Restated Casino Lease, dated as of March 9, 2005, as amended (the “ Casino Lease ”), between the Company and E&W, E&W shall deposit, after payment of the base rent and the establishment of certain reserves pursuant to the Casino Lease, the remaining cash flow from casino operations in a collateral account (the “ Cash Account ”) to secure the E&W Guarantee and the Notes, as described below.  The E&W Guarantee terminates upon the earliest of such time as (i) all obligations under the Notes shall have been satisfied by payment in full, (ii) none of the Notes remains outstanding, and (iii) the termination of the Casino Lease following licensing, however, the security interest in the Cash Account for the benefit of the Noteholders will continue until all obligations under the Notes have been satisfied by payment in full or none of the Notes remains outstanding.

 

Pursuant to the terms of the applicable Collateral Agreements, and subject to requisite Nevada gaming approvals, all of the respective obligations of the Issuers and the Guarantors (if any) under the Indenture, the Notes and the Guarantees will be secured by security interests in, or pledges of (the “ Security Interests ”), the following (the “ Collateral ”):  (i) the existing and future assets (other than certain excluded assets) of the Issuers and any Guarantors, (ii) a pledge of all of the shares of capital stock of and membership interests in the Issuers owned by Florida Hooters LLC, a Nevada limited-liability company (“ Florida Hooters ”), and EW Common LLC, a Nevada limited-liability company (“ EW Common ” and, together with Florida Hooters, the “ Parent Pledgors ” and such pledges, the “ Parent Pledges ”), (iii) the Renovation Disbursement Account (as defined below) and the Interest Reserve Account (as defined below), and (iv) a pledge of the funds in the Cash Account and the interests of E&W in the Casino Lease and that certain hotel lease, dated as of July 30, 2004, as amended between the Company and E&W (such pledges described in this clause (iv), the “ E&W Pledges ”).

 

The Series A Notes will be offered and sold to the Initial Purchasers pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended (the “ Act ”).  The Issuers have prepared a preliminary offering circular, dated March 12, 2005 (the “ Preliminary Offering Circular ”), and a final offering circular, dated March 23, 2005 (the “ Offering Circular ”), relating to the offer and sale of the Series A Notes (the “ Offering ”).

 

Upon original issuance thereof, and until such time as the same is no longer required under the Indenture or the applicable requirements of the Act, the Series A Notes shall bear the following legend:

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS.  NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.

 

THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS

 

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SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS (OR SUCH OTHER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(k) UNDER THE SECURITIES ACT AS PERMITTING RESALES OF RESTRICTED SECURITIES BY NON-AFFILIATES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH EITHER OF THE ISSUERS OR ANY AFFILIATE OF THE ISSUERS WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE “RESALE RESTRICTION TERMINATION DATE”) ONLY (A) TO THE ISSUERS, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PURCHASERS THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL “ACCREDITED INVESTOR,” FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS’ AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) ABOVE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE AND IN EACH CASE IN ACCORDANCE WITH APPLICABLE SECURITIES LAWS OF ANY U.S. STATE OR ANY OTHER APPLICABLE JURISDICTION.

 

2.                     Agreements to Sell and Purchase.  On the basis of the representations, warranties and agreements contained herein, and subject to the terms and conditions hereof, the Issuers shall issue and sell to the Initial Purchasers (and, in order to induce the Initial Purchasers to purchase the Series A Notes, the Parent

 

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Pledgors (solely with respect to the Parent Pledges), E&W (solely with respect to the E&W Pledges) and the Issuers shall grant the Security Interests), and each of the Initial Purchasers, severally and not jointly, shall purchase from the Issuers, the aggregate principal amount of Series A Notes set forth opposite the name of such Initial Purchaser on Schedule A hereto.  The purchase price for the Series A Notes shall be 97.000% of the principal amount thereof.

 

3.                     Terms of Offering.

 

(a)                                   The Initial Purchasers have advised the Issuers that the Initial Purchasers will make offers to sell (the “ Exempt Resales ”) the Series A Notes purchased by the Initial Purchasers hereunder on the terms set forth in the Offering Circular, as amended or supplemented, solely to (a) persons whom the Initial Purchasers reasonably believe to be “qualified institutional buyers,” as defined in Rule 144A under the Act (“ QIBs ”), (b) non-U.S. persons in reliance upon Regulation S under the Act (“ Regulation S Purchasers ”), and (c) a limited number of institutional “accredited investors,” as defined in Rule 501(a)(1), (2), (3) or (7) under the Act that make certain representations and warranties to the Initial Purchasers and the Issuers (“ Accredited Investors ” and, collectively with QIBs and Regulation S Purchasers, “ Eligible Purchasers ), which representations and warranties are set forth in the form of Accredited Investor Letter attached as Annex A to the Offering Circular (the “ Accredited Investor Letter ”).

 

Holders of the Series A Notes (including subsequent transferees) will have the registration rights set forth in the registration rights agreement (the “ Registration Rights Agreement ”), to be executed on and dated as of the Closing Date.  Pursuant to the Registration Rights Agreement, the Issuers will agree, among other things, (a) to file with the Securities and Exchange Commission (the “ Commission ”) under the circumstances set forth therein (i) a registration statement under the Act (the “ Exchange Offer Registration Statement ”) relating to, among other things, the 8.750% Senior Secured Notes due 2012, Series B, of the Issuers (the “ Series B Notes ”), identical in all material respects to the Series A Notes, including with respect to any Guarantees thereof (except that the Series B Notes shall have been registered pursuant to such registration statement), to be offered in exchange for the Series A Notes (such offer to exchange being referred to as the “ Registered Exchange Offer ”), and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Act (the “ Shelf Registration Statement ” and, together with the Exchange Offer Registration Statement, the “ Registration Statements ”) relating to the resale by certain holders of the Series A Notes, and (b) to cause such Registration Statements to be declared effective, as applicable, as provided in the Registration Rights Agreement.

 

(b)                                  On the Closing Date, the Parent Pledgors (solely with respect to the Parent Pledges), E&W (solely with respect to the E&W Pledges) and the Issuers shall enter into certain security and pledge agreements, deeds of trust and certain other collateral documents (collectively, the “ Security Documents ,” and, together with the Cash Collateral and Disbursement

 

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Agreement (as defined below), the “ Collateral Agreements ” and the pledge agreements governing the Parent Pledges, the “ Parent Pledge Agreements ”), that will provide for the grant of the Security Interests in the Collateral to the Trustee, as collateral agent for the Trustee and the holders of the Notes (in such capacity, the “ Secured Party ”).  The Security Interests will secure the payment and performance when due of all of the respective obligations of the Issuers and any Guarantors under the Indenture, the Notes and any Guarantees.

 

(c)                                   The Issuers will enter into a $15.0 million senior secured credit facility (the “ New Senior Credit Facility ”) and will repay all outstanding amounts under, and have released all liens securing, its existing credit facility (the “ Credit Facility Refinancing ”).  In connection with entering into the New Senior Credit Facility, the Trustee, on behalf of the holders of Notes, and the lender under the New Senior Credit Facility will enter into an Intercreditor Agreement, to be dated as of the Closing Date, in a form reasonably satisfactory to the Initial Purchasers, which form shall be attached as an exhibit to the Indenture (the “ Intercreditor Agreement ”).

 

(d)                                  As more specifically described in the Offering Circular under “Summary—The Renovation” and “Business—The Renovation”, the net proceeds from the issuance and sale of the Series A Notes, will be used by the Company to refinance existing indebtedness and (together with cash from operations and furniture, fixture and equipment financing), to renovate, equip and re-open the Hotel San Remo Casino and Resort as a Hooters Casino Hotel (the “ Hooters Casino Hotel ”) (collectively, the “ Renovation ”).

 

On the Closing Date, the Issuers, the Trustee and the disbursement agent shall enter into a cash collateral and disbursement agreement (the “ Cash Collateral and Disbursement Agreement ”), that will provide for the deposit of $50.8 million of the net proceeds from the Offering into a renovation disbursement account (the “ Renovation Disbursement Account ”) to be used in connection with the design, renovation, equipping and opening costs of the Hooters Casino Hotel and $11.2 million of the net proceeds from the Offering into an interest reserve account (the “ Interest Reserve Account ”) to be used to fund the first two payments of interest on the Notes.  In connection with the Renovation, the Company also has entered into the following agreements:  (i) the Standard Form of Agreement Between Owner and Contractor (the “ Renovation Contract ”), dated as of February 25, 2005 by and between the Company and The PENTA Building Group, Inc., and (ii) the letter agreement, dated as of December 6, 2003, as amended, by and between the Company and C&B Nevada, Inc. (the “ Architect Agreement ” and, together with the Renovation Contract, the “ Renovation Documents ”).

 

(e)                                   The Issuers, or their affiliates, have entered into the following amended and restated agreements in connection with the Offering:  (i) Amended and Restated Joint Venture Agreement, dated as of March 9, 2005,

 

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by and between EW Common and Florida Hooters; (ii) Amended and Restated Operating Agreement, dated as of March 9, 2005, by and between EW Common and Florida Hooters; (iii) Amended and Restated Casino Lease, dated as of March 9, 2005, by and between the Company and E&W; (iv) Amended and Restated Hotel Lease, dated as of March 9, 2005, by and between the Company and E&W; (v) Amended and Restated Assignment Agreement, dated as of March 9, 2005, by and between Florida Hooters and the Company; (vi) Amended and Restated License Agreement, dated as of March 9, 2005, by and between Hooters Gaming Corporation, a Nevada corporation (“ Hooters Gaming Corporation ”), and Florida Hooters; (vii) Amended and Restated Mark License Agreement, dated as of March 9, 2005, by and between Lags Ventures, Inc. and Florida Hooters; and (viii) Affirmation and Acknowledgement, dated as of March 9, 2005, given by Hooters Gaming Corporation (the agreements referred to in clauses (i) through (iv) above, collectively, are referred to as the “ Lease-Related Agreement Amendments ”; the agreements referred to in clauses (v) through (viii) above, collectively, are referred to as the “ License Amendments ”; the Lease-Related Agreement Amendments and the License Amendments, together, the “ Lease and License Amendments ”).

 

(f)                                     The following documents are referred to herein as the “ Operative Documents ”:   (i) this Agreement, (ii) the Indenture, (iii) the Registration Rights Agreement, (iv) the Notes (including the Guarantees (if any)), (v) the Collateral Agreements, and (vi) the Renovation Documents.

 

The New Senior Credit Facility, the Intercreditor Agreement and the Lease and License Amendments, together with the Operative Documents, collectively are referred to herein as the “ Transaction Documents .”  The transactions contemplated by the Transaction Documents, including, without limitation, the Offering and the application of the proceeds therefrom as described in the Offering Circular, the issuance and sale of the Notes in accordance with this Agreement, the creation, grant, recording and perfection of the Security Interests, the Renovation and the Credit Facility Refinancing, and the entering into of the Lease and License Amendments, collectively are referred to herein as the “ Transactions .”

 

4.                     Delivery and Payment.   Delivery to the Initial Purchasers of and payment for the Series A Notes shall be made at a Closing (the “ Closing ”) to be held at 9:00 a.m., New York City time, on March 29, 2005, (such time and date, the “ Closing Date ”) at the offices of Kummer Kaempfer Bonner & Renshaw, 3800 Howard Hughes Parkway, Seventh Floor, Las Vegas, Nevada 89109.  The Closing Date and the location of delivery of and the form of payment for the Series A Notes may be varied by agreement between the Initial Purchasers and the Issuers.

 

The Issuers shall deliver to the Initial Purchasers one or more certificates representing the Series A Notes (the “ Global Notes ”), each in definitive form, registered in the name of Cede & Co., as nominee of The Depository Trust Company (“ DTC ”), or such other names as the Initial Purchasers may request upon at least one Business Day’s notice to the

 

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Issuers, in an amount corresponding to the aggregate principal amount of the Series A Notes sold pursuant to Exempt Resales to QIBs, to Regulation S Purchasers and to Accredited Investors, respectively, in each case against payment by the Initial Purchasers of the purchase price therefore by immediately available Federal funds bank wire transfer to such bank account as the Issuers shall designate to the Initial Purchasers at least two Business Days prior to the Closing.  “ Business Day ” means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed.

 

The Global Notes in definitive form shall be made available to the Initial Purchasers for inspection at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036 (or such other place as shall be acceptable to the Initial Purchasers) not later than the close of business, New York City time, one Business Day immediately preceding the Closing Date.

 

5.                     Agreements of the Issuers.   Each of the Issuers, jointly and severally, hereby agrees, and each of the Parent Pledgors, solely with respect to Section 5(i) below to the extent applicable to each of the Parent Pledgors, hereby agrees:

 

(a)                                   Certain Events .  To (i) advise the Initial Purchasers promptly after obtaining knowledge (and, if requested by the Initial Purchasers, confirm such advice in writing) of (A) the issuance by any state securities commission of any stop order suspending the qualification or exemption from qualification of any of the Series A Notes for offer or sale in any jurisdiction, or the initiation of any proceeding for such purpose by any state securities commission or other regulatory authority, and (B) the happening of any event that makes any statement of a material fact made in the Offering Circular untrue or that requires the making of any additions to or changes in the Offering Circular in order to make the statements therein, in the light of the circumstances under which they are made, not misleading, (ii) use its best efforts to prevent the issuance of any stop order or order suspending the qualification or exemption from qualification of any of the Notes under any state securities or Blue Sky laws, and (iii) if at any time any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of any of the Series A Notes under any such laws, use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time.

 

(b)                                  Offering Circular .  To (i) furnish the Initial Purchasers and those persons identified by the Initial Purchasers to the Issuers, without charge, as many copies of the Preliminary Offering Circular and the Offering Circular, and any amendments or supplements thereto, as the Initial Purchasers may reasonably request, and (ii) promptly prepare, upon the Initial Purchasers’ request, any amendment or supplement to the Offering Circular that the Initial Purchasers deem may be necessary in connection with Exempt Resales (and the Issuers hereby consent to the use of the Preliminary Offering Circular and the

 

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Offering Circular, and any amendments and supplements thereto, by the Initial Purchasers in connection with Exempt Resales) .

 

(c)                                   Notice of Amendment or Supplement .  Except as set forth in Section 5(d) , not to amend or supplement the Offering Circular prior to the Closing Date, or at any time prior to the completion of the resale by the Initial Purchasers of all of the Series A Notes, unless the Initial Purchasers shall previously have been advised thereof and shall not have objected thereto within three Business Days after being furnished a copy thereof.

 

(d)                                  Preparation of Amendments and Supplements .  At any time prior to the completion of the resale by the Initial Purchasers of all of the Series A Notes, (i) if any event shall occur as a result of which, in the reasonable judgment of the Issuers or the Initial Purchasers or their respective counsel, it becomes necessary or advisable to amend or supplement the Offering Circular in order to make the statements therein, in the light of the circumstances under which they were made and when such Offering Circular is delivered to an Eligible Purchaser, not misleading, or if it is necessary to amend or supplement the Offering Circular to comply with Applicable Law (as defined below), forthwith to prepare an appropriate amendment or supplement to the Offering Circular (in form and substance satisfactory to the Initial Purchasers) so that as so amended or supplemented, (A) the Offering Circular will not include an untrue statement of material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made and when such Offering Circular is so delivered, not misleading, and (B) the Offering Circular will comply with Applicable Law, and (ii) if it becomes necessary or advisable to amend or supplement the Offering Circular so that the Offering Circular will contain all of the information specified in, and meet the requirements of, Rule 144A(d)(4) under the Act, forthwith to prepare an appropriate amendment or supplement to the Offering Circular (in form and substance satisfactory to the Initial Purchasers) so that the Offering Circular, as so amended or supplemented, will contain the information specified in, and meet the requirements of, such Rule.

 

(e)                                   Qualification of Securities .  To cooperate with the Initial Purchasers and the Initial Purchasers’ counsel in connection with the qualification of the Notes under the securities or Blue Sky laws of such jurisdictions as the Initial Purchasers may request and continue such qualification in effect so long as reasonably required for Exempt Resales, and to file such consents to service of process or other documents as may be necessary in order to effect such qualification; provided , that neither of the Issuers shall be required in connection therewith to file any general consent to service of process or to register or qualify as a foreign corporation in any jurisdiction where it is not now so qualified or to subject itself to general taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.

 

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(f)                                     Costs and Expense s.  Whether or not any of the Transactions are consummated or this Agreement is terminated, to pay (i) all costs, expenses, fees and taxes incident to and in connection with the performance of the obligations of the Issuers under this Agreement, including:  (A) the preparation, printing and distribution of the Preliminary Offering Circular and the Offering Circular and all amendments and supplements thereto (including, without limitation, financial statements and exhibits), and all preliminary and final Blue Sky memoranda and all other agreements, memoranda, correspondence and other documents prepared and delivered in connection herewith (including the furnishing of copies of the foregoing to the Initial Purchasers and such other persons as the Initial Purchasers may designate), (B) the printing, processing and distribution (including, without limitation, word processing and duplication costs) and delivery of each of the Transaction Documents and any other agreements or documents in connection with the Transactions, (C) the preparation, issuance and delivery of the Notes, including the fees and expenses of the Trustee and the Secured Party (including fees and expenses of its counsel) and the cost of its personnel, and all costs and expenses related to the delivery of the Notes to the Initial Purchasers and pursuant to Exempt Resales, including any transfer or other taxes payable thereon, and (D) the qualification of the Notes for offer and sale under the securities or Blue Sky laws of the several states (including, without limitation, filing fees and fees and disbursements of the Initial Purchasers’ counsel (as set forth in the letter agreement, dated January 28, 2005, by and between Jefferies & Company, Inc. and the Company) relating to such registration or qualification and the preparation of memoranda related thereto); (ii) all fees and expenses of the counsel and accountants of the Issuers; (iii) all expenses and listing fees in connection with the application for quotation of the Series A Notes in The PORTAL Market (“ PORTAL ”) of the National Association of Securities Dealers, Inc. (the “ NASD ”); (iv) all fees and expenses (including fees and expenses of counsel) of the Issuers in connection with approval of the Notes by DTC for “book-entry” transfer; (v) all fees charged by rating agencies in connection with the rating of the Notes; (vi) the costs and charges of any transfer agent, registrar and/or depositary (including DTC); (vii) all costs and expenses of the Registered Exchange Offer, the Exchange Offer Registration Statement and any Shelf Registration Statement, as set forth in the Registration Rights Agreement; (viii) all costs and expenses in connection with the creation and perfection of the Security Interests (including, without limitation, filing and recording fees, search fees, taxes and costs of surveys and title policies); (ix) all costs and expenses of the Transactions (including, without limitation, filing and recording fees); and (x) all fees and expenses (including reasonable fees and expenses of counsel) incurred by the Initial Purchasers in connection with the preparation, negotiation and execution of the Transaction Documents and the consummation of the Transactions.

 

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(g)                                  Use of Proceeds .  To use the proceeds from the sale of the Series A Notes in the manner described in the Offering Circular under the caption “Use of Proceeds.”

 

(h)                                  Waiver of Certain Laws .  To the extent it may lawfully do so, not to insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension usury or other law, wherever enacted, now or at any time hereafter in force, that would prohibit or forgive the payment of all or any portion of the principal of or interest on the Notes, or that may affect the covenants or the performance of the Indenture or any of the Collateral Agreements (and, to the extent it may lawfully do so, each of the Issuers hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power granted to the Trustee in the Indenture or to the Secured Party in the Collateral Agreements but shall suffer and permit the execution of every such power as though no such law had been enacted).

 

(i)                                      Security Interests .  To do and perform all things required to be done and performed under the Collateral Agreements prior to, on and after the Closing Date, including, without limitation, all things necessary or advisable to obtain on or prior to the Closing Date, except (x) for Gaming Permits that may be required for the Parent Pledges if and at such time as the Issuers or any Guarantors are licensed by the Applicable Gaming Authorities (as defined below), (y) approval of the Exchange Offer, if required, by the Applicable Gaming Authorities and (z) as otherwise described in the Offering Circular, (i) all Permits (as defined below) (other than any gaming or liquor approvals required to be obtained by a purchaser in a foreclosure sale) necessary for the granting, perfection and enforcement of the Security Interests and for the foreclosure by the Secured Party thereon following an Event of Default (as defined in the Indenture), (ii) all termination statements, deed of trust releases and other documents necessary to terminate any Liens (as defined in the Indenture) on the Collateral (other than Liens created by the Indenture, Liens created by the Collateral Agreements and Permitted Liens (as defined in the Indenture)), and (iii) subject to the terms of the Intercreditor Agreement, a valid and perfected, first priority Security Interest with respect to each of the assets, shares of capital stock and membership interests which are to constitute, as of the Closing Date, the Collateral.

 

(j)                                      Integration .  Not to, and to ensure that no affiliate (as defined in Rule 501(b) under the Act) of the Issuers will, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any “security” (as defined in the Act) that would be integrated with the sale of the Series A Notes in a manner that would require the registration under the Act of the sale to the Initial Purchasers or of the offers or sales of Series A Notes pursuant to Exempt Resales.

 

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(k)                                   Rule 144A Information .  For so long as any of the Series A Notes remains outstanding, during any period in which either of the Issuers is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), to make available, upon request, to any holder of the Notes in connection with any sale thereof and any prospective Eligible Purchaser of such Notes from such holder, the information required by Rule 144A(d)(4) under the Act.

 

(l)                                      DTC .  To obtain the approval of DTC for “book entry” transfer of the Notes, and to comply with the representation letter of the Issuers to DTC relating to the approval of the Notes by DTC for “book entry” transfer.

 

(m)                                PORTAL .  To effect the inclusion of the Series A Notes for trading in PORTAL and to use its best efforts to maintain the inclusion of the Series A Notes for trading in PORTAL for so long as the Series A Notes are outstanding.

 

(n)                                  Reporting Requirements .  For so long as any of the Notes remains outstanding, to furnish to the Initial Purchasers copies of all reports and other communications (financial or otherwise) furnished to the Trustee or to the holders of the Notes and, as soon as available, copies of any reports or financial statements furnished to or filed by the Issuers with the Commission or any national securities exchange on which any class of securities of the Issuers may be listed.

 

(o)                                  No Selling Efforts or General Solicitation .  Except in connection with the Registered Exchange Offer or the filing of the Shelf Registration Statement, not to, and not to authorize or permit any person acting on its behalf to, (i) distribute any offering material in connection with the offer and sale of the Series A Notes other than the Preliminary Offering Circular and the Offering Circular and any amendments and supplements to the Offering Circular prepared in compliance with Section 5(d) , or (ii) solicit any offer to buy or offer to sell the Series A Notes by means of any form of general solicitation or general advertising (including, without limitation, as such terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act.

 

(p)                                  No Similar Offerings .  Not to, directly or indirectly, without the prior consent of the Initial Purchasers, offer, sell, contract to sell, grant any option to purchase or otherwise dispose of (or announce any offer or sale of, contract to sell, grant of any option to purchase or other disposition of) any debt securities of any of the Issuers or any Guarantors substantially similar to the Notes or the Guarantees for a period of six months after the date of the Offering Circular, except as contemplated by the Registration Rights Agreement; provided , that the foregoing will not apply to (i) the Notes or the

 

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Guarantees or (ii) borrowings (not constituting the issuance of securities) from financial institutions to the extent not prohibited by the Indenture.

 

(q)                                  ERISA .  At any time prior to the completion of the resale by the Initial Purchasers of the Series A Notes, to notify the Initial Purchasers promptly in writing if any of the Issuers or any Guarantors or any of their Affiliates becomes a party in interest or a disqualified person with respect to any employee benefit plan, other than any plan set forth in Schedule 5(q) hereto, and to identify such plans.  The terms “ERISA,” “Affiliates,” “party in interest,” “disqualified person” and “employee benefit plan” shall have the meanings as set forth in Section 6 (jj) hereof.

 

(r)                                     Performance of Agreements .  To do and perform all things required or necessary to be done and performed by it under the Transaction Documents prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Series A Notes and the granting, perfection and enforcement of the Security Interests.

 

(s)                                   Renovation Authorizations.   To take all reasonable actions, including, without limitation, diligently seeking the issuance of any Permit, which is necessary for the Issuers to design, renovate, own and operate the Hooters Casino Hotel and to complete the Renovation.

 

6.                     Representations and Warranties of the Issuers and the Parent Pledgors.   Each of the Issuers, jointly and severally, represents and warrants to the Initial Purchasers, and the Parent Pledgors represent and warrant with respect to themselves (but not the Issuers) to the Initial Purchasers solely with respect to applicable provisions of
Sections 6(c), 6(g), 6(h), 6(n), 6(o), 6(p), 6(q), 6(r) and 6(z) below, that:

 

(a)                                   Offering Circular .  The Preliminary Offering Circular as of its date did not, and the Offering Circular, as of its date does not and as of the Closing Date will not, and each supplement or amendment thereto (if any) as of its date will not, contain any untrue statement of a material fact or omit to state any material fact (except, in the case of the Preliminary Offering Circular, for pricing terms and other financial terms intentionally left blank) necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The foregoing representation and warranty made in this Section 6(a)  shall not apply to any statements or omissions made in reliance on and in conformity with information relating to the Initial Purchasers furnished in writing to the Issuers by the Initial Purchasers specifically for inclusion in the Preliminary Offering Circular or the Offering Circular.  The parties hereto acknowledge that for purposes of this Agreement (including this Section 6(a)  and Section 8 ) the only information furnished in writing to the Issuers by the Initial Purchasers specifically for inclusion in the Preliminary Offering Circular or the Offering Circular is the

 

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information set forth (i) on the cover page of the Offering Circular with respect to the price of the Notes, (ii) in the third paragraph on page 145 of the Offering Circular concerning offering the Notes for resale by the Initial Purchasers, (iii) in the sixth paragraph on page 145 of the Offering Circular concerning market-making by the Initial Purchasers, (iv) in the last paragraph on page 145 of the Offering Circular concerning stabilization by the Initial Purchasers and (v) in the first paragraph on page 146 of the Offering Circular concerning the affiliation of the Initial Purchasers and their respective affiliates with the Issuers and their affiliates (such information described in the immediately preceding clauses (i) through (v) of this Section 6(a) , the “ Furnished Information ”).  Each of the Preliminary Offering Circular and the Offering Circular, as of their respective dates contained, and the Offering Circular, as of the Closing Date and as amended or supplemented, will contain, all of the information specified in, and meet the requirements of, Rule 144A(d)(4) under the Act.

 

(b)                                  144A Eligibility .  There are no securities of the Issuers that are of the same class (within the meaning of Rule 144A) as the Notes and that are registered under the Exchange Act or listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a United States automated inter-dealer quotation system.  The Series A Notes are eligible for resale pursuant to Rule 144A under the Act.

 

(c)                                   Due Organization; Good Standing .  Each of the Issuers (i) has been duly organized, is validly existing and is in good standing under the laws of its jurisdiction of organization, (ii) has all requisite power and authority to conduct and carry on its business and to own, lease, use and operate its properties and assets as described in the Offering Circular, and (iii) is duly qualified or licensed to do business and is in good standing as a foreign limited liability company or corporation, as the case may be, authorized to do business in each jurisdiction in which the nature of its business or the ownership, leasing, use or operation of its properties and assets requires such qualification or licensing.  Each of the Parent Pledgors has been duly organized, is validly existing and is in good standing under the laws of its jurisdiction of organization.

 

(d)                                  Subsidiaries .  Immediately following the Closing, (i) Finance Corp. will have no subsidiaries, (ii) the only subsidiary of the Company will be Finance Corp., and (iii) Florida Hooters will directly own 66.66%, and EW Common will directly own 33.33%, of the outstanding membership interests in the Company free and clear of all Liens, except for Liens created by the Indenture and the Collateral Agreements and Permitted Liens (as defined in the Indenture).  Except as disclosed in the Offering Circular, there are no outstanding (i) securities convertible into or exchangeable for any capital stock of or any membership interests in, as the case may be, either of the Issuers, (ii) options, warrants or other rights to purchase or subscribe for any capital stock of or any membership interests in, or any

 

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securities convertible into or exchangeable for any capital stock of or any membership interests in, as the case may be, either of the Issuers or (iii) contracts, commitments, agreements, understandings, arrangements, undertakings, rights, calls or claims of any kind relating to the issuance of any capital stock of or any membership interests in, as the case may be, either of the Issuers, any such convertible or exchangeable securities or any such options, warrants or rights.  Except as set forth above, immediately following the Closing, neither of the Issuers will directly or indirectly own any capital stock of or other equity interest in any person.

 

(e)                                   Capitalization .  All of the outstanding shares of capital stock of or membership interests in, as the case may be, each of the Issuers have been duly authorized, are validly issued, fully paid and nonassessable, and were not issued in violation of, and are not subject to, any preemptive or similar rights.  The table under the caption “Capitalization” in the Offering Circular (including the footnotes thereto) sets forth, as of its date, the pro forma capitalization of the Issuers, on a consolidated basis, after giving effect to the Transactions.  Immediately following the Closing, except as set forth in such table, neither of the Issuers will have any liabilities, absolute, accrued, contingent or otherwise other than:  (i) liabilities that are reflected in the Issuer Financial Statements (as defined below), (ii) loans made under the New Senior Credit Facility or (iii) liabilities incurred subsequent to December 31, 2004, in the ordinary course of business, consistent with past practice, that would not, singly or in the aggregate, have a material adverse effect on (A) the properties, business, prospects, operations, earnings, assets, liabilities or condition (financial or otherwise) of the Issuers, on an aggregate basis, (B) the ability of either of the Issuers to perform its obligations under any of the Transaction Documents, (C) the enforceability of any of the Collateral Agreements or the attachment, perfection or priority of any of the Security Interests intended to be created thereby in any portion of the Collateral or (D) the validity of any of the Transaction Documents or the consummation of any of the Transactions (each, a “ Material Adverse Effect ”).

 

(f)                                     No Other Registration Rights .  Except for this Agreement and the Registration Rights Agreement, there are no contracts, commitments, agreements, arrangements, understandings or undertakings of any kind to which either of the Issuers is a party, or by which either of them is bound, granting to any person the right (i) to require the Issuers to file a registration statement under the Act with respect to any securities of the Issuers or requiring the Issuers to include such securities with the Notes registered pursuant to either registration statement, or (ii) to purchase or offer to purchase any securities of either of the Issuers.

 

(g)                                  Power and Authority .  Each of the Issuers and each of the Parent Pledgors has all requisite power and authority to execute and deliver,

 

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and to perform its obligations under, the Transaction Documents to which it is a party and to consummate the Transactions contemplated thereby.

 

(h)                                  Authorization of this Agreement .   This Agreement and the Transactions contemplated hereby (including, without limitation, the Offering and the issuance and sale of the Notes in accordance with this Agreement) have been duly authorized by each of the Issuers and each of the Parent Pledgors, and this Agreement has been validly executed and delivered by, and is the legal, valid and binding obligation of, each of the Issuers and each of the Parent Pledgors, enforceable against each of the Issuers and each of the Parent Pledgors in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and (ii) any rights of acceleration and the availability of equitable remedies may be subject to general principles of equity (whether considered in a proceeding in equity or at law).

 

(i)                                      Authorization of Indenture .  The Indenture and the Transactions contemplated thereby have been duly authorized by each of the Issuers and, on the Closing Date, the Indenture will have been validly executed and delivered by, and will be the legal, valid and binding obligation of, each of the Issuers, enforceable against each of the Issuers in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and (ii) any rights of acceleration and the availability of equitable remedies may be subject to general principles of equity (whether considered in a proceeding in equity or at law).  On the Closing Date, the Indenture will conform to the requirements of the Trust Indenture Act of 1939, as amended (the “ TIA ”), applicable to an indenture that is required to be qualified under the TIA.

 

(j)                                      Authorization of Registration Rights Agreement .  The Registration Rights Agreement and the Transactions contemplated thereby have been duly authorized by each of the Issuers and, on the Closing Date, the Registration Rights Agreement will have been validly executed and delivered by, and will be the legal, valid and binding obligation of, each of the Issuers, enforceable against each of the Issuers in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency or similar laws and (ii) any rights of acceleration and the availability of equitable remedies may be subject to general principles of equity (whether considered in a proceeding in equity or at law).

 

(k)                                   Authorization of Series A Notes .  The Series A Notes have been duly authorized by each of the Issuers for issuance and sale to the Initial Purchasers pursuant to this Agreement and, on the Closing Date, will have been validly executed, authenticated, issued and delivered by the Issuers in accordance with the terms of this Agreement and the Indenture.  When the Series A Notes have been issued, executed and authenticated in accordance

 

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with the terms of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, the Series A Notes will be legal, valid and binding obligations of each of the Issuers, entitled to the benefits of the Indenture and enforceable against each of the Issuers in accordance with their terms, except to the extent that such enforceability may be limited by (i) applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and (ii) any rights of acceleration and the availability of equitable remedies may be subject to general principles of equity (whether considered in a proceeding in equity or at law).  Upon and following delivery to the Initial Purchasers, the Notes rank and will rank on a parity with all senior Indebtedness (as defined in the Indenture) of each of the Issuers that is outstanding on the date hereof or that may be incurred hereafter and senior to all other Indebtedness of the each of the Issuers that is outstanding on the date hereof or that may be incurred hereafter; provided , that pursuant to the Intercreditor Agreement, the Lien on the Collateral securing up to $15.0 million principal amount of borrowings (plus related interest, fees, indemnities, costs and expenses) under the New Senior Credit Facility will be senior to the Lien on the Collateral securing the Notes.

 

(l)                                      Authorization of Series B Notes .  The Series B Notes have been duly authorized by each of the Issuers and, when issued in the Registered Exchange Offer, (A) will have been validly executed, authenticated, issued and delivered in accordance with the terms of the Indenture, the Registration Rights Agreement and the Registered Exchange Offer and (B) will be legal, valid and binding obligations of each of the Issuers, entitled to the benefits of the Indenture and enforceable against each of the Issuers in accordance with their terms, except to the extent that such enforceability may be limited by (i) applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and (ii) any rights of acceleration and the availability of equitable remedies may be subject to general principles of equity (whether considered in a proceeding in equity or at law).

 

(m)                                Authorization of Collateral Agreements .  Each of the Collateral Agreements and the Transactions contemplated thereby (including, without limitation, the creation, grant, recording and perfection of the Security Interests, the execution and filing of financing statements and the payment of any fees and taxes in connection therewith) have been duly authorized by each of Issuers party thereto and, on the Closing Date, each of the Collateral Agreements will have been validly executed and delivered by, and will be the legal, valid and binding obligation of, each of the Issuers party thereto, enforceable against each of the Issuers party thereto in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and (ii) any rights of acceleration and the availability of equitable remedies may be subject to general principles of equity (whether considered in a proceeding in equity or at law).

 

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(n)                                  Authorization of Other Transaction Documents .  Each of the other Transaction Documents and the Transactions contemplated thereby have been duly authorized by each of the Issuers and the Parent Pledgors party thereto, and when executed and delivered by each of the Issuers and the Parent Pledgors party thereto, each of the Transaction Documents will have been validly executed and delivered by, and, assuming due authorization, execution and delivery by the other parties thereto, will be the legal, valid and binding obligation of, each of the Issuers and the Parent Pledgors party thereto, enforceable against each of the Issuers and the Parent Pledgors party thereto in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and (ii) any rights of acceleration and the availability of equitable remedies may be subject to general principles of equity (whether considered in a proceeding in equity or at law).  Each of the Parent Pledge Agreements and the Transactions contemplated thereby have been duly authorized by each of the Parent Pledgors party thereto, and when executed and delivered by each of the Parent Pledgors party thereto, each of the Parent Pledge Agreements will have been validly executed and delivered by, and, assuming due authorization, execution and delivery by the other parties thereto, will be the legal, valid and binding obligation of, each of the Parent Pledgors party thereto, enforceable against each of the Parent Pledgors party thereto in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and (ii) any rights of acceleration and the availability of equitable remedies may be subject to general principles of equity (whether considered in a proceeding in equity or at law).

 

(o)                                  No Violation .  Neither of the Issuers, and neither of the Parent Pledgors, is in violation of its certificate of incorporation, bylaws, certificate of formation or operating agreement, as applicable (collectively, the “ Charter Documents ”).  Neither of the Issuers, and neither of the Parent Pledgors, is (i) in violation of any federal, state, local or foreign statute, law or ordinance, or any judgment, decree, rule, regulation or order, (including, without limitation, the Nevada Gaming Control Act, in each case including the rules and regulations promulgated thereunder (collectively, “ Applicable Law ”), of any government, governmental or regulatory agency or body (including, without limitation, the Nevada Gaming Commission, the Nevada State Gaming Control Board or other applicable gaming authority (each, a “ Gaming Authority ”)), court, arbitrator or self-regulatory organization, domestic or foreign (each, a “ Governmental Authority ”), or (ii) in breach of or default under any bond, debenture, note or other evidence of indebtedness, indenture, mortgage, deed of trust, lease, joint venture agreement, license agreement or any other agreement or instrument to which any such person is a party or by which any of them or any of their respective property is bound (collectively, “ Applicable Agreements ”), other than, in the case of each of the immediately preceding clauses (i) and (ii), violations, breaches or defaults that

 

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would not, singly or in the aggregate, have a Material Adverse Effect.  There exists no condition that, with the passage of time or otherwise, would reasonably be expected to (x) constitute a violation of (A) the Charter Documents or (B) Applicable Laws or (y) constitute a breach of or default under any Applicable Agreement or (z) result in the imposition of any penalty or the acceleration of any indebtedness, other than, in the case of the immediately preceding clauses (x)(B), (y) and (z), such violations, breaches, penalties or defaults that would not, singly or in the aggregate, have a Material Adverse Effect.  Each of the Casino Lease and the Hotel Lease (and, as of the Closing Date, each of the Lease and License Amendments) is in full force and effect and no default is continuing thereunder.  All other Applicable Agreements are in full force and effect with respect to the Issuers and are legal, valid and binding obligations thereof, and no default has occurred or is continuing thereunder, other than such defaults that would not, singly or in the aggregate, have a Material Adverse Effect.

 

(p)                                  No Conflict .  None of the execution, delivery or performance of any of the Transaction Documents, nor the compliance with the terms and provisions thereof, nor the consummation of any of the Transactions shall conflict with, violate, constitute a breach of or a default (with the passage of time or otherwise) under, result in the imposition of a Lien on any assets of or capital stock of or membership interests in the Issuers (except for Liens created by the Indenture and the Collateral Agreements and Permitted Liens), or result in an acceleration of indebtedness under or pursuant to, (i) the Charter Documents, (ii) any Applicable Agreement or (iii) any Applicable Law, other than, in the case of the immediately preceding clauses (ii) and (iii), such conflicts, violations, breaches, defaults, Liens or acceleration that would not, singly or in the aggregate, have a Material Adverse Effect.  After giving effect to the Transactions, no Default or Event of Default (each, as defined in the Indenture) will exist.

 

(q)                                  Permits .  No permit, certificate, authorization, approval, consent, license or order of, or filing, registration, declaration or qualification with, any Governmental Authority or any other person (collectively, “ Permits ”) is required by the Issuers to own, lease, use and operate the properties and assets and to conduct and carry on the businesses as described in the Offering Circular, or by the Parent Pledgors or the Issuers, except as disclosed in the Offering Circular, in connection with, or as a condition to, the execution, delivery or performance of any of the Transaction Documents, the compliance with the terms and provisions thereof or the consummation of any of the Transactions, other than (i) such Permits as have been made or obtained on or prior to the Closing Date, which Permits are in full force and effect on the Closing Date, (ii) such Permits as have been applied for on or prior to the Closing Date, and any other Permits necessary for the Renovation, in each case that are not required to be in full force and effect to consummate the Transactions (other than the Renovation), (iii) as may be required for Exempt

 

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Resales under the securities or blue sky laws of the various jurisdictions in which the Series A Notes are being offered by the Initial Purchasers, (iv) the order of the Commission declaring the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, effective, (v) Gaming Permits that may be required for the Parent Pledges if and at such time as the Issuers or any Guarantors are licensed by the Applicable Gaming Authorities (as defined below), (vi) approval of the Exchange Offer, if required, by the Applicable Gaming Authorities and (vii) such Permits, the failure of which to make or obtain would not, singly or in the aggregate, have a Material Adverse Effect.

 

(r)                                     No Proceedings .  There is no action, claim, suit, demand, hearing, notice of violation or deficiency, or proceeding (including, without limitation, any investigation or partial proceeding, such as a deposition), domestic or foreign (collectively, “ Proceedings ”), pending or, to the knowledge of the Issuers or the Parent Pledgors, threatened, either (i) in connection with, or that seeks to restrain, enjoin or prevent the consummation of, or that otherwise objects to, any of the Transaction Documents or any of the Transactions, or (ii) that could, singly or in the aggregate, have a Material Adverse Effect.  Neither of the Issuers or the Parent Pledgors is subject to any judgment, order, decree, rule or regulation of any Governmental Authority that could, singly or in the aggregate, have a Material Adverse Effect.  No injunction or order has been issued and no Proceeding is pending or, to the knowledge of the Issuers or the Parent Pledgors, threatened that (i) asserts that the offer, sale and delivery of the Series A Notes to the Initial Purchasers pursuant to this Agreement or the initial resale of the Series A Notes by the Initial Purchasers in the manner contemplated by this Agreement is subject to the registration requirements of the Act, or (ii) would prevent or suspend the issuance or sale of the Notes, including the Exempt Resales, or the use of the Preliminary Offering Circular, the Offering Circular, or any amendment or supplement thereto, in any jurisdiction.

 

(s)                                   Regulated Persons .  Each of the Issuers’ respective directors, members, managers, officers, key personnel and persons holding a five percent or greater equity or economic interest in either of the Issuers (each of such persons, a “ Regulated Person ” and, collectively, the “ Regulated Persons ”) has, or has applied for, and is in compliance with the terms and conditions of, all Permits (including, without limitation, Permits with respect to engaging in gaming operations) necessary or advisable to own, lease, use and operate the properties and assets and to conduct and carry on the businesses described in the Offering Circular, other than such Permits the failure of which to have would not, singly or in the aggregate, have a Material Adverse Effect (a “ Material Permit ”).  All Material Permits are valid and in full force and effect.  Each of the Regulated Persons is in compliance with the terms and conditions of all Permits (including, without limitation, Permits with respect to engaging in gaming operations) necessary or advisable to own, lease, use and operate the

 

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properties and assets and to conduct and carry on the businesses described in the Offering Circular, other than where such failure to be in compliance would not, singly or in the aggregate, have a Material Adverse Effect.  None of the execution, delivery or performance of any of the Transaction Documents, nor the compliance with the terms and provisions thereof, nor the consummation of any of the Transactions, will allow or result in, and no event has occurred which allows or results in, or after notice or lapse of time would allow or result in, the imposition of any material penalty under, or the revocation or termination of, any Material Permit or any material impairment of the rights of the holder of any Material Permit.  Neither of the Issuers has received any notice from any issuer, and neither of the Issuers has any reason to believe that any issuer is considering limiting, conditioning, suspending, modifying, revoking or not renewing any Material Permit.

 

(t)                                     No Investigations of Regulated Persons.   To the knowledge of the Issuers, (i) no Governmental Authority is investigating any Regulated Person, and (ii) there is no basis for any Governmental Authority to deny the renewal of the current Permits held by any of the Regulated Persons.

 

(u)                                  Title to Assets .  Immediately following the Closing, each of the Issuers (i) will have good and marketable title, free and clear of all Liens (other than Liens created by the Indenture, Liens created by the Collateral Agreements and Permitted Liens), to all property and assets described in the Offering Circular as being or to be owned by it, (ii) will enjoy peaceful and undisturbed possession under all leases to which it is a party as lessee and (iii) will hold a valid leasehold interest with respect to each such lease.  Finance Corp. has no assets, other than assets received in payment for its capital stock.

 

(v)                                  Sufficiency and Condition of Assets .  The assets of each of the Issuers include all of the assets and properties necessary or required in, or otherwise material to, the conduct of the businesses of each of them, and such assets are in working condition, except where the failure of such assets to be in working condition would not, singly or in the aggregate, have a Material Adverse Effect.  Without limiting the foregoing, each of the properties of the Issuers (including, without limitation, all buildings, structures, improvements and fixtures located thereon, thereunder, thereover or therein, and all appurtenances thereto and other aspects thereof) is suitable, sufficient, adequate and appropriate in all respects (including physical, structural, operational, legal, practical and otherwise) for its current and proposed use, operation and occupancy, except, in each such case, for such failures to meet such standards as would not, singly or in the aggregate, have a Material Adverse Effect.

 

(w)                                Insurance .  Each of the Issuers maintains reasonably adequate insurance covering its properties, operations, personnel and businesses against losses and risks in accordance with customary industry practice.  All such insurance is outstanding and duly in force.

 

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(x)                                    Real Property .  No condemnation, eminent domain, or similar proceeding exists, is pending or, to the knowledge of the Issuers, is threatened, with respect to or that could affect any real properties owned by the Issuers, except for such proceedings as would not, singly or in the aggregate, have a Material Adverse Effect.  No real property owned by the Issuers is subject to any sales contract, option, right of first refusal or similar agreement or arrangement with any third party.  There is no real property currently under contract or subject to an option in favor of any of the Issuers, except for real property which the failure of the Issuers to acquire, would not, singly or in the aggregate, have a Material Adverse Effect.

 

(y)                                  Related Party Transactions .  Except as disclosed in the Offering Circular, there are no related party transactions that would be required to be disclosed in the Offering Circular if the Offering Circular were a prospectus included in a registration statement on Form S-1 filed under the Act.

 

(z)                                    Security Interests .  Upon execution and delivery of the Collateral Agreements and the issuance of the Notes, the Parent Pledge Agreements (upon receipt of the requisite Nevada gaming approvals) and the other Collateral Agreements will create, in favor of the Secured Party, for the benefit of the holders of the Notes, a legal, valid and enforceable security interest in (subject to Permitted Liens), all of the right, title and interest of the Issuers in the Collateral and the proceeds thereof.  Upon the filing of the financing statements with the Secretary of State (or equivalent government official) of the State in which such Issuer is organized which sufficiently indicates all Collateral, and, in addition, in the case of the Parent Pledge Agreements, upon receipt of the requisite Nevada gaming approvals, the Security Interests will be valid and perfected, subject only to the Intercreditor Agreement, and will constitute first priority security interests (subject to Permitted Liens) in such Collateral.  As of the Closing Date, the Collateral will be subject to no Liens other than Permitted Liens.

 

(aa)                             Taxes .  All material tax returns required to be filed by either of the Issuers in any jurisdiction (including foreign jurisdictions) have been filed and, when filed, all such returns were accurate in all material respects, and all taxes, assessments, fees and other charges (including, without limitation, withholding taxes, penalties and interest) due or claimed to be due from either of the Issuers have been paid, other than those being contested in good faith by appropriate proceedings, or those that are currently payable without penalty or interest and, in each case, for which an adequate reserve or accrual has been established on the books and records of the Issuers, as applicable, in accordance with generally accepted accounting principles of the United States, consistently applied (“ GAAP ”).  Commencing with their respective inceptions (i) the Company has been and continues to be, classified as a “partnership” and not as a “publicly traded partnership,” and not as an “association” classified as a corporation, for federal income tax purposes, and

 

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(ii) Finance Corp. has been, and continues to be, classified as a “C corporation,” for federal income tax purposes.  There are no actual or proposed additional tax assessments for any tax period against either of the Issuers that could, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.  The charges, accruals and reserves on the books and records of the Issuers, as applicable, in respect of any tax liability for any tax periods not finally determined are adequate to meet any assessments of tax or re-assessments of additional tax for any such period.

 

(bb)                           Intellectual Property .  The Issuers own, possess or are licensed under, and have the right to use, all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, “ Intellectual Property ”) currently used in, and material to the conduct of, their businesses, free and clear of all Liens, other than Permitted Liens.  To the knowledge of the Issuers, no claims have been asserted by any person challenging the use of any such Intellectual Property by either of the Issuers or questioning the validity or effectiveness of any license or agreement related thereto, and there is no valid basis for any such claim, and the use of such Intellectual Property by the Issuers will not infringe on the Intellectual Property rights of any other person.

 

(cc)                             Accounting Controls .  The Issuers maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) material transactions are executed in accordance with management’s general or specific authorization, (ii) material transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any material differences.

 

(dd)                           Financial Statements .  The audited historical financial statements and related notes of the Company and the audited historical combined financial statements of Hotel San Remo Casino and Resort (a division of S.I. Enterprises, Inc.) contained in the Offering Circular (the “ Issuer Financial Statements ”) present fairly the financial position, results of operations and cash flows for the Company and the combined financial position, results of operations and cash flows of Hotel San Remo Casino and Resort (a division of S.I. Enterprises, Inc.), respectively, as of the respective dates and for the respective periods to which they apply, and have been prepared in accordance with GAAP consistently applied throughout the periods involved and the requirements of Regulation S-X that would be applicable if the Offering Circular were a prospectus included in a registration statement on

 

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Form S-1 filed under the Act (the “ S-X Requirements ”).  The summary and selected historical financial data included in the Offering Circular for the Company and the Hotel San Remo Casino and Resort (a division of S.I. Enterprises, Inc.) have been prepared on a basis consistent with that of the Issuer Financial Statements and present fairly the financial position and results of operations of the Company and the combined financial position and results of operations of Hotel San Remo Casino and Resort (a division of S.I. Enterprises, Inc.), respectively, combined, as of the respective dates and for the respective periods indicated.

 

All other financial, statistical and market and industry related data included in the Offering Circular are fairly and accurately presented and are based on or derived from sources the Issuers believe to be reliable and accurate. Ernst & Young LLP are independent public accountants with respect to the Issuers and Hotel San Remo Casino and Resort (a division of S.I. Enterprises, Inc.).

 

(ee)                             No Material Adverse Chang e.  Subsequent to the respective dates as of which information is given in the Offering Circular, except as disclosed in the Offering Circular, (i) neither of the Issuers has incurred any liabilities, direct or contingent, that are material, singly or in the aggregate, to any of them, or has entered into any material transactions not in the ordinary course of business, (ii) there has not been any material decrease in the capital stock or membership interests, as the case may be, or any material increase in long-term indebtedness or any material increase in short-term indebtedness of either of the Issuers, or any payment of or declaration to pay any dividends or any other distribution with respect to either of the Issuers, and (iii) there has not been any material adverse change in the proper