premerger notification and report form by the Company under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) the filing with
the SEC of (x) a proxy statement relating to the Company Stockholder Approval
and (y) such reports and filings under Section 13 and 16 of the Exchange Act as
may be required in connection with this Agreement and the transactions
contemplated hereby, (iii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business, (iv) the approval by (A) the New Jersey Casino Control Commission
under the New Jersey Gaming Laws, (B) the Nevada State Gaming Control Board and
the Nevada Gaming Commission under the Nevada Gaming Laws, (C) the Clark County
Liquor and Gaming Licensing Board pursuant to the Clark County, Nevada Code and
the rules and regulations promulgated thereunder, (D) the Mississippi Gaming
Commission under the Mississippi Gaming Laws, and (E) the Louisiana Riverboat
Gaming Commission under the Louisiana Gaming Laws, (v) the filing of notices and
the approval of Governmental Authorities as may be required under the applicable
Gaming Laws of the States of Maryland and Washington and under the Indian Gaming
Regulatory Act of 1988, (vi) as may be required by any applicable state
securities or "blue sky" laws, (vii) in connection with any
30
state or local tax which is attributable to the beneficial ownership of real
property of the Company or its Subsidiaries ("Gains Tax"), (viii) such
immaterial filings and consents as may be required under any environmental,
health or safety law or regulation pertaining to any notification, disclosure or
required approval triggered by the Merger or the transactions contemplated by
this Agreement, (ix) such immaterial filings, consents, approvals, orders,
registrations and declarations as may be required under the laws of any foreign
country in which the Company or any of its Subsidiaries conducts any business or
owns any assets, and (x) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, (1) have a Material Adverse
Effect with respect to the Company, (2) impair, in any material respect, the
ability of the Company to perform its obligations under this Agreement or
(3) prevent or significantly delay the consummation of the transactions
contemplated by this Agreement.
4.5 VOTE REQUIRED; STATE TAKEOVER STATUTES; RIGHTS AGREEMENT. (a)
The Company Stockholder Approval is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve this Agreement and
the transactions contemplated hereby.
(b) The Board of Directors of the Company has approved the Merger and
this Agreement and such approval is sufficient to render the provisions of
Section 203 of the DGCL inapplicable to the Merger, this Agreement and the other
transactions contemplated by this Agreement.
(c) The Company and the Board of Directors of the Company have taken
and will maintain in effect all necessary action to render the Company Rights
Agreement inapplicable with respect to the Merger and the other transactions
contemplated by this Agreement.
31
4.6 COMPLIANCE WITH APPLICABLE LAWS. (a) Each of the Company and
its Subsidiaries has in effect all Federal, state, local and foreign
governmental approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights, including all authorizations under
Environmental Laws and Gaming Laws ("Permits"), necessary for it to own, lease
or operate its properties and assets and to carry on its business as now
conducted other than such Permits the absence of which would not, individually
or in the aggregate, have a Material Adverse Effect with respect to the Company,
and there has occurred no default under any such Permit other than such defaults
which, individually or in the aggregate, would not have a Material Adverse
Effect with respect to the Company. Except as disclosed in the Company SEC
Documents filed and publicly available prior to the date of this Agreement, the
Company and the Company Significant Subsidiaries are in compliance with all
Applicable Laws, except for such noncompliance which individually or in the
aggregate would not have a Material Adverse Effect with respect to the Company.
The preceding sentence of this Section 4.6 does not apply to matters
specifically covered by Section 4.10, 4.11 or 4.6(b) through 4.6(d).
(b) Each of the Company and its Subsidiaries is, and has been, and
each of the Company's former Subsidiaries, while a Subsidiary of the Company,
was in compliance with all applicable Environmental Laws, except for such
noncompliance which, individually or in the aggregate, would not have a Material
Adverse Effect with respect to the Company. The term "ENVIRONMENTAL LAWS" means
any applicable Federal, state, local or foreign statute, ordinance, rule,
regulation, Permit, judgment, order, decree, injunction or other legally binding
authorization, relating to: (A) Releases (as defined in 42 U.S.C. SECTION
9601(22)) or threatened Releases of Hazardous Material (as hereinafter defined)
into the environment or (B) the generation, treatment, storage, disposal, use,
handling, manufacturing,
32
transportation or shipment of, or exposure to, a Hazardous Material.
(c) During the period of ownership or operation by the Company and
its Subsidiaries of any of their owned or leased properties, there have been no
Releases of Hazardous Material in, on, under or affecting such properties and
none of the Company or its Subsidiaries have disposed of any Hazardous Material
or any other substance in a manner that has led to, or could reasonably be
anticipated to lead to, a Release except in each case for those which,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect with respect to the Company. The term "HAZARDOUS MATERIAL" means
(1) hazardous substances (as defined in 42 U.S.C. SECTION 9601(14)),
(2) petroleum, including crude oil and any fractions thereof, (3) natural gas,
synthetic gas and any mixtures thereof, (4) asbestos and/or asbestos-containing
material, (5) PCBs, or materials containing PCBs in excess of 50 ppm, and any
material regulated as a medical waste or infectious waste.
(d) The transactions contemplated by this Agreement will not require
compliance with the New Jersey Industrial Site Recovery Act or any similar state
transfer law.
4.7 COMPANY SEC DOCUMENTS; UNDISCLOSED LIABILITIES. (a) Each of the
Company and its Subsidiaries has filed all required reports, registration
statements, proxy statements, forms and other documents with the SEC since
January 1, 1995 (as such documents have since the time of their filing been
amended or supplemented and, together with all reports, registration statements,
forms and other documents filed by GNOC Corp., Bally's Park Place, Inc., Bally's
Grand, Inc. and Bally's Casino Holdings, Inc. since January 1, 1995, the
"Company SEC Documents"). As of their respective dates, (i) the Company SEC
Documents (including any financial statements filed as a part thereof or
33
incorporated by reference therein) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as applicable, and the
rules and regulations of the SEC thereunder applicable to such Company SEC
Documents, and (ii) none of the Company SEC Documents contained at the time they
were filed any untrue statement of a material fact or omitted at the time they
were filed to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. At their respective dates, the financial statements
of the Company included in the Company SEC Documents complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with GAAP (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly presented
(subject, in the case of the unaudited financial statements, to normal,
recurring audit adjustments) the consolidated financial position of the Company
and its consolidated Subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended.
(b) Except as disclosed in the Company SEC Documents filed and
publicly available prior to the date of this Agreement or in Section 4.8 or 6.1
of this Agreement or the related Sections of the Company Disclosure Schedule and
except for liabilities and obligations incurred in the ordinary course of
business consistent with past practice since December 31, 1995, the Company and
its Subsidiaries do not have any material indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise)
(i) required by GAAP to be reflected on a consolidated balance sheet of the
Company and its consolidated Subsidiaries or in the notes, exhibits or
34
schedules thereto or (ii) which reasonably could be expected to have a Material
Adverse Effect with respect to the Company.
4.8 ABSENCE OF CHANGES OR EVENTS. Except as disclosed in the Company
SEC Documents filed and publicly available prior to the date of this Agreement
or as set forth in Section 4.8 or 6.1 of the Company Disclosure Schedule or
permitted by Section 6.1 of this Agreement, since December 31, 1995, the Company
and its Subsidiaries have conducted their respective businesses only in the
ordinary course, and there has not been (i) any change or occurrence which
resulted in or is reasonably likely to have a Material Adverse Effect with
respect to the Company, (ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to the capital stock of the Company
other than on the Series D Preferred Stock or on the PRIDES, as specifically
provided by the terms thereof, (iii) any issuance of any shares of Company
Common Stock or other capital stock of the Company or any securities convertible
into or exchangeable or exercisable for capital stock of the Company that is not
reflected in Section 4.2 (other than issuances of Company Common Stock described
in Section 6.1(ii)), (iv) any split, combination or reclassification of any of
the capital stock of the Company or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock of the Company, (v) (x) any granting by the
Company or any of its Subsidiaries to any director or officer of the Company or
any of its Subsidiaries of any increase in compensation, except in the ordinary
course of business consistent with prior practice, or as was required under
employment agreements in effect as of December 31, 1995 that were included as an
exhibit to a Company SEC Document filed and publicly available prior to the date
of this Agreement, (y) any granting by the Company or any of its Subsidiaries to
any such person of any increase in severance or
35
termination pay, except as part of a standard employment package to any person
promoted or hired (but not including the five most highly compensated senior
officers of the Company and its Subsidiaries), or as was required under
employment, severance or termination agreements in effect as of December 31,
1995 that were included as an exhibit to a Company SEC Document filed and
publicly available prior to the date of this Agreement or as disclosed in
Section 4.8 or 6.1 of the Company Disclosure Schedule or, (z) except for
employment, severance or termination arrangements in the ordinary course of
business consistent with past practice with employees other than any executive
officer of the Company, any entry by the Company or any of its Subsidiaries into
any employment, severance or termination agreement with any such person,
(vi) other than those listed on Section 4.8 or 6.1 of the Company Disclosure
Schedule, any acquisition of or commitment to purchase or build any property or
project involving an expenditure in excess of $10 million in the aggregate,
(vii) any damage, destruction or loss not covered by insurance, that has or
reasonably could be expected to have a Material Adverse Effect with respect to
the Company or (viii) any change in accounting methods, principles or practices
by the Company materially affecting its assets, liabilities or business, except
insofar as may have been required by a change in GAAP.
4.9 LITIGATION. Except as disclosed in Section 4.9 of the Company
Disclosure Schedule or in the Company SEC Documents filed and publicly available
prior to the date of this Agreement, there are no Legal Proceedings pending
against the Company or any of its Subsidiaries or, to the knowledge of the
Company, threatened that, individually or in the aggregate, could reasonably be
expected to (i) have a Material Adverse Effect with respect to the Company or
(ii) prevent, or significantly delay the consummation of the transactions
contemplated by this Agreement. Except as disclosed in Section 4.9 of the
Company Disclosure Schedule or as set forth in the Company SEC Documents filed
and
36
publicly available prior to the date of this Agreement, there is no judgment,
order, injunction or decree of any Governmental Authority outstanding against
the Company or any of its Subsidiaries that, individually or in the aggregate,
could reasonably be expected to have any effect referred to in the foregoing
clauses (i) and (ii).
4.10 TAXES. (a) The Company and each of its Subsidiaries, and each
affiliated group (within the meaning of Section 1504 of the Code) of which the
Company or any of its Subsidiaries is or has ever been a member, has timely
filed all Federal income Tax Returns and all other material Tax Returns and
reports required to be filed by it. All such Tax Returns are complete and
correct in all material respects. The Company and each of its Subsidiaries has
paid (or the Company has paid on its Subsidiaries' behalf) all taxes shown due
on such Tax Returns. The most recent consolidated financial statements
contained in the Company SEC Documents reflect an adequate reserve for all Taxes
payable by the Company and its Subsidiaries for all taxable periods and portions
thereof through the date of such financial statements.
(b) Except as disclosed on Section 4.10 of the Company Disclosure
Schedule, no material deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any of its Subsidiaries that have not been fully
paid or adequately provided for in the appropriate financial statements of the
Company and its Subsidiaries, no requests for waivers of the time to assess any
Taxes are pending, and no power of attorney with respect to any Taxes has been
executed or filed with any taxing authority. No material issues relating to
Taxes have been raised in writing by the relevant taxing authority during any
presently pending audit or examination. The Federal income Tax Returns of the
Company and each of its Subsidiaries consolidated in such Tax Returns have been
reviewed with the Internal Revenue Service for all years through 1993.
37
(c) No material liens for Taxes exist with respect to any assets or
properties of the Company or any of its Subsidiaries, except for statutory liens
for Taxes not yet due.
(d) Except as disclosed on Section 4.10 of the Company Disclosure
Schedule and other than with respect to contractual tax indemnity obligations of
the Company and its Subsidiaries involving claims for state and local Taxes
which are not material in amount, none of the Company or any of its Subsidiaries
is a party to or is bound by any tax sharing agreement, tax indemnity obligation
or similar agreement, arrangement or practice with respect to Taxes (including
any advance pricing agreement, closing agreement or other agreement relating to
Taxes with any taxing authority).
(e) None of the Company or any of its Subsidiaries has taken or
agreed to take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a)(1) of the Code.
(f) Except as disclosed in Section 4.10 of the Company Disclosure
Schedule, there are no employment, severance or termination agreement, other
compensation arrangement or Benefit Plan currently in effect which provide for
the payment of any amount (whether in cash or property or the vesting of
property) as a result of any of the transactions contemplated by this Agreement
to any employee, officer or director of the Company or any of its affiliates who
is a "disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1), that would be characterized as an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the Code).
38
(g) The Company and it Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes.
(h) Except as disclosed in Section 4.10 of the Company Disclosure
Schedule, no Federal, state, local or foreign audits or other administrative
proceedings or court proceedings are presently pending with regard to any
Federal income or material state, local or foreign Taxes or Tax Returns of the
Company or its Subsidiaries and neither the Company nor any of its Subsidiaries
has received a written notice of any pending audit or proceeding.
(i) Neither the Company nor any of its Subsidiaries has agreed to or
is required to make any adjustment under Section 481(a) of the Code.
(j) Neither the Company nor any of its Subsidiaries has, with regard
to any assets or property held or acquired by any of them, filed a consent to
the application of Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by the Company or
any of its Subsidiaries.
(k) No property owned by the Company or any of its Subsidiaries
(i) is property required to be treated as being owned by another Person pursuant
to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended and in effect immediately prior to the enactment of the Tax Reform Act
of 1986; (ii) constitutes "tax exempt use property" within the meaning of
Section 168(h)(1) of the Code; or (iii) is tax exempt bond financed property
within the meaning of Section 168(g) of the Code.
39
4.11 EMPLOYEE BENEFITS. (a) Section 4.11(a) of the Company
Disclosure Schedule lists all "employee benefit plans," as defined in Section
3(3) of ERISA and all other employee benefit plans or other benefit
arrangements, including executive compensation and directors' benefit plans, and
payroll practices which the Company or any of its Subsidiaries maintains,
contributes to or has any obligation to or liability for (each an "Employee
Benefit Plan" and collectively, the "Employee Benefit Plans").
(b) Copies or descriptions of each Employee Benefit Plan (and, where
applicable, the most recent summary plan description, actuarial report,
determination letter, most recent Form 5500 and trust agreement) have been made
available to Acquiror for review prior to the date hereof.
(c) As of the date hereof, except as disclosed on Section 4.11(c) of
the Company Disclosure Schedule, (i) all material payments required to be made
by or under any Employee Benefit Plan, any related trusts, or any collective
bargaining agreement have been made or are being processed in accordance with
normal operating procedures, and except as set forth in the Company's financial
statements, all material amounts required to be reflected thereon have been
properly accrued to date as liabilities under or with respect to each Employee
Benefit Plan for the current year; (ii) the Company and its Subsidiaries have
performed all material obligations required to be performed by them under any
Employee Benefit Plan; (iii) the Employee Benefit Plans, have been administered
in material compliance with their terms and the requirements of ERISA, the Code
and other Applicable Laws; (iv) there are no material actions, suits,
arbitrations or claims (other than routine claims for benefit) pending or
threatened with respect to any Employee Benefit Plan; and (v) the Company and
its Subsidiaries have no liability as a result of any "prohibited transaction"
(as defined in Section 406 of ERISA and Section 4975 of the Code) for any
material excise tax or civil penalty.
40
(d) Except as disclosed on Section 4.11(d) of the Company Disclosure
Schedule, none of the Employee Benefit Plans which are "employee pension benefit
plans" within the meaning of Section 3(2) of ERISA ("Pension Plans"), other than
"multiemployer plans", as defined in Section 3(37) of ERISA ("Multiemployer
Plans"), is subject to Title IV of ERISA.
(e) Except as set forth on Section 4.11(e) of the Company Disclosure
Schedule, the Company and its Subsidiaries have not, since April. 29, 1980, with
respect to any Multiemployer Plan, suffered or otherwise caused a "complete
withdrawal" or "partial withdrawal", as such terms are respectively defined in
Sections 4023 and 4025 of ERISA, which has resulted in any material liability to
the Company or any of its Subsidiaries which has not been fully satisfied or
which is not set forth in the Company's financial statements.
(f) Except as set forth on Section 4.11(f) of the Company Disclosure
Schedule, each of the Pension Plans which is intended to be "qualified" within
the meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so "qualified" and the Company knows of no fact which
would adversely affect the qualified status of any such Pension Plan.
(g) Except as set forth on Section 4.11(g) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment becoming due, or materially increase the amount of compensation
due, to any current or former employee of the Company or any of its
Subsidiaries; (ii) materially increase any benefits otherwise payable under any
Employee Benefit Plan; or (iii) result in the acceleration of the time of
payment or vesting of any such material benefits.
41
4.12 TITLE TO PROPERTIES. (a) Section 4.12 of the Company
Disclosure Schedule sets forth a complete list of all material real property
owned in fee by the Company or one of its Subsidiaries and sets forth all
material real property leased by the Company or one of its Subsidiaries as
lessee as of the date hereof (such owned and leased material real property,
including all Improvements, referred to collectively as the "Real Property").
Except as set forth in Section 4.12 of the Company Disclosure Schedule, each
of the Company and its Subsidiaries has good and valid title to, or a valid
leasehold interest in, the Real Property held by it. Except as set forth in
Section 4.12 of the Company Disclosure Schedule, the Real Property is free of
Encumbrances, except for Permitted Encumbrances, and the consummation of the
transactions contemplated by this Agreement will not create any Encumbrance
on any of the Real Property which, individually or in the aggregate, would
have a Material Adverse Effect with respect to the Company. Each of the
Company and each of its Subsidiaries enjoys peaceful and undisturbed
possession under all leases of Real Property, expect for such breaches of the
right to peaceful and undisturbed possession that do not materially interfere
with the ability of the Company and its Subsidiaries to conduct their
business.
(b) Except as set forth in Schedule 4.12 or as disclosed in the
Company SEC Documents, no toxic or hazardous wastes, substances or materials are
stored or otherwise held in violation of Environmental Laws that would have or
could reasonably be expected to have a Material Adverse Effect with respect to
the Company, and to the knowledge of the Company, no Contamination exists, on or
under the Real Property at levels that contravene those allowed by Environmental
Laws.
4.13 INSURANCE. The Company and its Subsidiaries have insurance
coverage with insurance companies or associations in such amounts, on such terms
and covering
42
such risks, including fire and other risks insured against by extended coverage,
as is reasonably prudent, and each has public liability insurance, insurance
against claims for personal injury or death or property damage occurring in
connection with any of activities of the Company or any of its Subsidiaries or
of any properties owned, occupied or controlled by the Company or any of its
Subsidiaries, in such amount as is deemed reasonably necessary by the Company or
any of its Subsidiaries.
4.14 BROKERS AND INTERMEDIARIES. No broker, investment banker,
financial advisor or other person, other than Goldman, Sachs & Co. and Merrill
Lynch & Co. (whose fee arrangements have been disclosed to Acquiror in writing
and will not be modified subsequent to the date of this Agreement), the fees and
expenses of which will be paid by the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
4.15 OPINION OF FINANCIAL ADVISOR. The Company has received (i) the
opinion of Goldman, Sachs & Co. to the effect that, as of the date of this
Agreement, the consideration to be received in the Merger by the Company's
stockholders is fair to the Company's stockholders, and (ii) the opinion of
Merrill Lynch & Co. to the effect that, as of the date of this Agreement, the
consideration to be received in the Merger by the Company's stockholders is fair
to the Company's stockholders from a financial point of view.
4.16 COMPANY RIGHTS AGREEMENT. The entering into of this Agreement
and the consummation of the transactions contemplated hereby do not and will not
result in the grant of any rights to any person under the Company Rights
43
Agreement or enable or require the Company Rights to be exercised, distributed
or triggered.
4.17 TRANSACTIONS WITH AFFILIATES. Other than the transactions
contemplated by this Agreement and except to the extent disclosed in the Company
SEC Documents or as set forth in Schedule 4.17 of the Company Disclosure
Schedule, from January 1, 1994 through the date of this Agreement, there have
been no transactions, agreements, arrangements or understandings between the
Company or its Subsidiaries, on the one hand, and the Company's affiliates
(other than wholly-owned Subsidiaries of the Company and Bally's Grand, Inc.) or
other Persons, on the other hand, that would be required to be disclosed under
Item 404 of Regulation S-K under the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby represents and warrants to the Company as follows:
5.1 ORGANIZATION, STANDING AND CORPORATE POWER OF ACQUIROR. Each of
Acquiror and each Acquiror Significant Subsidiary is a corporation or
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is organized and has the requisite corporate or
partnership power and authority to carry on its business as now being conducted.
Each of Acquiror and its Subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualifications
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) would not have a
Material Adverse Effect with respect to
44
Acquiror. Acquiror has delivered to the Company complete and correct copies of
its Restated Certificate of Incorporation and By-laws in each case as amended to
the date of this Agreement. The respective certificates of incorporation and
by-laws or other organizational documents of Acquiror Significant Subsidiaries
do not contain any provision limiting or otherwise restricting the ability of
Acquiror to control such Subsidiaries.
5.2 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of Acquiror consists of 90,000,000 shares of Acquiror Common Stock
and 10,000,000 shares of preferred stock, par value $1.00 per share (the
"Acquiror Preferred Stock"). As of May 31, 1996, (i) 48,838,694 shares of
Acquiror Common Stock and no shares of Acquiror Preferred Stock were issued and
outstanding, (ii) 2,186,334 shares of Acquiror Common Stock were held by
Acquiror in its treasury, (iii) 1,500,000 shares of Acquiror Common Stock were
reserved for issuance upon the exercise of outstanding options issued under the
Acquiror's 1996 Stock Incentive Plan, (iv) 1,500,000 shares of Acquiror Common
Stock were reserved for issuance upon the exercise of outstanding options issued
under Acquiror's 1996 Chief Executive Stock Incentive Plan, (v) 1,870,953 shares
of Acquiror Common Stock were reserved for issuance upon the exercise of
outstanding options issued under Acquiror's 1990 Stock Option and Stock
Appreciation Rights Plan, (vi) 201,592 shares of Acquiror Common Stock were
reserved for issuance upon the exercise of outstanding options issued under
Acquiror's 1984 Stock Option and Stock Appreciation Rights Plan (the options
issued pursuant to the stock option plans referred to in clauses (iii) through
(vi) being collectively referred to as the "Acquiror Stock Options"), and
(vii) 3,872,216.84 shares were reserved for issuance upon conversion of
Acquiror's outstanding Convertible Subordinated Notes due 2006, which were
presently convertible into 3,872,216.84 shares of Acquiror Common Stock. Except
as set forth above, as of May 31, 1996, no
45
shares of capital stock or other voting securities of Acquiror were issued,
reserved for issuance or outstanding. As of the date of this Agreement, there
are no outstanding stock appreciation rights which were not granted in tandem
with (and terminate upon exercise of) a related Acquiror Stock Option and there
are no other outstanding contractual rights the value of which is derived from
the financial performance of Acquiror or the value of shares of Acquiror Common
Stock. All outstanding shares of capital stock of Acquiror are, and all shares
which may be issued as contemplated by this Agreement will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. As of the date of this Agreement, other than as set forth
above, there are no bonds, debentures, notes or other indebtedness of Acquiror
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which stockholders of Acquiror may
vote. Except as set forth above, or as disclosed in the Acquiror SEC Documents,
as of the date of this Agreement, there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which Acquiror or any of its Subsidiaries is a party or by which
any of them is bound, obligating Acquiror or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of Acquiror or of any of its
Subsidiaries or obligating Acquiror or any of its Subsidiaries to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. As of the date of this
Agreement, except as disclosed in the Acquiror SEC Documents or Section 5.2 of
the Acquiror Disclosure Schedule, there are not any outstanding contractual
obligations of Acquiror or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of Acquiror or any of its
Subsidiaries.
46
5.3 AUTHORITY; ENFORCEABILITY; NO CONFLICTS. (a) Acquiror has the
requisite corporate power and authority to enter into this Agreement and,
subject to obtaining Acquiror Stockholder Approval, to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Acquiror and the consummation by Acquiror of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Acquiror, subject, in the case of the issuance
of Acquiror Common Stock and New PRIDES contemplated hereby, to approval of such
issuance by the holders of a majority of the votes cast at a special meeting of
the holders of Acquiror Common Stock, provided that the total number of votes
cast represents over 50% of the outstanding Acquiror Common Stock (the "Acquiror
Stockholder Approval"). This Agreement has been duly executed and delivered by
Acquiror and, assuming this Agreement constitutes a valid and binding obligation
of the Company, constitutes valid and binding obligations of each of Acquiror,
enforceable against Acquiror in accordance with its terms.
(b) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, or acceleration of
any obligation or cause loss of a material benefit under, or result in the
creation or maturation of any lien or purchase right upon any of the properties
or assets of Acquiror and Acquiror Significant Subsidiaries under, (i) the
certificate of incorporation or by-laws of Acquiror or the comparable charter or
organizational documents of any of its Subsidiaries, (ii) except as set forth in
Section 5.3 of the Acquiror Disclosure Schedule and subject to the governmental
filings and other matters referred to in Section 5.3(c) any
47
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
Acquiror or (iii) subject to the governmental filings and other matters referred
to in Section 5.3(c), any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Acquiror or any of Acquiror Significant Subsidiaries
or their respective properties or assets, other than, in the case of clauses
(ii) or (iii), any such conflicts, violations, defaults, rights or liens that
individually or in the aggregate would not (x) have a Material Adverse Effect
with respect to Acquiror, (y) impair, in any material respect, the ability of
Acquiror to perform its obligations under this Agreement or (z) prevent or
significantly delay the consummation of any of the transactions contemplated by
this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required by Acquiror
or any of its Subsidiaries in connection with the execution and delivery of this
Agreement or the consummation by Acquiror of any of the transactions
contemplated by this Agreement, except for (i) the filing of a premerger
notification and report form by Acquiror under the HSR Act, (ii) the filing with
the SEC of (x) the Proxy Statement/Prospectus, (y) the Registration Statement on
Form S-4 in connection with the issuance of Acquiror Common Stock and New PRIDES
in the Merger (the "Form S-4") and the obtaining of any related orders as may be
so required and (z) such reports and filings under Section 13 and Section 16 of
the Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iii) the filing of the Certificate
of Merger with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which the Company is qualified to do
business, (iv) the approval by (A) the New Jersey Casino Control Commission
under the New Jersey Gaming Laws, (B) the Nevada State Gaming Control Board and
the
48
Nevada Gaming Commission under the Nevada Gaming Laws, (C) the Clark County
Liquor and Gaming Licensing Board pursuant to the Clark County, Nevada Code and
the rules and regulations promulgated thereunder, (D) the Mississippi Gaming
Commission under the Mississippi Gaming Laws and (E) the Louisiana Riverboat
Gaming Commission under the Louisiana Gaming Laws, (v) the filing of notices and
the approval of Governmental Authorities as may be required under the applicable
Gaming Laws of the States of Maryland and Washington and under the Indian Gaming
Regulatory Act of 1988, (vi) as may be required by any applicable state
securities or "blue sky" laws, and (vii) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not, individually or in the aggregate, (x) have a
Material Adverse Effect with respect to Acquiror, (y) impair, in any material
respect, the ability of Acquiror to perform its obligations under this Agreement
or (z) prevent or significantly delay the consummation of the transactions
contemplated by this Agreement.
5.4 THE VOTE REQUIRED; OWNERSHIP OF COMPANY CAPITAL STOCK. (a)
Acquiror Stockholder Approval is the only vote of the holders of any class or
series of Acquiror's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
(b) Except for two shares of Company Common Stock, neither Acquiror
nor any of its Subsidiaries owns, directly or indirectly, any shares of Company
Capital Stock.
5.5 ACQUIROR SEC DOCUMENTS; UNDISCLOSED LIABILITIES. (a) Acquiror
has filed all required reports, registration statements, proxy statements, forms
and other documents with the SEC since January 31, 1995 (as such documents have
since the time of their filing been amended or supplemented, the "Acquiror SEC
Documents"). As of their respective dates, (i) Acquiror SEC Documents
(including any
49
financial statements filed as a part thereof or incorporated by reference
therein) complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as applicable, and the rules and regulations
of the SEC promulgated thereunder applicable to such Acquiror SEC Documents, and
(ii) none of Acquiror SEC Documents contained at the time they were filed any
untrue statement of a material fact or omitted at the time they were filed to
state a 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. At their respective dates, the financial statements of
Acquiror included in Acquiror SEC Documents complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, were prepared in accordance
with GAAP (except, in the case of unaudited statements, as permitted by Form 10-
Q of the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly presented (subject, in the
case of unaudited statements, to normal year-end audit adjustments) the
consolidated financial position of Acquiror and its consolidated subsidiaries as
at the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended.
(b) Except as disclosed on Section 5.5 of Acquiror Disclosure
Schedule or in the Acquiror SEC Documents filed and publicly available after
December 31, 1995 and prior to the date of this Agreement and except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since December 31, 1995, as of the date of this
Agreement Acquiror and its Subsidiaries do not have any material indebtedness,
obligations or liabilities of any kind (whether accrued, absolute, contingent or
otherwise) required by GAAP to be reflected on a consolidated balance sheet of
Acquiror and
50
its consolidated Subsidiaries or in the notes, exhibits or schedules thereto.
5.6 ABSENCE OF CHANGES OR EVENTS. Except as disclosed in the
Acquiror SEC Documents filed and publicly available prior to the date of this
Agreement or in the 1995 Acquiror Financial Statements, (i) since December 31,
1995, there has not been any change or occurrence which resulted in or is
reasonably likely to have a Material Adverse Effect with respect to Acquiror,
and (ii) from December 31, 1995 to the date of this Agreement, Acquiror and its
Subsidiaries have conducted their businesses only in the ordinary course and
there have not been (A) any declaration, setting aside or payment of any
dividend or other distribution with respect to the capital stock of Acquiror,
other than regular quarterly dividends on Acquiror Common Stock, (B) any split,
combination or reclassification of any of the capital stock of Acquiror or any
issuance or the authorization of any issuance of any other securities in lieu of
or in substitution for shares of capital stock of Acquiror, (C) any damage,
destruction or loss not covered by insurance, that has or reasonably could be
expected to have a Material Adverse Effect with respect to Acquiror or (D) any
change in accounting methods, principles or practices by Acquiror materially
affecting its assets, liabilities or business, except insofar as may have been
disclosed by a change in generally accepted accounting principles.
5.7 LITIGATION. Except as disclosed in the Acquiror SEC Documents
filed and publicly available prior to the date of this Agreement, there are no
Legal Proceedings pending against Acquiror or any of its Subsidiaries or, to the
knowledge of Acquiror, threatened that, individually or in the aggregate, could
reasonably be expected to (i) have a Material Adverse Effect with respect to
Acquiror or (ii) prevent or significantly delay the consummation of any of the
transactions contemplated by this Agreement. Except
51
as disclosed in the Acquiror SEC Documents filed and publicly available prior to
the date of this Agreement, there is no judgment, order, injunction or decree of
any Governmental Authority outstanding against Acquiror or any of its
Subsidiaries that, individually or in the aggregate, could reasonably be
expected to have any effect referred to in the foregoing clauses (i) and (ii).
5.8 TAXES. (a) Acquiror and each of its Subsidiaries, and each
affiliated group (within the meaning of Section 1504 of the Code) of which the
Company or any of its Subsidiaries is or has ever been a member, has timely
filed all Federal income tax returns and all other material tax returns and
reports required to be filed by it. All such returns are complete and correct
in all material respects. Acquiror and each of its Subsidiaries has paid (or
Acquiror has paid on its Subsidiaries' behalf) all taxes shown due on such
returns, the most recent financial statements contained in the Acquiror SEC
Documents reflect an adequate reserve for all Taxes payable by Acquiror and its
Subsidiaries for all taxable periods and portions thereof through the date of
such financial statements, and the 1995 Financial Statements reflect an adequate
reserve for all Taxes payable by Acquiror and its Subsidiaries for all taxable
periods and portions thereof through December 31, 1995.
(b) Neither Acquiror nor any of its Subsidiaries has taken or agreed
to take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a)(1) of the Code.
5.9 COMPLIANCE WITH APPLICABLE LAWS. (a) Each of Acquiror and its
Subsidiaries has in effect all Permits necessary for it to own, lease or operate
its properties and assets and to carry on its business as now conducted, and
there has occurred no default under any such Permit, except for the lack of
Permits and for defaults under Permits which
52
lack or default, individually or in the aggregate, would not have a Material
Adverse Effect with respect to Acquiror. Except as disclosed in the Acquiror
SEC Documents filed and publicly available prior to the date of this Agreement,
Acquiror and its Subsidiaries are in compliance with all Applicable Laws, except
for possible noncompliance which, individually or in the aggregate, would not
have a Material Adverse Effect with respect to Acquiror.
(b) Except as disclosed in the Acquiror SEC Documents, each of
Acquiror and its Subsidiaries is, and has been, and each of Acquiror's former
Subsidiaries, while a Subsidiary of Acquiror was in compliance with all
applicable Environmental Laws, except for possible noncompliance which,
individually or in the aggregate, would not have a Material Adverse Effect with
respect to the Company.
(c) Except as disclosed in the Acquiror SEC Documents, during the
period of ownership or operation by Acquiror and its Subsidiaries of any of
their owned or leased properties, there have been no Releases of Hazardous
Material in, on, under or affecting such properties and none of Acquiror or its
Subsidiaries have disposed of any Hazardous Material or any other substance in a
manner that has led to, or could reasonably be anticipated to lead to, a Release
except in each case for those which, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect with respect to Acquiror.
5.10 ERISA COMPLIANCE. Except as described in Acquiror SEC Documents
filed and publicly available prior to the date of this Agreement or as would not
have a Material Adverse Effect with respect to Acquiror, (i) all employee
benefit plans or programs maintained for the benefit of the current or former
employees or directors of Acquiror or any Subsidiary of Acquiror that are
sponsored, maintained or contributed to by Acquiror or any Subsidiary of
Acquiror, or with respect to which Acquiror or any Subsidiary of Acquiror
53
has any liability, including any such plan that is an "employee benefit plan" as
defined in Section 3(3) of ERISA, are in compliance with all applicable
requirements of law, including ERISA and the Code, and (ii) neither Acquiror nor
any Subsidiary of Acquiror has any liabilities or obligations with respect to
any such employee benefit plans or programs, whether accrued, contingent or
otherwise, except liabilities or obligations incurred in the ordinary course.
5.11 BROKERS. No broker, investment banker, financial advisor or
other person, other than Donaldson, Lufkin & Jenrette Securities Corporation,
the fees and expenses of which will be paid by Acquiror, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Acquiror.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as otherwise provided
by the terms of this Agreement or as set forth in Section 4.8 of this Agreement
or in Section 4.8 or 6.1 of the Company Disclosure Schedule, from and after the
date hereof to the Effective Time, the Company shall, and shall cause its
Subsidiaries to, carry on their respective businesses in the ordinary course and
use their reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers and key
employees and preserve their relationships consistent with past practice with
desirable customers, suppliers and others having business dealings with them to
the end that their goodwill and ongoing businesses shall be unimpaired in all
material respects at the Effective Time.
54
Without limiting the generality of the foregoing, prior to the Effective Time,
except as otherwise provided by the terms of this Agreement or as set forth in
Section 4.8 of this Agreement or in Section 4.8 or 6.1 of the Company Disclosure
Schedule, the Company shall not (and shall cause its Subsidiaries not to),
without the written consent of Acquiror, which consent may not be unreasonably
withheld:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by any direct or indirect wholly-owned subsidiary of the
Company to its parent and other than as specifically provided in the terms
of the PRIDES, the Series D Preferred and the Subsidiary Preferred Stock,
(B) split, combine or reclassify any of its capital stock or, except
pursuant to the exercise of options, warrants, conversion rights, exchange
rights and other contractual rights existing on the date hereof, issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or other equity interests
or (C) purchase, redeem or otherwise acquire or amend any shares of capital
stock or other equity interests of the Company or any of its Subsidiaries
or any other securities thereof or any rights, warrants or options to
acquire any such shares, interests or other securities (other than
(x) redemptions, purchases or other acquisitions required by applicable
provisions under Gaming Laws or pursuant to the terms of such capital stock
or equity interest or other contractual rights existing on the date hereof,
(y) issuances or redemptions of capital stock of wholly-owned Subsidiaries
occurring between the Company and any of its wholly-owned Subsidiaries or
occurring between wholly-owned Subsidiaries of the Company and
(z) issuances to or redemptions from unaffiliated third parties of capital
stock of or ownership interests in
55
Subsidiaries not currently conducting significant operations and organized
for purposes of pursuing new business opportunities or developing new
properties;
(ii) issue, deliver, sell, pledge or otherwise encumber or amend
any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, interests, voting securities or convertible securities,
including pursuant to the Company's Employee Stock Purchase Plan (other
than (A) the issuance of Company Common Stock upon the conversion of the
PRIDES or Series D Preferred outstanding on the date of this Agreement in
accordance with their present terms, (B) the issuance of Company Common
Stock upon the conversion of Convertible Debentures outstanding on the date
of this Agreement in accordance with their present terms, (C) the issuance
of Company Common Stock upon the exercise of Options outstanding on the
date of this Agreement in accordance with their present terms, (D) the
issuance of Company Common Stock to Bally Casino, Inc. upon the exchange of
the Subsidiary Preferred Stock outstanding on the date of this Agreement in
accordance with the present terms thereof and (E) the issuances described
in subclauses (y) and (z) of paragraph (i) above);
(iii) amend its Restated Certificate of Incorporation, by-laws or
other comparable charter or organizational documents;
(iv) acquire or agree to acquire (A) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (B) any
assets that are material, individually or in the aggregate, to the Company
and
56
its Subsidiaries taken as a whole, except (x) mergers and consolidations
between or among one or more wholly-owned Subsidiaries of the Company that
will not create adverse tax consequences to the Company or its
Subsidiaries, (y) purchases of inventory, furnishings and equipment in the
ordinary course of business consistent with past practice or
(z) expenditures listed on Section 6.1 of the Company Disclosure Schedule;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of any of its properties or
assets, except in the ordinary course of business consistent with past
practice;
(vi) (A) other than (1) ordinary course working capital borrowings,
(2) borrowings required to finance specific projects listed on Section 6.1
of the Company Disclosure Schedule, (3) other incurrences of indebtedness
which, in the aggregate, do not exceed $25 million, incur any indebtedness
for borrowed money or guarantee any such indebtedness of another person,
issue or sell any debt securities or warrants or other rights to acquire
any debt securities of the Company or any of its Subsidiaries, guarantee
any debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing or (B) make any loans, advances or capital contributions to, or
investments in, any other person other than (v) to the Company or any
direct or indirect wholly-owned Subsidiary of the Company, (w) advances to
employees, suppliers or customers in the ordinary course of business
consistent with past practice and (x) in connection with specific projects
listed on Section 6.1 of the Company Disclosure Schedule;
57
(vii) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
(A) in the ordinary course of business consistent with past practice,
(B) in accordance with their terms of liabilities reflected or reserved
against in the most recent consolidated financial statements (or the notes
thereto) of the Company included in the Company SEC Documents filed and
publicly available prior to the date of this Agreement or incurred in the
ordinary course of business consistent with past practice since the date of
such financial statements or (C) involving an amount not to exceed $25
million in the aggregate, or waive the benefits of, or agree to modify in
any manner, any confidentiality, standstill or similar agreement to which
the Company or any of its Subsidiaries is a party;
(viii) except as required to comply with Applicable Law, (A) adopt,
enter into, terminate or amend any Employee Benefit Plan or other
arrangement for the benefit or welfare of any director, officer or current
or former employee, (B) increase in any manner the compensation or fringe
benefits of, or pay any bonus to, any director, officer or employee (except
for normal increases or bonuses as contractually required pursuant to
agreements disclosed in the Company SEC Documents filed and publicly
available prior to the date of this Agreement or in Section 4.8 of the
Company Disclosure Schedule or in the ordinary course of business
consistent with past practice to employees other than directors and
executive officers of the Company and that, in the aggregate, do not result
in a significant increase in benefits or compensation expense to the
Company and its Subsidiaries relative to the level in effect prior to such
action and except as contractually required pursuant to agreements included
58
as part of a Company SEC Document filed and publicly available prior to the
date of this Agreement), (C) pay any benefit not provided for under any
Employee Benefit Plan, (D) except for payments or awards in cash permitted
by clause (B), grant any awards under any bonus, incentive, performance or
other compensation plan or arrangement or Employee Benefit Plan (including
the grant of stock options, stock appreciation rights, stock based or stock
related awards, performance units or restricted stock, or the removal of
existing restrictions in any Employee Benefit Plans or agreements or awards
made thereunder) or (E) take any action to fund or in any other way secure
the payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or Employee Benefit Plan other than in the ordinary
course of business consistent with past practice; PROVIDED, HOWEVER, that
the Company may take any action described in clauses (A), (B), (C) and (D)
above in connection with the retention of employees and the payment of
bonuses to executive officers of the Company (other than the Chairman of
the Board, Chief Executive Officer and President of the Company) in an
amount not to exceed 200% of their respective bonus compensation for fiscal
year 1995 and that, taken together, has an aggregate economic cost to the
Company not to exceed $10,000,000;
(ix) except in the ordinary course of business, modify, amend or
terminate any contract or agreement set forth in the Company SEC Documents
to which the Company or any Subsidiary is a party or waive, release or
assign any material rights or claims;
(x) take or agree to take any action that would prevent the Merger
from constituting a reorganization qualifying under the provisions of
Section 368(a)(1) of the Code;
59
(xi) conduct its business in a manner or take, or cause to be
taken, any other action that would or might reasonably be expected to
prevent or materially delay the Company or Acquiror from consummating the
transactions contemplated hereby in accordance with the terms of this
Agreement (regardless of whether such action would otherwise be permitted
or not prohibited hereunder), including, without limitation, any action
which may materially limit the ability of the Company or Acquiror to
consummate the transactions contemplated hereby as a result of antitrust,
gaming or other regulatory concerns; or
(xii) authorize any of, or commit or agree to take any of, the
foregoing actions.
6.2 CONDUCT OF BUSINESS OF ACQUIROR. Except as set forth in Section
6.2 of the Acquiror Disclosure Schedule, from and after the date hereof to the
Effective Time, Acquiror shall, and shall cause its Subsidiaries to, carry on
their respective current operations in the ordinary course and use their
reasonable efforts to preserve intact their current business organizations, keep
available the services of their current officers and key employees and preserve
their relationships with desirable customers, suppliers and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired in all material respects at the Effective Time.
Without limiting the generality of the foregoing, prior to the Effective Time,
except as specifically permitted by the terms of this Agreement, Acquiror shall
not (and shall cause its Subsidiaries not to), without the written consent of
the Company, which consent may not be unreasonably withheld:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of Acquiror Common Stock, other than regular
quarterly dividends, or (B) other than the stock split described
60
in Section 3.1(d), split, combine or reclassify any of its Acquiror Common
Stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for Acquiror Common Stock;
(ii) issue or authorize the issuance of any shares of Acquiror
Common Stock or any option, warrant or right relating thereto or any
securities convertible into or exchangeable for any shares of Acquiror
Common Stock at less than fair market value per share of Acquiror Common
Stock as determined by the Board of Directors of Acquiror (other than
pursuant to the terms of existing options or benefit plans or convertible
securities);
(iii) amend its Restated Certificate of Incorporation, by-laws or
other comparable charter or organizational documents in any manner adverse
to the holders of Acquiror Common Stock (other than the filing of a
Certificate of Designations for the issuance of any series of Preferred
Stock of Acquiror);
(iv) take or agree to take any action that would prevent the Merger
from constituting a reorganization qualifying under the provisions of
Section 368(a)(1) of the Code;
(v) conduct its business in a manner or take, or cause to be
taken, any other action (including, without limitation, effecting or
agreeing to effect or announcing an intention or proposal to effect, any
acquisition, business combination, merger, consolidation, restructuring or
similar transaction) that would or might reasonably be expected to prevent
or materially delay Acquiror or the Company from consummating the
transactions contemplated hereby in accordance with the terms of this
Agreement (regardless of whether such action would otherwise be permitted
or
61
not prohibited hereunder), including, without limitation, any action which
may materially limit the ability of Acquiror or the Company to consummate
the transactions contemplated hereby as a result of antitrust, gaming or
other regulatory concerns;
(vi) sell all or substantially all of the properties and assets of
Acquiror or merge, amalgamate or consolidate Acquiror with any other entity
in any transaction in which Acquiror is not the surviving corporation; or
(vii) authorize any of, or commit or agree to take any of, the
foregoing actions.
Nothing contained in this Section 6.2 shall prohibit Acquiror from
acquiring or agreeing to acquire, whether by merger or consolidation or by
purchase of assets, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or interest
therein.
6.3 ACCESS TO INFORMATION. Each of the Company and Acquiror shall,
and shall cause each of its respective Subsidiaries to, afford to the other
party and to the officers, employees, accountants, counsel, financial advisors
and other representatives of such other party, reasonable access during normal
business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, each of the Company and the Acquiror shall, and shall cause
each of its respective Subsidiaries to, furnish promptly to the other party
(a) a copy of each report, schedule, registration statement and other document
filed by it during such period pursuant to the requirements of Federal or state
securities laws and (b) all other information concerning its business,
properties and personnel as such other party may reasonably
62
request. Except as required by Applicable Law, each of the Company and Acquiror
will hold, and will cause its respective officers, employees, accountants,
counsel, financial advisors and other representatives and affiliates to hold,
any nonpublic information in confidence to the extent required by, and in
accordance with, the provisions of the letter, dated March 11, 1996, between the
Company and Acquiror (the "Confidentiality Agreement").
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 PREPARATION OF FORM S-4 AND THE PROXY STATEMENT/PROSPECTUS;
STOCKHOLDERS' MEETING. (a) Promptly following the date of this Agreement, the
Company and Acquiror shall prepare and file with the SEC the Proxy
Statement/Prospectus, and Acquiror shall prepare and file with the SEC the Form
S-4, in which the Proxy Statement/
Prospectus shall be included. Each of the Company and Acquiror shall use its
reasonable best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. The Company and
Acquiror shall each use reasonable best efforts to cause the Proxy
Statement/Prospectus to be mailed to their respective stockholders, as promptly
as practicable after the Form S-4 is declared effective under the Securities
Act. Acquiror shall also take any action (other than qualifying to do business
in any jurisdiction in which it is not now so qualified or consenting to service
of process in any jurisdiction in any action other than one arising out of the
offering of the Acquiror Common Stock in such jurisdiction) required to be taken
under any applicable state securities or "blue sky" laws in connection with the
issuance of shares of Acquiror Common Stock and New PRIDES in the Merger, and
the Company shall furnish all information concerning the
63
Company as may be reasonably requested in connection with any such action.
(b) Each of the Company and the Acquiror covenants that none of the
information supplied or to be supplied by it for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) the Proxy
Statement/Prospectus will, at the date it is first mailed to the stockholders of
the Company or Acquiror, or at the time of the Company Stockholders' Meeting or
the Acquiror Stockholders' Meeting, 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 are made, not misleading. The Proxy Statement/ Prospectus and
the Form S-4 will comply as to form in all material respects with the
requirements of the Exchange Act or the Securities Act, as the case may be.
Notwithstanding the foregoing, (i) no representation or covenant is made by the
Company with respect to statements made or incorporated by reference therein
based on information supplied in writing by Acquiror specifically for inclusion
or incorporation by reference in the Proxy Statement/Prospectus and (ii) no
representation or covenant is made by Acquiror with respect to statements made
or incorporated by reference therein based on information supplied in writing by
the Company for inclusion or incorporation by reference in the Proxy
Statement/Prospectus. If at any time prior to the Effective Time there shall
occur (i) any event with respect to the Company or any of its Subsidiaries, or
with respect to other information supplied by the Company for inclusion in the
Proxy Statement/Prospectus or (ii) any event with respect to Acquiror, or with
respect to information supplied
64
by Acquiror for inclusion in the Proxy Statement/Prospectus, in either case
which event is required to be described in an amendment of, or a supplement to,
the Proxy Statement/Prospectus or the Form S-4, such event shall be so
described, and such amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the stockholders of the Company and to
the stockholders of Acquiror.
(c) Each of the Company and Acquiror shall promptly notify the other
of the receipt of any comments from the SEC or its staff or any other
appropriate government official and of any requests by the SEC or its staff or
any other appropriate government official for amendments or supplements to any
of the filings with the SEC in connection with the Merger and other transactions
contemplated hereby or for additional information and shall supply the other
with copies of all correspondence between the Company or any of its
representatives, or Acquiror or any of its representatives, as the case may be,
on the one hand, and the SEC or its staff or any other appropriate government
official, on the other hand, with respect thereto. The Company and Acquiror
shall use their respective reasonable efforts to respond to any comments of the
SEC with respect to the Form S-4 as promptly as practicable. The Company and
Acquiror shall cooperate with each other and provide to each other all
information necessary in order to prepare the Form S-4 and the Proxy
Statement/Prospectus, and shall provide promptly to the other parties any
information such party may obtain that could necessitate amending any such
document.
(d) The Company shall take all action necessary in accordance with
Applicable Law and its Restated Certificate of Incorporation and By-laws to
convene and hold a meeting of its stockholders (the "Company Stockholders'
Meeting") as promptly as practicable for the purpose of obtaining the Company
Stockholder Approval. The Company
65
shall, through its Board of Directors, recommend to its stockholders the
adoption of this Agreement and the transactions contemplated hereby and shall
use its reasonable best efforts to solicit from its stockholders proxies in
favor of adoption of this Agreement and to take all other lawful action
necessary to secure the Company Stockholder Approval. Notwithstanding the
foregoing, the Company's obligation to convene and hold the Company
Stockholders' Meeting and to recommend the adoption of this Agreement and to
solicit proxies from its stockholders shall be subject to any action (including
any withdrawal or change of its recommendation) taken by, or upon authority of,
the Board of Directors of the Company which the Board of Directors determines,
based on the advice of outside legal counsel to the Company, is required in the
exercise of its fiduciary duties to the Company's stockholders under Applicable
Law.
(e) Acquiror shall take all action necessary in accordance with
Applicable Law and its Certificate of Incorporation and By-laws to convene and
hold a meeting of its stockholders (the "Acquiror Stockholders' Meeting") as
promptly as practicable for the purpose of obtaining the Acquiror Stockholder
Approval. Acquiror shall, through its Board of Directors, recommend to its
stockholders that they approve such issuances and shall use its reasonable best
efforts to solicit from its stockholders proxies in favor of approving such
issuances and to take all other lawful action necessary to secure the Acquiror
Stockholder Approval; PROVIDED, HOWEVER, that such recommendation or
solicitation is subject to any action (including any withdrawal or change of its
recommendation) taken by, or upon authority of, the Board of Directors of
Acquiror which the Board of Directors determines, based on the advice of outside
legal counsel to Acquiror, is required in the exercise of its fiduciary duties
to the Acquiror's stockholders under Applicable Law.
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(f) The Company and Acquiror shall coordinate and cooperate with each
other with respect to the timing of the Company Stockholders' Meeting and the
Acquiror Stockholders' Meeting and shall use their reasonable efforts to hold
such meetings on the same day and as soon as practicable after the date hereof.
7.2 LETTER OF THE COMPANY'S ACCOUNTANTS. The Company shall use its
best efforts to cause to be delivered to Acquiror a letter of Ernst & Young LLP,
the Company's independent public accountants, dated a date within two Business
Days before the date on which the Form S-4 shall become effective and addressed
to Acquiror, in form and substance reasonably satisfactory to Acquiror and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
7.3 LETTER OF ACQUIROR'S ACCOUNTANTS. Acquiror shall use its best
efforts to cause to be delivered to the Company a letter of Arthur Andersen LLP,
Acquiror's independent public accountants, dated a date within two Business Days
before the date on which the Form S-4 shall become effective and addressed to
the Company, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
7.4 REASONABLE BEST EFFORTS; NOTIFICATION. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use all reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this
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Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Authorities and the making of
all necessary registrations and filings (including filings with Governmental
Authorities, if any) and the taking of all reasonable steps as may be necessary
to obtain an approval or waiver from, or to avoid an action or proceeding by,
any Governmental Authority (including in respect of any Gaming Law), (ii) the
obtaining of all necessary consents, approvals or waivers from third parties,
(iii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of any of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental
Authority vacated or reversed and (iv) the execution and delivery of any
additional instruments necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, this Agreement.
(b) The Company shall give prompt notice to Acquiror, and Acquiror
shall give prompt notice to the Company, of (i) any representation or warranty
made by it contained in this Agreement becoming untrue or inaccurate in any
material respect (including in the case of representations or warranties by the
Company or Acquiror, as applicable, such party's receiving knowledge of any
fact, event or circumstance which may cause any representation qualified as to
the knowledge of such party to be or become untrue or inaccurate in any material
respect) or (ii) the failure by it to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement; PROVIDED, HOWEVER, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this Agreement.
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7.5 APPROVAL OF GAMING COMMISSIONS; REGULATORY MATTERS. Acquiror
shall as promptly as practicable, but in no event later than fifteen Business
Days following the execution and delivery of this Agreement, file or submit
those filings and other submissions under applicable Gaming Laws in connection
with the Merger, this Agreement and the transactions contemplated hereby, and to
respond as promptly as practicable to inquiries received from state or local
gaming authorities and to appear before such authorities as promptly as
practicable in order to obtain as soon as practicable those approvals and
consents required or necessary in connection with the Merger, this Agreement or
the transactions contemplated hereby. In addition, Acquiror shall, and shall
cause its Subsidiaries to (and shall use its reasonable efforts to cause its
affiliates other than its Subsidiaries to), if it is necessary to obtain any
regulatory approval for the Merger, disassociate themselves from any person or
persons deemed, or reasonably likely to be deemed, unacceptable by any Gaming
Commission and, in the case of any such person who is a nominee to serve as a
director of Acquiror or any of its Subsidiaries, Acquiror shall, and shall cause
its relevant Subsidiary or Subsidiaries to replace any such director nominee
with a suitable nominee. Acquiror shall keep the Company apprised of the status
of any communications with, and any inquiries or requests for additional
information from, the Gaming Commissions and shall comply promptly with any such
inquiry or request. Acquiror shall use its reasonable best efforts to obtain
all required approvals of the Gaming Commissions for the consummation of the
Merger no later than October 15, 1996.
7.6 SUPPLEMENTAL DISCLOSURE. The Company shall confer on a regular
and frequent basis with Acquiror, report on operational matters and promptly
notify Acquiror of, and furnish Acquiror with, any information it may reasonably
request with respect to, any event or condition or the existence of any fact
that would cause any of the conditions
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to Acquiror's obligation to consummate the Merger not to be completed, and
Acquiror shall promptly notify the Company of, and furnish the Company any
information it may reasonably request with respect to, any event or condition or
the existence of any fact that would cause any of the conditions to the
Company's obligation to consummate the Merger not to be completed.
7.7 ANNOUNCEMENTS. Prior to the Closing, neither the Company nor
Acquiror will issue any press release or otherwise make any public statement
with respect to this Agreement and the transactions contemplated hereby without
the prior consent of the other (which consent shall not be unreasonably
withheld), except as may be required by Applicable Law or applicable stock
exchange regulations, in which event the party required to make the release or
announcement shall, if possible, allow the other party reasonable time to
comment on such release or announcement in advance of such issuance. The
parties agree that the initial press release to be issued with respect to the
transactions contemplated by this Agreement shall be in the form heretofore
agreed to by the parties.
7.8 NO SOLICITATION. (a) From and after the date hereof until the
Effective Time, the Company shall not, nor shall it authorize any of its
officers, directors, employees, agents, investment bankers, attorneys, financial
advisors or other representatives (collectively, "Company Representatives") to
(i) solicit, initiate or knowingly encourage the submission of, any Acquisition
Proposal, (ii) enter into any agreement with respect to any Acquisition
Proposal, or (iii) participate in any discussions or negotiations regarding, or
furnish to any Person any non-public information with respect to, or take any
other action to knowingly facilitate any inquiries or the making of any proposal
that constitutes or would reasonably be expected to lead to, an Acquisition
Proposal; PROVIDED, HOWEVER, that, notwithstanding anything to the
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contrary in this Agreement, (i) the Company may participate in discussions or
negotiations with, and may furnish information concerning the Company and its
business, properties and assets to, a Third Party who, without any solicitation
by the Company or any Company Representatives after the date of this Agreement,
seeks to engage in such discussions or negotiations or requests such
information, if (1) the Board of Directors of the Company determines, based on
the advice of the Company's outside legal counsel, that failing to engage in
such discussion or negotiations or provide such information would reasonably be
expected to violate the fiduciary duties of the Board of Directors of the
Company to its stockholders and (2) prior to engaging in discussions or
negotiations with, or furnishing information to, such Third Party, the Company
shall receive from such Third Party an executed confidentiality agreement in
reasonably customary form on terms not more favorable to such Person or entity
than the terms contained in the Confidentiality Agreement, and (ii) the Board of
Directors of the Company may take and disclose to the Company's stockholders a
position with regard to a tender offer or exchange offer contemplated by Rules
14d-9 and 14e-2(a) promulgated under the Exchange Act and may make such
disclosure to the stockholders of the Company as may be required under
Applicable Law; provided, that the Board of Directors of the Company shall not
recommend that the stockholders of the Company tender their shares of Company
Common Stock unless such recommendation is permitted by Section 7.8(d).
(b) The Company shall notify Acquiror of any Acquisition Proposal,
including the identity of the Third Party making any such Acquisition Proposal
and the material terms and conditions of any Acquisition Proposal.
(c) As used in this Agreement, "Acquisition Proposal" shall mean any
proposal or offer from any person relating to (i) any direct or indirect
acquisition or
71
purchase of more than 20% of either the capital stock of the Company or the
consolidated assets of the Company and its Subsidiaries taken as a whole,
(ii) any tender offer or exchange offer that if consummated would result in any
person beneficially owning 20% or more of the capital stock of the Company or
(iii) any merger, consolidation or business combination, involving the Company
other than the transactions contemplated by this Agreement; provided, however,
that any acquisition of shares of capital stock of the Company by FMR Corp. (and
its subsidiaries, Fidelity Management & Research Company and Fidelity Management
Trust Company) described in clause (i) shall not constitute an Acquisition
Proposal.
(d) Notwithstanding anything to the contrary in this Agreement, the
Board of Directors of the Company shall be permitted from time to time to take
the following actions in the circumstances described below: (i) to withdraw or
modify its approval or recommendation of this Agreement or the Merger in a
manner adverse to Acquiror; or (ii) to approve or recommend or enter into an
agreement with respect to an Acquisition Proposal; if, in each such case, (A) an
Acquisition Proposal is publicly proposed, publicly disclosed or communicated to
the Company and (B) the Board of Directors of the Company determines, based on
the advice of the Company's outside legal counsel, that such action is required
in order to comply with its fiduciary duties to the stockholders of the Company.
No action by the Board of Directors of the Company permitted by the preceding
sentence (each, a "Permitted Action") shall constitute a breach of this
Agreement by the Company, provided that such Permitted Action shall give rise to
the rights of Acquiror set forth in Section 9.3.
7.9 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) Until
the Effective Time the Company shall, and from and after the Effective Time,
Acquiror shall, indemnify, defend and hold harmless each person who is now,
72
or has been at any time prior to the date hereof or who becomes prior to the
Effective Time, an officer or director of the Company or any of its Subsidiaries
(the "Indemnified Parties") against all losses, claims, damages, costs, expenses
(including reasonable attorneys' fees and expenses), liabilities or judgments or
amounts that are paid in settlement of or in connection with any threatened or
actual claim, action, suit, proceeding or investigation based in whole or
substantially on, or arising in whole or substantially out of the fact that such
person is or was a director or officer of the Company or any of its
Subsidiaries, whether pertaining to any matter existing or occurring at or prior
to the Effective Time and whether asserted or claimed prior to, or at or after,
the Effective Time ("Indemnified Liabilities"), including all Indemnified
Liabilities based in whole or substantially on, or arising in whole or
substantially out of, or pertaining to this Agreement or the transactions
contemplated hereby, in each case to the fullest extent a corporation is
permitted under the DGCL to indemnify its own directors or officers as the case
may be (and the Company or the Surviving Corporation, as the case may be, will
pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted by law).
(b) The Acquiror shall and shall cause the Subsidiaries of the
Surviving Corporation to keep in effect provisions in their respective
Certificates of Incorporation and By-laws providing for exculpation for
director, officer and employee liability and such corporation's indemnification
of the Indemnified Parties to the fullest extent permitted under the DGCL, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at any time prior to the Effective Time
were directors, officers or employees of the Company in respect of actions or
omissions occurring at or prior to the Effective Time
73
(including, without limitation, the transactions contemplated by this
Agreement), unless such modification is required by law.
(c) For a period of six years after the Effective Time, Acquiror
shall cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company and its Subsidiaries
(provided that Acquiror may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions that are no less
advantageous in any material respect to the Indemnified Parties) with respect to
matters arising before the Effective Time, provided that Acquiror shall not be
required to pay an annual premium for such insurance in excess of 150% of the
last annual premium paid by the Company prior to the date hereof, but in such
case shall purchase as much coverage as possible for such amount.
(d) After the Effective Time, any Indemnified Party wishing to claim
indemnification under this Section, upon learning of any such action, suit,
claim, proceeding or investigation, shall notify Acquiror within 30 days
thereof; provided, however, that any failure so to notify Acquiror of any
obligation to indemnify such Indemnified Party or of any other obligation
imposed by this Section shall not affect such obligations except to the extent
Acquiror is materially prejudiced thereby. Acquiror shall be entitled to assume
the defense of any such action, suit, claim, proceeding or investigation with
counsel of its choice (who shall be reasonably acceptable to the Indemnified
Party), unless there is a conflict between the positions of Acquiror, on the one
hand, and the Indemnified Party, on the other, in which event the Indemnified
Party, together with all other similarly situated Indemnified Parties in the
same proceeding as a group, may retain one law firm and one local counsel to
represent them with respect to such matter, the cost of which shall be borne by
Acquiror. Neither Acquiror, on the one hand, nor any Indemnified Party, on the
other
74
hand, may settle any such action, suit, claim, proceeding or investigation
without the prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed.
(e) The provisions of this Section 7.9 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her personal representatives and shall be binding on all
successors and assigns of Acquiror and the Company.
7.10 NYSE LISTING. Acquiror shall use its reasonable efforts to cause
the shares of Acquiror Common Stock and New PRIDES to be issued in the Merger to
be approved for listing on the NYSE, subject to notice of official issuance,
prior to the Effective Time.
7.11 AFFILIATES. Prior to the Closing Date, the Company shall deliver
to Acquiror a letter identifying all persons who are, at the time this Agreement
is submitted for approval to the stockholders of the Company, "affiliates" of
the Company for purposes of Rule 145 under the Securities Act. The Company
shall use its best efforts to cause each such person to deliver to Acquiror on
or prior to the Closing Date a written agreement substantially in the form
attached as Exhibit F.
7.12 RIGHTS AGREEMENT. The Board of Directors of the Company shall
take all action necessary to render the Company Rights or any similar instrument
inapplicable to the Merger and to effect the conversion of the Company Rights as
of the Effective Date in accordance with Section 3.1(c) hereof.
7.13 EMPLOYEE BENEFITS. (a) Acquiror shall or shall cause the
Surviving Corporation to maintain in effect employee benefit plans and
arrangements which provide benefits which have a value which is substantially
75
comparable, in the aggregate, to the benefits provided by the Employee Benefit
Plans (not taking into account the value of any benefits under any such plans
which are equity based) for a period of one year after the Effective Time.
(b) Acquiror shall honor all employment, severance and termination
agreements (including change in control provisions) of the employees of the
Company and its Subsidiaries.
(c) For purposes of determining eligibility to participate and
vesting, but not accrual or entitlement to benefits (other than severance
benefit accrual) where length of service is relevant under any employee benefit
plan or arrangement of Acquiror or the Surviving Corporation, employees of the
Company and its Subsidiaries as of the Effective Time shall receive service
credit for service with the Company and any of its Subsidiaries to the same
extent such service was granted under the Employee Benefit Plans.
(d) The provisions of Section 7.13(b) are intended to be for the
benefit of and shall be enforceable by each applicable employee and his heirs
and personal representatives and shall be binding on all successors and assigns
of Acquiror, the Surviving Corporation and its Subsidiaries.
(e) In the event the Surviving Corporation terminates any Employee
Benefit Plan which provides pension, profit sharing or non-qualified deferred
compensation benefits, the Acquiror shall use its reasonable best efforts to
provide the participants and beneficiaries under any such plan with the means to
maintain and continue tax deferred treatment of such benefits, other than
through the use of an individual retirement account.
7.14 TAX TREATMENT. Each of Acquiror and the Company shall use its
best efforts to cause the Merger to
76
qualify as a reorganization under the provisions of Sections 368(a) of the Code
and use its reasonable best efforts to obtain the opinions of counsel referred
to in Sections 8.2(c) and 8.3(c).
7.15 TRANSFER TAXES. The Company and Acquiror shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer and stamp taxes, any transfer, recording, registration and other fees
and any similar taxes that become payable in connection with the transactions
contemplated by this Agreement ("Transfer Taxes"). The Company shall pay or
cause to be paid any such Transfer Taxes.
7.16 SUBSIDIARY PREFERRED STOCK. Promptly following the Effective
Time, Acquiror shall exchange all outstanding shares of Subsidiary Preferred
Stock presented to it for the aggregate of (i) the number of shares of Acquiror
Common Stock to which the shares of Company Common Stock transferrable upon
exchange of such Subsidiary Preferred Stock immediately prior to the Effective
Time would have been entitled in the Merger and (ii) the number of shares of
Acquiror Common Stock equal to the quotient of (A) the sum of (x) the aggregate
Cash Consideration (if any) to which the shares of Company Common Stock
transferrable upon exchange of such Subsidiary Preferred Stock immediately prior
to the Effective Time would have been entitled in the Merger plus (y) the
product of (1) the average of the last sale prices of the common stock of Bally
Total Fitness Holding Corporation quoted on the National Market System (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source) for the thirty consecutive Trading Days ending on the
third Trading Day prior to the Effective Time, and (2) the number of shares of
common stock of Bally Total Fitness Corporation transferrable upon exchange of
such Subsidiary Preferred
77
Stock immediately prior to the Effective Time, DIVIDED by (B) the Determination
Price.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) STOCKHOLDER APPROVALS. The Company shall have obtained the
Company Stockholder Approval and Acquiror shall have obtained the Acquiror
Stockholder Approval.
(b) HSR ACT. The applicable waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have expired or
been earlier terminated.
(c) NO INJUNCTIONS OR RESTRAINTS. No statute, rule, regulation,
decree, preliminary or permanent injunction, temporary restraining order or
other order of any nature of any court or Governmental Authority shall be
in effect that restrains, prevents or materially changes the transactions
contemplated hereby; PROVIDED, HOWEVER, that in the case of a decree,
injunction or other order, the party invoking this condition shall have
used reasonable efforts to prevent the entry of any such injunction or
other order and to appeal as promptly as possible any decree, injunction or
other order.
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(d) FORM S-4. The Form S-4 shall have been declared effective under
the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any material "blue sky" and other
state securities laws applicable to the issuance of the Acquiror Common
Stock and New PRIDES pursuant to this Agreement shall have been complied
with.
(e) NYSE LISTING. The shares of Acquiror Common Stock and New PRIDES
issuable to the Company's stockholders in the Merger shall have been
approved for listing on the NYSE, subject to official notice of issuance.
8.2 CONDITIONS OF OBLIGATIONS OF ACQUIROR. The obligations of
Acquiror to effect the Merger are further subject to the satisfaction of the
following conditions, any or all of which may be waived on or prior to the
Closing Date in whole or in part by Acquiror:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company shall be true and correct in all material
respects, at and as of the Closing Date, except for changes permitted or
contemplated by this Agreement and except to the extent that any
representation or warranty is expressly made as of a specified date, in
which case such representation or warranty shall be true and correct only
as of such date. Acquiror shall have received a certificate from the
Company dated the Closing Date signed on behalf of the Company by an
authorized officer of the Company certifying to the fulfillment of this
condition.
(b) AGREEMENTS. The Company shall have performed in all material
respects all obligations required to be performed by it under this
Agreement at or prior to or at the Closing Date and shall have complied or
be in
79
compliance in all material respects with any agreement or covenant of the
Company to be performed by it under this Agreement at or prior to the
Closing Date, and Acquiror shall have received a certificate from the
Company dated the Closing Date signed on behalf of the Company by an
authorized officer of the Company certifying to the fulfillment of this
condition.
(c) TAX OPINION. Acquiror shall have received an opinion of Latham &
Watkins, dated the Closing Date, to the effect that (i) the Merger will be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code; (ii) each of Acquiror and the
Company will be a party to the reorganization within the meaning of Section
368(b) of the Code; and (iii) no gain or loss will be recognized by the
Company or Acquiror as a result of the Merger, and substantially in the
form of Exhibit A. In rendering such opinion, Latham & Watkins shall
receive and may rely upon representations contained in certificates of the
Company, Acquiror, and certain stockholders of the Company substantially in
the forms of Exhibits C, D, and E.
(d) LETTERS FROM AFFILIATES. Acquiror shall have received from each
person in the letter referred to in Section 7.11 an executed copy of an
agreement substantially in the form of Exhibit F.
(e) CONSENTS. All necessary approvals or authorizations of any
Governmental Authority required or necessary under applicable Gaming Laws
in connection with the Merger shall have been obtained.
(f) LITIGATION. There shall not have entered any order by any
Governmental Authority in any suit, action or proceeding, which
(i) restrains or prohibits the Merger or any of the other transactions
contemplated by
80
this Agreement, (ii) requires the payment of damages by Acquiror in
connection with the Merger which damages are material to the Acquiror and
its Subsidiaries taken as a whole (determined after giving effect to the
Merger), (iii) prohibits or limits the ownership or operation by Acquiror
and its Subsidiaries of, or compels Acquiror or any of its Subsidiaries to
dispose of or hold separate, any business or assets which are material to
Acquiror and its Subsidiaries taken as a whole, in each case as a result of
the Merger or any of the other transactions contemplated by this Agreement,
(iv) imposes limitations on the ability of Acquiror to acquire or hold, or
exercise full rights of ownership of, shares of capital stock of the
Subsidiaries of the Company, which limitations would have a Material
Adverse Effect with respect to Acquiror (determined after giving effect to
the Merger).
(g) COMPANY RIGHTS. The Company Rights shall not have become
nonredeemable, exercisable or triggered pursuant to the terms of the
Company Rights Agreement.
8.3 CONDITIONS OF OBLIGATION OF THE COMPANY. The obligation of the
Company to effect the Merger is further subject to the satisfaction of the
following conditions, any or all of which may be waived on or prior to the
Closing Date in whole or in part by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Acquiror made hereunder shall be true and correct in all
material respects at and as of the Closing Date, except for changes
permitted or contemplated by this Agreement and except to the extent that
any representation or warranty is expressly made as of a specified date, in
which case such representation or warranty shall be true and correct only
as of such date. The Company shall have received a certificate from
Acquiror dated
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the Closing Date signed on behalf of Acquiror by an authorized officer of
Acquiror certifying to the fulfillment of this condition.
(b) AGREEMENTS. Acquiror shall have performed in all material
respects all obligations required to be performed by it under this
Agreement at or prior to or at the Closing Date and shall have complied or
be in compliance in all material respects with any applicable agreement or
covenant of Acquiror to be performed by Acquiror under this Agreement at or
prior to the Closing Date, and the Company shall have received the
certificates from the Acquiror dated the Closing Date signed on behalf of
Acquiror by an authorized officer of Acquiror certifying to the fulfillment
of this condition.
(c) LITIGATION. There shall not have entered any order by any
Governmental Authority in any suit, action or proceeding, which
(i) requires the payment of damages by Acquiror which would have a Material
Adverse Effect with respect to Acquiror (determined after giving effect to
the Merger), (ii) prohibits or materially limits the ownership or operation
by Acquiror or any of its Subsidiaries of, or compels Acquiror or any of
its Subsidiaries to dispose of or hold separate, any business or assets
which are material to Acquiror and its Subsidiaries taken as a whole
(determined after giving effect to the Merger), in each case as a result of
the Merger or any of the other transactions contemplated by this Agreement,
or (iii) which otherwise is reasonably likely to have a Material Adverse
Effect with respect to Acquiror (determined after giving effect to the
Merger).
(d) TAX OPINION. The Company shall have received an opinion of Weil,
Gotshal & Manges LLP, dated the Closing Date, to the effect that (i) the
Merger will be
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treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code; (ii) each of Acquiror and the
Company will be a party to the reorganization within the meaning of Section
368(b) of the Code; and (iii) gain, if any, realized will be recognized by
a stockholder of the Company as a result of the Merger, but not in excess
of the amount of cash received by such stockholder in the Merger, and
substantially in the form of Exhibit B. In rendering such opinion, Weil,
Gotshal & Manges LLP shall receive and may rely upon representations
contained in certificates of the Company, Acquiror and certain stockholders
of the Company substantially in the forms of Exhibits C, D and E.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 TERMINATION. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, whether before or after
the Company Stockholder Approval or Acquiror Stockholder Approval have been
obtained:
(a) by mutual written consent of the Company, on the one hand,
and Acquiror, on the other hand, or by mutual action of their respective
boards of directors;
(b) by Acquiror, if any of the conditions set forth in Section
8.2 shall have become incapable of fulfillment (other than as a result of
any breach by Acquiror of the terms of this Agreement) and shall not have
been waived by Acquiror;
83
(c) by the Company, if any of the conditions set forth in
Section 8.3 shall have become incapable of fulfillment (other than as a
result of any breach by the Company of the terms of this Agreement), and
shall not have been waived by the Company;
(d) by either the Company or Acquiror, if the Merger shall not
have been consummated on or before the earlier of (i) the 90th day
following the mailing of the Proxy Statement/Prospectus and (ii) March 31,
1997 (the "Termination Date"), unless the failure to consummate the Merger
is the result of a willful and material breach of this Agreement by the
party seeking to terminate this Agreement;
(e) by either the Company or Acquiror if any of the conditions
set forth in Section 8.1 shall have become incapable of fulfillment (other
than as a result of any breach by the party seeking to terminate the
Agreement) and shall not have been waived in accordance with the terms of
this Agreement;
(f) by the Company, pursuant to Section 3.1(c)(i);
(g) by Acquiror, if the Board of Directors of the Company shall
have taken any Permitted Action in accordance with the provisions of
Section 7.8(d); or
(h) by the Company if (i) the Board of Directors pursuant to
Section 7.8(d) withdraws or modifies its approval or recommendation of this
Agreement or (ii) the Company enters into a definitive agreement providing
for the implementation of an Acquisition Proposal in accordance with the
provisions of Section 7.8.
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9.2 EFFECT OF TERMINATION. In the event of termination by the
Company or Acquiror pursuant to Section 9.1, written notice thereof shall
promptly be given to the other parties and, except as otherwise provided herein,
the transactions contemplated by this Agreement shall be terminated and become
void and have no effect, without further action by any party, other than the
provisions of the last sentence of Section 6.3 and Sections 9.2 and 9.3 and
Article X. Nothing in this Section 9.2 shall be deemed to release any party
from any liability for any willful and material breach by such party of the
terms and provisions of this Agreement.
9.3 FEES AND EXPENSES. (a) In order to induce Acquiror to, among
other things, enter into this Agreement, the Company agrees to pay Acquiror the
fees and expenses set forth in Sections 9.3(b) and 9.3(c).
(b) Unless there shall have been a material misrepresentation by or
material breach of any material obligation of Acquiror hereunder which would
entitle the Company to terminate this Agreement under Section 9.1, if:
(i) an Acquisition Proposal is commenced, publicly proposed,
publicly disclosed or communicated to the Company after the date of this
Agreement, and (A) the Board of Directors of the Company takes any
Permitted Action under Section 7.8(d) and (B) this Agreement is terminated
by Acquiror pursuant to Section 9.1(g) following the Company's taking a
Permitted Action or by the Company pursuant to Section 9.1(h); or
(ii) an Acquisition Proposal is publicly commenced, proposed or
disclosed after the date of this Agreement and prior to the date of the
Company Stockholders Meeting and this Agreement is terminated pursuant to
Section 9.1(e) following the rejection of this Agreement at the Company
Stockholders Meeting; or
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(iii) this Agreement is terminated by Acquiror pursuant to Section
9.1(b) based on the failure of the condition set forth in Section 8.2(g),
and within one year following any such termination, an Acquisition Proposal is
consummated or the Company enters into an agreement with respect thereto, then
the Company shall pay to Acquiror within five business days following such
occurrence a fee (the "Topping Fee") of $50 million in cash; PROVIDED, HOWEVER,
that in no event shall the Company be obligated to pay more than one such fee
with respect to all such occurrences.
(c) If a Topping Fee is payable to Acquiror pursuant to Section
9.3(b), then the Company shall also reimburse Acquiror (not later than five
business days after submission of statements therefor) for all documented out-
of-pocket (not including allocation of overhead) fees and expenses ("Expenses")
actually incurred by it prior to such termination in connection with the
proposed Merger and the consummation of all transactions contemplated by this
Agreement (including fees and expenses of counsel, investment banking firms,
accountants, experts and consultants); provided, that the aggregate amount of
Expenses required to be reimbursed pursuant to this Section shall not exceed $5
million.
9.4 AMENDMENT. Subject to Applicable Law, this Agreement may be
amended, modified or supplemented only by written agreement of Acquiror and the
Company at any time prior to the Effective Date with respect to any of the terms
contained herein; PROVIDED, HOWEVER, that, after receipt of the Company
Stockholder Approval, no such amendment or modification shall reduce the amount
or change the form of consideration to be delivered to the stockholders of the
Company.
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9.5 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective boards of
directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto; and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. The failure
of any party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights.
ARTICLE X
GENERAL PROVISIONS
10.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties and agreements in this Agreement shall terminate at
the Effective Time or upon the termination of this Agreement pursuant to Article
IX, except that the agreements set forth in Articles II and III and Sections 7.9
and 7.13 shall survive the Effective Time and those set forth in Sections 9.2,
9.3 and Article X hereof shall survive termination.
10.2 EXPENSES. Except as otherwise provided herein, including in
Section 9.3, each of the parties hereto shall pay the fees and expenses of its
respective counsel, accountants and other experts and shall pay all other costs
and expenses incurred by it in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the transactions
contemplated hereby.
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10.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without
reference to choice of law principles, including all matters of construction,
validity and performance (except to the extent that the provisions of the DGCL
shall be mandatorily applicable to the Merger or this Agreement).
10.4 NOTICES. Notices, requests, permissions, waivers, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if signed by the respective persons giving them (in the case of any
corporation the signature shall be by an officer thereof) and delivered by hand,
deposited in the United States mail (registered or certified, return receipt
requested), properly addressed and postage prepaid, or delivered by telecopy:
If to the Company, to:
Bally Entertainment Corporation
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
Attention: James S. Montana, Jr., Esq.
Facsimile: (312) 399-0168
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Dennis J. Block, Esq.
Facsimile: (212) 310-8007
and:
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If to Acquiror, to:
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Attention: William C. Lebo, Jr., Esq.
Facsimile: (310) 205-7677
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Bruce E. Rosenblum, Esq.
Facsimile: (202) 637-2201
Such names and addresses may be changed by notice given in accordance with this
Section 10.4.
10.5 ENTIRE AGREEMENT. This Agreement (including the Company
Disclosure Schedule, the Acquiror Disclosure Schedule and the Exhibits attached
hereto, all of which are a part hereof) and the Confidentiality Agreement
contain the entire understanding of the parties hereto and thereto with respect
to the subject matter contained herein and therein, supersede and cancel all
prior agreements, negotiations, correspondence, undertakings and communications
of the parties, oral or written, respecting such subject matter. There are no
restrictions, promises, representations, warranties, agreements or undertakings
of any party hereto with respect to the transactions contemplated by this
Agreement other than those set forth herein or made hereunder.
10.6 DISCLOSURE SCHEDULE. The Disclosure Schedule, dated the date
hereof, delivered by the Company to Acquiror (the "Company Disclosure Schedule")
and the Disclosure Schedule, dated the date hereof, delivered by
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Acquiror to the Company (the "Acquiror Disclosure Schedule") are incorporated
into this Agreement by reference and made a part hereof. Nothing disclosed in
the Company Disclosure Schedule or the Acquiror Disclosure Schedule shall be
deemed to be an admission that such matters are material or are required to be
disclosed herein. Certain immaterial items or items that are not entirely
responsive to the information required in a Schedule may be included in various
Schedules as further clarification or assistance to the parties in understanding
the business and operations of the parties or in consummating the transactions
contemplated herein.
10.7 HEADINGS; REFERENCES. The article, section and paragraph
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. All
references herein to "Articles", "Sections" or "Exhibits" shall be deemed to be
references to Articles or Sections hereof or Exhibits hereto unless otherwise
indicated.
10.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original, but all of
which shall constitute one and the same original.
10.9 PARTIES IN INTEREST; ASSIGNMENT. Neither this Agreement nor any
of the rights, interest or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties. Subject
to the preceding sentence this agreement shall inure to the benefit of and be
binding upon the Company and Acquiror and shall inure to the sole benefit of the
Company and Acquiror and their respective successors and permitted assigns.
Except as set forth in Sections 7.9 and 7.13 nothing in this Agreement, express
or implied, is intended to confer upon any other Person any rights or remedies
under or by reason of this Agreement.
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10.10 SEVERABILITY; ENFORCEMENT. Except to the extent that the
application of this Section 10.10 would have a Material Adverse Effect with
respect to Acquiror or the Company, the invalidity of any portion hereof shall
not affect the validity, force or effect of the remaining portions hereof. If
it is ever held that any restriction hereunder is too broad to permit
enforcement of such restriction to its fullest extent, each party agrees that a
court of competent jurisdiction may enforce such restriction to the maximum
extent permitted by law, and each party hereby consents and agrees that such
scope may be judicially modified accordingly in any proceeding brought to
enforce such restriction.
10.11 SPECIFIC PERFORMANCE. The parties hereto agree that the remedy
at law for any breach of this Agreement will be inadequate and that any party by
whom this Agreement is enforceable shall be entitled to specific performance in
addition to any other appropriate relief or remedy. Such party may, in its sole
discretion, apply to a court of competent jurisdiction for specific performance
or injunctive or such other relief as such court may deem just and proper in
order to enforce this Agreement or prevent any violation hereof and, to the
extent permitted by Applicable Law, each party waives any objection to the
imposition of such relief.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
HILTON HOTELS CORPORATION
By: /s/ Stephen F. Bollenbach
------------------------------------------
Name: Stephen F. Bollenbach
Title: President and
Chief Executive Officer
BALLY ENTERTAINMENT CORPORATION
By: /s/ Arthur Goldberg
------------------------------------------
Name: Arthur J. Goldberg
Title: Chairman of the Board,
President and Chief
Executive Officer
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