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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HILTON HOTELS CORPORATION,
GAMING CO., INC.,
GAMING ACQUISITION CORPORATION,
GCI LAKES, INC.
AND
GRAND CASINOS, INC.
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DATED AS OF JUNE 30, 1998
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TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS...........................................................................................2
ARTICLE II. THE MERGER..........................................................................................15
Section 2.1. The Merger.................................................................................15
Section 2.2. Effective Time of the Merger...............................................................15
Section 2.3. Closing....................................................................................15
Section 2.4. Effects of the Merger......................................................................15
Section 2.5. Articles of Incorporation and Bylaws of the Surviving Corporation..........................15
Section 2.6. Directors and Officers of the Surviving Corporation........................................16
Section 2.7. Directors of Gaming Co.....................................................................16
ARTICLE III. CONVERSION OF SECURITIES...........................................................................16
Section 3.1. Conversion of Capital Stock................................................................20
Section 3.2. Exchange of Certificates...................................................................23
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF COMPANY...........................................................24
Section 4.1. Organization, Standing and Corporate Power.................................................24
Section 4.2. Subsidiaries...............................................................................24
Section 4.3. Capitalization.............................................................................24
Section 4.4. Authority; Enforceability; No Conflict; Consents...........................................25
Section 4.5. Vote Required; Ownership of Hilton Capital Stock; State Takeover Statutes..................27
Section 4.6. Compliance with Applicable Laws............................................................27
Section 4.7. Company SEC Documents; Undisclosed Liabilities.............................................28
Section 4.8. Absence of Changes or Events...............................................................29
Section 4.9. Litigation.................................................................................29
Section 4.10. Taxes.....................................................................................31
Section 4.11. Employee Benefits.........................................................................31
Section 4.12. Brokers and Intermediaries................................................................33
Section 4.13. Opinion of Financial Advisor..............................................................33
Section 4.14. Title to Properties.......................................................................33
Section 4.15. Indian Gaming and Debt Agreements and Lakes Agreements....................................34
Section 4.16. Insurance.................................................................................34
Section 4.17. Transactions with Company Affiliates......................................................34
Section 4.18. Certain Matters Relating to Stratosphere and the Lakes Group..............................35
Section 4.19. Pro Forma Financial Information of Company Retained Business..............................36
Section 4.20. Capital Expenditure Plan..................................................................36
Section 4.21. Prohibited Payments.......................................................................36
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF HILTON.............................................................36
Section 5.1. Organization, Standing and Corporate Power.................................................36
Section 5.2. Ownership of Gaming Co.....................................................................36
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Section 5.3. Capitalization.............................................................................37
Section 5.4. Authority; Enforceability; No Conflict; Consents..........................................39
Section 5.5. Ownership of Company Capital Stock.........................................................40
Section 5.6. Compliance with Applicable Laws............................................................40
Section 5.7. Hilton SEC Documents; Undisclosed Liabilities..............................................41
Section 5.8. Absence of Changes or Events...............................................................42
Section 5.9. Litigation.................................................................................42
Section 5.10. Taxes.....................................................................................42
Section 5.11. Employee Benefits.........................................................................43
Section 5.12. Brokers and Intermediaries................................................................43
Section 5.13. Opinion of Financial Advisor..............................................................43
Section 5.14. Pro Forma Financial Information of Gaming Co. Business....................................43
Section 5.15. Transactions with Hilton Affiliates.......................................................44
Section 5.16. Ownership of Merger Sub: No Prior Activities; Assets of Merger Sub........................44
Section 5.17. Prohibited Payments.......................................................................44
ARTICLE VI. COVENANTS RELATING TO CONDUCT OF BUSINESS...........................................................44
Section 6.1. Conduct of Company.........................................................................44
Section 6.2. Conduct of Hilton with Respect to the Gaming Co. Business..................................47
Section 6.3. Access to Information......................................................................49
Section 6.4. Indian Gaming and Other Guarantees Release.................................................49
Section 6.5. Dissenters' Rights.........................................................................49
ARTICLE VII. ADDITIONAL AGREEMENTS..............................................................................50
Section 7.1. Preparation of Form S-4, Forms 10 and the Joint Proxy Statement/Prospectus;
Shareholders Meeting..............................................................50
Section 7.2. Letter of Company's Accountants............................................................51
Section 7.3. Letter of Hilton's Accountants.............................................................52
Section 7.4. Reasonable Best Efforts; Notification......................................................52
Section 7.5. Approval of Gaming Commissions; Regulatory Matters.........................................52
Section 7.6. Supplemental Disclosure....................................................................53
Section 7.7. Announcements..............................................................................53
Section 7.8. No Solicitation............................................................................53
Section 7.9. Indemnification............................................................................54
Section 7.10. Distributions.............................................................................56
Section 7.11. Private Letter Ruling and Tax Opinions....................................................57
Section 7.12. NYSE Listing..............................................................................57
Section 7.13. Affiliate Agreements......................................................................57
Section 7.14. Stock Plans...............................................................................58
Section 7.15. Indian Gaming and Debt Agreements and Lakes Agreements....................................59
Section 7.16. Conveyance Taxes..........................................................................59
Section 7.17. Stockholder or Shareholder Litigation.....................................................59
Section 7.18. Employee Benefits.........................................................................59
Section 7.19. Indentures and Company Notes..............................................................60
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Section 7.20. Post-Closing Marketing Activities.........................................................60
Section 7.21. Shark Club Ground Lease...................................................................60
ARTICLE VIII. CONDITIONS TO MERGER..............................................................................61
Section 8.1. Conditions to Each Party's Obligation to Effect the Merger.................................61
Section 8.2. Additional Conditions to Obligations of Gaming Co..........................................62
Section 8.3. Additional Conditions to Obligations of Company............................................64
ARTICLE IX. TERMINATION AND AMENDMENT...........................................................................65
Section 9.1. Termination................................................................................65
Section 9.2. Effect of Termination......................................................................66
Section 9.3. Fees and Expenses..........................................................................67
Section 9.4. Amendment..................................................................................67
Section 9.5. Extension; Waiver..........................................................................67
ARTICLE X. MISCELLANEOUS........................................................................................68
Section 10.1. Nonsurvival of Representations, Warranties and Agreements.................................68
Section 10.2. Notices 70
Section 10.3. Interpretation............................................................................68
Section 10.4. Counterparts..............................................................................69
Section 10.5. Entire Agreement; No Third Party Beneficiaries............................................69
Section 10.6. Governing Law.............................................................................69
Section 10.7. Assignment................................................................................70
Section 10.8. Headings; References......................................................................70
Section 10.9. Severability; Enforcement.................................................................70
Section 10.10. Specific Performance.....................................................................70
Section 10.11. Effect of Hilton Distribution............................................................70
Section 10.12. Approvals, Consent and Waivers...........................................................71
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EXHIBITS
Exhibit A Form of Hilton Distribution Agreement
Exhibit B Form of Company Distribution Agreement
Exhibit C Form of Affiliate Agreement
Exhibit D Company Retained Business Financial Statements
Exhibit E Lakes Balance Sheet
Exhibit F Company's Capital Expenditure Plans 1998 - 1999
Exhibit G Gaming Co. Business Financial Statements
Exhibit H Form of Opinion of Latham & Watkins
Exhibit I Form of Certificate of Company
Exhibit J Form of Certificate of Gaming Co.
Exhibit K Form of Opinion of Maslon, Edelman, Borman & Brand, LLP
Exhibit L Form of Non-Competition Agreement
Exhibit M Trust Agreement
Exhibit N Pledge and Security Agreement
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EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June 30,
1998, is by and among HILTON HOTELS CORPORATION, a Delaware corporation
("Hilton"), GAMING CO., INC., a Delaware corporation and wholly-owned subsidiary
of Hilton ("Gaming Co."), Gaming Acquisition Corporation, a Minnesota
corporation and wholly-owned subsidiary of Gaming Co. ("Merger Sub"), GRAND
CASINOS, INC., a Minnesota corporation ("Company"), and GCI LAKES, INC., a
Minnesota corporation and wholly-owned subsidiary of Company ("Lakes").
WHEREAS, subject to shareholder ratification and certain other conditions
set forth herein, the Board of Directors of Hilton has approved the transactions
described in the Hilton Distribution Agreement attached hereto as Exhibit A (the
"Hilton Distribution Agreement"), pursuant to which (a) all of the operations,
assets and liabilities of Hilton and its Subsidiaries comprising the Gaming
Business (as defined in the Hilton Distribution Agreement) will be contributed
to Gaming Co. and (b) all of the shares of Gaming Co. will be distributed on a
pro rata basis to Hilton's stockholders (the "Hilton Distribution");
WHEREAS, following the Hilton Distribution, Hilton will retain the Hilton
Retained Business, consisting principally of Hilton's existing lodging
operations;
WHEREAS, subject to shareholder ratification and certain other conditions
set forth herein, the Board of Directors of Company has approved certain
transactions, described in the Company Distribution Agreement attached hereto as
Exhibit B (the "Company Distribution Agreement") pursuant to which (a) all of
the operations, assets and liabilities of Company and its Subsidiaries
comprising the Non-Mississippi Business (as defined in the Company Distribution
Agreement) will be contributed to Lakes and (b) all of the shares of Lakes will
be distributed on a pro rata basis to Company's shareholders (the "Company
Distribution," and together with the Hilton Distribution, the "Distributions");
WHEREAS, following the Company Distribution, Company will retain the Company
Retained Business, consisting principally of Company's existing Mississippi
gaming operations;
WHEREAS, the respective Boards of Directors of Hilton and Company have
determined that, following the Distributions, the merger of Merger Sub with and
into Company (the "Merger") with Company as the surviving corporation (the
"Surviving Corporation") would be advantageous and beneficial to their
respective corporations and stockholders, and that the consummation of the
Merger would not be approved unless both Distributions occur prior to the
Merger;
WHEREAS, the consummation of the Distributions is a condition to each of
Hilton's and Company's respective obligations to effect the Merger;
WHEREAS, for federal income tax purposes, it is intended that (a) (i) the
Hilton Distribution shall qualify as a tax-free distribution within the meaning
of Section 355 of the
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Internal Revenue Code of 1986, as amended (the "Code") to Hilton and its
stockholders and (ii) the Company Distribution shall qualify as a tax-free
distribution within the meaning of Section 355 of the Code solely with respect
to Company's shareholders and (b) the Merger shall qualify as a reorganization
under Section 368(a) of the Code, and this Agreement is intended to be and is
adopted as a plan of reorganization; and
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Hilton's willingness to enter into this
Agreement, certain shareholders of Company have entered into the Shareholder
Support Agreement, pursuant to which such shareholders have agreed, among other
things, to vote all voting securities of Company beneficially owned by them in
favor of approval and adoption of the Agreement and the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings
set forth or as referenced below:
"Acquisition Proposal" shall have the meaning set forth in Section 7.8(a).
"Affiliate" shall have the meaning set forth in Section 7.13.
"Affiliate Agreement" shall have the meaning set forth in Section 7.13.
"Agreement" shall mean this Agreement and Plan of Merger dated June 30,
1998, including all Exhibits and Schedules hereto.
"Ancillary Agreements" shall have the meaning set forth in Section 7.10(b).
"Applicable Laws" shall mean, with respect to a Person, any and all
statutes, laws, ordinances, rules, orders and regulations of any Governmental
Authority applicable to such Person and such Person's business, properties and
assets.
"Articles of Incorporation" shall mean the Second Amended and Restated
Articles of Incorporation, as amended, of Company.
"Articles of Merger" shall have the meaning set forth in Section 2.2.
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"Bankruptcy and Equity Exception" shall mean the effect of any bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and of general
equity principles.
"Certificate of Incorporation" shall mean the Restated Certificate of
Incorporation, as amended, of Hilton.
"Certificates" shall have the meaning set forth in Section 3.2(b).
"Closing" shall have the meaning set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Code" shall have the meaning set forth in the Recitals.
"Company" shall have the meaning set forth in the Preamble.
"Company Ancillary Agreements" shall have the meaning set forth in Section
7.10(b).
"Company Bylaws" shall mean the Amended and Restated Bylaws of Company.
"Company Capital Plan" shall have the meaning set forth in Section 4.20.
"Company Common Stock" shall have the meaning set forth in Section 3.1.
"Company Closing Schedule" shall have the meaning set forth in Section
3.1(c)(i)(A)(1).
"Company Disclosure Schedule" shall mean the disclosure schedule delivered
by Company to Hilton on or before the date of this Agreement.
"Company Distribution" shall have the meaning set forth in the Recitals.
"Company Distribution Agreement" shall have the meaning set forth in the
Recitals.
"Company Net Equity Value" shall have the meaning set forth in Section
3.1(c)(i)(A).
"Company Notes" shall mean, collectively, the First Mortgage Notes and the
Senior Notes.
"Company Retained Business" means the operations, assets and liabilities to
be retained by Company and its Subsidiaries following the Company Distribution,
as set forth in the Company Distribution Agreement.
"Company Retained Business Balance Sheet" shall have the meaning set forth
in Section 4.19(a).
"Company Retained Business Financial Statements" shall have the meaning set
forth in Section 4.19(a).
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"Company Retained Business Income Statement" shall have the meaning set
forth in Section 4.19(a).
"Company SEC Documents" shall have the meaning set forth in Section 4.7(a).
"Company Shareholder Approval" shall have the meaning set forth in Section
4.4(a).
"Company Shareholders Meeting" shall have the meaning set forth in Section
7.1(d).
"Company Stock Options" shall have the meaning set forth in Section 4.3.
"Company Stock Plans" shall have the meaning set forth in Section 4.3.
"Company Valuation Factor" shall have the meaning set forth in Section
3.1(c)(i)(A).
"Company's 1997 10-K" shall mean Company's Annual Report on Form 10-K for
the fiscal year ended December 28, 1997.
"Company's 1998 Proxy" shall mean Company's Proxy Statement dated March 27,
1998.
"Confidentiality Agreement" shall have the meaning set forth in Section 6.3.
"Contamination" shall mean the introduction into the environment (including
the land, surface water and ground water underlying or in proximity to any Real
Property and the ambient air above or in the proximity of 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 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 Company or any of its
Subsidiaries has or is reasonably likely to become liable to any Person or
entity or by reason of which the Real Property or any other assets of Company or
any of its Subsidiaries is reasonably likely to suffer or be subjected to any
Encumbrance or claim.
"Determination Date" shall have the meaning set forth in Section
3.1(c)(i)(A)(1)(ii).
"Dissenting Shares" shall have the meaning set forth in Section 3.2(k).
"Distribution Agreements" shall mean collectively, the Hilton Distribution
Agreement and the Company Distribution Agreement.
"Distributions" shall have the meaning set forth in the Recitals.
"Effective Time" shall have the meaning set forth in Section 2.2.
"Employee Benefit Plans" shall have the meaning set forth in Section
4.11(a).
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"Employee Stock Purchase Plan" shall have the meaning set forth in Section
5.3(a).
"Encumbrances" shall have the meaning set forth in Section 4.2.
"Environmental Laws" shall mean any and all applicable federal, state, local
or foreign statutes, ordinances, rules, regulations, Permits, judgments, orders,
decrees, injunctions or other legally binding authorizations, relating to: (a)
Releases (as defined in 42 U.S.C. Section 9601(22)) or threatened Releases of
Hazardous Material into the environment; or (b) the generation, treatment,
storage, disposal, use, handling, manufacturing, transportation or shipment of,
or exposure to, a Hazardous Material.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean, with respect to a Person, any other Person
that, together with such Person, as of the relevant measuring date under ERISA,
is or was required to be treated as a single employer under Section 414 of the
Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"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).
"Exchange Ratio" shall have the meaning set forth in Section 3.1(c).
"Extraordinary Acquisition" shall have the meaning set forth in Section 6.2.
"Fairness Opinion" shall have the meaning set forth in Section 4.13.
"First Mortgage Notes" shall mean Company's outstanding $450 million 10.125%
First Mortgage Notes, due December 1, 2003 issued pursuant to the First Mortgage
Notes Indenture.
"First Mortgage Notes Indenture" shall mean that certain Indenture, dated as
of November 30, 1995, as amended from time to time, by and among Company, the
Guarantors (as defined in the First Mortgage Notes Indenture) and Firstar Bank
of Minnesota, N.A., as trustee.
"Foreign Gaming Laws" shall mean the laws, rules and regulations promulgated
by the applicable Governmental Authorities of Australia or Uruguay or any
political subdivisions thereof relating to casino gaming.
"Form 10s" shall mean collectively, the Gaming Co. Form 10 and the Lakes
Form 10.
"Form S-4" shall mean the Registration Statement on Form S-4 to be prepared
and filed in connection with the issuance of Gaming Co. Common Stock in the
Merger.
"GAAP" shall have the meaning set forth in Section 4.7(a).
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"Gaming Co." shall have the meaning set forth in the Preamble.
"Gaming Co. Business" means the operations, assets and liabilities of Gaming
Co. as of the time of the Hilton Distribution, as set forth in the Hilton
Distribution Agreement.
"Gaming Co. Business Balance Sheet" shall have the meaning set forth in
Section 5.14.
"Gaming Co. Business Financial Statements" shall have the meaning set forth
in Section 5.14.
"Gaming Co. Business Income Statement" shall have the meaning set forth in
Section 5.14.
"Gaming Co. Closing Schedule" shall have the meaning set forth in Section
3.1(c)(i)(B)(1).
"Gaming Co. Common Stock" shall mean the shares of common stock, par value
$.01 per share, of Gaming Co.
"Gaming Co. Form 10" shall have the meaning set forth in Section 5.4(c).
"Gaming Co. Preferred Stock" shall have the meaning set forth in Section
5.3(b).
"Gaming Co. Rights" shall mean the rights issued under the Gaming Co. Rights
Agreement to purchase shares of Gaming Co. Common Stock.
"Gaming Co. Rights Agreement" shall mean the shareholder rights plan to be
entered into by Gaming Co. prior to the Hilton Distribution, the terms of which
shall be substantially similar to the Hilton shareholder rights plan in effect
at the Effective Time.
"Gaming Co. Valuation Factor" shall have the meaning set forth in Section
3.1(c)(i)(B).
"Gaming Commissions" shall mean, with respect to Company or Hilton, as
applicable, the Louisiana Gaming Control Board, the Minnesota Gambling Control
Board, the Mississippi Gaming Commission, Missouri Gaming Commission, the
National Indian Gaming Commission and any similar commission that regulates or
enforces the Indian Gaming Laws, the Nevada Gaming Commission, the Nevada State
Gaming Control Board, the New Jersey Casino Control Commission, and the Ontario
Gaming Commission, and any similar commission that regulates or enforces the
Foreign Gaming Laws.
"Gaming Laws" shall mean, with respect to Company or Hilton, as applicable,
Foreign Gaming Laws, Indian Gaming Laws, Louisiana Gaming Laws, Minnesota Gaming
Laws, Mississippi Gaming Laws, Missouri Gaming Laws, Nevada Gaming Laws, the New
Jersey Gaming Laws, and Ontario Gaming Laws.
"Governmental Authority" shall mean any court, administrative agency or
commission, Gaming Commission or other governmental authority or
instrumentality.
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"Hazardous Material" shall mean (i) hazardous substances (as defined in 42
U.S.C. Section 9601(14)), (ii) petroleum, including crude oil and any fractions
thereof, (iii) natural gas, synthetic gas and any mixtures thereof, (iv)
asbestos and/or asbestos-containing material, (v) PCBs, or materials containing
PCBs in excess of 50 ppm and (vi) any material regulated as a medical waste or
infectious waste.
"Hilton" shall have the meaning set forth in the Preamble.
"Hilton Ancillary Agreements" shall have the meaning set forth in Section
7.10(a).
"Hilton Bylaws" shall mean the Bylaws, as amended, of Hilton.
"Hilton Common Stock" shall mean the shares of common stock, par value $2.50
per share, of Hilton.
"Hilton Convertible Notes" shall have the meaning set forth in Section
5.3(a).
"Hilton Disclosure Schedule" shall mean the disclosure schedule delivered by
Hilton to Company on or before the date of this Agreement.
"Hilton Distribution" shall have the meaning set forth in the Recitals.
"Hilton Distribution Agreement" shall have the meaning set forth in the
Recitals.
"Hilton Preferred Stock" shall have the meaning set forth in Section 5.3(a).
"Hilton Retained Business" means the operations, assets and liabilities to
be retained by Hilton and its subsidiaries following the Hilton Distribution, as
set forth in the Hilton Distribution Agreement.
"Hilton Rights Agreement" shall mean the Rights Agreement, dated as of July
14, 1988 between Hilton and the First National Bank of Chicago, as rights agent,
as amended from time to time.
"Hilton SEC Documents" shall have the meaning set forth in Section 5.7(a).
"Hilton Stock Options" shall have the meaning set forth in Section 5.3(a).
"Hilton's 1997 10-K" shall mean Hilton's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"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 Company or any of its Subsidiaries and used in or
at such Real Property, together with any and
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all loading docks, parking lots, garages and other facilities serving any such
buildings and any landscaping and site improvements.
"Incentive Pool Agreement" shall mean that certain Management and Consultant
Incentive Compensation Pool Agreement, dated as of July 31, 1991, by and among
Company, Lyle Berman, S.M. Taube & Co., Inc. and David Anderson, as amended.
"Indemnified Parties" shall have the meaning set forth in Section 7.9(b).
"Indemnified Persons" shall have the meaning set forth in Section 7.9(a).
"Indentures" shall mean, collectively, the First Mortgage Notes Indenture
and the Senior Notes Indenture.
"Indian Gaming Laws" shall mean (a) the Indian Gaming Regulatory Act of 1988
and the rules and regulations promulgated thereunder, (b) any state laws and
regulations governing gaming operations and facilities on Indian land and (c)
any tribal ordinances and regulations governing gaming on land within such
tribe's jurisdiction.
"Indian Gaming and Debt Agreements" shall mean the management agreements,
loan agreements, leases, guaranty agreements, promissory notes and related
collateral and other agreements of the Indian tribes, or of Company or any of
its Subsidiaries, each as amended to date, relating to (a) Grand Casino
Avoyelles, (b) Grand Casino Coushatta, (c) Grand Casino Hinckley and (d) any
other Indian gaming operations, including, without limitation, (i) the
guarantees of Company and Grand Casinos of Louisiana, Inc. - Tunica-Biloxi
pursuant to that certain Guaranty Agreement, dated as of August 7, 1994 in favor
of Pitney Bowes Credit Corporation guaranteeing the debt obligations of the
Tunica-Biloxi Tribe of Louisiana, (ii) the guarantees of Company and Grand
Casinos of Louisiana, Inc. - Coushatta pursuant to that certain Guaranty
Agreement, dated as of January 31, 1995 in favor of PB Funding Corporation,
guaranteeing the lease obligations of the Coushatta Tribe of Louisiana, (iii) to
the extent such guarantees are in effect, the guarantees of Company and Grand
Casinos of Louisiana, Inc. - Coushatta pursuant to that certain Guaranty
Agreement, dated as of January 31, 1995 in favor of Sentry Corporation,
guaranteeing the lease obligations of the Coushatta Tribe of Louisiana, (iv) the
guarantees of Company and Grand Casinos of Louisiana, Inc. - Tunica-Biloxi
pursuant to that certain Commercial Guaranty Agreement, dated as of April 7,
1997 in favor of Cottonport Bank, guaranteeing the loan obligations of the
Tunica-Biloxi Tribe of Louisiana and (v) the guarantees of Company and Grand
Casinos of Louisiana, Inc. - Coushatta pursuant to that certain Commercial
Guaranty Agreement, dated as of May 1, 1997 in favor of Hibernia National Bank,
guaranteeing the loan obligations of the Coushatta Tribe of Louisiana.
"Joint Proxy Statement/Prospectus" shall mean the joint proxy
statement/prospectus to be mailed to shareholders of Company in connection with
the Company Shareholder Approval.
"Lakes" shall have the meaning set forth in the Preamble.
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"Lakes Agreements" shall mean the contracts, loan agreements, leases,
guaranty agreements and related collateral and other agreements relating to the
Lakes Business, under which Company and/or its Subsidiaries has guaranteed
payments or has obligated itself in any way, including, without limitation, (a)
the Shark Club Ground Lease and the assignment of lease and guaranty relating
thereto, (b) the Lease, dated as of June 17, 1996, by and among Grand Casinos
Nevada I, Inc., Cloobeck Enterprises, Brooks Family Trust and Nevada Brooks Cook
and the assignment of lease and guaranty relating thereto, (c) the
Indemnification Agreement, dated as of December 31, 1997, by and between Company
and Lyle Berman relating to New Horizon's Kid Quest, Inc. and Innovative Gaming
Corporation of America, (d) the Office Lease, dated as of February 1, 1996, by
and between Company and Carlson Real Estate Company, (e) the Lease Agreement,
dated as of September 29, 1993, by and between Company and the Estate of James
Cambell, (f) the Lease Agreement, dated as of October 29, 1993, by and between
Company and the Estate of James Campbell and (g) the Joint Contribution
Agreement, dated as of March 16, 1998, by and among Company, Digital Biometrics,
Inc. and Trak 21 Development, L.L.C., and the Membership Control Agreement of
Trak 21 Development, L.L.C. relating thereto, but excluding the Indian Gaming
and Debt Agreements.
"Lakes Balance Sheet" shall have the meaning set forth in Section 4.19(b).
"Lakes Business" means the operations, assets and liabilities of the Lakes
Group as of the time of the Company Distribution, as set forth in the Company
Distribution Agreement.
"Lakes Form 10" shall have the meaning set forth in Section 4.4(c).
"Lakes Group" means Lakes and any Person in which Lakes will own, directly
or indirectly, any interest as of the Company Distribution.
"Louisiana Gaming Laws" shall mean the Louisiana Riverboat Economic
Development and Gaming Control Act and the rules and regulations promulgated
thereunder.
"Louisiana Indian Management Contracts" shall mean the Amended and Restated
Management & Construction Agreement by and between the Coushatta Tribe of
Louisiana and Grand Casinos of Louisiana, Inc. - Coushatta, dated February 25,
1992 and the Amended and Restated Management & Construction Agreement by and
between the Tunica-Biloxi Tribe of Louisiana and Grand Casino of Louisiana, Inc.
- - Tunica-Biloxi, dated November 1, 1992.
"Material Adverse Effect" shall mean, with respect to a 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 Person and its Subsidiaries, taken as a whole; provided,
however, that with respect to (a) the Gaming Co. Business, a "Material Adverse
Effect" shall mean a Material Adverse Effect with respect to Gaming Co. and its
Subsidiaries, after giving effect to the Hilton Distribution and the other
transactions contemplated by the Hilton Distribution Agreement and (b) with
respect to the Company Retained Business, a "Material Adverse Effect" shall mean
a Material Adverse Effect with respect to Company and its Subsidiaries, after
giving effect to the Company Distribution and the other transactions
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contemplated by the Company Distribution Agreement, but taking into account any
contingent liabilities of Company with respect to liabilities assumed by the
Lakes Group.
"MBCA" shall mean the Minnesota Business Corporation Act, as amended from
time to time.
"Merger" shall have the meaning set forth in the Recitals.
"Merger Sub" shall have the meaning set forth in the Preamble.
"Minnesota Gaming Laws" shall mean the Minnesota Lawful Gambling and
Gambling Devices Act and the rules and regulations promulgated thereunder.
"Mississippi Casinos" shall mean Company's existing casino properties
located in Tunica, Mississippi, Gulfport, Mississippi, and Biloxi, Mississippi.
"Mississippi Gaming Laws" shall mean the Mississippi Gaming Control Act and
the rules and regulations promulgated thereunder.
"Missouri Gaming Laws" shall mean the Missouri Gaming Law and the rules and
regulations promulgated thereunder.
"Multiemployer Plans" shall mean employee benefit plans within the meaning
of Section 3(37) of ERISA or Section 4001(a)(3) of ERISA.
"Nevada Gaming Laws" shall mean the Nevada Gaming Control Act and the rules
and regulations promulgated thereunder, the Clark County, Nevada Code and the
rules and regulations promulgated thereunder, the City of Reno, Nevada Code and
other applicable local regulations.
"New Jersey Gaming Laws" shall mean the New Jersey Casino Control Act and
the rules and regulations promulgated thereunder.
"Non-Competition Agreement" shall mean the Non-Competition Agreement to be
entered into by each of Lyle Berman, Thomas J. Brosig and Stanley M. Taube,
substantially in the form attached hereto as Exhibit L.
"Non-Plan Director Option Agreements" shall mean (a) the Option Agreement,
dated as of April 12, 1994, by and between Company and Morris Goldfarb, (b) the
Option Agreement, dated as of July 9, 1992, by and between Company and David L.
Rogers, (c) the Option Agreement, dated as of July 9, 1992, by and between
Company and Joel N. Waller and (d) the Option Agreement, dated as of July 9,
1992, by and between Company and Neil I. Sell, each as amended as of June 15,
1998.
"Ontario Gaming Laws" shall mean the Ontario Gaming Control Act, 1992 and
the rules and regulations promulgated thereunder.
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16
"Other Transactions" shall have the meaning set forth in Section 7.11.
"Outside Date" shall have the meaning set forth in Section 9.1(b).
"Pension Plans" shall mean employee pension benefit plans within the meaning
of Section 3(2) of ERISA.
"Permits" shall mean any and 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.
"Permitted Encumbrances" shall mean the following title exceptions: (a)
liens with respect to Taxes either not delinquent or being diligently contested
in appropriate proceedings; (b) mechanics', materialmen's or similar statutory
liens for amounts not yet due or being diligently contested in appropriate
proceedings; (c) other exceptions with respect to title to Real Property
(including easements of public record) that do not and would not materially
interfere with the current and intended use of such Real Property; and (d)
Encumbrances related to indebtedness which Encumbrances are disclosed in the
Company SEC Documents filed and publicly available prior to the date of this
Agreement.
"Person" shall mean any individual, corporation, limited liability entity,
partnership, firm, joint venture, association, joint-stock company, trust,
estate, unincorporated organization, governmental or regulatory body or other
entity.
"Pledge and Security Agreement" shall have the meaning set forth in Section
7.9.
"Private Letter Ruling" shall have the meaning set forth in Section
8.1(d)(i).
"Real Property" shall have the meaning set forth in Section 4.14(a).
"Required Credit Support" shall have the meaning set forth in Section 7.9.
"Restricted Activities" shall mean any of the following with respect to the
Mississippi Casinos: (a) billboard advertising; (b) newspaper or other print
media advertising; (c) television or radio advertising; or (d) other similar
indirect marketing activities.
"Restricted Payment" shall mean: (i) the declaration or payment of any
dividend or any distribution on account of Lake's or any of its Subsidiaries'
equity interests; or (ii) the purchase, redemption, defeasance or other
acquisition or retirement for value of any equity interests of Lakes, without
the written consent of Gaming Co. which consent can be given or withheld in
Gaming Co.'s sole and absolute discretion.
"Revolving Credit Facility" shall mean that certain $100 million Capital
Lease Facility, dated as of September 29, 1997, entered into by Company, BA
Leasing & Capital Corporation and the other parties listed therein.
"Rule 145" shall have the meaning set forth in Section 7.13.
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17
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Security Agreements" shall have the meaning set forth in Section 7.9.
"Senior Notes" shall mean Company's outstanding $115 million Series B Senior
Notes due 2004, issued pursuant to the Senior Notes Indenture.
"Senior Notes Indenture" shall mean that certain Series A and Series B 9%
Senior Notes due 2004 Indenture, dated as of October 16, 1997, by and among
Company, the Guarantors (as defined in the Senior Notes Indenture) and Firstar
Bank of Minnesota N.A., as trustee.
"Service" shall mean the United States Internal Revenue Service.
"Settlement Agreement" shall have the meaning set forth in Section 4.10(h).
"Shareholder Support Agreement" shall mean the Shareholder Support
Agreement, dated as of the date hereof, by and among Stanley M. Taube, S.M.
Taube & Co., Inc., a Nevada corporation, Lyle Berman and Neil I. Sell, as
trustee of the Amy Berman Irrevocable Trust dated August 9, 1989, Bradley Berman
Irrevocable Trust dated August 9, 1989, Jessie Lynn Berman Irrevocable Trust
dated August 9, 1989 and Julie Berman Irrevocable Trust dated August 9, 1989.
"Shark Club Ground Lease" shall mean that certain Ground Lease, dated as of
July 1997, by and between Cloobeck Enterprises and MacGregor Income Properties
West I, Inc.
"Stratosphere" shall mean Stratosphere Corporation and any of its
Subsidiaries or Affiliates, including Stratosphere Gaming Corp., and any
business or operations conducted by or related to such entities, including the
Stratosphere Tower, Casino & Hotel and adjoining retail-entertainment center.
"Stratosphere Contracts" shall mean any and all contracts, loan agreements,
leases, guaranty agreements, notes, mortgages, indentures, obligations and other
agreements relating to Stratosphere, including, without limitation, (a) the
Standby Equity Commitment, dated as of March 9, 1995, by and between Company and
Stratosphere, (b) the Limited Guaranty, dated as of March 28, 1997, by Company
for the benefit of each of the beneficiaries listed therein, (c) the
Indemnification Agreement, dated as of May 1, 1997, by and between Company and
Thomas G. Bell, (d) the Indemnification Agreement, dated as of May 1, 1997, by
and between Company and Andrew S. Blumen, (e) the Indemnification Agreement,
dated as of May 1, 1997, by and between Company and Robert A. Maheu, (f) the
Indemnification Agreement, dated as of May 1, 1997, by and between Company and
David R. Wirshing and (g) the indemnification arrangement described in the
Minutes of Company's Board of Directors, dated May 3, 1995, relating to the
indemnification of Lyle Berman, Neil I. Seil and Stanley M. Taube in connection
with their service on the Stratosphere Board of Directors.
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"Stratosphere Litigation" shall mean any and all actions, suits,
proceedings, claims, arbitrations or investigations relating to Stratosphere,
including the Stratosphere shareholders litigation in the U.S. District Court
for the District of Nevada (In re Stratosphere Corporation Securities Litigation
- -- Master File No. CV-5-96-00708PMP), Grand Casinos, Inc. shareholders
litigation in the U.S. District Court for the District of Minnesota (In Re:
Grand Casinos, Inc. Securities Litigation -- Master Filed No. 4-96-890), the
Stratosphere shareholders litigation in the Nevada State Court (Victor M. Opitz,
et. al. v. Robert E. Stupak, et. al. -- Case No. A363019), the Cohen litigation
in the U.S. District Court for the District of Nevada (Henry Cohen, et al. v.
Stratosphere Corporation, et. al.-- Case No. A349985), the Stratosphere vacation
club litigation in the District Court in Clark County, Nevada (Richard Duncan,
et al. v. Bob and Jane Doe Stupak, et al. -- Case No. A370127), the Standby
Equity Commitment litigation in the U.S. District Court for the District of
Nevada (IBJ Schroeder Bank & Trust Company, Inc. v. Grand Casinos, Inc. -- File
No. CV-S-97-01252-DWH), the Stratosphere Noteholder Committee bankruptcy court
action in the U.S. Bankruptcy Court for the District of Nevada, Stratosphere
Plan of Reorganization in the U.S. Bankruptcy Court for the District of Nevada,
the Las Vegas Downtown Redevelopment Agency litigations in the Nevada Supreme
Court (City of Las Vegas Downtown Redevelopment Agency v. Crockett, et al. and
City of Las Vegas Downtown Redevelopment Agency v. Mouldo, et. al.), a
derivative litigation in Hennepin County, Minnesota District Court (Lloyd
Drilling, et al. v. Lyle Berman, et al.--Court File No. MC97-002807), and a
Stratosphere action for Recovery of Preferential Transfers Pursuant to Sections
547 and 550 of the Bankruptcy Court filed with the Bankruptcy Court against
Company, and including any actions, suits, proceedings, claims, arbitrations or
investigations relating to the Litigation LLC described in Stratosphere
Corporation's Restated Second Amended Plan of Reorganization dated February 26,
1998.
"Subsidiary" shall mean, with respect to any Person, (a) 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 (b) 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; provided that with respect to Hilton, "Subsidiary" shall
mean only those Subsidiaries that, in addition to satisfying clauses (a) and (b)
above, comprise part of the Gaming Co. Business.
"Subsidiaries Note Pledge" shall mean the pledge of the outstanding capital
stock of certain Subsidiaries of Company which will become part of the Lakes
Group as a result the Company Distribution, pursuant to that certain Company
Security and Pledge Agreement, dated as of November 30, 1995, relating to the
First Mortgage Notes.
"Surviving Corporation" shall have the meaning set forth in the Recitals.
"Tax" or "Taxes" shall mean any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security,
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unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty or addition
thereto, whether disputed or not, and shall include any transferee liability in
respect of Taxes and any liability in respect of Taxes imposed by contract, tax
sharing agreement, tax indemnity agreement or any similar agreement.
"Tax Return" shall mean any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Total Debt of Company" shall have the meaning set forth in Section
3.1(c)(i)(A)(1).
"Total Debt of Gaming Co." shall have the meaning set forth in Section
3.1(c)(i)(B)(1).
"Total Number of Company Shares Outstanding" shall have the meaning set
forth in Section 3.1(c)(i)(A)(4).
"Total Number of Gaming Co. Shares Outstanding" shall have the meaning set
forth in Section 3.1(c)(i)(B)(4).
"Transaction Costs" shall mean any and all costs and expenses which are
incurred (or which are reasonably expected to be incurred) by the parties hereto
in connection with the consummation of the transactions contemplated by this
Agreement and the Distribution Agreements.
"Transaction Documents" means, collectively, this Agreement, the
Distribution Agreements, the Ancillary Agreements, the Shareholder Support
Agreement, the Trust Agreement and the Pledge and Security Agreement.
"Transferred Assets" shall have the meaning set forth in Section 7.9(d).
"Trust Agreement" shall have the meaning set forth in Section 7.9.
"Unrestricted Cash" shall mean, with respect to any Person, as of any date
of determination, the total amount of cash and cash equivalents of such Person
as of such date of determination, less the Working Capital Cash of such Person
as of such date of determination.
"Working Capital Cash" shall mean, as of any date of determination, with
respect to Company and its Subsidiaries, $15 million and, with respect to Gaming
Co. and its Subsidiaries, the total amount of Gaming Field Cash (as defined in
the Hilton Distribution Agreement) as of such date of determination.
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ARTICLE II.
THE MERGER
Section 2.1. The Merger. Upon the terms and subject to the provisions
of this Agreement, and in accordance with the MBCA, Merger Sub will merge with
and into Company at the Effective Time. Following the Merger, the separate
corporate existence of Merger Sub shall cease and Company shall continue as the
Surviving Corporation and shall succeed to and assume all the rights and
obligations of Merger Sub in accordance with the MBCA.
Section 2.2. Effective Time of the Merger. Subject to the provisions
of this Agreement, articles of merger in such form as is required by the
relevant provisions of the MBCA (the "Articles of Merger") shall be duly
prepared, executed and acknowledged and thereafter delivered to the Secretary of
State of the State of Minnesota for filing, as provided in the MBCA, as early as
practicable on the Closing Date. The Merger shall become effective immediately
after the Distributions and upon the filing of the Articles of Merger with the
Secretary of State of the State of Minnesota or at such time thereafter as
provided in the Articles of Merger (the "Effective Time").
Section 2.3. Closing. The closing of the Merger (the "Closing") will
take place at 10:00 a.m., California time, on a date to be specified by the
parties, which shall be no later than the second business day after satisfaction
or, if permissible, waiver of the conditions set forth in Section 8.1 (the
"Closing Date"), at the offices of Latham & Watkins, 633 West Fifth Street,
Suite 4000, Los Angeles, California 90071, unless another date, place or time is
agreed to in writing by the parties hereto.
Section 2.4. Effects of the Merger. The Merger shall have the effects
set forth in the MBCA. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all properties, rights, privileges,
powers and franchises of Merger Sub and Company shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Merger Sub and Company
shall become the debts, liabilities and duties of the Surviving Corporation.
Section 2.5. Articles of Incorporation and Bylaws of the Surviving
Corporation. At the Effective Time, the Articles of Incorporation and Company
Bylaws, as in effect immediately prior to the Effective Time, shall be the
articles of incorporation and bylaws, respectively, of the Surviving
Corporation, in each case until duly amended in accordance with Applicable Law.
Section 2.6. Directors and Officers of the Surviving Corporation. The
directors of Merger Sub immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the articles of incorporation and bylaws of the Surviving
Corporation and until his or her successor is duly elected and qualified. The
officers of Merger Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, each to hold office in accordance
with the articles of incorporation and bylaws of the Surviving Corporation and
until his or her successor is duly appointed and qualified.
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Section 2.7. Directors of Gaming Co. At the Effective Time, Gaming Co.
shall take all action necessary to increase the size of its Board of Directors
by one member and to elect Lyle Berman as a director of Gaming Co. and in the
event of his incapacity to so serve, another person selected by the Board of
Directors of Company (as constituted prior to the Effective Time); provided that
such other Person is not an employee of the Surviving Corporation and is
reasonably acceptable to Gaming Co.
ARTICLE III.
CONVERSION OF SECURITIES
Section 3.1. Conversion of Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of any of the parties
hereto or the holders of any shares of Common Stock, par value $.01 per share,
of Company (the "Company Common Stock"):
(a) Capital Stock of Merger Sub. Each share of the capital stock of
Merger Sub 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 Gaming Co. Owned Stock. All
shares of Company Common Stock that are owned by Company or any wholly-owned
Subsidiary of Company (but not any Employee Benefit Plans of Company or any of
its Subsidiaries) and any shares of Company Common Stock owned by Gaming Co. or
any wholly-owned Subsidiary of Gaming Co. shall be canceled and retired and
shall cease to exist and no stock of Company or any other consideration shall be
delivered in exchange therefor.
(c) Conversion of Company Stock.
(i) Subject to Section 3.2(e), each issued and outstanding share of
Company Common Stock (other than shares to be canceled in accordance with
Section 3.1(b) and Dissenting Shares (as defined in Section 3.2(k)) shall be
converted into the right to receive the number of shares of Gaming Co. Common
Stock equal to the Company Valuation Factor divided by the Gaming Co. Valuation
Factor, rounded to the fourth decimal (the "Exchange Ratio").
(A) For purposes of the foregoing, the "Company Valuation
Factor" shall be equal to (1) $1,200,000,000 minus the dollar amount of the
Total Debt of Company (the resulting difference being referred to as the
"Company Net Equity Value"), divided by (2) the Total Number of Company Shares
Outstanding; provided, however, that if the Company Net Equity Value is less
than $617,600,000 but more than $585,100,000, then it shall be deemed to be
equal to $617,600,000; and provided, further, however, that if the Company Net
Equity Value is less than $585,100,000, then Hilton shall be entitled to
terminate this Agreement pursuant to Section 9.1(i).
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(1) For purposes of the foregoing, the "Total Debt of
Company" shall be (x) determined as of the earlier of (i) the Closing Date and
(ii) December 31, 1998 (the earlier of such dates, the "Determination Date") and
(y) equal to the total indebtedness for borrowed money (both long-term and
current maturities) of Company and its Subsidiaries as of the Determination
Date, plus the increase (if any) between (A) total current liabilities
(excluding (i) maturities of long-term indebtedness, (ii) payables relating to
unfunded expenditures under the Company Capital Plan, (iii) amounts accrued for
performance bonuses (but including amounts accrued for retention and relocation
bonuses) and (iv) liabilities that constitute Transaction Costs) of Company and
its Subsidiaries as of the Determination Date and (B) the total current
liabilities (excluding (i) maturities of long-term indebtedness, (ii) payables
relating to unfunded expenditures under the Company Capital Plan, (iii) amounts
accrued for performance bonuses (but including amounts accrued for retention and
relocation bonuses) and (iv) liabilities that constitute Transaction Costs) of
Company and its Subsidiaries on a pro forma basis at December 28, 1997, plus the
total amount of 1998 capital expenditures under the Company Capital Plan that
remain unfunded as of the Determination Date (excluding up to $25 million in
Lady Luck-Biloxi acquisition and improvement costs and any additional capital
expenditures approved in writing by Hilton pursuant to Section 6.1), plus that
percentage of the total Transaction Costs that is equal to Company's
shareholders' pro forma ownership of Gaming Co. determined pursuant to the
foregoing formula as of the Determination Date but without giving effect to the
aggregate Transaction Costs, less (i) the total amount of Unrestricted Cash of
Company and its Subsidiaries as of the Determination Date, (ii) $8 million and
(iii) so long as Company has not consummated any sale, transfer or other
disposition involving its Gulfport headquarters prior to the Determination Date,
an amount equal to the sum of (X) the 1998 increase in book value of Company's
Gulfport headquarters plus (Y) the dollar value of any depreciation expense
accrued by Company in connection therewith from and after December 27, 1997 and
through the Determination Date. The elements of the Total Debt of Company and
its Subsidiaries shall be as set on a "Company Closing Schedule" to be prepared
and finally determined as set forth in clause (2) below.
(2) No later than the 10th business day before the day that
Company and Hilton reasonably estimate to be the Closing Date, Company shall
deliver the Company Closing Schedule to Hilton, together with all supporting
documentation reasonably necessary to Hilton's review and verification of the
Company Closing Schedule. The Company Closing Schedule shall set forth all of
the elements of the Total Debt of Company, as set forth in clause (1) above. In
the event the Determination Date is prior to December 31, 1998, the elements of
the Total Debt of Company set forth on the Company Closing Schedule shall
reflect Company's best estimates of the applicable amounts as of the Closing
Date, based on actual amounts as of the most recent month-end for which a
Company balance sheet is available (but in no event shall such balance sheet be
as of a date more than 60 days prior to the Closing Date), rolled forward to the
Closing Date based on reasonable assumptions and methodologies; and the details
of such assumptions and roll-forward methodologies shall be clearly stated in
the supporting materials delivered to Hilton. In the event that the
Determination Date is December 31, 1998, then the Company Closing Schedule shall
to the greatest extent possible reflect the actual amounts as of such date and
shall utilize estimates only to the extent necessary under the circumstances. In
each case, the elements of the Total Debt of Company shall be (i) set
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forth in accordance with generally accepted accounting principles, applied on a
basis consistent with that used by Company in preparing the Company Retained
Business Balance Sheet and (ii) pro forma for the Company Distribution (i.e.,
shall reflect the elements of the Total Debt of Company as if the Company
Distribution had already occurred). The Company Closing Schedule shall be
accompanied by a certification of Company's chief financial officer that the
Company Closing Schedule has been prepared in accordance with the requirements
of this Section 3.1(c)(i)(A)(2). Unless Hilton, within five business days after
receipt of such schedule, notifies Company that it objects to any elements of
the Company Closing Schedule, specifying the basis for any such objection, the
amounts set forth on such schedule shall be binding upon the parties hereto for
purposes of calculating the Exchange Ratio. If Hilton does make an objection in
the manner specified above, then Company and Hilton shall use all reasonable
efforts to resolve such objection as promptly as possible. If Company and Hilton
are unable to resolve such objections within two business days after such
notification has been given by Hilton, the controversy shall be referred to the
Manhattan, New York office of Arthur Andersen LLP (or another nationally
recognized accounting firm reasonably acceptable to the parties hereto) for a
final determination thereof, which determination shall be made as promptly as
practicable. Such determination shall be binding upon the parties hereto for
purposes of calculating the Exchange Ratio, absent manifest error.
(3) Upon delivery of the Company Closing Schedule, Company
shall provide to Hilton and its representatives such access to records,
workpapers and other documents, and to the personnel involved in preparation of
the Company Closing Schedule, as Hilton shall reasonably request for purposes of
reviewing and verifying the Company Closing Schedule.
(4) For purposes of the foregoing, the "Total Number of
Company Shares Outstanding" is equal to 42,293,145, plus any additional shares
of Company Common Stock issued in accordance with the terms of Section 6.1 after
the date hereof and prior to the Effective Time (excluding any such issuances
relating to exercises or conversions of Company Stock Options (as defined in
Section 4.3)).
(B) Subject to the last paragraph of Section 6.2, for purposes
of the foregoing, the "Gaming Co. Valuation Factor" shall be equal to (1)
$6,024,600,000 minus the dollar amount of the Total Debt of Gaming Co., divided
by (2) the Total Number of Gaming Co. Shares Outstanding.
(1) For purposes of the foregoing, the "Total Debt of
Gaming Co." shall be (x) determined as of the Determination Date and (y) equal
to the total indebtedness for borrowed money (both long-term and current
maturities) of Gaming Co. and its Subsidiaries as of the Determination Date,
plus the increase (if any) between (A) total current liabilities (excluding (i)
maturities of long-term indebtedness, (ii) payables relating to unfunded
expenditures relating to Gaming Co.'s Paris Casino-Resort, (iii) amounts accrued
for performance bonuses (but including amounts accrued for retention and
relocation bonuses) and (iv) liabilities that constitute Transaction Costs) of
Gaming Co. and its Subsidiaries as of the Determination Date and (B) the total
current liabilities (excluding (i) maturities of long-term
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indebtedness, (ii) payables relating to unfunded expenditures relating to Gaming
Co.'s Paris Casino-Resort, (iii) amounts accrued for performance bonuses (but
including amounts accrued for retention and relocation bonuses) and (iv)
liabilities that constitute Transaction Costs) of Gaming Co. and its
Subsidiaries on a pro forma basis at December 31, 1997, plus the total amount of
capital expenditures that remain unfunded with respect to Gaming Co.'s Paris
Casino-Resort as of the Determination Date (excluding any additional capital
expenditures approved in writing by Company), plus that percentage of the total
Transaction Costs that is equal to 100% minus that percentage that is equal to
Company's shareholders' pro forma ownership of Gaming Co. determined pursuant to
the foregoing formula as of the Determination Date but without giving effect to
the aggregate Transaction Costs, less the total amount of Unrestricted Cash of
Gaming Co. and its Subsidiaries as of the Determination Date. The elements of
the Total Debt of Gaming Co. and its Subsidiaries shall be as set on a "Gaming
Co. Closing Schedule" to be prepared and finally determined as set forth in
clause (2) below.
(2) No later than the 10th business day before the day that
Company and Hilton reasonably estimate to be the Closing Date, Hilton shall
deliver the Gaming Co. Closing Schedule to Company, together with all supporting
documentation reasonably necessary to Company's review and verification of the
Gaming Co. Closing Schedule. The Gaming Co. Closing Schedule shall set forth all
of the elements of the Total Debt of Gaming Co., as set forth in clause (1)
above. In the event the Determination Date is prior to December 31, 1998, the
elements of the Total Debt of Gaming Co. set forth on the Gaming Co. Closing
Schedule shall reflect Gaming Co.'s best estimates of the applicable amounts as
of the Closing Date, based on actual amounts as of the most recent month-end for
which a Gaming Co. balance sheet is available (but in no event shall such
balance sheet be as of a date more than 60 days prior to the Closing Date),
rolled forward to the Closing Date based on reasonable assumptions and
methodologies; and the details of such assumptions and roll-forward
methodologies shall be clearly stated in the supporting materials delivered to
Company. In the event that the Determination Date is December 31, 1998, then the
Gaming Co. Closing Schedule shall to the greatest extent possible reflect the
actual amounts as of such date and shall utilize estimates only to the extent
necessary under the circumstances. In each case, the elements of the Total Debt
of Gaming Co. shall be (i) set forth in accordance with generally accepted
accounting principles, applied on a basis consistent with those used by Hilton
in preparing the Gaming Co. Business Balance Sheet and (ii) pro forma for the
Hilton Distribution (i.e., shall reflect the elements of the Total Debt of
Gaming Co. as if the Hilton Distribution had already occurred). The Gaming Co.
Closing Schedule shall be accompanied by a certification of Gaming Co.'s chief
financial officer that the Gaming Co. Closing Schedule has been prepared in
accordance with the requirements of this Section 3.1(c)(i)(B)(2). Unless
Company, within five business days after receipt of such schedule, notifies
Hilton that it objects to any elements of the Gaming Co. Closing Schedule,
specifying the basis for any such objection, the amounts set forth on such
schedule shall be binding upon the parties hereto for purposes of calculating
the Exchange Ratio. If Company does make an objection in the manner specified
above, then Hilton and Company shall use all reasonable efforts to resolve such
objection as promptly as possible. If Hilton and Company are unable to resolve
such objections within two business days after such notification has been given
by Company, the controversy shall be referred to the Manhattan, New York office
of Arthur Andersen LLP (or another nationally recognized accounting firm
reasonably acceptable to the
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25
parties hereto) for a final determination thereof, which determination shall be
made as promptly as practicable. Such determination shall be binding upon the
parties hereto for purposes of calculating the Exchange Ratio, absent manifest
error.
(3) Upon delivery of the Gaming Co. Closing Schedule,
Hilton shall provide to Company and its representatives such access to records,
workpapers and other documents, and to the personnel involved in preparation of
the Gaming Co. Closing Schedule, as Company shall reasonably request for
purposes of reviewing and verifying the Gaming Co. Closing Schedule.
(4) For purposes of the foregoing, the "Total Number of
Gaming Co. Shares Outstanding" is equal to 260,450,202, plus any additional
shares of Gaming Co. Common Stock issued in accordance with the terms of Section
6.2 after the date hereof and prior to the Effective Time (excluding any such
issuances relating to exercises or conversions of Hilton Preferred Stock or
Hilton Stock Options (as defined in Section 5.3) or Gaming Co. options in
substitution thereof, and excluding any such issuances pursuant to the Employee
Stock Purchase Plan.
(ii) If, between the date of this Agreement and the Effective
Time, the outstanding shares of Company Common Stock or Gaming Co. 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, split, combination or exchange of shares, or in the event
that Gaming Co. shares are distributed to Hilton Stockholders in the Hilton
Distribution on less than a 1 for 1 basis (a "non-equal distribution"), the
Exchange Ratio correspondingly shall be appropriately adjusted to reflect such
stock dividend, subdivision, reclassification, recapitalization, split,
combination, exchange of shares or non-equal distribution.
(iii) All such shares of Company Common Stock, when so converted,
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 shall cease to have any rights with respect thereto, except the right to
receive the shares of Gaming Co. Common Stock and any cash in lieu of fractional
shares of Gaming Co. Common Stock to be issued or paid in consideration therefor
upon the surrender of such certificate in accordance with Section 3.2, and any
dividends or other distributions to which such holder is entitled pursuant to
Section 3.2(c), in each case without interest.
(iv) Pursuant to the Gaming Co. Rights Agreement, one Gaming Co.
Right will be attached to each share of Gaming Co. Common Stock issued upon
conversion of Company Common Stock in accordance with this Section 3.1(c) and
all references in this Agreement to Gaming Co. Common Stock shall be deemed to
include the Gaming Co. Rights.
Section 3.2. Exchange of Certificates. The procedures for exchanging
shares of Company Common Stock for Gaming Co. Common Stock pursuant to
the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, Gaming Co. shall
deposit with a bank or trust company designated by it and reasonably acceptable
to Company (the "Exchange
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Agent"), for the benefit of the holders of shares of Company Common Stock
outstanding immediately prior to the Effective Time, for exchange in accordance
with this Section 3.2, through the Exchange Agent, certificates representing the
shares of Gaming Co. Common Stock issuable pursuant to Section 3.1 in exchange
for outstanding shares of Company Common Stock (such shares of Gaming Co. Common
Stock, together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates"),
which shares were converted pursuant to Section 3.1 into the right to receive
shares of Gaming Co. Common Stock, (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 delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Gaming Co. and
Company may reasonably specify) and (ii) instructions for effecting the
surrender of the Certificates in exchange for certificates representing shares
of Gaming Co. Common Stock (plus cash in lieu of fractional shares, if any, of
Gaming Co. Common Stock as provided below). Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Gaming Co. and reasonably acceptable to Company, together with such
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing that number
of whole shares of Gaming Co. Common Stock which such holder has the right to
receive pursuant to the provisions of this Article III, and the Certificate so
surrendered shall immediately be canceled. In the event of a transfer of
ownership of Company Common Stock prior to the Effective Time which is not
registered in the transfer records of Company, a certificate representing the
proper number of shares of Gaming Co. Common Stock may be issued to a transferee
if the Certificate representing such Company Common Stock 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. After the Effective Time, each outstanding Certificate which theretofore
represented shares of Company Common Stock shall represent only the right to
receive shares of Gaming Co. Common Stock (and cash in lieu of fractional
shares, if any) pursuant to the terms hereof and shall not be deemed to evidence
ownership of the number of shares of Gaming Co. Common Stock into which such
shares of Company Common Stock were converted until the Certificate therefor
shall have been surrendered in accordance with this Section 3.2.
(c) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Gaming Co. 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 Gaming Co. Common Stock the holder thereof is entitled to receive in exchange
therefor and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to subsection (e) below until the holder of record of such
Certificate surrenders such Certificate. Subject to the effect of Applicable
Laws, following surrender of any such Certificate there shall be paid to the
record holder of the certificates representing whole shares of Gaming Co. Common
Stock issued in exchange therefor, without interest, (i) at the
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time of such surrender, the amount of any cash payable in lieu of a fractional
share of Gaming Co. Common Stock to which such holder is entitled pursuant to
subsection (e) below and the amount of dividends or other distributions with a
record date after the Effective Time previously paid with respect to such whole
shares of Gaming Co. Common Stock 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 subsequent to surrender
payable with respect to such whole shares of Gaming Co. Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares
of Gaming Co. Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms hereof (and any cash paid pursuant to
subsection (c) or (e) of this Section 3.2) shall be deemed to have been issued
in full satisfaction of all rights pertaining to the shares of Company Common
Stock theretofore 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 Company on such shares of Company Common Stock in accordance
with the terms of this Agreement (to the extent permitted under Section 6.1) or
prior to the date hereof and which remain unpaid at the time of such surrender;
and from and after the Effective Time there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the shares
of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or Gaming Co. for any reason, such Certificates shall be
canceled and exchanged as provided in this Section 3.2.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Gaming Co. Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any other rights of a stockholder of
Gaming Co. Notwithstanding any other provision of this Agreement, each holder of
shares of Company Common Stock outstanding immediately prior to the Effective
Time exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Gaming Co. Common Stock (after taking into
account all Certificates held by such holder) shall receive, in lieu thereof,
cash (without interest) in an amount equal to such fractional part of a share of
Gaming Co. Common Stock multiplied by the per share closing sales price of
Gaming Co. Common Stock (as reported on the New York Stock Exchange Composite
Tape) on the first day of trading of Gaming Co. Common Stock on the NYSE after
the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the shareholders of Company for 180 days after
the Effective Time shall be delivered to Gaming Co. upon demand, and any
shareholder of Company who has not previously complied with this Section 3.2
shall thereafter look only to Gaming Co. for payment of such shareholder's claim
for Gaming Co. Common Stock, any cash in lieu of fractional shares of Gaming Co.
Common Stock and any dividends or distributions with respect to Gaming Co.
Common Stock.
(g) No Liability. Neither Hilton, Gaming Co. nor Company shall be
liable to any holder of shares of Company Common Stock for any shares of Gaming
Co. Common Stock (or
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dividends or distributions with respect thereto) or cash in lieu of fractional
shares delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(h) Withholding Rights. Gaming Co. and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as it is required to deduct and withhold with respect to such
consideration under the Code or any provision of federal, state, local or
foreign tax law. To the extent that amounts are so withheld by Gaming Co. or the
Surviving Corporation, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Company
Common Stock in respect of which such deduction and withholding was made.
(i) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Gaming Co. or the Surviving Corporation, the posting by such Person of a bond in
such reasonable amount as Gaming Co. or the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Gaming Co. Common Stock and any cash in lieu
of fractional shares and unpaid dividends and distributions on shares of Gaming
Co. Common Stock deliverable in respect thereof pursuant to this Agreement.
(j) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any Affiliate of Company shall not be
exchanged until Gaming Co. has received an Affiliate Agreement from such
Affiliate.
(k) Dissenting Shares. Any shares of Common Stock held by a holder
who dissents from the Merger and becomes entitled to obtain payment for the
value of such Common Stock pursuant to the applicable provisions of Minnesota
law shall be herein called "Dissenting Shares." Any Dissenting Shares shall not,
after the Effective Time, be entitled to vote for any purpose or receive any
dividends or other distributions and shall not be converted into Gaming Co.
Common Stock; provided, however, that the Common Stock held by a dissenting
shareholder who subsequently withdraws a demand for payment, fails to comply
fully with the requirements of Minnesota law, or otherwise fails to establish
the right of such shareholder to be paid the value of such shareholder's shares
under Minnesota law shall be deemed to be have been converted into Gaming Co.
Common Stock pursuant to the terms and conditions referred to above.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Hilton that the statements contained in
this Article IV are true and correct, except as set forth in the Company
Disclosure Schedule. The Company Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered
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and lettered paragraphs contained in this Article IV, and the disclosure in any
paragraph shall not qualify other paragraphs in this Article IV unless such
disclosure is specifically referred to in such other paragraphs.
Section 4.1. Organization, Standing and Corporate Power. Each of
Company and its Subsidiaries is a corporation, limited liability entity or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated or
organized and has the requisite corporate, limited liability company or
partnership power and authority to carry on its business as now being conducted.
Each of 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 would not, individually or in the aggregate, have a
Material Adverse Effect with respect to Company or the Company Retained
Business. Company has made available to Hilton complete and correct copies of
its Articles of Incorporation and Company Bylaws and the comparable charter or
organizational documents of its Subsidiaries, in each case, as amended to the
date of this Agreement.
Section 4.2. Subsidiaries. The Company Disclosure Schedule sets forth
all the Subsidiaries of Company and each other Person in which Company owns,
directly or indirectly, any interest. All the outstanding shares of capital
stock or other equity interests of each Subsidiary of Company are duly
authorized, validly issued, fully paid and non-assessable and are owned by
Company, by another wholly-owned Subsidiary of Company or by Company and another
wholly-owned Subsidiary of Company, free and clear of any and all mortgages,
security interests, liens, claims, pledges, restrictions, leases, title
exceptions, rights of others, charges or other encumbrances ("Encumbrances").
Subject to compliance with applicable Gaming Laws, the respective articles of
incorporation and bylaws or other organizational documents of Company's
Subsidiaries do not contain any provision limiting or otherwise restricting the
ability of Gaming Co., following the Effective Time, from controlling such
Subsidiaries on the same basis as Company.
Section 4.3. Capitalization. The authorized capital stock of Company
consists of 100,000,000 shares of Common Stock, $.01 par value per share. As of
June 17, 1998, (i) 42,293,145 shares of Company Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
1,788 shares of Company Common Stock were owned by Company and held in street
name by Company, (iii) 100,000 shares of Company Common Stock were reserved for
issuance pursuant to that certain stock purchase warrant issued to the Corporate
Commission of the Mille Lacs Band of Ojibwe Indians, (iv) 4,224,108 shares of
Company Common Stock were reserved for issuance upon exercise of outstanding
options to purchase shares of Company Common Stock under Company's 1991 Stock
Option and Compensation Plan, (v) 150,000 shares of Company Common Stock were
reserved for issuance upon exercise of outstanding options to purchase shares of
Company Common Stock under Company's Director Option Plan and (vi) 151,500
shares of Company Common Stock were reserved for issuance upon exercise of
outstanding options to purchase Shares of Company Common Stock under Company's
Non-Plan Director Option Agreements (collectively, the plans
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or agreements described in clauses (iv) and (vi), the "Company Stock Plans" and
the options issued thereunder are referred to as the "Company Stock Options").
Except as set forth above, as of June 17, 1998, no shares of capital stock or
other voting or equity securities of Company were issued, reserved for issuance
or outstanding. No change in such capitalization has occurred between June 17,
1998 and the date of this Agreement other than the issuance of Common Stock upon
the exercise of Company Stock Options. There are no other outstanding
contractual rights the value of which is derived from the financial performance
of Company or the value of shares of Company Common Stock. All outstanding
shares of capital stock of Company 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, there are no bonds, debentures, notes or other
indebtedness of Company or any other Person having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of Company may vote. Except as set forth
above, 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 Company or any of its Subsidiaries is a party,
or by which any of them is bound, obligating 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 Company or any
of its Subsidiaries or obligating 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. 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
Company or any of its Subsidiaries, as of the date of this Agreement, there are
not any outstanding contractual obligations of Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of Company or any of its Subsidiaries. As of the time of the Company
Distribution, (i) the issued and outstanding shares of common stock of Lakes
will be equal to the shares of Company Common Stock that are then issued and
outstanding, (ii) Lakes will have issued options as described in the Company
Distribution Agreement and (iii) all outstanding shares of capital stock of
Lakes will be duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights.
Section 4.4. Authority; Enforceability; No Conflict; Consents.
(a) Each of Company and Lakes has the requisite corporate power and
authority to enter into each of the Transaction Documents to which it is a party
and to consummate the transactions contemplated thereby, subject to, with
respect to the Merger, the approval of this Agreement and the Merger by the
affirmative vote of the holders of at least a majority of the voting power of
all shares of Company Common Stock entitled to vote (the "Company Shareholder
Approval") and, with respect to the Company Distribution, the declaration of the
Company Distribution by Company's Board of Directors and the ratification of the
Company Distribution by the affirmative vote of holders of at least a majority
of the outstanding shares of Company Common Stock. The execution and delivery by
each of Company and Lakes of each of the Transaction Documents to which it is a
party and the consummation by each of Company and Lakes of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of Company and Lakes, subject to, with respect to the Merger, the
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Company Shareholder Approval and, with respect to the Company Distribution, the
declaration of the Company Distribution by Company's Board of Directors and the
ratification of the Company Distribution by the affirmative vote of holders of
at least a majority of the outstanding shares of Company Common Stock. Each of
the Transaction Documents to which it is a party (other than the Company
Distribution Agreement and the Company Ancillary Agreements) has been duly
executed and delivered by each of Company and Lakes and constitutes the valid
and binding obligation of Company and Lakes (as applicable), enforceable in
accordance with its terms, subject to the Bankruptcy and Equity Exception. Prior
to the Company Distribution, the Company Distribution Agreement and the Company
Ancillary Agreements will be duly executed and delivered by each of Company and
Lakes and upon such execution and delivery, will constitute the valid and
binding obligations of each of Company and Lakes, enforceable against each of
them in accordance with its terms, subject to the Bankruptcy and Equity
Exception.
(b) The execution and delivery by each of Company and Lakes of each of the
Transaction Documents to which it is a party does not, and the consummation of
the transactions contemplated thereby 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, liability or purchase right upon any of the
properties or assets of Company or any of its Subsidiaries under, (i) the
Articles of Incorporation or Company Bylaws or the comparable charter or
organizational documents of its Subsidiaries, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to 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 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, liabilities or liens that would not, individually
or in the aggregate, (x) have a Material Adverse Effect with respect to Company
or the Company Retained Business, (y) impair, in any material respect, the
ability of Company or Lakes to perform its obligations under each of the
Transaction Documents to which it is a party or (z) prevent or significantly
delay the consummation of any of the transactions contemplated by the
Transaction Documents.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required by Company or
any of its Subsidiaries in connection with the execution and delivery of each of
the Transaction Documents to which Company is a party or the consummation of the
transactions contemplated thereby, except for (i) the filing of a pre-merger
notification and report form under the HSR Act, (ii) the filing with the SEC of
(x) the Joint Proxy Statement/Prospectus Prospectus and the Form S-4 and the
obtaining of any related orders as may be so required, (y) a registration
statement on Form 10 (the "Lakes Form 10") under the Exchange Act relating to
the equity securities of Lakes, 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 Articles of Merger with the Minnesota Secretary of State, (iv) the filing of
notices with and the approval by (A) the Mississippi Gaming Commission under the
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Mississippi Gaming Laws, (B) the Minnesota Gambling Control Board under the
Minnesota Gaming Laws, (C) the Louisiana Gaming Control Board under the
Louisiana Gaming Laws and (D) the National Indian Gaming Commission and any
other appropriate Governmental Authorities as may be required under the Indian
Gaming Laws, (v) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required by any applicable
state securities or "blue sky" laws and (vi) such other consents, approvals,
orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not, individually or in the aggregate: (1) have a
Material Adverse Effect with respect to Company or the Company Retained
Business; (2) impair, in any material respect, the ability of Company or Lakes
to perform its obligations under the Transaction Documents to which it is a
party; or (3) prevent or significantly delay the consummation of the
transactions contemplated by the Transaction Documents.
Section 4.5. Vote Required; Ownership of Hilton Capital Stock; State
Takeover Statutes.
(a) The Company Shareholder Approval is the only vote of the holders
of any class or series of Company's capital stock necessary to approve the
Transaction Documents to which Company is a party and the transactions
contemplated thereunder.
(b) Neither Company nor any of its Subsidiaries beneficially owns,
either directly or indirectly, any shares of Hilton capital stock.
(c) The Board of Directors of Company has taken all actions necessary
under the MBCA, including approving the transactions contemplated by the
Agreement and each of the Transaction Documents to which Company is a party, to
ensure that Section 302A.673 of the MBCA applicable to a "business combination"
does not, and will not, apply to the transactions contemplated hereunder and
thereunder. The restrictions contained in Section 302A.671 of the MBCA
applicable to "control share acquisitions" will not apply to the authorization,
execution, delivery and performance of this Agreement or each of the Transaction
Documents by Company to which it is a party or the consummation of the Merger by
Company. No other "fair price," "moratorium," or other similar anti-takeover
statute or regulation is applicable to Company or (by reason of Company's
participation therein) the Merger or the other transactions contemplated by this
Agreement or the other Transaction Documents to which it is a party.
Section 4.6. Compliance with Applicable Laws.
(a) Each of Company 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, other than such Permits the absence of which
would not, individually or in the aggregate, have a Material Adverse Effect with
respect to Company or the Company Retained Business, 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 Company
or the Company Retained Business. Company and its Subsidiaries are in compliance
with all Applicable Laws, except for such noncompliance which, individually or
in the aggregate, would not have Material Adverse Effect with respect to Company
or the Company Retained Business.
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(b) Each of Company and its Subsidiaries is, and has been, and each
entity formerly owned by Company or its Subsidiaries, while so owned, was in
compliance in all respects with all applicable Environmental Laws, except for
such noncompliance which, individually or in the aggregate, would not have
Material Adverse Effect with respect to Company or the Company Retained
Business.
(c) During the period of ownership or operation by Company and its
Subsidiaries of any of their owned or leased properties, there has been no
Release of Hazardous Material in, on, under or affecting such properties and
none of Company or its Subsidiaries has 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 are not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect with respect to Company or the Company Retained Business.
Section 4.7. Company SEC Documents; Undisclosed Liabilities.
(a) Each of 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 since the time of their
filing have been amended or supplemented, collectively, the "Company SEC
Documents"). As of their respective dates, (i) the Company SEC Documents
(including any financial statements filed as a part thereof or incorporated by
reference therein) complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act, as applicable, and the
rules and regulations of the SEC promulgated thereunder applicable to such
Company SEC Documents and (ii) none of the Company SEC Documents contained at
the time they were filed or declared effective any untrue statement of a
material fact or omitted at the time they were filed or declared effective to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading. At their respective dates, the financial statements of
Company included in the Company SEC Documents complied as to form in all
material respects with the applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles ("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
financial statements, to normal, year-end audit adjustments) the consolidated
financial position of Company and its consolidated Subsidiaries as of and 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 and except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since March 29, 1998, Company and its Subsidiaries
do not have any 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 Company and its consolidated Subsidiaries or
in the notes, exhibits or schedules thereto or (ii) which reasonably could be
expected to have a Material Adverse Effect
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34
with respect to Company or the Company Retained Business. Except as set forth
under the "Legal Proceedings" section of Company's 1997 10-K, neither Company
nor any of its Subsidiaries have any indebtedness, obligation or liabilities of
any kind (whether accrued, absolute, contingent or otherwise) relating to
Stratosphere or Stratosphere's assets, liabilities, operations or businesses.
Except for liabilities and obligations incurred in the ordinary course of
business, consistent with past practices since March 29, 1998, neither Company
nor any of its Subsidiaries have any indebtedness, obligation or liabilities of
any kind (whether accrued, absolute, contingent or otherwise) relating to the
Lakes Group or its assets, liabilities, operations or businesses (i) required by
GAAP to be reflected on a consolidated balance sheet of Lakes and its
consolidated Subsidiaries or in the notes, exhibits or schedules thereto
(assuming the Company Distribution had been effected) or (ii) which reasonably
could be expected to have a Material Adverse Effect with respect to Lakes or the
Lakes Business.
Section 4.8. Absence of Changes or Events. Except as disclosed in the
Company SEC Documents filed and publicly available prior to the date hereof, and
except for the Company Distribution and the other transactions contemplated by
the Company Distribution Agreement, (a) since December 31, 1997, there has not
been any change or occurrence which resulted in or is reasonably likely to have
a Material Adverse Effect with respect to the Company Retained Business and (b)
from December 31, 1997 to the date of this Agreement, Company and its
Subsidiaries have conducted the Company Retained Business only in the ordinary
course and there has not been (i) any declaration, setting aside or payment of
any dividend or other distribution with respect to the capital stock of Company,
(ii) any issuance of any shares of Company Common Stock or other capital stock
of Company or any securities convertible into or exchangeable or exercisable for
capital stock of Company that is not reflected in Section 4.3, (iii) any split,
combination or reclassification of any of the capital stock of 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 capital stock of Company, (iv)
(x) any granting by Company or any of its Subsidiaries to any director or
officer of Company or any of its Subsidiaries of any increase in compensation,
(y) any granting by Company or any of its Subsidiaries to any such Person of any
increase in severance or termination pay, or (z) except for employment,
severance or termination arrangements in the ordinary course of business
consistent with past practice with employees other than any officer of Company
or any of its Subsidiaries, any entry by Company or any of its Subsidiaries into
any employment, severance or termination agreement with any such Person, (v) any
acquisition of or commitment to purchase or build any property or project
involving an expenditure in excess of $2 million in the aggregate, except to the
extent reflected in the Company's Capital Expenditure Plan attached hereto as
Exhibit F or as set forth on the Company Disclosure Schedule, (vi) any damage,
destruction or loss that has or reasonably could be expected to have a Material
Adverse Effect with respect to Company or the Company Retained Business or (vii)
any change in accounting methods, principles or practices by Company materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in GAAP.
Section 4.9. Litigation. Except as described in the Company SEC
Documents filed and publicly available prior to the date hereof, there is no
action, suit or proceeding, claim, arbitration or investigation pending or, to
the knowledge of Company, threatened against Company or any
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of its Subsidiaries or any member of the Lakes Group that, individually or in
the aggregate, could reasonably be expected to (a) have a Material Adverse
Effect with respect to Company or the Company Retained Business or (b) prevent
or significantly delay the consummation of the transactions contemplated by the
Transaction Documents. Except as disclosed in the Company SEC Documents filed
and publicly available prior to the date hereof, there is no judgment, order,
injunction or decree of any Governmental Authority outstanding against Company
or any of its Subsidiaries or any member of the Lake Group that, individually or
in the aggregate, could reasonably be expected to have any effect referred to in
the foregoing clauses (a) and (b).
Section 4.10. Taxes.
(a) Company and each of its Subsidiaries, and each affiliated group
(within the meaning of Section 1504 of the Code) of which 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 required to be filed by them. All
such Tax Returns are complete and correct in all material respects. Company and
each of its Subsidiaries has paid (or Company has paid on its Subsidiaries'
behalf) all Taxes shown as due on such Tax Returns. The most recent consolidated
financial statements contained in Company SEC Documents reflect an adequate
reserve for all Taxes payable by Company and its Subsidiaries for all taxable
periods and portions thereof through the date of such financial statements.
(b) No material deficiencies for any Taxes have been proposed,
asserted or assessed against Company or any of its Subsidiaries that have not
been fully paid or adequately provided for in the appropriate financial
statements of Company and its Subsidiaries, no requests for waivers of the time
to assess any Taxes are pending, and none of Company or any of its Subsidiaries
has waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency. There is no
dispute or claim concerning any material Tax Liability of any of Company and its
Subsidiaries either (i) claimed or raised by any authority in writing or (ii) as
to which any of the officers or employees responsible for Tax matters of any of
Company and its Subsidiaries has knowledge based upon personal contact with any
agent of such authority. The statute of limitations for the federal income Tax
Returns of Company and each of its Subsidiaries consolidated in such Tax Returns
have expired for all years through July 31, 1992.
(c) No material liens for Taxes exist with respect to any assets or
properties of Company or any of its Subsidiaries, except for statutory liens for
Taxes not yet due.
(d) Except as contemplated by the Company Distribution Agreement,
none of 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 Company or any of its Subsidiaries has taken or agreed to
take any action that would prevent (i) the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a)(1)(B) of the
Code or (ii) the Company Distribution from
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constituting a tax-free transaction, solely with respect to Company's
shareholders, within the meaning of Section 355 of the Code.
(f) There is not any employment, severance or termination agreement
or other compensation arrangement or employee benefit plan (as defined in
Section 3(3) of ERISA) currently in effect which provides 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 the Transaction Documents to any
employee, officer or director of 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).
(g) Company and its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes.
(h) There are no federal, state, local or foreign audits or other
administrative proceedings or court proceedings presently pending with regard to
any federal or state, local or foreign Taxes or Tax Returns of Company or its
Subsidiaries and neither Company nor any of its Subsidiaries has received a
written notice of any pending audit or proceeding. To the Company's knowledge,
Company has settled the audit of its federal Tax Return relating to the
depreciation of its dockside casinos. The terms of such settlement are set forth
on the Company Disclosure Schedule (the "Settlement Agreement").
(i) Neither Company nor any of its Subsidiaries has agreed to or is
required to make any adjustments under Section 481(a) of the Code.
(j) Neither 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 Company or any of its
Subsidiaries.
(k) No property owned by 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.
Section 4.11. Employee Benefits.
(a) The Company Disclosure Schedule lists all employee benefit plans
(as defined in Section 3(3) of ERISA) and all other employee benefit plans,
agreements, contracts or other benefit arrangements, including executive
compensation and directors' benefit plans, and payroll practices which Company,
any ERISA Affiliate of Company or any of its Subsidiaries maintains,
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contributes to or has any obligation to or liability for (collectively, the
"Employee Benefit Plans").
(b) With respect to each Employee Benefit Plan, Company has made
available to Hilton a true and correct copy of (i) the most recent annual report
(Form 5500) filed with the Service, (ii) such Employee Benefit Plan and all
amendments thereto, (iii) each trust agreement and group annuity contract, if
any, and all amendments thereto relating to such Employee Benefit Plan, (iv) the
most recent actuarial report or valuation relating to any such Employee Benefit
Plan subject to Title IV of ERISA, (v) the most recent determination letter with
respect to any such Employee Benefit Plan which is intended to be "qualified"
within the meaning of Section 401(a) of the Code and (vi) the most recent
summary plan descriptions.
(c) As of the date hereof, (i) all material payments required to be
made by or under any Employee Benefit Plan, any related trusts, or any related
collective bargaining agreement have been made or are being processed in
accordance with normal operating procedures, and except as set forth in
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) 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 benefits) pending
or, to Company's knowledge, threatened with respect to any Employee Benefit
Plan; (v) 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 and (vi) neither Company
nor any Subsidiary of Company has any liabilities or obligations with respect to
any Employee Benefit Plan, whether accrued, contingent or otherwise, except
liabilities or obligations (A) incurred in the ordinary course of business
consistent with past practice or (B) which are fully funded or reserved for on
the most recent financial statements of Company included in the Company SEC
Documents.
(d) None of the Employee Benefit Plans, other than Multiemployer
Plans, is subject to Title IV of ERISA.
(e) Company and its Subsidiaries have not, 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 Company or
any of its Subsidiaries which has not been fully satisfied or which is not set
forth in Company's financial statements filed with the Company SEC Documents.
(f) 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
Service to be so "qualified" and Company knows of no fact which would adversely
affect the qualified status of any such Pension Plan.
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(g) Neither the execution and delivery of the Transaction Documents
to which Company is a party, nor the consummation of the transactions
contemplated thereby will: (i) result in any material payment becoming due, or
materially increase the amount of compensation due, to any current or former
employee of 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.
(h) The Incentive Pool Agreement has been terminated and there are no
amounts due or payable thereunder.
Section 4.12. Brokers and Intermediaries. No broker, investment banker,
financial advisor or other Person, other than Ladenburg Thalmann & Co. Inc.
(whose fee arrangements have been disclosed to Hilton in writing and will not be
modified subsequent to the date of this Agreement), the fees and expenses of
which will be paid by 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
Company.
Section 4.13. Opinion of Financial Advisor. Company has received the
opinion of Ladenburg Thalmann & Co. Inc. to the effect that, as of the date of
this Agreement, the consideration to be received by Company's shareholders in
the Merger and the Company Distribution, considered as a unitary transaction, is
in the aggregate fair to Company's shareholders from a financial point of view
(the "Fairness Opinion").
Section 4.14. Title to Properties.
(a) The Company Disclosure Schedule sets forth a complete list of all
material real property owned in fee by Company or any of its Subsidiaries and
sets forth all material real property leased by Company or any of its
Subsidiaries as lessee as of the date hereof (such owned and leased material
real property, including all Improvements thereon, referred to collectively as
the "Real Property"). The Real Property set forth on the Company Disclosure
Schedule comprises all of the material real property necessary and/or currently
used in the operations of the business of Company and its Subsidiaries. Company
and its Subsidiaries have good and valid title to, or (as to Real Property
designated as leased) a valid leasehold interest in, all of the Real Property.
The Real Property is free of Encumbrances, except for Permitted Encumbrances and
Encumbrances created under the First Mortgage Notes Indenture, and the
consummation of the transactions contemplated by the Transaction Documents will
not create any Encumbrance (other than Permitted Encumbrances) on any of the
Real Property. Each of Company and its Subsidiaries enjoys peaceful and
undisturbed possession under all leases of Real Property, except for such
breaches of the right to peaceful and undisturbed possession that do not
materially interfere with the ability of Company and its Subsidiaries to conduct
their business on such property.
(b) No toxic or hazardous wastes, substances or materials are stored
or otherwise held on the Real Property in violation of Environmental Laws, and
to the knowledge of
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39
Company, no Contamination exists at, on or under the Real Property at levels
that contravene those allowed by Environmental Laws.
Section 4.15. Indian Gaming and Debt Agreements and Lakes Agreements.
The execution and delivery by each of Company and Lakes of this Agreement and
each of the Transaction Documents to which it is a party does not, and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default (with or without notice
of 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, liability or
purchase right upon any of the properties or assets of Company or any Subsidiary
under any of the Indian Gaming and Debt Agreements or the Lakes Agreements and
in each case, to which Company or any of its Affiliates or Subsidiaries is a
party or subject to, or to Company's knowledge, to which any other Person is a
party or subject to, or have or result in a Material Adverse Effect to Company
with respect to any of the Indian Gaming and Debt Agreements or Lakes Agreements
to which Company or any of its Affiliates or Subsidiaries is a party or subject
to, or to Company's knowledge, to which any other Person is a party or subject
to.
Section 4.16. Insurance. Company and its Subsidiaries have insurance
coverage with insurance companies or associations in such amounts, on such terms
and covering 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 Company or any of its
Subsidiaries or of any properties owned, occupied or controlled by Company or
any of its Subsidiaries, in such amount as is reasonably prudent.
Section 4.17. Transactions with Company Affiliates. Except as disclosed
in the "Certain Transactions" section of Company's 1998 Proxy, from January 1,
1995 through the date of this Agreement, there have been no transactions,
agreements, arrangements or understandings between Company or its Subsidiaries,
on the one hand, and Company's affiliates 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.
Section 4.18. Certain Matters Relating to Stratosphere and the Lakes
Group.
(a) Neither Company nor any of its Subsidiaries has any obligation to
make contributions or advances to, or otherwise fund or guarantee indebtedness
or operations of, or undertake any liabilities pertaining to, Stratosphere.
(b) Company has settled the Stratosphere vacation club litigation in
the District Court in Clark County, Nevada (Richard Duncan, et al. v. Bob and
Jane Doe Stupak, et al. -- Case No. A370127) and the terms of such settlement
are set forth on the Company Disclosure Schedule.
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(c) A description of the Stratosphere action for Recovery of
Preferential Transfers Pursuant to Sections 547 and 550 of the Bankruptcy Court
filed with the U.S. Bankruptcy Court for the District of Nevada against Company
is set forth on the Company Disclosure Schedule.
(d) Neither Company nor any of its Subsidiaries has any obligation to
provide indemnification to any of Company's current or former officers or
directors with respect to such officer's or director's employment or service
with any Person except for (i) Company or its Subsidiaries, (ii) Stratosphere
Corporation, (iii) New Horizons Kid Quest, Inc. and (iv) Innovative Gaming
Corporation of American (in the case of clauses (iii) and (iv), only pursuant to
the Indemnification Agreement, dated as of December 31, 1997, by and between
Company and Lyle Berman).
(e) The Company Disclosure Schedule lists all of the material
liabilities of Company and its Mississippi Subsidiaries (as defined in the
Company Distribution Agreement) that arise out of, or are specifically
associated with, either the Lakes Business or any member of the Lakes Group.
(f) The Company Disclosure Schedule lists and describes all of
Company's oral marketing agreements with any Indian tribe relating to any of the
Indian Gaming and Debt Agreements.
Section 4.19. Pro Forma Financial Information of Company Retained
Business.
(a) Attached hereto as Exhibit D is an unaudited pro forma
consolidated balance sheet of the Company Retained Business of Company and its
Subsidiaries at December 28, 1997 (including certain explanatory notes thereto,
the "Company Retained Business Balance Sheet") and an unaudited pro forma
consolidated statement of operations for the Company Retained Business of
Company and its Subsidiaries for the period ended December 28, 1997 (including
certain explanatory notes thereto, the "Company Retained Business Income
Statement" and together with the Company Retained Business Balance Sheet, the
"Company Retained Business Financial Statements"). The Company Retained Business
Financial Statements have been derived from Company's financial statements, and
prepared in accordance with the principles set forth in the notes thereto. The
Company Retained Business Financial Statements fairly present in all material
respects (on the basis indicated in the notes thereto) the consolidated
financial position of Company and its Subsidiaries at the date thereof, after
giving pro forma effect to the Company Distribution (assuming the Company
Distribution occurred on December 28, 1997), and the consolidated results of
their operations for the one-year period then ended, after giving pro forma
effect to the Company Distribution (assuming the Company Distribution occurred
on December 29, 1996) At the Effective Time, except as contemplated by this
Agreement or the Company Distribution Agreement, neither Lakes nor any of its
Subsidiaries will own or have rights to use any of the assets or properties,
whether tangible, intangible or mixed, which are necessary for the conduct of
the Company Retained Business as conducted on the date hereof or be a party to
any material agreement or arrangement with the Surviving Corporation or any of
its Subsidiaries, other than as described in the Transaction Documents.
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(b) Attached hereto as Exhibit E is an unaudited pro forma
consolidated balance sheet of Lakes and its Subsidiaries at December 28, 1997
(including certain explanatory notes thereto, the "Lakes Balance Sheet"), after
giving pro forma effect to the Company Distribution (assuming the Company
Distribution occurred on December 28, 1997).
Section 4.20. Capital Expenditure Plan. Attached hereto as Exhibit F is a
true and correct copy of Company's Capital Expenditure Plan 1998 - 1999, dated
June 3, 1998 (such plan, as it is in existence on the date hereof, the "Company
Capital Plan").
Section 4.21. Prohibited Payments. Company has not entered into any
understanding, agreement or arrangement, written or oral, under or pursuant to
which bribes, kickbacks, illegal rebates, payoffs or other forms of illegal
payments have been or will be made, provided or suffered.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF HILTON
Hilton represents and warrants to Company that the statements contained
in this Article V are true and correct, except as set forth in the Hilton
Disclosure Schedule. The Hilton Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article V, and the disclosure in any paragraph shall not qualify other
paragraphs in this Article V unless such disclosure is specifically referred to
in such other paragraphs. As used in this Agreement, any reference to Hilton and
its Subsidiaries shall be a reference to Hilton and each of its Subsidiaries.
Section 5.1. Organization, Standing and Corporate Power. Each of Hilton
and its Subsidiaries 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 Hilton 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 would not, individually or in the aggregate, have a Material Adverse
Effect with respect to the Gaming Co. Business. Hilton has made available to
Company complete and correct copies of its Certificate of Incorporation and
Hilton Bylaws and the comparable charter or organizational documents of its
Subsidiaries, in each case, as amended to the date of this Agreement.
Section 5.2. Ownership of Gaming Co.. As of the date hereof, all of the
outstanding shares of capital stock of Gaming Co. are owned by Hilton, free and
clear of any Encumbrances except for any Encumbrance that would not have a
Material Adverse Effect with respect to the Gaming Co. Business. Subject to
compliance with applicable Gaming Laws, the articles of incorporation and bylaws
of Gaming Co. do not contain any provision limiting or otherwise
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restricting the ability of Gaming Co., following the Effective Time, from owning
the Surviving Corporation.
Section 5.3. Capitalization.
(a) The authorized capital stock of Hilton consists of
400,000,000 shares of Hilton Common Stock, par value $2.50 per share, and
24,832,700 shares of preferred stock, par value $1.00 per share (the "Hilton
Preferred Stock"). As of May 31, 1998, (i) 246,804,578 shares of Hilton Common
Stock and 14,832,200 shares of Hilton Preferred Stock, designated as "Preferred
Redeemable Increased Dividend Equity Securities(SM), 8% PRIDES(SM), Convertible
Preferred Stock," were issued and outstanding, (ii) 4,414,827 shares of Hilton
Common Stock, and no shares of Hilton Preferred Stock, were held in the treasury
of Hilton or by any Subsidiary of Hilton, (iii) 24,000 shares of Hilton Common
Stock were reserved for issuance upon the exercise of options issued under
Hilton's 1997 Independent Director Stock Option Plan, (iv) 7,100,417 shares of
Hilton Common Stock were reserved for issuance upon the exercise of outstanding
options issued under Hilton's 1996 Stock Incentive Plan, as amended, (v)
6,000,000 shares of Hilton Common Stock were reserved for issuance upon the
exercise of outstanding options issued under Hilton's 1996 Chief Executive Stock
Incentive Plan, (vi) 2,937,701 shares of Hilton Common Stock were reserved for
issuance upon the exercise of outstanding options issued under Hilton's 1990
Stock Option and Stock Appreciation Rights Plan, as amended, (vii) 397,200
shares of Hilton Common Stock were reserved for issuance upon the exercise of
outstanding options issued under Hilton's 1984 Stock Option and Stock
Appreciation Rights Plan, as amended (the options issued pursuant to the stock
option plans referred to in clauses (iii) through (vii) being collectively
referred to as the "Hilton Stock Options"), (viii) 1,707,956 shares of Hilton
Common Stock were reserved for issuance under the Hilton Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan", (ix) 15,488,867 shares were reserved
for issuance upon conversion of Hilton's outstanding Convertible Subordinated
Notes due 2006, which were as of such date convertible into 15,488,867 shares of
Hilton Common Stock ("Hilton Convertible Notes"), and (x) 2,468,046 shares of
Hilton Preferred Stock, denominated as Series A Junior Participating Preferred
Stock, were reserved for issuance in connection with the Hilton Rights
Agreement. Except as set forth above, as of May 31, 1998, no shares of capital
stock or other voting securities of Hilton were issued, reserved for issuance or
outstanding. No change in such capitalization has occurred between May 31, 1998
and the date of this Agreement other than the issuance of Hilton Common Stock
upon the exercise of Hilton Stock Options or the conversion of Hilton
Convertible Notes or Hilton Preferred Stock. Except as set forth above, as of
the date of this Agreement, there are no other outstanding contractual rights
the value of which is derived from the financial performance of Hilton or the
value of shares of Hilton Common Stock. All outstanding shares of capital stock
of Hilton are when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. Except as set forth above,
as of the date of this agreement, there are no bonds, debentures, notes or other
indebtedness of Hilton 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 Hilton may vote. Except as set forth above
and except for the transactions contemplated by the Hilton Distribution
Agreement, 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
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43
which Hilton or any of its Subsidiaries is a party or by which any of them is
bound, obligating Hilton 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 Hilton or of any of its Subsidiaries or obligating
Hilton 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 as set forth above 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 Hilton or any
of its Subsidiaries, as of the date of this agreement, there are not any
outstanding contractual obligations of Hilton or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of Hilton or
any of its Subsidiaries.
(b) The authorized capital stock of Gaming Co. consists of 900
shares of Gaming Co. Common Stock, par value $.01 per share, and 100 shares of
preferred stock, par value $.01 per share (the "Gaming Co. Preferred Stock"). As
of June 10, 1998, 100 shares of Gaming Co. Common Stock and no shares of Gaming
Co. Preferred Stock were outstanding. Except as set forth above, as of June 10,
1998, no shares of capital stock or other voting securities of Gaming Co. were
issued, reserved for issuance or outstanding. No change in such capitalization
has occurred between June 10, 1998 and the date of this Agreement. Except as set
forth above, as of the date of this Agreement, there are no other outstanding
contractual rights the value of which is derived from the financial performance
of Gaming Co. or the value of shares of Gaming Co. Common Stock. All outstanding
shares of capital stock of Gaming Co. are, and all shares which may be issued as
contemplated by this Agreement and the Hilton Distribution 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, there are no
bonds, debentures, notes or other indebtedness of Gaming Co. 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
Gaming Co. may vote. Except for the transactions contemplated by the Hilton
Distribution Agreement, 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 Gaming Co. or any
of its Subsidiaries is a party or by which any of them is bound, obligating
Gaming Co. 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 Gaming Co. or of any of its Subsidiaries or obligating Gaming Co.
or any of its Subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. 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 Gaming Co. or any of its Subsidiaries, as of
the date of this Agreement, there are not any outstanding contractual
obligations of Gaming Co. or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of Gaming Co. or any of its
Subsidiaries. As of the time of the Hilton Distribution, (i) the issued and
outstanding shares of common stock of Gaming Co. will be equal to the shares of
Hilton Common Stock that are then issued and outstanding as of the record date
for the Hilton Distribution, (ii) Gaming Co. will have issued options as
described in the Hilton Distribution Agreement and (iii) all outstanding shares
of capital stock of Gaming Co. will be duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights.
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Section 5.4. Authority; Enforceability; No Conflict; Consents.
(a) Each of Hilton and Gaming Co. has the requisite corporate
power and authority to enter into each of the Transaction Documents to which it
is a party and to consummate the transactions contemplated thereby, subject to,
with respect to the Hilton Distribution, the declaration of the Hilton
Distribution by Hilton's Board of Directors and the ratification of the Hilton
Distribution by the affirmative vote of holders of at least a majority of the
outstanding shares of Hilton Common Stock and Hilton Preferred Stock, voting
together as a class, with the holders of the Hilton Preferred Stock entitled to
4/5 of a vote for each share held. The execution and delivery by each of Hilton
and Gaming Co. of each of the Transaction Documents to which it is a party and
the consummation by each of Hilton and Gaming Co. of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of Hilton and Gaming Co., subject to, with respect to the Hilton
Distribution, the declaration of the Hilton Distribution by Hilton's Board of
Directors and the ratification of the Hilton Distribution by the affirmative
vote of holders of at least a majority of the outstanding shares of Hilton
Common Stock and Hilton Preferred Stock, voting together as a class, with the
holders of the Hilton Preferred Stock entitled to 4/5 of a vote for each share
held. Each of the Transaction Documents to which it is a party (other than the
Hilton Distribution Agreement and the Hilton Ancillary Agreements) has been duly
executed and delivered by each of Hilton and Gaming Co. and constitutes the
valid and binding obligation of Hilton and Gaming Co. (as applicable),
enforceable in accordance with its terms, subject to the Bankruptcy and Equity
Exception. Prior to the Hilton Distribution, the Hilton Distribution Agreement
and the Hilton Ancillary Agreements will be duly executed and delivered by each
of Hilton and Gaming Co. and upon such execution and delivery, will constitute
the valid and binding obligations of each of Hilton and Gaming Co., enforceable
against each of them in accordance with its terms, subject to the Bankruptcy and
Equity Exception.
(b) The execution and delivery of each of the Transaction
Documents to which it is a party by each of Hilton and Gaming Co. does not, and
the consummation of the transactions contemplated thereby 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 any material benefit under, or
result in the creation or maturation of any lien, liability or purchase right
upon any of the properties or assets of Hilton or any of its Subsidiaries under,
(i) the Certificate of Incorporation or Hilton Bylaws or the comparable charter
or organizational documents of Gaming Co. or any of its Subsidiaries, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
Hilton or Gaming Co. 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 5.4(c), any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Hilton or Gaming Co. 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,
liabilities or liens that would not, individually or in the aggregate, (x) have
a Material Adverse Effect with respect to the Gaming Co. Business, (y) impair,
in any material respect, the ability of Hilton or Gaming Co. (to the extent
applicable) to perform its obligations under each of the Transaction Documents
to which it is a party or (z)
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prevent or significantly delay the consummation of any of the transactions
contemplated by the Transaction Documents.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
by Hilton or Gaming Co. or any of its Subsidiaries in connection with the
execution and delivery of each of the Transaction Documents to which it is a
party or the consummation of the transactions contemplated thereby, except for
(i) the filing of a pre-merger notification and report form under the HSR Act,
(ii) the filing with the SEC of (x) the Joint Proxy Statement/Prospectus and the
Form S-4 and the obtaining of any related orders as may be so required, (y) a
registration statement on Form 10 (the "Gaming Co. Form 10") under the Exchange
Act relating to the equity securities of Gaming Co., 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 Articles of Merger with the Minnesota
Secretary of State, (iv) the filing of notices with and the approval by (A) the
New Jersey Casino Control Commission under the New Jersey Gaming Laws, (B) the
Nevada State Gaming Control Board, the Nevada Gaming Commission, the Clark
County Liquor and Gaming Licensing Board, and the City of Reno under the Nevada
Gaming Laws, (C) the Mississippi Gaming Commission under the Mississippi Gaming
Laws, (D) the Louisiana Gaming Control Board under the Louisiana Gaming Laws,
(E) the Ontario Gaming Control Commission under the Ontario Gaming Laws, (F) the
Missouri Gaming Commission under the Missouri Gaming Laws and (G) the
appropriate Governmental Authorities as may be required under the applicable
Gaming Laws of the countries of Australia and Uruguay, (v) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities or "blue sky" laws and (vi)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings which, if not obtained or made, would not, individually
or in the aggregate, be reasonably likely to: (1) have a Material Adverse Effect
on the Gaming Co. Business; (2) impair, in any material respect, the ability of
Hilton or Gaming Co. to perform its obligations under each of the Transaction
Documents to which it is a party; or (3) prevent or significantly delay the
consummation of the transactions contemplated by the Transaction Documents.
(d) No approval or consent for the Merger by holders of
securities of Gaming Co. is required under the MBCA, Gaming Co.'s certificate of
incorporation or bylaws, its NYSE listing agreement or any other agreement to
which Gaming Co. is a party thereto.
Section 5.5. Ownership of Company Capital Stock. Neither Hilton nor any
of its Subsidiaries beneficially owns, either directly or indirectly, any shares
of Company capital stock.
Section 5.6. Compliance with Applicable Laws.
(a) Each of Hilton 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, other than such Permits the absence of which
would not, individually or in the aggregate, have a Material Adverse Effect with
respect to the Gaming Co. Business, and there has occurred no default under any
such Permit other than such defaults which, individually or in the aggregate,
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would not have a Material Adverse Effect with respect to the Gaming Co.
Business. Hilton and its 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 Gaming Co.
Business.
(b) Except as set forth in Hilton's 1997 10-K, each of Hilton and
its Subsidiaries is, and has been, and each entity formerly owned by Hilton's
Subsidiaries, while so owned, was in compliance in all respects 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 Gaming Co. Business.
(c) Except as set forth in Hilton's 1997 10-K, during the period
of ownership or operation by Hilton and its Subsidiaries of any of their owned
or leased properties, there has been no Release of Hazardous Material in, on,
under or affecting such properties and none of Hilton or its Subsidiaries has
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 are not, individually and in the aggregate, reasonably
likely to have a Material Adverse Effect with respect to the Gaming Co.
Business.
Section 5.7. Hilton SEC Documents; Undisclosed Liabilities.
(a) Each of Hilton 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, the "Hilton SEC Documents"). As of
their respective dates, (i) the Hilton SEC Documents (including any 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 Hilton SEC Documents, and (ii) none of
Hilton SEC Documents contained at the time they were filed or declared effective
any untrue statement of a material fact or omitted at the time they were filed
or declared effective 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 Hilton included in Hilton SEC Documents complied as to
form in all material respects with the 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 Hilton and its
consolidated subsidiaries as of and 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 Hilton SEC Documents filed and
publicly available 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 March 31, 1998, Hilton and its
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Subsidiaries do not have any 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 Hilton and its consolidated
Subsidiaries or in the notes, exhibits or schedules thereto or (ii) which
reasonably could be expected to have a Material Adverse Effect with respect to
the Gaming Co. Business.
Section 5.8. Absence of Changes or Events. Except as disclosed in the
Hilton SEC Documents filed and publicly available prior to the date hereof and
as set forth in the Hilton Disclosure Schedule, and except for the Hilton
Distribution and the other transactions contemplated by the Hilton Distribution
Agreement, (a) since December 31, 1997, there has not been any change or
occurrence which resulted in or is reasonably likely to have a Material Adverse
Effect with respect to the Gaming Co. Business, and (b) from December 31, 1997
to the date of this Agreement, Hilton and its Subsidiaries have conducted the
Gaming Co. Business only in the ordinary course and there has not been (i) any
declaration, setting aside or payment of any dividend or other distribution with
respect to the capital stock of Hilton, other than regular dividends on Hilton
Common Stock and Hilton Preferred Stock, (ii) any split, combination or
reclassification of any of the capital stock of Hilton 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 Hilton, (iii) any damage,
destruction or loss that has or reasonably could be expected to have a Material
Adverse Effect with respect to the Gaming Co. Business or (iv) any change in
accounting methods, principles or practices by Hilton materially affecting its
assets, liabilities or business, except insofar as may have been required by a
change in GAAP.
Section 5.9. Litigation. Except as described in the Hilton SEC Documents
filed and publicly available prior to the date hereof, there is no action, suit
or proceeding, claim, arbitration or investigation pending or, to the knowledge
of Hilton, threatened against Hilton or any of its Subsidiaries that,
individually or in the aggregate, could reasonably be expected to (i) have a
Material Adverse Effect with respect to the Gaming Co. Business or (ii) prevent
or significantly delay the consummation of the transactions contemplated by the
Transaction Documents. Except as disclosed in the Hilton SEC Documents filed and
publicly available prior to the date hereof, there is no judgment, order,
injunction or decree of any Governmental Authority outstanding against Hilton 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).
Section 5.10. Taxes.
(a) Hilton and each of its Subsidiaries, and each affiliated
group (within the meaning of Section 1504 of the Code) of which Hilton or any of
its Subsidiaries is a member, has timely filed all federal income Tax Returns
and all other material Tax Returns required to be filed by it. All such Tax
Returns are complete and correct in all material respects. Hilton and each of
its Subsidiaries has paid (or Hilton has paid on its Subsidiaries' behalf) all
Taxes shown as due on such Tax Returns. The most recent consolidated financial
statements contained in the Hilton SEC Documents reflect an adequate reserve for
all Taxes payable by Hilton and its Subsidiaries for all taxable periods and
portions thereof through the date of such financial statements.
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(b) None of Hilton or any of its Subsidiaries has taken or agreed
to take any action that would prevent (i) the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a)(1)(B) of the
Code or (ii) the Hilton Distribution from constituting a tax-free transaction to
Hilton and its stockholders within the meaning of Section 355 of the Code.
Section 5.11. Employee Benefits. Except as disclosed in the Hilton SEC
Documents filed and publicly available prior to the date hereof or as set forth
on the Hilton Disclosure Schedule or as would not have a Material Adverse Effect
with respect to Hilton, (i) all employee benefit plans or programs maintained
for the benefit of the current or former employees of Hilton or any Subsidiary
of Hilton in the Gaming Co. Business that are sponsored, maintained or
contributed to by Hilton or any Subsidiary of Hilton, or with respect to which
Hilton or any Subsidiary of Hilton has any liability, including any such plan
that is an "employee benefit plan" as defined in Section 3(3) of ERISA, are in
compliance in all material respects with all applicable requirements of law,
including ERISA and the Code, and (ii) neither Hilton nor any Subsidiary of
Hilton has any material liabilities or obligations with respect to any such
employee benefit plans or programs, whether accrued, contingent or otherwise,
except liabilities or obligations (x) incurred in the ordinary course of
business consistent with past practice or (y) which are fully funded or reserved
for on the most recent financial statements of Hilton included in the Hilton SEC
Documents.
Section 5.12. Brokers and Intermediaries. 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 Hilton or
Gaming Co., 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 Hilton or Gaming
Co.
Section 5.13. Opinion of Financial Advisor. The financial advisor of
Hilton, Donaldson, Lufkin & Jenrette Securities Corporation, has delivered to
Hilton an opinion dated June 29, 1998 to the effect that the Hilton Distribution
and the consideration to be paid by Gaming Co. pursuant to this Agreement, after
giving effect to the Company Distribution, taken as a whole, are fair to the
stockholders of Hilton from a financial point of view.
Section 5.14. Pro Forma Financial Information of Gaming Co. Business.
Attached hereto as Exhibit G is an unaudited pro forma consolidated balance
sheet of the Gaming Co. Business of Hilton and its Subsidiaries at December 31,
1997 (including certain explanatory notes thereto, the "Gaming Co. Business
Balance Sheet") and an unaudited pro forma consolidated statement of operations
for the Gaming Co. Business of Hilton and its Subsidiaries for the period ended
December 31, 1997 (including certain explanatory notes thereto, the "Gaming Co.
Business Income Statement" and together with the Gaming Co. Business Balance
Sheet, the "Gaming Co. Business Financial Statements"). The Gaming Co. Business
Financial Statements have been derived from Hilton's financial statements, and
prepared in accordance with the principles set forth in the notes thereto. The
Gaming Co. Business Financial Statements fairly present in all material respects
(on the basis indicated in the notes thereto) the consolidated
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financial position of the Gaming Co. Business of Hilton and its Subsidiaries at
the date thereof, after giving pro forma effect to the Hilton Distribution
(assuming the Hilton Distribution occurred on December 31, 1997), and the
consolidated results of their operations for the one-year period then ended,
after giving pro forma effect to the Hilton Distribution (assuming the Hilton
Distribution occurred on January 1, 1997). At the Effective Time, except as
contemplated by this Agreement or the Hilton Distribution Agreement, neither
Hilton nor any of its Subsidiaries will own or have rights to use any of the
assets or properties whether tangible, intangible or mixed, which are necessary
for the conduct of the Gaming Co. Business as conducted on the date hereof or be
a party to any material agreement or arrangement with the Surviving Corporation
or any of its Subsidiaries, other than as described in the Transaction
Documents.
Section 5.15. Transactions with Hilton Affiliates. Other than matters
included in the Hilton SEC Documents filed and publicly available prior to the
date of this Agreement, from January 1, 1995 through the date of this Agreement,
and only with respect to the Gaming Co. Business, there have been no
transactions, agreements, arrangements or understandings between Hilton or its
Subsidiaries, on the one hand, and Hilton's affiliates 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.
Section 5.16. Ownership of Merger Sub: No Prior Activities; Assets of
Merger Sub. Merger Sub was formed by Gaming Co. solely for the purposes of
engaging in the transactions contemplated hereby. All of the capital stock of
Merger Sub is directly owned by Gaming Co. Except for this Agreement and the
Hilton Distribution Agreement, there are no outstanding or authorized options,
warrants, calls, rights, commitments or any other agreements to which Merger Sub
is a party, or by which it is bound, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of capital stock or any securities or
rights convertible into, exchangeable for, or evidencing the right to subscribe
for or acquire, any shares of capital stock of Merger Sub. Except for
obligations or liabilities incurred in connection with its incorporation or
organization and except for the transactions contemplated by this Agreement and
the Hilton Distribution Agreement, Merger Sub has not incurred, directly or
indirectly through any Subsidiary or Affiliate, any obligations or liabilities,
and has not engaged in any business or activities or entered into any
arrangements with any Person.
Section 5.17. Prohibited Payments. Hilton has not entered into any
understanding, agreement or arrangement, written or oral, under or pursuant to
which bribes, kickbacks, illegal rebates, payoffs or other forms of illegal
payments have been or will be made, provided or suffered.
ARTICLE VI.
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.1. Conduct of Company. Except as otherwise provided by the terms
of this Agreement, and except for the Company Distribution and the other
transactions, actions or events provided for in the Company Distribution
Agreement, from and after the date hereof to
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the Effective Time, Company shall, and shall cause each of its Subsidiaries to,
carry on their respective businesses in the ordinary course and use their
reasonable efforts to (a) preserve intact their current business organizations,
(b) keep available the services of their current officers and key employees and
(c) preserve their relationship 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 it being understood however, that between the
date hereof and the Closing Date, (i) the employees of the Company Retained
Business may also be engaged in activities for Lakes and its Subsidiaries and
certain officers of Company may resign at the time of the Company Distribution
and may serve as officers of Lakes and (ii) the failure of any employee of
Company to remain an employee of Company shall not constitute a breach of this
covenant. Without limiting the generality of the foregoing, prior to the
Effective Time, except as otherwise provided by the terms of this Agreement, and
except for the Company Distribution and the other transactions, actions or
events otherwise provided for in the Company Distribution Agreement and except
as to those matters set forth in paragraph 6.1 of the Company Disclosure
Schedule (for which Hilton hereby consents), Company shall not and shall cause
its Subsidiaries not to, without the written consent of Hilton, which consent
may not be unreasonably withheld:
(a) (i) 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
Company to Company, (ii) 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 interest or
(iii) purchase, redeem or otherwise acquire or amend any shares of capital stock
or other equity interests of 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 and (y) issuances or redemptions
of capital stock of wholly-owned Subsidiaries occurring between Company and any
of its wholly-owned Subsidiaries);
(b) 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 Stock Plans (other than the issuance of Company Common
Stock upon the exercise of Company Stock Options outstanding on the date of this
Agreement in accordance with their present terms and issuances described in
subclause (y) of paragraph (a) above);
(c) amend its Articles of Incorporation, Company Bylaws or other
comparable charter or organization documents;
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(d) acquire or agree to acquire (i) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any Person or other business organization or division
thereof or (ii) any other material assets, except (x) mergers and consolidations
and other reasonable tax planning transactions between or among Company and one
or more wholly-owned Subsidiaries of Company (including liquidations of
Subsidiaries) that will not create adverse tax consequences to Company or its
Subsidiaries or (y) purchases of inventory, furnishings and equipment in the
ordinary course of business consistent with past practice;
(e) 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;
(f) (i) other than (x) ordinary course working capital borrowings
(including indebtedness incurred under the Revolving Credit Facility to fund
capital expenditures made pursuant to the Company Capital Plan) and (y) other
incurrences of indebtedness which, in the aggregate, do not exceed $2 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 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 (ii) make
any loans, advances or capital contributions to, or investments in, any other
Person other than (x) loans, advances or capital contributions to Company or any
direct or indirect wholly-owned Subsidiary of Company or (y) advances to
employees, suppliers or customers in the ordinary course of business consistent
with past practice;
(g) 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, (i)
in the ordinary course of business consistent with past practice, (ii) in
accordance with their terms of liabilities reflected or reserved against in the
most recent consolidated financial statements (or the notes thereto) of 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 (iii)
involving an amount not to exceed $2 million in the aggregate;
(h) except as required to comply with Applicable Laws, (i) adopt,
enter into, terminate, amend or allow to be extended or renewed, any Employee
Benefit Plan for the benefit or welfare of any director, officer or current or
former employee, (ii) 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 Company SEC Documents filed and publicly available prior to the date of this
Agreement or in the ordinary course of business consistent with past practice to
employees other than directors and officers of Company or any of its
Subsidiaries and that, in the aggregate, do not result in a significant increase
in benefits or compensation expenses to employees of Company and its
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Subsidiaries relative to the level in effect prior to such action), (iii) pay
any benefit not provided for under any Employee Benefit Plan, (iv) except for
payments or awards in cash permitted by clause (ii), 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 (v) take any action to fund or in any
other way secure the payment of compensation or benefits under any Employee
Benefit Plan other than in the ordinary course of business consistent with past
practice;
(i) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which Company or any of its
Subsidiaries is a party, or except in the ordinary course of business, modify,
amend or terminate any contract or agreement set forth in the Company SEC
Documents to which Company or any Subsidiary is a party or waive, release or
assign any material rights or claims;
(j) take or agree to take any action that would prevent (i) the
Merger from constituting a reorganization qualifying under the provisions of
Section 368(a)(1)(B) of the Code, (ii) the Hilton Distribution from qualifying
as a tax-free transaction to Hilton and its stockholders within the meaning of
Section 355 of the Code or (iii) the Company Distribution from qualifying as a
tax-free transaction, solely with respect to Company's shareholders, within the
meaning of Section 355 of the Code;
(k) 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 Company, Hilton, Gaming Co. or Lakes from consummating the
transactions contemplated by the Transaction Documents in accordance with their
respective terms (regardless of whether such action would otherwise be permitted
or not prohibited hereunder or thereunder), including any action which may
materially limit the ability of Company, Hilton, Gaming Co. or Lakes to
consummate the transactions contemplated thereby as a result of antitrust,
gaming or other regulatory concerns;
(l) adopt or enter into any arrangement, contract or agreement
that obligates, or otherwise creates a liability of, Company or any of its
Subsidiaries (except for the Non-Mississippi Subsidiaries (as defined in the
Company Distribution Agreement)) for more than 12 months; or
(m) authorize any of, or commit or agree to take any of, the
foregoing actions.
Section 6.2. Conduct of Hilton with Respect to the Gaming Co. Business.
Except as otherwise provided by the terms of this Agreement, and except for the
Hilton Distribution and the other transactions, actions or events provided for
in the Hilton Distribution Agreement, from and after the date hereof to the
Effective Time, Hilton shall, and shall cause each of its Subsidiaries to (a)
carry on the Gaming Co. Business in the ordinary course and use their reasonable
efforts to preserve intact the Gaming Co. Business, (b) keep available the
services of their key employees engaged in the Gaming Co. Business and (c)
preserve their relationships consistent with past practice with desirable
customers, suppliers and others having business
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dealings with respect to the Gaming Co. Business to the end that their goodwill
and the Gaming Co. Business shall be unimpaired in all material respects at the
Effective Time, it being understood, however, that (i) certain employees of the
Gaming Co. Business may also be engaged in activities for Hilton and its
Subsidiaries and certain officers of Gaming Co. may resign at the time of the
Hilton Distribution and may serve as officers of Hilton and (ii) the failure of
any employee in the Gaming Co. Business to remain an employee in the Gaming Co.
Business shall not constitute a breach of this covenant. Without limiting the
generality of the foregoing, prior to the Effective Time, except as otherwise
provided by the terms of this Agreement, and except for the Hilton Distribution
and the other transactions, actions or events provided for in the Hilton
Distribution Agreement, Hilton shall not and shall cause its Subsidiaries not
to, without the written consent of Company, which consent may not be
unreasonably withheld:
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of Gaming Co. Common Stock, other than regular
quarterly dividends and the issuance of the Gaming Co. Rights with respect to
the Gaming Co. Common Stock or (ii) split, combine or reclassify any of the
capital stock of Gaming Co. or, except pursuant to the exercise of options,
warrants, convertible debt, conversion rights, exchange rights and other
contractual rights of Hilton or Gaming Co. 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 the capital stock of Gaming Co. or other equity
interest of Gaming Co., except for any such issuance (or authorization for such
issuance) of Gaming Co. Common Stock that shall not exceed 20% of the number of
shares then outstanding after giving pro forma effect to such issuance;
(b) amend Gaming Co.'s certificate of incorporation or bylaws or
other comparable charter or organization documents in any manner adverse to the
holders of Gaming Co. Common Stock (other than the filing of a Certificate of
Designations for the issuance of any series of preferred stock of Gaming Co.);
(c) sell any substantial portion of the properties and assets
included in the Gaming Co. Business, except in the ordinary course consistent
with past practice, or merge, amalgamate or consolidate Gaming Co. with any
other entity except where Gaming Co. is the surviving corporation;
(d) take or agree to take any action that would prevent (i) the
Merger from constituting a reorganization qualifying under the provisions of
Section 368(a)(1)(B) of the Code, (ii) the Hilton Distribution from qualifying
as a tax-free transaction to Hilton and its stockholders within the meaning of
Section 355 of the Code or (iii) the Company Distribution from qualifying as a
tax-free transaction, solely with respect to Company's shareholders, within the
meaning of Section 355 of the Code;
(e) conduct the Gaming Co. Business in any manner or take, or
cause to be taken, any other action that would or might reasonably be expected
to prevent or materially delay Hilton, Company, Gaming Co. or Lakes from
consummating the transactions contemplated by the Transaction Documents in
accordance with their respective terms (regardless of whether such
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action would otherwise be permitted or not prohibited hereunder or thereunder),
including any action which may materially limit the ability of Hilton, Company,
Gaming Co. or Lakes to consummate the transactions contemplated thereby as a
result of antitrust, gaming or other regulatory concerns;
(f) authorize any of, or commit or agree to take any of, the
foregoing actions.
Nothing contained in this Section 6.2 (other than subsection (d)) shall
prohibit Hilton from acquiring or disposing of or agreeing to acquire or dispose
of, whether by merger or consolidation or by purchase of assets, any assets,
business or any Person or other business organization or division thereof which
do not and will not constitute part of the Gaming Co. Business.
Each of the parties hereto acknowledges and agrees, that in the event
Gaming Co. or any of its Subsidiaries, in compliance with the provisions of this
Section 6.2, acquires any Person, properties, assets or businesses prior to the
Effective Time, the Gaming Co. Valuation Factor shall be adjusted to reflect (i)
the increase in the gross value of Gaming Co. resulting from such acquisition
(i.e., adjust the $6,024,600,000 figure upwards by the amount of the total
consideration paid for the subject Person, properties, assets or businesses),
(ii) the change (if any) in the Total Debt of Gaming Co. as a result of such
acquisition and (iii) the change (if any) in the Total Number of Gaming Co.
shares outstanding as a result of such acquisitions.
Section 6.3. Access to Information. Each of Company and Hilton 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 Company and Hilton 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 request. Except as required by
Applicable Laws, each of Company and Hilton 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 June 1, 1998, between Company and Hilton (the "Confidentiality
Agreement").
Section 6.4. Indian Gaming and Other Guarantees Release. Company and each
member of the Lakes Group shall use their reasonable best efforts to have the
Surviving Corporation and its Subsidiaries be released from any and all
liabilities or obligations under or relating to the Indian Gaming and Debt
Agreements and Lakes Agreements.
Section 6.5. Dissenters' Rights. The Surviving Corporation shall be
responsible for any payments that are required to be made to its shareholders
pursuant to any applicable provisions of Minnesota law. Hilton shall be entitled
to jointly direct and control with Company
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any and all actions or proceedings relating to any of the foregoing claims for
payment to the extent such actions or proceedings are made or commence prior to
the Closing Date.
ARTICLE VII.
ADDITIONAL AGREEMENTS
Section 7.1. Preparation of Form S-4, Forms 10 and the Joint Proxy
Statement/Prospectus; Shareholders Meeting.
(a) As promptly as practicable following the date of this
Agreement, Hilton and Company shall prepare and file with the SEC the Joint
Proxy Statement/Prospectus, the Form S-4, in which the Joint Proxy
Statement/Prospectus shall be included, and the Forms 10. Each of Hilton and
Company shall use all reasonable efforts to have the Form S-4 declared effective
under the Securities Act and the Forms 10 declared effective under the Exchange
Act as promptly as practicable after such filing. Company shall use its
reasonable best efforts to cause the Joint Proxy Statement/Prospectus to be
mailed to its shareholders as promptly as practicable after the Form S-4 is
declared effective. Gaming Co. 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 Gaming Co. Common Stock in such jurisdiction)
required to be taken under any applicable state securities or "blue sky" laws in
connection with the issuance of Gaming Co. Common Stock in the Merger, and
Gaming Co. shall furnish all information concerning Gaming Co. as may be
reasonably requested in connection with any such action.
(b) Each of Company, Hilton, Gaming Co. and Lakes 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 and (ii) the Joint
Proxy Statement/Prospectus will, at the date it is first mailed to the
shareholders of Company, or at the time of the Company Shareholders 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 Joint Proxy Statement/Prospectus and the Form S-4 will comply as
to form in all material respects with the requirements of the Exchange Act and
the Securities Act, as applicable. Notwithstanding the foregoing, (i) no
representation or covenant is made by Company or Lakes with respect to
statements made or incorporated by reference based on information supplied in
writing by Hilton or Gaming Co. specifically for inclusion or incorporation by
reference in the Joint Proxy Statement/Prospectus and (ii) no representation or
covenant is made by Hilton or Gaming Co. with respect to statements made or
incorporated by reference based on information supplied in writing by Company or
Lakes for inclusion or incorporation by reference in the Joint Proxy
Statement/Prospectus. If at any time prior to the Effective Time there shall
occur (i) any event with respect to Company or any of its Subsidiaries, or with
respect to other information
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supplied by Company or Lakes for inclusion in the Joint Proxy
Statement/Prospectus or (ii) any event with respect to Hilton or Gaming Co., or
with respect to information supplied by Hilton or Gaming Co. for inclusion in
the Joint Proxy Statement/Prospectus, in either case, which event is required to
be described in an amendment of, or a supplement to the Joint 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 shareholders of Company.
(c) Each of Company, Lakes, Hilton and Gaming Co. 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 Company or any of its
representatives, or Hilton 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. Company, Lakes, Hilton and
Gaming Co. 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.
Company and Hilton shall cooperate with each other and provide to each other all
information necessary in order to prepare the Form S-4, the Joint Proxy
Statement/Prospectus and the Forms 10, and shall provide promptly to the other
party any information such party may obtain that could necessitate amending any
such document.
(d) Company shall take all action necessary in accordance with
Applicable Laws and its Articles of Incorporation and Company Bylaws to convene
and hold a meeting of its shareholders (the "Company Shareholders Meeting") as
promptly as practicable for the purpose of obtaining the Company Shareholder
Approval. Company shall, through its Board of Directors, recommend to its
shareholders the adoption of this Agreement and the transactions contemplated
hereby and shall use its reasonable best efforts to solicit from its
shareholders proxies in favor of adoption of this Agreement and the transactions
contemplated hereby and to take all other lawful action necessary to secure the
Company Shareholder Approval. Notwithstanding the foregoing, Company's
obligation to recommend the adoption of this Agreement and the transactions
contemplated hereby and to solicit proxies from its shareholders (but not its
obligations to convene and hold the Company Shareholders Meeting) 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 Company which the
Board of Directors determines, based on the written advice of outside legal
counsel to Company, is required in the exercise of its fiduciary duties to
Company's shareholders under Applicable Laws.
(e) Company shall coordinate and cooperate with Hilton with
respect to the timing of the Company Shareholders Meeting.
Section 7.2. Letter of Company's Accountants. Company shall use all
reasonable efforts to cause to be delivered to Hilton and Company a letter of
Arthur Andersen LLP, Company's independent auditors, dated a date within two
business days before the date on which
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the Form S-4 shall become effective and addressed to Hilton, in form reasonably
satisfactory to Hilton and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
Section 7.3. Letter of Hilton's Accountants. Hilton shall use all
reasonable efforts to cause to be delivered to Company and Hilton a letter of
Arthur Andersen LLP, Hilton's independent auditors, dated a date within two
business days before the date on which the Form S-4 shall become effective and
addressed to Company, in form reasonably satisfactory to 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.
Section 7.4. Reasonable Best Efforts; Notification. Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
hereto 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 party 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 Agreement, including (i)
the obtaining of all necessary action 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 steps as may be reasonably 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 any of the Transaction Documents or the
consummation of any of the transactions contemplated thereby, 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, the Transaction
Documents.
Section 7.5. Approval of Gaming Commissions; Regulatory Matters. Hilton
and Company shall as promptly as practicable, but in no event later than 30 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 Transaction Documents and the transactions contemplated thereby, and to
respond as promptly as practicable in order to obtain as soon as practicable
those approvals and consents required or necessary in connection with the
Transaction Documents or the transactions contemplated thereby. In addition,
each of Hilton and Company shall, and shall cause each of its Subsidiaries to
(and shall use its reasonable efforts to cause each of its affiliates other than
each of its Subsidiaries to), if it is necessary to obtain any regulatory
approval for the Merger or the Distributions, disassociate themselves from any
Person or Persons deemed, or reasonably likely to be deemed, unsuitable by any
Gaming Commission. Hilton and Company shall keep each other 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.
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Section 7.6. Supplemental Disclosure. Subject to compliance with
applicable Gaming Laws, Company shall confer on a regular and frequent basis
with Hilton, report on operational matters and promptly notify Hilton of, and
furnish Hilton with, any information it may reasonably request with respect to,
any event or condition or the existence of any fact that could reasonably be
expected to cause any of the conditions to Hilton's obligation to consummate the
Merger and the Hilton Distribution not to be completed, and Hilton shall
promptly notify Company of, and furnish Company any information it may
reasonably request with respect to, any event or condition or the existence of
any fact that could reasonably be expected to cause any of the conditions to
Company's obligation to consummate the Merger and the Company Distribution not
to be completed.
Section 7.7. Announcements. Prior to the Closing, none of the parties
hereto shall issue any press release or make any public announcement with
respect to this Agreement and the Merger without the prior consent of the other
(which consent shall not be unreasonably withheld), except as may be required by
Applicable Laws or applicable stock exchange regulations, in which event the
party required to make the release shall, if possible, allow the other party
reasonable time to comment on such release in advance of such issuance. The
parties hereto agree that the initial press release to be issued with respect to
the transactions contemplated hereby shall be in a form heretofore agreed to by
the parties hereto.
Section 7.8. No Solicitation.
(a) Company shall not, and shall not permit or cause any of its
Subsidiaries or any of the officers and directors of it or its Subsidiaries to,
and shall direct its and its Subsidiaries' employees, agents and representatives
(including any investment banker, attorney or accountant retained by it or any
of its Subsidiaries) not to, directly or indirectly, initiate, solicit, or
otherwise encourage any inquiries or the making of any proposal or offer with
respect to a merger, reorganization, share exchange, tender offer, consolidation
or similar transaction involving, or any purchase of, 15% or more of the assets
or any equity securities of Company or any of its Subsidiaries (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal").
Company shall not, and shall not permit or cause any of its Subsidiaries or any
of the officers and directors of it or its Subsidiaries to, and shall direct its
and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person relating to an Acquisition Proposal, whether made
before or after the date of this Agreement, or otherwise facilitate any effort
or attempt to make or implement or consummate an Acquisition Proposal; provided,
however, that nothing contained in this Agreement shall prevent Company or its
Board of Directors from (i) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal or (ii) at any time after
180 days from the date hereof if the Merger shall not by such date have received
the Company Shareholder Approval: (x) providing information in response to a
request therefor by a Person who has made an unsolicited bona fide written
Acquisition Proposal if the Board of Directors receives from the Person so
requesting such information an executed confidentiality agreement on terms
substantially equivalent to those contained in the Confidentiality Agreement;
(y) engaging in any
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negotiations or discussions with any Person who has made an unsolicited bona
fide written Acquisition Proposal; or (z) recommending such an Acquisition
Proposal to the shareholders of Company, if, and only to the extent that, (i) in
each such case referred to in clause (x), (y) or (z) above, the Board of
Directors of Company determines in good faith after consultation with outside
legal counsel that such action is necessary in order for its directors to comply
with their respective fiduciary duties under applicable law and (ii) in each
case referred to in clause (y) or (z) above, the Board of Directors of Company
determines in good faith (after consultation with its financial advisor) that
such Acquisition Proposal, if accepted, is reasonably likely to be consummated,
taking into account all legal, financial and regulatory aspects of the proposal
and the Person making the proposal, and would, if consummated, result in a more
favorable transaction than the transaction contemplated by this Agreement,
taking into account the long-term prospects and interests of Company and its
shareholders. Company shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Company agrees that it will
take the necessary steps to promptly inform the individuals or entities referred
to in the first sentence hereof of the obligations undertaken in this Section
7.8 and in the Confidentiality Agreement. Company also shall promptly request
each Person that has heretofore executed a confidentiality agreement in
connection with its consideration of an Acquisition Proposal to return all
confidential information heretofore furnished to such Person by or on behalf of
it or any of its Subsidiaries.
(b) Company shall notify Hilton immediately if any Acquisition
Proposal or inquiries regarding a potential Acquisition Proposal are received
by, any information with respect to an Acquisition Proposal or a potential
Acquisition Proposal is requested from, or any discussions or negotiations with
respect to an Acquisition Proposal or a potential Acquisition Proposal are
sought to be initiated or continued with, it or any of its representatives
indicating, in connection with such notice, the name of the Person involved and
the material terms and conditions of any such Acquisition Proposal, and
thereafter shall keep Hilton informed, on a current basis, on the status and
terms of any such inquiries or Acquisition Proposals and the status of any such
negotiations or discussions. Nothing in this Section 7.8(b), however, shall be
construed as authorizing Company, its Subsidiaries or their respective
employees, agents or representatives to engage in any activities prohibited by
Section 7.8(a) hereof.
Section 7.9. Indemnification.
(a) All indemnification obligations existing as of the date
hereof (including indemnification obligations relating to or arising out of the
transactions contemplated by this Agreement) relating to acts or omissions
occurring at or prior to the Effective Time in favor of the current or former
directors or officers of Company or any of its Subsidiaries (the "Indemnified
Persons") in the articles of incorporation or bylaws (or comparable
organizational documents) or indemnity contracts of Company or its Subsidiaries
(i) will be assumed by each of the Surviving Corporation and Lakes, each of whom
shall be jointly and severally liable for such indemnification, without further
action, as of the Effective Time and (ii) shall continue in full force and
effect in accordance with their respective terms for a period not less than six
years from the Effective Time. The parties hereto acknowledge and agree that
nothing in the preceding
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sentence modifies or in any way limits Company's ability or rights to seek
indemnification from Lakes pursuant to Section 7.9(b) with respect to any of the
foregoing obligations. If the Surviving Corporation is required to indemnify any
Indemnified Person for any act or omission relating to any of the
Non-Mississippi Group Liabilities (as defined in the Company Distribution
Agreement), including those relating to (A) Stratosphere, the Stratosphere
Litigation and/or the Stratosphere Contracts or (B) the Lakes Business,
including the Lakes Contracts and/or any member of the Lakes Group, then as a
condition to such indemnification, such Indemnified Person shall enter into a
subrogation agreement pursuant to which the Surviving Corporation shall be
subrogated to, and shall stand in the place of, such Indemnified Person as to
any events or circumstances in respect of which such Indemnified Person may have
any right or claim relating to such Non-Mississippi Group Liabilities against
any claimant or plaintiff asserting such liabilities against the Indemnified
Person, or against any other party (other than an Indemnified Person) that may
be liable.
(b) Lakes shall indemnify, defend and hold harmless the Surviving
Corporation and its Affiliates from and against any and all losses, liabilities,
damages and expenses (including the reasonable costs and expenses of
investigation and reasonable attorneys' fees and expenses in connection with any
or all such investigations or any and all Actions or threatened Actions)
incurred or suffered by the Surviving Corporation or any of its Affiliates
relating to the Non-Mississippi Group Liabilities, including those relating to
(A) the Stratosphere, the Stratosphere Litigation and/or the Stratosphere
Contracts and (B) the Lakes Business, including the Lakes Contracts and/or any
member of the Lakes Group.
(c) Prior to the Effective Time, Lakes and Company shall enter
into the Trust Agreement in the form of Exhibit M attached hereto (the "Trust
Agreement") and the Pledge and Security Agreement in the form of Exhibit N
attached hereto (the "Pledge and Security Agreement," and together with the
Trust Agreement, the "Security Agreements"), in each case, with such changes
thereto as the trustee thereunder may reasonably request, pursuant to which
Lakes shall deposit and make available the amounts set forth in such Security
Agreements for the time periods specified therein to secure and satisfy any and
all indemnification claims made or asserted against it pursuant to any of the
Transaction Documents.
(d) For so long as the Surviving Corporation is required to
provide indemnification to any of the Indemnified Persons, Lakes shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly, make any
Restricted Payment. If Lakes is unable, within 15 days of request, to pay in
full any claim made for indemnification by the Surviving Corporation or any of
its Affiliates pursuant to this Agreement or the Company Distribution Agreement,
then for so long as any such claim or any other claim for indemnification made
by the Surviving Corporation or any of its Affiliates remains unpaid, Lakes
shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guaranty or otherwise become directly
or indirectly liable with respect to any indebtedness.
(e) For so long as the Surviving Corporation is required to
provide indemnification to any Indemnified Person, Gaming Co.'s ability to
transfer any material Mississippi Group Assets (as defined in the Company
Distribution Agreement) out of the Surviving Corporation
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shall be limited as follows. In connection with the transfer of any material
Mississippi Group Asset out of the Surviving Corporation, Gaming Co. shall
determine the net equity value of such asset at the time of such transfer (i.e.,
the fair market value of such asset less any indebtedness and known liabilities
relating thereto). So long as the net equity value of the asset being
transferred, together with the aggregate net equity values of all assets
previously transferred, is equal to or less than the total indebtedness of
Company as of the Determination Date under the Indentures and the Revolving
Credit Facility (collectively, the "Threshold Debt"), the subject asset can be
transferred without restriction. If, however, the net equity value of the asset
being transferred, together with the aggregate net equity values of all assets
previously transferred, is more than the Threshold Debt (such excess being
referred to as the "Required Credit Support"), then Gaming Co. shall either (i)
contribute to the Surviving Corporation assets with a net equity value at least
equal to the Required Credit Support or (ii) guaranty the indemnification
obligations to the Indemnified Persons in an amount at least equal to the
Required Credit Support. Once Gaming Co. is required to provide any Required
Credit Support, it shall only be entitled to transfer additional material
Mississippi Group Assets out of the Surviving Corporation if it concurrently
with such transfer either (x) contributes to the Surviving Corporation other
assets with a net equity value at least equal to the net equity value of the
assets to be transferred out of the Surviving Corporation or (ii) guarantees the
indemnification obligations of the Surviving Corporation to the Indemnified
Persons in an amount at least equal to the net equity value of the assets to be
transferred out of the Surviving Corporation.
(f) The provisions of this Section 7.9 are intended to be for the
benefit of, and shall be enforceable by, the Surviving Corporation and each
Indemnified Person (including such Person's heirs and representatives) and shall
be binding on all successors and assigns of the Surviving Corporation, Gaming
Co. and Lakes.
Section 7.10. Distributions.
(a) Prior to the Closing, Hilton will, and will cause each of its
Subsidiaries that is a party thereto, to enter into the Hilton Distribution
Agreement and such ancillary agreements (the "Hilton Ancillary Agreements") as
are reasonably required to effect the Hilton Distribution and to govern the
relationships between Hilton and Gaming Co. following the Hilton Distribution.
The Hilton Distribution Agreement and the Hilton Ancillary Agreements will
conform in all material respects to the terms of the subject forms attached
hereto as Exhibit A, with such changes thereto as Hilton and Gaming Co. deem
reasonably necessary and appropriate, provided that such changes are not
materially adverse to the interests of either Gaming Co., Company or Lakes.
Hilton shall use its reasonable best efforts to take all action necessary to
effect the Hilton Distribution prior to the Effective Time, pursuant to the
terms of the Hilton Distribution Agreement and the Hilton Ancillary Agreements.
Prior to the Effective Time and subject to the second preceding sentence, Hilton
will not agree to or permit any material modification of the terms of the Hilton
Distribution Agreement or the Hilton Ancillary Agreements that relate to the
Gaming Co. Business without the prior written consent of Company, which consent
will not be unreasonably withheld.
(b) Prior to the Closing, Company will, and will cause each of
its Subsidiaries that is a party thereto, to enter into the Company Distribution
Agreement and such ancillary agreements (the "Company Ancillary Agreements," and
together with the Hilton Ancillary Agreements, the
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"Ancillary Agreements") as are reasonably required to effect the Company
Distribution and to govern the relationships between Company and Lakes following
the Company Distribution. The Company Distribution Agreement and the Company
Ancillary Agreements will conform in all material respects to the terms of the
subject forms attached hereto as Exhibit B, with such changes thereto as Company
and Lakes deem reasonably necessary and appropriate, provided that such changes
are not materially adverse to the interests of either Company, Hilton or Gaming
Co. Company shall use its reasonable best efforts to take all action necessary
to effect the Company Distribution prior to the Effective Time, pursuant to the
terms of the Company Distribution Agreement and the Company Ancillary
Agreements. Prior to the Effective Time and subject to the second preceding
sentence, Company will not agree to or permit any material modification of the
terms of the Company Distribution Agreement or the Company Ancillary Agreements
without the prior written consent of Hilton, which consent will not be
unreasonably withheld.
Section 7.11. Private Letter Ruling and Tax Opinions. Each of
Hilton and Company shall use its reasonable best efforts and cooperate with the
other party and to obtain from the Service or tax counsel, as the case may be,
the Private Letter Rulings or tax opinions, as the case may be, contemplated by
Section 8.1(d) and 8.1(e) of this Agreement. Each party hereto shall also use
its reasonable best efforts to cause (a) the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(B) of the Code, (b)
the Hilton Distribution to qualify as a tax-free transaction to Hilton and its
stockholders within the meaning of Section 355 of the Code and (c) the Company
Distribution to qualify as a tax-free transaction, solely with respect to
Company's shareholders, within the meaning of Section 355 of the Code. Company
acknowledges, however, that (i) the Private Letter Ruling requested by Hilton
will also seek rulings with respect to the tax-free nature of certain other
transactions in which Hilton intends to engage after the Hilton Distribution
(the "Other Transactions") and (ii) Hilton will also be entitled to seek a
Private Letter Ruling that covers (and assumes the consummation of) such Other
Transactions in the Private Letter Ruling referred to above.
Section 7.12. NYSE Listing. Gaming Co. shall use its reasonable
efforts to cause the shares of Gaming Co. Common Stock to be issued in the
Merger to be approved for listing on the NYSE (or such other securities exchange
or market comprising the principal securities exchange on which the Gaming Co.
Common Stock is listed), subject to notice of official issuance, prior to the
Effective Time.
Section 7.13. Affiliate Agreements. Upon the execution of this
Agreement, Company will provide Hilton with a list of those Persons who are, in
Company's reasonable judgment, "affiliates" of Company within the meaning of
Rule 145 (each such Person who is an "affiliate" of Company within the meaning
of Rule 145 is referred to as an "Affiliate") promulgated under the Securities
Act ("Rule 145"). Company shall provide Hilton such information and documents as
Hilton shall reasonably request for purposes of reviewing such list and shall
notify Hilton in writing regarding any change in the identity of its Affiliates
prior to the Closing Date. Company shall each use all reasonable efforts to
deliver or cause to be delivered to Hilton by July 31, 1998 (and in any case
prior to the Effective Time) from each of its Affiliate, an executed Affiliate
Agreement, substantially in the form attached hereto as Exhibit C (an "Affiliate
Agreement").
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Gaming Co. may be entitled to place appropriate legends on the certificates
evidencing any Gaming Co. Common Stock to be received by such Affiliates of
Company pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for Gaming Co. Common Stock,
consistent with the terms of the Affiliate Agreements (provided that such
legends or stop transfer instructions shall be removed when such shares of
Gaming Co. Common Stock are generally transferable without any restrictions
imposed by Rule 145, upon the request of any shareholder that is not then an
Affiliate of Company).
Section 7.14. Stock Plans.
(a) At the Effective Time, each outstanding Company Stock Option
under the Company Stock Plans, whether vested or unvested, shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Company Stock Option the same number of shares of Gaming
Co. Common Stock as the holder of such Company Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time (rounded to the nearest whole
number), at a price per share (rounded to the nearest whole cent) equal to (y)
the aggregate exercise price for the shares of Company Common Stock purchasable
pursuant to such Company Stock Option immediately prior to the Effective Time
divided by (z) the number of full shares of Gaming Co. Common Stock deemed
purchasable pursuant to such Company Stock Option in accordance with the
foregoing, it being acknowledged by Hilton that each such Company Stock Option
will, to the extent provided for in the applicable option or agreement, become
fully vested at the Effective Time as a result of the Merger.
(b) Promptly after the Effective Time, Gaming Co. shall deliver
to the participants in the Company Stock Plans appropriate notice setting forth
such participants' rights pursuant thereto and the grants pursuant to Company
Stock Plans shall continue in effect on the same terms and conditions (subject
to the adjustments required by this Section 7.14 after giving effect to the
Merger).
(c) Gaming Co. shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Gaming Co. Common Stock
for delivery under Company Stock Plans assumed in accordance with this Section
7.14. Promptly after the Effective Time, Gaming Co. shall file a registration
statement on Form S-8 (or any successor or other appropriate forms), or another
appropriate form with respect to the shares of Gaming Co. Common Stock subject
to such options and shall use its reasonable best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding.
(d) The Board of Directors of Company shall, prior to or as of
the Effective Time, take all necessary actions, pursuant to and in accordance
with the terms of the Company Stock Plans and the instruments evidencing the
Company Stock Options, to provide for the conversion of the Company Stock
Options into options to acquire Gaming Co. Common Stock in accordance with this
Section 7.14; and Company represents and warrants that no consent of the holders
of the Company Stock Options is required in connection with such conversion.
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(e) The Board of Directors of Company shall, prior to or as of
the Effective Time, take appropriate action to approve the deemed cancellation
of the Company Stock Options for purposes of Section 16(b) of the Exchange Act.
The Board of Directors of Gaming Co. shall, prior to or as of the Effective
Time, take appropriate action to approve the deemed grant of options to purchase
Gaming Co. Common Stock under the Company Stock Options (as converted pursuant
to this Section 7.14) for purposes of Section 16(b) of the Exchange Act.
Section 7.15. Indian Gaming and Debt Agreements and Lakes
Agreements. Subject to Lake's obligations to indemnify the Surviving Corporation
with respect to such obligations pursuant to Section 7.9 hereof and Article V of
the Company Distribution Agreement, the Surviving Corporation shall comply with
all of Company's obligations under any Indian Gaming and Debt Agreements or
Lakes Agreements to which it is a party or subject to and for which it has not
been released.
Section 7.16. Conveyance Taxes. Hilton and Company 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, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees or any similar taxes which become payable
in connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time. Company shall
pay, without deduction or withholding from any amount payable to the holders of
Company Common Stock, any such taxes or fees imposed by any Governmental
Authority (and any penalties and interest with respect to such taxes and fees)
which become payable in connection with the transactions contemplated by this
Agreement on behalf of its shareholders.
Section 7.17. Stockholder or Shareholder Litigation. Each of Hilton
and Company shall give the other the reasonable opportunity to participate in
the defense of any stockholder or shareholder litigation against Hilton or
Company, as applicable, and its directors relating to the transactions
contemplated hereby.
Section 7.18. Employee Benefits.
(a) Gaming Co. 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 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) Gaming Co. shall or shall cause the Surviving Corporation to
honor all employment, severance and termination agreements (including change in
control provisions) of the employees of Company and its Subsidiaries in effect
on the date hereof; provided that (x) all such agreements are set forth or
summarized on the Company Disclosure Schedule, (y) such agreements will not be
amended, modified or extended after the date hereof without the written consent
of Hilton and (z) to the extent such agreement would unjustly or inequitably
enrich such employee, the foregoing commitment shall not apply to any Persons
who become employees of
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any member of the Lakes Group and shall instead become a commitment of Lakes who
shall honor any such agreement.
(c) For purposes of determining eligibility to participate and
vesting, including accrual or entitlement to benefits where length of service is
relevant under any employee benefit plan or arrangement of Gaming Co. or the
Surviving Corporation, employees of Company and its Subsidiaries as of the
Effective Time shall receive service credit for service with Company and any of
its Subsidiaries to the same extent such service was granted under the Employee
Benefit Plans.
Section 7.19. Indentures and Company Notes. Gaming Co. shall cause
the Surviving Corporation to comply with any "Change of Control Offer" (as
defined in the Indentures) that the Surviving Corporation is required to make
under any of the Indentures or the Company Notes. Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties hereto 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 party in
doing, all things necessary, proper or advisable to satisfy the conditions set
forth in Section 8.1(j) below.
Section 7.20. Post-Closing Marketing Activities. Gaming Co. shall,
and shall cause the Surviving Corporation to, maintain and observe Company's
marketing agreements with each of the Coushatta Tribe of Louisiana and the
Tunica-Biloxi Tribe of Louisiana as follows:
For as long as the current Louisiana Indian Management Contracts (the
management contract relating to the Avoyelles casino expires June 2001 and the
management contract relating to the Coushatta casino expires January 2002) are
existing, neither Gaming Co. nor Surviving Corporation shall directly or
indirectly engage in Restricted Activities in the following markets: (i) greater
Houston, Texas; (ii) greater Alexandria, Louisiana; (iii) greater Baton Rouge,
Louisiana; or (iv) greater Lafayette, Louisiana; provided, however, that nothing
herein shall prevent the Surviving Corporation from directly mailing any
marketing material relating to the Mississippi Casinos in such markets to
individuals or entitles that are included in the Surviving Corporation's patron
database; and provided further, however, that nothing herein shall prevent
Gaming Co. from marketing or advertising its casinos (or employing its related
databases) other than Mississippi Casinos in such markets.
Section 7.21. Shark Club Ground Lease. Subject to the terms of the
Shark Club Ground Lease, Lakes shall, and shall cause its Subsidiaries to,
exercise the "call" option to purchase the leased premises (as described in the
Shark Club Ground Lease) prior to the commencement of the period during which
the landlord under the lease has the right to exercise a "put" option to sell
such leased premises to a Subsidiary of Lakes.
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ARTICLE VIII.
CONDITIONS TO MERGER
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction or waiver prior to the Effective
Time of the following conditions:
(a) Shareholder Approval. Company shall have obtained the Company
Shareholder Approval.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have expired or been earlier
terminated.
(c) Registration Statement. The Form S-4 shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceeding seeking a stop order.
(d) Private Letter Rulings. Unless otherwise agreed upon by
Hilton and Company as set forth in paragraph (e) below, (i) Hilton shall have
received from the Service a private letter ruling (the "Private Letter Ruling"),
reasonably satisfactory in form and substance to Hilton and Company,
substantially to the effect that, on the basis of the facts, representations,
and Applicable Law existing at the date of the issuance of such Private Letter
Ruling, including the intended consummation of the Other Transactions, the pro
rata distribution of the stock of Gaming Co. to the holders of Hilton Common
Stock in the Hilton Distribution will be non-taxable for federal income tax
purposes to both Hilton and its stockholders under Section 355 of the Code and
(ii) Company shall have received from the Service a Private Letter Ruling,
reasonably satisfactory in form and substance to Hilton and Company,
substantially to the effect that, on the basis of the facts, representations,
and Applicable Law existing at the date of the issuance of such Private Letter
Ruling, the pro rata distribution of the stock of Lakes to the holders of
Company Common Stock in the Company Distribution will be non-taxable for federal
income tax purposes to Company's shareholders under Section 355 of the Code.
(e) Tax Opinions in Lieu of Private Letter Ruling. In the event
that Hilton and Company agree to complete the transactions contemplated by this
Agreement without obtaining the Private Letter Rulings, (i) Hilton shall have
received an opinion of Latham & Watkins, counsel to Hilton, reasonably
satisfactory in form and substance to each of Hilton and Company, substantially
to the effect that, on the basis of the facts, representations, and Applicable
Law existing at the date of such opinion, including the intended consummation of
the Other Transactions, the pro rata distribution of the stock of Gaming Co. to
the holders of Hilton Common Stock in the Hilton Distribution will be, although
not free from doubt, non-taxable for federal income tax purposes to both Hilton
and its stockholders under Section 355 of the Code and (ii) Company shall have
received an opinion of Maslon, Edelman, Borman & Brand, LLP counsel to Company,
reasonably satisfactory in form and substance to each of Hilton and Company,
substantially to the effect that, on the basis of the facts, representations,
and Applicable Law existing at the date of such opinion, the pro rata
distribution of the stock of Lakes to the holders of Company Common Stock in the
Company Distribution will be, although
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not free from doubt, non-taxable for federal income tax purposes to Company's
shareholders under Section 355 of the Code.
(f) No Injunctions or Restraints. No Governmental Authority shall
have enacted, issued, promulgated, enforced or entered any order, executive
order, stay, decree, judgment or injunction or statute, rule, regulation which
is in effect and which has the effect of making the Merger or the Distributions
illegal or otherwise prohibiting consummation of the Merger or the
Distributions.
(g) Consummation of the Distributions. Each of the Hilton
Distribution and the Company Distribution shall have become effective in
accordance with the terms of the applicable Distribution Agreement and the
applicable Ancillary Agreements.
(h) Tax Legislation. There shall be no proposed legislation
introduced in bill form and pending congressional action which, if passed, would
have the effect of amending the Code so as to alter in any materially adverse
respect any of the tax consequences prescribed by the Private Letter Ruling or
the tax opinions in lieu thereof.
(i) National Listing. The shares of Gaming Co. Common Stock to be
issued in the Merger and upon exercise or conversion of the Company Stock
Options shall have been approved for listing on a national securities exchange,
subject to official notice of issuance.
(j) Indentures. Each member of the Lakes Group shall have been
released from all obligations relating to (x) the Company Notes, including the
release of the capital stock of each member of the Lakes Group from the
obligations and Encumbrances under the Subsidiaries Notes Pledge and (y) the
Revolving Credit Facility.
(k) Closing Date. The Closing of the Merger shall not take place
before December 1, 1998.
Section 8.2. Additional Conditions to Obligations of Gaming Co.
The obligation of Gaming Co. to effect the Merger is subject to the satisfaction
of each of the following conditions prior to the Effective Time, any of which
may be waived in writing exclusively by Gaming Co.:
(a) Representations and Warranties. The representations and
warranties of Company set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and the representations
and warranties of Company set forth in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case, as of the date
of this Agreement and (except to the extent such representations and warranties
speak as of an earlier date, in which case they shall be true and correct as of
such date) as of the Closing Date as though made on and as of the Closing Date,
except for changes contemplated or permitted by this Agreement; and Gaming Co.
shall have received a certificate signed on behalf of Company by the chief
executive officer and the chief financial officer of Company to such effect.
(b) Performance of Obligations of Company and Lakes. Company and
Lakes shall have performed in all material respects all obligations required to
be performed by them under
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this Agreement at or prior to the Closing Date, and Gaming Co. shall have
received a certificate signed on behalf of Company by the chief executive
officer and the chief financial officer of Company to such effect.
(c) Tax Opinion. Gaming Co. shall have received an opinion of
Latham & Watkins, substantially in the form of Exhibit H, dated the Closing Date
and 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)(1) of the
Code; (ii) each of Gaming Co. and 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 Company, Hilton, or Gaming Co. as a result of the Merger,
except for any gain which may be recognized by Company from the Company
Distribution as a result of the Merger. In rendering such opinion, Latham &
Watkins shall receive and may rely upon representations contained in
certificates of Company and Gaming Co. substantially in the forms of Exhibits I
and J attached hereto.
(d) Consents. All necessary approvals or authorizations of any
Governmental Authority required or necessary under applicable Gaming Laws in
connection with the Merger and the Distributions shall have been obtained.
(e) Letters from Affiliates. Gaming Co. shall have received from
each Person referred to in Section 7.13 an executed Affiliate Agreement.
(f) Security Agreements. Lakes shall have executed each of the
Security Agreements, each of which shall be in full force and effect and legally
binding against Lakes and no material breach by Lakes shall have occurred
thereunder as of the Closing Date.
(g) Non-Competition Agreements. Each of Lyle Berman, Thomas J.
Brosig and Stanley M. Taube shall have executed a Non-Competition Agreement,
each of which shall be in full force and effect and legally binding against each
of Lyle Berman, Thomas J. Brosig and Stanley M. Taube and no material breach by
either Lyle Berman, Thomas J. Brosig or Stanley M. Taube shall have occurred
thereunder as of the Closing Date.
(h) Settlement Agreement. The Settlement Agreement shall be in
full force and effect and be legally binding on the parties thereto, and no
material breach by any of the parties thereto shall have occurred as of the
Closing Date.
(i) Accountant's Letter and Tax Opinion. Company and Gaming Co.
shall have received from Company's representative Arthur Andersen LLP a letter
dated the date of the Closing Date addressed to Company and Gaming Co. at a
level of detail reasonably satisfactory to Company and Gaming Co., setting out,
based on a reasonable estimate, the computation of the basis in the stock of
Lakes immediately before the Company Distribution, together with the amount of
the Stratosphere Loss (as defined in the Tax Allocation and Indemnity Agreement
attached to the Company Distribution Agreement). Company and Gaming Co. also
shall have received as of the same date an opinion of Arthur Andersen LLP at a
level of detail reasonably satisfactory to Company and Gaming Co., indicating
that there is at least a "reasonable basis" (as defined in Code section 6662)
for filing the Tax Returns reporting the Base Stratosphere Loss (as
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defined in the Tax Allocation and Indemnity Agreement attached to the Company
Distribution Agreement) in the manner recommended by Lakes and its
representatives.
(j) Net Equity Value. The Company Net Equity Value shall be equal
to or greater than $585,100,000.
Section 8.3. Additional Conditions to Obligations of Company. The
obligations of Company to effect the Merger are subject to the satisfaction of
each of the following conditions prior to the Effective Time, any of which may
be waived in writing exclusively by Company:
(a) Representations and Warranties. The representations and
warranties of Hilton set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and the representations
and warranties of Hilton set forth in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case, as of the date
of this Agreement and (except to the extent such representations and warranties
speak as of an earlier date, in which case they shall be true and correct as of
such date) as of the Closing Date as though made on and as of the Closing Date,
except for changes contemplated or permitted by this Agreement; and Company
shall have received a certificate signed on behalf of Gaming Co. by the chief
executive officer and the chief financial officer of Gaming Co. to such effect.
(b) Performance of Obligations of Hilton and Gaming Co. Hilton
and Gaming Co. shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date; and Company shall have received a certificate signed on behalf of Gaming
Co. by the chief executive officer and the chief financial officer of Gaming Co.
to such effect.
(c) Tax Opinion. Company shall have received an opinion of
Maslon, Edelman, Borman & Brand, LLP, substantially in the form of Exhibit K,
dated the Closing Date and 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)(1) of the Code; (ii) each of Gaming Co. and 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 Company as a result of the
Merger, except for any gain which may be recognized by Company from the Company
Distribution as a result of the Merger. In rendering such opinion, Maslon,
Edelman, Borman & Brand, LLP shall receive and may rely upon representations
contained in certificates of Company and Gaming Co. substantially in the forms
of Exhibits I and J attached hereto.
(d) Receipt of an Updated Fairness Opinion. In the event: (a) (i)
Hilton consummates the Hilton Distribution after the Company Shareholder
Approval has been obtained; (ii) the Closing Date shall not have occurred within
20 business days of the date that the Hilton Distribution is consummated; and
(iii) an Acquisition Proposal involving Company shall not have been received by
or made known to Company, then Ladenburg Thalmann & Co. Inc. shall have reissued
to Company the Fairness Opinion as of a date at least 21 or more business days
after the date that the Hilton Distribution is consummated, after having been
requested by Company to reissue such opinion following the consummation of the
Henry Distribution; or (b) Gaming Co. acquires after the date hereof, either
individually or in the
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aggregate, any Person, properties, assets or businesses with a net equity value
in excess of $300 million, then Ladenburg Thalmann & Co. Inc. shall have
reissued to Company the Fairness Opinion dated as of a date after the date any
such acquisition is consummated, after having been requested by Company to
reissue such opinion following the Consummation of any such acquisition.
ARTICLE IX.
TERMINATION AND AMENDMENT
Section 9.1. Termination. This Agreement may be terminated at any
time prior to the Effective Time (with respect to Sections 9.1(b) through
9.1(l), by written notice by the terminating party to the other party), whether
before or after approval of the matters presented in connection with the Merger
by the shareholders of Company:
(a) by mutual written consent of Hilton and Company; or
(b) by either Hilton or Company, if the Merger shall not have
been consummated by December 31, 1998 (provided that (i) either Hilton or
Company may extend such date to March 1, 1999 by providing written notice
thereof to the other party on or prior to December 31, 1998, such date, as it
may be so extended, shall be referred to herein as the "Outside Date") and (ii)
the right to terminate this Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date); or
(c) by either Hilton or Company, if a court of competent
jurisdiction or other Governmental Authority shall have issued a nonappealable
final order, decree or ruling or taken any other nonappealable final action, in
each case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger or the Distributions; or
(d) by either Hilton or Company, if prior to the Effective Time,
the Code is amended so as to alter in any materially adverse respect any of the
tax consequences provided by the Private Letter Rulings described in Section
8.1(d) or the opinions of counsel described in Section 8.1(e); or
(e) by Hilton, if, at the Company Shareholders Meeting (including
any adjournment or postponement), the Company Shareholder Approval shall not
have been obtained; or
(f) by Company, if the Hilton stockholders do not ratify the
Hilton Distribution; or
(g) by Hilton, if (i) the Board of Directors of Company shall
have withdrawn or modified its recommendation of this Agreement or the Merger;
(ii) after the receipt by Company of an Acquisition Proposal, Hilton requests in
writing that the Board of Directors of Company reconfirm its recommendation of
this Agreement and the Merger to the shareholders of Company and the Board of
Directors of Company fails to do so within 20 business days after its receipt of
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Hilton's request; (iii) the Board of Directors of Company shall have recommended
to the shareholders of Company an Acquisition Proposal; (iv) a tender offer or
exchange offer for 15% or more of the outstanding shares of Company Common Stock
is commenced (other than by Hilton or an Affiliate of Hilton) and the Board of
Directors of Company recommends that the shareholders of Company tender their
shares in such tender or exchange offer; or (v) for any reason Company fails to
call and hold the Company Shareholders Meeting by the Outside Date (provided
that Hilton's right to terminate this Agreement under such clause (v) shall not
be available if (1) at such time Company would be entitled to terminate this
Agreement under Section 9.1(h) or (2) Company failed to call and hold such
meeting because the Form S-4 shall not have become effective under the
Securities Act, provided that Company shall have complied with all of its
obligations under this Agreement); or
(h) by Hilton or Company, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) will cause the conditions set
forth in Section 8.2(a) or (b) (in the case of termination by Hilton) or 8.3(a)
or (b) (in the case of termination by Company) not to be satisfied, and (ii)
shall not have been cured within 20 business days following receipt by the
breaching party of written notice of such breach from the other party; or
(i) by Hilton, if the Company Net Equity Value is less than
$585,100,000; or
(j) by Company, if (i) Hilton consummates the Hilton Distribution
before the Company Shareholders Meeting, (ii) an Acquisition Proposal involving
Company shall not have been received by or made known to Company prior to the
Company Shareholders Meeting, and (iii) the Company Shareholder Approval is not
obtained; or
(k) by Company, if (i) Hilton consummates the Hilton Distribution
after the Company Shareholder Approval has been obtained, (ii) the Closing Date
shall not have occurred within 20 business days of the date that the Hilton
Distribution is consummated, (iii) an Acquisition Proposal involving Company
shall not have been received or made known to Company and (iv) Ladenburg
Thalmann & Co. Inc. shall not have reissued to Company the Fairness Opinion as
of a date at least 21 or more business days after the date that the Hilton
Distribution is consummated after having been requested by Company to reissue
such opinion following the consummation of the Hilton Distribution; or
(l) by Company, if Gaming Co. acquires after the date hereof,
either individually or in the aggregate, any Person, properties, assets or
businesses with a net equity value in excess of $300 million and Ladenburg
Thalmann & Co. Inc. shall not have reissued to Company the Fairness Opinion as
of a date after any such acquisition is consummated, after having been requested
by Company to reissue such opinion following the consummation of any such
acquisition.
Section 9.2 Effect of Termination. In the event of termination of
this Agreement as provided in Section 9.1, this Agreement shall immediately
become void and there shall be no liability or obligation on the part of Hilton
or Company or any of their respective officers, directors, stockholders or
Affiliates, except as set forth in Section 9.3 and except that such
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termination shall not limit liability for a willful breach of this Agreement;
provided, that the provisions of Section 9.3 of this Agreement and the
Confidentiality Agreement shall remain in full force and effect and survive any
termination of this Agreement.
Section 9.3. Fees and Expenses.
(a) Except as set forth in Section 7.16 or in this Section 9.3,
all Transaction Costs shall be paid by the party incurring such expenses,
whether or not the Merger is consummated; provided, however, that if the Merger
is consummated, all Transaction Costs of Company shall be paid by the Surviving
Corporation.
(b) Company shall pay Hilton a termination fee of $30 million
upon the earliest to occur of the following events:
(i) the termination of this Agreement by Hilton pursuant
to Section 9.1(e), if any Acquisition Proposal involving Company shall have been
received or made known to Company prior to the Company Shareholders Meeting and
either a binding agreement with respect to any such Acquisition Proposal is
entered into, or the transactions constituting any such Acquisition Proposal are
consummated, within 18 months of such termination; provided, however, that no
termination fee shall be payable in such an event if Company would be entitled
to terminate this Agreement pursuant to either Section 9.1(j) or 9.1(k); or
(ii) the termination of this Agreement by Hilton pursuant
to Section 9.1(g), whether or not Company is entitled to terminate this
Agreement pursuant to Section 9.1(j) or 9.1(k).
Company's payment of a termination fee pursuant to this subsection shall be the
sole and exclusive remedy of Hilton against Company and any of its Subsidiaries
and their respective directors, officers, employees, agents, advisors or other
representatives with respect to the occurrences giving rise to such payment;
provided that, this limitation shall not apply in the event of a willful breach
of this Agreement by Company.
(c) The expenses and fees, if applicable, payable pursuant to
Section 9.3(b) shall be paid concurrently with the first to occur of the events
described in Section 9.3(b)(i) or (ii).
Section 9.4. Amendment. This Agreement may be amended by Hilton and
Company, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the shareholders of Company, but, after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 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
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contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained here. 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.
ARTICLE X.
MISCELLANEOUS
Section 10.1. Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Sections 2.4,
2.5, 2.6, 3.1, 3.2, 6.5, 7.4(iii) and (iv), 7.9, 7.14, 7.15, 7.16, 7.18, 7.20
and 7.21 hereof, this Article X and the Security Agreements delivered pursuant
to Section 7.9(c) and the agreements of the Affiliates delivered pursuant to
Section 7.13. The Confidentiality Agreement shall survive the execution and
delivery of this Agreement.
Section 10.2. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Hilton, to
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Attn: General Counsel
Telecopy: (310) 205-7677
with a copy to:
Latham & Watkins
1001 Pennsylvania, N.W., Suite 1300
Washington, D.C. 20004
Attn: Bruce E. Rosenblum, Esq.
Telecopy: (202) 637-2201
(b) if to Gaming Co. or Merger Sub, to
Gaming Co., Inc.
3930 Howard Hughes Parkway, 4th Floor
Las Vegas, Nevada 89109
Attn: General Counsel
Telecopy: (702) 699-5179
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(c) if to Company or Lakes, to
Grand Casinos, Inc.
130 Cheshire Lane
Minnetonka, Minnesota 55305
Attn: General Counsel
Telecopy: (612) 449-8509
with a copy to:
Maslon, Edelman, Borman & Brand, LLP
3300 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Neil I. Sell, Esq.
Telecopy: (612) 672-8397
Section 10.3. Interpretation. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement," "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to June
30, 1998.
Section 10.4. Counterparts. This Agreement and any amendments
hereto may be executed in two or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when two or
more counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
Section 10.5. Entire Agreement; No Third Party Beneficiaries. This
Agreement and all documents and instruments referred to herein (a) constitute
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 7.9 are not intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder;
provided that, the Confidentiality Agreement shall remain in full force and
effect until the Effective Time. Each party hereto agrees that, except for the
representations and warranties contained in this Agreement, neither Hilton nor
Company has made or shall be deemed to have made any other representations or
warranties, express or implied, and each hereby disclaims any other
representations and warranties made by itself or any of its officers, directors,
employees, agents, financial and legal advisors or other representatives, with
respect to (i) the execution and delivery of this Agreement, (ii) any financial
projections or schedules (other than the financial schedules, budgets or pro
formas described or referred to in Sections 3.1(c), 4.19, 4.20 or 5.14 of this
Agreement) heretofore or hereafter delivered to or made available to any such
Persons or their counsel, accountants, advisors, representatives or Affiliates
or (iii) the transactions contemplated hereby, notwithstanding the delivery or
disclosure to the other or the other's representatives of
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any documentation or other information with respect to any one or more of the
foregoing; it being understood that each party hereto has not and will not rely
on any financial projections or schedules (other than the financial projections
or schedules described or referred to in Sections 3.1(c), 4.19, 4.20 or 5.14 of
this Agreement) in connection with its evaluation of any other party hereto or
the Merger.
Section 10.6. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without regard to
any applicable conflicts of law, including all matters of construction,
validity, and performance, except to the extent that the provisions of the DGCL
or the MBCA and applicable Gaming Laws shall be mandatorily applicable to the
Merger or this Agreement.
Section 10.7. Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
Section 10.8. Headings; References. The article, section and
paragraph headings and table of contents 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 "Article," "Sections"
or "Exhibits" shall be deemed to be references to Articles or Sections hereof or
Exhibits hereto unless otherwise indicated.
Section 10.9. Severability; Enforcement. Except to the extent that
the application of this Section 10.9 would have a Material Adverse Effect with
respect to Hilton, Gaming Co. or 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 covenant hereunder is too broad to permit
enforcement of such covenant to its fullest extent, each party agrees that a
court of competent jurisdiction may enforce such covenant 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
covenant.
Section 10.10. 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 Laws, each party hereto waives
any objection to the imposition of such relief.
Section 10.11. Effect of Hilton Distribution. The parties
acknowledge that Hilton may effect the Hilton Distribution in advance of the
Effective Time. From and after the effectiveness of the Hilton Distribution: (i)
the rights and obligations of Hilton contained in each of the Transaction
Documents shall become the rights and obligations solely of Gaming Co., and
Hilton shall have no further obligations under each of the Transaction
Documents; (ii) all covenants
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under each of the Transaction Documents to be performed by Hilton will be
performed by (and appropriately construed as covenants of) Gaming Co.; (iii) all
covenants under each of the Transaction Documents to be performed for the
benefit of Hilton will be performed (and appropriately construed as covenants)
for the benefit of Gaming Co. and all payments to be made to Hilton shall
instead be paid to Gaming Co.; and (iv) the representations and warranties of
Hilton shall be representations and warranties of Gaming Co., unless by their
context such representations and warranties are not appropriate to Gaming Co.,
appropriately modified to give effect to the transactions contemplated by this
Agreement and the Hilton Distribution Agreement.
Section 10.12. Approvals, Consent and Waivers. Any approval,
consent or waiver required or authorized by any provision of this Agreement to
be given or made by any of the parties hereto shall only be valid to the extent
such approval, consent or waiver is in writing and signed by, with respect to
either Hilton, Gaming Co. or Merger Sub, the Executive Vice President & Chief
Financial Officer, the Executive Vice President & General Counsel, the Senior
Vice President & Treasurer or the Senior Vice President & Controller, and with
respect to either Company or Lakes, the Chairman of the Board of Directors, the
President and Chief Executive Officer or the Chief Financial Officer, of the
party to be bound by such approval, consent or waiver.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their respective duly authorized officers as of the date first
written above.
HILTON HOTELS CORPORATION,
a Delaware corporation
/s/ Matthew J. Hart
----------------------------------------
By:
Its:
GRAND CASINOS, INC.,
a Minnesota corporation
/s/ Lyle Berman
----------------------------------------
By: Lyle Berman
Its: Chairman of the Board
GAMING CO., INC.,
a Delaware corporation
/s/ Matthew J. Hart
----------------------------------------
By:
Its:
GCI LAKES, INC.,
a Minnesota corporation
/s/ Lyle Berman
----------------------------------------
By: Lyle Berman
Its: Chairman of the Board
GAMING ACQUISITION
CORPORATION, a Minnesota corporation
/s/ Matthew J. Hart
----------------------------------------
By:
Its:
S-1
78
Pursuant to Item 601(b)(2) of Regulation S-K, certain Schedules and Exhibits
have been omitted from this Agreement. The Registrant will furnish a copy of any
omitted Schedule or Exhibit to the Commission upon request.
Schedules:
Schedule 4.2 list of Subsidiaries
Schedule 4.4 list pursuant to Section 4.4(b) of certain agreements for which consent to the
execution of the transaction documents must be obtained
Schedule 4.5 states the Registrant's ownership in Hilton capital stock.
Schedule 4.7 list of certain undisclosed liabilities pursuant to Section 4.7(b)
Schedule 4.8 list of changes or events relating to compensation, employee relocation, financing
arrangements with respect to certain properties and accounting treatment
Schedule 4.9 list of material litigation
Schedule 4.10 list of certain tax matters pursuant to Section 4.10
Schedule 4.11 list of employee benefit plans, complaints regarding employee benefit plans, and
liabilities associated with employee benefit plans in connection with the proposed
transactions
Schedule 4.14 list of certain real property
Schedule 4.15 list of certain Indian Gaming and Debt Agreements and Lakes Agreements pursuant to
Section 4.15
Schedule 4.17 list of transactions with affiliates
Schedule 4.18 list of certain matters relating to Stratosphere and the Lakes Group
Schedule 6.1 list of permitted activities by the Company and Lakes
Schedule 7.18 list of employee benefits to be provided by Gaming Co.
Schedule 5.4(b) list pursuant to Section 5.4(b) of certain agreements for which consent to the
transaction documents must be obtained by Hilton
Schedule 5.9 list of material litigation involving Hilton
The following is a list and description of the omitted Exhibits:
Exhibit A Form of Hilton Distribution Agreement
Exhibit B (Filed as Exhibit 10.1 to this Form 10-Q.)
Exhibit C Form of Affiliate Agreement
Exhibit D Company Retained Business Financial Statements
Exhibit E Lakes Balance Sheet
Exhibit F Company's Capital Expenditure Plans 1998 - 1999
Exhibit G Gaming Co. Business Financial Statement
Exhibit H Form of Opinion of Latham & Watkins
Exhibit I Form of Certificate of Company
Exhibit J Form of Certificate of Gaming Co.
Exhibit K Form of Opinion of Maslon Edelman Borman & Brand, LLP
Exhibit L Form of Non-Competition Agreement
Exhibit M (Filed as Exhibit 10.5 to this Form 10-Q)
Exhibit N (Filed as Exhibit 10.6 to this Form 10-Q)