EXECUTION COPY
EMPIRE RESORTS, INC.
ROUTE 17B
MONTICELLO, NEW YORK 12701
November 12, 2004
Concord Associates Limited Partnership
Sullivan Resorts LLC
115 Stevens Avenue
Valhalla, New York
10595
Re:
Catskills Properties
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Gentlemen:
Recently, Empire Resorts, Inc. ("EMPIRE") and Concord Associates
Limited
Partnership (Concord Associates Limited Partnership, together with
Sullivan
Resorts LLC and any other affiliates thereof that own or lease any
portion of
the Resort Properties, as hereinafter defined, "TRANSFEROR") have
entered into
discussions concerning properties that we each own in the Catskills
region of
New York and are seeking to develop into world class resorts under
arrangements
with various federally recognized sovereign Indian tribes or
nations permitting
each of us to develop and manage one or more fully licensed Class
III gaming
enterprises (each a "Gaming Facility"). Empire and Transferor each
contemplate
that, prior to embarking on full scale development of any property,
we will have
arranged to secure an agreement with at least one such federally
recognized
sovereign entity with respect to the development and management of
a Gaming
Facility on the property. As a result of the recent discussions
between Empire
and Transferor, the parties now contemplate that we would be able
to pursue our
development efforts to achieve the necessary legal approvals for a
Gaming
Facility on each of our respective properties more effectively on a
joint basis.
The purpose of this Agreement is to set forth the terms that we
have agreed upon
relating to the conveyance of certain real estate located in the
County of
Sullivan, State of New York, hereinafter referred to as the
"Property", by
Transferor to Empire. Contemporaneously with the execution and
delivery of this
Agreement, the parties have entered into an Option Agreement dated,
as of the
date hereof (the "Option Agreement").
1. CONVEYANCE OF RESORT PROPERTIES TO EMPIRE.
(a) Subject to the conditions of closing set forth in this
Agreement,
Transferor will convey and Empire (or a subsidiary) will obtain
title to the
following properties (the "Resort Properties") located in Sullivan
County, New
York:
(i) Grossinger's Resort Hotel and Golf Course, consisting of an
approximately 600 acre parcel of land, various hotel buildings,
golf course
and related facilities, as shown on EXHIBIT A-1 attached hereto.
(ii) The Concord Hotel, consisting of an approximately 163 acre
parcel of land, hotel buildings, the Challenger golf course and
related
facilities, as shown on EXHIBIT A-2 attached hereto.
(iii) The Concord Resort and Golf Club, consisting of the
International golf course, the ground lease for the Monster golf
course, a
club house, and lodging and support facilities, as shown on EXHIBIT
A-3
attached hereto.
(b) Empire will receive valid leasehold title to the Monster golf
course and valid fee title to the balance of the Resort Properties,
free and
clear of all liens and encumbrances other than agreed upon
permitted
encumbrances ("Permitted Encumbrances"), by bargain and sale deed
without
covenants to the fee estates and an assignment of lease without
covenants with
respect to the leasehold. Permitted Encumbrances shall include
mortgages and
other obligations of Transferor or its affiliates (consisting of
obligations
arising from (x) Transferor's original purchase of the Concord
property, and (y)
the exercise by Empire (as provided in Section 3 hereof) of a
lessee purchase
option under the ground lease for the Monster golf course) in an
aggregate
amount not to exceed $30 Million, liens for taxes not yet due and
payable, any
utility easements, rights of way, and other encumbrances that do
not materially
impair the development, use or value of the property, and the
reciprocal
easement agreements referred to below.
2. RELATED ASSETS AND CONTRACTS. Together with the Resort
Properties,
Empire will receive all right, title and interest of Transferor in
and to the
trademarks and service marks associated with the Resort Properties
(provided
that Transferor shall retain the right to use or license, without
additional
consideration, (x) the name "Concord" in connection with any
residential
development projects at Transferor's remaining property, and (y)
the name
"Concord" or "Grossinger's" for reasonable uses unrelated to hotel,
resort
and/or gaming operations of Empire), and the rights to all revenues
and receipts
of Transferor generated by the Resort Properties after the Closing.
Unless
Empire shall have assumed or received an assignment with respect to
any such
contracts or licenses, all contracts of Transferor related to the
operation,
maintenance or other use of the Resort Properties will be
terminated. At the
Closing, Empire will offer employment to the existing operations
and maintenance
employees at the Concord and Grossinger's on current terms,
provided that such
terms are customary and commercially reasonable. At Closing, the
parties will
enter into (a) a license agreement providing (i) for the
non-exclusive use of
the Concord Resort and Golf Club by residents and guests of the
residential
properties intended to be developed by Transferor or its affiliates
at the
balance of the Concord site (the "Retained Property"); it being
agreed that from
and after the opening of a hotel by Empire on the Concord site,
Empire's use of
the Concord Resort and Golf Club shall be limited to use by guests
of its
casinos and hotels, (ii) for the sharing of capital, operating and
maintenance
costs for the Concord Resort and Golf Club by Empire and Transferor
in
proportion to the annual number of rounds of golf attributable to
hotel/casino
guests and to the residents of the Retained Property and (iii)
other customary
and commercially reasonable terms and conditions, and (b) such
other use and/or
reciprocal easement agreements ("REAs") with respect to the Resort
Properties
and the Retained Property providing for reasonable ingress and
egress to and
from such properties, reasonable shared use of utilities servicing
such
properties, the equitable sharing of certain costs and expenses
applicable to
such properties, and other commercially reasonable and customary
terms and
conditions provided that the same may not materially impair the
development, use
or value of the Resort Properties or the Retained Property.
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3. RETAINED PROPERTY.
(a) The parties confirm that the Retained Property will not be
conveyed by Transferor to Empire and that Transferor shall have the
exclusive
right to develop, operate, maintain, lease or transfer the Retained
Property or
any portion thereof. In addition, the parties confirm that (x) the
Monster and
International golf courses themselves, plus the property within a
100 foot
setback line from such golf courses (and such additional land which
may be
required by applicable law), are intended to be (and will be)
conveyed by
Transferor to Empire at the Closing, and (y) certain unsubdivided
property
outside of such setback area (the "Additional Property") will be
conveyed by
Transferor to Empire at Closing, but such Additional Property is
intended by the
parties to be retained and used by Transferor in connection with
the Retained
Property. Subsequent to the Closing, Empire will, (i) at Empire's
cost as
provided above, exercise the lessee's purchase option under the
ground lease for
the Monster golf course, and (ii) at Transferor's cost, cause the
Additional
Property to be subdivided and conveyed back to Transferor (for no
additional
consideration), which conveyance by Empire shall be free and clear
of all liens
and encumbrances other than those applicable to the Additional
Property at the
time of its conveyance to Empire and those imposed in connection
with the
subdivision and which may arise by reason of circumstances or
events occurring
prior to the transfer back of the Additional Property by Empire to
Transferor.
Empire will promptly and diligently take all commercially
reasonable actions
necessary (or that may be reasonably requested by Transferor) in
connection with
such subdivision and transfer, provided that if such subdivision
shall not be
completed within a reasonable time period after the Closing, then
Empire and
Transferor shall promptly enter into commercially reasonable and
customary
agreements and arrangements (whether through a ground lease or
otherwise), at no
profit or loss to Empire, to permit Transferor to develop and/or
use the
Additional Property in the same manner as if Transferor owned fee
title to such
Additional Property. The Additional Property shall in no event
include the
clubhouse and maintenance facilities for the golf courses.
(b) Notwithstanding anything to the contrary herein, Empire shall
have
the option, upon written notice given to Transferor given not later
than sixty
(60) days prior to the Closing, to elect not to purchase the
Concord Resort and
Golf Club at Closing in connection with this transaction, and if
Empire
exercises such option in a timely manner, (i) the Concord Resort
and Golf Club
will not be conveyed to Empire at Closing but will be retained by
Transferor,
(ii) the term "Resort Properties", as used herein, will not include
the Concord
Resort and Golf Club, (iii) the debt and other obligations of
Transferor to be
assumed by Empire in connection with this transaction will be
reduced to
approximately $17.5 million (after deduction of the approximately
$7.5 million
lessee purchase option price under the Monster golf course ground
lease and
approximately $5 million of debt encumbering the golf courses),
(iv) the parties
will enter into a mutually acceptable license agreement providing
for the
non-exclusive use of the Concord Resort and Golf Club by guests of
Empire's
hotels and casinos, and providing for the sharing of capital,
operating and
maintenance costs for the Concord Resort and Golf Club by Empire
and Transferor
in proportion to the annual number of rounds of golf attributable
to
hotel/casino guests and residents of the Retained Property, and (v)
the
provisions of Section 3(a) of this Agreement regarding the
subdivision and
reconveyance of the Additional Property shall be terminated and
shall be of no
force or effect.
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4. PURCHASE PRICE. As consideration for the transfer of the Resort
Properties, Empire will issue and deliver to Transferor at Closing
18,000,000
shares of its common stock (the "Purchase Shares"), subject to
registration and
governance rights as are provided below and subject to
anti-dilution for events
occurring prior to or at the Closing, with mutually agreeable
exceptions
including the conversion of Empire's existing convertible debt and
existing
preferred stock pursuant to their terms and the issuance by Empire
of stock for
cash or in exchange for asset contributions or services (including
the issuance
of stock in connection with the exercise of employee stock options)
in the
course of Empire's gaming and hospitality business, or to pay
required dividends
(in the form of common stock) on Empire's existing preferred stock
(collectively, the "Excluded Shares"). The Purchase Shares will be
issued to
Transferor at Closing free and clear of all liens (exclusive of any
restrictions
imposed or referred to herein or by applicable federal or state
licensing and
securities laws).
5. BOARD OF DIRECTORS AND SHAREHOLDER/GOVERNANCE RIGHTS. The
Additional
Agreements shall further provide for the following:
(a) TRANSFEROR BOARD REPRESENTATION. Subject to any applicable
shareholder approval, the initial Board of Directors to be in
office at the
Closing shall be comprised of eleven (11) members, two (2) of whom
shall be
designees of Transferor (such designees or such other individuals
designated
from time to time by Transferor to take their place or places, the
"Transferor
Designees"). Empire and Transferor agree that the Transferor
Designees shall be
members of the class of directors who will not be subject to
reelection until
the annual meeting to be held in 2008. Of the remaining nine (9)
members of the
initial Board of Directors at least seven (7) members of the Board
of Directors
will be independent. Empire and Transferor agree that the seven
initial (7)
independent members shall be comprised as follows: (1) In addition
to
Transferor's right to designate the Transferor Designees,
Transferor will be
entitled to designate three (3) of the seven (7) independent
members of the
Board of Directors; (2) Empire will be entitled to designate three
(3)
independent directors selected from the existing independent
directors on the
Board; and (3) the six (6) independent directors selected pursuant
to (1) and
(2) above will together select the seventh independent director.
Committee
representation will be proportionate to representation on the Board
(except that
committees that are required to be comprised of independent
directors will have
comparable proportionate independent representatives). To the
extent permitted
by applicable NASDAQ rules and by applicable law, for a period of
at least three
years after the Closing, at least one of the Transferor Designees
shall be
entitled to serve as a member of each committee of the Board of
Directors.
Empire will use its reasonable commercial efforts so that until at
least the
annual meeting held in 2008, at least two Transferor Designees will
be members
of the Board of Directors. Empire agrees that each of Scott Rechler
and Louis
Cappelli are acceptable as Transferor Designees (without limiting
Transferor's
rights to make replacements), provided that Scott Rechler and Louis
Cappelli are
able to comply with the suitability requirements of applicable
state, federal
and tribal gaming regulators with jurisdiction over Empire's
operations, and if
Scott Rechler or Louis Cappelli do not so comply, Transferor shall
be entitled
to name replacement designees who meet such requirements. All Board
members
shall be subject to suitability requirements of applicable state,
federal and
tribal gaming regulators. Empire agrees to use all commercially
reasonable
efforts to effect the foregoing, including seeking and obtaining
any required
shareholder approvals of the foregoing at the Stockholders Meeting
(or any
adjournment(s) or postponement(s) thereof), or any other meeting of
shareholders
of Empire at which the matters contemplated by this Agreement or
this Agreement
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are to be presented to a vote of shareholders of Empire (or any
adjournment(s)
or postponement(s) thereof). Empire also agrees that in connection
with seeking
and obtaining any required shareholder approvals of the foregoing
it shall
undertake the same efforts and comply with the same obligations
with respect to
seeking and obtaining such approvals as those set forth in Section
6 of this
Agreement. Notwithstanding anything in this Agreement to the
contrary, in the
event that any such required shareholder approval is not obtained
for any
reason, the parties agree that such failure shall be treated for
all purposes
(including, for purposes of determining the exercisability of the
Option and the
termination of this Agreement) as a failure to satisfy the
shareholder approval
condition to Closing set forth in Section 12(a)(1) and 13(g) of
this Agreement.
(b) REGISTRATION RIGHTS/PIGGYBACK RIGHTS. Transferor will be
entitled
to unlimited demand registration rights (although only the first
three (3) will
be at the Empire's expense). The underwriter will be selected by
Transferor but
must be reasonably acceptable to Empire. Transferor will be
entitled to
piggyback rights on equity offerings by Empire (but in the case of
Transferor's
exercise of piggyback rights, Empire will have priority in the
event the
underwriter requires cutbacks.)
6. APPROVAL BY BOARD AND SHAREHOLDERS OF EMPIRE.
(a) Empire will take, in accordance with applicable law and its
certificate of incorporation and by-laws, all action necessary to
convene a
meeting of holders of shares of its capital stock (the
"Stockholders Meeting")
as promptly as possible to consider and vote upon the adoption of
this
Agreement. Subject to applicable law, the Board of Directors of
Empire shall
recommend the approval and adoption of the transactions
contemplated by this
Agreement, such recommendation shall be included in the proxy
statement
circulated in connection with the Stockholders Meeting, and the
Board of
Directors of Empire shall take all lawful action to solicit the
adoption thereof
by the holders of shares of its capital stock. In the event that
subsequent to
the date of this Agreement, the Board of Directors of Empire
reasonably
determines in good faith after consultation with outside counsel
that its
fiduciary duties under applicable law require it to withdraw,
modify or qualify
its recommendation in a manner adverse to Transferor, the Board of
Directors of
Empire may so withdraw, modify or qualify its recommendation;
however, subject
to applicable law, unless this Agreement is theretofore terminated,
Empire shall
nevertheless submit this Agreement to the holders of the shares of
its capital
stock for adoption at the Stockholders Meeting.
(b) By their execution of certain letter agreements dated as of the
date hereof, certain of Empire's shareholders holding approximately
40% in the
aggregate of Empire's common stock have covenanted and agreed to
(i) vote their
shares in favor of this transaction at the Stockholders Meeting,
and (ii) vote
their shares against any Acquisition Proposal and any alternative
transaction
involving the acquisition by Empire of hotel, gaming, or resort
properties in
the Catskills at any applicable stockholders meeting. In addition,
such letter
agreements provide certain restrictions on the right of each such
shareholder to
sell or otherwise dispose of their shares. In this Section 6(b),
references to a
shareholder's "shares" shall be deemed to include any shares over
which such
shareholder directly or indirectly (and whether as record owner,
trustee, or
otherwise) holds voting power.
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7. THE CLOSING.
(a) The closing of the transfer of the Resort Properties and the
issuance of the Purchase Shares (the "Closing") will take place
contemporaneously with the satisfaction of the last remaining
closing condition
set forth in Section 12 (and the date of the Closing shall be
hereinafter
referred to as the "Closing Date"), provided that if all such
closing conditions
shall not have been satisfied by August 31, 2005 (which outside
date shall be
subject to extension pursuant to Section 13 hereof), then the
parties shall have
such rights to terminate this Agreement as are set forth in Section
13 hereof.
The Closing shall be held at the principal offices of Empire in
Monticello, New
York or such other place as shall be mutually agreed upon by the
parties. The
parties shall prorate all costs, expenses and fees (as customarily
apportioned
in real estate closings) in connection with the Closing and the
transfer of the
Resort Properties as of the day immediately preceding the Closing
Date, on a
customary and commercially reasonable basis.
(b) Each of the parties will proceed in good faith to enter into,
by
December 23, 2004, the additional agreements referenced in this
Agreement,
including a non-exclusive license agreement with respect to the
Concord Resort
and Golf Club, the REAs and a Shareholders Agreement between Empire
and
Transferor (the "Additional Agreements"), provided that (i) this
Agreement is
fully binding on the parties as of the date hereof and failure to
enter into the
Additional Agreements shall in no way affect or impair the binding
nature of
this Agreement (as provided in Section 19 hereof), and (y) in the
event of any
dispute over the terms and conditions of any Additional Agreement,
such dispute
shall be resolved by binding arbitration pursuant to Section 15
hereof. The
parties shall enter into an Additional Agreement setting forth
customary and
commercially reasonable representations, warranties and interim
covenants. The
parties hereby acknowledge and confirm that all material terms and
conditions of
the Additional Agreements are described in this Agreement.
(c) Empire agrees to cooperate with Transferor and to take all
commercially reasonable steps necessary to structure the
transaction
contemplated by this Agreement as a transaction in which no gain or
loss will be
recognized by Transferor for income tax purposes or otherwise to
reduce the tax
effect of the transaction on Transferor and its affiliates (a "Tax
Free
Exchange"), provided that Transferor shall be responsible for any
additional
taxes payable by Empire as a result of the conveyance of the Resort
Property in
a Tax Free Exchange, but only to the extent that such taxes are in
excess of the
taxes that would otherwise have been payable by Empire had the
contemplated
transaction been a direct transfer of the Resort Property to
Empire. The term
"taxes", as used in the preceding sentence, shall include or be
deemed to
include any application of net operating losses of Empire in
respect of tax
liabilities. The manner in which any Tax Free Exchange is
structured shall be
mutually acceptable to tax counsel for both Empire and Transferor
(in the
exercise of such tax counsel's reasonable discretion).
8. CERTAIN PRE-CLOSING COVENANTS.
(a) Empire covenants that during the term of this Agreement it
shall,
and it shall cause its subsidiaries to, operate in the ordinary
course of
business consistent with past practice. Without limiting the
foregoing, Empire
shall not, and shall not permit any of its subsidiaries to,
directly or
indirectly change its or their respective capital structure (except
that Empire
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may issue capital stock that complies with the definition of
Excluded Shares set
forth in Section 4 herein), pay or declare any dividends (except as
dividends on
Empire's preferred stock as provided above) or distributions or
repurchase or
otherwise acquire any of their capital stock or commit to do any of
the
foregoing. Transferor agrees that, during the term of this
Agreement, it shall,
and shall cause its subsidiaries to, operate the Resort Properties
in the
ordinary course of business consistent with past practices.
(b) Subject to the terms and conditions provided herein and to
applicable laws, each of the parties shall use its commercially
reasonable
efforts to take, or cause to be taken, all actions, and do, or
cause to be done,
and assist and cooperate with the other party in doing, in the most
expeditious
manner practicable, all things necessary, proper or advisable to
ensure that the
conditions set forth in Section 12 hereof are satisfied and to
consummate the
transactions contemplated hereby. Without limiting the generality
of the
foregoing, each of Empire and Transferor shall: (i) use their
commercially
reasonable efforts to cooperate with one another in (A) timely
making any
filings and notifications that are required to be made under
applicable laws in
connection with gaming approvals and any other consents, licenses,
approvals,
permits, waivers, orders or authorizations that are required to be
obtained
under applicable laws from governmental entities or other persons
in connection
with the consummation of the transactions contemplated by this
Agreement, and
(B) as promptly as practicable, responding to any request for
information from
such governmental entities or such other persons; (ii) use its
commercially
reasonable efforts to avoid the entry of, or to have vacated,
lifted, reversed,
overturned or terminated, any order, judgment, injunction or decree
(whether
temporary, preliminary or permanent) or any other judicial,
administrative or
legislative action or proceeding that would restrain, prevent or
delay the
closing of the transactions contemplated by this Agreement,
including, without
limitation, defending through litigation on the merits any claim
asserted in any
court by any party; and (iii) use its commercially reasonable
efforts to take
any steps necessary to avoid or eliminate any impediment under any
applicable
law that may be asserted by any governmental entity or private
party with
respect to the transactions contemplated by the Agreement so as to
enable the
Closing to occur as soon as reasonably practicable after the date
hereof.
(c) Transferor agrees to use all commercially reasonable efforts to
obtain the approval to this transaction of the Bankruptcy Court
having
jurisdiction over the bankruptcy proceeding involving Frontline
Capital Corp.
("Frontline"), which approval is a condition to Transferor's
obligation to close
hereunder. In furtherance of the foregoing, Transferor and its
members covenant
to cause Frontline to (x) promptly petition the Bankruptcy Court
for such
approval, and (y) recommend tha
