**Exhibit 2.1**

 

**EXECUTION VERSION**

 

**AGREEMENT AND PLAN OF MERGERDated as of May 11, 2006byandamongMORGANS HOTEL GROUP CO.,**

 

**MHG HR ACQUISITION CORP.,**

 

**HARD ROCK HOTEL, INC.andPETER A. MORTON**

 

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**TABLE OF CONTENTS**

 
|                                 |                                                    | **Page** |
|--------------------------------------|---------------------------------------------------------|----------|
| ARTICLE I  THE MERGER           |                                                    |
|                                 |                                                    |     |
| SECTION 1.1                     | The Merger                                              | 1        |
| SECTION 1.2                     | Effective Time                                          | 1        |
| SECTION 1.3                     | Closing of the Merger                                   | 2        |
| SECTION 1.4                     | Effects of the Merger                                   | 2        |
| SECTION 1.5                     | Articles of Incorporation and Bylaws                    | 2        |
| SECTION 1.6                     | Directors                                               | 2        |
| SECTION 1.7                     | Officers                                                | 2        |
|                                 |                                                    |     |
| ARTICLE II                      |                                                    |
| CONVERSION  OF SHARES; CONSIDERATION |                                                    |
|                                 |                                                    |     |
| SECTION 2.1                     | Conversion of Shares.                                   | 2        |
| SECTION 2.2                     | Total Transaction Consideration; Adjustments.           | 3        |
| SECTION 2.3                     | Merger Fund; Exchange of Certificates.                  | 8        |
| SECTION 2.4                     | Dissenters’ Rights                                 | 11       |
|                                 |                                                    |     |
| ARTICLE III                     |                                                    |
| REPRESENTATIONS  AND WARRANTIES      |                                                    |
|                                 |                                                    |     |
| SECTION 3.1                     | Representations and Warranties of the Company           | 11       |
| SECTION 3.2                     | Representations and Warranties of Parent and Merger Sub | 18       |
|                                 |                                                    |     |
| ARTICLE IV                      |                                                    |
| COVENANTS                            |                                                    |
|                                 |                                                    |     |
| SECTION 4.1                     | Conduct of Business                                     | 20       |
| SECTION 4.2                     | Access to Information; Confidentiality.                 | 22       |
| SECTION 4.3                     | Consents and Governmental Approvals                     | 23       |
| SECTION 4.4                     | Company Bonds; Credit Agreement                         | 24       |
| SECTION 4.5                     | Employee Benefit Plans                                  | 25       |
| SECTION 4.6                     | [INTENTIONALLY OMITTED]                                 | 27       |
| SECTION 4.7                     | Financial Information                                   | 27       |
| SECTION 4.8                     | [INTENTIONALLY OMITTED].                                | 27       |
| SECTION 4.9                     | Publicity                                               | 27       |
| SECTION 4.10                    | Certain Understandings.                                 | 27       |
| SECTION 4.11                    | Taxes                                                   | 28       |
| SECTION 4.12                    | Certain Notifications                                   | 28       |
| SECTION 4.13                    | Indemnification of Directors and Officers.              | 28       |
| SECTION 4.14                    | Debt Financing                                          | 29       |
| SECTION 4.15                    | Further Assurances                                      | 29       |
| SECTION 4.16                    | Selected Memorabilia                                    | 30       |
| SECTION 4.17                    | Termination of Affiliate Agreements                     | 30       |
| SECTION 4.18                    | Other Transaction Documents                             | 30       |

 

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| ARTICLE V             |                                                                     |
|----------------------------|--------------------------------------------------------------------------|
| CONDITIONS  PRECEDENT      |                                                                     |
|                       |                                                                     |   |
| SECTION 5.1           | Conditions Precedent to Each Party’s Obligations                    | 30 |
| SECTION 5.2           | Conditions Precedent to Parent’s and Merger Sub’s  Obligations | 31 |
| SECTION 5.3           | Conditions Precedent to the Company’s Obligations                   | 31 |
|                       |                                                                     |   |
| ARTICLE VI            |                                                                     |
| TERMINATION                |                                                                     |
|                       |                                                                     |   |
| SECTION 6.1           | Termination                                                              | 32 |
| SECTION 6.2           | Effect of Termination.                                                   | 33 |
| SECTION 6.3           | Specific Performance                                                     | 36 |
|                       |                                                                     |   |
| ARTICLE VII           |                                                                     |
| SURVIVAL;  INDEMNIFICATION |                                                                     |
|                       |                                                                     |   |
| SECTION 7.1           | Survival of Representations, Warranties and Covenants                    | 36 |
| SECTION 7.2           | Obligation of Stockholders                                               | 36 |
| SECTION 7.3           | Obligation of Parent                                                     | 37 |
| SECTION 7.4           | Minimum Losses                                                           | 37 |
| SECTION 7.5           | Maximum Indemnification                                                  | 37 |
| SECTION 7.6           | No Tax Attribute Indemnity                                               | 37 |
| SECTION 7.7           | Notice; Procedure for Third-Party Claims                                 | 37 |
| SECTION 7.8           | Survival of Indemnity                                                    | 38 |
| SECTION 7.9           | No Consequential Damages                                                 | 39 |
| SECTION 7.10          | No Double Recovery                                                       | 39 |
|                       |                                                                     |   |
| ARTICLE VIII          |                                                                     |
| DEFINITIONS                |                                                                     |
|                       |                                                                     |   |
| SECTION 8.1           | Definitions                                                              | 39 |
| SECTION 8.2           | Interpretation                                                           | 42 |
|                       |                                                                     |   |
| ARTICLE IX            |                                                                     |
| MISCELLANEOUS              |                                                                     |
|                       |                                                                     |   |
| SECTION 9.1           | Notices                                                                  | 42 |
| SECTION 9.2           | Severability                                                             | 44 |
| SECTION 9.3           | Counterparts                                                             | 44 |
| SECTION 9.4           | Mutual Drafting                                                          | 44 |
| SECTION 9.5           | Entire Agreement                                                         | 44 |
| SECTION 9.6           | Governing Law; Jurisdiction                                              | 44 |
| SECTION 9.7           | Amendment; Waiver                                                        | 44 |
| SECTION 9.8           | Assignment                                                               | 44 |
| SECTION 9.9           | No Third-Party Beneficiaries                                             | 45 |
| SECTION 9.10          | Stockholders’ Representative.                                       | 45 |
| SECTION 9.11          | Arbitration                                                              | 45 |

 

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**EXHIBITS**

 
| Exhibit A | Copy of PMR Purchase and Sale Agreement  |
|----------------|------------------------------------------|
| Exhibit B | Form of Trademark Agreement         |
| Exhibit C | Copy of Escrow Agreement                 |
| Exhibit D | Form of License Agreement           |
| Exhibit E | Form of Morton Trademark Assignment |
| Exhibit F | Copy of Action by Written Consent        |

 

 

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**TABLE OF DEFINITIONS**

 
| **Defined Term**             | ** ** | **Initial Section Reference** |
|-----------------------------------|------------|-----------------------------------------|
|                              |       |                                    |
| Accountants                       |       | 2.2(c)(ii)                              |
| Additional Consideration          |       | 2.2(a)(i)                               |
| Affected Employee                 |       | 4.5(a)                                  |
| Affiliate                         |       | 8.1                                     |
| Affiliate Agreements              |       | 4.17                                    |
| Agreement                         |       | First Paragraph                         |
| Applicable First Call Date        |       | 8.1                                     |
| Applicable Percentage             |       | 2.2(a)(ii)                              |
| Articles of Merger                |       | 1.2                                     |
| Business Day                      |       | 8.1                                     |
| Cage Cash                         |       | 2.2(a)(ix)                              |
| Class A Company Common Stock |       | 2.1(a)(i)                               |
| Class B Company Common Stock |       | 2.1(a)(i)                               |
| Closing                           |       | 1.3                                     |
| Closing Balance Sheet             |       | 2.2(c)                                  |
| Closing Date                      |       | 1.3                                     |
| Closing Date Cage Cash            |       | 2.2(c)                                  |
| Closing Date Working Capital      |       | 2.2(c)                                  |
| Closing Schedule                  |       | 2.2(c)                                  |
| Company                           |       | First Paragraph                         |
| Company Bonds                     |       | 8.1                                     |
| Company Common Stock              |       | 2.1(a)(i)                               |
| Company Condition Failure         |       | 6.1(c)                                  |
| Company Consents                  |       | 3.1(e)                                  |
| Company Disclosure Letter         |       | 8.1                                     |
| Company Intellectual Property     |       | 3.1(q)                                  |
| Company Junior Notes              |       | 8.1                                     |
| Company SEC Report                |       | 3.1(f)                                  |
| Company SEC Reports               |       | 3.1(f)                                  |
| Company Second Lien Notes         |       | 8.1                                     |
| Confidentiality Agreement         |       | 4.2(c)                                  |
| Contract                          |       | 8.1                                     |
| Credit Agreement                  |       | 8.1                                     |
| Deposit                           |       | 2.2(d)                                  |
| Disputed Holdback Amount          |       | 2.2(c)(ii)                              |
| Dissenting Shares                 |       | 2.4                                     |
| Effective Time                    |       | 1.2                                     |
| Employee Benefit Plan             |       | 3.1(m)                                  |
| Enterprise Price                  |       | 2.2(a)(vii)                             |
| Environmental Laws                |       | 3.1(s)                                  |
| ERISA                             |       | 3.1(o)(ii)                              |
| ERISA Affiliate                   |       | 3.1(o)(v)                               |
| Escrow Agent                      |       | 2.2(d)                                  |
| Escrow Agreement                  |       | 2.2(d)                                  |
| Escrow Costs                      |       | 2.2(e)                                  |

 

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| Estimated Cage Cash                  |   | 2.2(b)(i)                  |
|--------------------------------------|--------|----------------------------|
| Estimated Working Capital            |   | 2.2(b)(i)                  |
| Exchange Act                         |   | 3.1(f)                     |
| Expense Reimbursement                |   | 6.2(b)(iv)                 |
| Expiration Date                      |   | 7.1                        |
| Final Adjustments                    |   | 2.2(c)(iii)                |
| Final Adjustment Consideration       |   | 2.2(c)(iv), 2.2(c)(iii)(2) |
| Final Adjustment Date                |   | 2.2(c)(iii)                |
| Final Balance Sheet Adjustment       |   | 2.2(c)(iii)(2)             |
| Final Determination Date             |   | 2.2(c)(ii)                 |
| Final Holdback Amount                |   | 2.2(c)(iii)                |
| Financial Statements                 |   | 3.1(f)                     |
| Financing                            |   | 3.2(e)                     |
| Financing Commitments                |   | 3.2(e)                     |
| GAAP                                 |   | 3.1(f)                     |
| Gaming Approvals                     |   | 8.1                        |
| Gaming Authorities                   |   | 8.1                        |
| Gaming Laws                          |   | 8.1                        |
| Gaming Operator                      |   | 8.1                        |
| Governmental Authority               |   | 8.1                        |
| hazardous substance                  |   | 3.1(s)                     |
| herein                               |   | 8.1                        |
| hereof                               |   | 8.1                        |
| hereto                               |   | 8.1                        |
| hereunder                            |   | 8.1                        |
| herewith                             |   | 8.1                        |
| Holdback Amount                      |   | 2.2(a)(iii)                |
| Holdback Shortfall                   |   | 2.2(c)(iii)                |
| HSR Act                              |   | 3.1(e)                     |
| include                              |   | 8.1                        |
| include, without limitation          |   | 8.1                        |
| including                            |   | 8.1                        |
| including, without limitation        |   | 8.1                        |
| Indemnification Escrow Amount        |   | 2.2(e)                     |
| Indemnification Escrow Final Balance |   | 2.2(e)                     |
| Indemnification Escrow Fund          |   | 2.2(e)                     |
| Indemnification Escrow Net Earnings  |   | 2.2(e)                     |
| Indemnification Escrow Surplus       |   | 2.2(e)                     |
| Indemnified Parties                  |   | 4.13(a)                    |
| Indemnified Party                    |   | 7.7(a)                     |
| Indemnifying Party                   |   | 7.7(a)                     |
| Indemnity Threshold                  |   | 7.4                        |
| Inspection                           |   | 4.2(a)                     |
| Junior Note First Call Date          |   | 8.1                        |
| Knowledge of the Company             |   | 8.1                        |
| License Agreement                    |   | 8.1                        |
| Liens                                |   | 8.1                        |
| Losses                               |   | 7.2                        |
| New Plans                            |   | 4.5(e)(i)                  |
| Material Adverse Effect              |   | 8.1                        |
| Material Contracts                   |   | 3.1(m)                     |

 

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| Merger                                 |   | 1.1             |
|----------------------------------------|--------|-----------------|
| Merger Consideration                   |   | 2.2(a)(iv)      |
| Merger Fund                            |   | 2.3(a)          |
| Merger Sub                             |   | First Paragraph |
| Minimum Cage Cash                      |   | 8.1             |
| Minimum Working Capital                |   | 8.1             |
| Morton Trademark Assignment            |   | 8.1             |
| Morton Trademarks                      |   | 8.1             |
| NRS                                    |   | 1.1             |
| Old Plans                              |   | 4.5(e)(i)       |
| Obligations                            |   | 8.1             |
| Other Parties                          |   | 6.1(f)(ii)      |
| Other Transaction Closings             |   | 8.1             |
| Other Transaction Documents            |   | 8.1             |
| Outside Date                           |   | 6.1(d)          |
| Owned Real Property                    |   | 3.1(k)          |
| Parent                                 |   | First Paragraph |
| Parent Condition Failure               |   | 6.1(d)          |
| Parent Indemnitees                     |   | 7.2             |
| Parties                                |   | 9.11            |
| Party                                  |   | 9.11            |
| Paying Agent                           |   | 2.3(a)          |
| Per Share Merger Consideration         |   | 2.2(a)(v)       |
| Per Share Transaction Consideration    |   | 2.1(a)(i)       |
| Permits                                |   | 3.1(i)          |
| Person                                 |   | 8.1             |
| PMR                                    |   | 8.1             |
| PMR Asset Purchase Agreement           |   | 8.1             |
| PMR/RWB Escrow Agreement               |   | 8.1             |
| PMR/RWB Escrow Funds                   |   | 8.1             |
| Preliminary Cage Cash Adjustment       |   | 2.2(b)(iii)     |
| Preliminary Closing Balance Sheet      |   | 2.2(b)(i)       |
| Preliminary Closing Schedule           |   | 2.2(b)(i)       |
| Preliminary Working Capital Adjustment |   | 2.2(b)(ii)      |
| Pro Rata Portion                       |   | 2.2(a)(vi)      |
| PSV Policies                           |   | 4.5(g)          |
| Remaining Holdback Amount              |   | 2.2(c)(ii)      |
| Retention Bonus Adjustment             |   | 2.2(c)(iv)      |
| SEC                                    |   | 3.1(f)          |
| Second Lien Note First Call Date       |   | 8.1             |
| Securities Act                         |   | 3.1(f)          |
| Selected Memorabilia                   |   | 4.16            |
| Stockholders                           |   | Third Paragraph |
| Stockholder Indemnitees                |   | 7.3             |
| Stockholders’ Representative      |   | 9.10(a)         |
| Surviving Corporation                  |   | 1.1             |
| Taxes                                  |   | 15, 8.1         |
| Termination Agreement                  |   | 8.1             |
| Termination Amount                     |   | 8.1             |
| Third-Party Claim                      |   | 7.7(b)          |
| Total Transaction Consideration        |   | 2.2(a)(vii)     |

 

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| Trademark Agreement                         |   | 8.1          |
|---------------------------------------------|--------|--------------|
| transactions contemplated by this Agreement |   | 8.1          |
| transactions contemplated hereby            |   | 8.1          |
| transactions under this Agreement           |   | 8.1          |
| Transfer Tax                                |   | 4.11         |
| Transfer Taxes                              |   | 4.11         |
| Treasury Calculation Amount                 |   | 8.1          |
| Undisputed Holdback Amount                  |   | 2.2(c)(ii)   |
| WARN Act                                    |   | 4.5(h)       |
| Working Capital                             |   | 2.2(a)(viii) |

 

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**AGREEMENT AND PLAN OF MERGER**

 

This**AGREEMENT AND PLAN OF MERGER** (this “**Agreement**”), dated as of May 11, 2006, is by and among **HARD ROCK HOTEL, INC.**, a Nevada corporation (the “**Company**”), **PETER A. MORTON**,an individual (solely with respect to Sections 4.18(b) and 6.3and Article IX), **MORGANS HOTEL GROUP CO.**,a Delaware corporation (“**Parent**”), and **MHG HR ACQUISITION CORP.**, a Nevada corporation and a directwholly owned subsidiary of Parent (“**Merger Sub**”).

 

WHEREAS,(i) the Board of Directors of each of Parent and Merger Sub have, upon theterms and subject to the conditions set forth in this Agreement, determinedthat this Agreement and the transactions contemplated hereby, including theMerger, taken together, are advisable and fair to, and in the best interestsof, its respective stockholders, (ii) the Board of Directors of Merger Subhas recommended acceptance and approval by its sole stockholder of thisAgreement, the Merger and the other transactions contemplated hereby, and (iii) thisAgreement and the transactions contemplated hereby have been approved by therespective Boards of Directors of each of Parent and Merger Sub and by Parent,in its capacity as the sole stockholder of Merger Sub;

 

WHEREAS,the Board of Directors of the Company has, upon the terms and subject to theconditions set forth in this Agreement, (i) determined that this Agreementand the transactions contemplated hereby, including the Merger, taken together,are advisable and fair to, and in the best interests of, its stockholders andhas approved this Agreement and (ii) recommended acceptance and approvalby the holders of shares of Company Common Stock (as herein defined) (the “**Stockholders**”) of this Agreement, the Merger and the othertransactions contemplated hereby; and

 

WHEREAS,this Agreement and the transactions contemplated hereby have been approved bythe holder of 100% of the issued and outstanding shares of Company Class ACommon Stock (as herein defined) and by the holder of a majority of the issuedand outstanding shares of Company Class B Common Stock (as hereindefined), in each case, pursuant to an Action by Written Consent, a copy ofwhich is attached hereto as Exhibit F. 

 

NOW,THEREFORE, in consideration of the premises and the representations, warranties,covenants and agreements herein contained, and intending to be legally boundhereby, each of the Company, Parent and Merger Sub hereby agrees as follows:

 

ARTICLE ITHE MERGER

 

SECTION 1.1         The Merger. At the Effective Time and upon the terms and subject to theconditions of this Agreement and in accordance with the applicable provisionsof the Nevada Revised Statutes (as amended from time to time, the “**NRS**”), Merger Sub shall be merged with and into the Company(the “**Merger**”). At the Effective Time, theseparate corporate existence of Merger Sub shall cease, and the Company shallcontinue as the surviving corporation (the “**SurvivingCorporation**”) and a wholly owned subsidiary of Parent.

 

SECTION 1.2         Effective Time. Subject to the provisions of thisAgreement, Parent, Merger Sub and the Company shall cause the Merger to beconsummated by filing appropriate Articles of Merger or other appropriatedocuments (the “**Articles of Merger**”) with theSecretary of State of the State of Nevada in such form as required by, andexecuted in accordance with, the applicable provisions of the

 

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NRS, as soon as practicableon the Closing Date. The Merger shall become effective upon such filing or atsuch time thereafter as is provided in the Articles of Merger (the “**Effective Time**”).

 

SECTION 1.3         Closing of the Merger. The closing of the Merger (the “**Closing**”) shall take place at a time and on a date to bespecified by the parties (the “**Closing Date**”),which shall be no later than the fifth Business Day (as herein defined) aftersatisfaction or waiver of the conditions set forth in Article V (otherthan those conditions, including the occurrence of the Other TransactionClosings, that by their nature are to be satisfied at the Closing, but subjectto the fulfillment or waiver of those conditions), at the offices of Wachtell,Lipton, Rosen & Katz, 51 West 52nd Street, New York, NewYork, 10019-6150, or at such other time, date or place as agreed to in writingby the parties hereto.

 

SECTION 1.4         Effects of the Merger. The Merger shall have the effects set forthin this Agreement and in the applicable provisions of the NRS, including Section 92A.250of the NRS. Without limiting the generality of the foregoing, and subjectthereto, at the Effective Time, all the properties, rights, privileges, powersand franchises of the Company and Merger Sub shall vest in the SurvivingCorporation, and all debts, liabilities and duties of the Company and MergerSub shall become the debts, liabilities and duties of the Surviving Corporation.

 

SECTION 1.5         Articles of Incorporation and Bylaws. The articles of incorporation of theCompany shall be amended in the Merger to be the same as the articles ofincorporation of Merger Sub immediately prior to the Effective Time and shallbe the articles of incorporation of the Surviving Corporation until amended inaccordance therewith and with applicable law. The bylaws of Merger Sub ineffect at the Effective Time shall be the bylaws of the Surviving Corporationuntil amended in accordance therewith, with the articles of incorporation andwith applicable law.

 

SECTION 1.6         Directors. The directors of Merger Sub at the Effective Time shall be theinitial directors of the Surviving Corporation, to hold office in accordancewith the articles of incorporation and bylaws of the Surviving Corporationuntil their successors are duly elected or appointed and qualified or untiltheir earlier death, resignation or removal.

 

SECTION 1.7         Officers. The officers of Merger Sub at the Effective Time shall be the initialofficers of the Surviving Corporation, to hold office in accordance with thearticles of incorporation and bylaws of the Surviving Corporation until theirsuccessors are duly elected or appointed and qualified or until their earlierdeath, resignation or removal.

 

ARTICLE IICONVERSION OF SHARES; CONSIDERATION

 

SECTION 2.1         Conversion of Shares.

 

(a)           At the Effective Time, by virtue of theMerger and without any action on the part of any holder of any shares ofcapital stock of the Company, Parent or Merger Sub, each of the following shalloccur:

 

(i)    (A) each share of Class A votingcommon stock, no par value, of the Company (the “**Class ACompany Common Stock**”) issued and outstanding immediately prior tothe Effective Time (other than any shares of Class A Company Common Stockto be canceled pursuant to Section 2.1(a)(ii)) and all rights inrespect thereof, and (B) each share of Class B voting common stock,no par value, of the Company (the “**Class B CompanyCommon Stock**” and, together with the Class A Common Stock, the “**Company Common Stock**”) issued and outstanding immediatelyprior to the Effective Time (other than any shares of Class B CompanyCommon Stock to be canceled pursuant

 

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to Section 2.1(a)(ii))and all rights in respect thereof, shall be canceled and shall be convertedautomatically into the right to receive (x) the Per Share Merger Considerationand (y) the Pro Rata Portion of any Additional Consideration that isreleased or paid to the Paying Agent in accordance with Sections 2.2(c)(ii),2.2(c)(iii), 2.2(c)(iv) and 2.2(e) (the sum ofclauses (x) and (y), the “**Per Share TransactionConsideration**”). As of the Effective Time, all such shares ofCompany Common Stock shall no longer be outstanding and shall automatically becanceled and retired and shall cease to exist, and each holder of a certificaterepresenting any such shares of Company Common Stock shall cease to have anyrights with respect thereto, except for the right to receive upon surrender ofthe certificate (or delivery of a duly executed affidavit of lost certificate)that formerly evidenced such share of Company Common Stock, in the mannerprovided in Section 2.3, the Per Share Transaction Considerationwithout interest (other than any interest or other income accrued on theIndemnification Escrow Fund and distributed to the Stockholders as part ofthe Indemnification Escrow Surplus, which is included as part of thecalculation of Additional Consideration);

 

(ii)   each share of Company Common Stock held byParent, Merger Sub, any other subsidiary of Parent, or the Company immediatelyprior to the Effective Time shall, by virtue of the Merger and without anyaction on the part of Parent, Merger Sub, the Company or any holder ofsuch share, be canceled, retired and cease to exist and no payment shall bemade with respect thereto; and

 

(iii)  each outstanding share of the common stock,no par value per share, of Merger Sub shall, by virtue of the Merger andwithout any action on the part of Parent, Merger Sub or the Company, beconverted into one fully paid and non-assessable share of common stock, no parvalue per share, of the Surviving Corporation.

 

(b)           At the Effective Time, in accordance with Section 2.3,Parent shall wire or cause to be wired to an account designated by the PayingAgent an amount equal to (i) the Total Transaction Consideration (notincluding clause (H) of the definition thereof, which shall be determinedfollowing the Closing in accordance with Section 2.2(c)(iv)) *minus*(ii)(A) the Deposit as of such time and (B) theIndemnification Escrow Amount, which Indemnification Escrow Amount Parent shalldeliver in escrow at the Closing to the Escrow Agent, as provided in Section 2.2(e).

 

SECTION 2.2         Total Transaction Consideration; Adjustments.

 

(a)           Certain Definitions. As used in this Agreement, the followingterms have the following respective meanings:

 

(i)       “**Additional Consideration**” means the sumof:  (A) any Undisputed HoldbackAmount, (B) any Final Adjustment Consideration, (C) any FinalHoldback Amount and (D) any Indemnification Escrow Surplus.

 

(ii)      “**Applicable Percentage**” of anyStockholder means the quotient (expressed as a percentage) obtained by dividing(A) the aggregate number of shares of Company Common Stock held by suchStockholder immediately prior to the Effective Time, by (B) the aggregatenumber of shares of Company Common Stock outstanding immediately prior to theEffective Time.

 

(iii)     “**Holdback Amount**” means an amount equalto $2,500,000.

 

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(iv)    “**Merger Consideration**” means the dollaramount in cash equal to (A) the Total Transaction Consideration *minus* (B) the Holdback Amount *minus*(C) the Indemnification Escrow Amount *minus* (D) theTermination Amount.

 

(v)     “**Per Share Merger Consideration**” meansthe dollar amount in cash equal to the quotient obtained by dividing (A) theMerger Consideration by (B) the aggregate number of shares of CompanyCommon Stock outstanding immediately prior to the Effective Time.

 

(vi)    “**Pro Rata Portion**” means an amount equalto the quotient obtained by dividing (A) one by (B) the aggregatenumber of shares of Company Common Stock outstanding immediately prior to theEffective Time.

 

(vii)   “**Total Transaction Consideration**” meansthe dollar amount in cash determined as follows:  (A) Four Hundred Twenty-One MillionDollars ($421,000,000.00) (the “**Enterprise Price**”),*minus*(B) the sum of (1) theprincipal amount of, and any accrued and unpaid interest on, the outstandingCompany Bonds and (2) the principal amount of, and any accrued and unpaidinterest on, outstanding borrowings under the Credit Agreement, in each case,as of the Closing Date, *minus* (C) thesum of (1) the dollar amount of any premium (or, if the Company Bonds arebeing defeased, the amount necessary to defease the Company Bonds pursuant tothe respective indentures governing the Company Bonds) paid or to be paid byParent or one of its Affiliates to holders of the Company Bonds to repurchase(or defease) the Company Bonds in accordance with Section 4.4 (upto an aggregate dollar amount for each $1,000 principal amount of Company Bondstendered (or defeased) as of the Closing Date not to exceed (x) the TreasuryCalculation Amount *less* (y) thedollar amount set forth in clause (B)(1) above), and (2) any amountspayable upon or after the Closing to investment bankers, financial advisors andcounsel of the Company with respect to services rendered in connection with thetransactions contemplated by this Agreement, *plus*(D) the amount of cash and cash equivalents (other than Cage Cash) as ofthe Closing Date, *plus*(E) the PreliminaryWorking Capital Adjustment in accordance with Section 2.2(b), *plus* (F) the Preliminary Cage Cash Adjustment inaccordance with Section 2.2(b), *plus* (G) theamount of any expenditures made by the Company after the date hereof and on orprior to the Closing Date that require Parent’s consent under this Agreementand that have been made with the consent of Parent, *plus*(H) the amount of any retention bonuses paid by the Company at Closing toany employees that are then terminated by the Surviving Corporation withinforty-five days following the Closing, which amount shall be determinedfollowing the Closing in accordance with Section 2.2(c)(iv), *minus*(I) the amount of any related party payables as of theClosing Date (which amount if a credit balance shall be subtracted fromEnterprise Price and, which amount if a debit balance, shall be added toEnterprise Price). Notwithstanding any change with respect to the Company’saccounting policies or procedures subsequent to the date hereof, the accountingpolicies and procedures used to calculate Total Transaction Consideration andthe components thereof, including Working Capital, shall be the same as thosein effect on the date hereof. By way of example only and for purposes ofclarification, Schedule 2.2(a)(vii) of the Company DisclosureLetter sets forth a calculation of the Total Transaction Consideration usingthe Company’s balance sheet as of March 31, 2006.

 

(viii)  “**Working Capital**” means a dollar amountequal to (A) the sum of accounts receivable (net of reserves), inventoryand prepaid and other current assets, *minus*(B) thesum of accounts payable, insurance payable and accrued expenses (provided thatany liabilities with respect to the Company’s deferred bonus plan that areincluded in clause (B) shall be offset by the cash surrender value of therelated life insurance assets to the extent that

 

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such assets have notpreviously been converted to cash), other than, in the case of this clause (B),related party payables, it being expressly agreed for purposes of avoiding anydouble counting that any amount or item which would otherwise be included inthe calculation of Working Capital but is otherwise an addition or deductionpursuant to the calculation of Total Transaction Consideration shall beexcluded from the calculation of Working Capital for purposes of thePreliminary Closing Balance Sheet, the Closing Balance Sheet, the example setforth on Schedule 2.2(a)(vii) of the Company Disclosure Letteror otherwise. “Working Capital” shall be calculated in the manner set forth on Schedule 2.2(a)(viii) ofthe Company Disclosure Letter.

 

(ix)   “**Cage Cash**”shall be calculated in the manner set forth on Schedule 2.2(a)(ix) ofthe Company Disclosure Letter.

 

(b)           Preliminary Closing Schedule; PreliminaryAdjustments. 

 

(i)    No later than five Business Days prior to theClosing, the Company shall deliver to Parent a preliminary calculation of theTotal Transaction Consideration (the “**Preliminary ClosingSchedule**”), together with an estimated balance sheet of the Companyas of the Closing Date (immediately prior to the Effective Time) (the “**Preliminary Closing Balance Sheet**”). The Preliminary ClosingBalance Sheet shall be prepared in accordance with GAAP and in accordance withthe accounting policies and procedures of the Company in effect on the datehereof. The Preliminary Closing Schedule shall set forth a good faithestimate of the amount of Working Capital of the Company as of the Closing Date(immediately prior to the Effective Time) (such estimate, the “**Estimated Working Capital**”) and a good faith estimate of theamount of Cage Cash of the Company as of the Closing Date (such estimate, the “**Estimated Cage Cash**”), in each case based on the PreliminaryClosing Balance Sheet.

 

(ii)   The “**Preliminary WorkingCapital Adjustment**” (which may be positive or negative) shallequal (x) Estimated Working Capital *minus* (y)Minimum Working Capital.

 

(iii)  The “**Preliminary Cage CashAdjustment**” (which may be positive or negative) shall equal (x)Estimated Cage Cash *minus* (y)Minimum Cage Cash.

 

(c)           Post-Closing Adjustments.

 

(i)    As soon as reasonably practical following(but not more than 30 days after) the Closing Date, the Surviving Corporationshall deliver to the Stockholders’ Representative a calculation of the TotalTransaction Consideration (the “**Closing Schedule**”),together with an unaudited balance sheet of the Company as of the Closing Date(immediately prior to the Effective Time) (the “**ClosingBalance Sheet**”). The Closing Balance Sheet shall be prepared inaccordance with GAAP and in accordance with the accounting policies andprocedures of the Company in effect on the date hereof. ** **The Closing Schedule shall setforth the Working Capital of the Company as of the Closing Date (immediatelyprior to the Effective Time) (the “**Closing Date WorkingCapital**”) and the amount of Cage Cash of the Company as of theClosing Date (the “**Closing Date Cage Cash”**).

 

(ii)   The Closing Schedule, including the ClosingBalance Sheet, the Closing Date Working Capital and the Closing Date Cage Cash,shall become final and binding upon the parties, and not subject to any appeal,unless within 30 days following the date of delivery of the Closing Schedule bythe Surviving Corporation to the Stockholders’ Representative, the Stockholders’Representative and the Surviving Corporation have been unable to agree on afinal Closing Schedule, including the Closing Balance Sheet, the Closing Date

 

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Working Capital and theClosing Date Cage Cash, in which case (A) the Stockholders’ Representativeshall provide instructions to the Escrow Agent, in accordance with the EscrowAgreement, to release any portion of the Holdback Amount that is not in dispute(such amount, *less* any expenses of theStockholders’ Representative to be paid from, or reimbursed through deductionfrom, the Holdback Amount in accordance with Section 9.10(d)), the “**Undisputed Holdback Amount,**” and the amount of any remainingHoldback Amount, the “**Disputed Holdback Amount**”)to the Paying Agent, as agent for the Stockholders, for distribution to theStockholders in accordance with the Escrow Agreement and their ApplicablePercentages and (B) the Stockholders’ Representative and Parent shallsubmit all differences and disputes between the Stockholders’ Representativeand Parent relating to the Closing Schedule, including the Closing BalanceSheet, the Closing Date Working Capital and the Closing Date Cage Cash, to theLas Vegas, Nevada office of Deloitte & Touche LLP, the Company’saccountants (the “**Accountants”**),to be resolved by such firm, and such firm’s opinion thereon and the resultingClosing Schedule, including the Closing Balance Sheet, the Closing Date WorkingCapital and the Closing Date Cage Cash, shall be final and binding on theparties and not subject to any appeal. The Stockholders’ Representative andParent agree to request that the Accountants resolve all such difference anddisputes within 15 days of submission to the Accountants. Parent and theStockholders’ Representative shall each pay (solely, in the case of theStockholders’ Representative, by deduction from the Disputed Holdback Amountprior to the making of any payments to Parent pursuant to Section 2.2(c)(iii))the percentage of the amount of the fees and expenses of the Accountants equalto (A) the aggregate amount of the disputed matters submitted to theAccountants that are not settled in favor of such party (as finally determinedby the Accountants), divided by (B) the aggregate amount of all disputedmatters submitted to the Accountants. The Disputed Holdback Amount, less (x)any fees and expenses of the Accountants and (y) any expenses of theStockholders’ Representative, in the case of each of clauses (x) and (y), to bepaid from, or reimbursed by deduction from, the Holdback Amount pursuant tothis Section 2.2(c)(ii) or Section 9.10(d) andnot previously paid from the Holdback Amount, is referred to as the “**Remaining Holdback Amount**.” The date that the Closing Date Schedule, including the Closing Balance,the Closing Date Working Capital and the Closing Date Cage Cash, become finaland binding on the parties and not subject to any appeal is referred to as the “**Final Determination Date**.”

 

(iii)  Within 10 days following the FinalDetermination Date pursuant to Section 2.2(c)(ii), finaladjustments to the Enterprise Price (the “**Final Adjustments**”)shall be made and paid as follows (the date the Final Adjustments are so madeand paid, the “**Final Adjustment Date**”):

 

(1)           if (A) the sum of (x) the Closing Date Working Capital and (y) theClosing Date Cage Cash is less than (B) the sum of (x) the EstimatedWorking Capital and (y) the Estimated Cage Cash, then a portion of theRemaining Holdback Amount equal to such difference shall be released by theEscrow Agent, pursuant to the Escrow Agreement, and paid to Parent; , provided,however, that in the event that the amount of the Remaining HoldbackAmount is less than the amount of such difference (the amount by which theRemaining Holdback Amount is less than the amount of such difference, the “**Holdback Shortfall**”), then a portion of the IndemnificationEscrow Fund equal to such Holdback Shortfall (up to the amount of theIndemnification Escrow Fund), shall be released by the Escrow Agent, pursuantto the Escrow Agreement, and paid to Parent; and

 

(2)           if the sum of (x) the Closing Date Working Capital and (y) the ClosingDate Cage Cash is greater than (B) the sum of (x) the Estimated

 

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WorkingCapital and (y) the Estimated Cage Cash, then Parent shall promptly pay, orcause to be paid to the Paying Agent, as agent for the Stockholders, an amountin cash equal to such difference (such amount, the “**FinalBalance Sheet Adjustment**”) for distribution to the Stockholders inaccordance with the Escrow Agreement and their Applicable Percentages.

 

Uponthe instruction of the Stockholders’ Representative in accordance with theEscrow Agreement, any Holdback Amount that remains after making (A) anypayment required to be made to Parent pursuant to Section 2.2(c)(iii)(1) and(B) any payment of any expenses of the Stockholders’ Representative to bepaid from, or reimbursed by deduction from, the Holdback Amount in accordancewith Section 9.10(d) and not previously paid from the HoldbackAmount (such remaining Holdback Amount, the “**FinalHoldback Amount**”) shall be promptly released by the Escrow Agent tothe Paying Agent for distribution to the Stockholders in accordance with theEscrow Agreement and their Applicable Percentages.

 

(iv)  On the later of (x) the Final Adjustment Dateand (y) the 46th day following the Closing, Parent shall pay,or cause to be paid to the Paying Agent, as agent for the Stockholders, anamount in cash equal to the amount of any retention bonuses paid by the Companyat Closing to any employees that have been terminated by the SurvivingCorporation within forty-five days following the Closing (such amount, the “**Retention Bonus Adjustment**” and, together with the FinalBalance Sheet Adjustment, the “**Final AdjustmentConsideration**”) for distribution to the Stockholders in accordancewith the Escrow Agreement and their Applicable Percentages.

 

(v)   Nothing in this Section 2.2(c) shallpreclude any party from exercising, or shall adversely affect or otherwiselimit in any respect the exercise of, any right or remedy available to ithereunder for any misrepresentation or breach of warranty hereunder, but noneof Parent, Merger Sub or the Company shall have any right to dispute theClosing Schedule, including Closing Balance Sheet, the Closing Date WorkingCapital or the Closing Date Cage Cash, or any portion thereof, once it has beenfinally determined in accordance with Section 2.2(c)(ii).

 

(d)           Deposit; Escrow. On the date hereof, Parent shall deposit inreadily available funds of Thirty Million Dollars ($30,000,000) (such amount,including the interest accrued, and any other income earned, thereon, the “**Deposit**”), with Chicago Title Company of Nevada, Inc.(the “**Escrow Agent**”), pursuant to an escrowagreement dated as of the date hereof, a copy of which is attached hereto as Exhibit C(as it may be amended from time to time, the “**EscrowAgreement**”), executed and delivered by Parent, the Stockholders’Representative and the Escrow Agent. At the Closing, (i) the Deposit (lessthe Holdback Amount) shall be released by the Escrow Agent to the Paying Agentpursuant to Section 2.3(a)(i) and in accordance with the termsof the Escrow Agreement, and (ii) the Holdback Amount shall continue to beheld by the Escrow Agent in accordance with the Escrow Agreement until releasedpursuant to the terms of the Escrow Agreement and Section 2.2(c) ofthis Agreement. Upon the termination of this Agreement, the Deposit shall bepayable pursuant to Section 6.3, and thereafter shall be promptlyreleased by the Escrow Agent to Parent or the Company, as applicable, pursuantto Section 6.3 and the terms of the Escrow Agreement. In the eventof any inconsistency between the terms and provisions of the Escrow Agreementand the terms and provisions of this Agreement, the terms and provisions ofthis Agreement shall control, absent an express written agreement between theparties hereto to the contrary which acknowledges this Section 2.2(d).

 

(e)           Indemnification Escrow Fund. Subject to the terms and conditions hereof,on the Closing Date, Parent shall deposit in escrow a portion of the TotalTransaction Consideration equal to Fifteen Million ($15,000,000) (the “**Indemnification Escrow Amount**”),****inreadily available funds

 

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(the Indemnification EscrowAmount, together with the interest accrued and any other income earned thereon,the “**Indemnification Escrow Fund**”) with theEscrow Agent, pursuant to the Escrow Agreement. The Indemnification Escrow Fundshall be held and disbursed as provided in the Escrow Agreement, which shallprovide, among other things, that (i) any fees or expenses payable to theEscrow Agent under the Escrow Agreement on account of, in connection with orrelated to the Indemnification****Escrow Fund(the “**Escrow Costs**”) shall first be paid outof any income and interest accrued on the Indemnification****EscrowAmount in the Indemnification Escrow Fund; (ii) the Indemnification****Escrow Fund shall be disbursed (A) to Parent tosatisfy any Holdback Shortfall pursuant to Section 2.2(c)(iii)(1) and(B) to the Parent Indemnitees to satisfy any indemnificationobligation of the Stockholders under Section 7.2, in the case ofthis clause (B) only, when the conditions for indemnification set forth inSection 7.2 have been satisfied; provided, however,that to the extent that the balance of the Indemnification Escrow Fund is notsufficient to satisfy any indemnification obligations of the Stockholders tothe Parent Indemnitees under Section 7.2 when the conditions forindemnification set forth in Section 7.2 have been satisfied, thensuch shortfall shall be satisfied from any balance remaining in the PMR/RWBEscrow Funds pursuant to, and in accordance with the terms and subject to theconditions of, the PMR/RWB Escrow Agreement; (iii) any income or intereston the Indemnification Escrow Amount (net of any Escrow Costs) shall bedistributed to the Stockholders as provided in the Escrow Agreement (such netamount, the “**Indemnification Escrow Net Earnings**”);and (iv) as of the one year anniversary of the Closing Date, any amount ofcash remaining in the Indemnification Escrow Fund (other than any amount ofcash required to satisfy the maximum amount of the aggregate of any claims forindemnification for which written notice has been given to the IndemnifyingParty in accordance with Article VII and which as of such one-yearanniversary have not been finally determined), including any income or interestaccrued thereon but less any Escrow Costs and less any amounts then due andpayable from the Indemnification Escrow Fund to any Parent Indemniteepursuant to Section 7.2, shall be distributed by the Escrow Agentto the Paying Agent in accordance with the Escrow Agreement (any such remainingamounts, the “**Indemnification Escrow Final Balance**”)and, together with the Indemnification Escrow Net Earnings, the “**Indemnification Escrow Surplus**”). Parent shall be treated asthe owner of the Indemnification Escrow Fund for all tax purposes.

 

SECTION 2.3         Merger Fund; Exchange of Certificates.

 

(a)           Prior to the Effective Time, Parent shallappoint a commercial bank or trust company reasonably acceptable to the Companyto act as paying agent under this Agreement (the “**Paying Agent**”)for the purpose of exchanging shares of Company Common Stock for the MergerConsideration and, as applicable, the Additional Consideration. At theEffective Time, (i) the Deposit (less the Holdback Amount) shall bereleased by the Escrow Agent and deposited with the Paying Agent, as agent forthe Stockholders, subject to and in accordance with the terms of the EscrowAgreement, (ii) Parent shall irrevocably deposit or cause to be depositedwith the Paying Agent, as agent for the Stockholders, cash in an aggregateamount equal to the Total Transaction Consideration minus (1) the Deposit,(2) the Indemnification Escrow Amount and (3) the Termination Amount(the sum of the immediately preceding clauses (i) and (ii), together withany Additional Consideration deposited with or paid to the Paying Agentpursuant to Section 2.2(c)(ii), 2.2(c)(iii) or 2.2(c)(iv),the “**Merger Fund**”) and (iii) Parentshall pay the Termination Amount in accordance with the instructions of theCompany and Peter A. Morton. Pending distribution pursuant to Section 2.3(b),the Merger Fund, the Deposit and the Indemnification Escrow Fund shall be heldin trust pursuant to the Escrow Agreement and shall not be used except aspermitted by the Escrow Agreement; provided, however, that theSurviving Corporation may direct the Paying Agent to invest the MergerFund, provided that such investments (i) shall be in obligations ofor guaranteed by the United States of America, in commercial paper obligationsreceiving the highest rating from either Moody’s Investors Services, Inc.or Standard & Poor’s Corporation, in certificates of deposit, bankrepurchase agreements or bankers acceptances of domestic commercial banks withequity capital exceeding $500,000,000 or in money market funds and (ii) shallhave maturities that

 

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will not prevent or delaypayments to be made pursuant to Section 2.3(b) and that do notexceed, in any event, 90 days. Each holder of a certificate or certificatesrepresenting shares of Company Common Stock canceled and extinguished at theEffective Time pursuant to Section 2.1 may thereafter inaccordance with the provisions of Section 2.3(b), surrender such certificateor certificates to the Paying Agent, as agent for such Stockholder, to effectthe exchange of such certificate or certificates for the Per Share TransactionConsideration on such holder’s behalf for a period ending twelve months afterthe Effective Time.

 

(b)           (i) At the Closing, the Stockholders may surrenderthe certificate or certificates representing their shares of Company CommonStock to the Paying Agent (or such other agent or agents as may beappointed by the Surviving Corporation), as agent for the Stockholders, forcancellation. Upon surrender of such certificate or certificates forcancellation to the Paying Agent (or such other agent or agents as may beappointed by the Surviving Corporation), the certificate or certificates sosurrendered shall be cancelled and the Paying Agent shall pay (A) on theClosing Date (by check or wire transfer as directed by such Stockholder inwriting delivered to the Paying Agent (or such other agent or agents as may beappointed by the Surviving Corporation)) as soon as practicable prior to theClosing Date to the Stockholder who surrendered such certificate orcertificates an amount of cash equal to the product of (x) the Per Share MergerConsideration and (y) the number of shares of Company Common Stock representedby the certificate or certificates so surrendered and (B) thereafter,promptly following the release of any Additional Consideration by the EscrowAgent to the Paying Agent in accordance with Section 2.2(c) andthe Escrow Agreement, an amount in cash equal to the product of (x) the ProRata Portion of any such Additional Consideration (as determined pursuant to Sections2.2(c)(ii), 2.2(c)(iii), 2.2(c)(iv) and 2.2(e) and(y) the number of shares of Company Common Stock represented by the certificateor certificates so surrendered.

 

(ii)   With respect to any certificates not sosurrendered at the Closing, the Surviving Corporation, as soon as reasonablypracticable after the Effective Time, shall cause the Paying Agent to mail toeach holder of record of Company Common Stock represented by such certificates,(i) a letter of transmittal (which shall specify that delivery shall beeffected, and risk of loss and title to such certificates shall pass, only upondelivery of such certificates to the Paying Agent and shall be in such form andhave such other provisions not inconsistent with this Agreement as theSurviving Corporation may specify) and (ii) instructions for use ineffecting the surrender of such certificates in exchange for payment of the PerShare Transaction Consideration. Upon surrender of a certificate orcertificates for cancellation to the Paying Agent or to such other agent oragents as may be appointed by the Surviving Corporation, together withsuch letter of transmittal, duly executed and completed, the holder of suchcertificate or certificates shall be entitled to receive in exchange therefor,for each share of Company Common Stock, formerly represented by suchcertificate or certificates, an amount in cash equal to the product of (x) thePer Share Merger Consideration and (y) the number of shares of Company CommonStock represented by the certificate or certificates so surrendered and (B) thereafter,promptly following the release of any Additional Consideration by the EscrowAgent to the Paying Agent in accordance with Section 2.2(c) andthe Escrow Agreement, an amount in cash equal to the product of (x) the ProRata Portion of any such Additional Consideration (as determined pursuant to Sections2.2(c)(ii), 2.2(c)(iii), 2.2(c)(iv) and 2.2(e) and(y) the number of shares of Company Common Stock represented by the certificateor certificates so surrendered, and the certificate or certificates sosurrendered shall forthwith be canceled.

 

(iii)  After the Effective Time, until so surrenderedin accordance with Section 2.3(b)(i) or 2.3(b)(ii),each certificate representing shares of Company Common Stock shall be deemed,for all corporate purposes thereafter, to evidence only the right to receive anamount of cash equal to the product of (x) the Per Share TransactionConsideration

 

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and (y) the number of sharesof Company Common Stock evidenced by such certificate. No consideration will bepaid to, or delivered on behalf of the holder of any unsurrendered certificatewith respect to shares of Company Common Stock formerly represented therebyuntil the holder of record of such certificate shall surrender such certificatepursuant hereto.

 

(c)           If payment is to be made to a Person otherthan the registered holder of the shares of Company Common Stock represented bythe certificate or certificates surrendered in exchange therefor, it shall be acondition to such payment that the certificate or certificates so surrenderedshall be properly endorsed or otherwise be in proper form for transfer andthat the Person requesting such payment shall pay to the Paying Agent anytransfer or other Taxes required as a result of such payment to a Person otherthan the registered holder of such shares of Company Common Stock or establishto the satisfaction of the Paying Agent that such Tax has been paid or is notpayable.

 

(d)           After the Effective Time, there shall be nofurther transfers on the stock transfer books of the Surviving Corporation ofthe shares of Company Common Stock that were outstanding immediately prior tothe Effective Time. If, after the Effective Time, certificates representingshares of Company Common Stock are presented to the Surviving Corporation, theyshall be canceled and exchanged for the consideration provided for, and inaccordance with the procedures set forth, in this Agreement.

 

(e)           If any cash deposited with the Paying Agentfor purposes of payment in exchange for shares of Company Common Stock remainsunclaimed twelve months after the Effective Time, such cash, together with allinterest and earnings thereon, shall be returned to the Surviving Corporation,upon demand, and any such holder who has not converted his, her or its sharesof Company Common Stock into the Per Share Transaction Consideration prior tothat time shall thereafter look only to the Surviving Corporation for paymentof the Per Share Transaction Consideration. Notwithstanding the foregoing, theSurviving Corporation shall not be liable to any holder of shares of CompanyCommon Stock for any amount paid to a public official pursuant to applicableunclaimed property laws. Any amounts remaining unclaimed by holders of sharesof Company Common Stock five years after the Effective Time (or such earlierdate immediately prior to such time as such amounts would otherwise escheat toor become property of any Governmental Authority) shall, to the extentpermitted by applicable law, become the property of the Surviving Corporationfree and clear of any claims or interest of any Person previously entitledthereto.

 

(f)            Following the Final Adjustment Date, theSurviving Corporation shall have the right to demand that the Paying Agentreturn to the Surviving Corporation such portion of the cash deposited with thePaying Agent pursuant to Section 2.3(a) that represents thePer Share Transaction Consideration in respect of shares of Company CommonStock for which dissenters’ rights have been perfected in accordance with theNRS.

 

(g)           No dividends or other distributions withrespect to capital stock of the Surviving Corporation with a record date afterthe Effective Time shall be paid to the holder of any unsurrendered certificatefor shares of Company Common Stock.

 

(h)           In the event that any certificaterepresenting shares of Company Common Stock shall have been lost, stolen ordestroyed, upon Parent’s receipt of evidence reasonably satisfactory to Parentof that fact by the Person claiming such certificate representing shares ofCompany Common Stock to be lost, stolen or destroyed, the Paying Agent shallissue, in exchange for such lost, stolen or destroyed certificate, (i) anamount in cash equal to the product of (x) the Per Share Merger Considerationand (y) the number of shares of Company Common Stock represented by suchcertificate, and (ii) thereafter, promptly following the release of anyAdditional Consideration by the Escrow Agent to the

 

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Paying Agent in accordancewith Section 2.2(c) or 2.2(e) and the Escrow Agreement,an amount in cash equal to the product of (x) the Pro Rata Portion of anyAdditional Consideration (as determined pursuant to Sections 2.2(c)(ii),2.2(c)(iii), 2.2(c)(iv) and 2.2(e)) and (y) thenumber of shares of Company Common Stock represented by such certificate.

 

SECTION 2.4         Dissenters’ Rights. Notwithstanding anything in this Agreementto the contrary, any shares of Company Common Stock that are issued andoutstanding immediately prior to the Effective Time and that are held by aStockholder who has properly exercised his, her or its dissenter’s rights underthe NRS (the “**Dissenting Shares**”) shall not beconverted into the right to receive the Per Share Transaction Considerationpursuant to Section 2.1(a), but, instead, such shares shall beconverted into the right to receive such consideration as may bedetermined to be due with respect to such Dissenting Shares pursuant to andsubject to the requirements of the NRS. If any such holder shall have failed toperfect, or shall have effectively withdrawn or lost, his, her or its right todissent from the Merger under the NRS, each share of such holder’s CompanyCommon Stock shall thereupon be deemed to have been converted, as of theEffective Time, into the right to receive, without any interest thereon, thePer Share Transaction Consideration. The Company shall give Parent promptnotice of any notice or demands for appraisal or payment for shares of CompanyCommon Stock received by the Company. 

 

ARTICLE IIIREPRESENTATIONS AND WARRANTIES

 

SECTION 3.1         Representations and Warranties of the Company. The Company represents and warrants to eachof Parent and Merger Sub, except (i) as set forth herein, (ii) as setforth in the Company SEC Reports (other than as set forth in “forward-lookingstatements” for purposes of the Securities Act and the Exchange Act) filedprior to the date hereof, (iii) as set forth in the Company DisclosureLetter, and (iv) with respect to the Selected Memorabilia, as follows:

 

(a)           Organization, Standing and Power. The Company (i) is duly organized,validly existing and in good standing under the laws of the State of Nevada, (ii) hasall requisite corporate power and authority to own, lease or operate the assetsit now owns, leases or operates, as applicable, and (iii) is dulyqualified or licensed to do business in each jurisdiction in which theownership or use of its assets or conduct of its business requires it to be soqualified, except, in the case of each of clauses (ii) and (iii), for suchfailures that would not reasonably be expected to have a Material AdverseEffect.

 

(b)           Subsidiaries. Except as set forth in Schedule 3.1(b) ofthe Company Disclosure Letter, the Company does not own any equity in anycorporation, association or other entity.

 

(c)           Stock. The entire authorized and outstanding capital stock of the Company isas set forth in Schedule 3.1(c) of the Company DisclosureLetter. The outstanding shares of Company Common Stock are duly authorized,have been validly issued and are fully paid and nonassessable and have not beenissued in violation of any preemptive rights. Except as set forth in Schedule 3.1(c) ofthe Company Disclosure Letter, there are no options, warrants or other rights,agreements, arrangements or commitments of any kind relating to the issued orunissued capital stock of the Company.

 

(d)           Authority. The execution and delivery of this Agreement by the Company, and theperformance by the Company of its obligations under this Agreement, have beenduly authorized by all necessary corporate action on the part of the Companyand by all necessary action on the part of the Stockholders. ThisAgreement has been duly executed and delivered by the Company and, assuming thedue execution and delivery of this Agreement by each other party hereto, thisAgreement constitutes a valid and binding obligation of the Company,enforceable against the Company in accordance with its

 

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terms, except as suchenforcement may be limited by (i) bankruptcy, insolvency,reorganization, moratorium (whether general or specific) or similar laws now orhereafter in effect relating to creditors’ rights generally and (ii) generalprinciples of equity (regardless of whether such enforcement is sought in aproceeding in equity or at law).

 

(e)           No Conflict. The consummation of the transactions under this Agreement will notrequire the consent, waiver or approval of any party to any Material Contract,or the consent, approval, order or authorization of, or the registration,declaration or filing with, any Governmental Authority, except for (i) anyapprovals or filing of notice under, or in connection with, the Gaming Laws andthe Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “**HSR Act**”), (ii) the filing and recordation of theArticles of Merger as required by the NRS, (iii) those consents, waiversand approvals set forth in Schedule 3.1(e) of the CompanyDisclosure Letter, (iv) those consents, waivers and approvals that relateto or are applicable to Parent, Merger Sub or any of their Affiliates but notto the Company or any of its Affiliates or (v) those consents, waivers andapprovals the failure of which to make or obtain would not reasonably beexpected to have a Material Adverse Effect (the immediately preceding clauses (i) through(v), collectively, the “**Company****Consents**”). Except as set forth in Schedule 3.1(e) ofthe Company Disclosure Letter, and assuming the Company Consents are timelyobtained or made, as applicable, the execution, delivery and performance by theCompany of this Agreement will not (i) violate any law applicable to theCompany, (ii) result in a breach or violation of any provision of, orconstitute a default under, any Material Contract or (iii) conflict withany provision of the charter or bylaws of the Company, except, in the case ofeach of clauses (i) and (ii), except for any such violation, breach,default or conflict which would not reasonably be expected to have a MaterialAdverse Effect.

 

(f)            SEC Reports; Financial Statements. The Company has filed all required forms,statements, reports and documents with the Securities and Exchange Commission(the “**SEC**”) since January 1, 2005 (each,a “**Company SEC Report,**” collectively, the “**Company SEC Reports**”), each of which complied in allmaterial respects with all applicable requirements of the Securities Act of1933, as amended (the “**Securities Act**”),the Securities Exchange Act of 1934, as amended (the “**Exchange Act**”),or both, as the case may be, each as in effect on the date such CompanySEC Report was filed. Except as and to the extent amended, modified, restatedor revised in any subsequent Company SEC Report filed prior to the date of thisAgreement, none of the Company SEC Reports contained, when filed, any untruestatement of a material fact or omitted to state a material fact required to bestated or incorporated by reference therein or necessary in order to make thestatements therein, in light of the circumstances under which they were made,not misleading. The financial statements of the Company contained in theCompany SEC Reports (the “**Financial Statements**”)complied as to form in all material respects with applicable accountingrequirements and the published rules and regulations of the SEC withrespect thereto, have been prepared in accordance with United States generallyaccepted accounting principles (“**GAAP**”), exceptas may be indicated, and fairly present in all material respects (i) thefinancial position of the Company as of the dates thereof, and (ii) theCompany’s results of operations, cash flows and changes in stockholders’ equityfor the periods then ended (subject, in the case of the unaudited interimfinancial statements, to normal year-end adjustments).

 

(g)           No Undisclosed Liabilities. The Company does not have any liabilitiesof a nature required by GAAP to be reflected on a balance sheet or in the notesthereto, except (i) as set forth or reflected on the Financial Statements(or described in the notes thereto), (ii) as disclosed in Schedule 3.1(g) ofthe Company Disclosure Letter, (iii) for liabilities (other than forborrowed money) incurred in the ordinary course of business since December 31,2005 or (iv) for liabilities that would not reasonably be expected to havea Material Adverse Effect.

 

(h)           Absence of Certain Changes or Events. Except as set forth in Schedule 3.1(h) ofthe Company Disclosure Letter and except for this Agreement and thetransactions contemplated

 

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hereby, since December 31,2005 there has not been any event that, after taking into account any insurancerecoveries payable in respect thereof, has had or would reasonably be expectedto have a Material Adverse Effect.

 

(i)            Compliance with Applicable Laws; GamingPermits. To the Knowledge ofthe Company, except as set forth in Schedule 3.1(i) of theCompany Disclosure Letter and except for environmental matters (which areaddressed in Section 3.1(s) hereof), the conduct of the Company’sbusiness complies with all statutes, laws, regulations and ordinancesapplicable thereto, except where the failure to so comply would not reasonablybe expected to have a Material Adverse Effect. The Company holds all permits,registrations, findings of suitability, licenses, variances, exemptions, ordersand approvals of all Governmental Authorities (including all authorizationsunder Gaming Laws) (collectively “**Permits**”),necessary to conduct its business and operations as currently conducted, exceptfor such Permits, the failure of which to hold would not reasonably be expectedto have a Material Adverse Effect.

 

(j)            Litigation. Except as set forth in Schedule 3.1(j) of the CompanyDisclosure Letter and except for environmental matters (which are addressed in Section 3.1(s)hereof), (i) there is no suit, action or proceeding pending or, to theKnowledge of the Company, threatened against the Company before anyGovernmental Authority that would reasonably be expected to have a MaterialAdverse Effect, and (ii) the Company is not in default under any judgment,order or decree of any Governmental Authority applicable to its business,except for any such default which would not reasonably be expected to have aMaterial Adverse Effect.

 

(k)           Properties. Schedule 3.1(k)(i) of the Company Disclosure Lettersets forth a list of all real property locations in which the Company owns afee interest (collectively, “**Owned Real Property**”).Schedule 3.1(k)(ii) of the Company Disclosure Letter containsa complete and correct list of all material leases, subleases, licenses orsimilar other agreements (other than transient occupancy arrangements) to whichthe Company is a party (and all amendments, modifications or supplementsthereto), which are for the use or occupancy of real estate.

 

(l)            Title to Properties. Except as set forth in Schedule 3.1(l)of the Company Disclosure Letter, the Company has title to, or valid fee simpletitle to or valid leasehold interests in, all of its material properties andassets, including the Owned Real Property, except for such as are no longerused or useful in the conduct of its businesses or as have been disposed of inthe ordinary course of business and except for defects in title, easements,restrictive covenants, and other encumbrances or impediments that, in theaggregate, do not materially interfere with its ability to conduct its businessas currently conducted. All such assets and properties, other than assets andproperties in which the Company has a leasehold interest, are free and clear ofall Liens other than (i) those set forth in Schedule 3.1(l) ofthe Company Disclosure Letter, (ii) matters of record, (iii) thosethat will be released in connection with the Closing and (iv) Liens that,in the aggregate, do not materially interfere with the existing use of theapplicable property or the ability of the Company to conduct its business ascurrently conducted.

 

(m)          Contracts. Except for the Contracts listed in Schedule 3.1(m)(i) ofthe Company Disclosure Letter and those Contracts filed (including throughincorporation by reference) as an exhibit to the Company’s Annual Reporton Form 10-K for the fiscal year ended December 31, 2005(collectively, “**Material Contracts**”), the Companyis not a party to any contracts or agreements that would be required to befiled as an exhibit to a Form 10-K if such Form 10-K were filedby the Company with the SEC on the date hereof. Except as disclosed in Schedule 3.1(m)(ii) ofthe Company Disclosure Letter, the Company is not in breach of any MaterialContract and to the Knowledge of the Company, no other party thereto is inbreach of or default under any Material Contract, except for such breaches and

 

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defaults as to whichrequisite waivers or consents have been or will be obtained prior to theClosing Date or which would not reasonably be expected to have a MaterialAdverse Effect.

 

(n)           Taxes.

 

(i)       The Company has filed (taking into account any extension of time withinwhich to file) all material Tax Returns required to be filed by it and all suchfiled Tax Returns are complete and accurate in all material respects.

 

(ii)      Other than Taxes not yet due and payable or for which adequate reserveshave been provided on the Financial Statements, the Company has paid or causedto be paid all Taxes that are required to be paid and has withheld and paid allTaxes required to have been withheld and paid in connection with any amountspaid or owing to any employee, independent contractor, stockholder, creditor orother third party, except for any such amounts which individually or in theaggregate are not material. Other than amounts not yet due and payable or forwhich adequate reserves have been provided on the Financial Statements inaccordance with GAAP, all amounts required to be collected and remitted to ataxing authority from customers with respect to hotel occupancy, gaming andsimilar taxes and charges have been collected and remitted, except for suchamounts which are not, individually or in the aggregate, material.

 

(iii)     All deficiencies asserted in writing or assessments made as a result ofany examinations or other audits by federal, state, local or foreign taxingauthorities have been paid in full, settled, or adequately provided for inaccordance with GAAP in the most recent Financial Statements filed on or priorto the date of this Agreement. The Company has not executed any unexpiredwaiver of any statute of limitations on or extension of any period for theassessment or collection of any Tax. No audit or other examination of any TaxReturn of the Company by any Tax authority is presently in progress, nor hasthe Company been notified in writing of any request for such an audit or otherexamination and no material adjustment relating to any Tax Returns filed orrequired to be filed by the Company has been proposed in writing by any Tax authorityto the Company.

 

(iv)    The Company has never been a member of a group filing a consolidated,unitary, combined or similar Tax Return under any federal, state, local orforeign law. The Company is not a party to or bound by any material Taxsharing, allocation or indemnification agreement or arrangement. No writtenclaim has ever been made by a Tax authority in a jurisdiction where the Companydoes not file Tax returns that the Company is or may be subject to amaterial Tax liability in that jurisdiction.

 

(v)     The Company has not constituted either a “distributing corporation” ora “controlled corporation” in a distribution of stock intended to qualify fortax-free treatment under Section 355 of the Code in the two years prior tothe date of this Agreement.

 

(vi)    The Company has not been a party to a “reportable transaction,” as suchterm is defined in Treasury Regulations Section 1.6011-4(b)(1), atransaction that is or is substantially similar to a “listed transaction,” assuch term is defined in Treasury Regulations Section 1.6011-4(b)(2) orany other transaction requiring disclosure under analogous provisions of stateor local Tax law.

 

(vii)   Schedule 3.1(n)(vii) of the Company Disclosure Letter sets forth an estimate as of thetax year ended December 31, 2005, of the amount and expiration date of allfederal income tax net operating loss carryforwards, capital loss carryforwardsand credit carryforwards of the Company. Except with respect to thetransactions contemplated by this Agreement, to the Knowledge

 

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of the Company afterinquiry, such carryforwards are not subject to any restrictions on their use,by reason of the Code or otherwise.

 

(viii)  TheCompany will not be required to include any item of income in, or excludeany item of deduction from, taxable income for any Tax Period (or portionthereof) ending after the Closing Date as a result of any (i) change inmethod of accounting for a Tax Period ending on or prior to the Closing Date, (ii) materialprepaid amount received on or prior to the Closing Date to the extent that suchamount did not reduce Working Capital or Total Transaction Consideration, (iii) installmentsale or open transaction disposition made on or prior to the Closing Date or (iv) closingagreement, settlement, or similar agreement executed on or prior to the ClosingDate.

 

(ix)     For purposes of this Agreement (i) the term “**Tax**”or “**Taxes**” means all federal, state, localand foreign income, profits, franchise, gross receipts, stamp, payroll, hoteloccupancy, gaming, employment, use, property, withholding, excise, and othertaxes, duties or assessments of any nature whatsoever, together with allinterest, penalties and additions imposed with respect to such amounts, and (ii) theterm “**Tax Return**” means all returns andreports required to be filed with, or supplied to, any federal, state, local orforeign tax authority with respect to Taxes.

 

(o)           Employee Benefit Plans.

 

(i)       Set forth in Schedule 3.1(o)(i) of the CompanyDisclosure Letter is a list of each “**Employee Benefit Plan**.”  Employee Benefit Plan means any materialemployee benefit or compensation plan, agreement or other arrangement providingcompensation or benefits to any current or former consultant, employee, officeror director of the Company that is sponsored by the Company or to which theCompany contributes.

 

(ii)      The Company has heretofore made or, promptly following the date of thisAgreement, will make available to Parent copies of each of the Employee BenefitPlans and each of the following, if applicable: (A) each writing constituting a part of such Employee BenefitPlan, including all plan documents, material employee communications, benefitschedules, trust agreements, and insurance contracts and other funding vehicles;(B) the actuarial report for each of the last two years; (C) the mostrecent determination letter from the IRS for each Employee Benefit Plan; (D) thesummary plan description and any material modifications thereto, if any (ineach case whether or not required to be furnished by the Employee RetirementIncome Security Act of 1974, as amended (“**ERISA**”); and (E) theForm 5500 (if applicable) for each of the last two years.

 

(iii)     Each of the Employee Benefit Plans has been operated and administeredin all material respects in compliance with its terms (including contributionrequirements) and applicable laws, including, but not limited to, ERISA and theCode, and to the extent an Employee Benefit Plan is intended to betax-qualified under Section 401(a) of the Code, the IRS has issued afavorable determination letter for such plan, and, except as set forth in Schedule 3.1(o)(iii) ofthe Company Disclosure Letter, to the Knowledge of the Company, nocircumstances exist and no events have occurred that would be reasonablyexpected to adversely affect the qualified status of any such plan or anyrelated trust.

 

(iv)    Except as set forth in Section 3.1(o)(iv) of theCompany Disclosure Letter, no Employee Benefit Plan provides welfare benefits,with respect to current or former employees or directors of the Company or anyof their dependents beyond their retirement or other termination of service,other than health continuation coverage as required by Section 4980B ofthe Code or Part 6 of Title I of ERISA and there has been no communicationto employees by the Company

 

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which could reasonably beinterpreted to promise or guarantee employees retiree health or life insuranceor other retiree death benefits on a permanent basis.

 

(v)     No Employee Benefit Plan is a “multiemployer plan” (as defined in section 4001(a)(3) ofERISA), a “multiple employer plan” (within the meaning of section 413(c) ofthe Code) or subject to Title IV of ERISA and none of the Company, or any tradeor business which together with the Company would be deemed a “single employer”within the meaning of Section 4001 of ERISA (an “**ERISAAffiliate**”) has at any during the last six (6) yearscontributed to any such plan. No event has occurred with respect to the Companyin connection with which the Company could be subject to any material liabilitywith respect to any Employee Benefit Plan under ERISA or the Code.

 

(vi)    Section 3.1(o)(vi) ofthe Company Disclosure Letter sets forth (i) a list of any EmployeeBenefit Plan under which the execution and delivery of this Agreement, theconsummation of the transactions contemplated hereby or any related event would(either alone or in conjunction with any other event) result in, cause theaccelerated vesting, funding or delivery of, or increase the amount or valueof, any payment or benefit to any employee, officer or director of the Companyor any of its subsidiaries, and (ii) the maximum amount of the “excessparachute payments” within the meaning of Section 280G of the Code thatcould become payable by the Company or any of its subsidiaries in connectionwith the execution and delivery of this Agreement and the consummation of thetransactions contemplated hereby.

 

(vii)   There are no pending or, to the Knowledge of the Company, threatened oranticipated claims by, on behalf of or against any Employee Benefit Plan or anytrusts related thereto, except (i) routine claims for benefits and (ii) claimsthat would not be expected to be, individually or in the aggregate, material. Exceptas set forth in Schedule 3.1(o)(vii) of the Company DisclosureLetter, with respect to any Employee Benefit Plan, to the Knowledge of theCompany, no administrative investigation, audit or other administrativeproceeding by the Department of Labor, the Internal Revenue Service or otherUnited States governmental agencies is pending or threatened.

 

(p)           Labor Matters. 

 

(i)    Except as set forth in Schedule 3.1(p)of the Company Disclosure Letter, (A) the Company does not have any agreementswith labor unions or associations representing employees of the Company, (B) nolabor strike, lock-out, slowdown or work stoppage against the Company ispending or, to the Knowledge of the Company, threatened, (C) no grievanceor arbitration proceeding arising out of or under collective bargainingagreements or employment relationships (involving more than one employee) ispending, or, to the Knowledge of the Company, threatened (D) as of thedate of this Agreement, no labor organization or group of employees of theCompany has made a demand (which demand is pending as of the date of thisAgreement) for recognition or certification, and (E) to the Knowledge ofthe Company, there are no unfair labor practice charges or complaints pendingor threatened against the Company before the National Labor Relations Board orany other comparable foreign or domestic authority or any workers’ council,except, in the case of each of clauses (B) and (C), as would notreasonably be expected to have a Material Adverse Effect.

 

(ii)   The Company complies and has complied in allmaterial respects with all applicable laws respecting employment and employmentpractices, and except as set forth in Schedule 3.1(p) no claims orinvestigations are pending or, to the Company’s knowledge, threatened withrespect to such law, either by private individuals or by governmental agencies.

 

(q)           Intellectual Property. Except as set forth in Schedule 3.1(q)(i) ofthe Company Disclosure Letter, the Company owns or possesses licenses or other rightsin or under all

 

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intellectual property andknow-how necessary to conduct its business as currently conducted, includingpatents, trademarks, service marks, trade names, logos and designs, all goodwillsymbolized thereby and associated therewith, copyrights, confidential orproprietary technical and business information, processes and trade secrets,computer software, and technical manuals and documentation used in connectionwith the foregoing (collectively, the “**Company IntellectualProperty**”), free and clear of all Liens, except where the failure toso own or possess such Company Intellectual Property would not reasonably beexpected to have a Material Adverse Effect. Except as set forth in Schedule 3.1(q)(ii) ofthe Company Disclosure Letter, there are no pending, or, to the Knowledge ofthe Company, threatened, claims based on the use by, or challenging theownership by, the Company of any Company Intellectual Property that wouldreasonably be expected to have a Material Adverse Effect. Except as set forthin Schedule 3.1(q)(iii) of the Company Disclosure Letter, tothe Knowledge of the Company, no third party has infringed any CompanyIntellectual Property, except where such infringement would not reasonably beexpected to have a Material Adverse Effect. The Company has taken reasonableactions to maintain and protect the Company Intellectual Property. Set forth inSchedule 3.1(q)(iv) of the Company Disclosure Letter is a listof all Company Intellectual Property that is owned by Peter A. Morton. 

 

(r)            Insurance. Schedule 3.1(r) of the Company Disclosure Letter setsforth a list of all material insurance policies held by the Company as of thedate hereof. Such policies are in full force and effect,****theCompany is not in material breach under such policies, and such policies,(together with self-insurance programs in effect) provide coverage for theCompany’s business in amounts and against risks consistent with past practice. Norepresentation or warranty is made by the Company that any such policy will notlapse or terminate by reason of consummation of the transactions contemplatedby this Agreement.

 

(s)           Environmental Matters. Except as set forth in Schedule 3.1(s)of the Company Disclosure Letter or as would not reasonably be expected to havea Material Adverse Effect, to the Knowledge of the Company, (i) theCompany is in compliance with all applicable federal, state and local lawsgoverning pollution or the protection of the environment (“**EnvironmentalLaws**”), (ii) the Company has not received any written notice orclaim from any Governmental Authority or third party alleging that the Companyis not in compliance with any Environmental Law, and (iii) neither theCompany nor any of its entity predecessors has caused any release of a “hazardoussubstance”, as that term is defined in the Comprehensive EnvironmentalResponse, Compensation and Liability Act, 42 U.S.C. §§ 9601 et seq., asamended from time to time, that would require investigation or remediation onany of the Owned Real Property.

 

(t)            Brokers, Finders, etc. Except as set forth in Schedule 3.1(t)of the Company Disclosure Letter, the Company is not subject to any valid claimof any broker, investment banker, finder or other intermediary in connectionwith the transactions contemplated by this Agreement.

 

(u)           Sufficiency of Assets. The assets held by the Company are in allmaterial respects sufficient for the conduct of its business following theClosing in substantially the same manner as currently conducted.

 

(v)           No Other Representations or Warranties. Other than the representations andwarranties expressly set forth in this Section 3.1, the Companyshall not be deemed to have made any other representation or warranty inconnection with this Agreement or the transactions contemplated hereby, and noother Person (including any Stockholder or any officer, director, employee orAffiliate of the Company) shall be deemed to have made any representation orwarranty to Parent or Merger Sub in connection with this Agreement or thetransactions contemplated hereby.

 

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SECTION 3.2         Representations and Warranties of Parent andMerger Sub. Each of Parentand Merger Sub hereby jointly and severally represents and warrants to theCompany as follows:

 

(a)           Organization and Standing. Parent is a corporation duly organized,validly existing and in good standing under the laws of the State of Delaware,and Merger Sub is a corporation duly organized, validly existing and in goodstanding under the laws of the State of Nevada. Each of Parent and Merger Subhas the requisite power and authority to carry on its business as now beingconducted, to own or use the properties and assets that it purports to own oruse, and to perform its obligations under this Agreement and its othermaterial contracts**,** in each case,except as would not reasonably be expected to prevent consummation of theMerger.

 

(b)           Authority. The execution and delivery of this Agreement by each of Parent andMerger Sub and the performance by each of Parent and Merger Sub of itsobligations under this Agreement have been duly authorized by all necessaryaction on the part of each of Parent and Merger Sub. This Agreement hasbeen duly executed and delivered by each of Parent and Merger Sub and, assumingthe due execution and delivery of this Agreement by the Company, this Agreementconstitutes a valid and binding obligation of each of Parent and Merger Sub,enforceable against each of Parent and Merger Sub in accordance with its terms,except as such enforcement may be limited by (i) bankruptcy,insolvency, reorganization, moratorium or similar laws now or hereafter ineffect relating to creditors’ rights generally and (ii) general principlesof equity (regardless of whether such enforcement is sought in a proceeding inequity or at law). 

 

(c)           No Conflict. The consummation of the transactions under this Agreement and theEscrow Agreement will not require the consent, waiver or approval of any partyto any material contract to which Parent, Merger Sub or any of their Affiliatesis a party or by which any of them is bound, or the consent, approval, order orauthorization of, or the registration, declaration or filing with, anyGovernmental Authority, except for (i) any approvals or filings of noticeunder, or in connection with, the Gaming Laws and the HSR Act, (ii) thefiling and recordation of the Articles of Merger as required by the NRS, and (iii) thoseconsents, waivers and approvals that relate to or are applicable to the Companyor any of its Affiliates but not to Parent, Merger Sub or any of theirAffiliates. Assuming the consents, waivers and approvals set forth in theimmediately preceding clauses (i) and (ii) are obtained or made, asapplicable, the execution, delivery and performance by each of Parent andMerger Sub of this Agreement, and the execution, delivery and performance byParent of the Escrow Agreement, will not (x) violate any law applicable toParent, Merger Sub or any of their Affiliates, (y) result in a breach orviolation of any provision of, or constitute a default under, any contract towhich Parent, Merger Sub or any of their Affiliates is a party or by which anyof them is bound, or (z) conflict with any provision of the charter,bylaws or other organizational documents of Parent or Merger Sub, except in thecase of clauses (x) and (y) above, for any such breach, violation or defaultwhich would not reasonably be expected to delay or prevent consummation of theMerger.

 

(d)           Litigation. There is no suit, action or proceeding pending or, to the knowledgeof Parent, threatened against Parent, Merger Sub or, if applicable, the GamingOperator, or any of their Affiliates before any Governmental Authority, whichcould prevent or delay the transactions contemplated by this Agreement.

 

(e)           Financing. Parent has obtained written commitments (the “**FinancingCommitments**”) for any and all financing (whether equity financing,debt financing or otherwise) necessary to pay the Enterprise Price and all fees,costs and expenses related to the Merger and the other transactionscontemplated by this Agreement (the “**Financing**”). Parenthas provided true, accurate and complete copies of the Financing Commitments tothe Company, and Parent has paid all commitment fees and any other fees andamounts due at or prior to the date hereof under the Financing Commitments.

 

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None of the FinancingCommitments has been amended, modified or terminated, and the respective commitmentscontained in the Financing Commitments have not been withdrawn or rescinded inany respect in any way materially adverse to the Company. The FinancingCommitments are in full force and effect and no event has occurred which, withor without notice, lapse of time (other than the expiration of the termthereof) or both, would constitute a default on the part of Parent underany of the Financing Commitments. There are no conditions precedent or othercontingencies related to the funding of the full amount of the Financing, otherthan as set forth in or contemplated by the Financing Commitments. Theaggregate proceeds to be disbursed pursuant to the agreements contemplated bythe Financing Commitments, together with Parent’s cash and cash equivalents, willbe sufficient for Parent to pay the Enterprise Price and all fees, costs andexpenses related to the Merger and the other transactions contemplated by thisAgreement. Parent has no reason to believe that any of the conditions to theFinancing contemplated by the Financing Commitments will not be satisfied orthat Parent will not receive the proceeds of the Financing on or prior theClosing Date.

 

(f)            No Vote Required. No vote of the stockholders of Parent isrequired by law, Parent’s certificate of incorporation or bylaws or otherwisefor Parent and Merger Sub to consummate the transactions contemplated by thisAgreement.

 

(g)           Operations of Merger Sub. Merger Sub is a direct wholly ownedsubsidiary of Parent, was formed solely for the purpose of engaging in thetransactions contemplated by this Agreement and has engaged in no otherbusiness activities.

 

(h)           Brokers, Finders, etc. Except for Jefferies & Company, Inc.,neither Parent nor Merger Sub is subject to any valid claim of any broker,investment banker, finder or other intermediary in connection with thetransactions under this Agreement. Parent is solely responsible for anypayment, fee or commission that may be due to Jefferies & Company, Inc.in connection with the transactions contemplated by this Agreement.

 

(i)            Licensability of Principals. None of Parent, Merger Sub or, ifapplicable, the Gaming Operator, or any of their directors, officers, employeesor Affiliates, or other related Persons subject to licensure by a GamingAuthority, has ever been denied, or had revoked or suspended, a gaming licenseby any Gaming Authority. There are no facts, which if known to the GamingAuthorities, would (a) be reasonably likely to result in the denial,revocation, limitation or suspension of a gaming license or (b) result ina negative outcome to any finding of suitability proceedings currently pending,or under the suitability proceedings necessary for the consummation of thetransactions contemplated by this Agreement. 

 

(j)            Investigation by Parent and Merger Sub. Each of Parent and Merger Sub acknowledgesand agrees that it has conducted its own independent investigation, review andanalysis of the business, operations, assets, liabilities, results ofoperations, financial condition, software, technology and prospects of theCompany, which investigation, review and analysis was done by Parent and itsAffiliates and, to the extent Parent deemed appropriate, by Parent’s agents andrepresentatives. Without limitation of the foregoing, each of Parent and MergerSub acknowledges that the Total Transaction Consideration has been negotiatedbased on Parent’s express agreement that there would be no contingencies(financial or otherwise) to Closing other than the conditions set forth in Article V.Each of Parent and Merger Sub acknowledges that, should the Closing occur,except as otherwise set forth in this Agreement, each of Parent and Merger Subwill acquire the Company and its business, properties, assets and liabilitiesin an “as is” condition and on a “where is” basis, without any representationor warranty of any kind, express or implied, except such representations andwarranties expressly set forth in this Agreement. Further, without limiting anyrepresentation, warranty or covenant of the Company expressly set forth herein,except as otherwise set forth in Article V, each of Parent andMerger Sub acknowledges

 

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that it has waived andhereby waives as a condition to Closing any further due diligence reviews, inspectionsor examinations with respect to the Company, including, without limitation,with respect to engineering, environmental, title, survey, financial,operational, regulatory and legal compliance matters.

 

ARTICLE IVCOVENANTS

 

SECTION 4.1         Conduct of Business. From the date of this Agreement through tothe Effective Time, the Company agrees that, except (i) as disclosed in Schedule 4.1of the Company Disclosure Letter, (ii) as otherwise provided for in thisAgreement or the Other Transaction Documents, (iii) as approved in writingby Parent (such approval not to be unreasonably withheld or delayed) or (iv) withrespect to the Selected Memorabilia:

 

(a)           the Company shall carry on and operate itsbusiness in the ordinary course consistent with past practice (which may includecontracting for and booking entertainment, conferences and other events, any ofwhich may take place after the Closing Date) and in compliance in allmaterial respects with applicable law;

 

(b)           the Company shall not directly or indirectlytake any of the following actions:

 

(i)       amend, restate, modify or repeal or add any provisions to itscertificate of incorporation or bylaws;

 

(ii)      pay or declare or set aside for payment any dividend or otherdistribution, payable in cash, stock or property, with respect to any shares ofany class or series of its capital stock;

 

(iii)     redeem, purchase or otherwise acquire directly or indirectly any of itssecurities (including equity securities, debt securities, securitiesconvertible into or exchangeable or exercisable for debt securities or equitysecurities, phantom stock, stock appreciation rights, options, warrants, calls,commitments or rights of any kind to acquire any equity or debt securities) orany instrument or security which consists of or includes a right to acquiresuch securities;

 

(iv)    other than in the ordinary course of business, create, incur, issue,assume, guarantee, permit, suffer to exist or otherwise become directly orindirectly liable with respect to any indebtedness or Liens other thanindebtedness and Liens not to exceed $1,000,000 in the aggregate for all suchindebtedness and Liens;

 

(v)     other than as required by applicable law or the terms of a MaterialContract, or in a connection with the transactions contemplated by Section 4.4,modify, amend or repeal any Material Contract (other than an AffiliateAgreement) (or waive compliance with the terms of or breaches thereunder);

 

(vi)    in a single transaction or through a series of similar or relatedtransactions, consolidate with or merge with or into any other Person, ortransfer (by lease, assignment, sale or otherwise) any material portion of itsassets to another Person or group of Affiliated Persons;

 

(vii)   in a single transaction or through a series of similar or related transactions,sell, lease, sublease, convey, transfer, mortgage, subject to a Lien orotherwise dispose of

 

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any assets material to theoperation of the Company, other than transient occupancy arrangements andgaming equipment in the ordinary course of business;

 

(viii)    in a single transaction or through a series of similar or relatedtransactions, acquire any real property;

 

(ix)       consummate any acquisition of the stock or assets of any other Person,in a single transaction or series of similar or related transactions,involving consideration in excess of $1,000,000 in the aggregate (other thanacquisitions of inventory and equipment in the ordinary course of business);

 

(x)        other than in the ordinary course of business or as set forth in theCompany’s 2006 capital expenditure budget (a copy of which is attached to Schedule 4.1(b)(x)of the Company Disclosure Letter), make any capital expenditures in excess of$1,000,000 in the aggregate; provided, however, that the Company may makecapital expenditures pursuant to the terms of contracts which have beenexecuted prior to the date hereof;

 

(xi)       effect a complete or partial liquidation, dissolution, winding-up,recapitalization, reclassification or reorganization in any form oftransaction;

 

(xii)      amend any Tax Return in any material respect;

 

(xiii)     fail to maintain with financially responsible insurance companies insurancecoverage substantially similar to the insurance coverage maintained by theCompany on the date hereof, to the extent available at reasonable cost;

 

(xiv)     except as otherwise required by the terms of any written agreement, assuch agreement is in existence as of the date hereof, or in the ordinary courseof business consistent with past practice (including customary annual changesin compensation that do not result in a material increase in benefit orcompensation expense to the Company), or except as set forth in Schedule 4.1(b)(xiv)of the Company Disclosure Letter, (A) make any change in the compensationor benefits payable or to become payable to any of its directors, officers oremployees, (B) pay any severance or retirement benefits not required byany existing plan or agreement to any such employees, directors or officers, (C) acceleratethe vesting of, or the lapsing of restriction with respect to, any stockoptions or other stock-based compensation or cause the funding of any rabbitrust or similar arrangement, or (D) make any loan or advance to, any ofsuch Persons or make any change in its existing borrowing or lendingarrangements for or on behalf of any of such Persons pursuant to an employeebenefit plan or otherwise; or

 

(xv)      (A) except as set forth in Schedule 4.1(b)(xv) of theCompany Disclosure Letter, enter into any new employment, severance orcompensatory agreements or arrangements with any officer or director of theCompany or with any employee of the Company (except with respect to any suchagreements or agreements pursuant to which the Company or any of itssubsidiaries would not reasonably be expected to have any obligation to providecompensation and/or benefits (including without limitation severance pay orbenefits or payments related to change in control of the Company) in any amountor having a value in excess of $150,000 per year or $250,000 in the aggregate);provided, that the hiring of an at will employee shall not be construedas entering into or amending an employment agreement; (B) promote anyemployee, other than promotions on terms that are not materially more favorable(in terms of compensation, severance, duration and other matters) than theterms upon which any employee previously serving in the applicable capacity wasentitled; or (C) hire or appoint any officer or director, except inconnection with the replacement of an officer whose

 

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employmenthas terminated, provided the overall compensatory package of such newlyhired officer or director is not materially more favorable than that of thereplaced officer or director;

 

(xvi)     settle or compromise any material litigation other than settlement orcompromises for litigation providing (A) solely for the payment of moneydamages in all events paid prior to the Closing Date or reserved for in thebalance sheet of the Company as of the Closing Date (immediately prior to theEffective Time) and (B) a complete release of the Company of all claimsand which do not provide for any admission of liability by the Company;

 

(xvii)    enter into any agreement, contract, commitment or arrangement (oral orwritten) to do any of the foregoing, or authorize, recommend, propose orannounce an intention to do any of the foregoing actions; and

 

(xviii)   make any expenditures with respect to the renovation of the suites atthe Hard Rock Hotel.

 

(c)           except as required by law or regulation, theCompany shall not knowingly perform any act, or omit to perform anyact within its reasonable control, which will cause a breach of anyrepresentation, warranty or obligation contained in this Agreement.

 

SECTION 4.2         Access to Information; Confidentiality.

 

(a)            Subject to any restrictions imposed by theGaming Laws or the antitrust laws, the Company shall afford to representativesof Parent, including its counsel, accountants and lenders, reasonable accessduring normal business hours during the period prior to the Closing Date to allthe properties, books, Contracts and records of the Company (collectively, the “**Inspection**”); provided, however,that (i) Parent shall provide the Company with at least twenty-four hours’prior written notice of any Inspection; (ii) if the Company so requests,Parent’s representatives shall be accompanied by a representative of theCompany; (iii) Parent shall not initiate contact with employees or otherrepresentatives of the Company without the prior written consent of theCompany; (iv) Parent’s representatives shall not be entitled to perform anyphysical testing of any nature with respect to any of the Company’s propertiesor assets or any portion thereof without the Company’s prior written consent,which consent may be withheld if in the judgment of the Company’srepresentatives such testing would interfere with the operation of the Company’sbusiness; (v) Parent shall not interfere with the operation of the Company’sbusiness; (vi) Parent shall, at its sole cost and expense, promptly repairany damage to any of the Company’s properties or assets or any portion thereofor any other property owned by a Person other than Parent, as the case may be,arising from or caused by such Inspection, and shall promptly reimburse theCompany for any loss arising from or caused by any Inspection, and restore theCompany’s properties and assets or such other third-party property, as the casemay be, to substantially the same condition as existed prior to suchInspection, and shall indemnify, defend and hold harmless the Company, theStockholders and their respective Affiliates from and against any personalinjury or property damage claims, liabilities, judgments or expenses (includingreasonable attorneys’ fees) incurred by any of them arising or resulting fromany Inspection of the Company’s real property; and (vii) in no event shallthe results of any such Inspection or Parent’s satisfaction therewith be acondition to Parent’s obligations hereunder, it being the intent of Parent topurchase the Company and its business, properties, assets and liabilities on an“as is, where is” basis as set forth in Section 4.10. If, in thecourse of any investigation pursuant to this Section 4.2(a), Parentdiscovers any breach of any representation or warranty contained in thisAgreement or any circumstance or condition that, upon Closing, would constitutesuch a breach, Parent shall promptly inform the Company in writing and anyfailure to notify the Company shall constitute a waiver of any such breach.

 

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(b)           Nothing in this Section 4.2 shallrequire the Company to permit any inspection, or to disclose any information,that in the reasonable judgment of the Company would (i) result in thedisclosure of any trade secrets of third parties or violate any of itsrespective obligations with respect to confidentiality, provided thatthe Company shall use its commercially reasonable efforts to obtain the consentof such third party to such inspection or disclosure, or (ii) result in aviolation of applicable law, including the Gaming Laws and the antitrust laws.

 

(c)           Each of Parent and Merger Sub acknowledgesthat the information being provided to Parent, Merger Sub and theirrepresentatives by the Company is subject to the terms of a confidentialityagreement, dated April 20, 2006, among the Company, Peter A. Morton, HRCondominium Investors (Vegas), L.L.C., a Delaware limited liability company,PMR and Parent (as it may be amended, the “**Confidentiality Agreement**”), the terms of which areincorporated herein by reference.

 

SECTION 4.3         Consents and Governmental Approvals

 

(a)           Subject to the terms and conditions of thisAgreement, and except as otherwise set forth in this Agreement, each of theCompany, Parent and Merger Sub agrees (in all cases, without being obligated tomake any payment to any third party (other than filing fees to GovernmentalAuthorities)) to use its reasonable best efforts to, and each of Parent andMerger Sub agrees to use its reasonable best efforts to cause the GamingOperator to, take, or cause to be taken, all actions and to do, or cause to bedone, all things necessary, proper or advisable to consummate and makeeffective as promptly as practicable the transactions under this Agreement andto cooperate with the others in connection with the foregoing, including usingits reasonable best efforts to:

 

(i)    obtain all necessary waivers, consents andapprovals from other parties to Material Contracts (to which the Company is aparty) and other material contracts (to which Parent, Merger Sub or the GamingOperator, if applicable, is a party);

 

(ii)   obtain, and cause (with respect to theCompany) the Company’s and (with respect to Parent or Merger Sub) Parent’s,Merger Sub’s and the Gaming Operator’s directors, officers, employees orAffiliates or other related Persons as may be so required to obtain, allmaterial consents, approvals and authorizations that are required to beobtained under any Federal, state, local or foreign law or regulations;

 

(iii)  prevent the entry, enactment or promulgationof any threatened or pending injunction or order that could materiallyadversely affect the ability of the parties hereto to consummate thetransactions under this Agreement;

 

(iv)  lift or rescind any injunction or order thatcould materially adversely affect the ability of the parties hereto toconsummate the transactions under this Agreement; and

 

(v)   effect all necessary registrations andfilings and submissions of information requested by any GovernmentalAuthorities.

 

(b)           In furtherance and not in limitation of theforegoing, each party hereto agrees to make any required filing of aNotification and Report Form pursuant to the HSR Act, with respect to thetransactions contemplated by this Agreement as promptly as practicable and tosupply as promptly as practicable any additional information and documentarymaterial that may be requested pursuant to the HSR Act and use itsreasonable best efforts to take, or cause to be taken, as promptly as

 

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practicable all otheractions consistent with this Section 4.3 necessary to cause theexpiration or termination of the applicable waiting periods under the HSR Actas soon as practicable. Parent shall pay all fees incurred in connection withall notices and filings under the HSR Act.

 

(c)           In addition to and not in limitation of theforegoing, Parent shall, and shall, if applicable, cause the Gaming Operatorto, use its reasonable best efforts (i) to as promptly as practicable,obtain, and cause Parent’s, and, if applicable, the Gaming Operator’sdirectors, officers, employees or Affiliates or other related Persons as may beso required to obtain, all Gaming Approvals, (ii) to avoid any action orproceeding by any Gaming Authority challenging the consummation of thetransactions contemplated hereby, (iii) to make or cause to be made allnecessary filings, and thereafter make or cause to be made any other requiredsubmissions with respect to this Agreement, as required under the Gaming Laws, (iv) toschedule and attend (or cause to be scheduled and attended) any hearingsor meetings with Gaming Authorities to obtain the Gaming Approvals as promptlyas possible and (v) to comply with the terms and conditions of any and allof the foregoing. Parent and its representatives and Affiliates shall (i) fileor cause to be filed as promptly as practicable all required applications anddocuments in connection with obtaining the Gaming Approvals, (ii) requestor cause to be requested an accelerated review from the Gaming Authorities inconnection with such filings, (iii) act diligently and promptly to pursuethe Gaming Approvals, (iv) cooperate with the Company in connection withthe making of all filings referenced in the preceding sentence, includingproviding copies of all such documents to the Company and its advisors prior tofiling and, if requested, accepting all reasonable additions, deletions orchanges suggested in connection therewith, (v) notify the Company of thereceipt of comments or requests from Gaming Authorities relating to GamingApprovals, (vi) upon reasonable request of the Company, supply the Companywith copies of all such correspondence, and (vii) keep the Companyinformed of the status of Parent’s and, if applicable, the Gaming Operator’sapplication for Gaming Approvals and its activities related to obtaining theGaming Approvals, as applicable.

 

SECTION 4.4         Company Bonds; Credit Agreement

 

(a)           Parent shall use its best efforts, at itsexpense, to (i) repay or otherwise satisfy on or prior to the Closing Dateall outstanding borrowings under the Credit Agreement, all accrued and unpaidinterest thereon and all other Obligations under the Credit Agreement, and (ii) subjectto Section 4.4(b) below, on or prior to the Closing Date, todefease, repay or otherwise satisfy the entire outstanding aggregate principalamount of the Company Bonds, all accrued and unpaid interest thereon and allother Obligations under the Company Bonds (it being understood that any amountsrepaid or otherwise satisfied by Parent pursuant to this Section 4.4shall be deemed to be outstanding as of the Closing Date for purposes of Section 2.2(a)(vii)(B)).Parent shall indemnify the Company, the Stockholders and their respectivedirectors, officers, employees, Affiliates and representatives for any and allliabilities arising out of or in connection with any action taken by theCompany or any of the foregoing Persons at the request of Parent and pursuantto this Section 4.4 to the maximum extent permitted by law. For theavoidance of doubt, nothing in this Section 4.4 shall supersede Section 2.2(a)(vii)(C).

 

(b)           Notwithstanding any provision to the contraryin this Agreement, including, without limitation, Sections 4.4(a) and5.3(c), if (i) allowing a portion of the Company Junior Notes toremain outstanding would not violate any provision of law or regulationapplicable to the Company or Parent or their respective shareholders, and (ii) suchportion of the Company Junior Notes may remain outstanding withoutbreaching the Financing Commitments or causing a condition to the FinancingCommitments not to be satisfied, then (A) Parent shall not be obligated topay, defease, redeem, purchase or otherwise satisfy such portion of the CompanyJunior Notes and (B) the fact that Parent has not caused such portion ofCompany Junior Notes to be paid, defeased, redeemed, purchased or otherwisesatisfied shall not affect or impair the obligations of Parent or the Companyhereunder.

 

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SECTION 4.5         Employee Benefit Plans. Parent hereby agrees that:

 

(a)           For a period of one year following theClosing Date,****Parent shall, orshall cause the Surviving Corporation or one of its subsidiaries, to provideeach employee of the Company who was an employee of the Company (other thanemployees subject to collective bargaining or similar agreements) immediatelyprior to the Closing (each, an “**AffectedEmployee**”) compensation and benefits that are substantially similar,in the aggregate, to those benefits provided by the Company Benefit Plans; provided,however, that, in lieu of the foregoing, Parent at its sole option may providesuch Affected Employee with employee benefits that, in the aggregate, aresubstantially similar to those applicable to similarly situated employees ofParent.

 

(b)           With respect to each employee benefit plan,practice or policy of Parent or any of its Affiliates, each Affected Employeeshall be given credit under such plan for all service prior to the Closing Datewith the Company or any predecessor employer (to the extent such credit wasgiven by the Company or any predecessor employer under a comparable plan,practice or policy), for purposes of determining eligibility and vesting andlevels of benefits; provided, however, such service need not becredited to the extent (i) it would result in a duplication of benefits orfor benefit accrual under defined benefit plans or (ii) is prohibited byapplicable law.

 

(c)           If any Affected Employee is discharged by theCompany as of or after the Closing, then Parent shall be responsible for anyand all severance costs for such Affected Employee, including payments owingunder those agreements, plans or arrangements listed in Schedule 3.1(o)of the Company Disclosure Letter. Parent shall be responsible and assume allliability for all notices or payments due to any Affected Employees, and allnotices, payments, fines or assessments due to any governmental entity,pursuant to any applicable foreign, federal, state or local law, common law,statute, rule or regulation with respect to the employment, discharge orlayoff of employees by the Company on or after the Closing Date, including theWARN Act or similar state statute, Section 4980B of the Code and any rules orregulations as have been issued in connection with the foregoing; provided,however, that prior to the Closing Date, the Company shall cooperate withParent (including giving notices if requested by Parent) in the giving ofnotices pursuant to the immediately preceding sentence, if any such notices areto be given.

 

(d)           Parent shall take all action as may benecessary and appropriate to cause a tax-qualified 401(k) plan in which it orany of its subsidiaries sponsors to accept the rollovers of all AffectedEmployees who elect such rollovers of their 401(k) plan accounts and to providethe Affected Employees with a tax-qualified 401(k) type plan effectiveimmediately as of the Closing Date, which plan shall recognize service with theCompany and any predecessor employer for purposes of eligibility, participationand vesting.

 

(e)           In addition, and without limiting the generalityof the foregoing, except as prohibited by applicable law:

 

(i)    at the Effective Time, each Affected Employeeimmediately shall be eligible to participate, without any waiting time, in anyand all employee benefit plans of Parent and its Affiliates (other than theCompany and its subsidiaries) providing benefits to any Affected Employeesafter the Effective Time (the “**New Plans**”)to the extent coverage under such New Plan replaces coverage under a similar orcomparable Company Benefit Plans in which such Affected Employee participatedimmediately before the Effective Time (such plans, collectively, the “**Old Plans**”);

 

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(ii)   for purposes of each New Plan providingwelfare benefits to any Affected Employee, Parent shall cause all pre-existingcondition exclusions of such new Plan to be waived for such Affected Employeeand his or her covered dependents to the extent such pre-existing conditionexclusions were in applicable to or had been satisfied by such AffectedEmployee and his or her covered dependents immediately prior to the EffectiveTime under the relevant Old Plan; and

 

(iii)  each Affected Employee and their eligibledependents shall receive credit for the plan year in which the Effective Time (orcommencement of participation in a New Plan) occurs towards applicabledeductibles and annual out-of-pocket limits for expenses incurred prior to theEffective Time (or the date of commencement of participation in a New Plan).

 

(f)            From and after the Closing, Parent shall beresponsible for, and shall indemnify and hold harmless the Company, theStockholders and their respective directors, officers, Affiliates,representatives and agents, and the fiduciaries (including plan administrators)of the Employee Benefit Plans of the Company, from and against, any and allclaims, losses, damages, costs and expenses (including attorneys’ fees andexpenses) and other liabilities and obligations relating to or arising out of (i) allsalaries, wages, commissions, employee incentive or other compensation,severance, holiday, vacation, or retirement benefits earned but unpaid as ofthe Closing and post-Closing bonuses due to any Affected Employee; and (ii) any claims of, or damages or penalties sought by, any Affected Employee, or anyGovernmental Authority on behalf of or concerning any Affected Employee, withrespect to any act or failure to act by Parent to the extent arising from theemployment, discharge, layoff or termination of any Affected Employee,including any failure to perform or breach by Parent under this Section 4.5.

 

(g)           With respect to any accrued but unusedpersonal, sick or vacation time to which any Affected Employee is entitledpursuant to the personal, sick or vacation policies applicable to such AffectedEmployee immediately prior to the Closing Date (the “**PSV Policies**”), such Affected Employee shall be allowed to usesuch accrued personal, sick or vacation time following the Closing Date, inaccordance with such PSV Policies.

 

(h)           Parent acknowledges and agrees that anyemployment loss within the meaning of the Worker Adjustment and RetrainingNotification Act (the “**WARN Act**”),29 U.S.C. §§ 2101 et seq., suffered by any employee immediately upon orwithin 90 days of the Closing, shall have been caused by Parent’s decision notto continue the employment of such employee, and not by the sale of the Company.The Company acknowledges and agrees that, at Parent’s request, it shall giveany notices required by the WARN Act if necessary prior to the Closing Date andotherwise cooperate with Parent. Parent shall be responsible to and shallindemnify and hold harmless the Company and its Affiliates for any and allclaims asserted under the WARN Act because of a “plant closing” or “masslayoff,” as defined therein, occurring on or after the Closing Date, unless theCompany does not cooperate with Parent or provide requested notices as requiredby immediately preceding sentence. For purposes of this Agreement, the ClosingDate is and shall be the same as the “effective date” of the sale within themeaning of the WARN Act. Effective as of the Closing, Parent shall (i) assumeliability for all active workers’ compensation cases attributable to anyemployee and (ii) provide employees with coverage for all workers’ compensationbenefits and, from and after Closing, Parent shall be responsible for allworkers’ compensation claims filed by employees, regardless of whether theunderlying event of such claims occurred prior to the Closing.

 

(i)            Nothing herein expressed or implied shallconfer upon any current or former employee of the Company or upon anyrepresentative of any such person, or upon any collective bargaining agent, anyrights or remedies, including any third party beneficiary rights or any rightto employment or continued employment for any specified period, of any natureor kind whatsoever under or by reason of this Agreement.

 

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SECTION 4.6         [INTENTIONALLY OMITTED]

 

SECTION 4.7         Financial Information

 

(a)           After the Closing, upon reasonable writtennotice, Parent and the Company shall furnish or cause to be furnished to theStockholders and their respective accountants, counsel and otherrepresentatives access to, during normal business hours, such information (includingrecords pertinent to the Company) as is reasonably necessary for financialreporting and accounting matters.

 

(b)           Parent shall retain all of the books andrecords of the Company for a period of five years after the Closing Date orsuch longer time as may be required by law. After the end of such period,before disposing of such books or records, Parent shall give notice to sucheffect to the Stockholders and give the Stockholders an opportunity to removeand retain all or any part of such books or records as the Stockholders may select.

 

SECTION 4.8         [INTENTIONALLY OMITTED].

 

SECTION 4.9         Publicity

 

. Each of Parent and MergerSub agrees that no public release or announcement concerning the transactionsunder this Agreement shall be issued by Parent, Merger Sub or any of theirAffiliates, agents or representatives without the prior written consent andapproval of the Company and prior notice by the Company to the GamingAuthorities in accordance with the Gaming Laws and consistent with the Company’sresponsibilities as a gaming licensee and until after the Company and itsAffiliates have been given an opportunity to first issue such a public releaseor announcement.

 

SECTION 4.10       Certain Understandings.

 

(a)           Each of Parent and Merger Sub acknowledges thatit has received from the Company certain projections, forecasts and informationrelating to the Company. Each of Parent and Merger Sub acknowledges that (i) thereare uncertainties inherent in attempting to make such projections and forecastsand in such information, (ii) each of Parent and Merger Sub is familiarwith such uncertainties and is taking full responsibility for making its ownevaluation of the adequacy and accuracy of all projections, forecasts andinformation so furnished and (iii) neither Parent nor Merger Sub or any oftheir Affiliates shall have any claim against the Company, the Stockholders orany of their respective directors, officers, Affiliates, agents orrepresentatives with respect thereto. Accordingly, without limiting the generalityof Section 3.1(u), the Company makes no representation or warrantywith respect to such projections, forecasts or information.

 

(b)           Parent acknowledges that, except as expresslyset forth herein, without limiting the generality of Section 3.1(u),neither the Company nor any other Person has made any representation orwarranty, express or implied, as to the accuracy or completeness of anyinformation regarding the Company, and neither the Company nor any other Personwill be subject to any liability to Parent, Merger Sub or any other Personresulting from the distribution to Parent or Merger Sub, or the use of, anysuch information. Each of Parent and Merger Sub acknowledges that, should theClosing occur, each of Parent and Merger Sub will acquire the Company and itsbusiness, properties, assets and liabilities in an “as is” condition and on a “whereis” basis, without any representation or warranty of any kind, express orimplied, except such representations and warranties expressly set forth in thisAgreement. Further, without limiting any representation, warranty or covenantof the Company expressly set forth herein, each of Parent and Merger Subacknowledges that it has waived and hereby waives as a condition to Closing anyfurther due diligence reviews, inspections or examinations with respect to theCompany,

 

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including, withoutlimitation, with respect to engineering, environmental, title, survey,financial, operational, regulatory and legal compliance matters.

 

SECTION 4.11       Taxes. All Taxes arising out of, in connection with, or attributable to anypreparatory act or the transactions effected pursuant to this Agreement shallbe borne (directly or, if a Company level tax, indirectly) by Parent. In thecase of any Transfer Tax, Parent shall pay all such Transfer Taxes (whetherimposed on Parent, the Surviving Corporation or any Stockholder), shall prepareand timely file all relevant Transfer Tax returns required to be filed inrespect of such Transfer Tax and shall pay the Transfer Tax shown on suchTransfer Tax return. For purposes of this Agreement, “**Transfer Tax**” or “**Transfer Taxes**” means all sales (including,without limitation, bulk sales), use, transfer, recording, ad valorem,privilege, documentary, gross receipts, registration, conveyance, excise,license, stamp, duties, or similar taxes and fees.

 

SECTION 4.12       Certain Notifications. From the date of this Agreement until theClosing, the Company, on one hand, and Parent, on the other hand, shallpromptly notify the other in writing regarding (a) any breach of anycovenant or obligation of such party hereunder, as applicable, and (b) anyfact, circumstance, event or action which will result in, or would reasonablybe expected to result in, the failure of such party to timely satisfy any ofthe closing conditions specified in Article V, as applicable.

 

SECTION 4.13       Indemnification of Directors and Officers.

 

(a)           Parent agrees that (i) all rights toindemnification existing in favor of any director, officer, employee or agentof the Company (the “**Indemnified Parties**”)as provided in its charter or bylaws or in indemnification agreements with theCompany or any other Person, or otherwise in effect as of the date hereof,shall survive the Closing and shall continue in full force and effect for aperiod of not less than six years from the Closing Date and (ii) Parentshall guarantee the performance by the Company of its obligations referred toin immediately preceding clause (i); provided that, in the event anyclaim or claims are asserted or made within such six-year period, all rights toindemnification in respect of any such claim or claims, and Parent’s guaranteewith respect thereto, shall continue until final disposition of any and allsuch claims. Parent also agrees to indemnify all Indemnified Parties to thefullest extent permitted by applicable law with respect to all acts andomissions arising out of such individuals’ services as directors, officers,employees or agents of the Company or as trustees or fiduciaries of any planfor the benefit of employees or directors of, or otherwise on behalf of, theCompany, occurring prior to the Closing Date including, without limitation, thetransactions under this Agreement. Without limiting the generality of theforegoing, if any such Indemnified Party is or becomes involved in any capacityin any action, proceeding or investigation in connection with any matter,arising out of such individuals’ services as directors, officers, employees oragents of the Company or as trustees or fiduciaries of any plan for the benefitof employees or directors of, or otherwise on behalf of, the Company, includingthe transactions under this Agreement, occurring prior to or at the Closing,Parent shall pay as incurred such Indemnified Party’s reasonable out-of-pocketlegal and other expenses (including the cost of any investigation andpreparation) incurred in connection therewith. From and after the Closing,Parent shall pay all reasonable out-of-pocket expenses, including attorneys’fees, that may be incurred by any Indemnified Party in enforcing theindemnity and other obligations provided for in this Section 4.13.

 

(b)           Parent agrees that, from and after theClosing, the Company shall cause to be maintained in effect for not less thansix years from the Closing Date the current policies of the directors’ andofficers’ liability insurance maintained by the Company; provided thatthe Company may substitute therefor policies of at least the same coveragecontaining terms and conditions which are no less advantageous to the directorsand officers covered by such policies and provided that suchsubstitution shall not result in any gaps or lapses in coverage with respect tomatters occurring prior to the

 

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Closing; provided, further,that the Company shall not be required to pay an annual premium in excess of300% of the last annual premium paid by the Company prior to the date hereof,and if the Company is unable to obtain the insurance required by this Section 4.13(b) itshall obtain as much comparable insurance as possible for an annual premiumequal to such maximum amount.

 

SECTION 4.14       Debt Financing

 

(a)           From the date hereof until the EffectiveTime, the Company shall, and shall use its reasonable best efforts to causeeach of their respective officers, directors, employees and representatives to,provide such cooperation as is reasonably requested by Parent in connectionwith the arrangement of the Financing, including (A) causing appropriateofficers and employees to be available, on a customary basis and on reasonableadvance notice, to meet with prospective lenders and investors in meetings,drafting sessions, due diligence sessions, management presentations, road showsand sessions with rating agencies, (B) assisting with the preparation ofmaterials for rating agency presentations, business projections and financialstatements (including those required by the SEC), and assisting Parent inpreparing offering memoranda, private placement memoranda, prospectuses andsimilar documents, (C) requesting its independent accountants to providereasonable assistance to Parent, including requesting such accountants toprovide consent to Parent to prepare and use their audit reports relating tothe Company and any necessary “comfort letters,” (D) forming, on or priorto the Closing Date, new wholly owned subsidiaries, and transferring assetsinto those subsidiaries, to the extent not prohibited by law or any contractsto which the Company is a party or is bound (provided that in theevent a contract prohibits such transfer and the transfer cannot otherwisebe structured in a manner to avoid conflict with the terms of such contract,the Company agrees to use reasonable efforts to obtain consents necessary toeffectuate such transfers), and (E) provide reasonable access to the OwnedReal Property, in accordance with Section 4.2, during normalbusiness hours to the extent necessary for Parent to obtain surveys,engineering reports, zoning reports, environmental reports and appraisalsrequired by the Financing Commitments with respect to the Owned Real Property. Parentshall pay to the Company any costs or expenses incurred by the Company inconnection with the foregoing.

 

(b)           Notwithstanding the foregoing or Section 4.4or 5.3(c), the parties acknowledge and agree that nothing in thisAgreement shall (i) require the Company, any of the Stockholders or any oftheir respective officers, directors or Affiliates to (x) enter into or executeany commitment letter, underwriting or placement agreement, pledge or securitydocument, loan agreement, note purchase agreement, registration rightsagreement, indenture or any other Contract, or any registration statement orother filing with the SEC, or any certificate or other document in connectionwith any financing or other funds sought by Parent, (y) commence or take anyother action with respect to any tender offer for, or any consent with respectto, or any repayment of, or amendment or modification to, any debt securitiesor other indebtedness of the Company (other than ministerial actions, includingfacilitating access to the trustee with respect to, or providing a list of theholders of, any such debt securities), or (z) obtain any rating agency confirmationsor approvals, (ii) require counsel to the Company or the Stockholders todeliver any legal opinion in connection with any financing or funds sought byParent, or (iii) require the Company or any of the Stockholders, or anyofficer, director, employee, counsel or advisor thereof, to make anyrepresentation or warranty, incur any liability or provide for anyindemnification or expense reimbursement in connection with any financing orfunds sought by Parent.

 

SECTION 4.15       Further Assurances. Subject to the terms and conditions of thisAgreement, each party will use its commercially reasonable efforts (exceptwhere a different efforts standard is specifically contemplated by thisAgreement, in which case such different standard shall apply) to take, or causeto be taken, all actions and to do, or cause to be done, all things necessary,proper or

 

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advisable under applicablelaws and orders to consummate the transactions contemplated by this Agreement.

 

SECTION 4.16       Selected Memorabilia. Notwithstanding anything in this Agreementto the contrary, Peter A. Morton shall have the right to purchase, or otherwiseacquire, from the Company on an “as is, where is,” no representation basis,such items of rock and roll or other memorabilia owned by the Company, as PeterA. Morton may select, in his sole discretion, up to an aggregate appraisedvalue of $100,000 (the “**Selected Memorabilia**”),and there shall not be sold, assigned, transferred, conveyed or delivered to Parentor Merger Sub any right, title or interest in or to any of the SelectedMemorabilia. Peter A. Morton shall have the right to take all actions he deemsnecessary or desirable to remove, transfer, sever or otherwise separate suchright, title and interest in or to the Selected Memorabilia from the otherassets of the Company on or prior to the Closing Date.

 

SECTION 4.17       Termination of Affiliate Agreements. The Company shall use its best efforts toterminate or cancel, as applicable, effective at the Closing, all Contractsbetween the Company and Peter Morton (including the Amended and RestatedSupervisory Agreement, dated as of October 21, 1997, by and between theCompany and Peter A. Morton), and all other Contracts between the Company andan Affiliate of the Company, except for (i) this Agreement and (ii) theContracts listed in Schedule 4.17 of the Company Disclosure Letter(collectively, the “**Affiliate Agreements**”).

 

SECTION 4.18       Other Transaction Documents.

 

(a)           The Company shall use its best efforts tocause Peter A. Morton to execute the Trademark Agreement, the License Agreementand the Morton Trademark Assignment on or prior to the Closing Date.

 

(b)           Peter A. Morton agrees to execute theTrademark Agreement, the License Agreement and the Morton Trademark Assignmenton or prior to the Closing Date.

 

ARTICLE VCONDITIONS PRECEDENT

 

SECTION 5.1         Conditions Precedent to Each Party’sObligations. The respectiveobligations of each party to effect the Merger and the other transactionscontemplated by this Agreement are subject to the satisfaction, or waiver byParent and the Company, on or before the Closing Date of the followingconditions precedent (which shall not be construed as covenants):

 

(a)           No Injunctions or Restraints. No temporary restraining order orpreliminary or permanent injunction of any court or administrative agency ofcompetent jurisdiction prohibiting the Merger or any of the other transactionscontemplated by this Agreement shall be in effect;

 

(b)           HSR Act. Any waiting period under the HSR Act applicable to the Merger or anyof the other transactions contemplated by this Agreement shall have expired orearly termination thereof shall have been granted without limitation,restriction or condition that has had or would reasonably be expected to have,individually or in the aggregate, a Material Adverse Effect (after givingeffect to the Merger and the other transactions contemplated by thisAgreement); and

 

(c)           Other Transaction Closings. All conditions to each of the OtherTransaction Closings shall have been satisfied or, if permissible, waived bythe party entitled to make such a waiver, and each of the Other TransactionClosings shall occur simultaneously with the Closing.

 

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SECTION 5.2         Conditions Precedent to Parent’s and MergerSub’s Obligations. Theobligation of each of Parent and Merger Sub to effect the Merger and the othertransactions contemplated by this Agreement are subject to the satisfaction orwaiver by Parent on or before the Closing Date of the following conditionsprecedent (which shall not be construed as covenants):

 

(a)           Representations and Warranties. (i) The representations and warrantiesof the Company set forth in this Agreement shall be true and correct in allrespects on and as of the Closing Date, as though made on and as of the ClosingDate (except for representations and warranties made as of a specified datewhich shall be true and correct in all respects as of such date), except wherethe failure of such representations and warranties to be so true and correctwould not reasonably be expected to have a Material Adverse Effect; provided,however, that notwithstanding the preceding, the representations andwarranties of the Company contained in Section 3.1(d) shall betrue and correct in all material respects; and (ii) between the date ofthis Agreement and the Closing, there shall have been no Material AdverseEffect;

 

(b)           Performance of Obligations of the Company. The Company shall have performed in allmaterial respects the obligations required to be performed by it under thisAgreement on or prior to the Closing Date;

 

(c)           Governmental Consents. Each of Parent and Merger Sub shall haveobtained (or the Gaming Operator shall have obtained) any and all Gaming Approvalsand other Governmental Approvals required to be obtained in connection with thetransactions under this Agreement (which Gaming Approvals and otherGovernmental Approvals shall have been granted to Parent or Merger Sub (or, ifapplicable, the Gaming Operator) without the imposition of limitations,restrictions or conditions materially detrimental to the Company); and

 

(d)           Affiliate Agreements. The Affiliate Agreements shall have beenterminated or cancelled.

 

SECTION 5.3         Conditions Precedent to the Company’sObligations. The obligationsof the Company to effect the Merger and the other transactions contemplated bythis Agreement are subject to the satisfaction or waiver on or before theClosing Date of each of the following conditions precedent (which shall not beconstrued as covenants):

 

(a)           Representations and Warranties. The representations and warranties of eachof Parent and Merger Sub set forth in this Agreement shall be true and correctin all respects on and as of the Closing Date, as though made on and as of theClosing Date (except for representations and warranties made as of a specifieddate which shall be true and correct in all respects as of such date), exceptwhere the failure of such representations and warranties to be so true and correct(without giving effect to any limitation as to “materiality” set forth therein)would not reasonably be expected to have a material adverse effect on theability of Parent or Merger Sub to consummate the Merger and the othertransactions contemplated by this Agreement; provided, however,that notwithstanding the preceding, the representations and warranties ofParent contained in Section 3.2(b) shall be true and correctin all material respects;

 

(b)           Performance of Obligations of Parent andMerger Sub. Each of Parentand Merger Sub shall have performed in all material respects the obligationsrequired to be performed by it under this Agreement on or prior to the ClosingDate; and

 

(c)           Company Bonds; Credit Agreement. Parent shall have paid in full, defeased orotherwise satisfied all Obligations under the Credit Agreement and the CompanyBonds.

 

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ARTICLE VITERMINATION

 

SECTION 6.1         Termination. This Agreement may be terminated and the Merger may beabandoned at any time prior to the Effective Time:

 

(a)           by mutual written consent of the Company andParent;

 

(b)           [INTENTIONALLY OMITTED]

 

(c)           by the Company, by written notice to Parent,if (i) Parent or Merger Sub shall have breached or failed to perform inany material respect any of its representations, warranties, covenants or otheragreements contained in this Agreement, which breach or failure to perform wouldgive rise to the failure of a condition set forth in Section 5.1 or5.3 (the “**Company Condition Failure**”),and (ii) such Company Condition Failure is incapable of being cured byParent or Merger Sub or, if curable, is not cured by Parent or Merger Subwithin 120 days following receipt of written notice from the Company of suchCompany Condition Failure;

 

(d)           by Parent, by written notice to the Company,if (i) the Company shall have breached or failed to perform in anymaterial respect any of its representations, warranties, covenants or otheragreements contained in this Agreement, which breach or failure to perform wouldgive rise to the failure of a condition set forth in Section 5.1 or5.2 (the “**Parent Condition Failure**”),and (ii) such Parent Condition Failure is incapable of being cured by theCompany or, if curable, is not cured by the Company within****120 days following receipt of writtennotice from Parent of such Parent Condition Failure;

 

(e)           by either the Company or Parent, by writtennotice to the other, if the Closing has not occurred by (i) the earlier of(x) seven (7) Business Days following the receipt by Parent or Merger Sub(or, if applicable, the Gaming Operator) of all Gaming Approvals (which GamingApprovals shall have been granted to Parent or Merger Sub (or, if applicable,the Gaming Operator) without the imposition of limitations, restrictions orconditions materially detrimental to the Company); and (y) February 11,2007, or (ii) such later date, as is agreed to by the Company (the laterof (i) and (ii), the “**Outside Date**”);or

 

(f)            by the Company or Parent, by written noticeto the other, if there shall be any law or regulation that makes consummationof the Merger or any of the other transactions contemplated by this Agreementillegal or otherwise prohibited or if any judgment, injunction, order or decreeenjoining the Company or Parent from consummating the Merger or any of theother transactions contemplated by this Agreement is entered and such judgment,injunction, order or decree shall become final and nonappealable.

 

Notwithstandinganything contained in this Agreement to the contrary, except as provided in Sections6.1(a) and (f) in no event shall:

 

(i)            a party that has breached or failed to perform inany material respect any of its representations, warranties, covenants or otheragreements contained (A) in this Agreement, which breach or failure to perform wouldgive rise to the failure of, in the case of a breach of failure to perform byParent, a condition set forth in Section 5.1, 5.2(c) or5.3, and, in the case of a breach or failure to perform by theCompany, a condition set forth in Section 5.1 or 5.2, ineach case, to be satisfied on or before the Closing Date, or (B) in theOther Transaction Documents, terminate this Agreement under this Section 6.1;or

 

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(ii)           the Company terminate this Agreement underthis Section 6.1 if any of the parties to the Other TransactionDocuments (other than Parent or any Affiliate of Parent and the Escrow Agent)(collectively, the “**Other Parties**”)****has breached or failed to perform inany material respect any of its representations, warranties, covenants or otheragreements contained herein or therein, as applicable.

 

SECTION 6.2         Effect of Termination.

 

(a)           Effect of Termination. In the event of termination of thisAgreement in accordance with Section 6.1, this Agreement shallforthwith become void and have no effect, except (i) as set forth in Sections6.2(b), 6.2(c) and 6.3; (ii) as otherwise set forthin any written termination agreement; and (iii) that Sections 4.2(a)(vi) and4.2(c), this Section 6.2 and Article IX shallsurvive termination of this Agreement.

 

(b)           Application of Deposit.

 

(i)    If this Agreement is terminated pursuant to Section 6.1(a),then the Escrow Agent shall deliver to Parent the Deposit pursuant toParent’s instructions, and the sole remedy of Parent and Merger Sub against theCompany shall be the amount of the Deposit, which Deposit shall be compensationand liquidated damages as provided in Section 6.2(c).

 

(ii)   [INTENTIONALLY OMITTED]

 

(iii)  If this Agreement is terminated by theCompany pursuant to Section 6.1(c),then the Escrow Agentshall deliver the Deposit to the Stockholders’ Representative pursuant to theStockholders’ Representative’s instructions, and the sole remedy of the Companyagainst Parent and Merger Sub shall be such delivery by the Escrow Agent of theamount of the Deposit, which Deposit shall be compensation and liquidateddamages as provided in Section 6.2(c).

 

(iv)  If this Agreement is terminated by Parentpursuant to Section 6.1(d), then the Escrow Agent shall deliver toParent the Deposit pursuant to Parent’s instructions, and the sole remedy ofParent and Merger Sub against the Company shall be such delivery by the EscrowAgent of the amount of the Deposit, which Deposit shall be compensation andliquidated damages as provided in Section 6.2(c)..

 

(v)   If this Agreement is terminated by theCompany or Parent pursuant to Section 6.1(e), then the Escrow Agentshall deliver the Deposit to the Stockholders’ Representative pursuant to theStockholders’ Representative’s instructions, and the sole remedy of the Companyagainst Parent and Merger Sub shall be such delivery by the Escrow Agent of theamount of the Deposit, which Deposit shall be compensation and liquidateddamages as provided in Section 6.2(c); provided, however,that if the Company has breached, or has failed to perform its obligationsor satisfy its conditions under, this Agreement or any of the Other Parties hasbreached, or has failed to perform its obligations or satisfy itsconditions under, the Other Transaction Documents, and such breach or failurecaused or resulted in the failure of the Closing to occur on or before theOutside Closing Date, then the Escrow Agent shall deliver to Parent the Depositpursuant to Parent’s instructions, and the sole remedy of Parent and Merger Subagainst the Company shall be such delivery by the Escrow Agent of the amount ofthe Deposit, which Deposit shall be compensation and liquidated damages asprovided in Section 6.2(c).

 

(vi)  If this Agreement is terminated by theCompany or Parent pursuant to Section 6.1(f), then the Escrow Agentshall deliver the Deposit to the Parent pursuant to Parent’s instructions, andthe sole remedy of Parent and Merger Sub against the Company shall be such

 

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delivery by the Escrow Agentof the amount of the Deposit, which Deposit shall be compensation andliquidated damages as provided in Section 6.2(c); provided, however,that if the actions or inaction of Parent or Merger Sub (but not the Company orthe Other Parties) have been the cause of, or have materially contributed to,such judgment, injunction, order or decree, then the Escrow Agent shall insteaddeliver the Deposit to the Stockholders’ Representative pursuant to theStockholders’ Representative’s instructions, and the sole remedy of the Companyagainst Parent and Merger Sub shall be such delivery by the Escrow Agent to theStockholders’ Representative of the amount of the Deposit, which amount shallbe compensation and liquidated damages as provided in Section 6.2(c).

 

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(c)           **LIQUIDATED DAMAGES****. BY INITIALLING BELOW,**

 
| **On behalf  of Parent:**     | **On behalf  of the Company:** |
|-------------------------------|--------------------------------|
| ** **                    | ** **                     |
| **Initials:**                 | ** **                     | ** ** | **Initials:** | ** ** | ** ** |
| **Name:**                     | **Name:**                      |
| **Title:**                    | **Title:**                     |
| ** **                    | ** **                     |
| **On behalf  of Merger Sub:** | ** **                     |
| ** **                    | ** **                     |
| **Initials:**                 | ** **                     | ** ** | ** ** |
| **Name:**                     | ** **                     |
| **Title:**                    | ** **                     |
|                               |                                |  |  |  |  |  |

 

EACH OF THE PARTIES HERETOAGREES THAT IT WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT TO FIX ACTUALDAMAGES IF THIS AGREEMENT IS TERMINATED PURSUANT TO SECTION 6.1,AND, THEREFORE, EACH OF PARENT AND THE COMPANY AGREES THAT THE PAYMENTSPROVIDED IN SECTION 6.2(b) SHALL BE THE SOLE AND EXCLUSIVEREMEDY OF THE PARTIES UPON, AND LIQUIDATED DAMAGES FOR, TERMINATION OF THISAGREEMENT PURSUANT TO ARTICLE VI, AND SUCH REMEDY SHALL BE LIMITEDTO THE PAYMENTS STIPULATED IN SECTION 6.2(b).

 

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SECTION 6.3         Specific Performance. NOTWITHSTANDING ANYTHING HEREIN TO THECONTRARY, IN THE EVENT THAT THE MERGER FAILS TO CLOSE AS A RESULT OF (a) THEDEFAULT OF THE COMPANY OR PETER A. MORTON IN THE PERFORMANCE OF ITS OBLIGATIONSUNDER THIS AGREEMENT, OR (b) A DEFAULT OF ANY OTHER PARTY (AS DEFINED IN SECTION 6.1)IN THE PERFORMANCE OF ITS OBLIGATIONS UNDER ANY OF THE OTHER TRANSACTIONDOCUMENTS, THEN IN LIEU OF PARENT’S REMEDIES SET FORTH IN SECTION 6.1AND 6.2, PARENT MAY ELECT TO PURSUE THE REMEDY OF SPECIFICPERFORMANCE AGAINST THE COMPANY AND PETER A. MORTON, IT BEING AGREED THATIRREPARABLE DAMAGE WOULD OCCUR IN THE EVENT THAT THE COMPANY OR PETER A. MORTONFAILS TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY TO WHICH IT IS A PARTYAS A RESULT OF THE COMPANY’S OR PETER A. MORTON’S DEFAULT HEREUNDER.

 

ARTICLE VIISURVIVAL; INDEMNIFICATION

 

SECTION 7.1         Survival of Representations, Warranties andCovenants. Therepresentations and warranties of the Company contained in this Agreement shallsurvive the Closing until the first anniversary of the Closing Date (the “**Expiration Date**”). The covenants andagreements contained in this Agreement shall not survive the Closing, otherthan those covenants and agreements that are expressly required to remain infull force and effect after the Closing.

 

SECTION 7.2         Obligation of Stockholders. As provided in the Escrow Agreement and thePMR/RWB Escrow Agreement, the Stockholders shall, jointly and severally,indemnify, defend and hold harmless****Parentand the Surviving Corporation and each of their predecessors and successors,stockholders, employees, officers, directors, agents and representatives(collectively, the “**Parent Indemnitees**”)from and against, and pay or reimburse the Parent Indemnitees for, any and alldamages, liabilities, losses, claims, obligations, Liens, assessments,judgments, fines and penalties (collectively, “**Losses**”) that any of them may suffer, incur or sustain,directly or indirectly, arising out of, attributable to, relating to orresulting from:

 

(a)           (i)            any inaccuracy in or breach of anyrepresentation and warranty made by the Company in this Agreement; and

 

(ii)           any inaccuracy in or breach of any representationand warranty (without giving effect to any qualifiers or exceptions relating toknowledge, Knowledge of the Company, materiality or Material Adverse Effect)made by the Company in this Agreement if such inaccuracy or breach,individually or together with all such other inaccuracies or breaches, would bereasonably expected to have a Material Adverse Effect,

 

in each case, by virtue ofthe failure of such representation or warranty to be true and correct (i) onand as of the Closing Date with the same effect as though made on and as of theClosing Date (other than any such representation or warranty that speaks as ofa specific date or time other than the Closing Date) or (ii) on and as ofthe date or time when made, in the case of any representation or warranty thatspeaks as of a specific date or time other than the Closing Date;

 

(b)           any breach or nonperformance of any of thecovenants or other agreements made and to be performed by the Company pursuantto this Agreement; and

 

(c)           the exercise by any Stockholder of dissenters’rights with respect to the Merger pursuant to the NRS.

 

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SECTION 7.3         Obligation of Parent. Parent and Merger Sub shall indemnify,defend and hold harmless****theStockholders and each of their predecessors and successors, stockholders,employees, officers, directors, agents and representatives (collectively, the “**Stockholder Indemnitees**”) from and against,and pay or reimburse the Stockholder Indemnitees for, any and all Losses thatany of them may suffer, incur or sustain, directly or indirectly, arisingout of, attributable to, relating to or resulting from:

 

(a)           any inaccuracy in or breach of anyrepresentation and warranty (without giving effect to any qualifiers orexceptions relating to knowledge, Knowledge of Parent, materiality or MaterialAdverse Effect) made by Parent or Merger Sub in this Agreement by virtue of itsfailure to be true and correct (i) on and as of the Closing Date with thesame effect as though made on and as of the Closing Date (other than any suchrepresentation or warranty that speaks as of a specific date or time other thanthe Closing Date) or (ii) on and as of the date or time when made, in thecase of any representation or warranty that speaks as of a specific date ortime other than the Closing Date; and

 

(b)           any breach or nonperformance of any of thecovenants or other agreements made and to be performed by Parent or Merger Subpursuant to this Agreement.

 

SECTION 7.4         Minimum Losses. No Parent Indemnitee shall have any rightto indemnification under Section 7.2 until aggregate Lossesincurred by all Parent Indemnitees would exceed Two Million Five HundredThousand Dollars ($2,500,000) (the “**IndemnityThreshold**”), after which there may only be recovered thoseLosses in excess of the Indemnity Threshold, subject to the conditions of this Article VII,including the limitations set forth in Section 7.5.

 

SECTION 7.5         Maximum Indemnification. The Stockholders shall not be obligated toprovide indemnification pursuant to Section 7.2 exceeding, in theaggregate, the Indemnification Escrow Amount. Notwithstanding anything in thisAgreement, any indemnification obligation of the Stockholders under Section 7.2shall be satisfied solely from the Indemnification Escrow Fund, except that tothe extent that the balance of the Indemnification Escrow Fund is notsufficient to satisfy any indemnification obligations of the Stockholders tothe Parent Indemnitees under Section 7.2 when the conditions forindemnification set forth in Section 7.2 have been satisfied, thensuch shortfall shall be satisfied from any balance remaining in the PMR/RWBEscrow Funds pursuant to, and in accordance with the terms and subject to theconditions of, the PMR/RWB Escrow Agreement.

 

SECTION 7.6         No Tax Attribute Indemnity. Notwithstanding anything in this Agreementto the contrary, no indemnification shall be provided for the absence or lossof any tax attributes, including by reason of a breach of Section 3.1(n)(i) and/orSection 3.1(n)(vii); provided, that for the avoidance of doubt, theParent Indemnitees shall be, subject to the limitations on indemnificationotherwise set forth in this Article VII, indemnified for (and this Section 7.6does not limit), a breach of Section 3(n)(i) that gives riseto a liability for Taxes of the Company for pre-Closing periods (as opposed toa reduction of tax attributes carried forward to a post-Closing period).

 

SECTION 7.7         Notice; Procedure for Third-Party Claims.

 

(a)           Any Person entitled to indemnification under Article VII(an “**Indemnified Party**”) may seekindemnification for any Loss or potential Loss by giving written notice to theapplicable party or parties from whom indemnification is sought (the “**Indemnifying Party**”) before, if applicable,the Expiration Date. Written notice to such Indemnifying Party of the existenceof a claim shall be given by the Indemnified Party as soon as practicable afterthe Indemnified Party first receives notice of the potential claim, providedthat any failure to provide such prompt notice of the existence of a claim tothe applicable Indemnifying Party shall not affect the Indemnified Party’sright to

 

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seek indemnificationpursuant to this Article VII except and only to the extent thatsuch failure results in such Indemnifying Party actually incurring an expenseor otherwise being prejudiced as a result of such delay. In the case of a claiminvolving a Third Party Claim (as hereinafter defined), (i) the notice ofclaim shall describe in reasonable detail the facts known to the IndemnifiedParty giving rise to such indemnification claim and the amount, or good faithestimate of the amount, of Losses arising therefrom, and (ii) theIndemnified Party shall deliver to the Stockholders’ Representative (if theIndemnified Party is a Parent Indemnitee) or to Parent (if the IndemnifiedParty is a Stockholder Indemnitee), as applicable, promptly after theIndemnified Party’s receipt thereof, copies of all notices and documents (includingcourt papers) received by the Indemnified Party relating to such Third PartyClaim.

 

(b)           In the case of any claim asserted by a Personthat is not a party to this Agreement against an Indemnified Party (a “**Third-Party Claim**”), the Indemnified Party shallpermit the Indemnifying Party (at the expense of such Indemnifying Party) toassume the defense of such Third-Party Claim and any litigation or proceedingresulting therefrom; provided that (i) counsel for the Indemnifying Partywho shall conduct the defense of such claim or litigation shall be reasonablysatisfactory to the Indemnified Party and (ii) the Indemnified Party may participatein such defense at such Indemnified Party’s expense. Notwithstanding theelection of the Indemnifying Party to assume control of such defense, theIndemnified Party shall be entitled to retain or assume the defense of suchThird-Party Claims (at such Indemnified Party’s expense) if (A) the amountof Losses from such claim (x) if the Indemnified Party is a Parent Indemnitee,could reasonably be expected to exceed, when aggregated with all other pendingclaims and unpaid claims for indemnification from such Indemnifying Party(together with, in the case of any Stockholder as the Indemnifying Party,pending claims and unpaid claims for indemnification from each such otherIndemnifying Party), the Indemnification Escrow Fund, and (y) if theIndemnified Party is a Stockholder Indemnitee, otherwise may not, in thegood faith judgment of the Indemnified Party, be capable of being satisfied infull by such Indemnifying Party; (B) the claim for indemnification relatesto or arises in connection with any criminal proceeding, action, indictment,allegation or investigation that could reasonably be expected to adverselyaffect the business of Parent or the Surviving Corporation; or (C) theIndemnified Party has been advised in writing by counsel that a conflict ofinterest exists between the Indemnifying Party and the Indemnified Party withrespect to such claim (including the defense thereof). No Indemnifying Party,in the defense of any Third-Party Claim, shall consent to entry of any judgmentor enter into any settlement without the consent of the Indemnified Party,which consent may be withheld in the Indemnified Party’s sole discretion(unless the terms of such judgment or settlement include an unconditional fullrelease of the Indemnified Party from all liability with respect to suchThird-Party Claim and solely the payment of money and all such moneys shall bepaid by the Indemnifying Party, in which case such consent shall not beunreasonably withheld). In the event that the Indemnifying Party does notaccept the defense of any matter as above provided, the Indemnified Party shallhave the right to defend against any such claim or demand, and shall beentitled to settle or agree to pay in full such claim or demand. In any event,the parties to this Agreement shall cooperate in the defense of any Third-PartyClaim subject to this Article VII and the records of each shall bemade reasonably available to the other with respect to such defense.

 

SECTION 7.8         Survival of Indemnity. Any matter as to which a claim has beenasserted in good faith by an Indemnified Party, by formal notice satisfying therequirements of Section 7.7, and prior to the Expiration Date, thatis pending or unresolved as of the Expiration Date, by law or otherwise shallcontinue to be covered by this Article VII notwithstanding suchlimitation (which the parties hereby waive solely with respect to suchcircumstances), until such matter is finally terminated or otherwise resolvedby the parties under this Agreement, by an arbitration or by a court ofcompetent jurisdiction and any amounts payable hereunder are finally determinedand paid.

 

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SECTION 7.9         No Consequential Damages. Notwithstanding anything to the contrarycontained in this Agreement, no person shall be liable to or otherwiseresponsible for consequential, incidental or punitive damages.

 

SECTION 7.10       No Double Recovery. Notwithstanding anything herein to thecontrary, no Indemnified Party shall be entitled to indemnification under anyprovision of this Agreement for any amount to the extent such Indemnified Partyhas been indemnified or reimbursed for such amount under any other provision ofthis Agreement (including, (i) to the extent that such amount reducedTotal Transaction Consideration or Working Capital, if the Indemnified Party isa Parent Indemnitee, and (ii) to the extent that such amount increasedTotal Transaction Consideration or Working Capital, if the Indemnified Party isa Stockholder Indemnitee) or any other agreement or action at law or equity orotherwise.

 

ARTICLE VIIIDEFINITIONS

 

SECTION 8.1         Definitions. As used in this Agreement and the Exhibits and Schedules deliveredpursuant to this Agreement, the following terms shall have the followingrespective meanings.

 

“**Affiliate”** means, with respect to anyPerson, any other Person that directly or indirectly, through one or moreintermediaries, controls, is controlled by, or is under common control with,such first-mentioned Person. The term “**Affiliated**”****shall have a corresponding meaning.

 

 “**BusinessDay**” means a day that is not a Saturday, Sunday, federal holiday orlegal holiday in both Clark County, Nevada and New York, New York. In the eventthat the date for the performance of any covenant or obligation under thisAgreement shall fall on a Saturday, Sunday or legal holiday, the date forperformance thereof shall be extended to the next Business Day.

 

“**Company Bonds**” means both (i) theCompany Second Lien Notes and (ii) the Company Junior Notes.

 

“**Company Disclosure Letter**” means theDisclosure Letter delivered by the Company to Parent on the date of thisAgreement.

 

“**Company Junior Notes**” means the Company’sJunior Subordinated Notes due 2014.

 

“**Company Second Lien Notes**” means theCompany’s 87/8 % Second Lien Notes due 2013.

 

“**Contract**” means any contract, lease,mortgage, indenture or other agreement to which the Company is a party or is bound,but shall not include the Employee Benefit Plans referred to in Section 3.1(o).

 

“**Credit Agreement**” means the CreditAgreement, dated as of May 30, 2003 (as it may be amended,supplemented or modified from time to time), among the Company, as borrower,the lenders referred to therein and Bank of America, N.A., as administrativeagent.

 

 “**GamingApprovals**” means all licenses, permits, approvals, authorizations,registrations, findings of suitability, franchises, entitlements, waivers andexemptions issued by any Gaming Authority required to permit the parties heretoto consummate the transactions contemplated by this Agreement or necessary topermit Parent to own and operate the Company.

 

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“**Gaming Authorities**” means any governmentalauthority or agency with regulatory control or jurisdiction over the conduct oflawful gaming or gambling, including the Nevada Gaming Commission, the NevadaState Gaming Control Board and the Clark County Liquor and Gaming LicensingBoard.

 

“**Gaming Laws**” means any federal, state,local or foreign statute, ordinance, rule, regulation, permit, consent,registration, finding of suitability, approval, license, judgment, order,decree, injunction or other authorization (including any condition orlimitation placed thereon and including liquor laws) governing or relating tothe current or contemplated casino and gaming activities and operations of theCompany.

 

“**Gaming Operator**” means any Person which isexperienced in the gaming business and is reasonably likely to obtain, prior tothe Outside Date, all Gaming Approvals required to consummate the transactionscontemplated by this Agreement, which Person Parent and Merger Sub may selectprior to the Closing.

 

“**Governmental Authority**” means any court,administrative agency, commission, Gaming Authority or other governmentalauthority or instrumentality.

 

 “**Knowledgeof the Company**” means the actual knowledge of Peter A. Morton, KevinKelley and James D. Bowen; and the knowledge of no other Person shall beimputed to any such individual.

 

“**License Agreement**” means the LicenseAgreement, to be dated as of the Closing Date, substantially in the form attachedhereto as Exhibit D.

 

“**Liens**” means any lien, pledge, claim,mortgage, security interest, encumbrance or restriction (except for anytransfer restriction generally arising under any applicable federal or statesecurities laws or licenses of or other agreements related to CompanyIntellectual Property that are not intended to secure Obligations) other thanLiens (x) that will be released in connection with the Closing, (y) for Taxesnot yet due and payable, or (z) that are set forth in Schedule 8.1of the Company Disclosure Letter.

 

“**Material Adverse Effect**” means a materialadverse effect on the business, assets, financial condition or results ofoperations of the Company; provided, that none of the following,individually or in the aggregate, shall be deemed to have a Material AdverseEffect itself or be considered in any determination as to whether a MaterialAdverse Effect has occurred or is continuing: (i) changes in international or national political or regulatoryconditions generally, (ii) changes, events or conditions generallyaffecting the U.S. economy or financial markets or affecting any of the travel,hospitality or gaming industries generally or in Las Vegas, Nevada, (iii) anychange in law, tax rates or GAAP, (iv) any change, event or effectresulting from the entering into or public announcement of the transactionscontemplated by this Agreement (including any facts or circumstances relatingto Parent, its equity owners or investors, its financing sources or theirrespective Affiliates (including their respective identities)), and (v) anychange, event or effect resulting from any act of terrorism, commencement,escalation, continuation or cessation of armed hostilities in the United Statesor internationally or declaration of war by or against or otherwise involvingthe United States. Further, no event or condition that results primarily fromsuch events shall be deemed to have, individually or in the aggregate, aMaterial Adverse Effect.

 

“**Minimum Cage Cash**” means $5,500,000.

 

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“**Minimum Working Capital**” means$(2,700,000).

 

**“Morton Trademark Assignment”** means that assignment to be dated as of theClosing Date, substantially in the form attached here to as Exhibit E.

 

“**Morton Trademarks**” means those trademarksset forth on Schedule A to the Morton Trademark Assignment.

 

“**Obligations**” means, with respect to anyindebtedness, any principal, interest, penalties, fees, indemnifications,reimbursements, damages and other liabilities and obligations payable under thedocumentation governing such indebtedness, including, without limitation,interest after the commencement of any bankruptcy proceeding at the ratespecified in the applicable instrument governing or evidencing suchindebtedness.

 

“**Other Transaction Closings**” means (i) the“Closing,” as such term is defined in Section 7 of the PMR Asset PurchaseAgreement, (ii) the execution by the parties thereto of the TrademarkAgreement, (iii) the execution by the parties thereto of the LicenseAgreement and (iv) the assignment of the Morton Trademarks pursuant to theMorton Trademark Assignment in accordance with the terms thereof.

 

“**Other****TransactionDocuments**” means (i) the PMR Asset Purchase Agreement, (ii) theTrademark Agreement, (iii) the License Agreement and (iv) the MortonTrademark Assignment.

 

“**Person**” means an individual, partnership,corporation, limited liability company, trust or unincorporated organization ora government or agency or political subdivision thereof.

 

“**PMR**” means PM Realty, LLC, a Nevadalimited-liability company.

 

“**PMR Asset Purchase Agreement**” means the Purchaseand Sale Agreement, dated as of the date hereof, by and between Parent and PMR,a copy of which is attached hereto as Exhibit A.

 

“**PMR/RWB Escrow Agreement**” means the EscrowAgreement, dated as of the date hereof, by and among PMR, Parent, Red, Whiteand Blue Pictures, Inc., a California corporation, and the Escrow Agent,as it may be amended from time to time.

 

“**PMR/RWB Escrow Funds**” has the meaning givento “Escrow Funds” in the PMR/RWB Escrow Agreement.

 

“**Termination Agreement**” means the TerminationAgreement and Mutual Release by and between Peter A. Morton and the Company tobe entered into on or prior to the Closing Date.

 

“**Termination Amount**” means an aggregateamount in cash equal to Forty Million Dollars ($40,000,000).

 

“**Trademark Agreement**”****means the Agreement, to be dated as of theClosing Date, substantially in the form attached hereto as Exhibit B.

 

“**Treasury Calculation Amount**” means anamount equal to the sum of (a) the present value on the Closing Date of$1,000 principal amount of Company Notes calculated in accordance with standardmarket practice, assuming each $1,000 principal amount of the Company SecondLien Notes would be repaid at $1,044.38 on June 1, 2008 (the “**Second Lien Note First**

 

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**Call Date**”), and each $1,000 principal amount of theCompany Subordinated Notes would be repaid at $1,049.38 on January 15,2009 (the “**Junior Note First Call Date**”and, together with the Second Lien Note First Call Date, the “**Applicable****First Call Date**”), *plus*(b) the present value of the interest that would be payable on, or accruefrom, the most recent interest payment date on $1,000 principal amount of Notesuntil the Applicable First Call Date determined on the basis of a yield to theApplicable First Call Date equal to the sum of (x) the bid-side yield on the5.625% U.S. Treasury Note due May 15, 2008, *plus* (y) 50 basis points.

 

SECTION 8.2         Interpretation. For all purposes of this Agreement, exceptas otherwise expressly provided,

 

(a)           defined terms have the meanings assigned tothem in this Agreement and include the plural as well as the singular,

 

(b)           all accounting terms not otherwise definedherein have the meanings assigned under GAAP, as in effect on the date hereof,unless otherwise stated,

 

(c)           all references in this Agreement todesignated Articles, Sections, Exhibits or Schedules are to the designatedArticle, Section, Exhibit or Schedule to this Agreement, unlessotherwise indicated, and all Exhibits and Schedules to this Agreement areincorporated herein by reference; when a reference is made in this Agreement toa specific Schedule, such reference shall be deemed to include, to the extentapplicable, all the other Schedules; all references to Schedules herein shallbe deemed to be a reference to such Schedule as it may be amendedprior to the Closing,

 

(d)           the table of contents, table of definitionsand headings contained in this Agreement are for reference purposes only andshall not affect in any way the meaning or interpretation of this Agreement,

 

(e)           pronouns of either gender or neuter shallinclude, as appropriate, the other pronoun forms,

 

(f)            the words “**transactionscontemplated by this Agreement,**” “**transactionsunder this Agreement,**” “**transactionscontemplated hereby**” and words of similar import shall not be deemedor construed to include any of the transactions contemplated by the OtherTransaction Documents,

 

(g)           the words “**herein,**”“**hereof,**” “**herewith,**” “**hereunder**” and “**hereto**”and other words of similar import refer to this Agreement as a whole and not toany particular Article, Section or other subdivision, and

 

(h)           the words “**include,**”“**including**” and other words ofsimilar import mean “**include, withoutlimitation**” or “**including, withoutlimitation,**” regardless of whether any reference to “withoutlimitation” or words of similar import is made.

 

ARTICLE IXMISCELLANEOUS

 

SECTION 9.1         Notices. All notices and other communications hereunder shall be in writingand shall be deemed given (i) upon actual receipt by the recipient, ifdelivered personally, (ii) one business day after deposit with anovernight courier, as shown on the records of such overnight courier, ifdelivered by overnight courier or (iii) on the business day oftransmission (or if such day is not a business

 

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day or if such notice istransmitted after 5:00 p.m., Pacific Time, then on the next succeedingbusiness day) if by facsimile and the sender receives electronic confirmationof receipt by the recipient, in each case to the parties at the followingaddresses or facsimile numbers (or at such other address for a party as shallbe specified by like notice):

 

(a)       if to Parent or Merger Sub:

 

Morgans Hotel Group Co.475 Tenth Avenue, 11th FloorNew York, New York 10018Facsimile:   (212) 277-4260Attention:  W. Edward Scheetz

 

witha copy to:

 

Wachtell,Lipton, Rosen & Katz51 West 52nd StreetNew York, New York 10019Fax No.:      (212) 403-2000

Attention:   Stephen G. Gellman, Esq.Adam O. Emmerich, Esq.

 

(b)       if to the Company:

 

HardRock Hotel, Inc.510 North Robertson BoulevardLos Angeles, California 90048Facsimile:  (310) 652-8747Attention:  Brian Ogaz

 

witha copy to:

 

Skadden,Arps, Slate, Meagher & Flom LLP300 South Grand Avenue, Suite 3400Los Angeles, California 90071Facsimile:  (213) 687-5600Attention:  Gregg A. Noel

 

and

 

Gordon &Silver, Ltd.3960 Howard Hughes ParkwayNinth FloorLas Vegas, Nevada 89109Facsimile:  (702) 369-2666Attention:  Jeffrey A. Silver

 

(c)       if to the Stockholders’ Representative:

 

LilyPond Investments, Inc.510 North Robertson BoulevardLos Angeles, California 90048Facsimile:  (310) 652-8747Attention:  Brian Ogaz

 

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SECTION 9.2         Severability. If any provision of this Agreement or theapplication of any such provision shall be held invalid, illegal orunenforceable in any respect by a court of competent jurisdiction, suchinvalidity, illegality or unenforceability shall not affect any other provisionof this Agreement. In lieu of any such invalid, illegal or unenforceableprovision, the parties hereto agree to negotiate in good faith to add to thisAgreement a provision as similar in terms to such invalid, illegal orunenforceable provision as may be possible and be valid, legal and enforceable.

 

SECTION 9.3         Counterparts. This Agreement may be executed in oneor more counterparts, all of which shall be considered one and the sameagreement and shall become effective when one or more counterparts have beensigned by each of the parties and delivered to the other parties. Faxedsignatures shall be valid and binding for all purposes.

 

SECTION 9.4         Mutual Drafting. Each party hereto has participated in thedrafting of this Agreement, which each party acknowledges is the result ofextensive negotiations between the parties. In the event any ambiguity orquestion of intent arises, this Agreement shall be construed as if draftedjointly by the parties and no presumption or burden of proof shall arisefavoring or disfavoring any party by virtue of the authorship of any of theprovisions of this Agreement.

 

SECTION 9.5         Entire Agreement. This Agreement (including theConfidentiality Agreement and the Escrow Agreement), the Company DisclosureLetter and the Schedules hereto and thereto constitute the entire agreement,and supersede all prior agreements and understandings, both written and oral,among the parties with respect to the subject matter of this Agreement.

 

SECTION 9.6         Governing Law; Jurisdiction. Except to the extent that the laws of theState of Nevada are mandatorily applicable to the Merger, this Agreement shallbe governed by, and construed and interpreted in accordance with, the laws ofthe State of New York without regard to the conflict of laws rules thereofother than Sections 5-1401 and 5-1402 of the New York General Obligations Lawand Rule 327(b) of the New York Civil Practice Laws and Rules. Eachof the parties hereto irrevocably consents to the exclusive jurisdiction andvenue of any state or federal district court within New York County, The Cityof New York, New York in connection with any matter based upon or arising outof this Agreement or the transactions under this Agreement, agrees that processmay be served upon them in any manner authorized by the laws of the Stateof New York and waives and covenants not to assert or plead any objection thatthey might otherwise have to such jurisdiction, venue and process.

 

SECTION 9.7         Amendment; Waiver. This Agreement may not be amendedexcept by an instrument in writing signed by the party against whom enforcementof any such amendment is sought. Any party hereto may, only by an instrument inwriting, waive compliance by any other party hereto with any term or provisionof this Agreement on the part of such other party hereto to be performedor complied with. The waiver by any party hereto of a breach of any term orprovision of this Agreement shall not be construed as a waiver of anysubsequent breach.

 

SECTION 9.8         Assignment. This Agreement shall be binding upon and inure to the benefit of theparties hereto and their respective successors and assigns. Neither thisAgreement nor any of the rights, interests or obligations hereunder shall beassigned or delegated by any of the parties hereto without the prior writtenconsent of the other parties, except that Parent or Merger Sub may assignand delegate its rights, interests and obligations hereunder to any subsidiaryof Parent; provided that no such assignment or delegation shall releaseParent from any of its obligations under this Agreement.

 

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SECTION 9.9         No Third-Party Beneficiaries. Except as provided in Sections 4.5and 4.13, nothing herein expressed or implied shall be construed to giveany Person other than the parties hereto (and their successors and assignspermitted by Section 9.8) any legal or equitable rights hereunder.

 

SECTION 9.10       Stockholders’ Representative.

 

(a)           Lily Pond Investments, Inc. is herebyappointed, effective as of the Effective Time, as agent and representative (insuch capacities, the “**Stockholders’Representative**”), of the Stockholders and shall have exclusive powerand authority, on behalf of the Stockholders, to give and receive noticesand communications to or from Parent, Merger Sub and/or the Escrow Agent relatingto this Agreement, the Escrow Agreement or any of the transactions and othermatters contemplated hereby or thereby (except to the extent that thisAgreement or the Escrow Agreement expressly contemplates that any such noticeor communication shall be given or received by the Stockholders individually).

 

(b)           A decision, act, consent or instruction ofthe Stockholders’ Representative shall constitute a decision of all of theStockholders and shall be final, binding and conclusive upon each Stockholderand the Escrow Agent, and Parent may rely upon any decision, act, consentor instruction of the Stockholders’ Representative as being the decision, act,consent or instruction of each and every Stockholder. The Escrow Agent andParent are hereby relieved from any liability to any person for any acts doneby them in accordance with such decision, act, consent or instruction of theStockholders’ Representative.

 

(c)           The Stockholders’ Representative shall not beliable to any Stockholder for any act done or omitted hereunder as theStockholders’ Representative while acting in good faith, and any act done oromitted pursuant to the advice of counsel shall be conclusive evidence of suchgood faith. No bond shall be required of the Stockholders’ Representative, andthe Stockholders’ Representative shall receive no compensation for itsservices.

 

(d)           If Lily Pond Investments, Inc. incursany out-of-pocket expenses (including, without limitation, any reasonable feesand expenses of counsel) in its capacity as Stockholders’ Representative underthis Agreement or the Escrow Agreement or in connection with any of thetransactions contemplated hereby or thereby, such out-of-pocket expenses shallbe paid from, or reimbursed through deduction from, the Holdback Amount in accordancewith Section 2.2(c) hereof and the Escrow Agreement, prior tomaking any payments or distributions pursuant to Section 2.2(c)(ii) or2.2(c)(iii) hereof.

 

SECTION 9.11       Arbitration. Any dispute that may arise between the Indemnifying Parties andthe Indemnified Parties (collectively, the “**Parties**,”and each, a “**Party**”) with respectto the performance, interpretation or enforcement of this Agreement (other thana dispute in which specific performance is sought under the terms of Section 6.3)shall be submitted to arbitration conducted in Los Angeles, California pursuantto the rules and procedures of the American Arbitration Association, and,to the maximum extent applicable, the Federal Arbitration Act (Title 9 of theUnited States Code). The arbitrator shall be a retired judge of the FederalDistrict Court, or some similarly qualified, mutually agreeable individual. Thearbitration of such issues shall be final and binding upon the Parties. Thearbitrator shall be entitled to impose sanctions and to take such other actionsas the arbitrator deems necessary to the same extent as a judge could under theFederal Rules of Civil Procedure and applicable law. Notwithstanding theforegoing, the arbitrator shall not be authorized to award punitive damages withrespect to any dispute(s) arising under this Agreement, nor shall any Partyseek punitive damages relating to any such dispute(s) in any other forum. Thecost of any arbitration hereunder, including the cost, if any, of the record ortranscripts thereof, administrative fees, and all other fees involved,including reasonable attorneys’ fees incurred by the party determined by thearbitrator to be the prevailing party, shall be paid

 

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by the party determined bythe arbitrator not to be the prevailing party. The parties to the arbitrationshall instruct the arbitrator to render its decision no later than sixty (60)days after the submission of the dispute(s). The Company shall use itscommercially reasonable efforts to cause each Stockholder to execute anacknowledgment of and agreement to this Section 9.11 and a consentto the Merger and the transactions contemplated by this Agreement.

 

[*signature page follows*]

 

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INWITNESS WHEREOF, this Agreement has been signed by or on behalf of each of theCompany, Parent and Merger Sub, all as of the date first written above.

 
|   | **HARD ROCK  HOTEL, INC.**                                                  |
|--------|----------------------------------------------------------------------------------|
|   | ** **                                                                       |
|   |                                                                             |
|   | By:                                                                              | /s/ Brian D. Ogaz |   |
|   |                                                                             | Name: Brian D. Ogaz |
|   |                                                                             | Title: Senior Vice  President |
|   |                                                                             |
|   |                                                                             |
|   | **MORGANS  HOTEL GROUP CO.**                                                     |
|   | ** **                                                                       |
|   |                                                                             |
|   | By:                                                                              | /s/ W. Edward Scheetz |   |
|   |                                                                             | Name: W. Edward Scheetz |
|   |                                                                             | Title: Chief Executive  Officer |
|   |                                                                             |   |
|   |                                                                             |
|   | **MHG HR  ACQUISITION CORP.**                                                    |
|   | ** **                                                                       |
|   |                                                                             |
|   | By:                                                                              | /s/ W. Edward Scheetz |   |
|   |                                                                             | Name: W. Edward Scheetz |
|   |                                                                             | Title: Chief Executive  Officer |
|   |                                                                             |
|   |                                                                             |
|   | /s/ Peter A. Morton                                                              |   |
|   | **Peter A.  Morton**                                                             |
|   | (solely with respect to Sections  4.18(b) and 6.3  andArticle IX) |
|        |                                                                                  |  |  |  |

 

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