AGREEMENT AND PLAN OF MERGER

 

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 6.3 and Article IX ), MORGANS HOTEL GROUP CO. , a Delaware corporation (“ Parent ”), and MHG HR ACQUISITION CORP. , a Nevada corporation and a direct wholly owned subsidiary of Parent (“ Merger Sub ”).

 

WHEREAS, (i) the Board of Directors of each of Parent and Merger Sub have, upon the terms and subject to the conditions set forth in this Agreement, determined that this Agreement and the transactions contemplated hereby, including the Merger, taken together, are advisable and fair to, and in the best interests of, its respective stockholders, (ii) the Board of Directors of Merger Sub has recommended acceptance and approval by its sole stockholder of this Agreement, the Merger and the other transactions contemplated hereby, and (iii) this Agreement and the transactions contemplated hereby have been approved by the respective 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 the conditions set forth in this Agreement, (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, taken together, are advisable and fair to, and in the best interests of, its stockholders and has approved this Agreement and (ii) recommended acceptance and approval by the holders of shares of Company Common Stock (as herein defined) (the “ Stockholders ”) of this Agreement, the Merger and the other transactions contemplated hereby; and

 

WHEREAS, this Agreement and the transactions contemplated hereby have been approved by the holder of 100% of the issued and outstanding shares of Company Class A Common Stock (as herein defined) and by the holder of a majority of the issued and outstanding shares of Company Class B Common Stock (as herein defined), in each case, pursuant to an Action by Written Consent, a copy of which 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 bound hereby, each of the Company, Parent and Merger Sub hereby agrees as follows:

 

ARTICLE I
THE MERGER

 

SECTION 1.1          The Merger . At the Effective Time and upon the terms and subject to the conditions of this Agreement and in accordance with the applicable provisions of 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, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation (the “ Surviving Corporation ”) and a wholly owned subsidiary of Parent.

 

SECTION 1.2          Effective Time . Subject to the provisions of this Agreement, Parent, Merger Sub and the Company shall cause the Merger to be consummated by filing appropriate Articles of Merger or other appropriate documents (the “ Articles of Merger ”) with the Secretary of State of the State of Nevada in such form as required by, and executed in accordance with, the applicable provisions of the

 

 

NRS, as soon as practicable on the Closing Date. The Merger shall become effective upon such filing or at such 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 be specified by the parties (the “ Closing Date ”), which shall be no later than the fifth Business Day (as herein defined) after satisfaction or waiver of the conditions set forth in Article V (other than those conditions, including the occurrence of the Other Transaction Closings, that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions), at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52 ^nd Street, New York, New York, 10019-6150, or at such other time, date or place as agreed to in writing by the parties hereto.

 

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

 

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

 

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

 

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

 

ARTICLE II
CONVERSION OF SHARES; CONSIDERATION

 

SECTION 2.1          Conversion of Shares.

 

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

 

(i)     (A) each share of Class A voting common stock, no par value, of the Company (the “ Class A Company Common Stock ”) issued and outstanding immediately prior to the Effective Time (other than any shares of Class A Company Common Stock to be canceled pursuant to Section 2.1(a)(ii) ) and all rights in respect thereof, and (B) each share of Class B voting common stock, no par value, of the Company (the “ Class B Company Common Stock ” and, together with the Class A Common Stock, the “ Company Common Stock ”) issued and outstanding immediately prior to the Effective Time (other than any shares of Class B Company Common 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 converted automatically into the right to receive (x) the Per Share Merger Consideration and (y) the Pro Rata Portion of any Additional Consideration that is released 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 of clauses (x) and (y), the “ Per Share Transaction Consideration ”). As of the Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except for the right to receive upon surrender of the certificate (or delivery of a duly executed affidavit of lost certificate) that formerly evidenced such share of Company Common Stock, in the manner provided in Section 2.3 , the Per Share Transaction Consideration without interest (other than any interest or other income accrued on the Indemnification Escrow Fund and distributed to the Stockholders as part of the Indemnification Escrow Surplus, which is included as part of the calculation of Additional Consideration);

 

(ii)    each share of Company Common Stock held by Parent, Merger Sub, any other subsidiary of Parent, or the Company immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or any holder of such share, be canceled, retired and cease to exist and no payment shall be made 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 and without any action on the part of Parent, Merger Sub or the Company, be converted into one fully paid and non-assessable share of common stock, no par value 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 Paying Agent an amount equal to (i) the Total Transaction Consideration (not including clause (H) of the definition thereof, which shall be determined following the Closing in accordance with Section 2.2(c)(iv) ) minus (ii)(A) the Deposit as of such time and (B) the Indemnification Escrow Amount, which Indemnification Escrow Amount Parent shall deliver 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 following terms have the following respective meanings:

 

(i)        “ Additional Consideration ” means the sum of:  (A) any Undisputed Holdback Amount, (B) any Final Adjustment Consideration, (C) any Final Holdback Amount and (D) any Indemnification Escrow Surplus.

 

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

 

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

 

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

 

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

 

(vi)     “ Pro Rata Portion ” means an amount equal to the quotient obtained by dividing (A) one by (B) the aggregate number of shares of Company Common Stock outstanding immediately prior to the Effective Time.

 

(vii)    “ Total Transaction Consideration ” means the dollar amount in cash determined as follows:  (A) Four Hundred Twenty-One Million Dollars ($421,000,000.00) (the “ Enterprise Price ”), minus (B) the sum of (1) the principal amount of, and any accrued and unpaid interest on, the outstanding Company Bonds and (2) the principal amount of, and any accrued and unpaid interest on, outstanding borrowings under the Credit Agreement, in each case, as of the Closing Date, minus (C) the sum of (1) the dollar amount of any premium (or, if the Company Bonds are being defeased, the amount necessary to defease the Company Bonds pursuant to the respective indentures governing the Company Bonds) paid or to be paid by Parent or one of its Affiliates to holders of the Company Bonds to repurchase (or defease) the Company Bonds in accordance with Section 4.4 (up to an aggregate dollar amount for each $1,000 principal amount of Company Bonds tendered (or defeased) as of the Closing Date not to exceed (x) the Treasury Calculation Amount less (y) the dollar amount set forth in clause (B)(1) above), and (2) any amounts payable upon or after the Closing to investment bankers, financial advisors and counsel of the Company with respect to services rendered in connection with the transactions contemplated by this Agreement, plus (D) the amount of cash and cash equivalents (other than Cage Cash) as of the Closing Date, plus (E) the Preliminary Working Capital Adjustment in accordance with Section 2.2(b) , plus (F) the Preliminary Cage Cash Adjustment in accordance with Section 2.2(b) , plus (G) the amount of any expenditures made by the Company after the date hereof and on or prior to the Closing Date that require Parent’s consent under this Agreement and that have been made with the consent of Parent, plus (H) the amount of any retention bonuses paid by the Company at Closing to any employees that are then terminated by the Surviving Corporation within forty-five days following the Closing, which amount shall be determined following the Closing in accordance with Section 2.2(c)(iv) , minus (I) the amount of any related party payables as of the Closing Date (which amount if a credit balance shall be subtracted from Enterprise Price and, which amount if a debit balance, shall be added to Enterprise Price). Notwithstanding any change with respect to the Company’s accounting policies or procedures subsequent to the date hereof, the accounting policies and procedures used to calculate Total Transaction Consideration and the components thereof, including Working Capital, shall be the same as those in effect on the date hereof. By way of example only and for purposes of clarification, Schedule 2.2(a)(vii)  of the Company Disclosure Letter sets forth a calculation of the Total Transaction Consideration using the Company’s balance sheet as of March 31, 2006.

 

(viii)   “ Working Capital ” means a dollar amount equal to (A) the sum of accounts receivable (net of reserves), inventory and prepaid and other current assets, minus (B) the sum of accounts payable, insurance payable and accrued expenses (provided that any liabilities with respect to the Company’s deferred bonus plan that are included in clause (B) shall be offset by the cash surrender value of the related life insurance assets to the extent that

 

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such assets have not previously been converted to cash), other than, in the case of this clause (B), related party payables, it being expressly agreed for purposes of avoiding any double counting that any amount or item which would otherwise be included in the calculation of Working Capital but is otherwise an addition or deduction pursuant to the calculation of Total Transaction Consideration shall be excluded from the calculation of Working Capital for purposes of the Preliminary Closing Balance Sheet, the Closing Balance Sheet, the example set forth on Schedule 2.2(a)(vii)  of the Company Disclosure Letter or otherwise. “Working Capital” shall be calculated in the manner set forth on Schedule 2.2(a)(viii)  of the Company Disclosure Letter.

 

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

 

(b)            Preliminary Closing Schedule; Preliminary Adjustments .

 

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

 

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

 

(iii)   The “ Preliminary Cage Cash Adjustment ” (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 Corporation shall deliver to the Stockholders’ Representative a calculation of the Total Transaction 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 “ Closing Balance Sheet ”). The Closing Balance Sheet shall be prepared in accordance with GAAP and in accordance with the accounting policies and procedures of the Company in effect on the date hereof.   The Closing Schedule shall set forth the Working Capital of the Company as of the Closing Date (immediately prior to the Effective Time) (the “ Closing Date Working Capital ”) and the amount of Cage Cash of the Company as of the Closing Date (the “ Closing Date Cage Cash” ).

 

(ii)    The Closing Schedule, including the Closing Balance 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 by the Surviving Corporation to the Stockholders’ Representative, the Stockholders’ Representative and the Surviving Corporation have been unable to agree on a final Closing Schedule, including the Closing Balance Sheet, the Closing Date

 

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Working Capital and the Closing Date Cage Cash, in which case (A) the Stockholders’ Representative shall provide instructions to the Escrow Agent, in accordance with the Escrow Agreement, to release any portion of the Holdback Amount that is not in dispute (such amount, less any expenses of the Stockholders’ Representative to be paid from, or reimbursed through deduction from, the Holdback Amount in accordance with Section 9.10(d) ), the “ Undisputed Holdback Amount, ” and the amount of any remaining Holdback Amount, the “ Disputed Holdback Amount ”) to the Paying Agent, as agent for the Stockholders, for distribution to the Stockholders in accordance with the Escrow Agreement and their Applicable Percentages and (B) the Stockholders’ Representative and Parent shall submit all differences and disputes between the Stockholders’ Representative and Parent relating to the Closing Schedule, including the Closing Balance Sheet, the Closing Date Working Capital and the Closing Date Cage Cash, to the Las Vegas, Nevada office of Deloitte & Touche LLP, the Company’s accountants (the “ Accountants” ), to be resolved by such firm, and such firm’s opinion thereon and the resulting Closing Schedule, including the Closing Balance Sheet, the Closing Date Working Capital and the Closing Date Cage Cash, shall be final and binding on the parties and not subject to any appeal. The Stockholders’ Representative and Parent agree to request that the Accountants resolve all such difference and disputes within 15 days of submission to the Accountants. Parent and the Stockholders’ Representative shall each pay (solely, in the case of the Stockholders’ Representative, by deduction from the Disputed Holdback Amount prior 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 equal to (A) the aggregate amount of the disputed matters submitted to the Accountants that are not settled in favor of such party (as finally determined by the Accountants), divided by (B) the aggregate amount of all disputed matters submitted to the Accountants. The Disputed Holdback Amount, less (x) any fees and expenses of the Accountants and (y) any expenses of the Stockholders’ Representative, in the case of each of clauses (x) and (y), to be paid from, or reimbursed by deduction from, the Holdback Amount pursuant to this Section 2.2(c)(ii)  or Section 9.10(d)  and not 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 final and binding on the parties and not subject to any appeal is referred to as the “ Final Determination Date .”

 

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

 

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

 

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

 

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Working Capital and (y) the Estimated Cage Cash, then Parent shall promptly pay, or cause to be paid to the Paying Agent, as agent for the Stockholders, an amount in cash equal to such difference (such amount, the “ Final Balance Sheet Adjustment ”) for distribution to the Stockholders in accordance with the Escrow Agreement and their Applicable Percentages.

 

Upon the instruction of the Stockholders’ Representative in accordance with the Escrow Agreement, any Holdback Amount that remains after making (A) any payment 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 be paid from, or reimbursed by deduction from, the Holdback Amount in accordance with Section 9.10(d)  and not previously paid from the Holdback Amount (such remaining Holdback Amount, the “ Final Holdback Amount ”) shall be promptly released by the Escrow Agent to the Paying Agent for distribution to the Stockholders in accordance with the Escrow Agreement and their Applicable Percentages.

 

(iv)   On the later of (x) the Final Adjustment Date and (y) the 46 ^th day following the Closing, Parent shall pay, or cause to be paid to the Paying Agent, as agent for the Stockholders, an amount in cash equal to the amount of any retention bonuses paid by the Company at Closing to any employees that have been terminated by the Surviving Corporation within forty-five days following the Closing (such amount, the “ Retention Bonus Adjustment ” and, together with the Final Balance Sheet Adjustment, the “ Final Adjustment Consideration ”) for distribution to the Stockholders in accordance with the Escrow Agreement and their Applicable Percentages.

 

(v)    Nothing in this Section 2.2(c)  shall preclude any party from exercising, or shall adversely affect or otherwise limit in any respect the exercise of, any right or remedy available to it hereunder for any misrepresentation or breach of warranty hereunder, but none of Parent, Merger Sub or the Company shall have any right to dispute the Closing Schedule, including Closing Balance Sheet, the Closing Date Working Capital or the Closing Date Cage Cash, or any portion thereof, once it has been finally determined in accordance with Section 2.2(c)(ii) .

 

(d)            Deposit; Escrow . On the date hereof, Parent shall deposit in readily 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 escrow agreement 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 “ Escrow Agreement ”), executed and delivered by Parent, the Stockholders’ Representative and the Escrow Agent. At the Closing, (i) the Deposit (less the Holdback Amount) shall be released by the Escrow Agent to the Paying Agent pursuant to Section 2.3(a)(i)  and in accordance with the terms of the Escrow Agreement, and (ii) the Holdback Amount shall continue to be held by the Escrow Agent in accordance with the Escrow Agreement until released pursuant to the terms of the Escrow Agreement and Section 2.2(c)  of this Agreement. Upon the termination of this Agreement, the Deposit shall be payable pursuant to Section 6.3 , and thereafter shall be promptly released by the Escrow Agent to Parent or the Company, as applicable, pursuant to Section 6.3 and the terms of the Escrow Agreement. In the event of any inconsistency between the terms and provisions of the Escrow Agreement and the terms and provisions of this Agreement, the terms and provisions of this Agreement shall control, absent an express written agreement between the parties 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 Total Transaction Consideration equal to Fifteen Million ($15,000,000) (the “ Indemnification Escrow Amount ”), in readily available funds

 

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(the Indemnification Escrow Amount, together with the interest accrued and any other income earned thereon, the “ Indemnification Escrow Fund ”) with the Escrow Agent, pursuant to the Escrow Agreement. The Indemnification Escrow Fund shall be held and disbursed as provided in the Escrow Agreement, which shall provide, among other things, that (i) any fees or expenses payable to the Escrow Agent under the Escrow Agreement on account of, in connection with or related to the Indemnification Escrow Fund (the “ Escrow Costs ”) shall first be paid out of any income and interest accrued on the Indemnification Escrow Amount in the Indemnification Escrow Fund; (ii) the Indemnification Escrow Fund shall be disbursed (A) to Parent to satisfy any Holdback Shortfall pursuant to Section 2.2(c)(iii)(1)  and (B) to the Parent Indemnitees to satisfy any indemnification obligation of the Stockholders under Section 7.2 , in the case of this clause (B) only, when the conditions for indemnification set forth in Section 7.2 have been satisfied; provided , however , that to the extent that the balance of the Indemnification Escrow Fund is not sufficient to satisfy any indemnification obligations of the Stockholders to the Parent Indemnitees under Section 7.2 when the conditions for indemnification set forth in Section 7.2 have been satisfied, then such shortfall shall be satisfied from any balance remaining in the PMR/RWB Escrow Funds pursuant to, and in accordance with the terms and subject to the conditions of, the PMR/RWB Escrow Agreement; (iii) any income or interest on the Indemnification Escrow Amount (net of any Escrow Costs) shall be distributed to the Stockholders as provided in the Escrow Agreement (such net amount, the “ Indemnification Escrow Net Earnings ”); and (iv) as of the one year anniversary of the Closing Date, any amount of cash remaining in the Indemnification Escrow Fund (other than any amount of cash required to satisfy the maximum amount of the aggregate of any claims for indemnification for which written notice has been given to the Indemnifying Party in accordance with Article VII and which as of such one-year anniversary have not been finally determined), including any income or interest accrued thereon but less any Escrow Costs and less any amounts then due and payable from the Indemnification Escrow Fund to any Parent Indemnitee pursuant to Section 7.2 , shall be distributed by the Escrow Agent to the Paying Agent in accordance with the Escrow Agreement (any such remaining amounts, the “ Indemnification Escrow Final Balance ”) and, together with the Indemnification Escrow Net Earnings, the “ Indemnification Escrow Surplus ”). Parent shall be treated as the 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 shall appoint a commercial bank or trust company reasonably acceptable to the Company to act as paying agent under this Agreement (the “ Paying Agent ”) for the purpose of exchanging shares of Company Common Stock for the Merger Consideration and, as applicable, the Additional Consideration. At the Effective Time, (i) the Deposit (less the Holdback Amount) shall be released by the Escrow Agent and deposited with the Paying Agent, as agent for the Stockholders, subject to and in accordance with the terms of the Escrow Agreement, (ii) Parent shall irrevocably deposit or cause to be deposited with the Paying Agent, as agent for the Stockholders, cash in an aggregate amount 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 with any Additional Consideration deposited with or paid to the Paying Agent pursuant to Section 2.2(c)(ii) , 2.2(c)(iii)  or 2.2(c)(iv) , the “ Merger Fund ”) and (iii) Parent shall pay the Termination Amount in accordance with the instructions of the Company and Peter A. Morton. Pending distribution pursuant to Section 2.3(b) , the Merger Fund, the Deposit and the Indemnification Escrow Fund shall be held in trust pursuant to the Escrow Agreement and shall not be used except as permitted by the Escrow Agreement; provided , however , that the Surviving Corporation may direct the Paying Agent to invest the Merger Fund, provided that such investments (i) shall be in obligations of or guaranteed by the United States of America, in commercial paper obligations receiving the highest rating from either Moody’s Investors Services, Inc. or Standard & Poor’s Corporation, in certificates of deposit, bank repurchase agreements or bankers acceptances of domestic commercial banks with equity capital exceeding $500,000,000 or in money market funds and (ii) shall have maturities that

 

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will not prevent or delay payments to be made pursuant to Section 2.3(b)  and that do not exceed, in any event, 90 days. Each holder of a certificate or certificates representing shares of Company Common Stock canceled and extinguished at the Effective Time pursuant to Section 2.1 may thereafter in accordance with the provisions of Section 2.3(b) , surrender such certificate or certificates to the Paying Agent, as agent for such Stockholder, to effect the exchange of such certificate or certificates for the Per Share Transaction Consideration on such holder’s behalf for a period ending twelve months after the Effective Time.

 

(b)            (i) At the Closing, the Stockholders may surrender the certificate or certificates representing their shares of Company Common Stock to the Paying Agent (or such other agent or agents as may be appointed by the Surviving Corporation), as agent for the Stockholders, for cancellation. Upon surrender of such certificate or certificates for cancellation to the Paying Agent (or such other agent or agents as may be appointed by the Surviving Corporation), the certificate or certificates so surrendered shall be cancelled and the Paying Agent shall pay (A) on the Closing Date (by check or wire transfer as directed by such Stockholder in writing delivered to the Paying Agent (or such other agent or agents as may be appointed by the Surviving Corporation)) as soon as practicable prior to the Closing Date to the Stockholder who surrendered such certificate or certificates an amount of cash equal to the product of (x) the Per Share Merger Consideration and (y) the number of shares of Company Common Stock represented by the certificate or certificates so surrendered and (B) thereafter, promptly following the release of any Additional Consideration by the Escrow Agent to the Paying Agent in accordance with Section 2.2(c)  and the Escrow Agreement, an amount in cash equal to the product of (x) the Pro Rata Portion of any such Additional Consideration (as determined pursuant to Sections 2.2(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 certificate or certificates so surrendered.

 

(ii)    With respect to any certificates not so surrendered at the Closing, the Surviving Corporation, as soon as reasonably practicable after the Effective Time, shall cause the Paying Agent to mail to each holder of record of Company Common Stock represented by such certificates, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to such certificates shall pass, only upon delivery of such certificates to the Paying Agent and shall be in such form and have such other provisions not inconsistent with this Agreement as the Surviving Corporation may specify) and (ii) instructions for use in effecting the surrender of such certificates in exchange for payment of the Per Share Transaction Consideration. Upon surrender of a certificate or certificates for cancellation to the Paying Agent or to such other agent or agents as may be appointed by the Surviving Corporation, together with such letter of transmittal, duly executed and completed, the holder of such certificate or certificates shall be entitled to receive in exchange therefor, for each share of Company Common Stock, formerly represented by such certificate or certificates, an amount in cash equal to the product of (x) the Per Share Merger Consideration and (y) the number of shares of Company Common Stock represented by the certificate or certificates so surrendered and (B) thereafter, promptly following the release of any Additional Consideration by the Escrow Agent to the Paying Agent in accordance with Section 2.2(c)  and the Escrow Agreement, an amount in cash equal to the product of (x) the Pro Rata Portion of any such Additional Consideration (as determined pursuant to Sections 2.2(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 certificate or certificates so surrendered, and the certificate or certificates so surrendered shall forthwith be canceled.

 

(iii)   After the Effective Time, until so surrendered in 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 an amount of cash equal to the product of (x) the Per Share Transaction Consideration

 

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and (y) the number of shares of Company Common Stock evidenced by such certificate. No consideration will be paid to, or delivered on behalf of the holder of any unsurrendered certificate with respect to shares of Company Common Stock formerly represented thereby until the holder of record of such certificate shall surrender such certificate pursuant hereto.

 

(c)            If payment is to be made to a Person other than the registered holder of the shares of Company Common Stock represented by the certificate or certificates surrendered in exchange therefor, it shall be a condition to such payment that the certificate or certificates so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Paying Agent any transfer or other Taxes required as a result of such payment to a Person other than the registered holder of such shares of Company Common Stock or establish to the satisfaction of the Paying Agent that such Tax has been paid or is not payable.

 

(d)            After the Effective Time, there shall be no further transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates representing shares of Company Common Stock are presented to the Surviving Corporation, they shall be canceled and exchanged for the consideration provided for, and in accordance with the procedures set forth, in this Agreement.

 

(e)            If any cash deposited with the Paying Agent for purposes of payment in exchange for shares of Company Common Stock remains unclaimed twelve months after the Effective Time, such cash, together with all interest and earnings thereon, shall be returned to the Surviving Corporation, upon demand, and any such holder who has not converted his, her or its shares of Company Common Stock into the Per Share Transaction Consideration prior to that time shall thereafter look only to the Surviving Corporation for payment of the Per Share Transaction Consideration. Notwithstanding the foregoing, the Surviving Corporation shall not be liable to any holder of shares of Company Common Stock for any amount paid to a public official pursuant to applicable unclaimed property laws. Any amounts remaining unclaimed by holders of shares of Company Common Stock five years after the Effective Time (or such earlier date immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Authority) shall, to the extent permitted by applicable law, become the property of the Surviving Corporation free and clear of any claims or interest of any Person previously entitled thereto.

 

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

 

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

 

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

 

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Paying Agent in accordance with 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 any Additional Consideration (as determined pursuant to Sections 2.2(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 such certificate.

 

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

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES

 

SECTION 3.1          Representations and Warranties of the Company . The Company represents and warrants to each of Parent and Merger Sub, except (i) as set forth herein, (ii) as set forth in the Company SEC Reports (other than as set forth in “forward-looking statements” for purposes of the Securities Act and the Exchange Act) filed prior to the date hereof, (iii) as set forth in the Company Disclosure Letter, 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) has all requisite corporate power and authority to own, lease or operate the assets it now owns, leases or operates, as applicable, and (iii) is duly qualified or licensed to do business in each jurisdiction in which the ownership or use of its assets or conduct of its business requires it to be so qualified, except, in the case of each of clauses (ii) and (iii), for such failures that would not reasonably be expected to have a Material Adverse Effect.

 

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

 

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

 

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

 

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

 

(e)            No Conflict . The consummation of the transactions under this Agreement will not require 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) any approvals or filing of notice under, or in connection with, the Gaming Laws and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”), (ii) the filing and recordation of the Articles of Merger as required by the NRS, (iii) those consents, waivers and approvals set forth in Schedule 3.1(e)  of the Company Disclosure Letter, (iv) those consents, waivers and approvals that relate to or are applicable to Parent, Merger Sub or any of their Affiliates but not to the Company or any of its Affiliates or (v) those consents, waivers and approvals the failure of which to make or obtain would not reasonably be expected 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)  of the Company Disclosure Letter, and assuming the Company Consents are timely obtained or made, as applicable, the execution, delivery and performance by the Company of this Agreement will not (i) violate any law applicable to the Company, (ii) result in a breach or violation of any provision of, or constitute a default under, any Material Contract or (iii) conflict with any provision of the charter or bylaws of the Company, except, in the case of each of clauses (i) and (ii), except for any such violation, breach, default or conflict which would not reasonably be expected to have a Material Adverse 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 all material respects with all applicable requirements of the Securities Act of 1933, 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 Company SEC Report was filed. Except as and to the extent amended, modified, restated or revised in any subsequent Company SEC Report filed prior to the date of this Agreement, none of the Company SEC Reports contained, when filed, any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company contained in the Company SEC Reports (the “ Financial Statements ”) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with United States generally accepted accounting principles (“ GAAP ”), except as may be indicated, and fairly present in all material respects (i) the financial position of the Company as of the dates thereof, and (ii) the Company’s results of operations, cash flows and changes in stockholders’ equity for the periods then ended (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments).

 

(g)            No Undisclosed Liabilities . The Company does not have any liabilities of a nature required by GAAP to be reflected on a balance sheet or in the notes thereto, 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)  of the Company Disclosure Letter, (iii) for liabilities (other than for borrowed money) incurred in the ordinary course of business since December 31, 2005 or (iv) for liabilities that would not reasonably be expected to have a Material Adverse Effect.

 

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

 

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

 

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

 

(j)             Litigation . Except as set forth in Schedule 3.1(j) of the Company Disclosure 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 the Knowledge of the Company, threatened against the Company before any Governmental Authority that would reasonably be expected to have a Material Adverse 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 a Material Adverse Effect.

 

(k)            Properties . Schedule 3.1(k)(i)  of the Company Disclosure Letter sets forth a list of all real property locations in which the Company owns a fee interest (collectively, “ Owned Real Property ”). Schedule 3.1(k)(ii)  of the Company Disclosure Letter contains a complete and correct list of all material leases, subleases, licenses or similar other agreements (other than transient occupancy arrangements) to which the Company is a party (and all amendments, modifications or supplements thereto), 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 simple title to or valid leasehold interests in, all of its material properties and assets, including the Owned Real Property, except for such as are no longer used or useful in the conduct of its businesses or as have been disposed of in the ordinary course of business and except for defects in title, easements, restrictive covenants, and other encumbrances or impediments that, in the aggregate, do not materially interfere with its ability to conduct its business as currently conducted. All such assets and properties, other than assets and properties in which the Company has a leasehold interest, are free and clear of all Liens other than (i) those set forth in Schedule 3.1(l) of the Company Disclosure Letter, (ii) matters of record, (iii) those that will be released in connection with the Closing and (iv) Liens that, in the aggregate, do not materially interfere with the existing use of the applicable property or the ability of the Company to conduct its business as currently conducted.

 

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

 

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defaults as to which requisite waivers or consents have been or will be obtained prior to the Closing Date or which would not reasonably be expected to have a Material Adverse Effect.

 

(n)            Taxes .

 

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

 

(ii)       Other than Taxes not yet due and payable or for which adequate reserves have been provided on the Financial Statements, the Company has paid or caused to be paid all Taxes that are required to be paid and has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, stockholder, creditor or other third party, except for any such amounts which individually or in the aggregate are not material. Other than amounts not yet due and payable or for which adequate reserves have been provided on the Financial Statements in accordance with GAAP, all amounts required to be collected and remitted to a taxing authority from customers with respect to hotel occupancy, gaming and similar taxes and charges have been collected and remitted, except for such amounts which are not, individually or in the aggregate, material.

 

(iii)      All deficiencies asserted in writing or assessments made as a result of any examinations or other audits by federal, state, local or foreign taxing authorities have been paid in full, settled, or adequately provided for in accordance with GAAP in the most recent Financial Statements filed on or prior to the date of this Agreement. The Company has not executed any unexpired waiver of any statute of limitations on or extension of any period for the assessment or collection of any Tax. No audit or other examination of any Tax Return of the Company by any Tax authority is presently in progress, nor has the Company been notified in writing of any request for such an audit or other examination and no material adjustment relating to any Tax Returns filed or required to be filed by the Company has been proposed in writing by any Tax authority to 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 or foreign law. The Company is not a party to or bound by any material Tax sharing, allocation or indemnification agreement or arrangement. No written claim has ever been made by a Tax authority in a jurisdiction where the Company does not file Tax returns that the Company is or may be subject to a material Tax liability in that jurisdiction.

 

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

 

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

 

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

 

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

 

(viii)   The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any Tax Period (or portion thereof) ending after the Closing Date as a result of any (i) change in method of accounting for a Tax Period ending on or prior to the Closing Date, (ii) material prepaid amount received on or prior to the Closing Date to the extent that such amount did not reduce Working Capital or Total Transaction Consideration, (iii) installment sale or open transaction disposition made on or prior to the Closing Date or (iv) closing agreement, settlement, or similar agreement executed on or prior to the Closing Date.

 

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

 

(o)            Employee Benefit Plans .

 

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

 

(ii)       The Company has heretofore made or, promptly following the date of this Agreement, will make available to Parent copies of each of the Employee Benefit Plans and each of the following, if applicable:  (A) each writing constituting a part of such Employee Benefit Plan, including all plan documents, material employee communications, benefit schedules, trust agreements, and insurance contracts and other funding vehicles; (B) the actuarial report for each of the last two years; (C) the most recent determination letter from the IRS for each Employee Benefit Plan; (D) the summary plan description and any material modifications thereto, if any (in each case whether or not required to be furnished by the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”); and (E) the Form 5500 (if applicable) for each of the last two years.

 

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

 

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

 

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which could reasonably be interpreted to promise or guarantee employees retiree health or life insurance or other retiree death benefits on a permanent basis.

 

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

 

(vi)     Section 3.1(o)(vi)  of the Company Disclosure Letter sets forth (i) a list of any Employee Benefit Plan under which the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby or any related event would (either alone or in conjunction with any other event) result in, cause the accelerated vesting, funding or delivery of, or increase the amount or value of, any payment or benefit to any employee, officer or director of the Company or any of its subsidiaries, and (ii) the maximum amount of the “excess parachute payments” within the meaning of Section 280G of the Code that could become payable by the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

 

(vii)    There are no pending or, to the Knowledge of the Company, threatened or anticipated claims by, on behalf of or against any Employee Benefit Plan or any trusts related thereto, except (i) routine claims for benefits and (ii) claims that would not be expected to be, individually or in the aggregate, material. Except as set forth in Schedule 3.1(o)(vii)  of the Company Disclosure Letter, with respect to any Employee Benefit Plan, to the Knowledge of the Company, no administrative investigation, audit or other administrative proceeding by the Department of Labor, the Internal Revenue Service or other United States governmental agencies is pending or threatened.

 

(p)            Labor Matters .

 

(i)     Except as set forth in Schedule&n