EXHIBIT 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
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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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 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.
"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.
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"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).
"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.
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"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).
"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).
"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.
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"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.
"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).
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"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 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.
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"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.
"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
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.
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"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.
"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.
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"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.
"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.
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"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.
"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.
10
"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, 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.
11
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.
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"):
12
(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).
(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
13
"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 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.
14
(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 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
15
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
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 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
16
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 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.
17
(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 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.
18
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 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 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
19
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
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
20
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
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
21
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.
(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
22
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
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 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).
23
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 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").
24
(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, 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.
25
(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.
(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 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
26
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.
(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
27
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.
(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 restricting the
ability of Gaming Co., following the Effective Time, from owning the Surviving
Corporation.
28
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
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
29
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.
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
30
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) 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.
31
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,
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 -0-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 -0-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 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.
32
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.
(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)
33
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 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
34
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 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;
35
(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 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;
36
(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 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.);
37
(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 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.
38
Hilton shall be entitled to jointly direct and control with Company 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, FORM 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
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
39
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 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,
40
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.
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
41
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 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 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
42
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 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
43
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 "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.
44
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"). 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
45
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.
(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 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.
46
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.
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
47
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 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
48
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 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 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.
49
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 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
50
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 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
51
(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 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 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.
52
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
(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
53
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 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
54
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
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.
[Signature Page to Follow]
55
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: Matthew J. Hart
Its: EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
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: Matthew J. Hart
Its: EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
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: Matthew J. Hart
Its: EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
S-1
EXHIBIT A
DISTRIBUTION AGREEMENT
BY AND BETWEEN
HILTON HOTELS CORPORATION
AND
GAMING CO., INC.
(TO BE RENAMED _____________________)
-------------------------------------
DATED AS OF [________ __], 1998
-------------------------------------
TABLE OF CONTENTS
PAGE
----
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.01. General. . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.02. Terms Defined Elsewhere in Agreement.. . . . . . . . . . 11
ARTICLE II. TRANSFER OF ASSETS. . . . . . . . . . . . . . . . . . . . . . 12
Section 2.01. Transfer of Assets to Gaming Co. . . . . . . . . . . . . 12
Section 2.02. Transfers of Assets from Gaming Subsidiaries to Hilton
or Retained Business Subsidiaries. . . . . . . . . . . . 12
Section 2.03. Transfers Not Effected Prior to the Distribution.. . . . 12
Section 2.04. Cooperation Re: Assets. . . . . . . . . . . . . . . . . 13
Section 2.05. No Representations or Warranties; Consents.. . . . . . . 13
Section 2.06. Conveyancing and Assumption Instruments. . . . . . . . . 14
Section 2.07. Cash Allocation; Cash Management.. . . . . . . . . . . . 14
Section 2.08. Allocation of Debt.. . . . . . . . . . . . . . . . . . . 15
Section 2.09. Ancillary Agreements Between Hilton and Gaming Co. . . . 17
ARTICLE III. ASSUMPTION AND SATISFACTION OF LIABILITIES. . . . . . . . . . 17
Section 3.01. Assumption and Satisfaction of Liabilities . . . . . . . 17
ARTICLE IV. THE DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.01. Cooperation Prior to the Distribution. . . . . . . . . . 17
Section 4.02. Hilton Board Action; Conditions Precedent to the
Distribution . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.03. The Distribution.. . . . . . . . . . . . . . . . . . . . 19
ARTICLE V. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.01. Indemnification by Hilton. . . . . . . . . . . . . . . . 20
Section 5.02. Indemnification by Gaming Co.. . . . . . . . . . . . . . 20
Section 5.03. Insurance Proceeds.. . . . . . . . . . . . . . . . . . . 20
Section 5.04. Procedure for Indemnification. . . . . . . . . . . . . . 21
Section 5.05. Remedies Cumulative. . . . . . . . . . . . . . . . . . . 23
Section 5.06. Survival of Indemnities. . . . . . . . . . . . . . . . . 23
ARTICLE VI. CERTAIN ADDITIONAL MATTERS. . . . . . . . . . . . . . . . . . 23
Section 6.01. Gaming Co. Board . . . . . . . . . . . . . . . . . . . . 23
Section 6.02. Resignations; Hilton Board.. . . . . . . . . . . . . . . 24
Section 6.03. Gaming Co. Certificate and Bylaws. . . . . . . . . . . . 24
Section 6.04. Certain Post-Distribution Transactions.. . . . . . . . . 24
Section 6.05. Gaming Co. Rights Plan.. . . . . . . . . . . . . . . . . 25
Section 6.06. Timeshare and Vacation Ownership Facilities. . . . . . . 25
i
ARTICLE VII. ACCESS TO INFORMATION AND SERVICES. . . . . . . . . . . . . . 25
Section 7.01. Provision of Corporate Records . . . . . . . . . . . . . 25
Section 7.02. Access to Information. . . . . . . . . . . . . . . . . . 26
Section 7.03. Production of Witnesses. . . . . . . . . . . . . . . . . 26
Section 7.04. Reimbursement. . . . . . . . . . . . . . . . . . . . . . 27
Section 7.05. Retention of Records.. . . . . . . . . . . . . . . . . . 27
Section 7.06. Confidentiality. . . . . . . . . . . . . . . . . . . . . 27
Section 7.07. Privileged Matters.. . . . . . . . . . . . . . . . . . . 28
ARTICLE VIII. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.01. Policies and Rights Included Within the Gaming Group
Assets . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.02. Policies and Rights Included Within the Retained Business
Group Assets . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.03. Administration and Reserves. . . . . . . . . . . . . . . 30
Section 8.04. Agreement for Waiver of Conflict and Shared Defense. . . 32
ARTICLE IX. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.01. Entire Agreement; No Third Party Beneficiaries . . . . . 32
Section 9.02. Tax Allocation and Indemnity Agreement;
After-Tax Payments.. . . . . . . . . . . . . . . . . . . 32
Section 9.03. Expenses.. . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.04. Governing Law. . . . . . . . . . . . . . . . . . . . . . 33
Section 9.05. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.06. Amendments.. . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.07. Assignments. . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.08. Termination. . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.09. Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . 34
Section 9.10. Specific Performance.. . . . . . . . . . . . . . . . . . 34
Section 9.11. Headings; References.. . . . . . . . . . . . . . . . . . 35
Section 9.12. Counterparts.. . . . . . . . . . . . . . . . . . . . . . 35
Section 9.13. Severability; Enforcement. . . . . . . . . . . . . . . . 35
Section 9.14. Arbitration of Disputes. . . . . . . . . . . . . . . . . 35
Section 9.15. Prompt Payment.. . . . . . . . . . . . . . . . . . . . . 36
Section 9.16. Approvals, Consent and Waivers.. . . . . . . . . . . . . 36
ii
INDEX OF SCHEDULES
Schedule 1 Casino Hotels and Other Gaming Facilities
Schedule 2 Gaming Corporate Functions
Schedule 3 Certain Gaming Group Assets
Schedule 4 Gaming Group Cash Accounts
Schedule 5 Gaming Subsidiaries
Schedule 6 Certain Retained Business Group Assets
Schedule 7 Retained Business Subsidiaries
Schedule 8 Retained Corporate Functions
Schedule 9 Retained Credit Agreement Debt Amount
Schedule 10 Exceptions to Resignations Required under Section 6.02
INDEX OF EXHIBITS
Exhibit A Assignment and License Agreement
Exhibit B Corporate Services Agreements
Exhibit C Employee Benefits and Other Employment Matters Allocation
Agreement
Exhibit D Terms of Gaming Co. Intercompany Debt Allocation Agreement
Exhibit E Tax Allocation and Indemnity Agreement
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (the "AGREEMENT"), dated as of [________
__], 1998, by and between HILTON HOTELS CORPORATION, a Delaware corporation
("HILTON"), and GAMING CO., INC. a Delaware corporation and wholly-owned
subsidiary of Hilton, to be renamed _______________________ ("GAMING CO.").
WHEREAS, Hilton, directly and through subsidiaries, owns, operates
and develops certain gaming facilities (as more specifically described
herein, the "GAMING BUSINESS"), and owns, operates and develops lodging
properties and vacation ownership resorts and engages in franchising of
lodging properties (as more specifically described herein, the "RETAINED
BUSINESS");
WHEREAS, the Board of Directors of Hilton has determined that it is
in the best interests of Hilton and the stockholders of Hilton to separate
the Gaming Business from the Retained Business through the distribution (the
"DISTRIBUTION") to the holders of Hilton Common Stock (as defined herein) of
all of the outstanding shares of Gaming Co. Common Stock (as defined herein),
and to consummate the Merger (as defined herein) promptly following the
Distribution;
WHEREAS, in order to effect such separation, Hilton and the
Retained Business Subsidiaries (as defined herein) will contribute to Gaming
Co. and the Gaming Subsidiaries (as defined herein), prior to the
Distribution, all of the operations, assets and liabilities of Hilton and the
Retained Subsidiaries comprising the Gaming Business and such other assets,
liabilities and operations as are described below;
WHEREAS, in connection with the Distribution, Hilton and Gaming Co.
have determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect the Distribution, and to set forth
the agreements that will govern certain matters following the Distribution;
WHEREAS, the consummation of the Distribution is a condition to
each of Hilton's and Company's (as defined herein) respective obligations to
effect the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the
Distribution shall qualify as a tax-free distribution within the meaning of
Section 355 of the Internal Revenue Code of 1986, as amended, to Hilton and
its stockholders.
NOW, THEREFORE, in consideration of the foregoing and the
respective covenants and agreements set forth below, the parties agree as
follows:
ARTICLE I.
DEFINITIONS
Section 1.01. GENERAL.
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
ACTION: Any action, claim, suit, arbitration, inquiry, proceeding
or investigation by or before any court, any governmental or other regulatory
or administrative agency or commission or any arbitration tribunal.
AFFILIATE: With respect to any specified Person, an affiliate of
such Person within the meaning of Rule 145 promulgated under the Securities
Act. Notwithstanding the foregoing, (i) the Affiliates of Hilton shall not
include Gaming Co., the Gaming Subsidiaries or any other Person which
otherwise would be an Affiliate of Hilton solely by reason of Hilton's
ownership of the capital stock of Gaming Co. or a Gaming Subsidiary prior to
the Distribution or the fact that any officer or director of Hilton or any of
the Retained Business Subsidiaries shall also serve as an officer or director
of Gaming Co. or any of the Gaming Subsidiaries, and (ii) the Affiliates of
Gaming Co. shall not include Hilton, the Retained Business Subsidiaries or
any other Person which otherwise would be an Affiliate of Gaming Co. solely
by reason of Hilton's ownership of the capital stock of Gaming Co. or a
Gaming Subsidiary prior to the Distribution or the fact that any officer or
director of Gaming Co. or any of the Gaming Subsidiaries shall also serve as
an officer or director of Hilton or any of the Retained Business Subsidiaries.
AFFILIATED GROUP: The meaning set forth for such term in the Tax
Allocation and Indemnity Agreement.
AGENT: The distribution agent appointed by Hilton to distribute
the Gaming Co. Common Stock pursuant to the Distribution.
ANCILLARY AGREEMENTS: The Assignment and License Agreement,
Corporate Services Agreements, Employee Benefits Allocation Agreement and Tax
Allocation and Indemnity Agreement.
ASSIGNMENT AND LICENSE AGREEMENT: The Assignment and License
Agreement between Hilton and Gaming Co., which agreement shall be entered
into on or prior to the Distribution Date in substantially the form attached
hereto as Exhibit A.
ASSUMED DEBT: The Debt of Hilton and its Subsidiaries which is to
be assumed by Gaming Co. and/or retained by the Gaming Group Subsidiaries in
connection with the Distribution, as determined pursuant to Section 2.08.
BALLY'S: Bally Entertainment Corporation.
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BALLY'S ACQUISITION: The acquisition of Bally's by Hilton, which
was effected on December 18, 1996.
CASINO HOTELS: Hotels that are part of or adjacent to a casino or
other gaming facility where the principal focus of the combined facilities is
gaming operations; PROVIDED, that Casino Hotels do not include (i) hotels
operated by the Retained Business (E.G., the Conrad hotel being developed in
Cairo, Egypt) with Hotel Ancillary Facilities or (ii) the entity managing the
Casino Windsor. The Casino Hotels operated by Hilton and its Subsidiaries as
of the date hereof are set forth in Schedule 1.
CODE: The Internal Revenue Code of 1986, as amended, or any
successor thereto, as in effect for the taxable year in question.
COMPANY: Grand Casinos, Inc., a Minnesota corporation.
CONVEYANCING AND ASSUMPTION INSTRUMENTS: Collectively, the various
agreements, instruments and other documents to be entered into to effect the
Preliminary Transfers and the assignment of assets and the assumption of
Liabilities contemplated by this Agreement and the Related Agreements in the
manner contemplated herein and therein.
CORPORATE SERVICES AGREEMENTS: The Hilton Corporate Services
Agreement and the Gaming Co. Corporate Services Agreement.
DEBT: All (i) indebtedness for borrowed money and obligations
evidenced by bonds, notes, debentures or similar instruments, (ii)
obligations issued or assumed as the deferred purchase price of property or
services, (iii) obligations under capital leases and (iv) all guarantees of
the obligations of other Persons described in the foregoing clauses
(i)--(iii).
DISTRIBUTION: The distribution to the holders of Hilton Common
Stock as of the Distribution Record Date of all of the outstanding shares of
Gaming Co. Common Stock.
DISTRIBUTION DATE: The date on which the Distribution is effected.
DISTRIBUTION RECORD DATE: The date established by the Hilton Board
as the date for taking a record of the Holders of Hilton Common Stock
entitled to participate in the Distribution.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT: The Employee Benefits and
Other Employment Matters Allocation Agreement between Gaming Co. and Hilton,
which agreement shall be entered into on or prior to the Distribution Date in
substantially the form attached hereto as Exhibit C.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
3
FOREIGN GAMING LAWS: 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 10: The Registration Statement on Form 10 under the Exchange
Act with respect to the Gaming Co. Common Stock.
GAAP: Generally accepted accounting principles.
GAMING BUSINESS: The business conducted by Hilton and its
Subsidiaries relating to the (i) management, ownership, operation and
development of Casino Hotels and gaming facilities other than Hotel Ancillary
Facilities (such Casino Hotels and gaming facilities in existence as of the
date hereof are specified in Schedule 1), (ii) the Gaming Corporate Functions
and (iii) any other operations conducted by Hilton and its Subsidiaries
utilizing the Gaming Group Assets.
GAMING CORPORATE FUNCTIONS: The corporate level and support
functions of Hilton to be conducted by Gaming Co. in connection with the
Distribution, as set forth in Schedule 2. (Currently expected to include (i)
aviation services, (ii) food and beverage purchasing and procurement, (iii)
retail management and administration, (iv) compliance and (v) surveillance.)
GAMING GROUP: Gaming Co. and the Gaming Subsidiaries, collectively.
GAMING GROUP ASSETS: (i) All outstanding capital stock of the
Gaming Subsidiaries; (ii) the Gaming Group Books and Records; (iii) the
rights of Gaming Co. and the Gaming Subsidiaries under the Shared Policies;
(iv) all of the assets expressly to be retained by, or assigned or allocated
to, Gaming Co. or any of the Gaming Subsidiaries under this Agreement and the
Related Agreements; (v) the assets specified in Schedule 3, to the extent in
existence on the Distribution Date; (vi) the assets used in connection with
the Gaming Corporate Functions; (vii) all rights and benefits of Hilton
arising out of the Merger Agreement; and (viii) any other assets of Hilton
and its Subsidiaries used principally in the Gaming Business, including
without limitation, all assets obtained by Hilton or its Subsidiaries as a
result of the Bally's Acquisition, to the extent still held by Hilton or its
Subsidiaries; EXCEPT, in each case, excluding the assets listed on Schedule 6.
GAMING GROUP BOOKS AND RECORDS: The books and records (including
computerized records) of Gaming Co. and the Gaming Subsidiaries and any other
books and records of Hilton and its Subsidiaries which relate principally to
the Gaming Group, are necessary to conduct the Gaming Business, or are
required by law to be retained by Gaming Co. or a Gaming Subsidiary,
including, without limitation, (i) all such books and records relating to
Transferred Employees, (ii) all files relating to any Action being assumed by
Gaming Co. or retained by a Gaming Subsidiary as part of the Gaming Group
Liabilities, and (iii) original corporate minute books, stock ledgers and
certificates and corporate seals, and all licenses, leases, agreements and
filings, relating to Gaming Co., the Gaming Subsidiaries or the Gaming
Business (but not including the Retained Business Group Books and Records,
provided that
4
Gaming Co. shall have access to, and have the right to obtain duplicate
copies of, any of the Retained Business Group Books and Records which pertain
to the Gaming Business in accordance with the provisions of Article VII).
GAMING GROUP CASH ACCOUNTS: The bank accounts set forth in
Schedule 4 hereto.
GAMING GROUP LIABILITIES: (i) All of the Liabilities of the Gaming
Group under, or to be retained or assumed by Gaming Co. or any of the Gaming
Subsidiaries pursuant to this Agreement or any of the Related Agreements;
(ii) the Assumed Debt; (iii) all Liabilities of Gaming Co. and the Gaming
Subsidiaries, other than Liabilities specifically associated with the
Retained Business (which shall be transferred to Hilton or to a Retained
Business Subsidiary in connection with the Distribution); (iv) all
Liabilities of Hilton arising out of the Merger Agreement and (v) all other
Liabilities of Hilton and its Subsidiaries arising out of, or specifically
associated with, any of the Gaming Group Assets or the Gaming Business,
including, but not limited to, all Liabilities assumed or incurred by Hilton
or its Subsidiaries as a result of the Bally's Acquisition, to the extent
still outstanding; PROVIDED, HOWEVER, that the Gaming Group Liabilities shall
not include (x) any Debt of Hilton or its Subsidiaries other than the Assumed
Debt, (y) any claims, losses, damages, demands, costs, expenses or
Liabilities for any Tax (which shall be governed by Sections 6.05 and 9.02
hereof and by the Tax Allocation and Indemnity Agreement) and (z) any
Liabilities under the Conrad License Agreements (as defined in the Assignment
and License Agreement).
GAMING LAWS: Foreign Gaming Laws, Louisiana Gaming Laws,
Mississippi Gaming Laws, Missouri Gaming Laws, New Jersey Gaming Laws, Nevada
Gaming Laws and Ontario Gaming Laws.
GAMING SUBSIDIARIES: The Subsidiaries of Hilton specified in
Schedule 5 and any other Subsidiaries formed after the date hereof to conduct
a portion of the Gaming Business.
GAMING CO. BOARD: The Board of Directors of Gaming Co.
GAMING CO. BYLAWS: The Bylaws of Gaming Co., which shall be
substantially similar to the bylaws of Hilton as in effect immediately prior
to the Distribution Date.
GAMING CO. CORPORATE SERVICES AGREEMENT: The agreement between
Hilton and Gaming Co. governing the provision of services by Gaming Co. to
Hilton for a period following the Distribution Date, which agreement shall be
entered into on or prior to the Distribution Date in substantially the form
attached hereto as Exhibit B.
GAMING CO. CERTIFICATE: The Certificate of Incorporation of Gaming
Co., which shall be substantially similar to the certificate of incorporation
of Hilton as in effect immediately prior to the Distribution Date.
GAMING CO. COMMON STOCK: The common stock, $.01 par value per
share, of Gaming Co.
5
GAMING CO. INTERCOMPANY DEBT ALLOCATION AGREEMENT: The agreement
to be executed and delivered by Gaming Co. in favor of Hilton on or prior to
the Distribution Date with the terms set forth on Exhibit D attached hereto.
GAMING CO. MEMBERS: The meaning specified in the Tax Allocation
and Indemnity Agreement.
GOVERNMENTAL AUTHORITY: Any court, administrative agency or
commission or other governmental authority or instrumentality.
HILTON BOARD: The Board of Directors of Hilton as it is
constituted prior to the Distribution Date.
HILTON COMMON STOCK: The common stock, par value $2.50 per share,
of Hilton.
HILTON CORPORATE SERVICES AGREEMENT: The agreement between Hilton
and Gaming Co. governing the provision of services by Hilton to Gaming Co.
for a period following the Distribution Date, which agreement shall be
entered into on or prior to the Distribution Date in substantially the form
attached hereto as Exhibit B.
HOLDERS: The holders of record of Hilton Common Stock as of the
Distribution Record Date.
HOTEL ANCILLARY FACILITIES: Small gaming facilities which are
included as an adjunct to hotel operations.
INSURANCE ADMINISTRATION: With respect to each Policy (including
Self Insurance Programs) shall include, but not be limited to, the accounting
for premiums, retrospectively rated premiums, defense costs, adjuster's fees,
indemnity payments, deductibles and retentions as appropriate under the terms
and conditions of each of the Policies; and the reporting to primary and
excess insurance carriers of any losses, claims and/or audit exposure in
accordance with Policy provisions, and the distribution of Insurance Proceeds
as contemplated by this Agreement.
INSURANCE PROCEEDS: Those moneys (i) received by an insured from
an insurance carrier or (ii) paid by an insurance carrier on behalf of the
insured, in either case net of any applicable premium adjustment,
retrospectively rated premium, deductible, retention, cost or reserve paid or
held by or for the benefit of such insured.
INSURED CLAIMS: Those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the
Policies, whether or not subject to deductibles, co-insurance,
uncollectability or retrospectively rated premium adjustments, but only to
the extent that such Liabilities are within applicable Policy limits,
including aggregates.
IRS: The Internal Revenue Service or any successor thereto,
including but not limited to its agents, representatives and attorneys.
6
IRS RULING: The letter ruling issued by the IRS in response to the
Ruling Request.
LAKES: GCI Lakes, Inc., a Minnesota corporation and wholly-owned
subsidiary of Company.
LIABILITIES: Any and all debts, liabilities and obligations,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising, including all costs
and expenses relating thereto, and including, without limitation, those
debts, liabilities and obligations arising under any law, rule, regulation,
Action, threatened Action, order or consent decree of any governmental entity
or any award of any arbitrator of any kind, and those arising under any
contract, commitment or undertaking.
LOUISIANA GAMING LAWS: The Louisiana Riverboat Economic
Development and Gaming Control Act and the rules and regulations promulgated
thereunder.
MERGER: The merger of Merger Sub with and into Company with Company
as the surviving corporation.
MERGER AGREEMENT: That certain Agreement and Plan of Merger, dated
as of June 30, 1998 by and among Hilton, Gaming Co., Merger Sub, Company and
Lakes.
MERGER SUB: Gaming Acquisition Corporation, a Minnesota
corporation and wholly-owned subsidiary of Gaming Co.
MISSISSIPPI GAMING LAWS: The Mississippi Gaming Control Act and
the rules and regulations promulgated thereunder.
MISSOURI GAMING LAWS: The Missouri Gaming Law and the rules and
regulations promulgated thereunder.
NET CASH: The sum of (i) net cash provided by (used in) financing
activities, (ii) net cash provided by operating activities and (iii) net cash
used in investing activities.
NEVADA GAMING LAWS: The Nevada Gaming Control Act and the rules
and regulations promulgated thereunder, the Clark County, Nevada Code and the
rules and regulations promulgated thereunder, and 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.
ONTARIO GAMING LAWS: The Ontario Gaming Control Act, 1992 and the
rules and regulations promulgated thereunder.
7
PERSON: Any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, estate, unincorporated
organization, governmental or regulatory body or other entity.
POLICIES: Insurance policies and insurance contracts of any kind
relating to the Gaming Business or the Retained Business as conducted prior
to the Distribution Date, including without limitation primary and excess
policies, comprehensive general liability policies, automobile, aircraft,
workers' compensation, property insurance, crime insurance and boiler and
machinery insurance policies and self-insurance and captive insurance company
arrangements, together with the rights and benefits thereunder.
POST-DISTRIBUTION MEMBERS: The meaning specified in the Tax
Allocation and Indemnity Agreement.
PRELIMINARY TRANSFERS: The contribution by Hilton and the Retained
Business Subsidiaries to Gaming Co. and the Gaming Subsidiaries, prior to the
Distribution, of all of the assets and liabilities of Hilton and the Retained
Subsidiaries comprising the Gaming Business and such other assets,
liabilities and operations as are described herein.
PRIVILEGED INFORMATION: All information as to which Hilton, Gaming
Co. or any of their Subsidiaries are entitled to assert the protection of a
Privilege.
PRIVILEGES: All privileges that may be asserted under applicable
law including, without limitation, privileges arising under or relating to
the attorney-client relationship (including but not limited to the
attorney-client and work product privileges), the accountant-client
privilege, and privileges relating to internal evaluative processes.
RELATED AGREEMENTS: All of the agreements, instruments,
understandings, assignments or other arrangements set forth in writing, which
are entered into in connection with the transactions contemplated hereby,
including, without limitation, the Conveyancing and Assumption Instruments
and the Ancillary Agreements.
RETAINED BUSINESS: The business conducted by Hilton and its
Subsidiaries relating to (i) the sales, marketing, management, ownership,
operation, development and franchising of lodging, timeshare and vacation
ownership facilities (including those timeshare and vacation ownership
facilities located at or associated with the Casino Hotels, and including the
ability to sell, market and franchise any such facilities whether or not
located at or associated with the Casino Hotels), (ii) the Retained Corporate
Functions, (iii) Hilton's strategic alliance with Ladbroke Group PLC and its
affiliates (including all interests in joint ventures owned jointly with
Ladbroke Group PLC) and (iv) any other operations conducted by Hilton and its
Subsidiaries utilizing the Retained Business Group Assets.
RETAINED BUSINESS GROUP: Hilton and the Retained Business
Subsidiaries, collectively.
8
RETAINED BUSINESS GROUP ASSETS: (i) All outstanding capital stock
of the Retained Business Subsidiaries and all assets of the Gaming
Subsidiaries other than the Gaming Group Assets; (ii) the Retained Business
Group Books and Records; (iii) the rights of Hilton and the Retained Business
Subsidiaries under the Shared Policies; (iv) all of the assets expressly to
be retained by, or assigned or allotted to, Hilton or any of the Retained
Business Subsidiaries under this Agreement or the Related Agreements; (v) the
assets used in connection with the Retained Corporate Functions; (vi) the
assets specified in Schedule 6, to the extent in existence on the
Distribution Date; and (vii) any other assets of Hilton and its Subsidiaries
used principally in the Retained Business; EXCEPT, in each case, excluding
the assets listed in Schedule 3.
RETAINED BUSINESS GROUP BOOKS AND RECORDS: The books and records
(including computerized records) of Hilton and the Retained Business
Subsidiaries and any other books and records of Hilton's Subsidiaries which
relate principally to the Retained Business Group, are necessary to conduct
the Retained Business or are required by law to be retained by Hilton or a
Retained Business Subsidiary, including, without limitation, (i) all such
books and records relating to Retained Business Group Employees, (ii) all
files relating to any Action being retained by Hilton as part of the Retained
Business Group Liabilities, and (iii) original corporate minute books, stock
ledgers and certificates and corporate seals, and all licenses, leases,
agreements and filings, relating to Hilton, the Retained Business
Subsidiaries or the Retained Business (but not including the Gaming Group
Books and Records, provided that Hilton shall have access to, and shall have
the right to obtain duplicate copies of, the Gaming Group Books and Records
in accordance with the provisions of Article VII).
RETAINED BUSINESS GROUP EMPLOYEES: The meaning specified in the
Employee Benefits Allocation Agreement.
RETAINED BUSINESS GROUP LIABILITIES: (i) All of the Liabilities of
the Retained Business Group under, or to be retained or assumed by Hilton or
any of the Retained Business Subsidiaries pursuant to, this Agreement or any
of the Related Agreements; (ii) all Liabilities for payment of outstanding
drafts of Hilton and its Subsidiaries existing as of the Distribution Date;
(iii) the Retained Debt; (iv) all Liabilities of Hilton and the Retained
Business Subsidiaries, other than Gaming Group Liabilities and (v) all other
Liabilities of Hilton and its Subsidiaries arising out of, or specifically
associated with, any of the Retained Business Group Assets or the Retained
Business; PROVIDED, HOWEVER, that the Retained Business Group Liabilities
shall not include (x) any Debt of Hilton or its Subsidiaries other than the
Retained Debt; (y) any claims, losses, damages, demands, costs, expenses or
Liabilities for any Tax (which shall be governed by Sections 6.05 and 9.02
hereof and by the Tax Allocation and Indemnity Agreement) and (z) any
Liabilities under the Conrad International Management Agreements (as defined
in the Assignment and License Agreement).
RETAINED BUSINESS SUBSIDIARIES: The Subsidiaries of Hilton
specified in Schedule 7 and any other Subsidiaries formed after the date
hereof to conduct a portion of the Retained Business.
9
==
RETAINED CORPORATE FUNCTIONS: The corporate level and support
functions of Hilton to be retained by Hilton in connection with the
Distribution, as set forth in Schedule 8 hereto. (Currently expected to include
corporate treasury, corporate accounting support (including payroll), central
accounting, internal audit, tax, corporate affairs, legal, human resources
(including employee benefits administration), accounts payable services, risk
management functions (including claims administration), certain equipment
purchasing and procurement functions, architectural and construction management
and project accounting and corporate information services.)
RETAINED DEBT: The Debt of Hilton and its Subsidiaries which is to be
retained by Hilton and/or the Retained Business Group Subsidiaries in connection
with the Distribution, as determined pursuant to Section 2.08.
RULING REQUEST: The private letter ruling request to be filed by
Hilton with the Internal Revenue Service, as supplemented and amended from time
to time, with respect to certain tax matters relating to the Distribution, the
Merger, and other related matters.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended.
SELF INSURANCE PROGRAMS: Those self insured programs maintained by
Hilton and/or any of its Subsidiaries prior to the Distribution for the benefit
of employees, properties and operating businesses, including without limitation
such programs that utilize "fronted policies."
SHARED POLICIES: All Policies (including Self Insurance Programs),
current or past, which are owned or maintained by or on behalf of Hilton and/or
any of its Subsidiaries or their respective predecessors which insure both the
Retained Business and the Gaming Business.
SUBSIDIARY: With respect to any Person, (i) each corporation,
partnership, joint venture, limited liability company or other legal entity of
which such Person owns, either directly or indirectly, 50% or more of the stock
or other equity interests, the holders of which are generally entitled to vote
for the election of the board of directors or similar governing body of such
corporation, partnership, joint venture or other legal entity and (ii) each
partnership or limited liability company in which such Person or another
Subsidiary of such Person is the general partner, managing partner or otherwise
controls.
TAX OR TAXES: 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, 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.
10
TAX ALLOCATION AND INDEMNITY AGREEMENT: The Tax Allocation and
Indemnity Agreement between Hilton and Gaming Co. pursuant to which such parties
will provide for the allocation of, and indemnification against, certain tax
liabilities, the preparation and filing of certain tax returns and the payment
of taxes related thereto and certain related matters, which agreement shall be
entered into on or prior to the Distribution Date substantially in the form
attached hereto as Exhibit E.
TAX RETURN(S): with respect to any corporation or Affiliated Group,
all returns, reports, estimates, statements, declarations and other filings
relating to, or required to be filed by any taxpayer in connection with, the
payment or receipt of any refund of any Tax.
TRANSFERRED EMPLOYEES: The meaning specified in the Employee Benefits
Allocation Agreement.
Section 1.02. TERMS DEFINED ELSEWHERE IN AGREEMENT.
Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
1992 Notes 2.08
1997 Notes 2.08
Agreement Recitals
Committee 9.14
Consents 4.01
Credit Agreement Debt 2.08
Dispute 9.14
Gaming Field Cash 2.07
Hilton Recitals
Hilton Indemnitees 5.02
Indemnifiable Loss 5.01
Indemnifying Party 5.03
Indemnified Person 5.03
Information 7.02
Insurance Charges 8.03
Lodging Field Cash 2.07
Gaming Co. Recitals
Gaming Co. Indemnities 5.01
Regulatory Approvals 4.02(g)
Retained Credit Agreement Debt Amount 2.08
Subordinated Notes 2.08
Third Party Claim 5.04
Transaction Taxes 6.05
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ARTICLE II.
TRANSFER OF ASSETS
Section 2.01. TRANSFER OF ASSETS TO GAMING CO.
Prior to the Distribution Date, Hilton shall take or cause to be taken
all actions necessary to cause the transfer, assignment, delivery and conveyance
to Gaming Co. and/or the appropriate Gaming Subsidiaries designated by Gaming
Co. of all of Hilton's and its Subsidiaries' right, title and interest in any
Gaming Group Assets held, on or prior to the Distribution Date, by Hilton or any
Retained Business Subsidiary.
Section 2.02. TRANSFERS OF ASSETS FROM GAMING SUBSIDIARIES TO HILTON
OR RETAINED BUSINESS SUBSIDIARIES.
Prior to the Distribution Date, Gaming Co. shall take or cause to be
taken all actions necessary to cause the transfer, assignment, delivery and
conveyance to Hilton and/or the applicable Retained Business Subsidiaries
designated by Hilton of all of Gaming Co.'s and the Gaming Subsidiaries' right,
title and interest in any Retained Business Group Assets held, on or prior to
the Distribution Date, by Gaming Co. or any of the Gaming Subsidiaries.
Section 2.03. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION.
To the extent that any transfers contemplated by this Article II shall
not have been fully effected as of the Distribution Date, the parties shall
cooperate to effect such transfers as promptly as shall be practicable following
the Distribution Date. Nothing herein shall be deemed to require the transfer
of any assets or the assumption of any Liabilities which by their terms or
operation of law cannot be transferred or assumed including, without limitation,
pursuant to Gaming Laws; PROVIDED, HOWEVER, that Hilton and Gaming Co. and their
respective Subsidiaries and Affiliates shall cooperate in seeking to obtain any
necessary consents or approvals for the transfer of all assets and Liabilities
contemplated to be transferred pursuant to this Agreement including, without
limitation, pursuant to Gaming Laws. In the event that any such transfer of
assets or Liabilities has not been consummated effective as of the Distribution
Date, the party retaining such asset or Liability shall thereafter hold such
asset in trust for the use and benefit of the party entitled thereto (at the
expense of the party entitled thereto) and retain such Liability for the account
of the party by whom such Liability is to be assumed pursuant hereto, and take
such other actions as may be reasonably required in order to place the parties,
insofar as reasonably possible, in the same position as would have existed had
such asset been transferred or such Liability been assumed as contemplated
hereby. As and when any such asset or Liability becomes transferable, such
transfer and assumption shall be effected forthwith. The parties agree that,
except as set forth in this Section 2.03, as of the Distribution Date, each
party hereto shall be deemed to have acquired complete and sole beneficial
ownership over all of the assets, together with all rights, powers and
privileges incidental thereto, and shall be deemed to have assumed in accordance
with the terms of this Agreement all of the Liabilities, and all duties,
obligations and
12
responsibilities incidental thereto, which such party is entitled to acquire
or required to assume pursuant to the terms of this Agreement.
Section 2.04. COOPERATION RE: ASSETS.
In the case that at any time after the Distribution Date, Gaming Co.
reasonably determines that any of the Retained Business Group Assets (other than
the assets set forth in Schedule 6) are essential for the conduct of the Gaming
Business, or Hilton reasonably determines that any of the Gaming Group Assets
(other than the assets set forth in Schedule 3) are essential for the conduct of
the Retained Business, and the nature of such assets makes it impracticable for
Gaming Co. or Hilton, as the case may be, to obtain substitute assets or to make
alternative arrangements on commercially reasonable terms to conduct their
respective businesses, and reasonable provisions for the use thereof are not
already included in the Related Agreements, then Gaming Co. (with respect to the
Gaming Group Assets) and Hilton (with respect to the Retained Business Group
Assets) shall cooperate to make such assets available to the other party on
commercially reasonable terms, as may be reasonably required for such party to
maintain normal business operations. However, (i) the usage of such assets by
the other party shall not materially interfere with the use of such assets by
the party holding such assets, and (ii) such assets shall be required to be made
available only until such time as the other party can reasonably obtain
substitute assets or make alternative arrangements on commercially reasonable
terms to permit it to maintain normal business operations.
Section 2.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS.
Each of the parties hereto understands and agrees that no party hereto
is, in this Agreement, in any Related Agreement, or otherwise, representing or
warranting in any way (i) as to the value or freedom from encumbrance of, or any
other matter concerning, any assets of such party or (ii) as to the legal
sufficiency to convey title to any asset transferred pursuant to this Agreement
or any Related Agreement. IT IS ALSO AGREED AND UNDERSTOOD THAT THERE ARE NO
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS OF ANY OF
THE ASSETS EITHER TRANSFERRED TO OR RETAINED BY THE PARTIES, AS THE CASE MAY BE,
AND ALL SUCH ASSETS SHALL BE "AS IS, WHERE IS" AND "WITH ALL FAULTS;" PROVIDED,
HOWEVER, that the absence of warranties shall have no effect upon the allocation
of Liabilities under this Agreement. Each party hereto understands and agrees
that no party hereto is, in this Agreement, in any Related Agreement or
otherwise, representing or warranting in any way that the obtaining of any
consents or approvals, the execution and delivery of any amendatory agreements
and the making of any filings or applications contemplated by this Agreement,
any Related Agreement or otherwise will satisfy the provisions of any or all
applicable laws or judgments or other instruments or agreements relating to such
assets, including without limitation, the Gaming Laws. Notwithstanding the
foregoing, the parties shall use their good faith efforts to obtain all consents
and approvals, including, without limitation, pursuant to the Gaming Laws, to
enter into all reasonable amendatory agreements and to make all filings and
applications which may be reasonably required for the consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
shall take all such further reasonable actions as shall be
13
necessary to preserve for each of the Gaming Group and the Retained Business
Group, to the greatest extent feasible, the economic and operational benefits
of the allocation of assets and liabilities provided for in this Agreement.
In case at any time after the Distribution Date any further action is
necessary or desirable to carry out the purposes of this Agreement, the
proper officers and directors of each party to this Agreement shall take all
such necessary or desirable action.
Section 2.06. CONVEYANCING AND ASSUMPTION INSTRUMENTS.
In connection with the Preliminary Transfers described in Article II
and Article III hereof, and the assignment of assets and the assumption of
Liabilities contemplated by any Related Agreements, the parties shall execute,
or cause to be executed by the appropriate entities, the Conveyancing and
Assumption Instruments in such forms as the parties shall reasonably agree. The
transfer of capital stock and other equity interests shall be effected by means
of delivery of stock certificates and executed stock powers and notation on the
stock record books of the corporation or other legal entity involved and, to the
extent required by applicable law, by notation on public registries.
Section 2.07. CASH ALLOCATION; CASH MANAGEMENT.
(a) CASH ALLOCATION ON THE DISTRIBUTION DATE. The allocation between
Hilton and Gaming Co. of all domestic and international cash bank balances,
short-term investments and outstanding checks and drafts of Hilton and its
Subsidiaries recorded per the books of Hilton and its Subsidiaries shall be in
accordance with the following:
(i) all deposits of cash, checks, drafts or short-term
investments made to accounts, other than the Gaming Group Cash
Accounts, after the close of business on the Distribution Date shall
be remitted to Hilton; PROVIDED, HOWEVER, that any such deposits that
are erroneously made to such accounts shall be redeposited to the
correct accounts as promptly as possible;
(ii) all deposits of cash, checks, drafts or short-term
investments made to the Gaming Group Cash Accounts after the close of
business on the Distribution Date shall be remitted to Gaming Co.
and/or the appropriate Gaming Subsidiary; PROVIDED, HOWEVER, that any
such deposits that are erroneously made to such accounts shall be
redeposited to the correct accounts as promptly as possible;
(iii) cash held on the Distribution Date in the ordinary
course of business at Casino Hotels or other gaming facilities
comprising part of the Gaming Business in an aggregate amount up to
$100 million ("GAMING FIELD CASH") shall constitute assets of Gaming
Co. and/or the appropriate Gaming Subsidiaries;
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(iv) cash held on the Distribution Date in the ordinary
course of business at lodging or timeshare properties comprising part
of the Retained Business in an aggregate amount up to $5 million
("LODGING FIELD CASH") shall constitute assets of Hilton and/or the
appropriate Retained Business Subsidiaries; and
(v) all cash existing as of the Distribution Date, except
Gaming Field Cash and Lodging Field Cash and except for the cash
necessary to satisfy the outstanding drafts of Hilton and its
Subsidiaries existing as of the Distribution Date, shall be evenly
divided between Hilton and Gaming Co.
(b) CASH MANAGEMENT AFTER THE DISTRIBUTION DATE. All petty cash,
depository and disbursement accounts of Hilton (other than the Gaming Group Cash
Accounts) shall be retained by Hilton. The Gaming Group Cash Accounts shall be
transferred to Gaming Co., and Gaming Co. shall establish and maintain a
separate cash management system and separate accounting records with respect to
the Gaming Group Business effective as of 12:01 a.m. New York time on the day
following the Distribution Date.
(c) ORDINARY COURSE OPERATIONS. The parties contemplate and agree
that the Gaming Business and the Retained Business, including, but not limited
to, the administration, payment and collection of accounts payable and accounts
receivable, will be conducted in the ordinary course of business and consistent
with past practice prior the Distribution Date.
(d) CASH ALLOCATIONS AFTER THE YEAR-END. Notwithstanding anything to
the contrary herein, (i) Net Cash generated after December 31, 1998 from
operations of the Retained Business (regardless of whether the Distribution has
occurred) shall be retained by Hilton, (ii) Net Cash generated after December
31, 1998 from operations of the Gaming Business (regardless of whether the
Distribution has occurred) shall be retained by Gaming Co, and (iii) in the
event the Distribution has not occurred by December 31, 1998, the allocations of
cash set forth in Section 2.07(a) shall be made as of December 31, 1998.
Section 2.08. ALLOCATION OF DEBT.(1)
Debt will be allocated as follows:
(a) Debt secured by Retained Business Group Assets, or otherwise
specifically associated with the Retained Business, will be assumed or retained
by Hilton and/or the appropriate Retained Business Subsidiaries. As of May 31,
1998, such Debt comprises (x) IRB financings of the Atlanta Airport Hilton and
the New Orleans Airport Hilton (in the amounts of $50 million and $32 million,
respectively), (y) two mortgages on the New Orleans Hilton (in
- - --------------------------
(1) All amounts set forth in this Section 2.08 are approximate and represent
gross principal amounts.
15
the amounts of $46 million and $53 million, respectively) and (z) the unsecured
credit facility relating to the Hilton Hawaiian Village (in the amount of $480
million).
(b) Debt secured by Gaming Group Assets, or otherwise specifically
associated with the Gaming Business, will be assumed or retained by Gaming Co.
and/or the appropriate Gaming Subsidiaries. As of May 31, 1998, such Debt
comprises (i) $13.6 million of secured Debt relating to the Belle of Orleans
riverboat, and (ii) $2.9 million of other Debt.
(c) Except as provided by Section 2.08(f), Hilton's public bond Debt
will be Retained Debt. As of May 31, 1998, such Debt consists of (i) $500
million of unsecured 5% convertible subordinated notes due 2006 (the
"SUBORDINATED NOTES"), (ii) $1.4 billion of unsecured senior notes issued in
1997, with various interest rates and maturities ranging from 2002 to 2017 (the
"1997 NOTES"), (iii) $267.6 million of unsecured 7.7% notes issued in 1992 and
due in 2002 (the "1992 NOTES") and (iv) unsecured medium-term notes, Series A
and Series B, due 1998 through 2001 ($135.1 million currently outstanding).
(d) Debt under Hilton's credit agreement and related commercial paper
program ("CREDIT AGREEMENT DEBT") will be refinanced by new credit facilities
obtained by Hilton and Gaming Co., respectively. Except as provided by Section
2.08(g), Hilton will be responsible for refinancing an amount of the Credit
Agreement Debt (the "RETAINED CREDIT AGREEMENT DEBT AMOUNT") equal to the amount
set forth in Schedule 9 PLUS the amount of option cash-outs attributable to
Retained Business Group employees, if any (which Debt shall constitute a part of
the Retained Debt). Gaming Co. will be responsible for refinancing the remainder
of the Credit Agreement Debt (which Debt shall constitute a part of the Assumed
Debt).
(e) In the event that the parties cannot fully and finally determine
the Retained Credit Agreement Debt Amount as of the Distribution Date, the
allocation of Debt as of such date shall be provisional (based on the best data
available as of such date) and the parties shall make an appropriate "true up"
adjustment as promptly as practicable after all facts necessary for a final
determination of the Retained Credit Agreement Debt Amount can be ascertained.
(f) Debt allocated to Gaming Co. in the Gaming Co. Intercompany Debt
Allocation Agreement will be assumed by Gaming Co. and/or the appropriate Gaming
Subsidiaries. The parties acknowledge that this agreement will approximately
equalize the Debt between Hilton and Gaming Co. as of December 31, 1998, giving
pro forma effect to the Distribution and the Merger assuming they had occurred
on December 31, 1998, and will allocate any Debt increases or decreases
subsequent to such date in accordance with Section 2.08(g); PROVIDED, HOWEVER,
that if the Merger does not occur after the Distribution, the parties hereto
shall reallocate the Debt between Hilton and Gaming Co. to approximately
equalize it as of December 31, 1998, giving pro forma effect solely to the
Distribution assuming it had occurred on December 31, 1998, and allocating any
Debt increases or decreases subsequent to such date in accordance with Section
2.08(g).
(g) Notwithstanding anything to the contrary herein, (i) any
increases (decreases) in Debt incurred (repaid) after December 31, 1998 arising
out of operations of the
16
Retained Business (regardless of whether the Distribution has occurred) shall
be attributed to Hilton and (ii) any increases (decreases) in Debt incurred
(repaid) after December 31, 1998 arising out of operations of the Gaming
Business (regardless of whether the Distribution has occurred) shall be
attributed to Gaming Co.; and, to the extent such increases (decreases) are
not already given effect in the definition of Net Cash and the allocations
thereof pursuant to Section 2.07(d), such increases (decreases) shall
increase or decrease (as applicable) the Debt allocated to Hilton or
GamingCo. (as applicable).
Section 2.09. ANCILLARY AGREEMENTS BETWEEN HILTON AND GAMING CO.
On or prior to the Distribution Date, Hilton and Gaming Co. shall
enter into the Ancillary Agreements.
ARTICLE III.
ASSUMPTION AND SATISFACTION OF LIABILITIES
Section 3.01. ASSUMPTION AND SATISFACTION OF LIABILITIES.
Except as set forth in one or more of the Related Agreements, from and
after the Distribution Date, (a) Gaming Co. shall, and/or shall cause the Gaming
Subsidiaries to, assume, pay, perform and discharge in due course all of the
Gaming Group Liabilities, and (b) Hilton shall, and/or shall cause the Retained
Business Subsidiaries to, assume, pay, perform and discharge in due course all
of the Retained Business Group Liabilities.
ARTICLE IV.
THE DISTRIBUTION
Section 4.01. COOPERATION PRIOR TO THE DISTRIBUTION.
(a) Gaming Co. and Hilton shall cooperate in preparing, filing with
the SEC and causing to become effective any registration statements or
amendments thereof which are appropriate to reflect the establishment of, or
amendments to, any employee benefit plans and other plans contemplated by the
Employee Benefits Allocation Agreement.
(b) Gaming Co. and Hilton shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement and the Related Agreements.
(c) Gaming Co. and Hilton shall use all reasonable efforts to obtain
any governmental or third-party consents or approvals necessary or desirable in
connection with the
17
transactions contemplated hereby, including, without limitation, pursuant to
the Gaming Laws ("CONSENTS").
(d) Gaming Co. and Hilton will use all reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary or desirable under applicable law, to consummate the
transactions contemplated under this Agreement and the Related Agreements,
including, but not limited to, actions related to the satisfaction of the
conditions indicated in Section 4.02 below.
Section 4.02. HILTON BOARD ACTION; CONDITIONS PRECEDENT TO THE
DISTRIBUTION.
The Hilton Board shall, in its sole discretion, establish the
Record Date and the Distribution Date and any appropriate procedures in
connection with the Distribution. In no event shall the Distribution occur
unless the following conditions shall have been satisfied:
(a) the transactions contemplated in Article II and Article III
shall have been consummated in all material respects;
(b) the Gaming Co. Board, comprised as contemplated by Section
6.01, shall have been elected by Hilton, as sole stockholder of Gaming Co.,
and the Gaming Co. Certificate and Gaming Co. Bylaws shall have been adopted
and shall be in effect;
(c) the IRS Ruling shall have been granted in form and substance
satisfactory to the Hilton Board, the IRS Ruling shall not have been
withdrawn by the IRS and the representations made to the IRS therein shall be
true in all material respects;
(d) the Form 10 shall have been declared effective by the SEC;
(e) the Gaming Co. Common Stock shall have been approved for
trading on the New York Stock Exchange (or such other securities exchange
comprising the principal securities exchange or market on which the Gaming
Co. Common Stock is listed), subject to official notice of issuance;
(f) each of Gaming Co. and Hilton shall have executed and
delivered the Related Agreements to which it is a party and each of the
transactions contemplated by the Related Agreements to be consummated on or
prior to the Distribution Date shall have been consummated;
(g) all necessary regulatory approvals, registrations, licenses,
finding of suitability (collectively, the REGULATORY APPROVALS") and consents
of third parties shall have been received, including, without limitation, any
required approvals under the Gaming Laws, except for any such Regulatory
Approvals or consents the failure of which to obtain would not have a
material adverse effect on the business, operations or condition (financial
or otherwise) of either Hilton or Gaming Co.;
18
(h) the Board of Directors of Hilton shall be satisfied that (i)
at the time of the Distribution and after giving effect to the Distribution
and the transactions contemplated under the Related Agreements, Hilton will
not be insolvent (in that, both before and immediately following the
Distribution, (1) the fair market value of Hilton's assets would exceed
Hilton's liabilities, (2) Hilton would be able to pay its liabilities as they
mature and become absolute and (3) Hilton would not have unreasonably small
capital with which to engage in its business) and (ii) the Distribution would
be permitted under Section 170(a) of the Delaware General Corporation Law;
and at the Board of Directors' discretion, Hilton shall have received the
opinion of a financial advisor or other appraisal or valuation expert
selected by Hilton, in form and substance satisfactory to Hilton, as to the
matters set forth above, and such opinion shall not have been withdrawn;
(i) Gaming Co. shall have obtained, or Hilton shall have obtained
for Gaming Co., insurance (or binders therefor) providing coverage to Gaming
Co. similar to the coverage provided by insurance in place prior to the
Distribution Date;
(j) financing arrangements with respect to Hilton and Gaming Co.
satisfactory to the Hilton Board shall be in place;
(k) Gaming Co. shall have executed and delivered the Gaming Co.
Intercompany Debt Allocation Agreement, which shall be in full force and
effect;
(l) Hilton shall have received stockholder ratification of the
Distribution at a meeting of stockholders;
(m) the Merger Agreement shall be in full force and effect and no
material breach shall exist thereunder; and
(n) Each condition to the consummation of the Merger, other than
the condition set forth in Section 8.1(g) of the Merger Agreement relating to
the consummation of the Distribution, shall have been fulfilled or waived by
the party for whose benefit such condition exists;
PROVIDED, HOWEVER, that (x) any such condition may be waived by the Hilton
Board in its sole discretion, and (y) the satisfaction of such conditions
shall not create any obligation on the part of Hilton or any other party
hereto to effect the Distribution or in any way limit Hilton's power of
termination set forth in Section 9.08 or alter the consequences of any such
termination from those specified in such Section.
Section 4.03. THE DISTRIBUTION.
On the Distribution Date, or as soon thereafter as practicable,
subject to the conditions and rights of termination set forth in this
Agreement, Hilton shall deliver to the Agent, for the benefit of the Holders,
a share certificate representing all of the then outstanding shares of Gaming
Co. Common Stock owned by Hilton, endorsed in blank, and shall instruct the
Agent to distribute to each Holder, on or as soon as practicable following
the Distribution Date, a
19
certification, or if requested by such Holder, a certificate, representing
one share of Gaming Co. Common Stock for each share of Hilton Common Stock so
held. Gaming Co. agrees to provide all share certificates that the Agent
shall require in order to effect the Distribution.
ARTICLE V.
INDEMNIFICATION
Section 5.01. INDEMNIFICATION BY HILTON.
Except as otherwise expressly set forth in a Related Agreement,
Hilton shall indemnify, defend and hold harmless Gaming Co. and each of the
Gaming Subsidiaries, and each of their respective past or present directors,
officers, employees, agents and Affiliates and each of the heirs, executors,
successors and assigns of any of the foregoing (the "GAMING CO. INDEMNITEES")
from and against any and all losses, Liabilities, damages and expenses
(including, without limitation, the reasonable costs and expenses, including
reasonable attorneys' fees, in connection with any such investigations,
Actions or threatened Actions) (collectively, "INDEMNIFIABLE LOSSES" and,
individually, an "INDEMNIFIABLE LOSS") incurred or suffered by any of the
Gaming Co. Indemnitees and arising out of or due to the failure or alleged
failure of Hilton, any Retained Business Subsidiary, or any of their
respective Affiliates to pay, perform or otherwise discharge in due course
any of the Retained Business Group Liabilities.
Section 5.02. INDEMNIFICATION BY GAMING CO.
Except as otherwise expressly set forth in a Related Agreement,
Gaming Co. shall indemnify, defend and hold harmless Hilton and each of the
Retained Business Subsidiaries, and each of their respective past or present
directors, officers, employees, agents and Affiliates and each of the heirs,
executors, successors and assigns of any of the foregoing (the "HILTON
INDEMNITEES") from and against any and all Indemnifiable Losses incurred or
suffered by any of the Hilton Indemnitees and arising out of or due to the
failure or alleged failure of Gaming Co., any Gaming Subsidiaries, or any of
their respective Affiliates to pay, perform or otherwise discharge in due
course any of the Gaming Group Liabilities.
Section 5.03. INSURANCE PROCEEDS.
The amount which any party (an "INDEMNIFYING PARTY") is or may be
required to pay to or on behalf of any other Person (an "INDEMNIFIED PERSON")
pursuant to Section 5.01 or Section 5.02 shall be reduced (including, without
limitation, retroactively) by any Insurance Proceeds or other amounts actually
recovered by or on behalf of such Indemnified Person in reduction of the related
Indemnifiable Loss. If an Indemnified Person shall have received the payment
required by this Agreement from an Indemnifying Party in respect of an
Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds,
or other amounts in respect of such Indemnifiable Loss as specified above, then
such Indemnified Person shall pay to such
20
Indemnifying Party a sum equal to the amount of such Insurance Proceeds or
other amounts actually received.
Section 5.04. PROCEDURE FOR INDEMNIFICATION.
(a) Except as may be set forth in a Related Agreement, if an
Indemnified Person shall receive written notice of the assertion by a Person
(including, without limitation, any Governmental Authority) who is not a
party to this Agreement or to any of the Related Agreements of any claim or
of the commencement by any such Person of any Action with respect to which an
Indemnifying Party may be obligated to provide indemnification pursuant to
this Agreement (a "THIRD-PARTY CLAIM"), such Indemnified Person shall give
the Indemnifying Party written notice thereof promptly after becoming aware
of such Third-Party Claim; PROVIDED, that the failure of any Indemnified
Person to give notice as required by this Section 5.04 shall not relieve the
Indemnifying Party of its obligations under this Article V, except to the
extent that such Indemnifying Party is materially prejudiced by such failure
to give notice. Such notice shall describe the Third-Party Claim in
reasonable detail, and shall indicate the amount (estimated if necessary) of
the Indemnifiable Loss that has been claimed against or may be sustained by
such Indemnified Person.
(b) Within 15 days of the receipt of notice from an Indemnified
Person in accordance with Section 5.04(a) (or sooner, if the nature of such
Third-Party Claim so requires), the Indemnifying Party shall notify the
Indemnified Person of its election whether to assume responsibility for such
Third-Party Claim (provided that if the Indemnifying Party does not so notify
the Indemnified Person of its election within 15 days after receipt of such
notice from the Indemnified Person, the Indemnifying Party shall be deemed to
have elected not to assume responsibility for such Third-Party Claim). An
election not to assume responsibility for such Third-Party Claim may only be
made in the event of a good faith dispute that a Third-Party Claim is not
covered as an Indemnifiable Loss under the grounds specified in Section 5.01
or 5.02, as the case may be. Subject to Section 5.04(e) hereof, an
Indemnifying Party may elect to defend or to seek to settle or compromise, at
such Indemnifying Party's own expense and by counsel reasonably satisfactory
to the Indemnified Person, any Third-Party Claim, PROVIDED that (i) the
Indemnifying Party must confirm in writing that it agrees that the
Indemnified Person is entitled to indemnification hereunder in respect of
such Third-Party Claim and (ii) no compromise or settlement shall be made
without the prior written consent of the Indemnified Person, which consent
shall not be unreasonably withheld.
(c) In the event that the Indemnifying Party elects to assume
responsibility for the Third-Party Claim, pursuant to Section 5.04(b) above,
(i) the Indemnified Person shall cooperate in the defense or settlement or
compromise of such Third-Party Claim, including making available to the
Indemnifying Party any personnel and any books, records or other documents
within the Indemnified Person's control or which it otherwise has the ability
to make available that are necessary or appropriate for the defense of the
Third-Party Claim, (ii) the Indemnifying Party shall keep the Indemnified
Person reasonably informed regarding the strategy, status and progress of the
defense of the Third-Party Claim, and (iii) the Indemnifying Party shall
consider, in good faith, the opinions and suggestions of the Indemnified
Person with
21
respect the Third-Party Claim. After notice from an Indemnifying Party to an
Indemnified Person of its election to assume responsibility for a Third-Party
Claim, such Indemnifying Party shall not be liable to such Indemnified Person
under this Article V for any legal or other costs or expenses (except costs
or expenses approved in advance by the Indemnifying Party) subsequently
incurred by such Indemnified Person in connection with the defense thereof;
PROVIDED, that if the defendants in any such claim include both the
Indemnifying Party and one or more Indemnified Persons and in such
Indemnified Persons' reasonable judgment a conflict of interest between such
Indemnified Persons and such Indemnifying Party exists in respect of such
claim, such Indemnified Persons shall have the right to employ separate
counsel and in that event the reasonable fees, costs and expenses of such
separate counsel (but not more than one separate counsel reasonably
satisfactory to the Indemnifying Party) shall be paid by such Indemnifying
Party.
(d) If an Indemnifying Party elects not to assume responsibility
for a Third-Party Claim, the Indemnified Person may defend or (subject to the
following sentence) seek to compromise or settle such Third-Party Claim.
Notwithstanding the foregoing, an Indemnified Person may not settle or
compromise any claim without prior written notice to the Indemnifying Party,
which shall have the option within ten days following the receipt of such
notice (i) to disapprove the settlement and to then assume all past and
future responsibility for the claim, including immediately reimbursing the
Indemnified Person for prior expenditures in connection with the claim, (ii)
to disapprove the settlement and continue to refrain from participation in
the defense of the claim, in which event the Indemnified Person may, in its
sole discretion, proceed with the settlement and the Indemnifying Party shall
have no further right to contest the amount or reasonableness of the
settlement, (iii) to approve and pay the amount of the settlement, reserving
the Indemnifying Party's right to contest the Indemnified Person's right to
indemnity, or (iv) to approve and pay the settlement. In the event the
Indemnifying Party makes no response to such written notice, the Indemnifying
Party shall be deemed to have elected option (ii). When the Indemnifying
Party chooses, or is deemed to have chosen, option (ii) or (iii), the issue
of whether the Indemnified Person has a right to indemnity under this Article
V shall be resolved by arbitration pursuant to the provisions of Section 9.14
hereof. If the Indemnifying Party does not prevail at such arbitration, the
Indemnifying Party shall promptly reimburse the Indemnified Person for all
Indemnifiable Losses, plus interest on such amounts at the lower of (i) 10 %
or (ii) the highest legal interest rate, accruing from the date of payment by
the Indemnified Person.
(e) Notwithstanding the foregoing, if an Indemnified Person
reasonably and in good faith determines that (i) the Indemnifying Party is
not financially capable to defend a Third-Party Claim and to provide full
indemnification with respect to any settlement thereof or (ii) the
Indemnifying Party or such Indemnifying Party's attorney is not adequately
representing the Indemnified Person's interests with respect to such
Third-Party Claim, the Indemnified Person may, by notice to the Indemnifying
Party, assume the exclusive right to defend, compromise or settle such
Third-Party Claim and the Indemnifying Party shall remain responsible for,
and be bound by the resolution of, such Third-Party Claim.
(f) Any claim on account of an Indemnifiable Loss which does not
result from a Third-Party Claim shall be asserted by written notice given by
the Indemnified Person to
22
the applicable Indemnifying Party. Such Indemnifying Party shall have a
period of 15 days after the receipt of such notice within which to respond
thereto. If such Indemnifying Party does not respond within such 15-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 15-day period or rejects such claim in whole or in part, such
Indemnified Person shall be free to pursue such remedies as may be available
to such party under applicable law or under this Agreement.
(g) In addition to any adjustments required pursuant to Section
5.03, if the amount of any Indemnifiable Loss shall, at any time subsequent
to the payment required by this Agreement, be reduced by recovery, settlement
or otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnified Person to
the Indemnifying Party.
(h) In the event of payment by an Indemnifying Party to any
Indemnified Person in connection with any Third-Party Claim, such
Indemnifying Party 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
Third-Party Claim against any claimant or plaintiff asserting such
Third-Party Claim or against any other party that may be liable. Such
Indemnified Person shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right or claim.
Section 5.05. REMEDIES CUMULATIVE.
The remedies provided in this Article V shall be cumulative and
shall not preclude assertion by any Indemnified Person of any other rights or
the seeking of any and all other remedies against any Indemnifying Party.
Section 5.06. SURVIVAL OF INDEMNITIES.
The obligations of each of Gaming Co. and Hilton under this Article
V shall survive the sale or other transfer by it of any assets or businesses
or the assignment by it of any Liabilities, with respect to any Indemnifiable
Loss of the other related to such assets, businesses or Liabilities.
ARTICLE VI.
CERTAIN ADDITIONAL MATTERS
Section 6.01. GAMING CO. BOARD.
Gaming Co. and Hilton shall take all actions which may be required
to appoint as officers and directors of Gaming Co. those persons named in the
Form 10 (as may be altered or
23
supplemented prior to the date hereof by the Hilton Board and the Gaming Co.
Board) to constitute, effective as of the Distribution Date, the officers and
the directors of Gaming Co.
Section 6.02. RESIGNATIONS; HILTON BOARD.
(a) Gaming Co. shall cause all of its directors and the
Transferred Employees to resign, effective as of the Distribution Date, from
all boards of directors or similar governing bodies of Hilton or any of the
Retained Business Subsidiaries on which they serve, and from all positions as
officers or employees of Hilton or any of the Retained Business Subsidiaries
in which they serve, except that (i) Steven Bollenbach will be President,
Chief Executive Officer and a Director of Hilton and will be Chairman of the
Board of Directors of Gaming Co. and (ii) Arthur Goldberg will be a Director
of both Hilton and Gaming Co. and Chief Executive Officer of Gaming Co.
Hilton shall cause all of its directors and the Retained Business Group
Employees to resign from all boards of directors or similar governing bodies
of Gaming Co. or any of the Gaming Subsidiaries on which they serve, and from
all positions as officers or employees of Gaming Co. or any of the Gaming
Subsidiaries in which they serve, except as set forth in Schedule 10.
Section 6.03. GAMING CO. CERTIFICATE AND BYLAWS.
On or prior to the Distribution Date, Gaming Co. shall adopt the
Gaming Co. Certificate and the Gaming Co. Bylaws, and shall file the Gaming
Co. Certificate with the Secretary of State of the State of Delaware. Hilton
shall provide all necessary shareholder approvals for the Gaming Co.
Certificate prior to the filing of the Gaming Co. Certificate with the
Secretary of State of the State of Delaware.
Section 6.04. CERTAIN POST-DISTRIBUTION TRANSACTIONS.
Each of Hilton and Gaming Co. shall, and shall cause each of their
respective Subsidiaries to, comply in all material respects with each
representation, covenant and statement made, or to be made, to any taxing
authority in connection with the IRS Ruling or any other ruling obtained, or
to be obtained, by Hilton and Gaming Co. acting together, from any such
taxing authority with respect to any transaction contemplated by this
Agreement.
Section 6.05. SALES AND TRANSFER TAXES.
Hilton and Gaming Co. agree to cooperate to determine the amount of
sales, transfer or other Taxes, including, without limitation, all real
estate, patent, trademark and transfer taxes and recording fees, but
excluding any Income Taxes, as defined in the Tax Allocation and Indemnity
Agreement) incurred in connection with the Distribution and other
transactions contemplated by the Agreement (the "TRANSACTION TAXES"). Hilton
agrees to file promptly and timely the Tax Returns for such Transaction Taxes
and Gaming Co. will join in the execution of any such Tax Returns or other
documentation. Financial responsibility for payment of all such Transaction
Taxes shall be shared equally between Hilton and Gaming Co.
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Section 6.06. GAMING CO. RIGHTS PLAN.
Effective as of the Distribution Date, Gaming Co. shall adopt a
shareholder rights plan which shall be substantially similar to the
shareholder rights plan of Hilton in effect as of the Distribution Date.
Section 6.07. TIMESHARE AND VACATION OWNERSHIP FACILITIES.
Hilton shall have the exclusive right for 15 years, subject to the
payment of a reasonable fee to be agreed to by the parties, to sell and
market timeshare and vacation ownership interests from sites located within
any now or future existing Casino Hotel operated by any member of the Gaming
Group; PROVIDED, HOWEVER, that Hilton shall not be entitled to exercise such
right with respect to any particular Casino Hotel if and only if (i) Hilton
is not selling or marketing timeshare and vacation ownership interests at
such Casino Hotel, (ii) Gaming Co. receives a bona fide offer from an
unaffiliated third party to (1) commence timeshare and vacation ownership
sales at such Casino Hotel and (2) pay a fee to Gaming Co. for such marketing
and sales on a basis comparable to the fees being paid by Hilton to Gaming
Co. at the other Casino Hotels where Hilton is selling and marketing
timeshare and vacation ownership interests, and (iii) Hilton elects, within a
reasonable time period to be agreed upon by the parties hereto, not to
commence timeshare and vacation ownership sales at such Casino Hotel. In
addition, Gaming Co. shall, prior to developing any timeshare or vacation
ownership facilities at any Casino Hotel or at any other location during such
15 year term, offer to Hilton the right to proceed with any such development
(the "FIRST OFFER"). If Hilton (a) does not accept the First Offer and
commence development of such timeshare or vacation ownership facility within
a reasonable time period to be agreed to by the parties or (b) notifies
Gaming Co. in writing that it does not accept such First Refusal Option,
then, (i) Gaming Co. shall be entitled to develop the subject timeshare and
vacation ownership facility (the "NEW FACILITY") and (ii) Hilton shall not be
entitled to sell and market timeshare and vacation ownership interests in the
New Facility; PROVIDED, THAT Hilton shall be entitled to sell and market
timeshare and vacation ownership interests in other facilities from the New
Facility.
ARTICLE VII.
ACCESS TO INFORMATION AND SERVICES
Section 7.01. PROVISION OF CORPORATE RECORDS.
(a) Except as may otherwise be provided in a Related Agreement,
Hilton shall arrange as soon as practicable following the Distribution Date,
to the extent not previously delivered in connection with the transactions
contemplated in Article II, for the transportation (at Gaming Co.'s cost) to
Gaming Co. of the Gaming Group Books and Records in its possession, except to
the extent such items are already in the possession of Gaming Co. or a Gaming
Subsidiary. The Gaming Group Books and Records shall be the property of
Gaming Co., but the Gaming Group Books and Records that reasonably relate to
Hilton or the Retained Business shall
25
be available to Hilton for review and duplication until Hilton shall notify
Gaming Co. in writing that such records are no longer of use to Hilton.
(b) Except as may otherwise be provided in a Related Agreement,
Gaming Co. shall arrange as soon as practicable following the Distribution Date,
to the extent not previously delivered in connection with the transactions
contemplated in Article II, for the transportation (at Hilton's cost) to Hilton
of the Retained Business Group Books and Records in its possession, except to
the extent such items are already in the possession of Hilton or a Retained
Business Subsidiary. The Retained Business Group Books and Records shall be the
property of Hilton, but the Retained Business Group Books and Records that
reasonably relate to Gaming Co. or the Gaming Business shall be available to
Gaming Co. for review and duplication until Gaming Co. shall notify Hilton in
writing that such records are no longer of use to Gaming Co.
Section 7.02. ACCESS TO INFORMATION.
Except as otherwise provided in a Related Agreement, from and after
the Distribution Date, Hilton shall afford to Gaming Co. and its authorized
accountants, counsel and other designated representatives reasonable access
(including using reasonable efforts to give access to persons or firms
possessing information) and duplicating rights during normal business hours to
all records, books, contracts, instruments, computer data and other data and
information relating to pre-Distribution operations (collectively,
"INFORMATION") within Hilton's possession or control, insofar as such access is
reasonably required by Gaming Co. for the conduct of its business, subject to
appropriate restrictions for classified or Privileged Information. Similarly,
except as otherwise provided in a Related Agreement, Gaming Co. shall afford to
Hilton and its authorized accountants, counsel, and other designated
representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing information) and duplicating rights during
normal business hours to Information within Gaming Co.'s possession or control,
insofar as such access is reasonably required by Hilton for the conduct of its
business, subject to appropriate restrictions for classified or Privileged
Information. Information may be requested under this Article VII for the
legitimate business purposes of either party, including without limitation,
audit, accounting, claims (including claims for indemnification hereunder),
litigation and tax purposes, as well as for purposes of fulfilling disclosure
and reporting obligations and for performing this Agreement and the transactions
contemplated hereby.
Section 7.03. PRODUCTION OF WITNESSES.
At all times from and after the Distribution Date, each of Gaming Co.
and Hilton shall use reasonable efforts to make available to the other, upon
written request, its and its Subsidiaries' officers, directors, employees and
agents as witnesses to the extent that such persons may reasonably be required
in connection with any Action.
26
Section 7.04. REIMBURSEMENT.
Except to the extent otherwise contemplated in any Related Agreement,
a party providing Information or witnesses to the other party under this Article
VII shall be entitled to receive from the recipient, upon the presentation of
invoices therefor, payments of such amounts, relating to supplies, disbursements
and other out-of-pocket expenses (at cost) of employees who are witnesses or
otherwise furnish assistance (at cost), as may be reasonably incurred in
providing such Information or witnesses. Notwithstanding the foregoing, the
parties acknowledge that a party providing Information or witnesses shall not be
entitled to receive reimbursement of salary or other compensation expenses
relating to any employees providing such Information or acting as such
witnesses.
Section 7.05. RETENTION OF RECORDS.
Except as otherwise required by law or agreed to in a Related
Agreement or otherwise in writing, each of Gaming Co. and Hilton may destroy or
otherwise dispose of any of the Information which is material Information and is
not contained in other Information retained by the other, only after the later
to occur of (i) all applicable statutes of limitations (including any waivers or
extensions thereof) with respect to Tax Returns which Hilton or Gaming Co., as
the case may be, may be obligated to file on behalf of Gaming Co. Members or
Post-Distribution Members, as the case may be, and (ii) any retention period
required by law or pursuant to any record retention agreement, provided that,
prior to such destruction or disposal, (a) it shall provide no less than 90 or
more than 120 days advance written notice to the other, specifying in reasonable
detail the Information proposed to be destroyed or disposed of and (b) if a
recipient of such notice shall request in writing prior to the scheduled date
for such destruction or disposal that any of the Information proposed to be
destroyed or disposed of be delivered to such requesting party, the party
proposing the destruction or disposal shall promptly arrange for the delivery of
such of the Information as was requested at the expense of the party requesting
such Information.
Section 7.06. CONFIDENTIALITY.
Each of Hilton and its Subsidiaries on the one hand, and Gaming Co.
and its Subsidiaries on the other hand, shall hold, and shall cause its
consultants and advisors to hold, in strict confidence, all Information
concerning the other in its possession or furnished by the other or the other's
representatives pursuant to this Agreement (except to the extent that such
Information has been (i) in the public domain through no fault of such party or
(ii) later lawfully acquired from other sources by such party), and each party
shall not release or disclose such Information to any other person, except its
auditors, attorneys, financial advisors, rating agencies, bankers and other
consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as reasonably advised by its counsel, by other
requirements of law, or unless such Information is reasonably required to be
disclosed in connection with (x) any litigation with any third-parties or
litigation between the Retained Business Group and the Gaming Group, (y) any
contractual agreement to which members of the Retained Business
27
Group or the Gaming Group are currently parties, or (z) in exercise of either
party's rights hereunder.
Section 7.07. PRIVILEGED MATTERS.
Gaming Co. and Hilton recognize that certain legal and other
professional services that have been and will be provided prior to the
Distribution Date have been and will be rendered for the benefit of both the
Retained Business Group and the Gaming Group and that both the Retained Business
Group and the Gaming Group should be deemed to be the client for the purposes of
asserting all Privileges. To allocate the interests of each party in the
Privileged Information, the parties agree as follows:
(a) Hilton shall be entitled, in perpetuity, to control the assertion
or waiver of all Privileges in connection with Privileged Information which
relates solely to the Retained Business Group, whether or not the Privileged
Information is in the possession of or under the control of Hilton or Gaming Co.
Hilton shall also be entitled, in perpetuity, to control the assertion or waiver
of all Privileges in connection with Privileged Information that relates solely
to the subject matter of any claims constituting Retained Business Group
Liabilities, now pending or which may be asserted in the future, in any lawsuits
or other proceedings initiated against or by Hilton or a Retained Business
Subsidiary, whether or not the Privileged Information is in the possession of or
under the control of Hilton or Gaming Co.
(b) Gaming Co. shall be entitled, in perpetuity, to control the
assertion or waiver of all Privileges in connection with Privileged Information
which relates solely to the Gaming Group, whether or not the Privileged
Information is in the possession of or under the control of Hilton or Gaming Co.
Gaming Co. shall also be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the subject matter of any claims constituting Gaming Group
Liabilities, now pending or which may be asserted in the future, in any lawsuits
or other proceedings initiated against or by Gaming Co. or a Gaming Subsidiary,
whether or not the Privileged Information is in the possession of or under the
control of Hilton or Gaming Co.
(c) Gaming Co. and Hilton agree that they shall have a shared
Privilege, with equal right to assert or waive, subject to the restrictions in
this Section 7.07, with respect to all Privileges not allocated pursuant to the
terms of Sections 7.07(a) and (b). All Privileges relating to any claims,
proceedings, litigation, disputes, or other matters which involve both Gaming
Co. and Hilton, or in respect of which both Gaming Co. and Hilton retain any
responsibility or liability under this Agreement, shall be subject to a shared
Privilege.
(d) No party may waive any Privilege which could be asserted under
any applicable law, and in which the other party has a shared Privilege, without
the consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(e) below. Consent shall be in writing, or shall be deemed to be granted unless
written objection is made within twenty (20) days after written notice upon the
other party requesting such consent.
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(e) In the event of any litigation or dispute between a member of
the Retained Business Group and a member of the Gaming Group, either party
may waive a Privilege in which the other party has a shared Privilege,
without obtaining the consent of the other party, provided that such waiver
of a shared Privilege shall be effective only as to the use of Information
with respect to the litigation or dispute between the Retained Business Group
and the Gaming Group, and shall not operate as a waiver of the shared
Privilege with respect to third-parties.
(f) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of either
party, each party agrees that it shall negotiate in good faith, shall
endeavor to minimize any prejudice to the rights of the other party, and
shall not unreasonably withhold consent to any request for waiver by the
other party. Each party specifically agrees that it will not withhold consent
to waiver for any purpose except to protect its own legitimate interests.
(g) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of Information
subject to a shared Privilege or as to which the other party has the sole
right hereunder to assert a Privilege, or if any party obtains knowledge that
any of its current or former directors, officers, agents or employees have
received any subpoena, discovery or other requests which arguably calls for
the production or disclosure of such Privileged Information, such party shall
promptly notify the other party of the existence of the request and shall
provide the other party a reasonable opportunity to review the Information
and to assert any rights it may have under this Section 7.07 or otherwise to
prevent the production or disclosure of such Privileged Information.
(h) The transfer of the Gaming Group Books and Records and the
Retained Business Group Books and Records and other Information between
Hilton and its Subsidiaries and Gaming Co. and its Subsidiaries is made in
reliance on the agreement of Gaming Co. and Hilton, as set forth in Sections
7.06 and 7.07, to maintain the confidentiality of Privileged Information and
to assert and maintain all applicable Privileges. The access to Information
being granted pursuant to Sections 7.01 and 7.02 hereof, the agreement to
provide witnesses and individuals pursuant to Section 7.03 hereof and the
transfer of Privileged Information between Hilton and its Subsidiaries and
Gaming Co. and its Subsidiaries pursuant to this Agreement shall not be
deemed a waiver of any Privilege that has been or may be asserted under this
Agreement or otherwise.
ARTICLE VIII.
INSURANCE
Section 8.01. POLICIES AND RIGHTS INCLUDED WITHIN THE GAMING GROUP
ASSETS.
Without limiting the generality of the definition of the Gaming
Group Assets or the effect of Section 2.01, the Gaming Group Assets shall
include any and all rights of an insured
29
party under each of the Shared Policies, specifically including rights of
indemnity and the right to be defended by or at the expense of the insurer,
where applicable, with respect to all injuries, losses, liabilities, damages
and expenses incurred or claimed to have been incurred on or prior to the
Distribution Date by any party in or in connection with the conduct of the
Gaming Business or, to the extent any claim is made against Gaming Co. or any
of its Subsidiaries, the Retained Businesses, and which injuries, losses,
liabilities, damages and expenses may arise out of insured or insurable
occurrences or events under one or more of the Shared Policies.
Section 8.02. POLICIES AND RIGHTS INCLUDED WITHIN THE RETAINED
BUSINESS GROUP ASSETS.
Without limiting the generality of the definition of the Retained
Business Group Assets or the effect of Section 2.01, the Retained Business Group
Assets shall include any and all rights of an insured party under each of the
Shared Policies, specifically including rights of indemnity and the right to be
defended by or at the expense of the insurer, where applicable, with respect to
all injuries, losses, liabilities, damages and expenses incurred or claimed to
have been incurred on or prior to the Distribution Date by any party in or in
connection with the conduct of the Retained Business or, to the extent any claim
is made against Hilton or any of the Retained Business Subsidiaries, the Gaming
Business, and which injuries, losses, liabilities, damages and expenses may
arise out of insured or insurable occurrences or events under one or more of the
Shared Policies.
Section 8.03. ADMINISTRATION AND RESERVES.
(a) GENERAL. Notwithstanding the provisions of Article III, but
subject to any contrary provisions of any Related Agreement, from and after the
Distribution Date:
(i) Hilton shall be responsible for the Insurance
Administration of the Shared Policies; PROVIDED, that the
administration of the Shared Policies by Hilton is in no way intended
to limit, inhibit, or preclude any right to insurance coverage for any
Insured Claim of a named insured under the Shared Policies including,
but not limited to, Gaming Co. or any of its Subsidiaries or
Affiliates;
(ii) Gaming Co. shall be entitled to any reserves
established by Hilton or any of its Subsidiaries (other than reserves
established by Hilton Insurance Company, which reserves shall remain
with such entity), or the benefit of reserves held by any insurance
carrier, with respect to the Gaming Group Liabilities; and
(iii) Hilton shall be entitled to any reserves established by
Hilton or any of its Subsidiaries, or the benefit of reserves held by
any insurance carrier, with respect to the Retained Business Group
Liabilities.
30
(b) INSURANCE PREMIUMS.
(i) Gaming Co. shall have the right but not the obligation
to pay the premiums, to the extent that Hilton does not pay premiums
with respect to Retained Business Group Liabilities (retrospectively-
rated or otherwise), with respect to Shared Policies as required under
the terms and conditions of the respective Policies, whereupon Hilton
shall forthwith reimburse Gaming Co. for that portion of such premiums
paid by Gaming Co. as are attributable to the Retained Business Group
Liabilities.
(ii) Hilton shall have the right but not the obligation to
pay the premiums, to the extent that Gaming Co. does not pay premiums
with respect to Gaming Group Liabilities (retrospectively-rated or
otherwise), with respect to Shared Policies as required under the
terms and conditions of the respective Policies, whereupon Gaming Co.
shall forthwith reimburse Hilton for that portion of such premiums
paid by Hilton as are attributable to the Gaming Group Liabilities.
(c) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received
with respect to claims, costs and expenses under the Policies shall be paid to
Gaming Co. with respect to the Gaming Group Liabilities and to Hilton with
respect to the Retained Business Group Liabilities. Payment of the allocable
portions of indemnity costs of Insurance Proceeds resulting from the liability
policies will be made to the appropriate party upon receipt from the insurance
carrier. In the event that the aggregate limits on any Policies are exceeded,
the parties agree to provide an equitable allocation of Insurance Proceeds
received after the Distribution Date based upon their respective bona fide
claims taking into account their relative contributions towards premiums and the
Insurance Proceeds used by each party to satisfy Insured Claims. The parties
agree to use their reasonable best efforts to cooperate with respect to
insurance matters.
(d) INSURANCE CHARGES.
(i) Notwithstanding anything to the contrary contained
herein, Gaming Co. or an appropriate Gaming Subsidiary assumes
responsibility for and shall pay to the appropriate insurance carriers
or otherwise any premiums, retrospectively rated premiums, defense
costs, indemnity payments, deductibles, retentions or other charges as
appropriate (collectively "INSURANCE CHARGES"), whenever arising,
which become due and payable upon the terms and conditions of any
applicable Policy in respect of any Insured Claims against Gaming Co.
or a Gaming Subsidiary for charges which relate to the period before
the Distribution Date. In the event that Gaming Co. or a Gaming
Subsidiary fails to pay any insurance charges when due and payable,
whether at the request of the party entitled to payment or upon demand
by Hilton or a Retained Business Subsidiary, Hilton or a Retained
Business Subsidiary may (but shall not be required to) pay such
Insurance Charges for and on behalf of Gaming Co. or a Gaming
Subsidiary
31
and thereafter Gaming Co. shall forthwith reimburse Hilton or such
Retained Business Subsidiary for such payment.
(ii) Notwithstanding anything to the contrary contained herein,
Hilton or an appropriate Retained Business Subsidiary assumes
responsibility for and shall pay to the appropriate insurance carriers
or otherwise any Insurance Charges, whenever arising, which become due
and payable upon the terms and conditions of any applicable Policy in
respect of any Insured Claims against Hilton or a Retained Business
Subsidiary for charges which relate to the period before the
Distribution Date. In the event that Hilton or a Retained Business
Subsidiary fails to pay any Insurance Charges when due and payable,
whether at the request of the party entitled to payment or upon demand
by Gaming Co. or a Gaming Subsidiary, Gaming Co. or a Gaming
Subsidiary may (but shall not be required to) pay such Insurance
Charges for and on behalf of Hilton or a Retained Business Subsidiary
and thereafter Hilton shall forthwith reimburse Gaming Co. or such
Gaming Subsidiary for such payment.
Section 8.04. AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE.
In the event that Insured Claims of both Gaming Co. and Hilton exist
relating to the same occurrence, Gaming Co. and Hilton agree to jointly defend
and to waive any conflict of interest necessary to the conduct of that joint
defense. Nothing in this paragraph shall be construed to limit or otherwise
alter in any way the indemnity obligations of the parties to this Agreement,
including those created by this Agreement, by operation of law or otherwise.
ARTICLE IX.
MISCELLANEOUS
Section 9.01. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.
This Agreement and all documents and instruments referred to herein
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and are not intended to confer upon any Person other than
the parties hereto any rights or remedies hereunder.
Section 9.02. TAX ALLOCATION AND INDEMNITY AGREEMENT; AFTER-TAX
PAYMENTS.
(a) Other than as provided in this Section 9.02 and Section 6.05,
this Agreement shall not govern any Tax matter, and any and all claims, losses,
damages, demands, costs, expenses, liabilities, refunds, deductions, write-offs,
or benefits relating to Taxes shall be exclusively governed by the Tax
Allocation and Indemnity Agreement or the Hilton Corporate Services Agreement.
32
(b) If, at the time Gaming Co. is required to make any payment to
Hilton under this Agreement, Hilton owes Gaming Co. any amount under the Tax
Allocation and Indemnity Agreement, then such amounts shall be offset and the
excess shall be paid by the party liable for such excess. Similarly, if, at the
time Hilton is required to make any payment to Gaming Co. under this Agreement,
Gaming Co. owes Hilton any amount under the Tax Allocation and Indemnity
Agreement, then such amounts shall be offset and the excess shall be paid by the
party liable for such excess.
Section 9.03. EXPENSES.
Except as specifically provided in this Agreement or in a Related
Agreement, all fees and expenses incurred in connection with this Agreement and
the consummation of the transactions contemplated hereby shall be paid by the
party incurring such expenses. In addition, it is understood and agreed that
Gaming Co. shall pay the legal, filing, accounting, printing and other
accountable and out-of-pocket expenditures in connection with the preparation,
printing and filing of the Form 10.
Section 9.04. 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
laws, except to the extent that the Gaming Laws shall be mandatorily applicable.
Section 9.05. 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
33
with a copy to:
(b) if to Gaming Co., to
Gaming Co., Inc.
3930 Howard Hughes Parkway, 4th Floor
Las Vegas, Nevada 89109
Attn: General Counsel
Telecopy: (702) 699-5179
with a copy to:
Section 9.06. AMENDMENTS.
This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 9.07. ASSIGNMENTS.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party. 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 9.08. TERMINATION.
This Agreement may be terminated and the Distribution abandoned at any
time prior to the Distribution Date by and in the sole discretion of the Hilton
Board without the approval of Gaming Co.'s or of Hilton's stockholders. In the
event of such termination, no party shall have any liability to any other party
pursuant to this Agreement.
Section 9.09. SUBSIDIARIES.
Each of the parties hereto shall cause to be performed, and hereby
guarantees the performance of, all actions, agreements and obligations set forth
herein to be performed by any Subsidiary of such party which is contemplated to
be a Subsidiary of such party on and after the Distribution Date.
Section 9.10. 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
34
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 waives any objection to the imposition of such relief.
Section 9.11. HEADINGS; REFERENCES.
The article, section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All references herein to
"Article", "Sections" or "Exhibits" shall be deemed to be references to Articles
or Sections hereof or Exhibits hereto unless otherwise indicated.
Section 9.12. COUNTERPARTS.
This Agreement 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 9.13. SEVERABILITY; ENFORCEMENT.
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 9.14. ARBITRATION OF DISPUTES.
(a) Any dispute, controversy or disagreement ("DISPUTE") between the
Parties related to the obligations of the parties under this Agreement in
respect of which an amicable resolution cannot be reached shall be submitted for
mediation to a committee made up of an equal number of non-common members of
each company's Board of Directors ("COMMITTEE"). If the parties are unable to
reach an amicable resolution of a Dispute within thirty days after submission to
the Committee, then, to the maximum extent allowed by law, the Dispute shall be
submitted and resolved by final and binding arbitration in Los Angeles,
California administered by JAMS-Endispute in accordance with JAMS-Endispute's
rules of practice then in effect or such other procedures as the parties may
agree upon; PROVIDED, HOWEVER, that any party may seek injunctive relief and
enforcement of any award rendered pursuant to the arbitration provisions of this
Section 9.14 by bringing a suit in any court of competent jurisdiction. Any
award issued as a result of such arbitration shall be final and binding between
the parties thereto and shall be enforceable by any court having jurisdiction
over the party against whom enforcement was sought and application may be made
to such court for judicial acceptance of the award and order
35
of enforcement. The fees, costs and expenses of arbitration (including
reasonable attorneys' fees) shall be paid by the party that does not prevail
in such arbitration.
(b) ATTORNEYS' FEES. If any party to this Agreement brings an action
to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
(c) SPECIFIC PERFORMANCE. Nothing contained in this Section 9.14
shall limit or restrict in any way the right or power of a party at any time to
seek injunctive relief in any court and to litigate the issues relevant to such
request for injunctive relief before such court (i) to restrain the other party
from breaching this Agreement or (ii) for specific enforcement of this Section
9.14 or any other provision of this Agreement or any Ancillary Agreement. The
parties agree that any legal remedy available to a party with respect to a
breach of this Section 9.14 will not be adequate and that, in addition to all
other legal remedies, each party is entitled to an order specifically enforcing
this Section 9.14.
(d) CONSENT TO JURISDICTION. The Parties hereby consent to the
jurisdiction of the federal and state courts located in the State of California
for all purposes under this Agreement.
(e) CONFIDENTIALITY. Neither party nor the arbitrators may disclose
the existence or results of any arbitration under this Agreement or any evidence
presented during the course of the arbitration without the prior written consent
of both parties, except as required to fulfill applicable disclosure and
reporting obligations, or as otherwise required by law.
Section 9.15. PROMPT PAYMENT.
Where the terms of this Agreement require payment of an amount "as
promptly as possible," "as soon as practicable," or "as soon as possible,"
following a specified event, occurrences or date, such payment shall be made no
later than five (5) business days after such event, occurrence or date.
Section 9.16. 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 the Executive Vice President & Chief Financial Officer, the
Executive Vice President & General Counsel, the Senior Vice President &
Treasurer and the Senior Vice President & Controller of the party to be bound by
such approval, consent or waiver.
[Signature Page to Follow]
36
IN WITNESS WHEREOF, Hilton and Gaming Co. have caused this Agreement
to be signed by their respective duly authorized officers as of the date first
above written.
HILTON HOTELS CORPORATION
------------------------------
By:
Its:
GAMING CO., INC.
------------------------------
By:
Its:
EXHIBIT B
DISTRIBUTION AGREEMENT
BY AND BETWEEN
GRAND CASINOS, INC.
AND
GCI LAKES, INC.
DATED AS OF [ ], 1998
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.01. General . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.02. Terms Defined Elsewhere in Agreement. . . . . . . . . . . 13
ARTICLE II TRANSFER OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.01. Transfer of Assets to Lakes . . . . . . . . . . . . . . . 13
Section 2.02. Transfers of Assets from Non-Mississippi Subsidiaries
to Company or Mississippi Subsidiaries. . . . . . . . . . 14
Section 2.03. Transfers Not Effected Prior to the Distribution. . . . . 14
Section 2.04. Cooperation Re: Assets . . . . . . . . . . . . . . . . . 15
Section 2.05. No Representations or Warranties; Consents. . . . . . . . 15
Section 2.06. Conveyancing and Assumption Instruments . . . . . . . . . 16
Section 2.07. Cash Allocations After the Year-End . . . . . . . . . . . 16
Section 2.08. Cash Allocation; Cash Management. . . . . . . . . . . . . 16
Section 2.09. Allocation of Debt. . . . . . . . . . . . . . . . . . . . 17
ARTICLE III ASSUMPTION AND SATISFACTION OF LIABILITIES . . . . . . . . . . . . . . 18
Section 3.01. Assumption and Satisfaction of Mississippi Business and
Non-Mississippi Business Liabilities. . . . . . . . . . . 18
Section 3.02 Assumption and Satisfaction of Contingent Company
Liabilities and Transaction Liabilities . . . . . . . . . 18
ARTICLE IV THE DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.01. Cooperation Prior to the Distribution . . . . . . . . . . 18
Section 4.02. Company Board Action; Conditions Precedent
to the Distribution . . . . . . . . . . . . . . . . . . . 19
Section 4.03. The Distribution. . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.01. Indemnification by Company. . . . . . . . . . . . . . . . 21
Section 5.02. Indemnification by Lakes. . . . . . . . . . . . . . . . . 21
Section 5.03. Insurance Proceeds. . . . . . . . . . . . . . . . . . . . 21
Section 5.04. Procedure for Indemnification . . . . . . . . . . . . . . 22
Section 5.05. Remedies Cumulative . . . . . . . . . . . . . . . . . . . 24
Section 5.06. Survival of Indemnities . . . . . . . . . . . . . . . . . 24
ARTICLE VI CERTAIN ADDITIONAL MATTERS . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.01. Lakes Board . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.02. Resignations; Company Board . . . . . . . . . . . . . . . 25
Section 6.03. Lakes Certificate and Bylaws. . . . . . . . . . . . . . . 25
i
Section 6.04. Certain Post-Distribution Transactions. . . . . . . . . . 25
Section 6.05. Sales and Transfer Taxes. . . . . . . . . . . . . . . . . 25
Section 6.06. Settlement of Intercompany Accounts. . . . . . . . . . . 26
ARTICLE VII ACCESS TO INFORMATION AND SERVICES. . . . . . . . . . . . . . . . . . 26
Section 7.01. Provision of Corporate Records. . . . . . . . . . . . . . 26
Section 7.02. Access to Information . . . . . . . . . . . . . . . . . . 26
Section 7.03. Production of Witnesses . . . . . . . . . . . . . . . . . 27
Section 7.04. Corporate Services. . . . . . . . . . . . . . . . . . . . 27
Section 7.06. Retention of Records. . . . . . . . . . . . . . . . . . . 27
Section 7.07. Confidentiality . . . . . . . . . . . . . . . . . . . . . 28
Section 7.08. Privileged Matters. . . . . . . . . . . . . . . . . . . . 28
ARTICLE VIII INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.01. Policies and Rights Included Within the
Non-Mississippi Group Assets. . . . . . . . . . . . . . . 30
Section 8.02. Policies and Rights Included Within the
Mississippi Group Assets . . . . . . . . . . . . . . . . 30
Section 8.03. Administration and Reserves . . . . . . . . . . . . . . . 31
Section 8.04. Agreement for Waiver of Conflict and Shared Defense . . . 32
ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.01. Entire Agreement; No Third Party Beneficiaries. . . . . . 33
Section 9.02. Tax Allocation and Indemnity Agreement;
After-Tax Payments. . . . . . . . . . . . . . . . . . . . 33
Section 9.03. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.04. Governing Law . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.06. Amendments. . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.07. Assignments . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.08. Termination . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.09. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.10. Specific Performance. . . . . . . . . . . . . . . . . . . 34
Section 9.11. Headings; References. . . . . . . . . . . . . . . . . . . 34
Section 9.12. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 35
Section 9.13. Severability; Enforcement . . . . . . . . . . . . . . . . 35
Section 9.14. Arbitration of Disputes . . . . . . . . . . . . . . . . . 35
Section 9.15. Prompt Payment. . . . . . . . . . . . . . . . . . . . . . 36
ii
INDEX OF SCHEDULES
Schedule 1 - Mississippi Subsidiaries
Schedule 2 - Non-Mississippi Subsidiaries
Schedule 3 - Retained Company Assets
Schedule 4 - Retained Company Liabilities
Schedule 5 - Assigned Lakes Assets
Schedule 6 - Assigned Lakes Liabilities
Schedule 7 - Transferred Corporate Functions
Schedule 8 - Mississippi Group Cash Accounts
Schedule 9 - Non-Mississippi Group Cash Accounts
Schedule 10- Contingent Company Liabilities
INDEX OF EXHIBITS
Exhibit A - Form of Employee Benefits Allocation Agreement
Exhibit B - Form of Lakes Bylaws
Exhibit C - Form of Lakes Articles
Exhibit D - Form of Intellectual Property License Agreement
Exhibit E - Form of Tax Allocation and Indemnity Agreement
iii
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (the "AGREEMENT"), dated as of [ ], 1998,
by and between GRAND CASINOS, INC., a Minnesota corporation ("COMPANY") and GCI
LAKES, INC., a Minnesota corporation and wholly owned subsidiary of Company
("LAKES").
WHEREAS, Company, directly and through certain wholly-owned subsidiaries,
(a) owns, operates and develops certain gaming and resort facilities located in
the State of Mississippi (as more specifically described herein, the
"MISSISSIPPI BUSINESS"), and (b) manages and develops certain gaming facilities
located outside the State of Mississippi (as more specifically described herein,
the "NON-MISSISSIPPI BUSINESS");
WHEREAS, it is necessary to separate the Mississippi Business from the
Non-Mississippi Business in order to satisfy conditions precedent contained in
that certain Agreement and Plan of Merger dated June [ ], 1998 (the "Merger
Agreement") by and among Company, Lakes, Hilton Hotels Corporation, a Delaware
corporation ("Hilton"), Gaming Co., Inc., a Delaware corporation and a
wholly-owned subsidiary of Hilton ("Gaming Co."), and Gaming Acquisition Corp.,
a Minnesota corporation and a wholly-owned subsidiary of Gaming Co.
("MergerSub");
WHEREAS, the Board of Directors of Company has determined that it is in the
best interests of Company for Company to merge with MergerSub (the "Merger")
pursuant to the Merger Agreement;
WHEREAS, subject to Company shareholder ratification and certain other
conditions, the Board of Directors of Company has determined that it is in the
best interests of Company and the shareholders of Company to separate the
Non-Mississippi Business from the Mississippi Business through a distribution
(the "DISTRIBUTION") to the holders of Company Common Stock (as defined herein)
of all of the outstanding shares of Lakes Common Stock (as defined herein) to
accomplish the Merger;
WHEREAS, in order to effect such separation, Company will contribute to
Lakes prior to the Distribution, all of the operations, assets and liabilities
of Company comprising the Non-Mississippi Business and such other assets,
liabilities and operations as are described below;
WHEREAS, in connection with the Distribution, Company and Lakes have
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect the Distribution, and to set forth the
agreements that will govern certain matters following the Distribution; and
WHEREAS, for federal income tax purposes, it is intended that the
Distribution shall qualify as a tax-free distribution solely with respect to
Company's Shareholders within the meaning of Section 355 of the Internal Revenue
Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements set forth below, the parties agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01. GENERAL. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
ACTION: Any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
AFFILIATE: With respect to any specified Person, an affiliate of such
Person within the meaning of Rule 145 promulgated under the Securities Act.
Notwithstanding the foregoing (i) the Affiliates of Company shall not include
Lakes, the Non-Mississippi Subsidiaries or any other Person which otherwise
would be an Affiliate of Company solely by reason of Company's ownership of the
capital stock of Lakes or a Non-Mississippi Subsidiary prior to the Distribution
or the fact that any officer or director of Company or any of the Mississippi
Subsidiaries shall also serve as an officer or director of Lakes or any of the
Non-Mississippi Subsidiaries; and (ii) the Affiliates of Lakes shall not include
Company, the Mississippi Subsidiaries or any other Person which otherwise would
be an Affiliate of Lakes solely by reason of Company's ownership of the capital
stock of Lakes or a Non-Mississippi Subsidiary prior to the Distribution or the
fact that any officer or director of Lakes or any of the Non-Mississippi
Subsidiaries shall also serve as an officer or director of Company or any of the
Mississippi Subsidiaries.
AGENT: Norwest Shareholder Services as distribution agent appointed by
Company to distribute the Lakes Common Stock pursuant to the Distribution.
ANCILLARY AGREEMENTS: The License Agreement, Employee Benefits Allocation
Agreement, and Tax Allocation and Indemnity Agreement.
ASSIGNED LAKES ASSETS: The assets indicated on Schedule 5.
ASSIGNED LAKES ASSETS PROCEEDS: The net proceeds of the sales, if any, of
the Assigned Lakes Assets after the date of the Merger Agreement but prior to
the Distribution Date, after deducting any costs, fees and taxes (calculated
using the highest marginal Tax rate for the relevant taxable period) associated
with such sales, including, but not limited to, costs and fees related to
advertising,
2
marketing and transportation and sales, transfer, income (if any) and other
taxes; PROVIDED, HOWEVER, if such sale results in a capital or ordinary loss,
then such loss shall also be allocated to Lakes along with the subject Assigned
Lakes Assets Proceeds.
ASSIGNED LAKES LIABILITIES: The liabilities indicated on Schedule 6.
ASSUMED DEBT: The Debt of Company and its Subsidiaries which is assumed by
Lakes and/or retained by the Non-Mississippi Group Subsidiaries in connection
with the Distribution, as determined pursuant to Section 2.09.
BANK OF AMERICA REVOLVING CREDIT FACILITY: The $100 million Capital Lease
Facility with BA Leasing Capital Corporation, et al. dated September 29, 1997.
CODE: The Internal Revenue Code of 1986, as amended, or any successor
thereto as in effect for the taxable year in question.
COMPANY BOARD: The Board of Directors of Company as it is constituted
prior to the Distribution Date.
COMPANY COMMON STOCK: The common stock, par value $.01 per share, of
Company.
COMPANY NOTES: The First Mortgage Notes and the Senior Notes.
COMPANY GROUP: The meaning specified in the Tax Allocation and Indemnity
Agreement.
CONTINGENT COMPANY LIABILITY: The meaning set forth in Section 3.02.
CONVEYANCING AND ASSUMPTION INSTRUMENTS: Collectively, the various
agreements, instruments and other documents to be entered into to effect the
Preliminary Transfers and the assignment of assets and the assumption of
Liabilities contemplated by this Agreement and the Related Agreements in the
manner contemplated herein and therein.
DEBT: All (i) indebtedness for borrowed money and obligations evidenced by
bonds, notes, debentures or similar instruments; (ii) obligations issued or
assumed as the deferred purchase price of property or services; (iii)
obligations under capital leases; and (iv) all guarantees of the obligations of
other persons described in the foregoing clauses (i) - (iii).
DISTRIBUTION: The distribution to the holders of Company Common Stock as of
the Distribution Record Date of all of the outstanding shares of Lakes Common
Stock.
DISTRIBUTION DATE: The date on which the Distribution is effected.
3
DISTRIBUTION RECORD DATE: The date established by Company Board as the
date for taking a record of the Holders of Company Common Stock entitled to
participate in the Distribution.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT: The Employee Benefits and Other
Employment Matters Allocation Agreement between Lakes and Company, which
agreement shall be entered into on or prior to the Distribution Date in
substantially the form attached hereto as Exhibit A.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
FIRST MORTGAGE NOTES: The $450 million 10.125% First Mortgage Notes of
Company due December 1, 2003.
FORM 10: The Registration Statement on Form 10 under the Exchange Act with
respect to the Lakes Common Stock.
GAAP: Generally accepted accounting principles.
GAMING LAWS: Indian Gaming Laws, Louisiana Gaming Laws, Minnesota Gaming
Laws, Mississippi Gaming Laws, and Nevada Gaming Laws.
GAMING CO.: A Delaware corporation whose wholly-owned subsidiary,
MergerSub, will be merged with Company pursuant to the Merger Agreement.
GOVERNMENTAL AUTHORITY: Any court, administrative agency or commission or
other governmental authority or instrumentality.
HILTON: A Delaware corporation which is a party to the Merger Agreement.
HOLDERS: The holders of record of Company Common Stock as of the
Distribution Record Date.
INDIAN DEBT GUARANTEES: Shall mean (i) the guarantees of Company and Grand
Casinos of Louisiana, Inc. Tunica-Biloxi pursuant to the 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 the 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) the guarantees of Company and Grand Casinos of Louisiana,
Inc. - Coushatta pursuant to the Guaranty Agreement, dated as of January 31,
1995 in favor of Sentry Financial 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 the
Commercial Guaranty Agreement, dated as of April 7, 1997 in favor of
Cottonport Bank, guaranteeing the debt obligations of the Tunica-Biloxi Tribe
of Louisiana; (v) the guarantees of Company and Grand Casinos of Louisiana,
Inc. -
4
Coushatta pursuant to the Commercial Guaranty Agreement, dated as of May 1,
1997 in favor of Hibernia National Bank, guaranteeing the debt obligations of
the Coushatta Tribe of Louisiana; and (vi) any other guarantees under which
Company or any of its subsidiaries has guaranteed the debt or lease obligations
of any Indian Tribes.
INDIAN GAMING LAWS: Shall mean (i) the Indian Gaming Regulatory Act of 1988
and the rules and regulations promulgated thereunder; (ii) any state laws and
regulations governing gaming operations and facilities on Indian land; and (iii)
any tribal ordinances and regulations governing gaming on land within such
tribe's jurisdiction.
INDIAN MANAGEMENT AGREEMENTS: shall mean the management agreements and
related collateral and other agreements of the Indian tribes, or of Company or
any of its Subsidiaries, relating to (i) Grand Casino Avoyelles; (ii) Grand
Casino Coushatta; (iii) Grand Casino Hinckley; and (iv) any other Indian gaming
operations.
INSURANCE ADMINISTRATION: With respect to each Policy (including Self
Insurance Programs) shall include, but not be limited to, the accounting for
premiums, retrospectively rated premiums, defense costs, adjuster's fees,
indemnity payments, deductibles and retentions as appropriate under the terms
and conditions of each of the Policies; and the reporting to primary and excess
insurance carriers of any losses, claims and/or audit exposure in accordance
with Policy provisions, and the distribution of Insurance Proceeds as
contemplated by this Agreement.
INSURANCE PROCEEDS: Those moneys (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of the
insured, in either case net of any applicable premium adjustment,
retrospectively rated premium, deductible, retention, cost or reserve paid or
held by or for the benefit of such insured.
INSURED CLAIMS: Those Liabilities that, individually or in the aggregate,
are covered within the terms and conditions of any of the Policies, whether or
not subject to deductibles, co-insurance, uncollectibility or retrospectively
rated premium adjustments, but only to the extent that such Liabilities are
within applicable Policy limits, including aggregates.
IRS: The Internal Revenue Service or any successor thereto, including but
not limited to its agents, representatives and attorneys.
IRS RULING: The letter ruling issued by the IRS in response to the Ruling
Request.
LAKES BOARD: The Board of Directors of Lakes.
LAKES BYLAWS: The Bylaws of Lakes, substantially in the form of Exhibit B,
to be in effect at the Distribution Date.
5
LAKES ARTICLES OF INCORPORATION: The Articles of Incorporation of Lakes,
substantially in the form of Exhibit C, to be in effect at the Distribution
Date.
LAKES COMMON STOCK: The common stock, $.01 par value per share, of Lakes.
LAKES GROUP: The meaning specified in the Tax Allocation and Indemnity
Agreement.
LIABILITIES: Any and all debts, liabilities and obligations, absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
LICENSE AGREEMENT: The Intellectual Property License Agreement between
Company and Lakes, which agreement shall be entered into on or prior to the
Distribution Date with substantially such terms as are attached hereto as
Exhibit D.
LOUISIANA GAMING LAWS: The Louisiana Riverboat Economic Development and
Gaming Control Act and the rules and regulations promulgated thereunder.
LOUISIANA GAMING LICENSE: The Company's license to manage Louisiana-based
casinos issued pursuant to Louisiana Gaming Laws.
MBCA: shall mean the Minnesota Business Corporation Act, as amended from
time to time.
MINNESOTA GAMING LAWS: shall mean the Minnesota Lawful Gambling and
Gambling Devices Act and the rules and regulations promulgated thereunder.
MISSISSIPPI BUSINESS: The business conducted by Company and its
Subsidiaries relating to the management, ownership, operation and development of
all of Company's casinos, hotels, related facilities and all other operations
located within the State of Mississippi, including the Grand Casino Tunica,
Grand Casino Biloxi and Grand Casino Gulfport properties and any operations
located outside the State of Mississippi which relate to the Mississippi Group
Assets.
MISSISSIPPI GAMING LAWS: shall mean the Mississippi Gaming Control Act and
the rules and regulations promulgated thereunder.
MISSISSIPPI GROUP: Company and the Mississippi Subsidiaries, collectively.
MISSISSIPPI GROUP EMPLOYEES: The meaning specified in the Employee
Benefits Allocation Agreement.
6
MISSISSIPPI GROUP ASSETS: (i) All outstanding capital stock of the
Mississippi Subsidiaries and all assets of the Mississippi Subsidiaries other
than the Non-Mississippi Group Assets; (ii) all cash or cash equivalents
generated or derived from the sale or disposition of Mississippi Group Assets
prior to the Distribution Date; (iii) the Mississippi Group Books and Records;
(iv) the rights of Company and the Mississippi Subsidiaries insured under the
Shared Policies; (v) all of the assets expressly to be retained by, or assigned
or allotted to, Company or any of the Mississippi Subsidiaries under this
Agreement or the Related Agreements; (vi) the Retained Company Assets; and
(vii) any other assets of Company and its Subsidiaries used principally in the
Mississippi Business; except, in each case, excluding the assets listed on
Schedule 5.
MISSISSIPPI GROUP BOOKS AND RECORDS: The books and records (including
computerized records) of Company and the Mississippi Subsidiaries and any other
books and records of Company's Subsidiaries which relate principally to the
Mississippi Group, are necessary to conduct the Mississippi Business or are
required by law to be retained by Company or a Mississippi Subsidiary,
including, without limitation: (i) all such books and records relating to
Company Employees; (ii) all files relating to any Action being retained by
Company as part of the Mississippi Group Liabilities; and (iii) original
corporate minute books, stock ledgers and certificates and corporate seals, and
all licenses, leases, agreements and filings, relating to Company, the
Mississippi Subsidiaries or the Mississippi Business (but not including the
Non-Mississippi Group Books and Records, provided that Company shall have access
to, and shall have the right to obtain duplicate copies of, the Non-Mississippi
Group Books and Records in accordance with the provisions of Article VII).
MISSISSIPPI GROUP CASH ACCOUNTS: The bank accounts of the Mississippi Group
as set forth in Schedule 8 hereto.
MISSISSIPPI GROUP LIABILITIES: (i) All of the Liabilities of the
Mississippi Group under, or to be retained or assumed by Company or any of the
Mississippi Subsidiaries pursuant to, this Agreement (including Company's
portion of Contingent Company Liabilities and Transaction Liabilities as
provided in Section 3.02 herein) or any of the Related Agreements; (ii) all
Liabilities for payment of outstanding drafts of Company and its Subsidiaries
existing as of the Distribution Date; (iii) the Retained Debt; (iv) all
Liabilities of the Mississippi Subsidiaries, other than the Non-Mississippi
Group Liabilities; (v) all Actions against Company or its Subsidiaries arising
out of, or specifically associated with, any of the Mississippi Group Assets or
the Mississippi Business; (vi) the Retained Company Liabilities indicated on
Schedule 4; and (vii) all other Liabilities of Company and its Subsidiaries
arising out of, or specifically associated with, any of the Mississippi Group
Assets or the Mississippi Business; PROVIDED, HOWEVER, that the Mississippi
Group Liabilities shall not include (1) the Assumed Debt or (2) any claims,
losses, damages, demands, costs, expenses or Liabilities for any Tax (which
shall be governed by Sections 6.05 and 9.02 hereof and by the Tax Allocation and
Indemnity Agreement).
MISSISSIPPI SUBSIDIARIES: The Subsidiaries of Company specified in
Schedule 1 and any other Subsidiaries formed after the date hereof to conduct a
portion of the Mississippi Business.
7
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, and other applicable local
regulations.
NET CASH: The sum of (i) net cash (used in) or provided by financing
activities; (ii) net cash (used in) or provided by operating activities; and
(iii) net cash (used in) or provided by investing activities.
NON-MISSISSIPPI BUSINESS: The business conducted by Company and its
Subsidiaries relating to the management, ownership, operation and development of
all Company's casinos, hotels, related facilities and all other operations
located outside the State of Mississippi which relate to the Non-Mississippi
Group Assets.
NON-MISSISSIPPI GROUP: Lakes and the Non-Mississippi Subsidiaries,
collectively.
NON-MISSISSIPPI GROUP ASSETS: (i) All outstanding capital stock of the
Non-Mississippi Subsidiaries; (ii) the Assigned Lakes Assets, to the extent in
existence on the Distribution Date; (iii) the Non-Mississippi Group Books and
Records; (iv) the rights of a Non-Mississippi Subsidiary insured under the
Shared Policies; (v) all of the assets expressly to be retained by, or assigned
or allocated to, Lakes or any of the Non-Mississippi Subsidiaries under this
Agreement or the Related Agreements; (vi) the Assigned Lakes Assets Proceeds;
and (vii) any other assets of Company and its Subsidiaries used principally in
the Non-Mississippi Business; except, in each case excluding the assets
included on Schedule 3.
NON-MISSISSIPPI GROUP BOOKS AND RECORDS: The books and records (including
computerized records) of Lakes and the Non-Mississippi Subsidiaries and any
other books and records of Company and its Subsidiaries which relate principally
to the Non-Mississippi Group, are necessary to conduct the Non-Mississippi
Business, or are required by law to be retained by Lakes or a Non-Mississippi
Subsidiary, including, without limitation: (i) all such books and records
relating to Transferred Employees; (ii) all files relating to any Action being
assumed by Lakes or retained by a Non-Mississippi Subsidiary as part of the
Non-Mississippi Group Liabilities; and (iii) original corporate minute books,
stock ledgers and certificates, and all licenses, leases, agreements and
filings, relating to Lakes, the Non-Mississippi Subsidiaries or the
Non-Mississippi Business (but not including the Mississippi Group Books and
Records, provided that Lakes shall have access to, and have the right to
obtain duplicate copies of, any of the Mississippi Group Books and Records
which pertain to the Non-Mississippi Business in accordance with the
provisions of Article VII).
NON-MISSISSIPPI GROUP CASH ACCOUNTS: The bank accounts of Non-Mississippi
Group as set forth in Schedule 9 hereto.
NON-MISSISSIPPI GROUP LIABILITIES: (i) All of the Liabilities of the
Non-Mississippi Group under, or to be retained or assumed by Lakes or any of the
Non-Mississippi Subsidiaries pursuant to, this Agreement (including Lakes'
portion of Contingent Company Liabilities and Transaction
8
Liabilities as provided in Section 3.02 herein) or any of the Related
Agreements (including the Assumed Debt); (ii) the Stratosphere Liabilities;
(iii) all Liabilities of Lakes and the Non-Mississippi Subsidiaries, other
than the Mississippi Group Liabilities; (iv) all Actions against Company or
its Subsidiaries arising out of, or specifically associated with, any of the
Non-Mississippi Group Assets or the Non-Mississippi Business; (v) the Indian
Debt Guarantees; (vi) all other Liabilities of Company and its Subsidiaries
arising out of, or specifically associated with, any of the Non-Mississippi
Group Assets or the Non-Mississippi Business (including Debt secured by the
Non-Mississippi Group Assets); and (vii) the Assigned Lakes Liabilities
indicated on Schedule 6; PROVIDED, HOWEVER, that the Non-Mississippi Group
Liabilities shall not include (x) any Retained Debt, or (y) any claims,
losses, damages, demands, costs, expenses or Liabilities for any Tax (which
shall be governed by Sections 6.05 and 9.02 hereof and by the Tax Allocation
and Indemnity Agreement).
NON-MISSISSIPPI SUBSIDIARIES: The Subsidiaries of Company specified in
Schedule 2 and any other Subsidiaries formed after the date hereof to
conduct a portion of the Non-Mississippi Business.
NON-MISSISSIPPI SUBSIDIARIES NOTE GUARANTEES: The guarantees of the
Non-Mississippi Subsidiaries of Company Notes and the Bank of America
Revolving Credit Facility.
NON-MISSISSIPPI SUBSIDIARIES NOTE PLEDGE: The pledge of the outstanding
capital stock of the Non-Mississippi Subsidiaries pursuant to Grand Casinos,
Inc. Security and Pledge Agreement dated November 30, 1995 by Grand Casinos,
Inc. in favor of American Bank National Association (n/k/a Firstar Bank of
Minnesota, National Association) and Grand Casinos Resorts, Inc. Security and
Pledge Agreement dated November 30, 1995 by Grand Casinos Resorts, Inc. in
favor of American Bank National Association (n/k/a Firstar Bank of Minnesota,
National Association) relating to the Notes.
PERSON: Any individual, corporation, partnership, firm, joint venture,
association, joint-stock company, trust, estate, unincorporated organization,
governmental or regulatory body or other entity.
POLICIES: Insurance policies and insurance contracts of any kind
relating to the Non-Mississippi Business or the Mississippi Business as
conducted prior to the Distribution Date, including without limitation
primary and excess policies, comprehensive general liability policies,
automobile, aircraft, workers' compensation, property insurance, crime
insurance policies and self-insurance and captive insurance company
arrangements, together with the rights and benefits thereunder.
PRELIMINARY TRANSFERS: The contribution by Company and its Subsidiaries
to Lakes and the Non-Mississippi Subsidiaries, prior to the Distribution, of
all of the assets and liabilities of Company and its Subsidiaries comprising
the Non-Mississippi Business and such other assets, liabilities and
operations as are described herein.
9
PRIVILEGED INFORMATION: All information as to which Company, Lakes or
any of their Subsidiaries are entitled to assert the protection of a
Privilege.
PRIVILEGES: All privileges that may be asserted under applicable law
including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
RELATED AGREEMENTS: All of the agreements, instruments, understandings,
assignments or other arrangements set forth in writing, which are entered into
in connection with the transactions contemplated hereby, including, without
limitation, the Conveyancing and Assumption Instruments and the Ancillary
Agreements.
RESTRICTED PAYMENT: (i) the declaration or payment of any dividend or any
distribution on account of Lakes' 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
Company, which consent can be given or withheld in Company's sole and absolute
discretion.
RETAINED COMPANY ASSETS: The assets indicated in Schedule 3.
RETAINED COMPANY LIABILITIES: The liabilities indicated on Schedule 4.
RETAINED DEBT: The Debt of Company and its Subsidiaries which is to be
retained by Company and/or the Mississippi Group Subsidiaries in connection with
the Distribution, as determined pursuant to Section 2.09 and not otherwise
assigned by or transferred to the Non-Mississippi Group.
RULING REQUEST: The private letter ruling request to be filed by Company
with the Internal Revenue Service as supplemented and amended from time to time,
with respect to certain tax matters relating to the Distribution, the Merger and
other related matters.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended.
SELF INSURANCE PROGRAMS: Those self insured programs maintained by
Company and/or any of its Subsidiaries prior to the Distribution for the
benefit of employees, properties and operating businesses, including without
limitation such programs that utilize "fronted policies."
SENIOR NOTES: The $115 million 9% Series B Notes of Company due 2004.
10
SHARED POLICIES: All Policies (including Self Insurance Programs),
current or past, which are owned or maintained by or on behalf of Company
and/or any of its Subsidiaries or their respective predecessors which insure
both the Mississippi Business and the Non-Mississippi Business.
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 Sell and Stanley Taube in connection with their service on the
Stratosphere Board of Directors.
STRATOSPHERE LIABILITIES: Shall mean any and all Liabilities relating
to or arising from Stratosphere, Company's investment in or relationship to
Stratosphere and/or the Stratosphere Litigation and/or the Stratosphere
Contracts.
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
11
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: With respect to any Person, (i) each corporation, partnership,
joint venture, limited liability company or other legal entity of which such
Person owns, either directly or indirectly, 50% or more of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or similar governing body of such
corporation, partnership, joint venture or other legal entity; and (ii) each
partnership or limited liability company in which such Person or another
Subsidiary of such Person is the general partner, managing partner or otherwise
controls.
"TAX" OR "TAXES": Shall mean all actual taxes and estimated payment of
taxes, charges, fees, imposts, levies and gaming or other assessments, including
all income, gross receipts, capital, sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment excise, severance, stamp,
occupation, property, premium, windfall profits, environmental, disability,
registration, alternative or add-on minimum taxes, custom duties, fees,
assessments and charges of any kind whatsoever, together with any interest and
any penalties, fines, additions to tax or additional amounts imposed by any
taxing authority (domestic or foreign), and including 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 ALLOCATION AND INDEMNITY AGREEMENT: The Tax Allocation and Indemnity
Agreement between Company and Lakes pursuant to which such parties will provide
for the allocation of, and indemnification against, certain tax liabilities, the
preparation and filing of certain tax returns and the payment of taxes related
thereto and certain related matters, which agreement shall be entered into on or
prior to the Distribution Date substantially in the form attached hereto as
Exhibit E.
TAX RETURNS: The meaning specified in the Tax Allocation and Indemnity
Agreement.
TRANSACTION LIABILITIES: All liabilities relating to any Action or
threatened Action arising out of or pertaining to the transaction contemplated
by the Merger Agreement or this Distribution Agreement.
TRANSFERRED CORPORATE FUNCTIONS: The corporate level and support functions
of Company to be contributed to Lakes in connection with the Distribution, as
set forth in Schedule 7 hereto.
12
Currently expected to include corporate treasury, accounting (including
payroll), internal audit, tax, corporate affairs, legal, human resources and
risk management functions (including claims administration), as well as
certain purchasing and procurement functions.
TRANSFERRED EMPLOYEES: The meaning specified in the Employee Benefits
Allocation Agreement.
Section 1.02. TERMS DEFINED ELSEWHERE IN AGREEMENT. Each of the following
terms is defined in the Recitals or Section set forth opposite such term:
Term Section
---- -------
Agreement Recitals
Consents 4.01
Dispute 9.14
Company Indemnitees 5.02
Gaming Co. Recitals
Hilton Recitals
Indemnifiable Loss 5.01
Indemnifying Party 5.03
Indemnified Person 5.03
Information 7.02
Insurance Charges 8.03
Lakes Recitals
Lakes Indemnities 5.01
Merger Recitals
MergerSub Recitals
Third Party Claim 5.04
Transaction Taxes 6.05
ARTICLE II.
TRANSFER OF ASSETS
Section 2.01. TRANSFER OF ASSETS TO LAKES. Prior to the Distribution
Date, Company shall take or cause to be taken all actions necessary to cause the
transfer, assignment, delivery and conveyance to Lakes and/or the appropriate
Non-Mississippi Subsidiaries designated by Lakes of all of Company's and its
Subsidiaries' right, title and interest in any Non-Mississippi Group
13
Assets held, on or prior to the Distribution Date, by Company or any
Mississippi Subsidiary including:
(a) a contribution to Lakes of all of the outstanding capital stock
of the Non-Mississippi Subsidiaries indicated on Schedule 2;
(b) subject to the provisions of Section 2.07, transfer of $33
million dollars of cash by Company or any Mississippi Subsidiary to Lakes in
order to provide necessary and needed levels of working capital and appropriate
reserve for business investment purposes; PROVIDED, HOWEVER, that;
(i) such amount will be DECREASED by any amount paid by the
Company prior to the Distribution Date in connection with Stratosphere up
to a maximum of $8 million, and
(ii) such amount shall be INCREASED by the Assigned Lakes
Assets Proceeds.
(c) transfer of the Assigned Lakes Assets, as indicated on Schedule
5, which have not been sold prior to the Distribution Date; and
(d) transfer of the Transferred Corporate Functions as indicated on
Schedule 7;
Section 2.02. TRANSFERS OF ASSETS FROM NON-MISSISSIPPI SUBSIDIARIES TO
COMPANY OR MISSISSIPPI SUBSIDIARIES. Prior to the Distribution Date, Lakes
shall take or cause to be taken all actions necessary to cause the transfer,
assignment, delivery and conveyance to Company and/or the applicable Mississippi
Subsidiaries designated by Company of all of Lakes's and the Non-Mississippi
Subsidiaries' right, title and interest in any Mississippi Group Assets held, on
or prior to the Distribution Date, by Lakes or any of the Non-Mississippi
Subsidiaries, if any.
Section 2.03. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION. To the
extent that any transfers contemplated by this Article II shall not have been
fully effected as of the Distribution Date, the parties shall cooperate to
effect such transfers as promptly as shall be practicable following the
Distribution Date. Nothing herein shall be deemed to require the transfer of
any assets or the assumption of any Liabilities which by their terms or
operation of law cannot be transferred or assumed including, without limitation,
pursuant to Gaming Laws; provided, however, that Company and Lakes and their
respective Subsidiaries and Affiliates shall cooperate in seeking to obtain any
necessary consents or approvals for the transfer of all assets and Liabilities
contemplated to be transferred pursuant to this Agreement including, without
limitation, pursuant to Gaming Laws.
14
In the event that any such transfer of assets or Liabilities has not been
consummated effective as of the Distribution Date, the party retaining such
asset or Liability shall thereafter hold such asset in trust for the use and
benefit of the party entitled thereto (at the expense of the party entitled
thereto) and retain such Liability for the account of the party by whom such
Liability is to be assumed pursuant hereto, and take such other actions as may
be reasonably required in order to place the parties, insofar as reasonably
possible, in the same position as would have existed had such asset been
transferred or such Liability been assumed as contemplated hereby. As and when
any such asset or Liability becomes transferable, such transfer and assumption
shall be effected forthwith. The parties agree that, except as set forth in
this Section 2.03, as of the Distribution Date, each party hereto shall be
deemed to have acquired complete and sole beneficial ownership over all of the
assets, together with all rights, powers and privileges incidental thereto, and
shall be deemed to have assumed in accordance with the terms of this Agreement
all of the Liabilities, and all duties, obligations and responsibilities
incidental thereto, which such party is entitled to acquire or required to
assume pursuant to the terms of this Agreement.
Section 2.04. COOPERATION RE: ASSETS. In the case that at any time after
the Distribution Date, Lakes reasonably determines that any of the Mississippi
Group Assets (other than the assets set forth in Schedule 3) are essential for
the conduct of the Non-Mississippi Business, or Company reasonably determines
that any of the Non-Mississippi Group Assets (other than the assets set forth in
Schedule 5) are essential for the conduct of the Mississippi Business, and the
nature of such assets makes it impracticable for Lakes or Company, as the case
may be, to obtain substitute assets or to make alternative arrangements on
commercially reasonable terms to conduct their respective businesses, and
reasonable provisions for the use thereof are not already included in the
Related Agreements, then Lakes (with respect to the Non-Mississippi Group
Assets) and Company (with respect to the Mississippi Group Assets) shall
cooperate to make such assets available to the other party on commercially
reasonable terms, as may be reasonably required for such party to maintain
normal business operations. However, (a) the usage of such assets by the other
party shall not materially interfere with the use of such assets by the party
holding such assets; and (b) such assets shall be required to be made available
only until such time as the other party can reasonably obtain substitute assets
or make alternative arrangements on commercially reasonable terms to permit it
to maintain normal business operations.
Section 2.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each of the
parties hereto understands and agrees that no party hereto is, in this
Agreement, in any Related Agreement, or otherwise, representing or warranting in
any way (a) as to the value or freedom from encumbrance of, or any other matter
concerning, any assets of such party; or (b) as to the legal sufficiency to
convey title to any asset transferred pursuant to this Agreement or any Related
Agreement. IT IS ALSO AGREED AND UNDERSTOOD THAT THERE ARE NO WARRANTIES,
EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS OF ANY OF THE ASSETS
EITHER TRANSFERRED TO OR RETAINED BY THE PARTIES, AS THE CASE MAY BE,AND ALL
SUCH ASSETS SHALL BE "AS IS, WHERE IS" AND "WITH ALL FAULTS"; provided, however,
that the absence of warranties shall have no effect upon the allocation of
Liabilities under this Agreement.
15
Each party hereto understands and agrees that no party hereto is, in this
Agreement, in any Related Agreement or otherwise, representing or warranting in
any way that the obtaining of any consents or approvals, the execution and
delivery of any amendatory agreements and the making of any filings or
applications contemplated by this Agreement, any Related Agreement or otherwise
will satisfy the provisions of any or all applicable laws or judgments or other
instruments or agreements relating to such assets, including without limitation,
the Gaming Laws. Notwithstanding the foregoing, the parties shall use their
good faith efforts to obtain all consents and approvals, including, without
limitation, pursuant to the Gaming Laws, to enter into all reasonable amendatory
agreements and to make all filings and applications which may be reasonably
required for the consummation of the transactions contemplated by this Agreement
and the Related Agreements, and shall take all such further reasonable actions
as shall be necessary to preserve for each of the Non-Mississippi Group and the
Mississippi Group, to the greatest extent feasible, the economic and operational
benefits of the allocation of assets and liabilities provided for in this
Agreement. In case at any time after the Distribution Date any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and directors of each party to this Agreement shall take all
such necessary or desirable action.
Section 2.06. CONVEYANCING AND ASSUMPTION INSTRUMENTS. In connection with
the Preliminary Transfers described in Article II and Article III hereof, and
the assignment of assets and the assumption of Liabilities contemplated by any
Related Agreements, the parties shall execute, or cause to be executed by the
appropriate entities, the Conveyancing and Assumption Instruments in such forms
as the parties shall reasonably agree. The transfer of capital stock and other
equity interests shall be effected by means of delivery of stock certificates
and executed stock powers and notation on the stock record books of the
corporation or other legal entity involved and, to the extent required by
applicable law, by notation on public registries.
Section 2.07. CASH ALLOCATIONS AFTER THE YEAR-END. Notwithstanding
anything to the contrary herein, (i) Net Cash generated after December 31, 1998
from operations of the Mississippi Business (regardless of whether the
Distribution has occurred) shall be retained by Company; (ii) Net Cash generated
after December 31, 1998 from operations of the Non-Mississippi Business
(regardless of whether the Distribution has occurred) shall be retained by
Lakes; and (iii) the allocations of cash set forth in Section 2.08 (a) shall be
made as of December 31, 1998.
Section 2.08. CASH ALLOCATION; CASH MANAGEMENT.
(a) CASH ALLOCATION ON THE DISTRIBUTION DATE. Subject to the
provisions of Section 2.01(b) hereof, the allocation between Company and Lakes
of all cash bank balances, short-term investments and outstanding checks and
drafts of Company and its Subsidiaries recorded per the books of Company and its
Subsidiaries shall be in accordance with the following:
16
(i) all deposits of cash, checks, drafts or short-term
investments made to accounts, other than the Non-Mississippi Group Cash
Accounts, after the close of business on the Distribution Date shall be remitted
to Company; PROVIDED, HOWEVER, that any such deposits that are erroneously made
to such accounts shall be redeposited to the correct accounts as promptly as
possible;
(ii) all deposits of cash, checks, drafts or short-term
investments made to the Non-Mississippi Group Cash Accounts after the close of
business on the Distribution Date shall be remitted to Lakes and/or the
appropriate Non-Mississippi Subsidiary; PROVIDED, HOWEVER, that any such
deposits that are erroneously made to such accounts shall be redeposited to the
correct accounts as promptly as possible;
(iii) all cash, other than cash allocated pursuant to
Sections 2.01(b), 2.07, 2.08(i) and 2.08(ii), shall be retained by or remitted
to Company and/or the appropriate Mississippi Subsidiaries.
(b) CASH MANAGEMENT AFTER THE DISTRIBUTION DATE. All petty cash,
depository and disbursement accounts of Company (other than the Non-Mississippi
Group Cash Accounts) shall be retained by Company. The Non-Mississippi Group
Cash Accounts shall be transferred to Lakes, and Lakes shall establish and
maintain a separate cash management system and separate accounting records with
respect to the Non-Mississippi Group Business effective as of 12:01 a.m.
Minneapolis time on the day following the Distribution Date.
(c) ORDINARY COURSE OPERATIONS. The parties contemplate and agree
that the Non-Mississippi Business and the Mississippi Business, including, but
not limited to, the administration, payment and collection of accounts payable
and accounts receivable, will be conducted in the ordinary course of business
and consistent with past practice prior the Distribution Date.
Section 2.09. ALLOCATION OF DEBT. Debt will be allocated as follows:
(a) Debt secured by Mississippi Group Assets, or otherwise
specifically associated with the Mississippi Business, will be retained by
Company and/or the appropriate Mississippi Subsidiaries. As of the date of this
Agreement, such Debt consists of the First Mortgage Notes.
(b) The Senior Notes will be retained by Company and/or the
appropriate Mississippi Subsidiary.
(c) Debt relating to the Bank of America Revolving Credit Facility
will be retained by Company and/or the appropriate Mississippi Subsidiary.
(d) Any other of Company's unsecured Debt will be Retained Debt.
17
(e) Debt secured by any Non-Mississippi Group Assets will be assumed
by Lakes and/or the appropriate Non-Mississippi Subsidiaries.
(f) Notwithstanding anything to the contrary herein, (i) increases
(decreases) in Debt incurred (repaid) after December 31, 1998 arising out of
operations of the Mississippi Business (regardless of whether the Distribution
has occurred) shall be allocated to Company and (ii) increases (decreases) in
Debt incurred (repaid) after December 31, 1998 arising out of operations of the
Non-Mississippi Business (regardless of whether the Distribution has occurred)
shall be allocated to Lakes; and, to the extent such increases (decreases) are
not already given effect in the definition of Net Cash, such increases
(decreases) shall increase or decrease (as applicable) the Debt allocated to
Company or Lakes (as applicable).
Section 2.10. ANCILLARY AGREEMENTS BETWEEN COMPANY AND LAKES. On or prior
to the Distribution Date, Company and Lakes shall enter into the Ancillary
Agreements.
ARTICLE III.
ASSUMPTION AND SATISFACTION OF LIABILITIES
Section 3.01. ASSUMPTION AND SATISFACTION OF MISSISSIPPI BUSINESS AND
NON-MISSISSIPPI BUSINESS LIABILITIES. From and after the Distribution Date,
(a) Lakes shall, and/or shall cause the Non-Mississippi Subsidiaries to,
assume, pay, perform and discharge in due course all of the Non-Mississippi
Group Liabilities (including the Indian Guarantees and the Stratosphere
Liabilities); and; (b) Company shall, and/or shall cause the Mississippi
Subsidiaries to, assume, pay, perform and discharge in due course all of the
Mississippi Group Liabilities (including the Non-Mississippi Subsidiaries
Note Guarantees).
Section 3.02 ASSUMPTION AND SATISFACTION OF CONTINGENT COMPANY
LIABILITIES AND TRANSACTION LIABILITIES. From and after the Distribution
Date, to the extent that there is a Company liability occurring prior to the
Distribution Date that is neither a Mississippi Group Liability nor a
Non-Mississippi Group Liability and cannot in good faith be allocated by the
parties hereto as either a Mississippi Group Liability or a Non-Mississippi
Group Liability, including, but not limited to the Liabilities set forth on
Schedule 10 attached hereto (all such Liabilities, "Contingent Company
Liabilities"), then such Contingent Company Liabilities and all Transaction
Liabilities shall be allocated between Company and Lakes on a pro rata basis
as provided in Section 3.1(c)(1) of the Merger Agreement and shall be
assumed, paid, performed and discharged by each such party based upon such
allocation.
18
ARTICLE IV.
THE DISTRIBUTION
Section 4.01. COOPERATION PRIOR TO THE DISTRIBUTION.
(a) Lakes and Company shall cooperate in preparing, filing with the
SEC and causing to become effective any registration statements or amendments
thereof which are appropriate to reflect the establishment of, or amendments to,
any employee benefit plans, and other plans contemplated by the Employee
Benefits Allocation Agreement.
(b) Lakes and Company shall take all such action as may be necessary
or appropriate under the securities or blue sky laws of states or other
political subdivisions of the United States in connection with the transactions
contemplated by this Agreement and the Related Agreements.
(c) Lakes and Company shall use all reasonable best efforts to obtain
any governmental or third-party consents or approvals necessary or desirable in
connection with the transactions contemplated hereby, including, without
limitation, pursuant to the Gaming Laws ("CONSENTS").
(d) Lakes and Company will use all reasonable best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary or desirable under applicable law, to consummate the transactions
contemplated under this Agreement and the Related Agreements including, but not
limited to, actions relating to the satisfaction of the conditions indicated in
Section 4.02 hereof.
Section 4.02. COMPANY BOARD ACTION; CONDITIONS PRECEDENT TO THE
DISTRIBUTION. Company Board shall, in its sole discretion, establish the Record
Date and the Distribution Date and any appropriate procedures in connection with
the Distribution. In no event shall the Distribution occur unless the following
conditions shall have been satisfied:
(a) the transactions contemplated in Article II and Article III shall
have been consummated in all material respects;
(b) the Lakes Board, comprised as contemplated by Section 6.01, shall
have been elected by Company, as sole shareholder of Lakes, and the Lakes
Articles and Lakes Bylaws shall have been adopted and shall be in effect;
(c) Company shall have received shareholder ratification of the
Distribution at a meeting of shareholders.
19
(d) the Merger Agreement shall be in full force and effect and no
material breach shall exist thereunder;
(e) each condition to the consummation of the Merger, other than the
condition set forth in Section 8.1(g) of the Merger Agreement relating to the
consummation of the Distribution, shall have been fulfilled or waived by the
party for whose benefit such condition exists;
(f) with respect to the Louisiana Gaming License:
(i) the Louisiana Gaming License is transferred to Lakes or
a Non-Mississippi Subsidiary;
(ii) the Non-Mississippi Subsidiaries are licensed pursuant
to Louisiana Gaming Laws; or
(iii) Lakes is licensed pursuant to Louisiana Gaming Laws.
(g) the IRS Ruling shall have been granted in form and substance
satisfactory to Company Board, the IRS Ruling shall not have been withdrawn by
the IRS and the representations made to the IRS therein shall be true in all
material respects;
(h) the Form 10 shall have been declared effective by the SEC;
(i) the Lakes Common Stock shall have been approved for trading on
the NASDAQ National Market (or such other securities exchange comprising the
principal securities exchange or market on which the Lakes Common Stock is
listed or traded), subject to official notice of issuance;
(j) each of Lakes and Company shall have executed and delivered the
Related Agreements to which it is a party and each of the transactions
contemplated by the Related Agreements to be consummated on or prior to the
Distribution Date shall have been consummated;
(k) all necessary regulatory approvals and consents of third parties
shall have been received, including, without limitation, pursuant to the Gaming
Laws, except for any such approvals or consents the failure of which to obtain
would not have a material adverse effect on the business, operations or
condition (financial or otherwise) of either Company or Lakes;
(l) the Board of Directors of Company shall be satisfied that (i) at
the time of the Distribution and after giving effect to the Distribution and the
transactions contemplated under the Related Agreements, Company will not be
insolvent (in that, both before and immediately following the Distribution, (1)
the fair market value of Company's assets would
20
exceed Company's liabilities, (2) Company would be able to pay its
liabilities as they mature and become absolute and (3) Company would not have
unreasonably small capital with which to engage in its business); and (ii)
the Distribution would be permitted under the MBCA; and at the Board of
Directors' discretion, Company shall have received the opinion of a financial
advisor or other appraisal or valuation expert selected by Company, in form
and substance satisfactory to Company, as to the matters set forth in clauses
(1) through (3) above, and such opinion shall not have been withdrawn;
PROVIDED, HOWEVER, that (x) any such condition may be waived by Company Board in
its sole discretion, and (y) the satisfaction of such conditions shall not
create any obligation on the part of Company or any other party hereto to effect
the Distribution or in any way limit Company's power of termination set forth in
Section 9.08 or alter the consequences of any such termination from those
specified in such Section.
Section 4.03. THE DISTRIBUTION. On the Distribution Date, or as soon
thereafter as practicable, subject to the conditions and rights of termination
set forth in this Agreement, Company shall deliver to the Agent, for the benefit
of the Holders, a share certificate representing all of the then outstanding
shares of Lakes Common Stock owned by Company, endorsed in blank, and shall
instruct the Agent to distribute to each Holder, on or as soon as practicable
following the Distribution Date, a certification, or if requested by such
Holder, a certificate, representing one share of Lakes Common Stock for each
share of Company Common Stock so held or, such number of shares that may be
issued pursuant to a stock split, stock or dividend, of the Lakes Common Stock
prior to, or simultaneously with, the Distribution Date. Lakes agrees to
provide all share certificates that the Agent shall require in order to effect
the Distribution.
ARTICLE V.
INDEMNIFICATION
Section 5.01. INDEMNIFICATION BY COMPANY. Company shall indemnify, defend
and hold harmless Lakes and each of the Non-Mississippi Subsidiaries, and each
of their respective past or present directors, officers, employees, agents and
Affiliates and each of the heirs, executors, successors and assigns of any of
the foregoing (the "LAKES INDEMNITEES") from and against any and all losses,
Liabilities, damages and expenses (including, without limitation, the reasonable
costs and expenses, including reasonable attorneys' fees in connection with any
such investigations, Actions, or threatened Actions) (collectively,
"INDEMNIFIABLE LOSSES" and, individually, an "INDEMNIFIABLE LOSS") incurred or
suffered by any of the Lakes Indemnitees and arising out of or due to the
failure or alleged failure of Company, any Mississippi Subsidiary, or any of
their respective Affiliates to (a) pay, perform or otherwise discharge in due
course any of the Mississippi Group Liabilities, or (b) comply with the
provisions of Section 6.04 hereof.
Section 5.02. INDEMNIFICATION BY LAKES. Lakes shall indemnify, defend
and hold harmless Company and each of the Mississippi Subsidiaries, and each of
their respective past or
21
present directors, officers, employees, agents and Affiliates and each of the
heirs, executors, successors and assigns of any of the foregoing (the
"COMPANY INDEMNITEES") from and against any and all Indemnifiable Losses
incurred or suffered by any of Company Indemnitees and arising out of or due
to the failure or alleged failure of Lakes, any Non-Mississippi Subsidiaries,
or any of their respective Affiliates to (a) pay, perform or otherwise
discharge in due course any of the Non-Mississippi Group Liabilities; or (b)
comply with the provisions of Section 6.04 hereof.
Section 5.03. INSURANCE PROCEEDS. The amount which any party (an
"INDEMNIFYING PARTY") is or may be required to pay to any other Person (an
"INDEMNIFIED PERSON") pursuant to Section 5.01 or Section 5.02 shall be reduced
(including, without limitation, retroactively) by any Insurance Proceeds or
other amounts actually recovered by or on behalf of such Indemnified Person in
reduction of the related Indemnifiable Loss. If an Indemnified Person shall
have received the payment required by this Agreement from an Indemnifying Party
in respect of an Indemnifiable Loss and shall subsequently actually receive
Insurance Proceeds, or other amounts in respect of such Indemnifiable Loss as
specified above, then such Indemnified Person shall pay to such Indemnifying
Party a sum equal to the amount of such Insurance Proceeds or other amounts
actually received.
Section 5.04. PROCEDURE FOR INDEMNIFICATION.
(a) If an Indemnified Person shall receive written notice of the
assertion by a Person (including, without limitation, any Governmental
Authority) who is not a party to this Agreement or to any of the Related
Agreements of any claim or of the commencement by any such Person of any Action
with respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement (a "THIRD-PARTY CLAIM"), such
Indemnified Person shall give the Indemnifying Party written notice thereof
promptly after becoming aware of such Third-Party Claim; PROVIDED, that the
failure of any Indemnified Person to give notice as required by this Section
5.04 shall not relieve the Indemnifying Party of its obligations under this
Article V, except to the extent that such Indemnifying Party is materially
prejudiced by such failure to give notice. Such notice shall describe the
Third-Party Claim in reasonable detail, and shall indicate the amount (estimated
if necessary) of the Indemnifiable Loss that has been claimed against or may be
sustained by such Indemnified Person.
(b) Within 15 days of the receipt of notice from an Indemnified
Person in accordance with Section 5.04(a) (or sooner, if the nature of such
Third-Party Claim so requires), the Indemnifying Party shall notify the
Indemnified Person of its election whether to assume responsibility for such
Third-Party Claim (provided that if the Indemnifying Party does not so notify
the Indemnified Person of its election within 15 days after receipt of such
notice from the Indemnified Person, the Indemnifying Party shall be deemed to
have elected not to assume responsibility for such Third-Party Claim). An
election not to assume responsibility for such Third-Party Claim may only be
made in the event of a good faith dispute that a Third-Party Claim is not
covered as an Indemnifiable Loss under the grounds specified in Section 5.01 or
22
5.02, as the case may be. Subject to Section 5.04(e) hereof, an Indemnifying
Party may elect to defend or to seek to settle or compromise, at such
Indemnifying Party's own expense and by counsel reasonably satisfactory to the
Indemnified Person, any Third-Party Claim, PROVIDED that (i) the Indemnifying
Party must confirm in writing that it agrees that the Indemnified Person is
entitled to indemnification hereunder in respect of such Third-Party Claim; and
(ii) no compromise or settlement shall be made without the prior written consent
of the Indemnified Person, which consent shall not be reasonably withheld.
(c) In the event that the Indemnifying Party elects to assume
responsibility for the Third-Party Claim, pursuant to Section 5.04(b) above,
(i) the Indemnified Person shall cooperate in the defense or settlement or
compromise of such Third-Party Claim, including making available to the
Indemnifying Party any personnel and any books, records or other documents
within the Indemnified Person's control or which it otherwise has the ability
to make available that are necessary or appropriate for the defense of the
Third-Party Claim; (ii) the Indemnifying Party shall keep the Indemnified
Person reasonably informed regarding the strategy, status and progress of the
defense of the Third-Party claim; and (iii) the Indemnifying Party shall
consider, in good faith, the opinions and suggestions of the Indemnified
Person with respect to the Third-Party Claim.
After notice from an Indemnifying Party to an Indemnified Person
of its election to assume responsibility for a Third-Party Claim, such
Indemnifying Party shall not be liable to such Indemnified Person under this
Article V for any legal or other costs or expenses (except costs or expenses
approved in advance by the Indemnifying Party) subsequently incurred by such
Indemnified Person in connection with the defense thereof; provided, that if the
defendants in any such claim include both the Indemnifying Party and one or more
Indemnified Persons and in such Indemnified Persons' reasonable judgment a
conflict of interest between such Indemnified Persons and such Indemnifying
Party exists in respect of such claim, such Indemnified Persons shall have the
right to employ separate counsel and in that event the reasonable fees and
expenses of such separate counsel (but not more than one separate counsel
reasonably satisfactory to the Indemnifying Party) shall be paid by such
Indemnifying Party.
(d) If an Indemnifying Party elects not to assume responsibility for
a Third-Party Claim the Indemnified Person may defend or (subject to the
following sentence) seek to compromise or settle such Third-Party Claim.
Notwithstanding the foregoing, an Indemnified Person may not settle or
compromise any claim without prior written notice to the Indemnifying Party,
which shall have the option within ten days following the receipt of such notice
(i) to disapprove the settlement, and to then assume all past and future
responsibility for the claim, including immediately reimbursing the Indemnified
Person for prior expenditures in connection with the claim; (ii) to disapprove
the settlement and continue to refrain from participation in the defense of the
claim, in which event the Indemnified Person may, in its sole discretion,
proceed with the settlement and the Indemnifying Party shall have no further
right to contest the amount or reasonableness of the settlement; (iii) to
approve and pay the amount of the settlement, reserving the Indemnifying Party's
right to contest the Indemnified Person's right to indemnity;
23
or (iv) to approve and pay the settlement. In the event the Indemnifying
Party makes no response to such written notice, the Indemnifying Party shall
be deemed to have elected option (ii). When the Indemnifying Party chooses
or is deemed to have chosen option (ii) or (iii), the issue of whether the
Indemnified Person has a right to indemnity under this Article V shall be
resolved by arbitration pursuant to the provisions of Section 9.14 hereof.
If the Indemnifying Party does not prevail at such arbitration, the
Indemnifying Party shall promptly reimburse the Indemnified Person for all
Indemnifiable Losses, plus interest on such amounts at the lower of (i) 10%
or (ii) the highest legal interest rate, accruing from the date of payment by
the Indemnified Person.
(e) Notwithstanding the foregoing, if an Indemnified Person
reasonably and in good faith determines that (i) the Indemnifying Party is not
financially capable to defend a Third-Party Claim and to provide full
indemnification with respect to any settlement thereof or (ii) the Indemnifying
Party or such Indemnifying Party's attorney is not adequately representing the
Indemnified Person's interests with respect to such Third-Party Claim, the
Indemnified Person may, by notice to the Indemnifying Party, assume the
exclusive right to defend, compromise or settle such Third-Party Claim and the
Indemnifying Party shall remain responsible for, and be bound by the resolution
of, such Third-Party Claim.
(f) Any claim on account of an Indemnifiable Loss which does not
result from a Third-Party Claim shall be asserted by written notice given by the
Indemnified Person to the applicable Indemnifying Party. Such Indemnifying
Party shall have a period of 15 days after the receipt of such notice within
which to respond thereto. If such Indemnifying Party does not respond within
such 15-day period, such Indemnifying Party shall be deemed to have refused to
accept responsibility to make payment. If such Indemnifying Party does not
respond within such 15-day period or rejects such claim in whole or in part,
such Indemnified Person shall be free to pursue such remedies as may be
available to such party under applicable law or under this Agreement.
(g) In addition to any adjustments required pursuant to Section 5.03,
if the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnified Person to the
Indemnifying Party.
(h) In the event of payment by an Indemnifying Party to any
Indemnified Person in connection with any Third-Party Claim, such Indemnifying
Party 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 Third-Party Claim against
any claimant or plaintiff asserting such Third-Party Claim or against any other
party that may be liable. Such Indemnified Person shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
24
(i) For so long as Surviving Corporation (as defined in the Merger
Agreement) is required to provide indemnification to any of the Indemnified
Persons (as defined in the Merger Agreement), 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 repay in full any
claim made for indemnification by Company or any of its Affiliates pursuant to
this Agreement or the Merger Agreement, then for so long as any such claim or
any other claim for indemnification made by Company 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.
(j) Prior to the Distribution Date, Company and Lakes shall enter
into a Collateral Trust Agreement and a Pledge and Security Agreement. Company
is hereby entitled to all the rights and benefits under those agreements in
order to secure Lakes' indemnification obligations under this Agreement, the
Related Agreements and the Merger Agreement.
Section 5.05. REMEDIES CUMULATIVE. The remedies provided in this Article
V shall be cumulative and shall not preclude assertion by any Indemnified Person
of any other rights or the seeking of any and all other remedies against any
Indemnifying Party.
Section 5.06. SURVIVAL OF INDEMNITIES. The obligations of each of Lakes
and Company under this Article V shall survive the sale or other transfer by it
of any assets or businesses or the assignment by it of any Liabilities, with
respect to any Indemnifiable Loss of the other related to such assets,
businesses or Liabilities.
ARTICLE VI.
CERTAIN ADDITIONAL MATTERS
Section 6.01. LAKES BOARD. Lakes and Company shall take all actions which
may be required to appoint as officers and directors of Lakes those persons
named in the Form 10 (as may be altered or supplemented prior to the date hereof
by Company Board and the Lakes Board) to constitute, effective as of the
Distribution Date, the officers and the directors of Lakes.
Section 6.02. RESIGNATIONS; COMPANY BOARD. Lakes shall cause all of its
directors and the Transferred Employees to resign, effective as of the
Distribution Date, from all boards of directors or similar governing bodies of
Company or any of the Mississippi Subsidiaries on which they serve, and from all
positions as officers or employees of Company or any of the Mississippi
Subsidiaries in which they serve. Company shall cause all of its directors and
the Mississippi Group Employees to resign from all boards of directors or
similar governing bodies of Lakes or any of the Non-Mississippi Subsidiaries on
which they serve, and from all positions as officers or employees of Lakes or
any of the Non-Mississippi Subsidiaries in which they serve.
25
Section 6.03. LAKES CERTIFICATE AND BYLAWS. On or prior to the
Distribution Date, Lakes shall adopt the Lakes Articles and the Lakes Bylaws,
and shall file the Lakes Articles with the Secretary of State of the State of
Minnesota. Company shall provide all necessary shareholder approvals for the
Lakes Articles prior to the filing of the Lakes Articles with the Secretary of
State of the State of Minnesota.
Section 6.04. CERTAIN POST-DISTRIBUTION TRANSACTIONS. Each of Company and
Lakes shall, and shall cause each of their respective Subsidiaries to, comply in
all material respects with each representation, covenant and statement made, or
to be made, to any taxing authority in connection with the IRS Ruling or any
other ruling obtained, or to be obtained, by Company and Lakes acting together,
from any such taxing authority with respect to any transaction contemplated by
this Agreement.
Section 6.05. SALES AND TRANSFER TAXES. Company and Lakes agree to
cooperate to determine the amount of sales, transfer or other Taxes (including,
without limitation, all real estate, patent, trademark and transfer taxes and
recording fees, but excluding any Income Taxes, as defined in the Tax Allocation
and Indemnity Agreement) incurred in connection with the Distribution and other
transactions contemplated by the Agreement (the "TRANSACTION TAXES"). Company
agrees to file promptly and timely the Tax Returns for such Transaction Taxes
and Lakes will join in the execution of any such Tax Returns or other
documentation. Financial responsibility for payment of all such Transaction
Taxes shall be allocated between Company and Lakes on a pro rata basis as
provided in Section 3.1(c)(1) of the Merger Agreement.
Section 6.06. SETTLEMENT OF INTERCOMPANY ACCOUNTS. All accounts between
the Company and the Non-Mississippi Subsidiaries and accounts between
Mississippi Subsidiaries and the Non-Mississippi Subsidiaries shall be paid in
full and settled prior to the Distribution Date, PROVIDED, HOWEVER, that nothing
contained in this Section 6.06 shall affect the (i) transfer of assets pursuant
to Article II, (ii) the assumption and satisfaction of Liabilities pursuant to
Article III or (iii) the indemnification provisions related to the parties
pursuant to this Agreement and the Merger Agreement.
ARTICLE VII.
ACCESS TO INFORMATION AND SERVICES
Section 7.01. PROVISION OF CORPORATE RECORDS.
(a) Except as may otherwise be provided in a Related Agreement,
Company shall arrange as soon as practicable following the Distribution Date, to
the extent not previously delivered in connection with the transactions
contemplated in Article II, for the transportation (at Lake's cost) to Lakes of
the Non-Mississippi Group Books and Records in its possession, except to the
extent such items are already in the possession of Lakes or a Non-Mississippi
Subsidiary. The Non-Mississippi Group Books and Records shall be the property
of Lakes, but the Non-
26
Mississippi Group Books and Records that reasonably relate to Company or the
Mississippi Business shall be available to Company for review and duplication
until Company shall notify Lakes in writing that such records are no longer
of use to Company.
(b) Except as may otherwise be provided in a Related Agreement,
Lakes shall arrange as soon as practicable following the Distribution Date,
to the extent not previously delivered in connection with the transactions
contemplated in Article II, for the transportation (at Company's cost) to
Company of the Mississippi Group Books and Records in its possession, except
to the extent such items are already in the possession of Company or a
Mississippi Subsidiary. The Mississippi Group Books and Records shall be the
property of Company, but the Mississippi Group Books and Records that
reasonably relate to Lakes or the Non-Mississippi Business shall be available
to Lakes for review and duplication until Lakes shall notify Company in
writing that such records are no longer of use to Lakes.
Section 7.02. ACCESS TO INFORMATION. Except as otherwise provided in a
Related Agreement, from and after the Distribution Date, Company shall afford to
Lakes and its authorized accountants, counsel and other designated
representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing information) and duplicating rights during
normal business hours to all records, books, contracts, instruments, computer
data and other data and information relating to pre-Distribution operations
(collectively, "INFORMATION") within Company's possession or control, insofar as
such access is reasonably required by Lakes for the conduct of its business,
subject to appropriate restrictions for classified or Privileged Information.
Similarly, except as otherwise provided in a Related Agreement, Lakes shall
afford to Company and its authorized accountants, counsel and other designated
representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing information) and duplicating rights during
normal business hours to Information within Lakes's possession or control,
insofar as such access is reasonably required by Company for the conduct of its
business, subject to appropriate restrictions for classified or Privileged
Information. Information may be requested under this Article VII for the
legitimate business purposes of either party, including without limitation,
audit, accounting, claims (including claims for indemnification hereunder),
litigation and tax purposes, as well as for purposes of fulfilling disclosure
and reporting obligations and for performing this Agreement and the transactions
contemplated hereby.
Section 7.03. PRODUCTION OF WITNESSES. At all times from and after the
Distribution Date, each of Lakes and Company shall use reasonable efforts to
make available to the other, upon written request, its and its Subsidiaries'
present and past officers, directors, employees and agents as witnesses to the
extent that such persons may reasonably be required in connection with any
Action.
27
Section 7.04. CORPORATE SERVICES. The parties hereto shall enter into a
corporate services agreement to the extent Lakes requires corporate services to
be provided to it following the Distribution Date. The services shall be
provided for up to one year following the Distribution Date at a fee equal to
the fair value for such services. The corporate services agreement shall be
negotiated on an arms-length basis. The final cost, types and scope of services
to be provided shall be subject to the approval of Company, such approval not to
be unreasonably withheld.
Section 7.05. REIMBURSEMENT. Except to the extent otherwise contemplated
in any Related Agreement, a party providing Information or witnesses to the
other party under this Article VII shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments of such amounts,
relating to supplies, disbursements and other out-of-pocket expenses (at cost)
of employees who are witnesses or otherwise furnish assistance (at cost), as may
be reasonably incurred in providing such Information or witnesses.
Notwithstanding the foregoing, the parties acknowledge that a party providing
Information or witnesses shall not be entitled to receive reimbursement of
salary or other compensation expenses relating to any employees providing such
Information or acting as such witnesses.
Section 7.06. RETENTION OF RECORDS. Except as otherwise required by law
or agreed to in a Related Agreement or otherwise in writing, each of Lakes and
Company may destroy or otherwise dispose of any of the Information which is
material Information and is not contained in other Information retained by the
other, only after the later to occur of (a) all applicable statutes of
limitations (including any waivers or extensions thereof) with respect to Tax
Returns which Company or Lakes, as the case may be, may be obligated to file on
behalf of any member of the Lakes Group or any member of Company Group, as the
case may be; and (b) any retention period required by law or pursuant to any
record retention agreement, provided, however, that prior to such destruction or
disposal, (x) it shall provide no less than 90 or more than 120 days advance
written notice to the other, specifying in reasonable detail the Information
proposed to be destroyed or disposed of and (y) if a recipient of such notice
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the Information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the Information as
was requested at the expense of the party requesting such Information.
Section 7.07. CONFIDENTIALITY. Each of Company and its Subsidiaries on
the one hand, and Lakes and its Subsidiaries on the other hand, shall hold, and
shall cause its consultants and advisors to hold, in strict confidence, all
Information concerning the other in its possession or furnished by the other or
the other's representatives pursuant to this Agreement (except to the extent
that such Information has been (i) in the public domain through no fault of such
party; or (ii) later lawfully acquired from other sources by such party), and
each party shall not release or disclose such Information to any other person,
except its auditors, attorneys, financial advisors, rating agencies, bankers and
other consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as reasonably advised by its counsel, by other
requirements of law, or unless such Information is reasonably required to be
disclosed in connection with (x)
28
any litigation with any third-parties or litigation between the Mississippi
Group and the Non-Mississippi Group, (y) any contractual agreement to which
members of the Mississippi Group or the Non-Mississippi Group are currently
parties, or (z) in exercise of either party's rights hereunder.
Section 7.08. PRIVILEGED MATTERS. Lakes and Company recognize that
certain legal and other professional services that have been and will be
provided prior to the Distribution Date have been and will be rendered for the
benefit of both the Mississippi Group and the Non-Mississippi Group and that
both the Mississippi Group and the Non-Mississippi Group should be deemed to be
the client for the purposes of asserting all Privileges. To allocate the
interests of each party in the Privileged Information, the parties agree as
follows:
(a) Company shall be entitled, in perpetuity, to control the
assertion or waiver of all Privileges in connection with Privileged Information
which relates solely to the Mississippi Group, whether or not the Privileged
Information is in the possession of or under the control of Company or Lakes.
Company shall also be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information that relates
solely to the subject matter of any claims constituting Mississippi Group
Liabilities, now pending or which may be asserted in the future, in any lawsuits
or other proceedings initiated against or by Company or a Mississippi
Subsidiary, whether or not the Privileged Information is in the possession of or
under the control of Company or Lakes.
(b) Lakes shall be entitled, in perpetuity, to control the assertion
or waiver of all Privileges in connection with Privileged Information which
relates solely to the Non-Mississippi Group, whether or not the Privileged
Information is in the possession of or under the control of Company or Lakes.
Lakes shall also be entitled, in perpetuity, to control the assertion or waiver
of all Privileges in connection with Privileged Information which relates solely
to the subject matter of any claims constituting Non-Mississippi Group
Liabilities, now pending or which may be asserted in the future, in any lawsuits
or other proceedings initiated against or by Lakes or a Non-Mississippi
Subsidiary, whether or not the Privileged Information is in the possession of or
under the control of Company or Lakes.
(c) Lakes and Company agree that they shall have a shared Privilege,
with equal right to assert or waive, subject to the restrictions in this Section
7.07, with respect to all Privileges not allocated pursuant to the terms of
Sections 7.07(a) and (b). All Privileges relating to any claims, proceedings,
litigation, disputes, or other matters which involve both Lakes and Company, or
in respect of which both Lakes and Company retain any responsibility or
liability under this Agreement, shall be subject to a shared Privilege.
(d) No party may waive any Privilege which could be asserted under
any applicable law, and in which the other party has a shared Privilege, without
the consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(e) below. Consent shall be in writing, or shall be deemed to
29
be granted unless written objection is made within twenty (20) days after
written notice upon the other party requesting such consent.
(e) In the event of any litigation or dispute between a member of the
Mississippi Group and a member of the Non-Mississippi Group, either party may
waive a Privilege in which the other party has a shared Privilege, without
obtaining the consent of the other party, provided that such waiver of a shared
Privilege shall be effective only as to the use of Information with respect to
the litigation or dispute between the Mississippi Group and the Non-Mississippi
Group, and shall not operate as a waiver of the shared Privilege with respect to
third-parties.
(f) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of either party,
each party agrees that it shall negotiate in good faith, shall endeavor to
minimize any prejudice to the rights of the other party, and shall not
unreasonably withhold consent to any request for waiver by the other party.
Each party specifically agrees that it will not withhold consent to waiver for
any purpose except to protect its own legitimate interests.
(g) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of Information
subject to a shared Privilege or as to which the other party has the sole right
hereunder to assert a Privilege, or if any party obtains knowledge that any of
its current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the Information and to assert any rights it may
have under this Section 7.07 or otherwise to prevent the production or
disclosure of such Privileged Information.
(h) The transfer of the Non-Mississippi Group Books and Records and
the Mississippi Group Books and Records and other Information between Company
and its Subsidiaries and Lakes and its Subsidiaries is made in reliance on the
agreement of Lakes and Company, as set forth in Sections 7.06 and 7.07, to
maintain the confidentiality of Privileged Information and to assert and
maintain all applicable Privileges. The access to Information being granted
pursuant to Sections 7.01 and 7.02 hereof, the agreement to provide witnesses
and individuals pursuant to Section 7.03 hereof and the transfer of Privileged
Information between Company and its Subsidiaries and Lakes and its Subsidiaries
pursuant to this Agreement shall not be deemed a waiver of any Privilege that
has been or may be asserted under this Agreement or otherwise.
30
ARTICLE VIII.
INSURANCE
Section 8.01. POLICIES AND RIGHTS INCLUDED WITHIN THE NON-MISSISSIPPI
GROUP ASSETS. Without limiting the generality of the definition of the
Non-Mississippi Group Assets or the effect of Section 2.01, the
Non-Mississippi Group Assets shall include any and all rights of an insured
party under each of the Shared Policies, specifically including rights of
indemnity and the right to be defended by or at the expense of the insurer,
where applicable, with respect to all injuries, losses, liabilities, damages
and expenses incurred or claimed to have been incurred on or prior to the
Distribution Date by any party in or in connection with the conduct of the
Non-Mississippi Business or, to the extent any claim is made against Lakes or
any of its Subsidiaries, the Mississippi Businesses, and which injuries,
losses, liabilities, damages and expenses may arise out of insured or
insurable occurrences or events under one or more of the Shared Policies.
Section 8.02. POLICIES AND RIGHTS INCLUDED WITHIN THE MISSISSIPPI GROUP
ASSETS. Without limiting the generality of the definition of the Mississippi
Group Assets or the effect of Section 2.01, the Mississippi Group Assets
shall include any and all rights of an insured party under each of the Shared
Policies, specifically including rights of indemnity and the right to be
defended by or at the expense of the insurer, where applicable, with respect
to all injuries, losses, liabilities, damages and expenses incurred or
claimed to have been incurred on or prior to the Distribution Date by any
party in or in connection with the conduct of the Mississippi Business or, to
the extent any claim is made against Company or any of the Mississippi
Subsidiaries, the Non-Mississippi Business, and which injuries, losses,
liabilities, damages and expenses may arise out of insured or insurable
occurrences or events under one or more of the Shared Policies.
Section 8.03. ADMINISTRATION AND RESERVES.
(a) GENERAL. Notwithstanding the provisions of Article III, but
subject to any contrary provisions of any Related Agreement, from and after the
Distribution Date:
(i) Company shall be responsible for the Insurance
Administration of the Shared Policies; provided, however, that the
administration of the Shared Policies by Company is in no way intended to limit,
inhibit, or preclude any right to insurance coverage for any Insured Claim of a
named insured under the Shared Policies including, but not limited to, Lakes or
any of its Subsidiaries or Affiliates;
(ii) Lakes shall be entitled to any reserves established by
Company or any of its Subsidiaries, or the benefit of reserves held by any
insurance carrier, with respect to the Non-Mississippi Group Liabilities; and
31
(iii) Company shall be entitled to any reserves established
by Company or any of its Subsidiaries, or the benefit of reserves held by any
insurance carrier, with respect to the Mississippi Group Liabilities.
(b) INSURANCE PREMIUMS.
(i) Lakes shall have the right but not the obligation to
pay the premiums, to the extent that Company does not pay premiums with
respect to Mississippi Group Liabilities (retrospectively-rated or
otherwise), with respect to Shared Policies as required under the terms and
conditions of the respective Policies, whereupon Company shall forthwith
reimburse Lakes for that portion of such premiums paid by Lakes as are
attributable to the Mississippi Group Liabilities.
(ii) Company shall have the right but not the obligation to
pay the premiums, to the extent that Lakes does not pay premiums with respect
to Non-Mississippi Group Liabilities (retrospectively-rated or otherwise),
with respect to Shared Policies as required under the terms and conditions of
the respective Policies, whereupon Lakes shall forthwith reimburse Company
for that portion of such premiums paid by Company as are attributable to the
Non-Mississippi Group Liabilities.
(c) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received with
respect to claims, costs and expenses under the Policies shall be paid to
Lakes with respect to the Non-Mississippi Group Liabilities and to Company
with respect to the Mississippi Group Liabilities. Payment of the allocable
portions of indemnity costs of Insurance Proceeds resulting from the
liability policies will be made to the appropriate party upon receipt from
the insurance carrier. In the event that the aggregate limits on any Policies
are exceeded, the parties agree to provide an equitable allocation of
Insurance Proceeds received after the Distribution Date based upon their
respective bona fide claims taking into account their relative contributions
towards premiums and the Insurance Proceeds used by each party to satisfy
Insured Claims. The parties agree to use their reasonable best efforts to
cooperate with respect to insurance matters.
(d) INSURANCE CHARGES.
(i) Notwithstanding anything to the contrary contained
herein, Lakes or an appropriate Non-Mississippi Subsidiary assumes
responsibility for and shall pay to the appropriate insurance carriers or
otherwise any premiums, retrospectively rated premiums, defense costs,
indemnity payments, deductibles, retentions or other charges as appropriate
(collectively "INSURANCE CHARGES"), whenever arising, which become due and
payable upon the terms and conditions of any applicable Policy in respect of
any Insured Claims against Lakes or a Non-Mississippi Subsidiary for charges
which relate to the period before the Distribution Date. In the event that
Lakes or a Non-Mississippi Subsidiary fails to pay any insurance charges when
due and payable, whether at the request of the party entitled to payment or
upon demand by Company or a Mississippi Subsidiary, Company or a Mississippi
Subsidiary may (but shall not
32
be required to) pay such Insurance Charges for and on behalf of Lakes or a
Non-Mississippi Subsidiary and thereafter Lakes shall forthwith reimburse
Company or such Mississippi Subsidiary for such payment.
(ii) Notwithstanding anything to the contrary contained
herein, Company or an appropriate Mississippi Subsidiary assumes
responsibility for and shall pay to the appropriate insurance carriers or
otherwise any Insurance Charges, whenever arising, which become due and
payable upon the terms and conditions of any applicable Policy in respect of
any Insured Claims against Company or a Mississippi Subsidiary for charges
which relate to the period before the Distribution Date. In the event that
Company or a Mississippi Subsidiary fails to pay any Insurance Charges when
due and payable, whether at the request of the party entitled to payment or
upon demand by Lakes or a Non-Mississippi Subsidiary, Lakes or a
Non-Mississippi Subsidiary may (but shall not be required to) pay such
Insurance Charges for and on behalf of Company or a Mississippi Subsidiary
and thereafter Company shall forthwith reimburse Lakes or such
Non-Mississippi Subsidiary for such payment.
Section 8.04. AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE. In
the event that Insured Claims of both Lakes and Company exist relating to the
same occurrence, Lakes and Company agree to jointly defend and to waive any
conflict of interest necessary to the conduct of that joint defense. Nothing
in this paragraph shall be construed to limit or otherwise alter in any way
the indemnity obligations of the parties to this Agreement, including those
created by this Agreement, by operation of law or otherwise.
ARTICLE IX.
MISCELLANEOUS
Section 9.01. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and all documents and instruments referred to herein constitute the
entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and are not intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
Section 9.02. TAX ALLOCATION AND INDEMNITY AGREEMENT; AFTER-TAX PAYMENTS.
(a) Other than as provided in this Section 9.02 and Section 6.05,
this Agreement shall not govern any Tax matter, and any and all claims, losses,
damages, demands, costs, expenses, liabilities, refunds, deductions, write-offs,
or benefits relating to Taxes shall be exclusively governed by the Tax
Allocation and Indemnity Agreement.
(b) If, at the time Lakes is required to make any payment to Company
under this Agreement, Company owes Lakes any amount under the Tax Allocation and
Indemnity Agreement, then such amounts shall be offset and the excess shall be
paid by the party liable for
33
such excess. Similarly, if, at the time Company is required to make any
payment to Lakes under this Agreement, Lakes owes Company any amount under
the Tax Allocation and Indemnity Agreement, then such amounts shall be offset
and the excess shall be paid by the party liable for such excess.
Section 9.03. EXPENSES. Except as specifically provided in this
Agreement or in a Related Agreement, all fees and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the party incurring such expenses. In
addition, it is understood and agreed that Lakes shall pay the legal, filing,
accounting, printing and other accountable and out-of-pocket expenditures in
connection with the preparation, printing and filing of the Form 10.
Section 9.04. 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 laws.
Section 9.05. 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):
if to Company, to
Gaming Co., Inc.
3930 Howard Hughes Parkway, 4th Floor
Las Vegas, Nevada 89109
Attn: General Counsel
Facsimile: (702) 699-5179
if to Lakes, to
Lakes
130 Cheshire Lane
Minnetonka, MN 55305
Attn: Chief Executive Officer
Facsimile: (612) 449-7003
Section 9.06. AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 9.07. ASSIGNMENTS. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other party. 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.
34
Section 9.08. TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of Company Board without the approval of Lakes's or of Company's
stockholders. In the event of such termination, no party shall have any
liability to any other party pursuant to this Agreement.
Section 9.09. SUBSIDIARIES. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party
which is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
Section 9.10. 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 waives any
objection to the imposition of such relief.
Section 9.11. HEADINGS; REFERENCES. The article, section and paragraph
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. All
references herein to "Article", "Sections" or "Exhibits" shall be deemed to be
references to Articles or Sections hereof or Exhibits hereto unless otherwise
indicated.
Section 9.12. COUNTERPARTS. This Agreement 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 9.13. SEVERABILITY; ENFORCEMENT. The invalidity of any portion
hereof shall not affect the validity, force or effect of the remaining portions
hereof. If it is ever held that any restriction hereunder is too broad to
permit enforcement of such restriction to its fullest extent, each party agrees
that a court of competent jurisdiction may enforce such restriction to the
maximum extent permitted by law, and each party hereby consents and agrees that
such scope may be judicially modified accordingly in any proceeding brought to
enforce such restriction.
Section 9.14. ARBITRATION OF DISPUTES.
(a) Any dispute, controversy or disagreement ("DISPUTE") between the
Parties related to the obligations of the parties under this Agreement in
respect of which an amicable resolution cannot be reached shall be submitted for
mediation to a committee made up of an equal number of non-common members of
each company's Board of Directors ("COMMITTEE"). If the parties are unable to
reach an amicable resolution of a Dispute within thirty days after submission to
the Committee, then, to the maximum extent allowed by law, the Dispute shall be
35
submitted and resolved by final and binding arbitration in Minnesota or
Mississippi or as the parties may agree upon; provided, however, that any
party may seek injunctive relief and enforcement of any award rendered
pursuant to the arbitration provisions of this Section 9.14 by bringing a
suit in any court of competent jurisdiction. Any award issued as a result of
such arbitration shall be final and binding between the parties thereto and
shall be enforceable by any court having jurisdiction over the party against
whom enforcement was sought and application may be made to such court for
judicial acceptance of the award and order of enforcement. The fees and
expenses of arbitration (including reasonable attorneys' fees) shall be paid
by the party that does not prevail in such arbitration.
(b) ATTORNEYS' FEES. If any party to this Agreement brings an action
to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
(c) SPECIFIC PERFORMANCE. Nothing contained in this Section 9.14
shall limit or restrict in any way the right or power of a party at any time to
seek injunctive relief in any court and to litigate the issues relevant to such
request for injunctive relief before such court (i) to restrain the other party
from breaching this Agreement or (ii) for specific enforcement of this Section
9.14. The parties agree that any legal remedy available to a party with respect
to a breach of this Section 9.14 will not be adequate and that, in addition to
all other legal remedies, each party is entitled to an order specifically
enforcing this Section 9.14.
(d) CONSENT TO JURISDICTION. The Parties hereby consent to the
jurisdiction of the federal and state courts located in the State of Minnesota
for all purposes under this Agreement.
(e) CONFIDENTIALITY. Neither party nor the arbitrators may disclose
the existence or results of any arbitration under this Agreement or any evidence
presented during the course of the arbitration without the prior written consent
of both parties, except as required to fulfill applicable disclosure and
reporting obligations, or as otherwise required by law.
36
Section 9.15. PROMPT PAYMENT. Where the terms of this Agreement
require payment of an amount "as promptly as possible," "as soon as
practicable," or "as soon as possible," following a specified event,
occurrences or date, such payment shall be made no later than five (5)
business days after such event, occurrence or date.
[SIGNATURE PAGE TO FOLLOW]
37
IN WITNESS WHEREOF, Company and Lakes have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
GRAND CASINOS, INC.
-----------------------------------
By:
Its:
GCI LAKES, INC.
-----------------------------------
By:
Its:
38
EXHIBIT L
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "AGREEMENT") is made and entered
into as of [_________], 1998, by and between [Lyle Berman] [Thomas J. Brosig]
[Stanley M. Taube] (the "EXECUTIVE") and Gaming Co., Inc., a Delaware
corporation ("GAMING CO.").
RECITALS
WHEREAS, concurrently with the execution of this Agreement, Gaming
Co., Hilton Hotels Corporation, a Delaware corporation ("HILTON"), Grand
Casinos, Inc., a Minnesota corporation ("COMPANY"), Gaming Acquisition
Corporation, a Minnesota corporation and a wholly-owned subsidiary of Gaming Co.
("MERGER SUB") and GCI Lakes, Inc., a Minnesota corporation and a wholly-owned
subsidiary of Company ("LAKES") have entered into an Agreement and Plan of
Merger, dated as of June 30, 1998 (as the same may be amended or modified from
time to time in accordance with the terms thereof, the "MERGER AGREEMENT"),
pursuant to which, upon the terms and subject to the conditions thereof, Merger
Sub will merge with and into Company, with Company as the surviving corporation
(the "MERGER");
WHEREAS, the parties hereto recognize that the Executive may have
certain expertise in the business conducted by Gaming Co., the skills to compete
in the gaming industry, and the economic resources to compete in such industry.
Therefore, the parties hereto agree a non-competition agreement is necessary,
prudent, and has been bargained for in respect to the Merger.
WHEREAS, as a condition and inducement to each of Hilton's and Gaming
Co.'s willingness to enter into the Merger Agreement, Hilton and Gaming Co. have
requested that the Executive enter into a non-compete agreement, upon the terms
and subject to the conditions hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants,
undertakings and obligations set forth herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
Section 1. COVENANT. Except for matters expressly provided for in or
contemplated by this Agreement, the Executive hereby agrees that he will not,
without the prior written consent of Gaming Co., directly or indirectly engage
in any of the following actions on or before the date that is two years after
the Closing Date (as defined in the Merger Agreement):
(a) own any interest in, manage, operate, join, control, lend
money or render other financial assistance to, participate or
be connected with, as an officer, employee, partner,
stockholder, consultant or otherwise, any entity whose
products or services are offered in the State of Mississippi
and
could be considered part of the gaming industry; PROVIDED,
HOWEVER, that nothing in this Section 1 shall preclude the
Executive from holding less than five percent (5%) of the
outstanding capital stock of any corporation whose products or
services are offered in such states and could be considered
part of such industry and which is required to file periodic
reports with the U.S. Securities and Exchange Commission under
Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the securities of which corporation are listed on any
securities exchange, quoted on the National Association of
Securities Dealers Automated Quotation System or traded in the
over-the-counter market; or
(b) solicit for employment, endeavor to entice away from Gaming
Co. or any of its subsidiaries or affiliates or otherwise
interfere with the relationship of Gaming Co. or any of its
subsidiaries or affiliates with any person who is employed by,
or otherwise engaged to, perform services for Gaming Co. or
any of its subsidiaries or affiliates, whether for the
Executive's own account or for the account of any other
individual, partnership, firm, corporation or other business
entity.
Section 2. ENFORCEMENT. If the scope of the Executive's agreement under
Section 1 hereof is determined by any court of competent jurisdiction to be too
broad to permit the enforcement of all of the provisions of such section to
their fullest extent, then the provisions of Section 1 hereof shall be construed
(and each of the parties hereto hereby confirm that its intent is that such
provisions be so construed) to be enforceable to the fullest extent permitted by
applicable law. To the maximum extent permitted by applicable law, the
Executive hereby consents to the judicial modification of the provisions of
Section 1 hereof in any proceeding brought to enforce such provisions in such a
manner that renders such provisions enforceable to the maximum extent permitted
by applicable law.
Section 3. RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the parties hereto or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties hereto, it being understood and agreed that no provision contained
herein, and no act of the parties hereto, shall be deemed to create any
relationship between such parties other than the relationship set forth herein.
Section 4. 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 party hereto and any purported transfer without such
consent shall be void.
Section 5. HEADINGS. The section and paragraph headings and table of
contents contained herein are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement.
-2-
Section 6. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the validity of the
other provisions hereof, which shall continue in full force and effect.
Section 7. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARY RIGHTS.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Except as
specifically provided herein, this Agreement is for the sole and exclusive
benefit of the parties hereto and nothing herein is intended to give or shall
be construed to give to any person or entity other than the parties hereto
any rights or remedies hereunder.
Section 8. NOTICES. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party (or
other person referred to herein) shall be in writing and shall be deemed to be
given and effective (a) upon delivery if delivered in person or by courier,
(b) when sent by electronic transmission (telegraph, telex, telecopy or
facsimile transmission), receipt confirmed, (c) five days after being sent by
airmail, postage prepaid or (d) when receipt is acknowledged if mailed by
certified mail, postage prepaid, return receipt requested. The notice shall be
delivered to the addresses of each party hereto as follows, or to such other
persons or addresses as may be designated in writing by the party to receive
such notice:
(i) if to Gaming Co.:
Gaming Co., Inc.
3930 Howard Hughes Parkway, 4th Floor
Las Vegas, Nevada 89109
Attn: General Counsel
Fax: (702) 699-5179
with a copy to:
----------------------------------
----------------------------------
----------------------------------
Attn:
-----------------------------
Fax:
------------------------------
(ii) if to the Executive:
----------------------------------
----------------------------------
----------------------------------
Attn:
-----------------------------
Fax:
------------------------------
-3-
with a copy to:
----------------------------------
----------------------------------
----------------------------------
Attn:
-----------------------------
Fax:
------------------------------
Section 9. FURTHER ASSURANCES. Each of the parties hereto promptly shall
execute such documents and other instruments and take such further actions as
may be reasonably required or desirable to carry out the provisions hereof and
to consummate the transactions contemplated hereby.
Section 10. WAIVER OF CONDITIONS. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
Section 11. GOVERNING LAW. This Agreement shall be deemed to be made in
and in all respects shall be interpreted, construed and governed by and in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of laws thereof.
Section 12. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties hereto, and supersede all prior written or
oral communications, relating to the subject matter covered by said agreements.
No amendment, modification, extension or failure to enforce any condition of
this Agreement by either party shall be deemed a waiver of any of its rights
herein.
Section 13. SURVIVAL. Obligations described in this Agreement shall
remain in full force and effect and shall survive the Closing Date.
Section 14. DISPUTE RESOLUTION. Any dispute arising under this Agreement
shall be resolved by binding arbitration in the manner contemplated by Section
9.14 of the Hilton Distribution Agreement (as defined in the Merger Agreement),
including Section 9.14(c) thereof regarding the parties' ability to seek
specific performance or injunctive relief thereof, and including the attorneys'
fees provisions referred to therein.
Section 15. 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 waives any
objection to the imposition of such relief.
-4-
Section 16. DEFAULT. In the event of a material default by either party
hereunder, the non-defaulting party shall be entitled to all remedies provided
by law or equity (including reasonable attorneys' fees and costs of suit
incurred).
Section 17. 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 party, it being
understood that all parties need not sign the same counterpart.
[Signature Page to Follow]
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
[Lyle Berman] [Thomas J. Brosig]
[Stanley M. Taube], an Individual
By:
------------------------------------
Name:
Gaming Co. Inc.,
a Delaware corporation
By:
------------------------------------
Name:
Title:
S-1
EXHIBIT M
TRUST AGREEMENT
This TRUST AGREEMENT (this "AGREEMENT"), dated as of _____________,
1998, is entered into by and among GCI LAKES, INC., a Minnesota corporation
("LAKES"), GRAND CASINOS, INC., a Minnesota corporation ("COMPANY"), and
_____________________________________, a New York banking corporation with
offices at _____________________________________, as Trustee (the "TRUSTEE").
RECITALS
A. Lakes and Company have entered into a Distribution Agreement, dated
as of ____________, 1998 and certain ancillary agreements thereto
(collectively, the "DISTRIBUTION AGREEMENT"), which provide for, among other
things, (i) the transfer by Company to Lakes of all of the operations, assets
and liabilities of Company and its subsidiaries comprising the
Non-Mississippi Business (as defined therein) and (ii) the distribution (the
"DISTRIBUTION") to the holders of Company's common stock of all of the
outstanding shares of Lakes' common stock.
B. Lakes, Company, Hilton Hotels Corporation, Gaming Co., Inc. and
Gaming Acquisition Corporation ("MERGER SUB") have entered into an Agreement
and Plan of Merger, dated as of June 30, 1998 (the "MERGER AGREEMENT" and,
together with the Distribution Agreement, the "AGREEMENTS"), which provides
for, among other things, the merger of Merger Sub with and into Company (the
"MERGER") with Company as the surviving corporation.
C. The Agreements provide that Lakes shall indemnify, save and hold
harmless Company and certain of its related parties, with respect to certain
matters upon the terms and subject to the conditions provided in the
respective Agreements and that as a source of payment therefor (and not in
lieu thereof) a trust estate shall be established for the protection of
Company, its affiliates and subsidiaries.
D. A material condition to the consummation of the transactions
contemplated by both of the Agreements is that the parties hereto enter into
this Agreement and that Lakes, Company and the Trustee enter into a Pledge
and Security Agreement of even date (the "PLEDGE AND SECURITY AGREEMENT").
E. The Trustee has agreed to hold the Trust Estate (as defined herein)
in accordance with the terms and provisions contained herein, which Trust
Estate shall be held for the benefit of Company with a reversionary interest
in Lakes.
AGREEMENT
In consideration of the foregoing and the mutual promises contained
herein and for other good and valuable consideration the receipt and adequacy
of which are hereby acknowledged, the parties, intending to be legally bound,
hereby agree as follows:
1. DEFINED TERMS.
For purposes of this Agreement:
"ACTION" means any action, claim, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency or commission or any arbitration tribunal.
"CASH" means United States Dollars in such form as may, at the
time, be legal tender for the payment of debts in the United States.
"CASH EQUIVALENTS" means Short-Term Treasuries or Joint Approval
Cash Equivalents.
"CLAIM" has the meaning set forth in Section 5(a).
"COUNTER NOTICE" has the meaning set forth in Section 5(a).
"EVENT OF DEFAULT" has the meaning assigned in the Pledge and
Security Agreement.
"JOINT APPROVAL CASH EQUIVALENTS" means United States Dollar
indebtedness in any of the following forms, if and to the extent the Trustee
has been directed to invest in such indebtedness in a joint written
investment direction signed both by the Representative and by the
Indemnitee's Agent: (i) the outstanding short-term debt Securities of any
corporation so long as such debt securities are rated at least "A" by
Standard & Poor's Corporation and are not "restricted securities" within the
meaning of Rule 144(a)(3) under the Securities Act of 1933, as amended, (ii)
marketable direct obligations guaranteed by the United States Government and
backed by the full faith and credit of the United States, issued after July
18, 1984 and maturing within 90 days from the date of acquisition thereof,
(iii) marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any public
instrumentality thereof maturing within 90 days from the date of acquisition
thereof and, at the time of acquisition, having a rating in one of the two
highest rating categories obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc. (or, if at any time, neither
of such rating services shall be rating such obligations, then from such
other nationally recognized rating services as may be acceptable to Company),
(iv) certificates of deposit maturing within 90 days from the date of
acquisition thereof and issued by any commercial bank which accepts deposits
insured by the Federal Deposit Insurance Corporation and which has a combined
capital and surplus greater than $500 million and a long term certificate of
deposit rating in one of the two highest rating categories obtainable from
either Standard & Poor's Corporation or Moody's Investors Service, Inc. (or,
if at any time, neither of such rating services shall be rating such
obligations, then from such other nationally recognized rating services as
may be acceptable to Company) (any such commercial bank, an "ACCEPTABLE
BANK"); (v) repurchase agreements, Eurodollar deposits and bankers
acceptances maturing within 90 days from the date of acquisition thereof and
issued by an Acceptable Bank; (vi) investments in money market funds that
invest solely in (a) Short-Term Treasuries or repurchase agreements
2
secured by Short-Term Treasuries or (b) Joint Approval Cash Equivalents of
the type described in clauses (i) and (ii) above or repurchase agreements
secured by such Joint Approval Cash Equivalents; or (vii) any other
instrument that is specifically approved in writing by Lakes and Company, if
the Trustee receives opinions of counsel reasonably satisfactory to it
stating that such writing has been duly authorized, executed and delivered by
each of them and is binding upon and enforceable against each of them.
Notwithstanding the foregoing provisions of this definition, any investment
or security which otherwise would be a Joint Approval Cash Equivalent but for
the fact such investment or security has a maturity date more than 90 days
after the acquisition thereof, shall be deemed a Joint Approval Cash
Equivalent if it is otherwise convertible, at the option and discretion of
Trustee, into cash within 90 days of the date that the Trustee provides a
conversion notice to the issuer of the security.
"LIABILITIES" means any and all debts, liabilities and
obligations, absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, and including, without
limitation, those debts, liabilities and obligations arising under any law,
rule, regulation, Action, threatened Action, order or consent decree of any
governmental entity or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
"NOTICE" has the meaning set forth in Section 5(a).
"POLO PLAZA PROJECT LIABILITIES" means any and all Liabilities
relating to or arising from the Nevada Resort Properties Polo Plaza Limited
Partnership or the purchase and/or development of the properties commonly
known as the Polo Plaza Property, the Shark Club Property, the Travelodge
Property and the Cable Center Property, including, but not limited to any and
all Liabilities under the Polo Plaza Partnership Purchase Agreement, dated as
of October 3, 1996, by and among Grand Casinos Nevada I, Inc. ("NEVADA SUB")
and Cloobeck Enterprises, Normie Gagerman, Stephen J. Cloobeck, Polo Limited
Group, Polo Limited Group II, Samuel S. Lionel, and Bette Sawyer; Consulting
Agreement by and between Nevada Sub and Stephen J. Cloobeck, dated as of July
12, 1996; Consulting Agreement by and among Nevada Sub and Nevada Resort
Properties Polo Plaza Limited Partnership (the "POLO PARTNERSHIP") and
Cloobeck Enterprises, dated as of July 12, 1996; Polo Plaza FINOVA
(Construction) Loan Agreement, dated as of April 16, 1993, by and between
Greyhound Financial Corporation, as Lender and the Polo Partnership, as
Borrower; Leasehold Termination Agreement, dated as of June 23, 1997, by and
among Cloobeck Enterprises, the Polo Partnership and Nevada Sub; Ground
Lease, dated as of July 31, 1996, by and between MacGregor Income Properties
West I, Inc. and Cloobeck Enterprises; Option Agreement, dated as of October
3, 1996, by and among the Polo Partnership, Cloobeck Enterprises and Nevada
Sub; Option Agreement, dated as of October 3, 1996, by and among Polo
Partnership, Cloobeck Enterprises and Nevada Sub; Brooks Family Trust Lease,
dated as of June 17, 1996, by and among Nevada Sub and Cloobeck Enterprises,
as Tenants, and the Brooks Family Trust and Nevada Brooks Cook, as Landlords;
Assignment of Lease, dated as of September __, 1996, whereby Cloobeck
Enterprises assigned its rights and obligations under the Brooks Lease to
Nevada Sub; Guaranty, dated as of June 17, 1996, by Company in favor of
Brooks Landlords; Lease Termination Agreement, dated as of October 29, 1997,
by and between Nevada Sub (as successor Lessor) and Chartwell Vegas Corp. (as
successor Lessee); Lease
3
Agreement, dated as of May 1, 1992, by and between Brooks Family Trust, as
Lessor and Moving Forward, Inc., as Lessee, as amended; Hotel Management
Agreement, dated as of February 1, 1998, by and between Nevada Sub and
Chartwell Lodging, Inc., as Manager; and the Option Agreement, dated as of
November 1, 1997, by and among Martin J. Cable and Olga B. Cable, as Trustees
of the Cable Family Trust and Nevada Sub.
"SHORT-TERM TREASURIES" means United States Dollar indebtedness
consisting of marketable direct obligations issued by the United States
Government or any agency thereof and backed by the full faith and credit of
the United States, in the form of Book-entry Securities maintained by the
Trustee or any nominee acting for it, solely in its name, in an account at
the Federal Reserve Bank of New York under the Treasury/Reserve Automated
Debt Entry System, issued after July 18, 1984 and maturing within 90 days
from the date of acquisition thereof.
"STRATOSPHERE LIABILITIES" has the meaning set forth for such term
in the Distribution Agreement.
"TAX LIABILITIES" all Liabilities of Lakes arising out of its
indemnification obligations under that certain Tax Allocation and Indemnity
Agreement, dated ________, 1998, between Company and Lakes, to the extent
such indemnification obligations are not satisfied pursuant thereto.
"TERMINATION DATE" has the meaning set forth in Section 6.
2. DECLARATION OF TRUST. As a non-exclusive source of payment
with respect to the observance and performance by Lakes of each and all of
its present and future indemnities, liabilities and obligations at any time
arising under, pursuant to or in respect of any of the Agreements
(collectively, the "INDEMNIFICATION OBLIGATIONS"), and the covenants and
conditions of this Agreement and the Pledge and Security Agreement
(collectively, including the Indemnification Obligations, the "SECURED
OBLIGATIONS"), Company grants and transfers to the Trustee to hold, and the
Trustee is hereby authorized and directed by Lakes to accept, and the Trustee
hereby accepts, in trust under this Agreement, for the benefit of Company,
its affiliates, subsidiaries and all other present and future holders of any
of the Secured Obligations and each and all of their members, successors and
assigns, all right, title and interest in the following property:
an agreement to pay, substantially in the form of Exhibit A,
executed by Lakes in favor of the Trust Estate pursuant to which Lakes is
obligated to pay to the Trust Estate: (a) $7.5 million in cash on the first
anniversary of the date thereof, (b) an additional $7.5 million in cash on
the second anniversary of the date thereof, (c) an additional $7.5 million
in cash on the third anniversary of the date thereof and (d) an additional
$7.5 million in cash on the fourth anniversary of the date thereof.
(collectively, the "INITIAL TRUST ESTATE," and together with (i) all rights
and interests of the Trustee under the Pledge and Security Agreement, (ii)
any and all other property at any time hereafter transferred to the Trustee
in trust under this Agreement, and (iii) any and all present and future
income, distributions, substitutions, replacements and proceeds of or from
the Initial Trust Estate
4
and any other such property, the "TRUST ESTATE"). The Trustee, its
successors in trust under this Agreement and its assigns and the assigns of
its successors and assigns in trust shall have and hold the foregoing Trust
Estate until released to Company or Lakes in accordance with the terms
hereof, in trust under and subject to the terms and conditions set forth
herein for the benefit of Company and as a source of funds for and for the
enforcement of the payment, observance and performance of all Secured
Obligations. Company and Lakes hereby consent to the foregoing declaration
of trust and agree that the Trust Estate is to be held and applied by the
Trustee subject to the further covenants, conditions and trust set forth
herein.
3. APPOINTMENT OF REPRESENTATIVE AND INDEMNITEE'S AGENT.
(a) Lakes hereby designates its:
Chairman of the Board,
President and Chief Executive Officer
and Chief Financial Officer
each of whom is authorized to act alone, as their duly appointed agents and
attorneys-in-fact, with full power of substitution, in any and all
capacities, for all purposes of this Agreement (each, the "REPRESENTATIVE").
Actions and inactions by such Representatives under this Agreement shall be
binding and conclusive on Lakes and may be conclusively relied upon by the
other parties hereto. Lakes, upon 10 days' written notice to the other
parties, may remove any person appointed as Representative or appoint another
person as Representative. No Representative shall be liable for any action
taken or omitted by it, or any action suffered by it to be taken or omitted,
in good faith, and in the exercise of its own best judgment.
(b) Company hereby appoints its:
Executive Vice President and Chief Financial Officer,
Senior Vice President and Treasurer,
Senior Vice President and Controller,
and General Counsel
each of whom is authorized to act alone, as their duly appointed agents and
attorneys-in-fact, with full power of substitution, in any and all
capacities, for all purposes of this Agreement (each, the "INDEMNITEE'S
AGENT"). Actions and inactions by the Indemnitee's Agent under this
Agreement shall be binding and conclusive on Company and may be conclusively
relied upon by the other parties hereto. Company, upon 10 days' written
notice to the other parties, may remove any person appointed as Indemnitee's
Agent or appoint another person as Indemnitee's Agent. No Indemnitee's Agent
shall be liable for any action taken or omitted by it, or any action suffered
by it to be taken or omitted, in good faith, and in the exercise of its own
best judgment.
5
4. INVESTMENT AND VALUATION OF TRUST ESTATE.
(a) The Trustee hereby acknowledges receipt of the Initial Trust
Estate.
(i) The Trustee shall keep all cash at any time held
by it as part of the Trust Estate, from whatever source such cash may
be derived, in an interest-bearing account in United States Dollars
maintained by the Trustee solely in the name of the Trustee, as
Trustee hereunder, except that:
(1) Such cash shall be invested and reinvested by the
Trustee in Short-Term Treasuries, (i) if the Trustee is so
directed in writing by the Indemnitee's Agent and if the
Indemnitee's Agent states in such writing that an Event of
Default has occurred and is continuing, and (ii) after the
Trustee receives written directions from the Representative,
stating that any and all cash held by the Trustee as part of the
Trust Estate shall be kept invested in Short-Term Treasuries, and
(2) Notwithstanding the foregoing, such cash shall be
invested by the Trustee in Joint Approval Cash Equivalents if and
to the extent so directed by the Representative and the
Indemnitee's Agent, acting jointly; and
(ii) Such cash and Cash Equivalents shall be invested
and reinvested solely in the name of the Trustee or its nominee.
(b) The Trustee shall be entitled to sell or redeem any such
investment as necessary to make any distributions required under this
Agreement and shall not be liable or responsible for any loss resulting from
any such sale or redemption or from any investment or failure to invest made
in accordance with this Agreement.
(c) Income, if any, resulting from the investment of the
Trust Estate shall be for the account of Lakes, but shall be held as part of
the Trust Estate, subject to the provisions of this Agreement.
5. PAYMENT OF CLAIMS.
(a) From time to time on or before the termination of this
Agreement, the Indemnitee's Agent may deliver a notice (a "NOTICE") to the
Representative and the Trustee specifying in reasonable detail the nature and
dollar amount of any claim (a "CLAIM") that Company has under the Merger
Agreement and/or the Distribution Agreement; Company may make more than one
Claim with respect to any underlying state of facts. If Representative gives
notice to the Indemnitee's Agent and the Trustee disputing any Claim (a
"COUNTER NOTICE") within 15 days following its receipt of the Notice, such
Claim shall be resolved as provided in Section 5(b). Lakes must have a
reasonable basis in giving any such Counter Notice and shall set forth in
reasonable detail the basis of its objection to the Claim in the Counter
Notice. If no
6
Counter Notice is received by the Trustee within such 15-day period, then (i)
the dollar amount of the Claim, as set forth in the Notice, shall be deemed
established for purposes of this Agreement and the agreement(s) under which
the Claim arose and (ii) at the end of such 15-day period, the Trustee shall
pay to Company the dollar amount claimed in the Notice from the Trust Estate;
PROVIDED, HOWEVER, to the extent that the Trust Estate does not contain
sufficient funds to pay the Claim (after the liquidation of the assets
comprising the Trust Estate), such Claim shall be paid by Trustee to the
extent of such funds and the remaining portion of the Claim shall be paid by
Trustee, with no further notice to or consent required by the Representative,
as soon as further deposits are made by Lakes into the Trust Estate.
(b) If a Counter Notice is received with respect to a Claim,
the parties (other than the Trustee) shall promptly meet and confer and
attempt in good faith to resolve the objection. If they succeed, the parties
(other than the Trustee) shall promptly and jointly notify the Trustee in
writing and the Trustee shall act in accordance with such joint written
notice. If the parties shall not succeed within 5 business days of Company's
receipt of the Counter Notice, they shall, within an additional 10 business
days, commence and thereafter promptly complete an arbitration proceeding in
accordance with the provisions of Section 21 hereof. Thereafter, unless the
parties shall otherwise jointly instruct the Trustee in writing, the Trustee
shall make payment with respect to the Claim, if any, in accordance with the
arbitrator's award when received.
(c) The Trustee (i) shall not be obligated to give any notice
under any of the foregoing provisions in this Section 5 and (ii) shall not be
entitled to object to any Notice given under any such provisions.
6. TERMINATION OF AGREEMENT.
(a) This Agreement shall terminate on the date after (i)
Company determines that all known material Indemnification Obligations with
respect to the Polo Plaza Project Liabilities, the Stratosphere Liabilities
and the Tax Liabilities have been completely settled (and with respect to any
settlement subject to court approval, such settlement shall have become final
and non-appealable) and satisfied, (ii) Company determines that no additional
material Indemnification Obligations are reasonably likely to arise out of,
or be asserted with respect to, the Polo Plaza Project Liabilities or the
Stratosphere Liabilities and (iii) Company and Lakes determine that no
material Indemnification Obligations are likely to arise out of, or be
asserted with respect to, any material Tax Liabilities (such date of
termination, the "TERMINATION DATE"). As promptly as practical after the
Termination Date, the Trustee shall release any remaining property (after the
payment of (A) any and all taxes owing with respect to the Trust Estate, if
any, and (B) all of the Trustee's fees, expenses and costs) in the Trust
Estate to Lakes.
(b) Upon the final distribution of all of the Trust Estate in
accordance with the terms of this Agreement, this Agreement shall terminate,
except that the provisions of Sections 10, 11, 14, 21 and 22 hereof shall
survive such termination.
(c) Notwithstanding the foregoing, the Trustee shall not be
obligated to release or deliver any assets of the Trust Estate pursuant to
this Section 6 except if and to the extent (i) the Trustee receives joint
written instructions from the Representative and the
7
Indemnitee's Agent, directing such release or delivery, (ii) the Trustee (x)
receives notice from the Representative directing that such release or
delivery to be made on any date occurring after the Termination Date, (y) has
given the Indemnitee's Agent notice of the Trustee's receipt of such
direction from the Representative, and at least 30 days have elapsed since
such notice was given to the Indemnitee's Agent, and (z) has not received
notice of objection to such release or delivery from the Indemnitee's Agent,
or (iii) in accordance with an arbitrator's award, directing that such
release or delivery be made on any date occurring after the Termination Date,
delivered in an arbitration proceeding conducted in accordance with the
provisions of Section 21 hereof.
7. DIRECTIONS TO TRUSTEE. Both prior to and after the occurrence of
any Event of Default, the Trustee shall (subject to Sections 9 and 10 hereof)
cooperate with Company, as Secured Party under the Pledge and Security
Agreement, in its efforts to exercise and enforce its rights and remedies under
the Pledge and Security Agreement in accordance with such instructions as the
Trustee from time to time may receive from Company, so long as such instructions
do not, in the good faith opinion of the Trustee, require it to engage in any
action which would violate any applicable law, regulation, judgment, order or
decree or expose it to liability for which it has not received indemnification
from Company pursuant to Section 11 hereof.
8. TAX MATTERS. Each party to this Agreement shall provide a
completed IRS Form W-8 or Form W-9 to the Trustee upon request by the Trustee.
9. DUTIES OF THE TRUSTEE. The Trustee shall have no duties or
responsibilities other than those expressly set forth in this Agreement and the
Pledge and Security Agreement, and no implied duties or obligations shall be
read into this Agreement or the Pledge and Security Agreement against the
Trustee. The Trustee shall have no duty to enforce any obligation of any
person, other than as provided herein. The Trustee shall be under no liability
to anyone by reason of any breach or failure on the part of any party hereto or
any maker, endorser or other signatory of any document or any other person to
perform such person's obligations under any such document.
10. LIABILITY OF THE TRUSTEE; WITHDRAWAL.
(a) The Trustee shall not be liable for any action taken or
omitted by it, or any action suffered by it to be taken or omitted, in good
faith (except as provided in the immediately succeeding sentence), and may rely
conclusively and shall be protected in taking or omitting to take any action
based upon any order, notice, demand, certificate, opinion or advice of counsel
(including counsel chosen by the Trustee), statement, instrument, report or
other paper or document (not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth and acceptability of
any information therein contained) which is believed by the Trustee to be
genuine and to be signed or presented by the proper person(s). The Trustee
shall not be held liable for any error in judgment made in good faith by an
officer of the Trustee unless it shall be proved that the Trustee was grossly
negligent in ascertaining the pertinent facts or acted intentionally in bad
faith. The Trustee shall not be bound by any notice or demand, or any waiver,
modification, termination or rescission of this Agreement or any of the terms
hereof,
8
unless evidenced by a writing delivered to the Trustee signed by the proper
party or parties and, if the duties or rights of the Trustee are affected,
unless it shall give its prior written consent thereto.
(b) Without limitation of any other provision of this Agreement,
the Trustee shall not be responsible for and may conclusively rely upon and
shall be protected, indemnified and held harmless by Lakes or Company, as the
case may be, for the sufficiency or accuracy of the form of, or the execution,
validity, value or genuineness of any document or property received (from any
party), held or delivered by such party hereunder, or of the signature or
endorsement thereon, or for any description therein; nor shall the Trustee be
responsible or liable in any respect on account of the identity, authority or
rights of the persons executing or delivering or purporting to execute or
deliver an document, property or this Agreement.
(c) No provision of this Agreement or the Pledge and Security
Agreement shall require the Trustee to expend or risk its own funds or incur any
liability. The Trustee may refuse to perform any duty or exercise any right or
power hereunder or thereunder unless it receives indemnity reasonably
satisfactory to it against any loss, liability or expense.
(d) The Trustee makes no statement, promise, representation or
warranty whatsoever, and shall have no liability whatsoever, to Company or its
successors or assigns as to the authorization, execution, delivery, legality,
enforceability or sufficiency of this Agreement or the Pledge and Security
Agreement or as to the creation, perfection, priority or enforceability of any
security interest granted, or deemed to be granted, hereunder or thereunder or
as to the existence, ownership, quality, condition, value or sufficiency of any
of the Trust Estate or as to any other matter whatsoever, except only that the
Trustee represents and warrants to the other parties hereto that (i) it has the
right, power and authority, and all required licenses and consents, to execute,
deliver and perform its duties under this Agreement and the Pledge and Security
Agreement, and (ii) this Agreement and the Pledge and Security Agreement have
been duly executed and delivered by it, upon due authorization, and (without
representing as to the legality, binding effect or sufficiency of any provision
herein or therein) are binding upon and legally enforceable against it, subject
to laws generally affecting the enforcement of creditors' rights and the effect
of equitable principles, whether considered in a court of law or equity.
(e) In the event that the Trustee shall become involved in any
arbitration or litigation relating to the Trust Estate, the Trustee is
authorized to comply with any final, binding and nonappealable decision reached
through such arbitration or litigation.
(f) The Trustee may resign at any time and be discharged from
its duties and obligations hereunder and under the Pledge and Security
Agreement, by giving notice to the other parties. Such resignation shall not
discharge or otherwise effect the Trust Estate or any property comprising part
of the Trust Estate or any beneficial interest therein or the rights, powers and
liens created by or arising under this Agreement and the Pledge and Security
Agreement. Such resignation shall take effect when a successor Trustee has been
appointed by Company and has accepted the trusts herein provided. If a
successor Trustee does not take office
9
within 60 days after the retiring Trustee resigns, the retiring Trustee may
petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(g) A successor Trustee shall deliver a written acceptance of
its appointment to Lakes, the retiring Trustee and to Company. Thereupon, the
resignation of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Agreement and all of the rights, powers and liens granted to the Trustee under
the Pledge and Security Agreement. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee provided all sums
owing to the retiring Trustee have been paid.
(h) Notwithstanding the replacement of the Trustee pursuant to
this Section 10, the resigning Trustee shall continue to be entitled to the
rights, immunities and benefits provided under Sections 9, 10, 11 and 21 hereof.
11. TRUSTEE'S FEES AND INDEMNIFICATION. All fees (as may from time
to time be agreed in writing by the Trustee and Lakes) and reasonable expenses
and disbursements of the Trustee for its services hereunder and under the Pledge
and Security Agreement, shall be paid by Lakes. Company and Lakes, jointly and
severally, hereby agree to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without gross negligence or
willful misconduct on the part of the Trustee, including legal or other fees
arising out of or in connection with its entering into this Agreement and the
Pledge and Security Agreement and carrying out its duties hereunder or
thereunder, including the costs and expenses of defending itself against any
claim of liability in the premises or any action for interpleader. The Trustee
shall be under no obligation to institute or defend any action, suit, or legal
proceeding in connection with this Agreement or the Pledge and Security
Agreement, unless first indemnified and held harmless to its satisfaction in
accordance with the foregoing, except that the Trustee shall not be indemnified
against any loss, liability or expense arising out of its bad faith, gross
negligence or willful misconduct. Such indemnity shall survive the termination
or discharge of this Agreement or resignation of the Trustee.
12. INSPECTION. All funds or other property held as part of the
Trust Estate shall at all times be clearly identified on the Trustee's accounts
as being held by the Trustee hereunder. Any party hereto may at any time during
the Trustee's business hours (with reasonable notice) inspect any records or
reports relating to the Trust Estate.
13. NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given (i) when received if personally
delivered, (ii) when receipt is automatically acknowledged if transmitted by
telecopy, electronic or digital transmission method, (iii) the day after it is
sent, if sent for next day delivery to an address within the United States and
Puerto Rico by recognized overnight delivery service (E.G. Federal Express),
(iv) the third day after it is sent, if sent for next day delivery to any other
address by recognized international delivery service, and (v) and upon receipt,
if sent by certified or registered mail, return receipt requested. In each case
notice shall be sent to:
10
(a) If to Lakes or the Representative:
GCI Lakes, Inc.
130 Cheshire Lane
Minnetonka, Minnesota 55305
Attn: Chairman of the Board
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
Telecopy: (612) 672-8397
(b) If to Company or Indemnitee's Agent:
Grand Casinos, Inc.
3930 Howard Hughes Parkway, 4th Floor
Las Vegas, Nevada 89109
Attn: General Counsel
Telecopy: (702) 699-5179
with a copy to:
(c) If to the Trustee:
14. NON-EXCLUSIVE REMEDY. Company and Lakes agree and acknowledge
that the Trust Estate shall not be Company's exclusive method of receiving
indemnification from Lakes pursuant to the Agreements and Lakes shall be and
remain in all respects personally liable for all Indemnification Obligations
and each liability may be enforced by any lawful means.
15. MODIFICATION: WAIVER. Subject to applicable law, this Agreement
may be amended, modified or supplemented, with respect to any of the terms
contained herein, only by
11
written agreement of the parties and the rights, remedies, immunities and
benefits created hereby or arising hereunder in favor of any person may be
waived by it only by and instrument in writing signed by it. No such right,
remedy, immunity or benefit shall be deemed waived by reason of such person's
failure to act, oral statements or course of conduct, including any grant of
a waiver on a different or prior occasion.
16. INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the word "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". This Agreement shall not be construed for or against either party
by reason of the authorship or alleged authorship of any provision hereof or by
reason of the status of the respective parties.
17. ASSIGNMENT. This Agreement, and the rights, interests and
obligations hereunder, shall not be assigned by Lakes (whether by operation of
law or otherwise) without the prior written consent of Company. Subject to the
foregoing provisions of this Section 17, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
18. GOVERNING LAW. This Agreement shall be construed and
interpreted, and the rights of the parties shall be determined, in accordance
with the laws of the State of New York (without reference to the choice of law
provisions).
19. INTEREST IN TRUST ESTATE. Lakes has no interest in the Trust
Estate except only as to any property which has been released from the Trust
Estate and delivered to Lakes after the Termination Date as herein provided,
effective upon such release and delivery.
20. SEVERABILITY. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith or not to take an action consistent herewith or required hereby, the
validity, legality and enforceability of the remaining provisions and
obligations contained or set forth herein shall not in any way be affected or
impaired thereby. Upon any such holding that any provision of this Agreement is
null, void or unenforceable, the parties will negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
by this Agreement are consummated to the extent possible. Except as otherwise
contemplated by this Agreement, to the extent that a party hereto took an action
inconsistent herewith or failed to take action consistent herewith or required
hereby pursuant to an order or judgment of a court or other competent authority,
such party shall incur no liability unless such party did not in good faith seek
to resist or object to the imposition or entering of such order or judgment;
PROVIDED, HOWEVER, that nothing in this Section 20 shall be deemed to limit or
otherwise modify the Trustee's rights under Sections 10, 11 and 21 hereof.
12
21. ARBITRATION. The parties hereto agree that any dispute,
controversy or disagreement between the parties related to the obligations of
the parties under this Agreement in respect of which resolution cannot be
reached shall be submitted for mediation and final and binding arbitration in
accordance with Section 9.14 of the Distribution Agreement, including Section
9.14(c) thereof regarding the parties' ability to seek specific performance or
injunctive relief thereof.
Notwithstanding anything in the preceding paragraph of this Section 21
to the contrary, the parties shall have the right to submit to a court, in
accordance with the following provisions of this Section 21, (i) any claim
asserted by the Trustee, in its personal capacity, for the payment of fees,
expenses, disbursements or indemnification due to the Trustee under Section 14
hereof (or due under any indemnity given to the Trustee pursuant to Section 14
hereof), (ii) any claim asserted against the Trustee personally, seeking damages
or other relief against the Trustee (and not for purposes of binding the Trust
Estate) based on or relating to any alleged breach of any duty or other
actionable conduct of the Trustee, and (iii) any claim asserted by or against
the Trustee personally (and not for purposes of binding the Trust Estate)
otherwise relating in any manner to the rights, immunities and benefits granted
to the Trustee under Sections 12, 13 and 14 hereof (each of the claims described
in the foregoing clauses (i), (ii) and (iii) is a "TRUSTEE CLAIM"); and, with
respect to solely to such claims:
(a) No party shall be obligated or entitled to submit any
Trustee Claim to arbitration or be bound by any arbitrator's award that might in
any manner relate to any Trustee Claim;
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO ANY TRUSTEE
CLAIM MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH PARTY HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE JURISDICTION OF THOSE COURTS FOR PURPOSES OF ADJUDICATION OF
ANY TRUSTEE CLAIM. EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION FOR PURPOSES OF ADJUDICATION OF ANY TRUSTEE
CLAIM. SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE BY ANY
MEANS PERMITTED BY NEW YORK LAW.
(c) EACH PARTY HERETO WAIVES ALL RIGHTS TO A TRIAL BY JURY OF
ANY TRUSTEE CLAIM AND AGREES THAT ANY TRUSTEE CLAIM SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH PARTY FURTHER AGREES
THAT ITS RIGHT TO A TRIAL BY JURY IS HEREBY WAIVED AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE PLEDGE AND
13
SECURITY AGREEMENT OR ANY PROVISION HEREOF OR THEREOF, INSOFAR AS IT MAY
CREATE A DEFENSE TO ANY TRUSTEE CLAIM. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT AND THE PLEDGE AND SECURITY AGREEMENT.
22. REMEDIES CUMULATIVE. All rights and remedies of each party
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
23. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be considered one and the same instrument and
shall become effective when executed and delivered by each of the parties.
24. SPECIMEN SIGNATURE. Each person at any time appointed as the
Representative or the Indemnitee's Agent shall present a specimen signature to
the Trustee within a reasonable time.
[Signature page to follow]
14
EXHIBIT M
"Company"
GRAND CASINOS, INC.,
a Minnesota corporation
By:
-----------------------------------
Name:
Title:
"Lakes"
GCI LAKES, INC,
a Minnesota corporation
By:
Name:
Title:
"Trustee"
[NAME OF TRUSTEE],
a [national banking association]
By:
-----------------------------------
Name:
Title:
EXHIBIT N
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT (this "AGREEMENT"), dated as of
[__________ ___], 1998, is entered into by GCI LAKES, INC., a Minnesota
corporation ("DEBTOR"), and [____________], a [_____________], as Trustee
under the Trust Agreement described below ("TRUSTEE"), in favor of Grand
Casinos, Inc., a Minnesota corporation ("SECURED PARTY").
RECITALS
A. Debtor and Secured Party are parties to a Distribution
Agreement, dated as of [__________ ___], 1998, and certain ancillary
agreements thereto (collectively, the "DISTRIBUTION AGREEMENT").
B. Debtor, Secured Party, Hilton Hotels Corporation, a Delaware
corporation, Gaming Co., Inc., a Delaware corporation, and Gaming Acquisition
Corporation, a Minnesota corporation, are parties to an Agreement and Plan of
Merger, dated as of June 30, 1998 (the "MERGER AGREEMENT" and, together with
the Distribution Agreement, the "AGREEMENTS").
C. The Agreements provide that Debtor shall indemnify, save and
hold harmless Secured Party and certain of its related parties, with respect
to certain matters upon the terms and subject to the conditions provided in
the respective Agreements and that as security therefor (and not in lieu
thereof) a trust estate shall be established for the protection of Secured
Party, its affiliates and subsidiaries.
D. Pursuant to, and as a condition of, the Merger Agreement, (i)
Debtor and Secured Party have entered into a Trust Agreement with Trustee, as
Trustee, dated as of [__________ ___], 1998 (as from time to time amended,
the "TRUST AGREEMENT"), under which Trustee owns and holds in trust, as set
forth in the Trust Agreement, the Trust Estate (as defined in the Trust
Agreement), and (ii) Debtor and Trustee are executing and delivering to
Secured Party this Agreement.
AGREEMENT
In consideration of the foregoing and the mutual promises contained
herein and for other good and valuable consideration the receipt and adequacy
of which are hereby acknowledged, Secured Party and Debtor, intending to be
legally bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1. TRUST AGREEMENT DEFINITIONS. The following terms
shall have the meanings assigned to them in the Trust Agreement:
"Cash Equivalents"
"Initial Trust Estate"
"Trust Estate"
Section 1.2. U.C.C. DEFINITIONS. Where applicable and except as
otherwise expressly provided herein, terms used herein (whether or not
capitalized) shall have the respective meanings assigned to them in the
Uniform Commercial Code as in effect in the State of New York on the date of
the Merger Agreement (the "UCC").
Section 1.3. CERTAIN DEFINED TERMS. As used in this Agreement,
the following terms shall have the following meanings:
"AGREEMENT TO PAY" means the agreement to pay an amount of
$30,000,000 executed by Debtor in favor of Trustee, which agreement to pay
comprises part of the Trust Estate.
The "AGREEMENTS" is defined in Recital B of this Agreement.
This "AGREEMENT" means this Pledge and Security Agreement.
"CASH COLLATERAL ACCOUNT" means the bank or other account into
which cash portions of the Trust Estate are to be deposited pursuant to and
in accordance with the terms of the Trust Agreement.
"COLLATERAL" is defined in SECTION 2.1 of this Agreement.
"COLLATERAL AGREEMENT" is defined in Recital B of this Agreement.
"TRUST AGREEMENT" is defined in Recital C of this Agreement.
"DEBTOR" is defined in the Preamble of this Agreement.
"DEBTOR COLLATERAL" is defined in SECTION 2.1 of this Agreement.
"DISTRIBUTION AGREEMENT" is defined in Recital A of this Agreement.
"EVENT OF DEFAULT" means any of the following events: (i) Debtor's
failure to pay any Secured Obligation (other than any obligations under the
Agreement to Pay) when due, and such failure continues for five calendar days
after either (A) it is acknowledged in writing by Debtor or (B) such Secured
Obligation is determined to be due and payable in arbitration proceedings
conducted in accordance with SECTION 21 of the Trust Agreement or by order of a
2
court of competent jurisdiction; (ii) Debtor's failure to pay any obligation
under the Agreement to Pay when due (iii) any representation or warranty made
by Debtor in this Agreement proves to have been inaccurate in any material
respect when made, and such inaccuracy continues for 10 calendar days after
written notice thereof is given to Debtor by Secured Party; (iv) Debtor
and/or Trustee fails to perform or observe any term, covenant or agreement
contained in the Trust Agreement or this Agreement, and such failure
continues for 10 calendar days after either (A) it is acknowledged in writing
by Debtor or Trustee or (B) such failure is determined to have occurred and
such term, covenant or agreement is determined to be enforceable in
arbitration proceedings conducted in accordance with SECTION 21 of the Trust
Agreement or by order of a court of competent jurisdiction; (v) Debtor admits
in writing its inability to pay its debts generally or makes a general
assignment for the benefit of creditors; (vi) any proceeding is instituted by
or against Debtor seeking an order for relief under the United States
Bankruptcy Code or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property under any law
relating to bankruptcy, insolvency, liquidation or reorganization or relief
of debtors and either (A) any such relief in any such proceeding is sought or
consented to by Debtor or an order for any such relief is entered against
Debtor, or (B) any such proceeding instituted against Debtor remains
undismissed and unstayed for a period of 60 calendar days; (vii) Debtor takes
any corporate action to authorize any of the actions described in clause (vi)
above; (viii) any provision of the Trust Agreement or this Agreement for any
reason ceases to be valid and binding on Debtor and/or Trustee in any respect
materially adverse to Secured Party or the holders of Secured Obligations,
and a valid and binding reasonably equivalent substitute is not offered to
Secured Party, to be held in trust as part of the Trust Estate, within 10
calendar days after written notice thereof is given by Secured Party; (ix)
Debtor repudiates or purports to revoke or terminate, in any material
respect, any of its obligations under the Trust Agreement or this Agreement,
and such event continues for 10 calendar days after written notice thereof is
given to Debtor by Secured Party; or (x) this Agreement for any reason does
not create or this Agreement ceases to create a valid and perfected first
priority security interest in any property described herein as part of the
Collateral, and such event continues for 10 calendar days after written
notice thereofis given to Debtor and Trustee by Secured Party.
"LIEN" means any mortgage, deed of trust, lien, pledge, charge,
security interest, hypothecation, assignment, deposit arrangement or
encumbrance of any kind in respect of any asset, whether or not filed,
recorded or otherwise perfected or effective under applicable law, as well as
the interest of a vendor or lessor under any conditional sale agreement,
capital or finance lease or other title retention agreement relating to such
asset.
"MERGER AGREEMENT" is defined in Recital B of this Agreement.
"PROCEEDS" includes (i) any and all payments, dividends, cash,
options, warrants, rights, instruments and other property of any type or
nature at any time received, receivable or otherwise distributed, voluntarily
or involuntarily, on account of, in respect of or in replacement,
substitution or exchange for any item of Collateral or upon the collection,
sale, or other disposition of any item of Collateral; (ii) any and all
insurance or payments under any indemnity,
3
warranty or guaranty now or hereafter payable in respect of any item of
Collateral or any proceeds thereof or any loss relating thereto; (iii) any
and all claims against any person or entity based on or in any respect
relating to or arising from any item of Collateral; (iv) any and all
"proceeds" of any Collateral, as the term "proceeds" is used in the UCC; and
(v) any and all property and interests in property acquired with or in
exchange for any of the foregoing.
"SECURED OBLIGATIONS" means (i) each and all present and future
indemnities, liabilities and obligations of every type and description of
Debtor at any time arising under, pursuant to or in respect of (A) the Merger
Agreement, (B) the Distribution Agreement; (C) this Agreement, or (D) the
Trust Agreement (in each case whether now outstanding or hereafter arising or
incurred, whether sole, joint, several, or joint and several) and (ii) each
and all present and future indemnities, liabilities and obligations of every
type and description of Trustee at any time arising under, pursuant to or in
respect of the Trust Agreement (in each case whether now outstanding or
hereafter arising or incurred, whether sole, joint, several, or joint and
several) and, in each case, all costs and expenses incurred by Secured Party
in asserting, collecting, enforcing or protecting its security interest in
any Collateral in any bankruptcy case or insolvency proceeding to which
Debtor may be party and all collection costs and enforcement expenses
incurred by Secured Party in retaking, holding, preparing for sale, selling
or otherwise disposing of or realizing on any Collateral or otherwise
exercising or enforcing any of its rights or remedies hereunder, together
with Secured Party's reasonable attorneys' fees and disbursements and court
costs related thereto.
"SECURED PARTY" means the person identified as such in the preamble
of this Agreement and any of its successors or assigns.
"SECURITIES ACT" is defined in SECTION 6.5 of this Agreement.
"TRUSTEE" means the person identified as such in the preamble of
this Agreement, acting as Trustee under the Trust Agreement, and any
successor Trustee thereunder.
"TRUSTEE COLLATERAL" is defined in SECTION 2.1 of this Agreement.
ARTICLE II.
SECURITY INTEREST AND COLLATERAL
Section 2.1. CREATION OF SECURITY INTEREST.
(a) DEBTOR COLLATERAL. As security for the due and punctual
payment and performance of each and all of the Secured Obligations, Debtor
hereby irrevocably grants Secured Party a security interest in all right,
title and interest of Debtor, to the extent Debtor has any such right, title
or interest, in, to, under or derived from the following property
(collectively, the "DEBTOR COLLATERAL"), in each case whether now owned or
hereafter acquired by Debtor and wherever located:
(1) CASH, CASH EQUIVALENTS AND OTHER ASSETS OF THE TRUST ESTATE:
All cash, Cash Equivalents and other property of every type
4
and description now or at any time hereafter constituting part of
the Trust Estate or required by the terms of the Trust Agreement to
constitute part of the Trust Estate;
(2) INTEREST IN THE TRUST ESTATE OR UNDER THE TRUST AGREEMENT: All
rights and interests of every type and description, whenever and
however arising, in or to the Trust Estate or in, to or under the
Trust Agreement (including, without limitation, the Agreement to
Pay); and
(3) PROCEEDS: All Proceeds, except Proceeds that have been
released from the Trust Estate and delivered to Debtor pursuant to
the Trust Agreement.
(b) TRUSTEE COLLATERAL. As security for the due and punctual
payment and performance of each and all of the Secured Obligations, Trustee
hereby irrevocably grants Secured Party a security interest in all right,
title and interest of Trustee, in, to, under or derived from the following
property (collectively, the "TRUSTEE COLLATERAL" and, together with the
Debtor Collateral, the "COLLATERAL"), in each case whether now owned or
hereafter acquired by Debtor and wherever located:
(4) CASH, CASH EQUIVALENTS AND OTHER ASSETS OF THE TRUST ESTATE:
All cash, Cash Equivalents and other property of every type and
description now or at any time hereafter constituting part of the
Trust Estate or required by the terms of the Trust Agreement to
constitute part of the Trust Estate;
(5) INTEREST IN THE TRUST ESTATE OR UNDER THE TRUST AGREEMENT: All
rights and interests of every type and description, whenever and
however arising, in or to the Trust Estate or in, to or under the
Trust Agreement (including, without limitation, the Agreement to
Pay); and
(6) PROCEEDS: All Proceeds, except Proceeds that have been
released from the Trust Estate and delivered to Debtor pursuant to
the Trust Agreement.
Section 2.2. DELIVERY OF INSTRUMENTS; DEPOSIT OF FUNDS. All
stock certificates, notes, bonds, debentures and other instruments, if any,
constituting Collateral shall be delivered to and held by Secured Party,
without any notice from or demand by Secured Party, in each case in suitable
form for transfer by delivery or accompanied by duly executed instruments of
transfer or assignments in blank or with appropriate endorsements, in form
and substance satisfactory to Secured Party. All cash (including Proceeds in
the form of cash) constituting Collateral shall be deposited (in a manner
acceptable to Secured Party) in the Cash Collateral Account, to be held by
Secured Party, without notice from or demand, by Secured Party.
Section 2.3. FURTHER ASSURANCES. Each of Debtor and Trustee will
promptly (and in no event later than five days after request by Secured
Party) execute and deliver, and use its reasonable best efforts to obtain
from others, any and all instruments, certificated securities and documents
(including, without limitation, assignments, transfer documents and transfer
5
notices, financing statements and other lien notices), in form and substance
satisfactory to Secured Party, and take all other actions (including, without
limitation, the deposit of funds) which are necessary or, in the good faith
judgment of Secured Party, desirable or appropriate to create, perfect,
protect, or enforce Secured Party's security interests in the Collateral, to
enable Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any Collateral, to protect the Collateral against
the rights, claims or interests of third persons, or to effect or to assure
further the purposes and provisions of this Agreement, and Debtor will pay
all costs related thereto and all reasonable expenses incurred by Secured
Party in connection therewith.
Section 2.4. SURVIVAL OF SECURITY INTEREST. Except as otherwise
required by law, the security interest granted hereby shall, except as to
property released from the Trust Estate and delivered to or for account of
Debtor by Trustee pursuant to, and in accordance with, the Trust Agreement, (i)
remain enforceable as security for any and all Secured Obligations, whether now
outstanding or created or incurred at any future time, until all of the Secured
Obligations have been indefeasibly paid, retired and discharged in full, and
(ii) survive any sale, exchange or other disposition by Debtor or Trustee of its
interest in any Collateral and remain enforceable against each transferee and
subsequent owner of such interest (to the fullest extent permitted under
applicable law), even if such sale, exchange or other disposition is permitted
at the time under the Trust Agreement.
Section 2.5. REINSTATEMENT. If at any time any payment on any
Secured Obligation is set aside, avoided, or rescinded or must otherwise be
restored or returned, this Agreement and the security interest created hereby
shall remain in full force and effect and, if previously released or terminated,
shall be automatically and fully reinstated, without any necessity for any act,
consent or agreement of Debtor, as fully as if such payment had never been made
and as fully as if any such release or termination had never become effective.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES. Each of Debtor and
Secured Party represents and warrants, severally and not jointly, that with
respect to itself only:
(a) Debtor's chief executive office is located in Hennepin County,
Minnesota. Trustee's chief executive office is located in __________,
__________.
(b) It at all times is (or, as to any item of Collateral acquired
after the date hereof, will be) the sole legal and beneficial owner of all
Collateral reflected on its books and records as belonging to it and has
exclusive possession and control thereof free and clear of any and all Liens,
subject to the Trust Agreement and this Agreement and the interests, possession
and control granted thereunder. No financing statement, notice of lien,
mortgage, deed of trust or instrument similar in effect covering the Collateral,
any portion thereof, or any proceeds thereof, exists or is on file in any public
office, except as may have been filed in favor of Secured Party.
6
(c) Except for the UCC, neither it nor any Collateral purported to be
granted by it is subject to any requirement of law or contractual obligation
which prohibits, restricts, or limits the execution, delivery or performance of
this Agreement or the creation, perfection or enforcement of the security
interest purported to be created hereby.
(d) Debtor's United States federal taxpayer identification number is:
[__________]. Trustee's United States federal taxpayer identification number
is: [__________].
(e) It is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction in which it is organized and is
duly qualified to do business and in good standing in each jurisdiction where
its assets are located or its operations are conducted, except where the failure
to be so qualified could not reasonably be expected to cause a change that would
be material and adverse to it or to Secured Party's rights under this Agreement.
(f) It has the corporate power to execute, deliver and perform its
obligations under the Trust Agreement and this Agreement.
(g) Its execution, delivery and performance of each of the Trust
Agreement and this Agreement (i) have been duly authorized by all necessary
action of its board of directors, (ii) do not contravene its certificate or
articles of incorporation or by-laws or any other governing document, and (iii)
do not and will not result in or require the creation of any Lien (other than
pursuant to the Trust Agreement and this Agreement) upon any of its property or
assets.
(h) No authorization or approval or other action by, and no notice to
or filing with, any governmental officer, department, agency or authority is
required for the due execution, delivery and performance by it of each of the
Trust Agreement and this Agreement, except the filing of required financing
statements, if any, to perfect Secured Party's security interest which have been
duly filed.
(i) Each of the Trust Agreement and this Agreement is a legal, valid
and binding obligation of it, enforceable against it in accordance with its
respective terms, subject to applicable laws generally affecting the enforcement
of creditors' rights.
(j) Its execution, delivery and performance of each of the Trust
Agreement and this Agreement (i) does and will comply with all applicable laws,
(ii) does and will comply with, and does not and will not conflict with,
constitute a breach of or give rise to any Lien, default, event of default or
other adverse consequence under, any note, indenture, undertaking, agreement or
other contractual obligation that is binding upon Debtor or secured by or
enforceable against any property of Debtor, except for such conflicts, breaches,
Liens, defaults, events of default or other adverse consequences that could not,
individually or in the aggregate, have a material adverse effect on Debtor or,
with respect to the Secured Party, on Secured Party's rights under this
Agreement.
(k) Secured Party holds an enforceable and perfected first Lien in
the Collateral. No other Liens are outstanding against the Collateral.
7
ARTICLE IV.
COVENANTS
Section 4.1. COVENANTS. Each of Debtor and Trustee covenants and
agrees that so long as the security interest created hereby remains outstanding
and/or so long as required by the Trust Agreement:
(a) As and when required by the Trust Agreement, it will (i) deliver
to Secured Party each instrument and certificated security included in the
Collateral as set forth in Article II and (ii) deposit in the Cash Collateral
Account all cash (including Proceeds in the form of cash) constituting
Collateral included in the Collateral as set forth in Article II or required to
be deposited or otherwise delivered to the Secured Party pursuant to the terms
of this Agreement or the Trust Agreement.
(b) It will (i) notify, in a reasonably prompt manner, the Secured
Party of any change in its name, identity or corporate structure, or in the
location of its chief executive office, or (ii) not keep any tangible Collateral
or any records relating to any Claim owned by it, or permit or suffer any such
Collateral or records to be moved, to any other location unless (in each case)
an appropriate financing statement has been filed in the proper office and in
the proper form, and all other requisite actions have been taken, to perfect or
continue the perfection (without loss of priority) of Secured Party's security
interest in the Collateral.
(c) It will defend, at Debtor's expense, the Collateral against all
claims and demands of all persons at any time claiming the same or any interest
therein.
(d) It will not encumber, sell, exchange or otherwise dispose of any
item of Collateral or any interest therein, or permit or suffer any such item to
be encumbered, sold, exchanged or otherwise disposed of, unless (i) such action
is permitted at the time under the Trust Agreement and (ii) it makes all
payments on account of the Secured Obligations required to be made therefrom, or
in exchange or substitution therefor, and it takes all other actions required to
be taken in connection therewith, under the Trust Agreement.
(e) Secured Party is hereby authorized to file one or more financing
statements or fixture filings, and continuations thereof and amendments thereto,
relative to all or any part of the Collateral, without the signature of Debtor
or Trustee where permitted by law. A copy of this Agreement may be filed as a
financing statement wherever permitted by law.
(f) Secured Party may at any time (but shall not be obligated to) (i)
perform any of the obligations of Debtor or Trustee under this Agreement if
Debtor or Trustee fails to perform such obligation within five calendar days
after written demand by Secured Party and (ii) make any payments and do any
other acts Secured Party may deem necessary or desirable to protect its security
interest in the Collateral, including, without limitation, the right to pay,
purchase, contest or compromise any Lien that attaches or is asserted against
any Collateral and to appear in and defend any action or proceeding relating to
the Collateral, and Debtor will promptly reimburse Secured Party for all
payments made by Secured Party in doing so, together
8
with interest thereon at the judgment rate and all costs and expenses related
thereto as set forth in SECTION 9.10.
ARTICLE V.
INTEREST AND DISTRIBUTIONS
Section 5.1. DISTRIBUTIONS AND PAYMENTS. Trustee shall be entitled
to hold as part of the Trust Estate, subject to the Trust Agreement, all income,
interest or distributions from cash, Cash Equivalents and all Proceeds, provided
that such income, interest or distributions shall be pledged as Collateral
hereunder.
ARTICLE VI.
DEFAULTS AND REMEDIES
Section 6.1. REMEDIES. Upon and at any time after the occurrence of
any Event of Default, and from time to time on each occasion when an Event of
Default has occurred and is continuing, Secured Party may exercise and enforce
each and all of the rights and remedies available to a secured party upon
default under the UCC or other applicable law.
(a) Secured Party may cause any or all instruments or investment
securities, if any, constituting part of the Trust Estate to be transferred into
Secured Party's name and exercise and enforce any or all of the rights,
interests, privileges and remedies of a holder against the issuer thereof, as
freely and fully as if Secured Party were the absolute owner but as a secured
party and as part of the Trust Estate.
(b) Secured Party may sell or otherwise dispose of any or all of the
Collateral or any part thereof in one or more parcels and from time to time in
any quantity or portion and on any number of occasions, at a public sale or in a
private sale or transaction, on any exchange or market or at Secured Party's
offices or at any other location, for cash, on credit or for future delivery,
and may enter into all contracts necessary or appropriate in connection
therewith, without any notice whatsoever unless required by law.
(c) Debtor agrees that at least 10 calendar days' written notice to
Debtor of the time and place of any public sale or the time after which any
private sale is to be made shall be commercially reasonable. The giving of
notice of any such sale or other disposition shall not obligate Secured Party to
proceed with the sale or disposition, and any such sale or disposition may be
postponed or adjourned from time to time, without further notice.
Section 6.2. REMEDIES CUMULATIVE. Secured Party may exercise and
enforce each right and remedy available to it upon the occurrence of an Event of
Default either before or concurrently with or after, and independently of, any
exercise or enforcement of any other right or remedy of Secured Party or any
holder of any Secured Obligation against any person, entity or property. All
such rights and remedies shall be cumulative, and no one of them shall exclude
or preclude any other.
9
Section 6.3. SURPLUS: DEFICIENCY. Any surplus proceeds of any sale
or other disposition of Collateral by Secured Party remaining after all the
Secured Obligations are indefeasibly paid in full and discharged shall be paid
over to Debtor or to whomever may be lawfully entitled to receive such surplus
or as a court of competent jurisdiction may direct, except that if any
contingent, unliquidated or unmatured Secured Obligation then remains
outstanding, such surplus proceeds may be retained by Secured Party and held as
Collateral until such time as all outstanding Secured Obligations have been
determined, liquidated and indefeasibly paid in full and discharged. Debtor
shall be and remain liable for any deficiency.
Section 6.4. NO RECOURSE TO TRUSTEE. As to Trustee only (without in
any way affecting Secured Party's rights as to Debtor), upon and Event of
Default, Secured Party shall look solely to the Collateral, and not to Trustee's
other assets or property, for relief and Secured Party shall have no recourse to
any of Trustee's other assets or property.
ARTICLE VII.
THE SECURED PARTY
Section 7.1. NO LIABILITY. Secured Party makes no statement,
promise, representation or warranty whatsoever, and shall have no liability
whatsoever, to any holder of any Secured Obligations as to the authorization,
execution, delivery, legality, enforceability or sufficiency of this Agreement
or as to the creation, perfection, priority or enforceability of any security
interest granted hereunder or as to the existence, ownership, quality,
condition, value or sufficiency of any Collateral or as to any other matter
whatsoever.
Section 7.2. HOLDERS BOUND. Except where the consent of others may
be required pursuant to the express provisions of the Trust Agreement, any
modification, amendment, waiver, termination or discharge of any security
interest, right, remedy, power or benefit conferred upon Secured Party hereby
that is effectuated in a writing signed by Secured Party shall be binding upon
all holders of Secured Obligations if it is authorized in the Trust Agreement.
Section 7.3. DUTY OF CARE. Neither Secured Party nor any director,
officer, employee, attorney or agent of Secured Party shall be obligated to care
for the Collateral hereunder or to collect, enforce, vote, or protect the
Collateral or any rights or interests of Debtor related thereto or to preserve
or enforce any rights which Debtor or any other Person may have against any
third party, except only that Secured Party shall exercise reasonable care in
physically safekeeping any item of Collateral that was delivered into Secured
Party's possession. Secured Party shall be deemed to have exercised such
reasonable care if the Collateral is accorded treatment substantially equal to
that which Secured Party accords to its own property or if it selects, with
reasonable care, a custodian or agent to hold such Collateral for Secured
Party's account.
10
ARTICLE VIII.
EXONERATION AND WAIVERS
Section 8.1. RIGHTS AND INTERESTS NOT PREJUDICED, AFFECTED OR
IMPAIRED. None of (i) the security interests granted hereby, (ii) the trusts
and interests created under the Trust Agreement, (iii) any power, privilege,
right or remedy of Secured Party relating thereto, or (iv) the beneficial
interest of Secured Party and other holders of Secured Obligations therein and
thereunder shall at any time in any way be prejudiced, affected or impaired by
any act or failure to act on the part of Debtor or by any act or failure to act
on the part of Trustee or Secured Party or any other holder of Secured
Obligations or by any breach or default by any of them in the performance or
observance of any promise, covenant or obligation enforceable by Debtor,
regardless of any knowledge thereof that Trustee or Secured Party or any such
other holder may have or otherwise be charged with.
(a) Without in any way limiting the generality of the foregoing,
Secured Party and each other holder of any Secured Obligations may at any time
and from time to time without incurring any responsibility or liability to
Debtor or Trustee and without in any manner prejudicing, affecting or impairing
any such security interest, trust, interest, power, privilege, right or remedy
or the obligations of Debtor or Trustee to Secured Party and the other holders
of Secured Obligations:
(i) Make loans and advances to Debtor, or issue, guaranty
or obtain letters of credit for account of Debtor or otherwise extend
credit to Debtor, in any amount and without any limitation or
restriction whatsoever, on any terms, whether pursuant to a commitment
or as a discretionary advance and whether or not any default or Event
of Default or failure of condition is then continuing;
(ii) Change the manner, place or terms of payment or extend
the time of payment of, or renew or alter, compromise, accelerate,
extend, refinance, release or discharge, any Secured Obligation or any
other indebtedness or liability of Debtor or Trustee or any agreement,
guaranty, lien or obligation of Debtor or Trustee or any other person
or entity in any manner related thereto, or otherwise amend,
supplement or change in any manner any Secured Obligation or any such
indebtedness or liability or any such agreement, guaranty, lien or
obligation;
(iii) In any manner modify, transform, change, refinance,
replace, reclassify, subordinate or recharacterize any such
indebtedness or liability;
(iv) Without the consent of or notice to Debtor or Trustee,
release or discharge any guaranty or any other Lien, right, remedy or
claim against any person or entity;
(v) Without the consent of or notice to Debtor or Trustee,
take or fail to take any collateral security for any Secured
Obligation or take or fail to
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take any action which may be necessary or appropriate to ensure
that any lien upon any property securing any Secured Obligation is
duly enforceable or perfected or entitled to priority as against
any other Lien or to ensure that any proceeds of any property
subject to any Lien are applied to the payment of any Secured
Obligation;
(vi) Without the consent of or notice to Debtor or Trustee,
release, discharge or permit the lapse of any or all Liens upon any
property at any time securing any Secured Obligation;
(vii) Without the consent of or notice to Debtor or
Trustee (except as required by applicable law), exercise or enforce,
in any manner, order or sequence, or fail to exercise or enforce, any
right or remedy against Debtor or Trustee or in respect of the
Collateral or the Trust Estate or any other collateral security or any
other person, entity or property in respect of any Secured Obligation
or Lien securing any Secured Obligation or any right under this
Agreement or the Trust Agreement; or
(viii) Without the consent of or notice to Debtor or
Trustee, sell, exchange, release, foreclose upon or otherwise deal
with any property that may at any time be subject to any Lien securing
any Secured Obligation.
(b) No exercise, delay in exercising or failure to exercise any right
arising under this Agreement or the Trust Agreement, no act or omission of
Secured Party or any other holder of any Secured Obligation in respect of Debtor
or any other person or entity or the Collateral or the Trust Estate or any other
collateral security for any Secured Obligation or any right arising under this
Agreement or the Trust Agreement, no change, impairment, or suspension of any
right or remedy of Secured Party or any other holder of any Secured Obligation,
and no other act, failure to act, circumstance, occurrence or event which, but
for this provision, would or could act as a release or exoneration of the
obligations of Debtor or Trustee shall in any way affect, decrease, diminish or
impair any of the obligations of Debtor or Trustee under this Agreement or give
Debtor or any other person or entity any recourse or defense against Secured
Party or any other holder of Secured Obligations in respect of any security
interest, trust, interest, power, privilege, right or remedy arising under this
Agreement or the Trust Agreement.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
Section 9.1. NOTICES. All notices, requests, approvals, consents
and other communications required or permitted to be made hereunder shall,
except as otherwise provided, be given in the manner specified and to the
addresses set forth in SECTION 13 of the Trust Agreement.
Section 9.2. HEADINGS. The various headings in this Agreement are
inserted for convenience only and shall not affect the meaning or interpretation
of this Agreement or any provision hereof.
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Section 9.3. CHANGES. This Agreement or any provision hereof may be
changed, waived, or terminated only by a statement in writing signed by the
party against which such change, waiver or termination is sought to be enforced.
Any such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
Section 9.4. DEBTOR REMAINS LIABLE. Debtor shall remain liable
under all contracts and agreements, if any, included in the Collateral to the
extent set forth therein to perform all of its duties and obligations thereunder
to the same extent as if this Agreement had not been executed. The exercise or
enforcement by Secured Party of any of its rights and remedies under this
Agreement or in respect of the Collateral shall not release Debtor from any of
its duties or obligations under any such contracts or agreements. Neither
Secured Party nor Trustee shall be obligated to perform any such duties or
obligations or shall be liable for any breach thereof.
Section 9.5. NO WAIVER. No failure by Secured Party to exercise, or
delay by Secured Party in exercising, any power, right or remedy under this
Agreement shall operate as a waiver thereof. No waiver by Secured Party shall
be effective unless given in a writing signed by it. No waiver so given shall
operate as a waiver in respect of any other matter or in respect of the same
matter on a future occasion. Acceptance of or acquiescence in a course of
performance in respect of this Agreement shall not waive or affect the
construction or interpretation of the terms of this Agreement even if the
accepting or acquiescing party had knowledge of the nature of the performance
and opportunity for objection.
Section 9.6. ENTIRE AGREEMENT. This Agreement and the Trust
Agreement are intended by the parties as a final expression of their agreement
and a complete and exclusive statement of the terms and conditions related to
the subject matter thereof.
Section 9.7. SEVERABILITY. If any provision of this Agreement is
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions hereof, or of such provision in
any other application, shall not be in any way affected or impaired thereby and
such other provisions and applications shall be enforceable to the fullest
extent lawful.
Section 9.8. POWER OF ATTORNEY. Each of Debtor and Trustee hereby
appoints and constitutes Secured Party or any delegate, nominee or agent acting
for Secured Party as Debtor's and Trustee's attorney-in-fact with the power and
authority (but not the duty), in the name of Debtor or Trustee or in the name
of Secured Party or such delegate, nominee or agent, to (i) execute, deliver and
file such financing statements, agreements, deeds and writings as Debtor or
Trustee is required to execute, deliver or file hereunder, (ii) endorse, collect
or transfer any item of Collateral which Debtor or Trustee is required to
endorse, collect or transfer hereunder or which Secured Party is permitted to
endorse, collect or transfer hereunder, (iii) make any payments or take any
action under SECTION 2.3 or SECTION 4.1(f), (iv) take any other action required
of Debtor or Trustee or permitted to Secured Party hereunder, and (v) take any
action reasonably necessary or incidental to any of the foregoing. This power
of attorney is coupled
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with an interest and is irrevocable as to Debtor and Trustee. Secured Party
shall have no duty whatsoever to exercise any power herein granted it.
Section 9.9. COUNTERPARTS. This Agreement and any amendments,
waivers, consents or supplements may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, but
all of which shall together constitute one and the same agreement.
Section 9.10. COSTS AND EXPENSES; INDEMNIFICATION. Debtor hereby
agrees (i) to pay or reimburse Secured Party for all reasonable costs and
expenses (including, without limitation, reasonable attorneys' fees and
disbursements and court costs) incurred in connection with or as a result of the
exercise or enforcement by Secured Party of any right or remedy available to it
or the protection or enforcement of Secured Party's interest in the Collateral
in any bankruptcy case or insolvency proceeding and (ii) to indemnify Secured
Party for, and defend and hold it harmless against, any loss, liability or
expense incurred by it in connection with its entering into this Agreement or
carrying out any of its duties or exercising any of its rights hereunder, on the
terms and subject to the limitations set forth in SECTION 11 of the Trust
Agreement.
Section 9.11. GOVERNING LAW; ARBITRATION; LIMITATION OF LIABILITY;
WAIVER OF BOND.
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT
THE PERFECTION OF THE SECURITY INTERESTS HEREUNDER IN RESPECT OF ANY PARTICULAR
COLLATERAL IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW
YORK.
(b) ARBITRATION. The parties hereto agree that any dispute,
controversy or disagreement between the parties related to the obligations of
the parties under this Agreement in respect of which resolution cannot be
reached shall be submitted for mediation and final and binding arbitration in
accordance with Section 9.14 of the Distribution Agreement, including Section
9.14(c) thereof regarding the parties' ability to seek specific performance or
injunctive relief thereof.
(c) LIMITATION OF LIABILITY. NO CLAIM MAY BE MADE BY DEBTOR OR
TRUSTEE AGAINST SECURED PARTY OR THE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES,
ATTORNEYS OR AGENTS OF SECURED PARTY FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR
PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM (WHETHER BASED UPON BREACH OF CONTRACT,
TORT, BREACH OF STATUTORY DUTY OR ANY OTHER THEORY OF LIABILITY) ARISING OUT OF
OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, AND DEBTOR HEREBY WAIVES,
RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR
NOT NOW
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ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
(d) WAIVER OF BOND. EACH OF DEBTOR AND TRUSTEE WAIVES THE POSTING OF
ANY BOND OTHERWISE REQUIRED OF SECURED PARTY IN CONNECTION WITH THE ENFORCEMENT
OF ANY OF ITS REMEDIES HEREUNDER, INCLUDING, WITHOUT LIMITATION, ANY ORDER OR
WRIT FOR REPLEVIN OR DELIVERY OF POSSESSION OF ANY COLLATERAL.
Section 9.12. SUCCESSORS AND ASSIGNS. This Agreement is binding upon
and enforceable against Debtor and its successors and assigns. This Agreement
is binding upon and enforceable against Trustee and its successors and assigns.
This Agreement shall inure to the benefit of and may be enforced by Secured
Party and its successors and assigns and each and every other person or entity
which at any time holds or is entitled to enforce any of the Secured Obligations
and each of their respective heirs, representatives, successors and assigns.
Trustee reserves the right to resign as Trustee under the Trust Agreement, in
the manner and with the effect set forth in SECTION 10(f) and 10(g) thereof.
[signature page to follow]
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IN WITNESS WHEREOF, the parties have caused this Pledge and Security
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
"DEBTOR"
GCI LAKES, INC., a Minnesota corporation
By:
------------------------------------
Name:
Title:
"SECURED PARTY"
GRAND CASINOS, INC., a Minnesota
corporation
By:
------------------------------------
Name:
Title:
"TRUSTEE"
[_________], a [__________],
as Trustee
By:
------------------------------------
Name:
Title: