Exhibit 2.1
EXECUTION
VERSION
AGREEMENT AND PLAN OF MERGER
Dated as of May 11, 2006
by
and
among
MORGANS HOTEL GROUP CO.,
MHG HR ACQUISITION
CORP.,
HARD ROCK HOTEL, INC.
and
PETER A. MORTON
TABLE OF CONTENTS
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Page
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ARTICLE I
THE MERGER
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SECTION 1.1
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The Merger
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1
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SECTION 1.2
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Effective Time
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1
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SECTION 1.3
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Closing of the Merger
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2
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SECTION 1.4
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Effects of the Merger
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2
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SECTION 1.5
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Articles of Incorporation and
Bylaws
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2
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SECTION 1.6
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Directors
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2
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SECTION 1.7
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Officers
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2
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ARTICLE II
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CONVERSION OF SHARES;
CONSIDERATION
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SECTION 2.1
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Conversion of Shares.
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2
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SECTION 2.2
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Total Transaction Consideration;
Adjustments.
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3
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SECTION 2.3
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Merger Fund; Exchange of
Certificates.
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8
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SECTION 2.4
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Dissenters’ Rights
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11
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ARTICLE III
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REPRESENTATIONS AND
WARRANTIES
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SECTION 3.1
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Representations and Warranties of
the Company
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11
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SECTION 3.2
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Representations and Warranties of
Parent and Merger Sub
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18
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ARTICLE IV
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COVENANTS
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SECTION 4.1
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Conduct of Business
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20
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SECTION 4.2
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Access to Information;
Confidentiality.
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22
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SECTION 4.3
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Consents and Governmental
Approvals
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23
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SECTION 4.4
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Company Bonds; Credit
Agreement
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24
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SECTION 4.5
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Employee Benefit Plans
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25
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SECTION 4.6
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[INTENTIONALLY OMITTED]
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27
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SECTION 4.7
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Financial Information
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27
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SECTION 4.8
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[INTENTIONALLY OMITTED].
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27
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SECTION 4.9
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Publicity
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27
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SECTION 4.10
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Certain Understandings.
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27
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SECTION 4.11
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Taxes
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28
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SECTION 4.12
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Certain Notifications
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28
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SECTION 4.13
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Indemnification of Directors and
Officers.
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28
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SECTION 4.14
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Debt Financing
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29
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SECTION 4.15
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Further Assurances
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29
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SECTION 4.16
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Selected Memorabilia
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30
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SECTION 4.17
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Termination of Affiliate
Agreements
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30
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SECTION 4.18
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Other Transaction
Documents
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30
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i
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ARTICLE V
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CONDITIONS PRECEDENT
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SECTION 5.1
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Conditions Precedent to Each
Party’s Obligations
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30
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SECTION 5.2
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Conditions Precedent to
Parent’s and Merger Sub’s Obligations
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31
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SECTION 5.3
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Conditions Precedent to the
Company’s Obligations
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31
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ARTICLE VI
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TERMINATION
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SECTION 6.1
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Termination
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32
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SECTION 6.2
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Effect of Termination.
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33
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SECTION 6.3
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Specific Performance
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36
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ARTICLE VII
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SURVIVAL; INDEMNIFICATION
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SECTION 7.1
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Survival of Representations,
Warranties and Covenants
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36
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SECTION 7.2
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Obligation of
Stockholders
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36
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SECTION 7.3
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Obligation of Parent
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37
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SECTION 7.4
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Minimum Losses
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37
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SECTION 7.5
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Maximum Indemnification
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37
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SECTION 7.6
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No Tax Attribute
Indemnity
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37
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SECTION 7.7
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Notice; Procedure for Third-Party
Claims
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37
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SECTION 7.8
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Survival of Indemnity
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38
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SECTION 7.9
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No Consequential Damages
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39
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SECTION 7.10
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No Double Recovery
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39
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ARTICLE VIII
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DEFINITIONS
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SECTION 8.1
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Definitions
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39
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SECTION 8.2
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Interpretation
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42
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ARTICLE IX
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MISCELLANEOUS
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SECTION 9.1
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Notices
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42
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SECTION 9.2
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Severability
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44
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SECTION 9.3
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Counterparts
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44
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SECTION 9.4
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Mutual Drafting
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44
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SECTION 9.5
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Entire Agreement
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44
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SECTION 9.6
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Governing Law;
Jurisdiction
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44
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SECTION 9.7
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Amendment; Waiver
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44
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SECTION 9.8
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Assignment
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44
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SECTION 9.9
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No Third-Party
Beneficiaries
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45
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SECTION 9.10
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Stockholders’
Representative.
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45
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SECTION 9.11
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Arbitration
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45
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ii
EXHIBITS
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Exhibit A
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Copy of PMR Purchase and Sale
Agreement
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Exhibit B
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Form of Trademark Agreement
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Exhibit C
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Copy of Escrow Agreement
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Exhibit D
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Form of License Agreement
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Exhibit E
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Form of Morton Trademark
Assignment
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Exhibit F
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Copy of Action by Written Consent
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iii
TABLE OF
DEFINITIONS
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Defined Term
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Initial Section Reference
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Accountants
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2.2(c)(ii)
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Additional Consideration
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2.2(a)(i)
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Affected Employee
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4.5(a)
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Affiliate
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8.1
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Affiliate Agreements
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4.17
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Agreement
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First Paragraph
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Applicable First Call Date
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8.1
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Applicable Percentage
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2.2(a)(ii)
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Articles of Merger
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1.2
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Business Day
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8.1
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Cage Cash
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2.2(a)(ix)
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Class A Company Common Stock
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2.1(a)(i)
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Class B Company Common Stock
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2.1(a)(i)
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Closing
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1.3
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Closing Balance Sheet
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2.2(c)
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Closing Date
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1.3
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Closing Date Cage Cash
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2.2(c)
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Closing Date Working Capital
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2.2(c)
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Closing Schedule
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2.2(c)
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Company
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First Paragraph
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Company Bonds
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8.1
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Company Common Stock
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2.1(a)(i)
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Company Condition Failure
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6.1(c)
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Company Consents
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3.1(e)
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Company Disclosure Letter
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8.1
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Company Intellectual Property
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3.1(q)
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Company Junior Notes
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8.1
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Company SEC Report
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3.1(f)
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Company SEC Reports
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3.1(f)
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Company Second Lien Notes
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8.1
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Confidentiality Agreement
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4.2(c)
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Contract
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8.1
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Credit Agreement
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8.1
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Deposit
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2.2(d)
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Disputed Holdback Amount
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2.2(c)(ii)
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Dissenting Shares
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2.4
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Effective Time
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1.2
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Employee Benefit Plan
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3.1(m)
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Enterprise Price
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2.2(a)(vii)
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Environmental Laws
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3.1(s)
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ERISA
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3.1(o)(ii)
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ERISA Affiliate
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3.1(o)(v)
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Escrow Agent
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2.2(d)
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Escrow Agreement
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2.2(d)
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Escrow Costs
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2.2(e)
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iv
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Estimated Cage Cash
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2.2(b)(i)
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Estimated Working Capital
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2.2(b)(i)
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Exchange Act
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3.1(f)
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Expense Reimbursement
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6.2(b)(iv)
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Expiration Date
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7.1
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Final Adjustments
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2.2(c)(iii)
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Final Adjustment Consideration
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2.2(c)(iv), 2.2(c)(iii)(2)
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Final Adjustment Date
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2.2(c)(iii)
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Final Balance Sheet Adjustment
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2.2(c)(iii)(2)
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Final Determination Date
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2.2(c)(ii)
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Final Holdback Amount
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2.2(c)(iii)
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Financial Statements
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3.1(f)
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Financing
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3.2(e)
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Financing Commitments
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3.2(e)
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GAAP
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3.1(f)
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Gaming Approvals
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8.1
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Gaming Authorities
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8.1
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Gaming Laws
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8.1
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Gaming Operator
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8.1
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Governmental Authority
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8.1
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hazardous substance
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3.1(s)
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herein
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8.1
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hereof
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8.1
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hereto
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8.1
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hereunder
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8.1
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herewith
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8.1
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Holdback Amount
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2.2(a)(iii)
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Holdback Shortfall
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2.2(c)(iii)
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HSR Act
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3.1(e)
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include
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8.1
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include, without limitation
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8.1
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including
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8.1
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including, without limitation
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8.1
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Indemnification Escrow Amount
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2.2(e)
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Indemnification Escrow Final Balance
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2.2(e)
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Indemnification Escrow Fund
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2.2(e)
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Indemnification Escrow Net Earnings
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2.2(e)
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Indemnification Escrow Surplus
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2.2(e)
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Indemnified Parties
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4.13(a)
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Indemnified Party
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7.7(a)
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Indemnifying Party
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7.7(a)
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Indemnity Threshold
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7.4
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Inspection
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4.2(a)
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Junior Note First Call Date
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8.1
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Knowledge of the Company
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8.1
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License Agreement
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8.1
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Liens
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8.1
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Losses
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7.2
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New Plans
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4.5(e)(i)
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Material Adverse Effect
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8.1
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Material Contracts
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3.1(m)
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v
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Merger
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1.1
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Merger Consideration
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2.2(a)(iv)
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Merger Fund
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2.3(a)
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Merger Sub
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First Paragraph
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Minimum Cage Cash
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8.1
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Minimum Working Capital
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8.1
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Morton Trademark Assignment
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8.1
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Morton Trademarks
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8.1
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NRS
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1.1
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Old Plans
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4.5(e)(i)
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Obligations
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8.1
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Other Parties
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6.1(f)(ii)
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Other Transaction Closings
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8.1
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Other Transaction Documents
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8.1
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Outside Date
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6.1(d)
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Owned Real Property
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3.1(k)
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Parent
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First Paragraph
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Parent Condition Failure
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6.1(d)
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Parent Indemnitees
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7.2
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Parties
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9.11
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Party
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9.11
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Paying Agent
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2.3(a)
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Per Share Merger Consideration
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2.2(a)(v)
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Per Share Transaction Consideration
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2.1(a)(i)
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Permits
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3.1(i)
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Person
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8.1
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PMR
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8.1
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PMR Asset Purchase Agreement
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8.1
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PMR/RWB Escrow Agreement
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8.1
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PMR/RWB Escrow Funds
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8.1
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Preliminary Cage Cash Adjustment
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2.2(b)(iii)
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Preliminary Closing Balance Sheet
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2.2(b)(i)
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Preliminary Closing Schedule
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2.2(b)(i)
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Preliminary Working Capital
Adjustment
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2.2(b)(ii)
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Pro Rata Portion
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2.2(a)(vi)
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PSV Policies
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4.5(g)
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Remaining Holdback Amount
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2.2(c)(ii)
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Retention Bonus Adjustment
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2.2(c)(iv)
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SEC
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3.1(f)
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Second Lien Note First Call Date
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8.1
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Securities Act
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3.1(f)
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Selected Memorabilia
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4.16
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Stockholders
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Third Paragraph
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Stockholder Indemnitees
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7.3
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Stockholders’ Representative
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9.10(a)
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Surviving Corporation
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1.1
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Taxes
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15, 8.1
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Termination Agreement
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8.1
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Termination Amount
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8.1
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Third-Party Claim
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7.7(b)
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Total Transaction Consideration
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2.2(a)(vii)
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vi
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Trademark Agreement
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8.1
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transactions contemplated by this
Agreement
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8.1
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transactions contemplated hereby
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8.1
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transactions under this Agreement
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8.1
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Transfer Tax
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4.11
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Transfer Taxes
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4.11
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Treasury Calculation Amount
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8.1
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Undisputed Holdback Amount
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2.2(c)(ii)
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WARN Act
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4.5(h)
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Working Capital
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2.2(a)(viii)
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vii
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
2
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.
3
(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
4
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
5
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
6
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
7
(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
8
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
9
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
10
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
11
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
12
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
13
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
14
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
15
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