Exhibit 10.1

 
 
 

INVESTMENT AGREEMENT
 
dated as of August 19, 2009
 

 
between
 
EMPIRE RESORTS, INC.
 
and
 
KIEN HUAT REALTY III LIMITED
 

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Table of Contents
 

 
Page
 
ARTICLE I
PURCHASE; CLOSINGS
1.1
Purchase and Sale
1
1.2
Purchase Price Calculation
2
1.3
Initial Closing
2
1.4
Closing
5
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1
Disclosure
7
2.2
Representations and Warranties of the Company
8
2.3
Representations and Warranties of the Investor
25
ARTICLE III
COVENANTS
3.1
Stockholder Meeting
27
3.2
Conduct of the Business
28
3.3
Preferred Stock Terms
30
3.4
Takeover Statutes
31
3.5
HSR Act
31
3.6
Regulatory Matters
31
3.7
Amendment to Series A Preferred Stock
32
3.8
Use of First Tranche Consideration
32
     
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1
Governance Matters
32
4.2
No Solicitation
35
4.3
Legend
35
4.4
Certain Transactions
36
4.5
Option Matching Rights
36
4.6
Indemnity
37

 
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4.7
Exchange Listing
39
4.8
Certain Transactions
39
4.9
Loan Agreement
40
     
ARTICLE V
TERMINATION
5.1
Termination Prior to the Initial Closing
40
5.2
Termination After the Initial Closing and Prior to the Closing
40
5.3
Effects of Termination
41
5.4
Termination Fee
41
     
ARTICLE VI
MISCELLANEOUS
6.1
Survival
42
6.2
Expenses
42
6.3
Amendment
42
6.4
Waivers
42
6.5
Counterparts and Facsimile
42
6.6
Governing Law
43
6.7
WAIVER OF JURY TRIAL
43
6.8
Notices
43
6.9
Entire Agreement, Etc
44
6.10
Other Definitions or Interpretations
44
6.11
Captions
45
6.12
Severability
45
6.13
No Third Party Beneficiaries
45
6.14
Time of Essence
45
6.15
Public Announcements
45
6.16
Specific Performance
45
     

 
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LIST OF EXHIBITS
 
Exhibit A:
Form of Stockholder Voting Agreement
Exhibit B:
Form of Registration Rights Agreement
Exhibit C:
Form of Consulting Agreement
Exhibit D:
Form of Legal Opinion
Exhibit E:
Form of Amendment to the Company By-Laws
Exhibit F:
List of Options and Warrants

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INDEX OF DEFINED TERMS
 
Term
Location of
Definition
Affiliate
6.10(a)
Agreement
Preamble
Alternative Investment Proposal
4.2(c)
Authorized Preferred Stock
2.2(b)
Benefit Plan
2.2(r)(1)
Board of Directors
1.3(b)(2)(B)
Board Representatives
4.1(a)
business day
6.10(e)
Capitalization Date
2.2(b)
CERCLA
2.2(s)
Certificate of Incorporation
2.2(a)(1)
Charter Amendment
2.2(d)(1)(B)
Closing
1.4(a)
Closing Date
1.4(a)
Closing Date Option Schedule
4.5
Code
2.2(i)
Common Stock
Recitals
Company
Preamble
Company By-Laws
2.2(a)(1)
Company Financial Statements
2.2(f)
Company IT Systems
2.2(u)(5)
Company Material Adverse Effect
2.1(b)
Company Reports
2.2(g)(1)
Company Significant Agreement
2.2(l)
Company Subsidiary
2.2(a)(2)
Company Voting Proposals
2.2(d)(1)(B)
Consulting Agreement
1.3(a)(1)(C)
control/controlled by/under common control with
6.10(a)
Disclosure Schedule
2.1(a)
ERISA
2.2(r)(1)
ERISA Affiliate
2.2(r)(1)
Exchange Act
2.2(g)(1)
First Tranche
1.1(a)(1)
First Tranche Consideration
1.2(a)(1)
Fraud
2.2(u)(1)(B)
Fraud Losses
2.2(u)(1)
GAAP
2.1(b)
Games
2.2(u)(1)(B)
Gaming/Racing Authority
2.2(t)(4)
Gaming/Racing Facility
2.2(t)(4)
Gaming/Racing Law
2.2(t)(4)

 
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Term
Location of
Definition
Gaming/Racing Permits
2.2(t)(4)
Governmental Entity
1.3(b)(1)(A)
HSR Act
3.5
Indemnified Party
4.6(c)
Indemnifying Party
4.6(c)
Initial Closing
1.3(a)
Initial Closing Date
1.3(a)
Intellectual Property
2.2(x)
Investor
Preamble
Investor CFO Nominee
4.1(d)
Investor Material Adverse Effect
2.3(a)
Liens
2.2(c)
Loan Agreement
4.9
Losses
4.6(a)
Mandatory Voting Proposals
2.2(d)(1)
material
2.1(b)
Multiemployer Plan
2.2(r)(5)
Option Exercise Notice
4.5
Option Plan Amendment
3.1(d)
Option Rights Notice
4.5
Option Schedule
2.2(b)
Pension Plan
2.2(r)(1)
Person
6.10(f)
Pre-Closing Period
3.2
Preferred Stock Issuance Event
2.2(d)(1)
Previously Disclosed
2.1(c)
Purchase Price
1.1(b)
Registration Rights Agreement
1.3(a)(1)(B)
Representatives
4.2(c)
Required Charter Amendment Vote
2.2(d)(1)(B)
Required Company Stockholder Vote
2.2(d)(1)(B)
Required Share Issuance Vote
2.2(d)(1)(A)
Rights Plan
2.2(b)(1)
SEC
2.1(c)(2)(A)
Second Tranche
1.1(a)(2)
Second Tranche Consideration
1.2(b)
Securities Act
2.2(g)(1)
Series A Preferred Stock
2.2(b)
Series B Preferred Stock
2.2(b)
Series E Preferred Stock
2.2(b)
Series F Preferred Stock
1.1(a)(2)(A)
Share Issuance
2.2(d)(1)(A)
Special Meeting
1.4(b)(1)(C)

 
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Term
Location of
Definition
Stockholder Voting Agreement
Recitals
Subsidiary
2.2(a)(2)
Survival Period
6.1
Takeover Statutes
2.2(v)
Tax/Taxes
2.2(i)
Tax Return
2.2(i)
Threshold Amount
4.6(e)
Total Investment
1.1(a)(2)
Video Lottery Business
2.2(u)(5)
Voting Debt
2.2(b)

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INVESTMENT AGREEMENT, dated as of August 19, 2009 (this “Agreement”), between
Empire Resorts, Inc., a Delaware corporation (the “Company”), and Kien Huat
Realty III Limited, an Isle of Man corporation (the “Investor”).
 
RECITALS:
 
A.           The Investment. The Company intends to sell to the Investor, and
the Investor intends to purchase from the Company, as an investment in the
Company, (i) shares of common stock, par value $0.01 per share, of the Company
(the “Common Stock”) and (ii) shares of Series F Preferred Stock (as defined
below), in the case of this clause (ii), to be issued only upon the occurrence
of the Preferred Stock Issuance Event (as defined below).
 
B.           The Stockholder Voting Agreement. Concurrently with the execution
and delivery of this Agreement, and as a condition and inducement to the
Investor’s willingness to enter into this Agreement, certain stockholders of the
Company are entering into a Stockholder Voting Agreement, dated as of the date
of this Agreement, in the form attached hereto as Exhibit A (the “Stockholder
Voting Agreement”), pursuant to which such stockholders, among other things,
agree to vote all of the shares of voting capital stock of the Company that such
stockholders own in favor of the Company Voting Proposals (as defined below).
 
NOW, THEREFORE, in consideration of the premises, and of the representations,
warranties, covenants and agreements set forth herein, the parties agree as
follows:
 
ARTICLE I
 

 
PURCHASE; CLOSINGS
 
1.1           Purchase and Sale.  (a) Upon the terms and subject to the
conditions set forth in this Agreement, and in reliance upon the representations
and warranties hereinafter set forth:
 
(1)           at the Initial Closing (as defined below), the Company shall
issue, sell and deliver to the Investor 6,804,188 shares of Common Stock (the
“First Tranche”); and
 
(2)           at the Closing (as defined below), following, subject to and
conditioned (A) upon approval of the Mandatory Voting Proposals (as defined
below), the Company shall issue, sell and deliver to the Investor 27,701,852
shares of Common Stock or (B) upon the occurrence of the Preferred Stock
Issuance Event, the Company shall issue, sell and deliver to the Investor (i)
the full number of shares of Common Stock that remain authorized but not issued
or otherwise reserved for issuance and (ii) shares of a new series of preferred
stock (the “Series F Preferred Stock”), which shall be the capital equivalent of
the Common Stock and be issued upon terms mutually agreeable to the Company and
the Investor reflecting the vote and economics of such number of shares of
Common Stock as is the difference obtained by subtracting the number of shares
of Common Stock delivered to the Investor under (i) above from 27,701,852
(either A or B, the “Second Tranche” and together with the First Tranche, the
“Total Investment”).  In the case of either (A) or (B), notwithstanding anything
that may be interpreted to the contrary elsewhere in this Agreement, the Total
Investment shall equal one share less than 50.0% of the voting power of the
Company immediately following the Closing.
 
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(b)           The aggregate consideration to be paid by the Investor for the
Total Investment shall be equal to the First Tranche Consideration (as defined
below) plus the Second Tranche Consideration (as defined below) (the First
Tranche Consideration and the Second Tranche Consideration, together, the
“Purchase Price”), in each case, to be paid in the manner and at the times set
forth in Sections 1.2 to 1.4.
 
1.2           Purchase Price Calculation.  (a) At the Initial Closing, the
Investor shall pay to the Company by wire transfer of immediately available
funds to an account designated in writing by the Company an amount equal to
$11,000,000 (the “First Tranche Consideration”) in exchange for the First
Tranche.
 
(b)           At the Closing, following, subject to and conditioned upon
approval of the Mandatory Voting Proposals or the occurrence of the Preferred
Stock Issuance Event, the Investor shall pay by wire transfer of immediately
available funds to an account designated in writing by the Company an amount
equal to $44,000,000 (the “Second Tranche Consideration”) in exchange for the
Second Tranche.
 
1.3           Initial Closing.  (a) Subject to the satisfaction or, if
permissible, waiver of the conditions set forth in Section 1.3(b), the closing
of the purchase of the First Tranche by the Investor (the “Initial Closing”)
shall take place at the offices of Cleary Gottlieb Steen & Hamilton LLP, One
Liberty Plaza, New York, NY 10006 at 10:00 a.m., New York City time, on August
19, 2009 or at such other date and place as the parties may otherwise agree (the
“Initial Closing Date”).
 
(1)           At the Initial Closing, the Company shall deliver, or cause to be
delivered, as the case may be, to the Investor the following:
 
(A)           a certificate representing a number of shares of Common Stock
equal to the First Tranche;
 
(B)           a duly executed counterpart to the registration rights agreement
substantially in the form attached hereto as Exhibit B (the “Registration Rights
Agreement”);
 
(C)           a duly executed counterpart to the consulting agreement
substantially in the form attached hereto as Exhibit C (the “Consulting
Agreement”);
 
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(D)           a legal opinion in the form attached as Exhibit D;
 
(E)           reimbursement of the Investor’s expenses through the Initial
Closing Date in accordance with Section 6.2 of this Agreement; and
 
(F)           such other certificates, instruments of conveyance or documents as
may be reasonably requested by the Investor to carry out the intent and purposes
of this Agreement.
 
(2)           At the Initial Closing, the Investor shall deliver, or cause to be
delivered, as the case may be, to the Company the following:
 
(A)           the First Tranche Consideration, which may be paid net of the
amount to be reimbursed under (1)(E) above;
 
(B)           a duly executed counterpart to the Registration Rights Agreement;
and
 
(C)           such other certificates or documents as may be reasonably
requested by the Company to carry out the intent and purposes of this Agreement.
 
(b)           Initial Closing Conditions. (1) The obligation of the Investor, on
the one hand, and the Company, on the other hand, to consummate the Initial
Closing is subject to the fulfillment or written waiver by the Investor and the
Company prior to the Initial Closing of the following conditions:
 
(A)           no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the Initial Closing or shall prohibit
or restrict the Investor or its Affiliates (as defined below) from owning or
voting the Common Stock (other than on an interim basis pending receipt of the
requisite Gaming/Racing Permits (as defined below)) in any court, administrative
agency or commission or other governmental authority or instrumentality, whether
federal, state, local or foreign, or any applicable self-regulatory
organization, including any Gaming/Racing Authority (as defined below) (each, a
“Governmental Entity”), seeking to effect any of the foregoing;
 
(B)           the Company shall have applied to NASDAQ to authorize the shares
of Common Stock to be issued at the Initial Closing for listing on NASDAQ or
such other market on which the Common Stock is then listed or quoted, subject
only to official notice of issuance; and
 
(C)           the Investor shall have received all requisite Gaming/Racing
Permits or shall have executed an escrow agreement with a duly qualified nominee
if and to the extent permitted under applicable Gaming/Racing Law (as defined
below) to act as nominee holder of the Common Stock.
 
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(2)           The obligation of the Investor to consummate the purchase of the
First Tranche to be purchased by it at the Initial Closing is subject to the
further fulfillment or written waiver by the Investor prior to the Initial
Closing of each of the following conditions:
 
(A)           the representations and warranties of the Company contained in
this Agreement, without regard to any materiality or Company Material Adverse
Effect (as defined below) qualifier contained therein, shall be true and correct
when made and on and as of the Initial Closing Date as if made at and as of the
Initial Closing Date (except for any representations and warranties made as of a
specified date, which shall be true and correct as of the specified date),
except where the failure of such representations and warranties to be true and
correct has not had and would not reasonably be expected to have a Company
Material Adverse Effect. The Investor shall have received a certificate signed
on behalf of the Company by the chief executive officer or the chief financial
officer of the Company to such effect;
 
(B)           the board of directors of the Company (the “Board of Directors”)
shall have duly adopted and declared effective an amendment to the Company
By-Laws (as defined below) substantially in the form attached hereto as Exhibit
E;
 
(C)           the Company shall have delivered to the Investor a duly executed
copy of the Registration Rights Agreement substantially in the form attached
hereto as Exhibit B;
 
(D)           the Company shall have delivered to the Investor a duly executed
copy of the Consulting Agreement substantially in the form attached hereto as
Exhibit C;
 
(E)           the Company shall have delivered the legal opinion referred to in
clause (a)(1)(D) above; and
 
(F)           the Board of Directors shall have adopted resolutions appointing
Colin Au and G. Michael Brown to serve as members of the Board of Directors.
 
(3)           The obligation of the Company to consummate the Initial Closing is
subject to the further fulfillment or written waiver by the Company prior to the
Initial Closing of each of the following conditions:
 
(A)           the representations and warranties of the Investor contained in
this Agreement, without regard to any materiality or Investor Material Adverse
Effect (as defined below) qualifier contained therein, shall be true and correct
in all material respects when made and on and as of the Initial Closing Date as
if made at and as of the Initial Closing Date (except for any representations
and warranties made as of a specified date, which shall be true and correct in
all material respects as of the specified date). The Company shall have received
a certificate signed by a duly authorized officer of the Investor to such
effect; and
 
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(B)           the Investor shall have delivered to the Company a duly executed
copy of the Registration Rights Agreement substantially in the form attached
hereto as Exhibit B.
 
1.4           Closing.  (a) The closing of the purchase of the Second Tranche by
the Investor (the “Closing”) shall take place at the offices of Cleary Gottlieb
Steen & Hamilton LLP, One Liberty Plaza, New York, NY 10006 at 10:00 a.m., New
York City time, on a date to be specified by the Company and the Investor, which
shall be no later than the third business day after satisfaction or waiver of
the conditions set forth in Section 1.4(b) below (the “Closing Date”).
 
(1)           At the Closing, the Company shall deliver, or cause to be
delivered, as the case may be, to the Investor the following:
 
(A)           certificates representing a number of shares of Common Stock and,
if applicable, Series F Preferred Stock equal to the Second Tranche;
 
(B)           a duly executed counterpart to the Loan Agreement (as defined
below);
 
(C)           reimbursement of the Investor’s expenses from the Initial Closing
Date through the Closing Date in accordance with Section 6.2 of this Agreement;
and
 
(D)           such other certificates, instruments of conveyance or documents as
may be reasonably requested by the Investor to carry out the intent and purposes
of this Agreement.
 
(2)           At the Closing, the Investor shall deliver, or cause to be
delivered, as the case may be, to the Company the following:
 
(A)           the Second Tranche Consideration, which may be paid net of the
amount to be reimbursed under (1)(D) above;
 
(B)           a duly executed counterpart to the Loan Agreement; and
 
(C)           such other certificates or documents as may be reasonably
requested by the Company to carry out the intent and purposes of this Agreement.
 
(b)           (1)           The obligations of the Investor, on the one hand,
and the Company, on the other hand, to consummate the Closing is subject to the
fulfillment or written waiver by the Investor and the Company prior to the
Closing of the following conditions:
 
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(A)           no provisions of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the Closing or shall prohibit or
restrict the Investor or its Affiliates from owning or voting the Common Stock
or, if applicable, the Series F Preferred Stock (other than on an interim basis
pending receipt of the requisite Gaming/Racing Permits) and no lawsuit shall
have been commenced by a Governmental Entity seeking to effect any of the
foregoing;
 
(B)           the Company shall have applied to NASDAQ to authorize the shares
of Common Stock to be issued at the Initial Closing for listing on NASDAQ or
such other market on which the Common Stock is then listed or quoted, subject
only to official notice of issuance;
 
(C)           (i) the Mandatory Voting Proposals shall have been approved at a
duly called and held special meeting of the Company’s stockholders (the “Special
Meeting”), at which a quorum is present, by the Required Company Stockholder
Vote (as defined below); or (ii) the Preferred Stock Issuance Event shall have
taken place and the Company shall have filed a certificate of designation,
amending its Certificate of Incorporation creating and authorizing the issuance
of the Series F Preferred Stock;
 
(D)           the Investor shall have received all requisite Gaming/Racing
Permits or shall have executed an escrow agreement with a duly qualified nominee
permitted under applicable Gaming/Racing Law to act as nominee holder of the
Common Stock and, if applicable, the Series F Preferred Stock.
 
(2)           The obligation of the Investor to consummate the purchase of the
Second Tranche to be purchased by it at the Closing is subject to the further
fulfillment or written waiver by the Investor prior to the Closing of each of
the following conditions:
 
(A)           the representations and warranties of the Company contained in
this Agreement, without regard to any materiality or Company Material Adverse
Effect qualifier contained therein, shall have been true and correct when made,
except where the failure of such representations and warranties to be true and
correct has not had and would not reasonably be expected to have a Company
Material Adverse Effect; and
 
(B)           the Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement on or prior to
the Closing Date and the Investor shall have received a certificate signed on
behalf of the Company by the chief executive officer or the chief financial
officer of the Company to such effect.
 
(3)           The obligation of the Company to consummate the Closing is subject
to the further fulfillment or written waiver by the Company prior to the Closing
of each of the following conditions:
 
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(A)           the representations and warranties of the Investor contained in
this Agreement, without regard to any materiality or Investor Material Adverse
Effect qualifier contained therein, shall have been true and correct in all
material respects when made; and
 
(B)           the Investor shall have performed in all material respects all
obligations required to be performed by it under this Agreement on or prior to
the Closing Date and the Company shall have received a certificate signed on
behalf of the Investor by a duly authorized officer of the Investor to such
effect.
 
ARTICLE II
 
REPRESENTATIONS AND WARRANTIES
 
2.1           Disclosure.  (a) On or prior to the date hereof, the Company
delivered to Investor and the Investor delivered to the Company a schedule
(“Disclosure Schedule”) setting forth, among other things, items the disclosure
of which is necessary or appropriate either in response to an express disclosure
requirement contained in a provision hereof or as an exception to one or more
representations or warranties contained in Section 2.2 with respect to the
Company, or in Section 2.3 with respect to the Investor, or to one or more
covenants contained in Article III.
 
(b)           As used in this Agreement, any reference to any fact, change,
circumstance or effect being “material” with respect to the Company means such
fact, change, circumstance or effect is material in relation to the business,
assets, results of operations or financial condition of the Company and the
Company Subsidiaries taken as a whole.  As used in this Agreement, the term
“Company Material Adverse Effect” means any circumstance, event, change,
development or effect that, individually or in the aggregate, (1) is material
and adverse to the business, assets, results of operations or financial
condition of the Company and the Company Subsidiaries taken as a whole, (2)
would materially impair the ability of the Company to perform its obligations
under this Agreement or to consummate the Initial Closing or the Closing or (3)
would materially adversely affect the ability of the Investor to own, hold or
vote the shares of Common Stock or Series F Preferred Stock acquired under this
Agreement or otherwise materially adversely limit the Investor’s conduct in
respect of the Company; provided, however, that in determining whether a Company
Material Adverse Effect has occurred, there shall be excluded any effect to the
extent resulting from the following: (A) changes, after the date hereof, in
generally accepted accounting principles in the United States (“GAAP”) or
regulatory accounting principles, (B) changes, after the date hereof, in laws,
rules and regulations of general applicability or interpretations thereof by
Governmental Entities not specific to this Agreement or any of the transactions
contemplated hereby, (C) actions or omissions of the Company expressly required
by the terms of this Agreement or taken with the prior written consent of the
Investor, (D) changes in general economic, monetary or financial conditions,
including changes in prevailing interest rates, credit markets, secondary
mortgage market conditions or housing price appreciation/depreciation trends,
(E) changes, in and of themselves, in the market price or trading volumes of the
Common Stock or the Company’s other securities (but not the underlying causes of
such changes), (F) the failure of the Company to meet any internal or public
projections, forecasts, estimates or guidance for any period ending on or after
December 31, 2008 (but not the underlying causes of such failure), and (G)
changes in global or national political conditions, including the outbreak or
escalation of war or acts of terrorism; except, with respect to clauses (A),
(B), (D) and (G), to the extent that the effects of such changes have a
disproportionate effect on the Company and the Company Subsidiaries, taken as a
whole, relative to other similarly situated participants in the industries or
markets in which they operate.
 
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(c)           “Previously Disclosed” with regard to (1) the Investor, means
information set forth on its Disclosure Schedule, provided, however, that
disclosure in any section of such Disclosure Schedule shall apply only to the
indicated section of this Agreement except to the extent that it is reasonably
apparent from the face of such disclosure that such disclosure is relevant to
another section of this Agreement, and (2) the Company, means information
publicly disclosed by the Company in (A) its Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, as filed by it with the Securities and
Exchange Commission (“SEC”) on March 3, 2009 and amended by it on April 30,
2009, (B) its Definitive Proxy Statement on Schedule 14A, as filed by it with
the SEC on May 22, 2009, (C) its quarterly report on Form 10-Q filed on May 8,
2009 for the quarter ended March 31, 2009, (D) its quarterly report on Form 10-Q
for the quarter ended June 30, 2009 filed on August 17, 2009 or (E) any Current
Report on Form 8-K filed or furnished by it with the SEC since January 1, 2009
and publicly available prior to the date of this Agreement (excluding any risk
factor disclosures contained in such documents under the heading “Risk Factors”
and any disclosure of risks included in any “forward-looking statements”
disclaimer or other statements that are similarly non-specific and are
predictive or forward-looking in nature).
 
2.2           Representations and Warranties of the Company.  Except as
Previously Disclosed, the Company represents and warrants to the Investor, as of
the date of this Agreement and as of the Initial Closing Date (except to the
extent made only as of a specified date in which case as of such date), that:
 
(a)           Organization and Authority.  (1) The Company is a corporation duly
organized and validly existing under the laws of the State of Delaware, is duly
qualified to do business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business requires it to
be so qualified and where failure to be so qualified would have a Company
Material Adverse Effect, and has the corporate power and authority to own its
properties and assets and to carry on its business as it is now being
conducted.  The Company has furnished to the Investor true, correct and complete
copies of the Company’s certificate of incorporation (the “Certificate of
Incorporation”) and by-laws (the “Company By-Laws”) as in effect on the date of
this Agreement.
 
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(2)           Each Company Subsidiary is duly organized and validly existing
under the laws of its jurisdiction of organization, is duly qualified to do
business and is in good standing in all jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and where failure to be so qualified would have a Company Material
Adverse Effect, and has the corporate power and authority and governmental
authorizations to own its properties and assets and to carry on its business as
it is being conducted.  As used herein, “Subsidiary” means, with respect to any
Person, any corporation, partnership, joint venture, limited liability company
or other entity (A) of which such Person or a subsidiary of such Person is a
general partner or (B) of which a majority of the voting securities or other
voting interests, or a majority of the securities or other interests of which
having by their terms ordinary voting power to elect a majority of the board of
directors or Persons performing similar functions with respect to such entity,
is directly or indirectly owned by such Person and/or one or more subsidiaries
thereof; “Company Subsidiary” means any Subsidiary of the Company.  Schedule
2.2(b) contains a correct and complete list of the Company Subsidiaries as of
the date hereof.
 
(b)           Capitalization.  The authorized capital stock of the Company
consists of 75,000,000 shares of Common Stock and 5,000,000 shares of preferred
stock, par value $.01 per share, of the Company (the “Authorized Preferred
Stock”).  As of the close of business on August 18, 2009 (the “Capitalization
Date”), there were (not including any shares of Common Stock being issued in
connection with this Agreement) 34,037,961 shares of Common Stock outstanding
and 1,774,955 shares of Authorized Preferred Stock outstanding, consisting of
1,730,697 shares of Series E Preferred Stock (“Series E Preferred Stock”) and
44,258 shares of 7.75% B Series Convertible Preferred Stock (“Series B Preferred
Stock”).  As of the close of business on the Capitalization Date, no shares of
Common Stock or Authorized Preferred Stock were reserved or to be made available
for issuance, except for (1) 40,000 shares of Authorized Preferred Stock
designated as Series A Junior Participating Preferred Stock, par value $.01 per
share (the “Series A Preferred Stock”), reserved or to be made available for
issuance upon the exercise of rights granted under the Rights Agreement, dated
as of March 24, 2008 between the Company and Continental Stock Transfer & Trust
Company, as rights agent (the “Rights Plan”), and (2) 5,175,160 shares of Common
Stock reserved or to be made available for issuance upon conversion of the
Company’s 5 ½% Secured Convertible Notes due 2014 and 7,917,870 shares of Common
Stock for issuance upon exercise of options and warrants outstanding as of the
Capitalization Date.  Attached hereto as Exhibit F is a true and complete list
of all options and warrants outstanding as of the date of this Agreement,
setting forth for each the name of the holder, the number of shares of Common
Stock subject to such options and warrants, the expiry date and vesting schedule
and the exercise price thereof (the “Option Schedule”).  All of the options and
warrants listed on the Option Schedule have been duly granted under option plans
that were authorized by vote of the stockholders of the Company.  All of the
issued and outstanding shares of Common Stock and Authorized Preferred Stock
have been, and all Common Stock to be issued upon exercise of options or
warrants on the Option Schedule will be, duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof.  No bonds, debentures, notes or
other indebtedness having the right to vote on any matters on which the
stockholders of the Company may vote (“Voting Debt”) are issued and
outstanding.  Other than the Common Stock (and, as of the Closing, upon the
occurrence of the Preferred Stock Issuance Event, the Series F Preferred Stock),
no capital stock is issued and outstanding except for the Series E Preferred
Stock, each holder of which is entitled to 1/4 of one vote and the Series B
Preferred Stock, each holder of which is entitled to 8/10 of one vote.  As of
the date of this Agreement, except (i) pursuant to any cashless exercise
provisions of any Company stock options or pursuant to the surrender of shares
to the Company or the withholding of shares by the Company to cover tax
withholding obligations under the Benefit Plans (as defined below), and (ii) as
set forth elsewhere in this Section 2.2(b), the Company does not have and is not
bound by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of, or
securities or rights convertible into or exchangeable for, any shares of Common
Stock or Authorized Preferred Stock or any other equity securities of the
Company or Voting Debt or any securities representing the right to purchase or
otherwise receive any shares of capital stock of the Company (including any
rights plan or agreement).
 
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(c)           Company’s Subsidiaries.  The Company owns, directly or indirectly,
all of the issued and outstanding shares of capital stock or all other equity
interests in each of the Company Subsidiaries, free and clear of any liens,
charges, encumbrances, adverse rights or claims and security interests
whatsoever (“Liens”), and all of such shares or equity interests are duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof.  No Company Subsidiary has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of capital stock,
any other equity security or any Voting Debt of such Company Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock, any other equity security or Voting Debt of such Company
Subsidiary.
 
(d)           Authorization.  (1) The Company has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby have been
duly and unanimously authorized by the Board of Directors.  This Agreement has
been duly and validly executed and delivered by the Company and, assuming due
authorization, execution and delivery by the Investor, is a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms. Except for the Required Company Stockholder Vote, no other corporate
proceedings are necessary for the execution and delivery by the Company of this
Agreement, the performance by it of its obligations hereunder or the
consummation by it of the transactions contemplated hereby. The only vote of the
stockholders of the Company required to approve any of the transactions
contemplated herein is an affirmative vote of (A) a majority of the stockholders
voting at a stockholders meeting to approve the issuance of the Second Tranche
for purposes of Rule 5635(b) and Rule 5635(d) of the NASDAQ Marketplace Rules
(the “Share Issuance”), provided that the total votes cast at the meeting
represent over 50% in interest of all securities entitled to vote (the “Required
Share Issuance Vote”); and (B) a majority of the stockholders outstanding and
entitled to vote on the record date for a meeting to approve the amendment of
the Company’s Certificate of Incorporation (the “Charter Amendment” and,
together with the Share Issuance, the “Mandatory Voting Proposals” and,
collectively with the Option Plan Amendment (as defined below), the “Company
Voting Proposals”) to increase the number of authorized shares of Common Stock
to 95,000,000 (the “Required Charter Amendment Vote” and, together with the
Required Share Issuance Vote, the “Required Company Stockholder Vote”), provided
that, if the Required Share Issuance Vote in favor of the Share Issuance is
obtained but the Required Charter Amendment Vote in favor of the Charter
Amendment is not obtained (the “Preferred Stock Issuance Event”), the Investor
shall be entitled to receive a combination of Common Stock and Series F
Preferred Stock in the amounts and upon the terms set forth in Section
1.1(a).  To the Company’s knowledge, all shares of Common Stock, Series B
Preferred Stock and Series E Preferred Stock outstanding on the record date for
a meeting at which a vote is taken with respect to the Company Voting Proposals
shall be eligible to vote on the Charter Amendment and the Option Plan Amendment
and all shares outstanding other than those issued to the Investor at the
Initial Closing shall be eligible to vote on the Share Issuance.  The Board of
Directors has unanimously adopted a resolution declaring the Charter Amendment
advisable and directing that it be recommended to the stockholders of the
Company for approval at the Special Meeting.
 
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(2)           Neither the execution and delivery by the Company of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
compliance by the Company with any of the provisions hereof, will (A) violate,
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration of,
or result in the creation of any Lien upon any of the material properties or
assets of the Company or any Company Subsidiary under any of the terms,
conditions or provisions of (i) subject  in the case of the authorization and
issuance of the Second Tranche to receipt of the Required Company Stockholder
Vote or the occurrence of the Preferred Stock Issuance Event, the Certificate of
Incorporation or Company By-Laws (or similar governing documents) or the
certificate of incorporation, charter, bylaws or other governing instrument of
any Company Subsidiary or (ii) any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which the
Company or any Company Subsidiary is a party or by which it may be bound, or to
which the Company or any Company Subsidiary or any of the properties or assets
of the Company or any Company Subsidiary may be subject, or (B) except as set
forth in Section 2.2(d)(2) of the Disclosure Schedule, subject to compliance
with the statutes and regulations referred to in Section 2.2(e), violate any
law, statute, ordinance, rule, regulation, permit, concession, grant, franchise
or any judgment, ruling, order, writ, injunction or decree applicable to the
Company or any Company Subsidiary or any of their respective properties or
assets except in the case of clauses (A)(ii) and (B) for such violations,
conflicts and breaches as would not reasonably be expected to have a Company
Material Adverse Effect.
 
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(e)           Governmental Consents.  Other than as Previously Disclosed,
Gaming/Racing Authority approvals and the securities or blue sky laws of the
various states, no material notice to, registration, declaration or filing with,
exemption or review by, or authorization, order, consent or approval of, any
Governmental Entity, nor expiration or termination of any statutory waiting
periods, is necessary for the consummation by the Company of the transactions
contemplated by this Agreement.
 
(f)           Financial Statements.  Each of the consolidated balance sheets of
the Company and the Company Subsidiaries and the related consolidated statements
of income, stockholders’ equity and cash flows, together with the notes thereto
(collectively, the “Company Financial Statements”) included in any Company
Report filed with the SEC prior to the date of this Agreement, (1) have been
prepared from, and are in accordance with, the books and records of the Company
and the Company Subsidiaries, (2) complied as to form, as of their respective
date of filing with the SEC, in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, (3) have been prepared in accordance with GAAP applied on a
consistent basis during the period involved and (4) present fairly in all
material respects the consolidated financial position of the Company and the
Company Subsidiaries as of the dates set forth therein and the consolidated
results of operations, changes in stockholders’ equity and cash flows of the
Company and the Company Subsidiaries for the periods stated therein, subject, in
the case of any unaudited financial statements, to normal recurring year-end
audit adjustments.
 
(g)           Reports.  (1) Since December 31, 2006, the Company and each
Company Subsidiary has timely filed all material reports, registrations,
documents, filings, statements and submissions, together with any required
amendments thereto, that it was required to file with any Governmental Entity
(the foregoing, collectively, the “Company Reports”) and has paid all fees and
assessments due and payable in connection therewith. As of their respective
dates, the Company Reports complied in all material respects with all statutes
and applicable rules and regulations of the applicable Governmental
Entities.  To the knowledge of the Company, as of the date of this Agreement,
there are no outstanding comments from the SEC or any other Governmental Entity
with respect to any Company Report.  In the case of each such Company Report
filed with or furnished to the SEC, such Company Report did not, as of its date
or if amended prior to the date of this Agreement, as of the date of such
amendment, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made in it, in light of the circumstances under which they were made,
not misleading and complied as to form in all material respects with the
applicable requirements of the Securities Act of 1933, as amended (the
“Securities Act”), and the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).  With respect to all other Company Reports, the Company Reports
were complete and accurate in all material respects as of their respective
dates.  No executive officer of the Company or any Company Subsidiary has failed
in any respect to make the certifications required of him or her under Section
302 or 906 of the Sarbanes-Oxley Act of 2002.
 
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(2)           The records, systems, controls, data and information of the
Company and the Company Subsidiaries are recorded, stored, maintained and
operated under means (including any electronic, mechanical or photographic
process, whether computerized or not) that are under the exclusive ownership and
direct control of the Company or the Company Subsidiaries or their accountants
(including all means of access thereto and therefrom), except for any
non-exclusive ownership and non-direct control that would not reasonably be
expected to have a Company Material Adverse Effect on the system of internal
accounting controls described below in this Section 2.2(g). The Company (A) has
implemented and maintains disclosure controls and procedures (as defined in Rule
13a-15(e) of the Exchange Act) to ensure that material information relating to
the Company, including the consolidated Company Subsidiaries, is made known to
the chief executive officer and the chief financial officer of the Company by
others within those entities, and (B) has disclosed, based on its most recent
evaluation prior to the date hereof, to the Company’s outside auditors and the
audit committee of the Board of Directors (i) any significant deficiencies and
material weaknesses in the design or operation of internal controls over
financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that are
reasonably likely to adversely affect the Company’s ability to record, process,
summarize and report financial information and (ii) any fraud, whether or not
material, that involves management or other employees who have a significant
role in the Company’s internal controls over financial reporting.  Since
December 31, 2006 and until the date of this Agreement, (x) neither the Company
nor any Company Subsidiary nor, to the knowledge of the Company, any director,
officer, employee, auditor, accountant or representative of the Company or any
Company Subsidiary has received or otherwise had or obtained knowledge of any
material complaint, allegation, assertion or claim, whether written or oral,
regarding the accounting or auditing practices, procedures, methodologies or
methods of the Company or any Company Subsidiary or their respective internal
accounting controls, including any material complaint, allegation, assertion or
claim that the Company or any Company Subsidiary has engaged in questionable
accounting or auditing practices, and (y) no attorney representing the Company
or any Company Subsidiary, whether or not employed by the Company or any Company
Subsidiary, has reported evidence of a material violation of securities laws,
breach of fiduciary duty or similar violation by the Company or any of its
officers, directors, employees or agents to the Board of Directors or any
committee thereof or to any director or officer of the Company.
 
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(h)           Properties and Leases.  Except as would not reasonably be expected
to have a Company Material Adverse Effect, the Company and the Company
Subsidiaries have good and marketable title to all real properties and all other
properties and assets owned by them, in each case free from liens, encumbrances,
claims and defects that would affect the value thereof or interfere with the use
made or to be made thereof by them.  Except as would not reasonably be expected
to have a Company Material Adverse Effect, the Company and the Company
Subsidiaries hold all leased real or personal property under valid and
enforceable leases with no exceptions that would interfere with the use made or
to be made thereof by them.
 
(i)           Taxes.  (1) Each of the Company and the Company Subsidiaries has
(x) duly and timely filed (including pursuant to applicable extensions granted
without penalty) all material Tax Returns (as hereinafter defined) required to
be filed by it and (y) paid in full all Taxes due or made adequate provision in
the financial statements of the Company (in accordance with GAAP) for any such
Taxes (as hereinafter defined), whether or not shown as due on such Tax Returns;
(2) no material deficiencies for any Taxes have been proposed, asserted or
assessed in writing against or with respect to any Taxes due by or Tax Returns
of the Company or any of the Company Subsidiaries which deficiencies have not
since been resolved, except for Taxes proposed, asserted or assessed that are
being contested in good faith by appropriate proceedings and for which reserves
adequate in accordance with GAAP have been provided; and (3) there are no
material Liens for Taxes upon the assets of either the Company or the Company
Subsidiaries except for statutory liens for current Taxes not yet due or Liens
for Taxes that are being contested in good faith by appropriate proceedings and
for which reserves adequate in accordance with GAAP have been provided.  None of
the Company or any of the Company Subsidiaries has been a “distributing
corporation” or a “controlled corporation” in any distribution occurring during
the last two years in which the parties to such distribution treated the
distribution as one to which Section 355 of the Internal Revenue Code of 1986,
as amended (the “Code”), is applicable.  None of the Company or any Company
Subsidiary has engaged in any transaction that is a “listed transaction” for
federal income tax purposes within the meaning of Treasury Regulations section
1.6011-4, which has not yet been the subject of an audit.  To the Company’s
knowledge, to the extent the Company or any Company Subsidiary has or will
record for GAAP purposes an allowance for loan losses or similar reserve for bad
debts, the Company can properly record for GAAP purposes at such time a deferred
tax asset for the related deduction for Taxes.  The Company is not currently and
has not been within the prior 5-year period a “U.S. Real Property Holding
Company” as defined for U.S. federal income tax purposes.  For purposes of this
Agreement, “Taxes” shall mean all taxes, charges, levies, penalties or other
assessments imposed by any United States federal, state, local or foreign taxing
authority, including any income, excise, property, sales, transfer, franchise,
payroll, withholding, social security or other taxes, together with any interest
or penalties attributable thereto, and any payments made or owing to any other
Person measured by such taxes, charges, levies, penalties or other assessment,
whether pursuant to a tax indemnity agreement, tax sharing payment or otherwise
(other than pursuant to commercial agreements or Benefit Plans (as defined
below)).  For purposes of this Agreement, “Tax Return” shall mean any return,
report, information return or other document (including any related or
supporting information) required to be filed with any taxing authority with
respect to Taxes, including without limitation all information returns relating
to Taxes of third parties, any claims for refunds of Taxes and any amendments or
supplements to any of the foregoing
 
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(j)           Absence of Certain Changes.  Since December 31, 2008, (1) the
Company and the Company Subsidiaries have conducted their respective businesses
in all material respects in the ordinary course, consistent with prior practice,
(2) the Company has not made or declared any distribution in cash or in kind to
its stockholders or issued or repurchased any shares of its capital stock or
other equity interests and (3) no event or events have occurred that has had or
would reasonably be expected to have a Company Material Adverse Effect.
 
(k)           No Undisclosed Liabilities.  Neither the Company nor any of the
Company Subsidiaries has any liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise) which are not properly reflected or reserved
against in the Company Financial Statements to the extent required to be so
reflected or reserved against in accordance with U.S. generally accepted
accounting practices, except for (1) liabilities that have arisen since December
31, 2008 in the ordinary and usual course of business and consistent with past
practice, (2) contractual liabilities under (other than liabilities arising from
any breach or violation of) agreements Previously Disclosed or not required by
this Agreement to be so disclosed and (3) liabilities that have not had and
would not reasonably be expected to have a Company Material Adverse Effect.
 
(l)           Commitments and Contracts.  The Company has Previously Disclosed
or provided to the Investor true, correct and complete copies of, each of the
following to which the Company or any Company Subsidiary is a party or subject
(whether written or oral, express or implied) (each, a “Company Significant
Agreement”):
 
(1)           any contract or agreement which is a “material contract” within
the meaning of Item 601(b)(10) of Regulation S-K to be performed in whole or in
part after the date of this Agreement;
 
(2)           any contract or agreement which limits the freedom of the Company
or any of the Company Subsidiaries to compete in any line of business;
 
(3)           any material contract or agreement with a labor union or guild
(including any collective bargaining agreement);
 
(4)           any contract or agreement which grants any Person a right of first
refusal, right of first offer or similar right with respect to any material
properties, assets or businesses of the Company or the Company Subsidiaries;
 
(5)           any contract relating to the acquisition or disposition of any
material business or material assets (whether by merger, sale of stock or assets
or otherwise), which acquisition or disposition is not yet complete or where
such contract contains continuing material obligations, including continuing
material indemnity obligations, of the Company or any of the Company
Subsidiaries;
 
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(6)           any contract or agreement which is a consulting agreement or
service contract (including data processing, software programming and licensing
contracts and outsourcing contracts) which involves the payment of $250,000 or
more in annual fees;
 
(7)           any contract or agreement that contains a “change of control”,
assignment or similar clause that would be triggered by the transactions
contemplated herein; and
 
(8)           any contract or agreement which obligates the Company to manage
any gaming assets on behalf of an unrelated third party.
 
Except as Previously Disclosed: (A) each of the Company Significant Agreements
is valid and binding on the Company and the Company Subsidiaries, as applicable,
and in full force and effect; (B) the Company and each of the Company
Subsidiaries, as applicable, are in all material respects in compliance with and
have in all material respects performed all obligations required to be performed
by them to date under each Company Significant Agreement; and (C) as of the date
hereof, neither the Company nor any of the Company Subsidiaries knows of, or has
received notice of, any material violation or default (or any condition which
with the passage of time or the giving of notice would cause such a violation of
or a default) by any party under any Company Significant Agreement.  To the
Company’s knowledge as of the date hereof, except as Previously Disclosed, there
are no material transactions, or series of related transactions, agreements,
arrangements or understandings, nor are there any currently proposed material
transactions, or series of related transactions, between the Company or any
Company Subsidiary, on the one hand, and any current or former director or
executive officer of the Company or any Company Subsidiary or any Person who
beneficially owns 5% or more of the outstanding shares of Common Stock (or any
of such Person’s immediate family members or Affiliates (other than Company
Subsidiaries)), on the other hand, other than Benefit Plans entered into in the
ordinary course of business.
 
(m)           Offering of Common Stock.  Neither the Company nor any Person
acting on its behalf has taken any action (including any offering of any
securities of the Company under circumstances which would require the
integration of such offering with the offering of any of the Common Stock to be
issued pursuant to this Agreement under the Securities Act and the rules and
regulations of the SEC thereunder) which might subject the offering, issuance or
sale of any of the Common Stock to the Investor pursuant to this Agreement to
the registration requirements of the Securities Act.
 
(n)           Status of Common Stock and Preferred Stock.  The shares of Common
Stock to be issued in the First Tranche pursuant to this Agreement have been
duly authorized by all necessary corporate action. When issued and sold against
receipt of the consideration therefor as provided in this Agreement, such shares
of Common Stock will be validly issued, fully paid and nonassessable, will not
subject the holders thereof to personal liability and will not be subject to
preemptive rights of any other stockholder of the Company.  The shares of Common
Stock and, if applicable, Series F Preferred Stock to be issued in the Second
Tranche, following, subject to and conditioned upon approval of the Mandatory
Voting Proposals or upon the occurrence of the Preferred Stock Issuance Event,
and filing of the related certificate of amendment and/or certificate of
designations with the Delaware Secretary of State, have been duly authorized by
all necessary corporate action and when so issued upon such approval of the
Mandatory Voting Proposals or upon the occurrence of the Preferred Stock
Issuance Event, will be validly issued, fully paid and nonassessable, will not
subject the holders thereof to personal liability and will not be subject to
preemptive rights of any other stockholder of the Company.
 
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(o)           Litigation and Other Proceedings.  Except as set forth in Section
2.2(o) of the Disclosure Schedule, there is no pending or, to the knowledge of
the Company, threatened, claim, action, suit, investigation or proceeding,
against the Company or any Company Subsidiary or to which any of their assets
are subject, nor is the Company or any Company Subsidiary subject to any order,
judgment or decree, in each case except as would not reasonably be expected to
have a Company Material Adverse Effect.  Except as would not reasonably be
expected to have a Company Material Adverse Effect, there is no unresolved
violation, criticism or exception by any Governmental Entity with respect to any
report or relating to any examinations or inspections of the Company or any
Company Subsidiaries.
 
(p)           Compliance with Laws; Insurance.  The Company and each Company
Subsidiary have all material permits, licenses, franchises, authorizations,
orders and approvals of, and have made all filings, applications and
registrations with, Governmental Entities that are required in order to permit
them to own or lease their properties and assets and to carry on their business
as currently conducted and that are material to the business of the Company or
such Company Subsidiary. The Company and each Company Subsidiary has complied in
all material respects and is not in default or violation in any respect of, and
none of them is, to the knowledge of the Company, under investigation with
respect to or, to the knowledge of the Company, has been threatened to be
charged with or given notice of any material violation of, any applicable
material domestic (federal, state or local) or foreign law, statute, ordinance,
license, rule, regulation, policy or guideline, order, demand, writ, injunction,
decree or judgment of any Governmental Entity, other than such noncompliance,
defaults or violations that would not reasonably be expected to have a Company
Material Adverse Effect.  Except for statutory or regulatory restrictions of
general application, no Governmental Entity has placed any material restriction
on the business or properties of the Company or any Company Subsidiary.
 
(1)           The Company and each Company Subsidiary are presently insured, and
during each of the past five calendar years (or during such lesser period of
time as the Company has owned such Company Subsidiary) have been insured, for
reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured.
 
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(q)           Labor.  Except as set forth in Section 2.2(q) of the Disclosure
Schedule, employees of the Company and the Company Subsidiaries are not
represented by any labor union nor are any collective bargaining agreements
otherwise in effect with respect to such employees. No labor organization or
group of employees of the Company or any Company Subsidiary has made a pending
demand for recognition or certification, and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened to be brought or filed with the National Labor
Relations Board or any other labor relations tribunal or authority.  There are
no organizing activities, strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances, or other material labor disputes pending or
threatened against or involving the Company or any Company Subsidiary.
 
(r)           Company Benefit Plans.
 
(1)           With respect to each Benefit Plan, the Company and the Company
Subsidiaries have complied, and are now in compliance, in all material respects,
with all provisions of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), the Code and all laws and regulations applicable to such
Benefit Plan; and (B) each Benefit Plan has been administered in all material
respects in accordance with its terms.  Neither the Company nor any of the
Company Subsidiaries nor any ERISA Affiliate maintain, or have maintained, a
defined benefit plan within the meaning of Section 3(35) of ERISA.  Neither the
Company nor any of the Company Subsidiaries nor any ERISA Affiliate have any
current or potential liability under applicable law, including under Title IV or
ERISA, with respect to any Pension Plan.  “Benefit Plan” means each material
written or oral employment, consulting, retention, severance, employee benefit
or other similar plan, contract, arrangement, policy, program or undertaking
whether funded or unfunded, registered or unregistered, providing for (including
any insured or self-insured arrangements) workers’ compensation, supplemental
unemployment benefits, retirement, pension, superannuation or supplemental
pension benefits, life, health, disability or accident benefits (including any
“voluntary employees’ beneficiary association” as defined in Section 501(c)(9)
of the Code providing for the same or other benefits) or for deferred
compensation, profit-sharing bonuses, stock options, stock appreciation rights,
phantom stock, stock purchases or other forms of incentive compensation, profit
sharing or post-retirement insurance, compensation or benefits, in each case,
which is entered into, maintained, sponsored, contributed to or required to be
contributed to, as the case may be, by the Company or any Company Subsidiary or
under which the Company or any Company Subsidiary may incur any liability or
pursuant to which payments are made, or benefits are provided to, or an
entitlement to payments or benefits may arise with respect to any directors, or
officers of the Company or any Company Subsidiaries or any employees or former
employees of the Company or any Company Subsidiaries or any individual working
on contract for the Company or any Company Subsidiaries (or any spouses,
dependants, survivors or beneficiaries of any such Persons). “ERISA Affiliate”
means any trade or business, whether or not incorporated, all of which together
with the Company would be deemed to be a “single employer” within the meaning of
Section 4001(a) or (b) of ERISA or Section 414 of the Code.  “Pension Plan”
means any “employee pension benefit plan” as defined in Section 3(2) of ERISA
(other than a Multiemployer Plan (as defined herein)), which the Company or any
of the Company Subsidiaries or any ERISA Affiliate sponsors, maintains or
administers or to which the Company or any of the Company Subsidiaries or any
ERISA Affiliate contributes or is required to contribute, which covers any
current or former employee of the Company or any Company Subsidiaries or any
ERISA Affiliate.
 
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(2)           Except for liabilities fully reserved for or identified in the
Financial Statements, and except as disclosed on the Disclosure Schedule, no
claim has been made, or to the knowledge of the Company or any of the Company
Subsidiaries threatened, against the Company or any of the Company Subsidiaries
related to the employment and compensation of employees or any Benefit Plan,
including without limitation any claim related to the purchase of employer
securities or to expenses paid under any defined contribution pension plan.  To
the Company’s knowledge, neither the Company nor any of the Company Subsidiaries
has any liability with respect to any transaction in violation of Section 404 or
406 of ERISA or any “prohibited transaction,” as defined in Section 4975(c)(1)
of the Code, for which no exemption exists under Section 408 of ERISA or Section
4975(c)(2) or (d) of the Code.  Neither the Company nor any of the Company
Subsidiaries has knowingly participated in a violation of Part 4 of Title I,
Subtitle B of ERISA by any plan fiduciary of any Benefit Plan.  The Secretary of
Labor of the United States has not asserted a civil penalty against the Company
or any of the Company Subsidiaries under Section 502(l) of ERISA that remains
unpaid.
 
(3)           Each Benefit Plan which covers current or former employees of the
Company or any of the Company Subsidiaries or any ERISA Affiliates that is
intended to be qualified within the meaning of Section 401 of the Code has
either (A) received a favorable determination or opinion letter from the
Internal Revenue Service regarding its Tax qualification (and no event has
occurred which, since the date of any such letter, would reasonably be expected
to result in the revocation of such determination letter) or (B) applied, or
will apply, for such letter during the applicable remedial amendment period.
 
(4)           No Benefit Plan provides any health, life or other welfare
benefits to any current or future retired or former employees of the Company or
any of the Company Subsidiaries (or to the beneficiaries or dependants of any
such Person), other than as required by Section 4980B of the Code.
 
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(5)           Neither the Company nor any of the Company Subsidiaries nor any
ERISA Affiliate has contributed to, currently contributes to, or is required to
contribute to or participate in any Multiemployer Plan.  “Multiemployer Plan”
means any “multiemployer plan” as defined in Section 4001(a)(3) of ERISA, to
which the Company or any of the Company Subsidiaries or any ERISA Affiliate
contributes, or to which the Company or any of the Company Subsidiaries or any
ERISA Affiliate has an obligation to contribute, which covers any current or
former employee of the Company, any Company Subsidiary or any ERISA Affiliate.
 
(6)           Except as set forth in Section 2.2(r) of the Disclosure Schedule,
neither the execution or delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will, either alone or in conjunction
with any other event (whether contingent or otherwise), (A) result in any
payment or benefit becoming due or payable, or required to be provided, to any
current or former director, employee or independent contractor of the Company or
any Company Subsidiary, (B) increase the amount or value of any benefit or
compensation otherwise payable or required to be provided to any current or
former director, employee or independent contractor, or result in the
acceleration of the time of payment, vesting or funding of any such benefit or
compensation or (C) result in any amount failing to be deductible by reason of
Section 280G of the Code.
 
(7)           No Benefit Plan provides any employee or independent contractor of
the Company or any Company Subsidiary with a “gross up” or similar payment in
respect of any Taxes that may become payable under Section 409A of Section 4999
of the Code.  Each Benefit Plan that is a “nonqualified deferred compensation
plan” (as defined under Section 409A of the Code) has, since January 1, 2005,
been operated in good faith compliance with Sections 409A(a)(2), (3), and (4) of
the Code.
 
(8)           Except for benefits accrued, and claims incurred by not yet
reported, and except for any provision in any Benefit Plan that provides
otherwise, the Company may unilaterally amend, modify, vary, revise, revoke,
terminate or merge, in whole or in part, each Benefit Plan, subject only to
approvals required by applicable law.
 
(s)           Environmental Liability.  There is no legal, administrative,
arbitral or other proceeding, claim, action or notice of any nature seeking to
impose, or that could result in the imposition of, on the Company or any Company
Subsidiary, any liability or obligation of the Company or any Company Subsidiary
with respect to any environmental health or safety matters or any private or
governmental, health or safety investigations or remediation activities of any
nature arising under common law or under any local, state or federal
environmental, health or safety statute, regulation or ordinance, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (“CERCLA”), pending or, to the Company’s knowledge, threatened against
the Company or any Company Subsidiary the result of which has had or would
reasonably be expected to have a Company Material Adverse Effect; to the
Company’s knowledge, there is no reasonable basis for, or circumstances that are
reasonably likely to give rise to, any such proceeding, claim, action,
investigation or remediation; and to the Company’s knowledge, neither the
Company nor any Company Subsidiary is subject to any agreement, order, judgment,
decree, letter or memorandum by or with any court, Governmental Entity or third
party imposing any such environmental liability.
 
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(t)           Gaming Approvals.  Except as would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect on the
Company, (1) the Company has all Gaming/Racing Permits required to operate its
Gaming/Racing Facilities, (2) there have been no adversarial proceedings by any
Gaming/Racing Authority to rescind or suspend the Company’s Gaming/Racing
Permits since December 31, 2006, and (3) to the knowledge of the Company, no
Gaming/Racing Authority is investigating or has concluded that the Company has
breached any Gaming/Racing Law governing or relating to any current or
contemplated casino, pari-mutuel, lottery or other gaming activities and
operations of the Company and its Subsidiaries, including, the rules and
regulations established by any Gaming/Racing Authority.
 
(4)           In this Agreement:

“Gaming/Racing Authority” means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States federal or foreign government, any state, province or any city
or other political subdivision or otherwise and whether now or hereafter in
existence or any officer or official thereof, including, without limitation, the
New York State Racing and Wagering Board, the New York State Division of the
Lottery, the National Indian Gaming Commission and the Bureau of Indian Affairs,
with authority to regulate any gaming operation owned, managed or operated by
the Company or any of the Company Subsidiaries.
 
“Gaming/Racing Facility” means the Monticello Raceway and each other property at
which any gambling, gaming or casino activities are conducted by the Company or
any of the Company Subsidiaries.
 
“Gaming/Racing Law” means all statutes, rules, regulations, ordinances, codes
and administrative or judicial precedents pursuant to which any Gaming/Racing
Authority possesses regulatory, licensing or permit authority over gambling,
gaming or casino activities conducted by the Company or any Company Subsidiary
within its jurisdiction, including the New York State Racing, Pari-Mutuel
Wagering and Breeding Law and the related rules and regulations, the New York
State Lottery for Education Law and the related rules and regulations, Part C,
Chapter 383, Laws of New York 2001, as amended, known as the “video lottery
gaming law.”
 
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“Gaming/Racing Permits” means the licenses, permits or other authorizations
required to own, operate and otherwise conduct unrestricted gaming operations at
the Gaming/Racing Facilities.
 
(u)           Fraud; Infrastructure; Data Security.
 
(1)           The Company and the Company Subsidiaries have taken all
commercially reasonable actions consistent with standards in the Video Lottery
Business (as defined below) in order to detect (A) fraud committed against or
(B) any other conduct designed to violate the integrity of any game or gaming
device operated by, in each case the Company or a Company Subsidiary as part of
the Video Lottery Business (such games and gaming devices, collectively the
“Games” and such fraud or other conduct, collectively “Fraud”) by any Person,
including players participating in such Games and employees and independent
contractors of the Company or the Company Subsidiaries. The Company and the
Company Subsidiaries have taken all commercially reasonable actions consistent
with standards in the Video Lottery Business in order to minimize any losses
incurred by the Games as a result of Fraud (“Fraud Losses”). The Company and the
Company Subsidiaries have audited and continue to audit the Games on a regular
basis in order to ascertain whether any Fraud has occurred as well as the amount
of any Fraud Losses.
 
(2)           The material Company IT Systems (as defined below) have been
properly maintained by technically competent personnel in accordance with
standards set by the manufacturers or otherwise in accordance with standards
prudent in the Video Lottery Business for proper operation, monitoring and use.
The material Company IT Systems are in good working condition to perform all
information technology operations reasonably necessary for the conduct of the
Video Lottery Business effectively. Neither the Company nor any Company
Subsidiary has experienced within the past twelve months any material disruption
to, or material interruption in, its conduct of the Video Lottery Business
attributable to a defect, bug, breakdown or other failure or deficiency on the
part of the Company IT Systems.
 
(3)           Except for scheduled or routine maintenance which would not
reasonably be expected to cause any material disruption to, or material
interruption in, the conduct of the Video Lottery Business, the Company IT
Systems are in all material respects available for use during normal working
hours and other times when the Games are available to players. The Company and
the Company Subsidiaries have taken commercially reasonable steps to provide for
the backup and recovery of the data and information critical to the conduct of
the Video Lottery Business (including such data and information that is stored
on magnetic or optical media in the ordinary course) without material disruption
to, or material interruption in, the conduct of the Video Lottery Business.
 
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(4)           The Company and Company Subsidiaries have taken commercially
reasonable actions, consistent with standards in the Lottery Business and/or the
Video Lottery Business, with respect to the Company IT Systems to detect and
prevent the disclosure to unauthorized Persons of, and keep secure, any material
confidential information, trade secrets, or other material proprietary
information stored on Company IT Systems including the designs, policies,
processes, and procedures comprising the material Games and material information
relating to the composition and structure of the Company IT Systems.
 
(5)           In this Agreement:
 
“Company IT Systems” means any and all information technology and computer
systems (including computers, software, programs, databases, middleware,
firmware and other embedded software, servers, workstations, terminals, routers,
hubs, switches, networks, data communications lines, hardware and other
equipment and all other information technology equipment) relating to the
transmission, storage, maintenance, organization, presentation, generation,
processing or analysis of data and information whether or not in electronic
format, which technology and systems are used in or necessary to the conduct of
the Video Lottery Business, including the end-products used by the players of
the Games and any of the aforementioned types of information technology and
computer systems supporting the provision of the Games.
 
“Video Lottery Business” means any business involving the provision of any or
all of the following: (i) interactive electronic gaming devices (including so
called “video lottery terminals” and “slot machines”) which are activated by the
player by the insertion of a coin or other consideration constituting the
player’s wager and which display the play and outcome of a game of chance (such
as “five card draw” poker, “Blackjack,” or “21” and simulated spinning reels
with fruit and bars) upon such player-activation using microprocessors and video
display; (ii) central processing systems used in connection with the operation
of interactive gaming devices described in clause (i); and (iii) any services
related thereto.
 
(v)           Anti-takeover Provisions Not Applicable.  The Board of Directors
has taken all necessary action to approve this Agreement and the transactions
contemplated hereby, including the acquisition by the Investor of Common Stock
and, if applicable, Series F Preferred Stock hereunder, and the Stockholder
Voting Agreement and the covenants and agreements to be entered into thereby by
the parties thereto, for purposes of Section 203 of the Delaware General
Corporation Law that such transactions and agreements will not restrict any
future “business combination” involving the Investor as an “interested
stockholder” (as each such term is defined in Section 203) and to ensure that
the transactions contemplated hereby will be deemed to be exceptions to the
provisions of Section 203 of the Delaware General Corporation Law, and that any
other similar “moratorium,” “control share,” “fair price,” “takeover” or
“interested stockholder” law (in all cases, as they may be amended, succeeded or
modified, “Takeover Statutes”) does not and will not apply to this Agreement or
to any of the transactions contemplated hereby.
 
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(w)           Rights Plan.  The Company has taken all actions necessary to
render the Rights Plan inapplicable to this Agreement and the transactions
contemplated hereby.
 
(x)           Intellectual Property.  The Company and the Company Subsidiaries
own (free and clear of any Liens) or have a valid license to use all
Intellectual Property used in or necessary to carry on their business as
currently conducted.  Neither the Company nor any such Company Subsidiary has
received any notice of infringement of or conflict with, and to the Company’s
knowledge, there are no infringements of or conflicts with, the rights of others
with respect to the use of any Intellectual Property.  To the knowledge of the
Company, no Intellectual Property owned or licensed by the Company or any of the
Company Subsidiaries is being used or enforced in a manner that would be
expected to result in the abandonment, cancellation or unenforceability of such
Intellectual Property, except for such infringement or violation as would not
reasonably be expected to result in a Company Material Adverse
Effect.  “Intellectual Property” shall mean trademarks, service marks, brand
names, certification marks, trade dress and other indications of origin, the
goodwill associated with the foregoing and registrations in any jurisdiction of,
and applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, applications for patents (including divisions,
continuations, continuations in part and renewal applications), and any
renewals, extensions or reissues thereof, in any jurisdiction; nonpublic
information, trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any Person; writings and
other works, whether copyrightable or not, in any jurisdiction; and
registrations or applications for registration of copyrights in any
jurisdiction, and any renewals or extensions thereof; and any similar
intellectual property or proprietary rights.
 
(y)           Knowledge as to Conditions.  As of the date of this Agreement, the
Company knows of no reason why any regulatory approvals and, to the extent
necessary, any other approvals, authorizations, filings, registrations, and
notices required or otherwise a condition to the consummation of the
transactions contemplated by this Agreement will not be obtained.
 
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(z)           Brokers and Finders.  Except for KPMG Corporate Finance LLC (whose
fees have been disclosed in full to the Investor and will be paid in full by the
Company or a Company Subsidiary and to whom all continuing payment obligations
in respect of fees will be terminated or satisfied in full), neither the Company
nor any Company Subsidiary nor any of their respective officers or directors has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder’s fees, and no broker or
finder has acted directly or indirectly for the Company or any Company
Subsidiary, in connection with this Agreement or the transactions contemplated
hereby.
 
2.3           Representations and Warranties of the Investor.  Except as
Previously Disclosed, the Investor hereby represents and warrants to the
Company, as of the date of this Agreement and as of the Initial Closing Date,
that:
 
(a)           Organization and Authority.  The Investor is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and where failure to be so qualified
would be reasonably expected to have an Investor Material Adverse Effect and the
Investor has the corporate or other power and authority and governmental
authorizations to own its properties and assets and to carry on its business as
it is now being conducted.   For purposes of this Agreement, the term “Investor
Material Adverse Effect” means any material adverse effect on the ability of the
Investor to consummate the transactions contemplated by this Agreement.
 
(b)           Authorization.  (1) The Investor has the corporate or other power
and authority to enter into this Agreement and to carry out its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Investor and the consummation of the transactions contemplated hereby have been
duly authorized by the Investor’s board of directors and no further approval or
authorization by any of its stockholders is required. This Agreement has been
duly and validly executed and delivered by the Investor and assuming due
authorization, execution and delivery by the Company, is a valid and binding
obligation of the Investor enforceable against the Investor in accordance with
its terms.
 
(2)           Neither the execution, delivery and performance by the Investor of
this Agreement, nor the consummation of the transactions contemplated hereby,
nor compliance by the Investor with any of the provisions hereof, will (A)
violate, conflict with, or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration of,
or result in the creation of any Lien upon any of the properties or assets of
such Investor under any of the terms, conditions or provisions of (i) its
articles of incorporation or bylaws or similar governing documents or (ii) any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Investor is a party or by which it
may be bound, or to which the Investor or any of the properties or assets of the
Investor may be subject, or (B) subject to compliance with the statutes and
regulations referred to in the next paragraph, violate any law, statute,
ordinance, rule or regulation, permit, concession, grant, franchise or any
judgment, ruling, order, writ, injunction or decree applicable to the Investor
or any of its properties or assets except in the case of clauses (A)(ii) and (B)
for such violations, conflicts and breaches as would not reasonably be expected
to have an Investor Material Adverse Effect.
 
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(3)           Other than as Previously Disclosed, Gaming/Racing Authority
approvals and the securities or blue sky laws of the various states, no notice
to, registration, declaration or filing with, exemption or review by, or
authorization, order, consent or approval of, any Governmental Entity, nor
expiration or termination of any statutory waiting period, is necessary for the
consummation by the Investor of the transactions contemplated by this Agreement.
 
(c)           Purchase for Investment.  The Investor acknowledges that the
Common Stock to be acquired by it in the First Tranche and the Common Stock and,
if applicable, Series F Preferred Stock to be acquired by it in the Second
Tranche have not been registered under the Securities Act or under any state
securities laws. The Investor (1) is acquiring the Common Stock and, if
applicable, the Series F Preferred Stock pursuant to an exemption from
registration under the Securities Act solely for investment with no present
intention to distribute any of the Common Stock or Series F Preferred Stock to
any Person, (2) will not sell or otherwise dispose of any of the Common Stock or
Series F Preferred Stock, except in compliance with the registration
requirements or exemption provisions of the Securities Act and any other
applicable securities laws, (3) has such knowledge and experience in financial
and business matters and in investments of this type that it is capable of
evaluating the merits and risks of its investment in the Common Stock and, if
applicable, the Series F Preferred Stock, and of making an informed investment
decision and (4) is an “accredited investor” (as that term is defined by Rule
501 of the Securities Act).
 
(d)           Ownership.  As of the date of this Agreement, the Investor and its
Affiliates are not the record or beneficial owners of shares of Common Stock or
securities convertible into or exchangeable for Common Stock.
 
(e)           Financial Capability.  The Investor currently has or at the
Initial Closing or Closing will have available funds necessary to consummate the
Initial Closing or Closing, respectively, on the terms and conditions
contemplated by this Agreement
 
(f)           Knowledge as to Conditions.  As of the date of this Agreement, the
Investor knows of no reason why any regulatory approvals and, to the extent
necessary, any other approvals, authorizations, filings, registrations, and
notices required or otherwise a condition to the consummation of the
transactions contemplated by this Agreement will not be obtained.
 
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(g)           Brokers and Finders.  Neither the Investor nor its Affiliates nor
any of their respective officers or directors has employed any broker or finder
or incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder’s fees, and no broker or finder has acted directly or
indirectly for the Investor, in connection with this Agreement or the
transactions contemplated hereby.
 
ARTICLE III

 
COVENANTS
 
3.1           Stockholder Meeting.
 
(a)           The Company shall call the Special Meeting, as promptly as
practicable following the Initial Closing to approve the Company Voting
Proposals. The Board of Directors shall recommend to the Company’s stockholders
that such stockholders vote in favor of the Company Voting Proposals.  In
connection with the Special Meeting, the Company shall promptly prepare (and the
Investor will reasonably cooperate with the Company to prepare) and file (but in
no event more than 15 business days after the date of this Agreement) with the
SEC a preliminary proxy statement.  Following the filing of the preliminary
proxy statement, the Company shall use its reasonable best efforts to promptly
respond to any comments of the SEC or its staff and to cause a definitive proxy
statement related to the Special Meeting to be mailed to the Company’s
stockholders not more than five business days after clearance thereof by the
SEC, and shall use its reasonable best efforts to solicit proxies for such
Company Voting Proposals. The Company shall notify the Investor promptly of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to such proxy statement or for
additional information and will supply the Investor with copies of all
correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to such proxy
statement. If at any time prior to the Special Meeting there shall occur any
event that is required to be set forth in an amendment or supplement to the
proxy statement, the Company shall as promptly as practicable prepare and mail
to its stockholders such an amendment or supplement. The proxy statement, at the
time it is first mailed and at the time of the Special Meeting, shall not
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,
in light of the circumstances under which they are made, not misleading, and
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations of the SEC promulgated
thereunder.  Each of the Investor and the Company agree promptly to correct any
information provided by it or on its behalf for use in the proxy statement if
and to the extent that such information shall have become false or misleading in
any material respect, and the Company shall as promptly as practicable prepare
and mail to its stockholders an amendment or supplement to correct such
information to the extent required by applicable laws and regulations. The
Company shall consult with the Investor prior to filing any proxy statement, or
any amendment or supplement thereto, and provide the Investor with a reasonable
opportunity to comment thereon and shall give reasonable consideration to all
comments proposed by the Investor.
 
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(b)           The Investor, on the one hand, and the Company, on the other hand,
agrees, upon request, to furnish the other party with all information concerning
itself, its Affiliates, directors, officers, partners and stockholders and such
other matters as may be reasonably necessary or advisable in connection with the
proxy statement in connection with any such stockholders meeting and any other
statement, filing, notice or application made by or on behalf of such other
party or any of its Subsidiaries to any Governmental Entity in connection with
the Closing and the other transactions contemplated by this Agreement.
 
(c)           Unless this Agreement has been terminated pursuant to Section 5.1
or 5.2, the Investor hereby agrees that at any meeting of the stockholders of
the Company held to vote on the Company Voting Proposals, however called, the
Investor shall vote, or cause to be voted, all of the shares of Common Stock
beneficially owned by the Investor and its Affiliates in favor of the Charter
Amendment, the Option Plan Amendment and, to the extent permitted to so vote,
the Share Issuance.
 
(d)           The Company, shall include in the proxy statement prepared in
connection with the Special Meeting and shall recommend that the stockholders
vote for, a proposal to amend the Company’s 2005 Equity Incentive Plan to
increase the number of shares of the Company’s Common Stock subject to the 2005
Equity Incentive Plan from 8,500,000 shares to 10,500,000 shares (the “Option
Plan Amendment”).
 
3.2           Conduct of the Business.  Prior to the earlier of the Closing and
the termination of this Agreement pursuant to Section 5.1 or 5.2 (the
“Pre-Closing Period”), the Company shall, and shall cause each Company
Subsidiary to, use commercially reasonable efforts to carry on its business in
the ordinary course of business and use reasonable best efforts to maintain and
preserve its and such Company Subsidiary’s business (including its organization,
assets, properties, goodwill and insurance coverage) and preserve its business
relationships with customers, strategic partners, suppliers, distributors and
others having business dealings with it.
 
Without limiting the generality of the foregoing and except as otherwise
expressly provided in or contemplated by this Agreement, during the Pre-Closing
Period, without the prior written consent of the Investor, the Company will not
and will not permit any Company Subsidiary to:

(a)           issue, sell, grant options or rights to purchase, or authorize or
propose the issuance, sale, grant of options or rights to purchase any capital
stock of the Company or of any Company Subsidiary, other than shares of Common
Stock issued upon exercise of options or warrants listed on the Option Schedule
and other than the grant to directors, officers or employees of the Company of
options in respect of not more than one million shares of Common Stock;
 
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(b)           acquire or redeem, directly or indirectly, or amend any securities
of the Company or any Company Subsidiary;
 
(c)           split, combine or reclassify its capital stock or declare, set
aside, make or pay any dividend or distribution (whether in cash, stock or
property) on any shares of its capital stock (other than cash dividends paid to
the Company by any wholly owned Company Subsidiary);
 
(d)           (i) make or offer to make any acquisition, by means of a merger,
consolidation, recapitalization or otherwise, of any business, assets or
securities (other than any acquisition of assets in the ordinary course of
business consistent with past practice) or any sale, lease, encumbrance or other
disposition of assets or securities, in each case involving the payment or
receipt of consideration of $1,000,000 or more, (ii) adopt a plan of complete or
partial liquidation, dissolution, recapitalization or restructuring or
(iii) enter into an agreement that, if it were in existence on the date of this
Agreement, would by virtue of its nature or terms be a Company Significant
Agreement or amend, or grant any release or relinquishment of any rights under,
or terminate any such agreement or Company Significant Agreement;
 
(e)           incur, create, assume or otherwise become liable for any
indebtedness, other than trade payables incurred in the ordinary course of
business consistent with past practice;
 
(f)           assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other Person;
 
(g)           make any loans, advances or capital contributions to, or
investments in, any other Person other than a Company Subsidiary that is,
directly or indirectly, wholly owned by the Company;
 
(h)           change any of the accounting methods, principles or practices used
by it except as required by GAAP or applicable law;
 
(i)           except as required by law, make any Tax election or settle or
compromise any material federal, state or local income Tax liability;
 
(j)           except as required by law, propose or adopt any amendments to the
Certificate of Incorporation or the Company By-laws;
 
(k)           agree to grant or grant any stock-related, cash-based, performance
or similar awards or bonuses;
 
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(l)           enter into any new, or amend, terminate or renew any existing,
employment, severance, consulting or salary continuation agreements with or for
the benefit of any officers, directors or employees, or grant any increases in
the compensation or benefits to officers, directors and employees (other than
normal increases to Persons who are not officers or directors in the ordinary
course of business consistent with past practices and that, in the aggregate, do
not result in a material increase in benefits or compensation expense of the
Company);
 
(m)           incur any material capital expenditure or any obligations,
liabilities or indebtedness in respect thereof;
 
(n)           except as required by law, adopt, amend or terminate any Benefit
Plan;
 
(o)           settle or agree to settle any suit, action, claim, proceeding or
investigation (including any suit, action, claim, proceeding or investigation
relating to this Agreement or the transactions contemplated hereby) or pay,
discharge or satisfy or agree to pay, discharge or satisfy any claim, liability
or obligation (absolute or accrued, asserted or unasserted, contingent or
otherwise) if such settlement, payment, discharge or satisfaction involves an
amount greater than or equal to $1,000,000 or imposes any restriction on or
requirement for the conduct of business of the Company or any Company
Subsidiary;
 
(p)           enter into any agreement or understanding or arrangement with
respect to the voting or registration of the securities of the Company or of any
Company Subsidiary;
 
(q)           convene any regular or special meeting (or any adjournment
thereof) of the stockholders of the Company other than the Special Meeting or
Special Meetings contemplated by Section 3.1; or
 
(r)           agree in writing or otherwise to take any of the foregoing
actions.
 
3.3           Preferred Stock Terms.  Following the Initial Closing and in
preparation for the possibility of the Preferred Stock Issuance Event, the
Company and the Investor shall cooperate in good faith to prepare a mutually
agreeable certificate of designations authorizing the issuance of the Series F
Preferred Stock and setting forth the terms thereof.  Such certificate of
designations shall be agreed to by both parties and completed as soon as
possible following the Initial Closing but in no event later than the date of
the Special Meeting.  
 
3.4           Takeover Statutes.  If any Takeover Statute is or may become
applicable to this Agreement, the Stockholder Voting Agreement or the
transactions contemplated by this Agreement or the Stockholder Voting Agreement,
the Board of Directors shall grant such approvals and take such actions as are
necessary so that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement and the Stockholder
Voting Agreement and otherwise act to eliminate or minimize the effects of such
statute or regulation on such transactions.
 
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3.5           HSR Act.  If required by the Hart-Scott Rodino Antitrust
Improvements Act of 1976 (the “HSR Act”), each party hereto agrees to make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated by this Agreement as soon as
practicable and to supply promptly any additional information and documentary
material that may be requested pursuant to the HSR Act.  The parties hereto will
not take any action that will have the effect of delaying, impairing or
impending the receipt of any required approvals.  Without limiting the
generality of the foregoing, the Investor shall not, at any time prior the
Closing Date, acquire a controlling interest in any other entity engaged in the
gaming industry with principal operations within 75 miles of Monticello, New
York.
 
3.6           Regulatory Matters.  Each party shall execute and deliver both
before and after the Initial Closing or Closing, as applicable, such further
certificates, agreements and other documents and take such other actions as the
other party may reasonably request to consummate or implement the transactions
contemplated herein or to evidence such events or matters. In particular, the
Investor shall make a good faith effort to promptly obtain or submit, and the
Company shall cooperate as may reasonably be requested by the Investor to help
the Investor promptly obtain or submit, as the case may be, as promptly as
practicable, the approvals and authorizations of, filings and registrations
with, and notifications to the Gaming/Racing Authorities pursuant to
Gaming/Racing Law, to the extent required for the transactions contemplated by
this Agreement.  In addition, the Investor agrees, if and to the extent
permitted by the Gaming/Racing Authorities and applicable Gaming/Racing Law, to
engage a duly qualified nominee to act as nominee holder of the Common Stock
and, if applicable, the Series F Preferred Stock for so long as the
Gaming/Racing Permits required for the Investor to hold the Common Stock and, if
applicable, Series F Preferred Stock shall not have been obtained.  The parties
mutually agree that, to the extent any Governmental Entity determines that any
provision of this Agreement violates the applicable rules or laws supervised by
such Governmental Entity and requests or requires that such provisions be
amended or deleted, the parties will negotiate in good faith such revisions to
this Agreement as will both give effect to such Governmental Entity’s request
and result in the transactions contemplated by this Agreement proceeding as
nearly as possible to the full financial and other terms as are contemplated by
this Agreement.
 
3.7           Amendment to Series A Preferred Stock.  Promptly following the
date of this Agreement, the Company shall file an amendment to the certificate
of designations in respect of the Series A Preferred Stock, or take such other
steps as are necessary, in order to increase the number of shares of Series A
Preferred Stock that are authorized to 95,000.
 
3.8           Use of First Tranche Consideration.  Promptly following the
Initial Closing and, in any event, prior to August 30, 2009 (assuming the
Initial Closing shall have occurred by such date), the Company shall make a
payment to the holders of the Company’s 5½% Secured Convertible Notes due 2014
in the amount of the full amount due to such holders in respect of interest due
and payable on July 31, 2009.
 
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ARTICLE IV

 
ADDITIONAL AGREEMENTS
 
4.1           Governance Matters.  (a) Subject to the provisions of this Section
4.1, the Company will cause three people nominated by the Investor (the “Board
Representatives”) to be elected or appointed to the Board of Directors, each of
whom will be designated to a different “class” of directors, subject to
satisfaction of all legal and governance requirements regarding service as a
director of the Company and to the reasonable approval of the Governance
Committee of the Board of Directors (such approval not to be unreasonably
withheld or delayed).  Two of such Board Representatives shall be appointed as
of the Initial Closing Date and one additional Board Representative shall be
appointed as of the Closing Date.  If, at any time, following the earlier to
occur of (x) the Closing and (y) the termination of this Agreement pursuant to
Section 5.2, the Investor shall cease to own capital stock of the Company with
at least 24% of the voting power of the Company outstanding at such time, the
number of people whom the Investor is entitled to designate for election to the
Board of Directors shall be reduced as follows:  (i) to two, for so long as the
Investor shall own capital stock of the Company with at least 16% (but less than
24%) of the voting power of the Company; (ii) to one, for so long as the
Investor shall own capital stock of the Company with at least 8% (but less than
16%) of the voting power of the Company; and (iii) to zero, at any time that the
Investor owns no capital stock or capital stock with less than 8% of the voting
power of the Company.  After such appointments, so long as the Investor is
entitled to designate one or more Board Representatives under this Agreement,
the Company will be required (i) at any annual meeting at which the term of a
Board Representative is scheduled to expire, if the Investor remains entitled to
a number of Board Representatives that includes such Board Representative, to
recommend to its stockholders the election of such Board Representative, subject
to satisfaction of all legal and governance requirements regarding service as a
director of the Company and to the reasonable approval of the Governance
Committee of the Board of Directors (such approval not to be unreasonably
withheld or delayed), to the Board of Directors and (ii) to appoint one of the
Board Representatives chosen by the Investor to serve as Chairman of the Board
of Directors.  At the option of the Board Representatives, the Board of
Directors shall cause one of the Board Representatives to be appointed to each
of the Audit, Compensation and Corporate Governance and Nominations Committees
of the Board of Directors (or any successor committee thereto), provided that
such Board Representative meets the qualifications for service on such
Committees.
 
(b)           Except as otherwise provided in Section 4.1(a), the Investor shall
have the power to designate each of the Board Representative’s replacement upon
the death, resignation, retirement, disqualification or removal from office of
any such director, such replacement to meet all applicable independence
standards if the director to be replaced met (and was required to meet) such
standards. The Board of Directors will use its reasonable best efforts to take
all action required to fill the vacancy resulting therefrom with such Person.
 
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(c)           Each Board Representative, during the time that such Board
Representative is serving as a member of the Board of Directors, shall be
entitled to the same compensation, indemnification insurance, indemnification
and advancement of expenses in connection with his or her role as a director as
the other members of the Board of Directors in similar capacities, and each
Board Representative shall be entitled to reimbursement for documented,
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors or any committees thereof, to the same extent as the other members of
the Board of Directors.  The Company shall notify each Board Representative of
all regular and special meetings of the Board of Directors and shall notify the
Board Representative of all regular and special meetings of any committee of the
Board of Directors of which such Board Representative is a member.  The Company
shall provide each Board Representative with copies of all notices, minutes,
consents and other materials provided to all other members of the Board of
Directors concurrently as such materials are provided to the other members.
 
(d)           Following the Closing, the Investor shall have the right to, and
shall within a reasonable time following the Closing, nominate for consideration
by the Board of Directors a Person to serve as chief financial officer of the
Company (the “Investor CFO Nominee”) who shall, subject to applicable law and
upon approval of the Company’s Governance Committee and Board of Directors,
serve as the chief financial officer of the Company.  The Company Governance
Committee and the Board of Directors shall duly and in a timely manner consider
the appointment of the Investor CFO Nominee as the Company’s chief financial
officer.  If the Investor CFO Nominee is rejected by either the Company
Governance Committee or the Board of Directors, the Investor shall have the
opportunity to present an alternate nominee within a reasonable time following
notification of such rejection until such time that an Investor CFO Nominee is
approved for appointment as chief financial officer of the Company.
 
(e)           Following the Closing and until such time thereafter as the
Investor shall cease to own capital stock of the Company with at least 30% of
the voting power of the Company outstanding at such time, the Board of Directors
shall not take or commit to take any of the following actions with respect to
either the Company or any Company Subsidiary unless the vote authorizing any
such action includes the affirmative vote of the Board Representatives:
 
(A)           the sale or disposition of (including by way of a series of
transactions or by way of merger, consolidation, sale of capital stock, asset
sale or similar transaction) all or a material portion of the businesses or
assets of the Company and the Company Subsidiaries taken as a whole or any
material acquisition by the Company or any Company Subsidiary;
 
(B)           any amendment, alteration or repeal of any provision of the
Certificate of Incorporation or the Company By-Laws or equivalent constituent
documents of the Company Subsidiaries, except as necessary to comply with
applicable laws, rules and regulations.
 
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(C)           declare, authorize, set aside or pay any dividend or distribution
on any of the Company’s capital stock or issue, purchase or redeem any of its
capital stock (other than in connection with the exercise of terms of existing
shares of capital stock or other securities);
 
(D)           any material borrowings or financial accommodation (in whatever
form, including finance leases) in excess of $5,000,000 and not already in place
as of the Closing Date;
 
(E)           the approval of the Company’s annual budget (including operating
and capital plans), business plan and any related material business policies,
and any material amendments and deviations from any of the foregoing resulting
from management decisions;
 
(F)           the entry into of any contract or agreement which obligates the
Company to manage any gaming assets on behalf of an unrelated third party;
 
(G)           the appointment of, or the approval of the retention, termination
or change (including a change in responsibilities or compensation) of the chief
executive officer, chief financial officer, or officers with substantially
equivalent responsibilities;
 
(H)           any liquidation, bankruptcy, dissolution, recapitalization,
reorganization, or assignment to the Company’s creditors, or any similar
transaction;
 
(I)           increase or decrease in the size of the Board of Directors;
 
(J)           the settlement of any material litigation, arbitration, or
administrative proceeding if such settlement is for the payment or receipt of an
amount greater than or equal to $1,000,000 or imposes any restriction on or
requirement for the conduct of business of the Company or any Company
Subsidiary; or
 
(K)           approve or authorize the entry into any agreement that, if it were
in existence on the date of this Agreement, would by virtue of its nature or
terms be a Company Significant Agreement.
 
4.2           No Solicitation.  Each of the Company, its Subsidiaries and their
respective Representatives (as defined below) has ceased and caused to be
terminated all solicitations, discussions and negotiations existing as of the
date of this Agreement with any Persons with respect to any inquiry, offer or
proposal from any Person or group other than the Investor or any of its
Affiliates relating to any transaction or proposed transaction or series of
related transactions involving: (a) any direct or indirect investment or
purchase by any Person or “group” (as defined under Section 13(d) of the
Exchange Act) of a twenty percent (20%) interest or more in the total
outstanding shares of any class of equity or voting securities of the
Company,  or any tender offer or exchange offer that if consummated would result
in any Person or “group” beneficially owning twenty percent (20%) or more of the
total outstanding shares of any class of equity or voting securities of the
Company, (b) any sale or disposition of consolidated assets, or rights of the
Company (including for this purpose the outstanding assets, rights and equity
securities of the Subsidiaries of the Company) to any Person or “group” for
consideration equal to twenty percent (20%) or more of the aggregate fair market
value of all of the outstanding shares of Common Stock, or (c) any
consolidation, merger, business combination, recapitalization, liquidation,
dissolution or similar transaction with respect to the Company (any of the
foregoing inquiries, offers or proposals being an “Alternative Investment
Proposal”). Except as provided in this Section 4.2, from the date hereof, until
the earlier of the termination of this Agreement or the Closing, the Company
shall not and shall not authorize or permit its officers, directors, employees,
investment bankers, attorneys, accountants, financial or other advisors or other
agents or those of any Company Subsidiary (collectively, “Representatives”) to,
directly or indirectly, (1) solicit, initiate, propose or knowingly encourage or
take any other action to knowingly facilitate the submission of an Alternative
Investment Proposal, (2) enter into any letter of intent, memorandum of
understanding, agreement, option agreement or other agreement or arrangement
with respect to any Alternative Investment Proposal, (3) enter into, continue,
participate, engage or knowingly assist in any manner in negotiations or
discussions with, or provide any non-public information or data to, any Person
(other than the Investor or any of its Affiliates or representatives) relating
to any Alternative Investment Proposal, or grant any waiver or release under any
standstill or (4) exempt any Person (other than the Investor and their
respective Affiliates) from the restrictions on “business combinations”
contained in Section 203 of the Delaware General Corporation Law (or any similar
provision) or otherwise cause such restrictions or the restrictions of any other
Takeover Statute not to apply.
 
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4.3           Legend.  (a) The Investor agrees that all certificates or other
instruments representing the Common Stock acquired pursuant to this Agreement
will bear a legend substantially to the following effect:
 
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT
BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION
STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS.
 
(b)           Upon request of the Investor, upon receipt by the Company of an
opinion of counsel reasonably satisfactory to the Company to the effect that
such legend is no longer required under the Securities Act and applicable state
laws, the Company shall promptly cause the legend to be removed from any
certificate for any Common Stock to be transferred in accordance with the terms
of this Agreement. The Investor acknowledges that the Common Stock have not been
registered under the Securities Act or under any state securities laws and
agrees that it will not sell or otherwise dispose of any of the Common Stock,
except in compliance with the registration requirements or exemption provisions
of the Securities Act and any other applicable securities laws.
 
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4.4           Certain Transactions.  The Company will not merge or consolidate
into, or sell, transfer or lease all or substantially all of its property or
assets to, any other party unless the successor, transferee or lessee party, as
the case may be (if not the Company), expressly assumes the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
 
4.5           Option Matching Rights.  No later than three Business Days
following the Closing Date, the Company shall deliver to the Investor a
comprehensive schedule, which shall include (i) a list of all outstanding
options and warrants issued by the Company as of the Closing, whether pursuant
to any Benefit Plan, any management equity rights plan or other equity-based
employee benefits plan or arrangement that has been duly authorized by the Board
of Directors or a committee thereof or otherwise, including the names of the
option holders, the exercise price and the expiry date and vesting schedule for
the options and a reconciliation of any options and warrants listed on the
Option Schedule or otherwise that have been exercised between the date of this
Agreement and the Closing Date, (ii) the 166,667 warrants issued to the Park
Avenue Bank pursuant to that certain Common Stock Purchase Warrant, dated as of
July 27, 2009 and (iii) the 111,111 warrants issued to Alan Lee pursuant to that
certain Common Stock Purchase Warrant, dated as of July 27, 2009 (the “Closing
Date Option Schedule”).  The Investor shall have matching rights under this
Section 4.5 with respect to the first one million options or warrants issued
after the Initial Closing Date to officers and directors of the Company who held
either of such positions as of July 31, 2009, and, to the extent any of such
options or warrants are issued after the Closing Date, such options or warrants
issued after the Closing Date shall be deemed included on the Closing Date
Option Schedule for purposes of this Section 4.5.  If at any time after the
Closing Date, any of the options or warrants listed on the Closing Date Option
Schedule (or so deemed included) are exercised, the Company shall deliver to the
Investor a written notice (the “Option Exercise Notice”) of such exercise no
more than five (5) business days after such exercise (and, if practicable, prior
to the date of the consummation of such exercise), which Option Exercise Notice
shall include information about the date of the exercise, the exercise price,
the number of options or warrants exercised and the name of the option or
warrant holder exercising such option or warrant.  The Investor shall then have
the right to elect, within ten (10) business days following delivery of the
Option Exercise Notice, to purchase an equal number of shares of Common Stock as
are being issued to the exercising option or warrant holder at the exercise
price for the applicable option or warrant.
 
4.6           Indemnity.  (a) The Company agrees to indemnify and hold harmless
the Investor and its Affiliates and each of their respective officers,
directors, partners, members and employees, and each Person who controls such
Investor within the meaning of the Exchange Act and the regulations thereunder,
to the fullest extent lawful, from and against any and all actions, suits,
claims, proceedings, costs, losses, liabilities, damages, expenses (including
reasonable attorneys’ fees and disbursements), amounts paid in settlement and
other costs (collectively, “Losses”) arising out of or resulting from (1) any
inaccuracy in or breach of the Company’s representations or warranties in this
Agreement or (2) the Company’s breach of agreements or covenants made by the
Company in this Agreement or (3) any action, suit, claim, proceeding or
investigation by any Governmental Entity, stockholder of the Company or any
other Person (other than the Company) relating to this Agreement or the
transactions contemplated hereby (other than any Losses attributable to the
acts, errors or omissions on the part of such Investor, but not including the
transactions contemplated hereby).
 
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(b)           The Investor agrees to indemnify and hold harmless each of the
Company and its Affiliates and each of their respective officers, directors,
partners, members and employees, and each Person who controls the Company within
the meaning of the Exchange Act and the regulations thereunder, to the fullest
extent lawful, from and against any and all Losses arising out of or resulting
from (1) any inaccuracy in or breach of such Investor’s representations or
warranties in this Agreement or (2) such Investor’s breach of agreements or
covenants made by the Investor in this Agreement.
 
(c)           A party entitled to indemnification hereunder (each, an
“Indemnified Party”) shall give written notice to the party indemnifying it (the
“Indemnifying Party”) of any claim with respect to which it seeks
indemnification promptly after the discovery by such Indemnified Party of any
matters giving rise to a claim for indemnification; provided that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 4.6 unless and to the
extent that the Indemnifying Party shall have been actually prejudiced by the
failure of such Indemnified Party to so notify such party. Such notice shall
describe in reasonable detail such claim. In case any such action, suit, claim
or proceeding is brought against an Indemnified Party, the Indemnified Party
shall be entitled to hire, at its own expense, separate counsel and participate
in the defense thereof; provided, however, that the Indemnifying Party shall be
entitled to assume and conduct the defense thereof, unless the counsel to the
Indemnified Party advises such Indemnifying Party in writing that such claim
involves a conflict of interest (other than one of a monetary nature) that would
reasonably be expected to make it inappropriate for the same counsel to
represent both the Indemnifying Party and the Indemnified Party, in which case
the Indemnified Party shall be entitled to retain its own counsel at the cost
and expense of the Indemnifying Party (except that the Indemnifying Party shall
only be liable for the legal fees and expenses of one law firm for all
Indemnified Parties, taken together with respect to any single action or group
of related actions). If the Indemnifying Party assumes the defense of any claim,
all Indemnified Parties shall thereafter deliver to the Indemnifying Party
copies of all notices and documents (including court papers) received by the
Indemnified Party relating to the claim, and each Indemnified Party shall
cooperate in the defense or prosecution of such claim. Such cooperation shall
include the retention and (upon the Indemnifying Party’s request) the provision
to the Indemnifying Party of records and information that are reasonably
relevant to such claim, and making employees available on a mutually convenient
basis to provide additional information and explanation of any material provided
hereunder. The Indemnifying Party shall not be liable for any settlement of any
action, suit, claim or proceeding effected without its written consent;
provided, however, that the Indemnifying Party shall not unreasonably withhold
or delay its consent. The Indemnifying Party further agrees that it will not,
without the Indemnified Party’s prior written consent (which shall not be
unreasonably withheld or delayed), settle or compromise any claim or consent to
entry of any judgment in respect thereof in any pending or threatened action,
suit, claim or proceeding in respect of which indemnification has been sought
hereunder unless such settlement or compromise includes an unconditional release
of such Indemnified Party from all liability arising out of such action, suit,
claim or proceeding.
 
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(d)           For purposes of the indemnity contained in Section 4.6(a)(1) and
Section 4.6(b)(1), all qualifications and limitations set forth in such
representations and warranties as to “materiality,” “Company Material Adverse
Effect,” “Investor Material Adverse Effect” and words of similar import, shall
be disregarded in determining whether there shall have been any inaccuracy or
breach of any representations and warranties in this Agreement.
 
(e)           The Company shall not be required to indemnify the Indemnified
Parties pursuant to Section 4.6(a)(1), disregarding all qualifications or
limitations set forth in such representation and warranties as to “materiality,”
“Company Material Adverse Effect” and words of similar import, unless and until
the aggregate amount of all Losses incurred with respect to all claims pursuant
to Section 4.6(a)(1) exceed $500,000 (the “Threshold Amount”), in which event
the Company shall be responsible for all such Losses.  The Investor shall not be
required to indemnify the Indemnified Parties pursuant to Section 4.6(b)(1),
disregarding all qualifications or limitations set forth in such representation
and warranties as to “materiality,” “Company Material Adverse Effect” and words
of similar import, unless and until the aggregate amount of all Losses incurred
with respect to all claims pursuant to Section 4.6(b)(1) exceed the Threshold
Amount, in which event the Investor shall be responsible for all such
Losses.  The cumulative indemnification obligation of (1) the Company to the
Investor and all of the Indemnified Parties affiliated with (or whose claims are
permitted by virtue of their relationship with) the Investor or (2) the Investor
to the Company and the Indemnified Parties affiliated with (or whose claims are
permitted by virtue of their relationship with the) Company for inaccuracies in
or breaches of representations and warranties shall in no event exceed the
Purchase Price.
 
(f)           Any claim for indemnification pursuant to this Section 4.6 for
breach of any representation or warranty can only be brought on or prior to the
first anniversary of the Closing Date; provided that if notice of a claim for
indemnification pursuant to this Section 4.6 for breach of any representation or
warranty is brought prior to such first anniversary, then the obligation to
indemnify in respect of such breach shall survive as to such claim, until such
claim has been finally resolved.
 
(g)           The indemnity provided for in this Section 4.6 shall be the sole
and exclusive monetary remedy of Indemnified Parties after the Closing for any
inaccuracy of any representation or warranty or any other breach of any covenant
or agreement contained in this Agreement; provided that nothing herein shall
limit in any way any such party’s remedies in respect of fraud by any other
party in connection with the transactions contemplated hereby. No party to this
Agreement (or any of its Affiliates) shall, in any event, be liable or otherwise
responsible to any other party (or any of its Affiliates) for any consequential
or punitive damages of such other party (or any of its Affiliates) arising out
of or relating to this Agreement or the performance or breach hereof.
 
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(h)           No investigation by any Investor of the Company or by the Company
of any Investor prior to or after the date hereof shall limit any Indemnified
Party’s exercise of any right hereunder or be deemed to be a waiver of any such
right.
 
(i)           Any indemnification payments pursuant to this Section 4.6 shall be
treated as an adjustment to the purchase price for the Securities for U.S.
federal income and applicable state and local Tax purposes, unless a different
treatment is required by applicable law.
 
4.7           Exchange Listing.  The Company shall promptly use its reasonable
best efforts to cause the shares of Common Stock to be issued pursuant to this
Agreement to be approved for listing on NASDAQ, subject to official notice of
issuance (and, in the case of the shares of Common Stock issuable upon receipt
of the approval of the Company Voting Proposals), as promptly as practicable,
and in any event before the Closing if permitted by the rules of NASDAQ.
 
4.8           Certain Transactions.
 
(a)           The Investor shall not, at any time prior to the second
anniversary of the Closing Date, (i) propose a merger or other similar business
combination between itself or one of its Affiliates and the Company that would
result in squeeze-out of the other stockholders of the Company or (ii) cause the
Company to voluntarily delist the Common Stock from NASDAQ pursuant to NASDAQ
Rule 5830(j) unless the Company at such time is approved for listing on The New
York Stock Exchange.
 
(b)           The Investor shall not, at any time prior to the repayment in full
or redemption of the Company’s 5½% Secured Convertible Notes due 2014, knowingly
take any action that would cause a “Change of Control” (as defined in the
indenture for such Notes) to occur.
 
(c)           Other than the limited restriction set forth in Section 3.5 hereof
prior to the Closing, but without derogation of any duty arising under
applicable law, the Investor, including any Affiliate or stockholder thereof
(and the partners, members, stockholders and officers of such Affiliates or
stockholders), may engage in and have an interest in other business ventures of
every nature and description, independently or with others, including, but not
limited to, the ownership, financing, leasing, operating, construction,
management, and development of any gaming, racing, lottery or other related
business.  None of the Company, the Investor or any other Person shall have any
rights by virtue of this Agreement in and to such independent ventures or the
income or profits derived therefrom.
 
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4.9           Loan Agreement.  Following the Initial Closing, the Company and
the Investor shall cooperate in good faith to prepare and negotiate a mutually
agreeable loan agreement (the “Loan Agreement”) to be entered into by the
parties at the Closing pursuant to which the Investor will make available to the
Company a loan of up to the lesser of (x) $10,000,000 and (y) the maximum amount
the Company is then permitted to borrow (taking into account other indebtedness
of the Company at such time) under the terms of the indenture for the Company’s
5½% Secured Convertible Notes due 2014, such loan to be secured by all of the
assets of the Company and the Company Subsidiaries, including a mortgage of the
real property owned by Monticello Raceway Management, Inc., and otherwise on
customary terms including an interest rate of LIBOR plus 5.00%, a two-year term,
and payment of an origination or commitment fee of $150,000 and of an
availability fee on undrawn amounts equal to 1% of the average daily unused
amount of the commitment.  The loan will be interest only during the term
thereof.  The proceeds of this loan shall be permitted to be used, among other
things, to repay in full, purchase or acquire by assignment any remaining
obligation of the Company under its loan agreement with The Park Avenue Bank and
for working capital purposes.  The parties will cooperate to arrange for an
assignment of the mortgage from The Park Avenue Bank to the lender under the
Loan Agreement.
 
ARTICLE V

 
TERMINATION
 
5.1           Termination Prior to the Initial Closing.  This Agreement may be
terminated prior to the Initial Closing:
 
(a)           by mutual written agreement of the Company and the Investor;
 
(b)           by either party, upon written notice to the other party, in the
event that the Initial Closing does not occur on or before August 31, 2009;
provided, however, that the right to terminate this Agreement pursuant to this
Section 5.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement shall have been the cause of, or shall have
resulted in, the failure of the Initial Closing to occur on or prior to such
date; or
 
(c)           by either party, upon written notice to the other parties, in the
event that any Governmental Entity shall have issued any order, decree or
injunction or taken any other action restraining, enjoining or prohibiting the
Initial Closing, and such order, decree, injunction or other action shall have
become final and nonappealable.
 
5.2           Termination After the Initial Closing and Prior to the
Closing.  This Agreement may be terminated after the Initial Closing and prior
to the Closing:
 
(a)           by mutual written agreement of the Company and the Investor;
 
(b)           by either party, upon written notice to the other party, in the
event that the Closing does not occur on or before the date that is 180 days
from the date of this Agreement; provided, however, that the right to terminate
this Agreement pursuant to this Section 5.2(b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement shall have
been the cause of, or shall have resulted in, the failure of the Closing to
occur on or prior to such date; or
 
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(c)           by the Investor if at the Special Meeting (or any adjournment
thereof) at which a vote on the Mandatory Voting Proposals is taken, the
Required Share Issuance Vote in favor of the Share Issuance shall not have been
obtained.
 
5.3           Effects of Termination.
 
(a)           In the event of any termination of this Agreement as provided in
Section 5.1, this Agreement (other than this Section 5.3(a) and Sections 6.2
through 6.16, inclusive) shall forthwith become wholly void and of no further
force and effect; provided that nothing herein shall relieve any party from
liability for intentional breach of this Agreement.
 
(b)           In the event of termination of this Agreement as provided in
Section 5.2, this Agreement (other than this Section 5.3(b) and Sections 3.4,
3.6, 4.1, 4.3, 4.4, 4.5, 4.6, 4.7, 5.4 and Article VI) shall forthwith become
wholly void and of no further force and effect; provided that nothing herein
shall relieve any party from liability for intentional breach of this Agreement;
provided further that any such termination shall not serve to rescind the
transactions consummated at the Initial Closing.
 
5.4           Termination Fee.  If this Agreement is terminated by either party
pursuant to Section 5.2(b) hereof (other than if such termination is due to the
failure of the condition set forth in Section 1.4(b)(1)(A) or (D) to be met), if
at the time of such termination the Special Meeting shall not have been held or
the Required Share Issuance Vote in favor of the Share Issuance shall not have
been obtained, or by the Investor pursuant to Section 5.2(c) hereof, then in
such event the Company shall pay to the Investor a cash fee of $2,750,000, such
payment to be made within three (3) business days following such termination by
wire transfer of immediately available funds to an account designated by the
Investor.  The Company acknowledges that the agreements contained in this
Section 5.4 are an integral part of the transactions contemplated by this
Agreement and that, without these agreements, the Investor would not have
entered into this Agreement.  Accordingly, in the event that the Company shall
fail to pay the termination fee when due, and in order to obtain such payment,
the Investor commences a suit or other proceeding which results in a judgment or
similar award against the Company for payment of the termination fee, then the
Company shall reimburse the Investor for its costs and expenses (including
attorneys’ fees and expenses of enforcement) in connection with such suit or
proceeding, together with interest on the amounts owed at the prime lending rate
prevailing at such time, as published in the Wall Street Journal, plus two
percent per annum from the date such amounts were required to be paid until the
date actually received by the Investor.  In no event shall the Investor be
entitled to recover more than one termination fee under this Section 5.4.  If
the Investor shall have received payment in full of the termination fee and any
other amounts payable under this Section 5.4, such fee shall be the Investor’s
sole and exclusive remedy against the Company other than for intentional breach
of this Agreement.  Except for any liability of the Company for intentional
breach of this Agreement, upon payment in full of the termination fee and any
other amounts payable as provided under this Section 5.4, none of the Company,
or any of its Affiliates, stockholders, directors, officers, employees or other
agents or representatives shall have any further liability or obligation to the
Investor relating to or arising out of this Agreement or the transactions
contemplated hereby, except under the Sections specifically referenced in
Section 5.3(b).
 
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ARTICLE VI

 
MISCELLANEOUS
 
6.1           Survival.  Each of the representations and warranties set forth in
this Agreement shall survive the Closing under this Agreement but only for a
period of one year following the Closing Date (or until final resolution of any
claim or action arising from the breach of any such representation and warranty,
if notice of such breach was provided prior to the first anniversary of the
Closing Date) (the “Survival Period”) and thereafter shall expire and have no
further force and effect, including in respect of Section 4.6, provided that, if
the Closing does not take place, the Survival Period shall be deemed to have
begun on the Initial Closing Date and shall expire one year thereafter.   Except
as otherwise provided herein, all covenants and agreements contained herein,
other than those which by their terms are to be performed in whole or in part
after the Initial Closing Date or Closing Date, as applicable, shall terminate
as of the Initial Closing Date or Closing Date, as applicable.
 
6.2           Expenses.  Whether or not the transactions contemplated by this
Agreement are consummated, and except as otherwise expressly set forth herein,
all legal and other costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses, provided that legal costs of the Investor payable to Cleary
Gottlieb Steen & Hamilton LLP shall be paid in their entirety by the Company,
such costs to be payable from time to time including at and as of the Initial
Closing and at and as of the Closing.
 
6.3           Amendment.  No amendment or waiver of any provision of this
Agreement will be effective with respect to either party unless made in writing
and signed by an officer of a duly authorized representative of such party.  No
failure or delay by either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.  The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
 
6.4           Waivers.  The conditions to each party’s obligation to consummate
the Initial Closing and the Closing are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law. No waiver of any party to this Agreement, as the case may be,
will be effective unless it is in a writing signed by a duly authorized officer
of the waiving party that makes express reference to the provision or provisions
subject to such waiver.
 
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6.5           Counterparts and Facsimile.  For the convenience of the parties
hereto, this Agreement may be executed in any number of separate counterparts,
each such counterpart being deemed to be an original instrument, and all such
counterparts will together constitute the same agreement. Executed signature
pages to this Agreement may be delivered by facsimile and such facsimiles will
be deemed as sufficient as if actual signature pages had been delivered.
 
6.6           Governing Law.  This Agreement will be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed entirely within such State. The parties hereby
irrevocably and unconditionally consent to submit to the exclusive jurisdiction
of the state and federal courts located in the Borough of Manhattan, State of
New York for any actions, suits or proceedings arising out of or relating to
this Agreement and the transactions contemplated hereby.
 
6.7           WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
 
6.8           Notices.  Any notice, request, instruction or other document to be
given hereunder by any party to the other will be in writing and will be deemed
to have been duly given (a) on the date of delivery if delivered personally or
by telecopy or facsimile, upon confirmation of receipt, (b) on the first
business day following the date of dispatch if delivered by a recognized
next-day courier service, or (c) on the third business day following the date of
mailing if delivered by registered or certified mail, return receipt requested,
postage prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice.
 
(a)           If to the Investor:
 
Kien Huat Realty III Limited
c/o Kien Huat Realty Sdn Bhd.
22nd Floor Wisma Genting
Jalan Sultan Ismail
50250 Kuala Lumpur
Malaysia
Attention:  Gerard Lim
Fax: +603 2162 4951

with a copy (which copy alone shall not constitute notice):
 
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, NY 10006
Attention: Steven L. Wilner
Fax:  (212) 225-3999

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(b)           If to the Company:
 
Empire Reports, Inc.
Monticello Casino and Raceway
Route 17B, P.O. Box 5013
Monticello, NY  12701
Attention:  Joseph Bernstein
Fax:  (845) 807-0000
 

with a copy (which copy alone shall not constitute notice):
 
Olshan Grundman Frome Rosenzweig & Wolosky LLP
Park Avenue Tower
65 East 55th Street
New York, NY  10022
Attention:  Robert H. Friedman
Fax:  (212) 451-2222
 
6.9           Entire Agreement, Etc.  (a) This Agreement (including the
Exhibits, Schedules and Disclosure Schedules hereto) constitutes the entire
agreement, and supersedes all other prior agreements, understandings,
representations and warranties, both written and oral, among the parties, with
respect to the subject matter hereof; and (b) this Agreement will not be
assignable by operation of law or otherwise (any attempted assignment in
contravention hereof being null and void).
 
6.10           Other Definitions or Interpretations.  Wherever required by the
context of this Agreement, the singular shall include the plural and vice versa,
and the masculine gender shall include the feminine and neuter genders and vice
versa, and references to any agreement, document or instrument shall be deemed
to refer to such agreement, document or instrument as amended, supplemented or
modified from time to time.
 
(a)           the term “Affiliate” means, with respect to any Person, any Person
directly or indirectly controlling, controlled by or under common control with,
such other Person. For purposes of this definition, “control” (including, with
correlative meanings, the terms “controlled by” and “under common control with”)
when used with respect to any Person, means the possession, directly or
indirectly, of the power to cause the direction of management or policies of
such Person, whether through the ownership of voting securities by contract or
otherwise;
 
(b)           the term “beneficial owner” shall have the meaning given to such
term in Rule 13d-3 under the Exchange Act.
 
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(c)           the word “or” is not exclusive;
 
(d)           the words “including,” “includes,” “included” and “include” are
deemed to be followed by the words “without limitation”; and
 
(e)           the terms “herein,” “hereof” and “hereunder” and other words of
similar import refer to this Agreement as a whole and not to any particular
section, paragraph or subdivision;
 
(f)           “business day” means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York generally are authorized or required by law or other
governmental actions to close;
 
(g)           “Person” has the meaning given to it in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act;
and
 
(h)           all article, section, paragraph or clause references not
attributed to a particular document shall be references to such parts of this
Agreement, and all exhibit, annex and schedule references not attributed to a
particular document shall be references to such exhibits, annexes and schedules
to this Agreement.
 
6.11           Captions.  The article, section, paragraph and clause captions
herein are for convenience of reference only, do not constitute part of this
Agreement and will not be deemed to limit or otherwise affect any of the
provisions hereof.
 
6.12           Severability.  If any provision of this Agreement or the
application thereof to any Person (including, the officers and directors of the
Investor and the Company) or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such provision to Persons or circumstances other
than those as to which it has been held invalid or unenforceable, will remain in
full force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination, the parties shall negotiate in good faith in an
effort to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.
 
6.13           No Third Party Beneficiaries.  Nothing contained in this
Agreement, expressed or implied, is intended to confer upon any Person or entity
other than the parties hereto, any benefit right or remedies, except that the
provisions of Section 4.6 shall inure to the benefit of the Persons referred to
in that Section.
 
6.14           Time of Essence.  Time is of the essence in the performance of
each and every term of this Agreement.
 
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6.15           Public Announcements.  Subject to each party’s disclosure
obligations imposed by law or regulation or the rules of any stock exchange upon
which its securities are listed, each of the parties hereto will cooperate with
each other in the development and distribution of all news releases and other
public information disclosures with respect to this Agreement and any of the
transactions contemplated by this Agreement, and no party hereto will make any
such news release or public disclosure without first consulting with the other
party hereto and receiving its consent (which shall not be unreasonably withheld
or delayed) and each party shall coordinate with the other with respect to any
such news release or public disclosure.
 
6.16           Specific Performance.  The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms.  It is accordingly agreed
that the parties shall be entitled to seek specific performance of the terms
hereof, this being in addition to any other remedies to which they are entitled
at law or equity.
 
* * *
 
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
duly authorized officers of the parties hereto as of the date first herein above
written.
 

 
EMPIRE RESORTS, INC.
         
By:
/s/ Joseph E. Bernstein    
Name:
Joseph E. Bernstein     
Title:
Chief Executive Officer

 
KIEN HUAT REALTY III LIMITED
         
By:
/s/ Gerard Lim    
Name:
Gerard Lim     
Title:
Authorized Signatory