SECURITIES PURCHASE AGREEMENT

Exhibit 10.1

Execution Version

SECURITIES PURCHASE AGREEMENT

By and Among

MORGANS HOTEL GROUP CO.

and

YUCAIPA AMERICAN ALLIANCE FUND II, L.P.,

and

YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND II, L.P.,

Dated as of October 15, 2009

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LIST OF EXHIBITS

SECURITIES PURCHASE AGREEMENT, dated as of October 15, 2009 (the “ Agreement ”), by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “ Company ”), and YUCAIPA AMERICAN ALLIANCE FUND II, L.P., a Delaware limited partnership (“ YAAF II ”), and YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND II, L.P., a Delaware limited partnership (“ YAAF II-P ” and together with YAAF II, the “ Investors ”).

A. WHEREAS, the Investors desire to purchase from the Company, and the Company desires to issue and sell to the Investors, against payment of the Investment Amount and pursuant to the terms and conditions set forth in this Agreement, (a) 75,000 shares of the Company’s preferred stock, par value $0.01 per share, designated as Series A Preferred Securities (the “ Preferred Securities ”), having the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions as specified in the Certificate of Designations of the Series A Preferred Securities of the Company in the form attached hereto as Exhibit A (the “ Certificate of Designations ”), and (b) warrants in the form attached hereto as Exhibit B (the “ Warrants ” and, together with the Preferred Securities, the “ Investor Securities ”) to acquire 12,500,000 shares (the “ Underlying Shares ”) of the Company’s common stock, par value $0.01 per share (“ Common Stock ”);

B. WHEREAS, concurrently with the execution and delivery of this Agreement, the Company and Yucaipa American Alliance Fund II, LLC, a Delaware limited liability company (“ Yucaipa Manager ”), are entering into the Real Estate Fund Formation Agreement, dated as of this date, in the form attached hereto as Exhibit C (the “ Real Estate Fund Formation Agreement ”);

C. WHEREAS, concurrently with the execution and delivery of this Agreement, the Company and the Investors are entering into a Registration Rights Agreement, dated as of this date, in the form attached hereto as Exhibit D (the “ Registration Rights Agreement ” and, together with the Real Estate Fund Formation Agreement, the “ Ancillary Agreements ”).

NOW, THEREFORE, in consideration of the foregoing and the promises and representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:

ARTICLE 1

Defined Terms

As used in this Agreement, the following terms shall have the following meanings:

“ Action ” means any suit, action, proceeding (including any compliance, enforcement or disciplinary proceeding), arbitration, formal or informal inquiry,

inspection, investigation or formal order of investigation or complaint, or other litigation of any kind, in each case whether civil, criminal or administrative, at law or in equity.

“ Affiliate ” of any person means another person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person. A person shall be deemed to control another person if such first person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of such other person, whether through the ownership of voting securities, by contract or otherwise; provided , that, the existence of a management contract primarily for operational services provided by the Company or an Affiliate of the Company shall not be deemed to be control by the Company or such Affiliate, as the case may be.

“ Agreement ” has the meaning assigned to such term in the Preamble.

“ Ancillary Agreements ” has the meaning assigned to such term in Recital C.

“ Applicable Law ” means all applicable constitutions, statutes, laws, rules, regulations, ordinances and Judgments of Governmental Entities.

“ Appointment Resolutions ” means the resolutions of the Board of Directors (a) to fix the number of directors of the Board of Directors at nine (9) pursuant to Section 2.1 of the By-Laws, and (b) to appoint the Investor Nominee to fill the single vacancy of the nine-member Board of Directors caused by the Resignations pursuant to Article Seventh of the Charter and Section 2.2 of the By-Laws.

“ Benefit Arrangement ” means, at any time, an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group.

“ Board of Directors ” has the meaning assigned to such term in Section 3.2(a).

“ Business Day ” means any day except Saturday, Sunday or a day on which banking institutions in the State of New York generally are authorized or required by law to be closed.

“ By-Laws ” means the By-Laws of the Company, dated as of February 9, 2006, in the form provided to the Investors as an annex to the secretary’s certificate delivered to the Investors pursuant to Section 2.2.1(c)(i) .

“ Capital Lease Obligations ” of any person means the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“ Certificate of Designations ” has the meaning assigned to such term in Recital A.

“ Charter ” means the Amended and Restated Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware on February 9, 2006, in the form provided to the Investors as an annex to the secretary’s certificate delivered pursuant to Section 2.2.1(c)(i) .

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Collective Bargaining Agreement ” means any collective bargaining agreement or any other labor-related agreement with any labor union or labor organization to which the Company or any of its subsidiaries is a party.

“ Common Stock ” has the meaning assigned to such term in Recital A.

“ Common Stock Board Condition ” has the meaning assigned to such term in Section 5.7(b)(i) .

“ Company ” has the meaning assigned to such term in the Preamble.

“ Company Disclosure Schedules ” has the meaning assigned to such term in the introductory statement to ARTICLE 3 .

“ Company Indemnified Parties ” has the meaning assigned to such term in Section 6.1(b) .

“ Company Notice ” has the meaning assigned to such term in Section 5.14(b) .

“ Confidentiality Agreement ” means that certain Confidentiality Agreement, dated as of August 13, 2009, by and between the Company and The Yucaipa Companies, LLC.

“ Contract ” means any contract, agreement, lease, purchase order, license, mortgage, indenture, supplemental indenture, line of credit, note, bond, loan, credit agreement, capital lease, sale/leaseback arrangement, concession agreement, franchise agreement or other instrument, including all amendments, supplements, exhibits and attachments thereto.

“ Designated Transaction ” has the meaning assigned to such term in Section 5.6 .

“ Designated Transaction Notice ” has the meaning assigned to such term in Section 5.6 .

“ Encumbrance ” means any lien, encumbrance, security interest, pledge, mortgage, hypothecation, charge, restriction on transfer of title, adverse claim, title retention agreement of any nature or kind, or similar claim or right.

“ Environmental Laws ” means any Applicable Law relating to environmental protection or the manufacture, storage, remediation, disposal or clean-up of Hazardous Materials including the following: Clean Air Act, 42 U.S.C. § 7401 et seq.; Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §

9601 et seq.; National Environmental Policy Act, 42 U.S.C. § 4321 et seq.; regulations of the Environmental Protection Agency and any applicable rule of common law and any judicial interpretation thereof relating primarily to the environment or Hazardous Materials.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as in effect from time to time.

“ ERISA Group ” means the Company, any subsidiary of the Company and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) which, together with the Company or any subsidiary of the Company, are treated as a single employer under Section 414 of the Code.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Financial Statements ” has the meaning assigned to such term in Section 3.12(b) .

“ GAAP ” means generally accepted accounting principles in the United States of America as in effect from time to time.

“ Gaming Authorities ” means any Governmental Entity with regulatory control, authority or jurisdiction over casino, pari-mutuel and lottery or other gaming activities and operations within the State of Nevada, including the Nevada Gaming Commission, the Nevada State Gaming Control Board, the Clark County Liquor and Gaming Licensing Board and the City of Las Vegas.

“ Gaming Laws ” means all Laws pursuant to which any Gaming Authority possesses regulatory, licensing or permit authority over, casino and pari-mutuel, lottery or other gaming activities in any jurisdiction, including all rules and regulations established by any Gaming Authority.

“ Governmental Authorizations ” means, collectively, all applicable consents, approvals, permits, orders, authorizations, licenses and registrations, given or otherwise made available by or under the authority of Governmental Entities or pursuant to the requirements of any Applicable Law, including liquor licenses, business licenses required for any form of public amusement or accommodation, and all such consents, approvals, permits, orders, authorizations, licenses and registrations under Gaming Laws.

“ Governmental Entity ” means any domestic or foreign, transnational, national, Federal, state, municipal or local government, or any other domestic or foreign governmental, regulatory or administrative authority, or any agency, board, department, commission, court, tribunal or instrumentality thereof.

“ Guarantee ” means, as to any person, any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other financial obligation of another person (the “ primary obligor ”) in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other financial obligation, (ii) to purchase or lease

property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other financial obligation, (iii) to maintain working capital, equity capital, or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other financial obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or financial performance thereof or to protect such obligee against loss in respect thereof (in whole or in part). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made. The term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business or non-mandatory rights to make a remedial payment or to take any action following the failure of performance tests in connection with management contracts primarily for operational services provided by the Company or an Affiliate of the Company.

“ Hazardous Materials ” means all or any of the following: (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable Environmental Laws as “hazardous substances”, “hazardous materials”, “hazardous wastes”, “toxic substances” or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, “TCLP” toxicity or “EP toxicity”; (b) oil, petroleum or petroleum derived substances, natural gas, natural gas liquids or synthetic gas and drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (c) any explosives or any radioactive materials; (d) asbestos and asbestos-containing materials in any form; (e) toxic mold; (f) lead and lead paint; and (g) polychlorinated biphenyls.

“ Hedging Transaction ” has the meaning assigned to such term in Section 5.9 .

“ HSR Act ” means Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder,

“ including ” means including, without limitation.

“ Indebtedness ” of any person means, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid, (d) all obligations of such person under conditional sale or other title retention agreements relating to property acquired by such person, (e) all obligations of such person in respect of the deferred purchase price of property or services (excluding trade accounts payable and other accrued obligations, in each case incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property owned or acquired by such person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations, contingent or otherwise, of such person as an account party in respect of

letters of credit and letters of guaranty, and (j) all obligations, contingent or otherwise, of such person in respect of bankers’ acceptances. The Indebtedness of any person shall include the Indebtedness of any other entity (including any partnership in which such person is a general partner) to the extent such person is liable therefor as a result of such person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such person is not liable therefor. Notwithstanding the foregoing, in connection with any acquisition by any person, the term “Indebtedness” shall not include contingent post-closing purchase price adjustments or earn-outs to which the seller in such acquisition may become entitled.

“ Indemnified Party ” has the meaning assigned to such term in Section 6.1(c) .

“ Indemnitor ” has the meaning assigned to such term in Section 6.1(c) .

“ Intellectual Property ” has the meaning assigned to such term in Section 3.5 .

“ Investor ” has the meaning assigned to such term in the Preamble.

“ Investor Indemnified Parties ” has the meaning assigned to such term in Section 6.1(a) .

“ Investor Nominee ” has the meaning assigned to such term in Section 5.7 .

“ Investor Proposal ” has the meaning assigned to such term in Section 5.6 .

“ Investor Securities ” has the meaning assigned to such term in Recital A.

“ Investment Amount ” has the meaning assigned to such term in Section 2.1 .

“ Joint Venture ” means any joint venture or similar business entity, whether organized as a general or limited partnership, limited liability company or otherwise, to which the Company or any of its subsidiaries is a party, including without limitation each of the “unconsolidated joint ventures” described to in the Company’s most recent Annual Report on Form 10-K filed pursuant to the Exchange Act and the rules and regulations thereunder. Any subsidiary of the Company shall not be a Joint Venture.

“ Judgment ” means any applicable judgment, order or decree of any Governmental Entity.

“ JV Guarantee ” has the meaning assigned to such term in Section 3.22(c) .

“ knowledge of the Company, ” “ to the Company’s knowledge ” or other references to the “knowledge” of the Company mean the actual knowledge of the particular fact in question by (i) any officer of the Company who has the title of Executive Vice President or a more senior title or (ii) any attorney working in the office of the General Counsel of the Company; provided , that for purposes of Section 3.6 , “ knowledge of the Company, ” “ to the Company’s knowledge ” or other references to the “knowledge” of the Company mean the actual knowledge of the particular fact in question by (x) any officer of the Company who has the title of Executive Vice President or a more senior title, (y) any attorney working in the office of the General Counsel of the Company, or (z) the general

manager (or equivalent) of each of the properties listed on Schedule 3.6 of the Company Disclosure Schedules.

“ Labor Laws ” means any Applicable Law relating to employment standards, employee rights, health and safety, labor relations, workplace safety and insurance or pay equity.

“ Losses ” means all liabilities, costs, expenses, obligations, losses, damages (excluding consequential, special, incidental, indirect or punitive damages), penalties, actions, judgments and claims of any kind or nature (including reasonable attorneys’ fees and expenses incurred in investigation or defending any of the foregoing).

“ Material Adverse Effect ” means any material adverse effect on (i) the business, results of operations or financial condition of the Company and its subsidiaries, taken as a whole (other than (a) any change, event, occurrence or development that generally affects the industry in which the Company and its subsidiaries operate and does not disproportionately effect (relative to other industry participants) the Company and its subsidiaries, (b) any change, event, occurrence or development to the extent attributable to conditions generally affecting (I) the industries in which the Company participates that does not have a materially disproportionate effect (relative to other industry participants) on the Company and its subsidiaries, (II) the U.S. economy as a whole, or (III) the equity capital markets generally, and (c) any change, event, occurrence or development that results from any action taken by the Company at the request of an Investor or as required by the terms of this Agreement or the Ancillary Agreements) or (ii) the ability of the Company to perform its obligations hereunder or under the Ancillary Agreements.

“ Material Contract ” means any Contract of a type described in Item 6.01 of Regulation S-K.

“ Material Indebtedness ” means, with respect to a person, (a) any Indebtedness of such person in excess of $5,000,000, or (b) any Contract pursuant to which such person has the right to incur Indebtedness in excess of $5,000,000.

“ Multiemployer Plan ” has the meaning assigned to such term in Section 3.10(b) .

“ Nasdaq ” means the Nasdaq Global Select Market (or a successor entity thereto).

“ New Securities ” means any debt or equity securities of the Company, whether or not now authorized, and securities or rights of any type issued by the Company that are, or by their terms may become, convertible into or exchangeable or exercisable for debt or equity securities of the Company.

“ Operating Company ” means Morgans Group LLC, a Delaware limited liability company.

“ Owned Real Property ” has the meaning assigned to such term in Section 3.4(a) .

“ PBGC ” means the Pension Benefit Guaranty Corporation and any successor agency.

“ Permitted Encumbrances ” means: (i) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlords’ and other like Encumbrances imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in good faith by appropriate proceedings with appropriate reserves established; (ii) Encumbrances for Taxes, utilities and other governmental charges that, in each case, are not overdue by more than 30 days or are being contested in good faith by appropriate proceedings with appropriate reserves established; (iii) pledges and deposits made in the ordinary course of business pursuant to workers’ compensation, unemployment insurance and other social security laws or regulations; (iv) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (v) easements, zoning restrictions, rights-of-way and similar Encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not, individually or in the aggregate, materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Company and its subsidiaries; (vi) matters of record or registered Encumbrances affecting title to any owned or leased real property of a person and its subsidiaries, (vii) statutory Encumbrances of landlords for amounts not yet due and payable; and (viii) de minimis defects, irregularities or imperfections of title and other Encumbrances which, individually or in the aggregate, do not materially impair the continued use (in a manner generally consistent with current use in the business of the person and its subsidiaries) of the asset or property to which they relate.

“ person ” means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, Governmental Entity or other entity.

“ Plan ” means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (a) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (b) has at any time within the preceding five years been maintained, or contributed to, by any person which is currently or was at such time a member of the ERISA Group for employees of any person which is currently or was at such time a member of the ERISA Group.

“ Preferred Securities ” has the meaning assigned to such term in Recital A.

“ Pro Rata Amount ” means, at any time with respect to each Investor, as of any date of determination, the ratio of (i) the number of shares of Common Stock that such Investor holds (beneficially or of record) or has the right to acquire by exercise of the Warrants or the REF Warrants (whether or not such Warrants or REF Warrants are then exercisable) as of such date, to (ii) the total number of shares of Common Stock issued and outstanding as of such date.

“ Real Estate Fund Formation Agreement ” has the meaning assigned to such term in Recital B.

“ Real Property ” means, collectively, the Owned Real Properties and the properties leased pursuant to the Real Property Leases.

“ Real Property Lease ” has the meaning assigned to such term in Section 3.4(b) .

“ Recent Balance Sheet ” means the consolidated balance sheet of the Company and its consolidated subsidiaries as of June 30, 2009 included in the Financial Statements.

“ REF Warrants ” means the warrants to acquire Common Stock issued to Yucaipa Manager on the date hereof pursuant to the Real Estate Fund Formation Agreement.

“ REF Underlying Shares ” means the shares of Common Stock issuable upon exercise of the REF Warrants.

“ Registration Rights Agreement ” has the meaning assigned to such term in Recital C.

“ Resignations ” has the meaning assigned to such term in Section 5.7(a)(i) .

“ Rights Plan ” means the Amended and Restated Stockholder Protection Rights Agreement, dated as of October 1, 2009, by and between the Company and Mellon Investor Services LLC, as rights agent.

“ Rights Plan Amendment ” means the amendment to the Rights Plan in the form attached hereto as Exhibit E .

“ ROFR Notice ” has the meaning assigned to such term in Section 5.14(a) .

“ Rules ” has the meaning assigned to such term in Section 5.3 .

“ SEC ” means the Securities and Exchange Commission.

“ SEC Reports ” has the meaning assigned to such term in Section 3.12(a) .

“ Securities Act ” means the Securities Act of 1933, as amended.

“ SOX ” means the Sarbanes-Oxley Act of 2002.

“ subsidiary ” of any person means, on any date, any person the accounts of which would be consolidated with and into those of the first person in such person’s consolidated financial statements if such financial statement were prepared in accordance with GAAP.

“ Surviving Representation ” has the meaning assigned to such term in Section 6.1 .

“ Tax ” means any foreign, Federal, state or local income, sales and use, excise, franchise, real and personal property, gross receipt, capital stock, production, business and occupation, disability, estimated, employment, payroll, severance or withholding tax, value-added tax or other tax, duty, fee, impost, levy, assessment or charge imposed by

any taxing authority, and any interest or penalties and other additions to tax related thereto.

“ Tax Returns ” means any return, report, claim for refund, declaration, information return or other document required to be filed with any Tax authority with respect to Taxes, including any amendments thereof.

“ Third Party ” means any person other than the Company, the Investors, or any of their respective subsidiaries or Affiliates.

“ Third Party Claim ” has the meaning assigned to such term in Section 6.1(c) .

“ Underlying Shares ” has the meaning assigned to such term in Recital A.

“ Voting Debt ” means bonds, debentures, notes or other debt securities having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) generally in the election of directors of the Company or other matters on which holders of the Common Stock may vote.

“ Voting Stock ” of any person means securities having the right to vote generally in any election of directors or comparable governing persons of any such person.

“ Warrant ” has the meaning assigned to such term in Recital A.

“ YAAF II ” and “ YAAF II-P ” have the respective meanings assigned to such terms in the Preamble.

“ Yucaipa Manager ” has the meaning assigned to such term in Recital B.

ARTICLE 2

Issuance and Sale of Investor Securities

2.1 Issuance and Sale of the Investor Securities . On the terms and subject to the conditions set forth in this Agreement, the Company hereby issues, sells and delivers in certificated form to the Investors, and the Investors hereby purchase from the Company, the Investor Securities for an aggregate cash purchase price of $75,000,000 (the “ Investment Amount ”).

2.2 Deliveries .

2.2.1 Concurrently with the execution and delivery of this Agreement, the Company will deliver to:

(i) a secretary’s certificate, dated as of the date hereof, executed by the Company’s secretary, in the form attached hereto as Exhibit F ,

(ii) a duly executed counterpart of each Ancillary Agreement to which the Company is a party, and

(iii) an opinion letter of Sullivan & Cromwell LLP, as counsel to the Company, dated as of the date hereof, in the form attached hereto as Exhibit G ;

2.2.2 Concurrently with the execution and delivery of this Agreement, the following have been delivered to the Company by the applicable Investor:

2.3 Allocation of Investment Amount. The Company and the Investors agree to allocate the Investment Amount for all purposes, including financial accounting

and Tax purposes, $69,000,000 to the aggregate Preferred Securities issued hereby and $6,000,000 to the aggregate Warrants issued hereby. Neither the Company nor any Investor shall take any position inconsistent with such allocation unless required to do so by Applicable Law.

ARTICLE 3

Representations and Warranties
of the Company

Subject to the qualifications set forth in the corresponding sections of the disclosure schedules delivered by the Company to the Investors concurrently with the execution and delivery of this Agreement (the “ Company Disclosure Schedules ”) or in the SEC Reports (other than any “Risk Factors” section or “forward-looking statements” contained therein, any exhibits thereto, and any documents incorporated by reference therein), the Company hereby represents and warrants to the Investors as follows:

3.1 Entity Status . Each of the Company and its subsidiaries is duly incorporated or otherwise organized, validly existing and in good standing under the Applicable Laws of its governing jurisdiction and each has all requisite corporate or other power and authority to carry on its business as it is now being conducted and is duly qualified to do business in each of the jurisdictions in which the ownership, operation or leasing of its assets or the conduct of its business requires it to be so qualified, except where the failure to have such corporate or other power or authority or to be in good standing or so qualified, has not had and would not reasonably be expected to have a Material Adverse Effect, and no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power, authority or qualification.

3.2 Authorization; Noncontravention .

(a)  Authorization. The Company has all necessary corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The Company has delivered to the Investors a true and correct copy, certified by the Company’s secretary, of the resolutions of its board of directors (the “ Board of Directors ”) authorizing the execution and delivery of this Agreement and consummation of the transactions contemplated by this Agreement. Such resolutions are in full force and effect, have not been amended, supplemented, revoked or superseded as of the date hereof and are the only resolutions of the Board of Directors pertaining to the authorization, execution and delivery of this Agreement and the Ancillary Agreements and consummation of the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the Ancillary Agreements and the consummation by the Company of the transactions contemplated hereby and thereby, including the issuance (or reservation for issuance), sale and delivery of the Investor Securities, the Underlying Shares, the REF Warrants and the REF Underlying Shares and any redemptions of such Warrants and REF Warrants pursuant to the terms thereof, have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of the

Company or its subsidiaries or (except as contemplated by Section 5.3 ) vote of holders of any class or series of capital stock of the Company or its subsidiaries is necessary to authorize this Agreement or the Ancillary Agreements or to consummate the transactions contemplated hereby and thereby. This Agreement and the Ancillary Agreements have been duly executed and delivered by the Company and (assuming due authorization, execution and delivery by each other party thereto) each constitutes, a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); provided , that no representation is made hereby with respect to the enforceability of Section 5.7(b)(ii)(4) .

(b)  Preemptive Rights; Rights of First Offer. None of the sale and issuance of the Investor Securities pursuant to this Agreement and the issuance of Underlying Shares upon exercise thereof, or the issuance of the REF Warrants pursuant to the Real Estate Fund Formation Agreement and the issuance of the REF Underlying Shares upon exercise thereof, is or will be subject to any preemptive rights, rights of first offer or similar rights of any person.

(c)  No Conflict. The Company is not in violation or default of any provision of its Charter or By-Laws. Except as set forth in Schedule 3.2(c) of the Company Disclosure Schedules, the execution, delivery and performance by the Company of this Agreement and the Ancillary Agreements do not, and the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof will not, result in a “change of control” (or similar event) under, or conflict with, or result in any default under, or give rise to an increase in, or right of termination, cancellation, acceleration or mandatory prepayment of, any obligation or to the loss of a benefit under, or result in the suspension, revocation, impairment, forfeiture or amendment of any term or provision of or the creation of any Encumbrance upon any of the properties or assets of the Company or any of its subsidiaries under, or require any consent or waiver under, any provision of (i) the Charter, the By-Laws or the comparable organizational documents of any of the Company’s subsidiaries, (ii) any Material Contract, (iii) any Material Indebtedness, (iv) any Collective Bargaining Agreement, Multiemployer Plans or Benefit Plans or (v) any Applicable Law, Judgment or Governmental Authorization, in each case applicable to the Company and its subsidiaries or their respective assets, except in the case of (ii), (iii), (iv) or (v), to the extent it does not or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. No Governmental Authorization, order or authorization of, or registration, qualification, declaration or filing with, or notice to, any Governmental Entity is required to be obtained or made by or with respect to the Company or any of its subsidiaries in connection with the execution, delivery and performance of this Agreement or any of the Ancillary Agreements or the other transactions contemplated by this Agreement or the Ancillary Agreements, including the issuance of the Investor Securities, the Underlying Shares, the REF Warrants and the REF Underlying Shares (and any redemptions of the Warrants or REF Warrants pursuant to the terms thereof), except for (A) authorization of, or registration, qualification, declaration or filing with, or notice to, Gaming Authorities (which have been, or will be at the time required, duly

performed by the Company), (B) notice to or consultation with Nasdaq (which has been, or will be at the time required, duly performed by the Company), and (C) such Governmental Authorizations, orders, authorizations, registrations, declarations, filings and notices, the failure of which to be obtained or made would not materially impair the Company’s ability to perform its obligations under this Agreement or the Ancillary Agreements or to consummate the transactions contemplated hereby or thereby. Except as set forth in Schedule 3.2(c) of the Company Disclosure Schedules, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, either alone or in combination with another event (whether contingent or otherwise) will, to the knowledge of the Company, (1) result in the payment of any “excess parachute payment” under Section 280G of the Code, (2) entitle any current or former employee, consultant or director of the Company or any of its subsidiaries to any material payment other than pursuant to the terms of the Real Estate Fund Formation Agreement, (3) increase the amount of compensation or benefits due to any such employee, consultant or director other than pursuant to the terms of the Real Estate Fund Formation Agreement, or (4) accelerate the vesting, funding or time of payment of any compensation, equity award or other benefit. After giving effect to the Rights Plan Amendment, none of the execution and delivery of this Agreement, the execution and delivery of any of the Ancillary Agreements, or the consummation of any of the transactions contemplated hereby or thereby (including the issuance of the Warrants and the Underlying Shares upon exercise thereof and the issuance of the REF Warrants and the REF Underlying Shares upon exercise thereof) shall give any person the right to purchase any securities of the Company pursuant to, or shall otherwise trigger any comparable provisions under, the Rights Plan.

3.3 Capital Structure .

(a) The authorized capital stock of the Company consists of 200,000,000 shares of Common Stock and 40,000,000 shares of preferred stock. Of the 200,000,000 authorized shares of Common Stock, 29,648,096 shares are issued and outstanding, and only the following are reserved for issuance: 12,500,000 shares reserved for issuance in connection with the exercise of the Warrants, 6,415,327 shares reserved for issuance in connection with the exercise of warrants issued pursuant to hedging transactions, 5,000,000 shares reserved for issuance in connection with the exercise of the REF Warrants, and 16,468,755 shares reserved for issuance pursuant to the Company’s 2007 Amended and Restated Omnibus Incentive Plan and the Company’s 2.375% Senior Subordinated Convertible Notes due 2014. Of the 40,000,000 authorized shares of preferred stock, the only shares issued and outstanding are the Preferred Securities issued to the Investors, and no other shares of such preferred stock are reserved for issuance.

(b) Each share of Common Stock is duly authorized, validly issued, fully paid and nonassessable. The Preferred Securities, Warrants, Underlying Shares, REF Warrants, and REF Underlying Shares, have been duly authorized and are, or to the extent issued after the date hereof are reserved and will upon issuance be: (i) solely with respect to the Preferred Securities, Underlying Shares and REF Underlying Shares, validly issued, fully paid and nonassessable, (ii) not issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the Charter or By-Laws of the Company or any Contract to which the Company or any of its subsidiaries is a party or by which any of its

or their respective assets are bound, and (iii) free and clear of all Encumbrances (other than any Encumbrances created by the Investors). The Company has not issued any Voting Debt. Except as set forth in Schedule 3.3(b) of the Company Disclosure Schedules, there are no (A) outstanding obligations, options, warrants, convertible securities, exchangeable securities, securities or rights that are linked to the value of the Common Stock or other rights, agreements or commitments relating to the capital stock of the Company or that obligate the Company to issue or sell or otherwise transfer shares of capital stock of the Company or any securities convertible into or exchangeable for any shares of capital stock of the Company or any Voting Debt of the Company, (B) outstanding obligations of the Company to repurchase, redeem or otherwise acquire shares of capital stock of the Company, (C) voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of shares of capital stock of the Company (but only to the Company’s knowledge with respect to any such agreements to which neither the Company nor any subsidiary of the Company is a party), or (D) rights of first refusal, preemptive rights, subscription rights or any similar rights with respect to the capital stock of the Company under the Charter or By-Laws or any Contract to which the Company or any subsidiary of the Company is a party or by which any of its assets are bound. No provision of the Charter or the By-Laws would, directly or indirectly, restrict or impair the ability of the Investors or Yucaipa Manager, as applicable, to vote, or otherwise exercise the rights of a stockholder with respect to, the Preferred Securities, the Underlying Shares or the REF Underlying Shares, except as expressly set forth in the Certificates of Designations. Other than the Rights Plan, the Company does not have a “stockholder rights plan” or “poison pill” or any similar arrangement in effect.

(c)  Schedule 3.3(c) of the Company Disclosure Schedules sets forth a complete and accurate list of all subsidiaries of the Company and all Joint Ventures, including in each case each such entity’s name, its form of organization, its jurisdiction of incorporation or organization and the percentage of its outstanding capital stock or equity interests owned by the Company, a subsidiary of the Company or a Joint Venture (as applicable). The shares of outstanding capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable. Except as set forth in Schedule 3.3(c) of the Company Disclosure Schedules, the shares of outstanding capital stock or equity interests of the Company’s subsidiaries are (with respect to the Company’s material subsidiaries only) duly authorized, validly issued, fully paid and nonassessable, and (with respect to all of the Company’s subsidiaries) are held of record and beneficially owned by the Company or a subsidiary of the Company (as applicable). Except as set forth in Schedule 3.3(c) of the Company Disclosure Schedules, the shares of capital stock or equity interests of each Joint Venture that are owned by the Company or any subsidiary of the Company are duly authorized, validly issued, fully paid and nonassessable, and are held of record and beneficially owned by the Company or a subsidiary of the Company (as applicable). There is no Voting Debt of any subsidiary of the Company. Except as set forth in Schedule 3.3(c) of the Company Disclosure Schedules, there are no (i) outstanding obligations, options, warrants, convertible securities, exchangeable securities, securities or rights that are linked to the value of the Common Stock or other rights, agreements or commitments, in each case, relating to the capital stock or equity interests of the subsidiaries of the Company or that obligate the Company or its subsidiaries to issue or sell or otherwise transfer shares of the capital

stock or any securities convertible into or exchangeable for any shares of capital stock or any Voting Debt of any subsidiary of the Company, (ii) outstanding obligations of the subsidiaries of the Company to repurchase, redeem or otherwise acquire shares of their respective capital stock or equity interests, (iii) voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of shares of capital stock of the subsidiaries of the Company (but only to the Company’s knowledge with respect to any such agreements to which neither the Company nor any subsidiary of the Company is a party), or (iv) rights of first refusal, preemptive rights, subscription rights or any similar rights under any provision of the governing documents of any subsidiary of the Company.

(d) Other than the subsidiaries of the Company, the Joint Ventures and the subsidiaries thereof and other than as set forth in Schedule 3.3(c) of the Company Disclosure Schedules, there are no persons in which any of the Company or its subsidiaries owns any equity, membership, partnership, joint venture or other similar interest with a value in excess of $1,000,000.

3.4 Real Property .

(a) As of the date hereof, the Company and its subsidiaries own in fee simple the real property listed in Schedule 3.4(a) of the Company Disclosure Schedules (the “ Owned Real Property ”). The Company or the subsidiary indicated on such schedule has good and marketable title in fee simple, free and clear of Encumbrances (other than those set forth on Schedule 3.4(a) of the Company Disclosure Schedules and Permitted Encumbrances), to each Owned Real Property. Neither the Company nor any of its subsidiaries has received notice of any pending, and to the Company’s knowledge there is no threatened, condemnation proceeding with respect to any of the Owned Real Property.

(b)  Schedule 3.4(b) of the Company Disclosure Schedules lists all material leases and subleases, including all amendments, assignments, supplements and, to the Company’s knowledge, modifications thereto, under which the Company or any of its subsidiaries uses or occupies or has the right to use or occupy any real property and all material tenant leases and subleases as to which the Company or any of its subsidiaries is the lessor (the “ Real Property Leases ”) and specifies the remaining term of each Real Property Lease with respect to which the Company or any of its subsidiaries is the lessee and the amounts of rent payable per year thereunder. Each Real Property Lease is valid, binding and in full force and effect and no termination event (other than expirations in the ordinary course), notice of termination or non-renewal or condition or uncured default (or event which with notice or lapse of time, or both, would constitute a default) of a material nature on the part of the Company or the applicable subsidiary or the other party thereunder, exists under any Real Property Lease. The Company or the applicable subsidiary has a good and valid leasehold interest in each parcel of real property as to which it is a tenant under a Real Property Lease, and, to the Company’s knowledge, such leasehold estate is free and clear of all Encumbrances other than those set forth on Schedule 3.4(b) of the Company Disclosure Schedules and Permitted Encumbrances or those imposed by the applicable Real Property Leases. As of the date hereof, neither the Company nor any subsidiary of the Company has received notice of any pending, and to the Company’s knowledge there is no threatened, condemnation

proceedings with respect to any property leased pursuant to any of the Real Property Leases.

(c) Neither the Company nor any subsidiary of the Company uses or occupies any real property in the ordinary course of the business of the Company and its subsidiaries, other than the Owned Real Property, properties that are the subject of leases where the Company or any of its subsidiaries is the lessor, properties that are the subject of management or similar agreements under which the Company or any of its subsidiaries manages any portion of the businesses located on such real property, easements and properties that are the subject of a Real Property Lease.

3.5 Intellectual Property . Each of the Company and each of its subsidiaries owns, or has the right to use, all software, patents, trademarks, service marks, trade names, trade secrets and copyrights (collectively, “ Intellectual Property ”) material to the conduct of its businesses as currently conducted. Except as set forth on Schedule 3.5 of the Company Disclosure Schedules, since January 1, 2008, no material Action has been filed or threatened in writing by any person (i) with respect to the use of any such Intellectual Property by the Company or any subsidiary of the Company, (ii) challenging or questioning the validity of any such Intellectual Property owned by the Company or any subsidiary of the Company, or (iii) to the Company’s knowledge, challenging or questioning the validity of any such Intellectual Property that is used but not owned by the Company or any subsidiary of the Company. To the Company’s knowledge, the use of such Intellectual Property by the Company and its subsidiaries does not infringe on the rights of any person, except for such infringements as would not reasonably be expected to, individually or in the aggregate, give rise to any liabilities on the part of the Company or any of its subsidiaries that would reasonably be expected to have a Material Adverse Effect.

3.6 Environmental Matters . Each of the Company and its subsidiaries has obtained all Governmental Approvals which are required under Environmental Laws for the operation of the business as presently conducted and is in compliance with all terms and conditions of such Governmental Approvals, except as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. Except for any of the following matters that would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect, (i) the Company does not have knowledge of, and has not received any written notice of, any past, present, or future events, conditions, circumstances, activities, practices, incidents, actions, or plans that, with respect to the Company, any subsidiary of the Company or any of the Real Property, that would reasonably be expected to prevent compliance or continued compliance with Environmental Laws, or give rise to any common-law or legal liability, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, study, or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling or the emission, discharge, release or threatened release into the environment, of any Hazardous Material, and (ii) there is no Action pending or, to the Company’s knowledge, threatened, against the Company or any subsidiary of the Company relating to Environmental Laws. Notwithstanding any other representation and warranty in this Article 3, the representations and warranties contained in this Section 3.6 constitute the sole representations and warranties of the Company relating to any Environmental Law.

3.7 Legal Proceedings . Except as set forth in Schedule 3.7 of the Company Disclosure Schedules, there are no Actions pending or, to the Company’s knowledge, threatened, against the Company or any of its subsidiaries, which, if adversely determined, would reasonably be expected to have a Material Adverse Effect. There are no Actions pending or, to the Company’s knowledge, threatened against the Company or any of its subsidiaries, which, if adversely determined, would materially impair the Company’s ability to perform its obligations under this Agreement or the Ancillary Agreements or challenge the validity or enforceability of this Agreement or any Ancillary Agreement or seek to enjoin or prohibit the consummation of the transactions contemplated hereby or thereby. None of the Company or any of its subsidiaries is in default with respect to any material Judgment.

3.8 Taxes .

(a) Except as disclosed in the SEC Reports or in Schedule 3.8 of the Company Disclosure Schedules or except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect: (i) the Company and each of its subsidiaries have filed all Tax Returns required to be filed by them; (ii) all such Tax Returns are true, correct and complete; (iii) all Taxes due and owed by the Company and its subsidiaries (whether or not shown on any Tax Return) have been paid; (iv) neither the Company nor any of its subsidiaries currently is the beneficiary of any extension of time within which to file any Tax Return; (v) no claim has ever been made by a Governmental Authority in a jurisdiction where the Company or any of its subsidiaries does not file Tax Returns that the Company or any such subsidiary is or may be subject to taxation by that jurisdiction; (vi) there are no liens on any of the assets or properties of the Company or any of its subsidiaries that arose in connection with any failure (or alleged failure) to pay any Tax; (vii) there are no ongoing, pending or, to the Company’s knowledge, threatened audits, assessments, or other proceedings for or relating to any liability in respect of Taxes of the Company or any of its subsidiaries; (viii) neither the Company nor any of its subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency; and (ix) the Company and each of its subsidiaries have timely withheld and paid all Taxes required to have been wit