PREM14A 1 dprem14a.htm PREM14A PREM14A
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United States

Securities and Exchange Commission

Washington, D.C. 20549

Schedule 14A

(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

x

   Preliminary Proxy Statement    ¨    Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

¨

   Definitive Proxy Statement      

¨

   Definitive Additional Materials      

¨

   Soliciting Material Pursuant to §240.14a-12      

Landry’s Restaurants, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

¨ No fee required.

 

x Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

Landry’s Restaurants, Inc. common stock, par value $0.01 per share (“Landry’s Common Stock”)

 

 
  (2) Aggregate number of securities to which transaction applies:

7,280,296 shares of Landry’s Common Stock and 26,300 options to purchase Landry’s Common Stock.

 

 
  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

Calculated solely for the purpose of determining the filing fee. The transaction valuation is determined based upon the sum of (a) the product of (i) 7,280,296 shares of Landry’s Common Stock that are proposed to be converted into the right to receive the merger consideration and (ii) the merger consideration of $14.75 per share of Landry’s Common Stock and (b) an aggregate of $125,375 expected to be paid upon the cancellation of outstanding options having an exercise price less than $14.75 per share ((a) and (b) together, the “Total Consideration”). The filing fee, calculated in accordance with Exchange Act Rule 0-11(c)(1) and the Commission’s latest Fee Advisory was determined by multiplying the Total Consideration by .0000558 ($55.80 per million dollars).

 

 
  (4) Proposed maximum aggregate value of transaction:

$107,509,741

 

 
  (5) Total fee paid:

$5,999

 

 
¨ Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid:

  

 
  (2) Form, Schedule or Registration Statement No.:

  

 
  (3) Filing Party:

  

 
  (4) Date Filed:

  

 


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PRELIMINARY, SUBJECT TO COMPLETION, DATED DECEMBER 1, 2009

SPECIAL MEETING OF STOCKHOLDERS

, 2010

, 2010

Dear Fellow Stockholder:

You are cordially invited to attend a special meeting of stockholders of Landry’s Restaurants, Inc., a Delaware corporation, to be held on , 2010 at 10:00 a.m. Houston time, at Landry’s corporate office, 1510 West Loop South, Houston, Texas. The accompanying proxy statement provides information regarding the matters to be acted on at the special meeting, including any adjournment or postponement.

At the special meeting, you will be asked to consider and vote upon a proposal to approve an Agreement and Plan of Merger, dated as of November 3, 2009, which we refer to as the “merger agreement”, that we entered into with Fertitta Group, Inc., a Delaware corporation (“Parent”), Fertitta Merger Co., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), and, for certain limited purposes, Tilman J. Fertitta, our Chairman of the Board, Chief Executive Officer and President (“Mr. Fertitta”).

If the merger agreement is approved and the merger is consummated, each share of our common stock (other than shares of our common stock owned by Parent or Merger Sub, shares owned by stockholders who properly exercise dissenters’ rights of appraisal under Delaware law or shares of our common stock held in treasury by us) will be cancelled and converted automatically into the right to receive $14.75 in cash, without interest. Mr. Fertitta has agreed to contribute immediately prior to the merger $40.0 million in cash and all of the outstanding shares of our common stock that he beneficially owns to Parent in exchange for all of the common stock of Parent. Pursuant to the terms of the merger agreement, Merger Sub will be merged with and into us and we will continue as the surviving corporation and all of the outstanding shares of Merger Sub will be converted into equity interests in the surviving corporation. As a result of the merger, we will be privately owned and controlled by Mr. Fertitta through his ownership of all the equity interests in Parent. A copy of the merger agreement is included as Annex A to the accompanying proxy statement.

On November 3, 2009, our board of directors, after considering factors including the unanimous determination and recommendation of a special committee comprised entirely of outside, non-employee directors, unanimously determined (with Mr. Fertitta taking no part in the vote or the recommendations) that the merger agreement and the merger are advisable, fair to and in the best interests of us and our unaffiliated stockholders, and approved the merger agreement and the merger. In arriving at their recommendation of the merger agreement, our board of directors and the special committee carefully considered a number of factors which are described in the accompanying proxy statement. Our board of directors unanimously recommends (with Mr. Fertitta taking no part in such recommendation) that you vote “FOR” the approval of the merger agreement.

When you consider the recommendation of our board of directors to approve the merger agreement, you should be aware that some of our directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally.

The accompanying proxy statement provides you with detailed information about the special meeting, the merger agreement and the merger. You are urged to read the entire document carefully. You may also obtain more information about us from documents we have filed with the Securities and Exchange Commission (the “SEC”), which are available at the SEC’s Internet site at http://www.sec.gov.


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Regardless of the number of shares you own, your vote is very important. The merger cannot be completed unless the merger agreement is approved by the affirmative vote of both (i) a majority of the outstanding shares of our common stock not owned by Parent, Merger Sub, Mr. Fertitta or any of their respective affiliates, which we refer to as the “majority of the minority vote”, and (ii) a majority of the outstanding shares of our common stock. As of the date hereof, Mr. Fertitta controls approximately 55.0% of our voting power and has agreed to vote all of the outstanding shares of common stock owned beneficially or of record by him or his affiliates in favor of the merger agreement, which will ensure that the merger agreement is approved by a majority of the outstanding shares of our common stock but will not have any effect on whether the majority of the minority vote is obtained.

If you fail to vote on the approval of the merger agreement, the effect will be the same as a vote against approval of the merger agreement. If you do not vote in favor of the approval and adoption of the merger agreement and you fulfill the procedural requirements that are summarized in the accompanying proxy statement, Delaware law entitles you to a judicial appraisal of the fair value of your shares.

Once you have read the accompanying proxy statement, please vote on the proposals submitted to stockholders at the special meeting, whether or not you plan to attend the meeting, by signing, dating and mailing the enclosed proxy card or by voting your shares by telephone or Internet using the instructions on your proxy card. If you receive more than one proxy card because you own shares that are registered differently, please vote all of your shares shown on all of your proxy cards. If your shares are held in “street name” by your broker, your broker will be unable to vote your shares without instructions from you. You should instruct your broker to vote your shares, following the procedures provided by your broker. Failure to instruct your broker to vote your shares will have the same effect as voting against the approval of the merger agreement.

Voting by proxy will not prevent you from voting your shares in person in the manner described in the accompanying proxy statement if you subsequently choose to attend the special meeting.

On behalf of your board of directors, thank you for your cooperation and support.

Sincerely,

 

    

 

Michael S. Chadwick    Steven L. Scheinthal
Co-Chairman of the Special Committee    Director

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE MERGER, OR PASSED UPON THE FAIRNESS OR MERITS OF THE MERGER OR THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THE ENCLOSED PROXY STATEMENT. ANY CONTRARY REPRESENTATION IS A CRIMINAL OFFENSE.

The accompanying proxy statement is dated , 2010, and it and the proxy card are first being mailed to stockholders on or about , 2010.

IMPORTANT

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE SIGN, DATE AND PROMPTLY MAIL YOUR PROXY CARD OR VOTE BY TELEPHONE OR VIA THE INTERNET AT YOUR EARLIEST CONVENIENCE.

If you have any questions or need assistance voting your shares, please call MacKenzie Partners, Inc., which is assisting us in the solicitation of proxies, toll-free at 1-800-322-2885.

 

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LANDRY’S RESTAURANTS, INC.

NOTICE OF SPECIAL MEETING

TO BE HELD , 2010

On , 2010, Landry’s Restaurants, Inc. will hold a special meeting of stockholders at 1510 West Loop South, Houston, Texas. The meeting will begin at 10:00 a.m. Houston time.

Only holders of shares of our common stock, par value $0.01 per share, of record at the close of business on , 2010, may vote at this meeting or at any adjournments or postponements thereof that may take place. At the meeting stockholders will be asked to:

 

   

consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as of November 3, 2009, which we refer to as the “merger agreement”, that we entered into with Fertitta Group, Inc., a Delaware corporation (“Parent”), Fertitta Merger Co., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), and, for certain limited purposes, Tilman J. Fertitta (“Mr. Fertitta”);

 

   

approve the adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the foregoing proposal; and

 

   

transact such other business as may properly come before the special meeting or any adjournment or postponement of the special meeting.

Our board of directors (with Mr. Fertitta taking no part in the vote or recommendation) has unanimously approved the merger agreement and the merger, determined that the merger agreement and merger are advisable, fair to and in the best interest of us and our unaffiliated stockholders and recommends that you vote “FOR” the approval of the merger agreement. In addition, our board of directors (with Mr. Fertitta taking no part in the vote or recommendation) unanimously recommends that you vote “FOR” the adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement.

When you consider the recommendation of our board of directors to approve the merger agreement, you should be aware that some of our directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally, which are discussed in more detail in the accompanying proxy statement.

Regardless of the number of shares you own, your vote is very important. The merger cannot be completed unless the merger agreement is approved by the affirmative vote of both (i) a majority of the outstanding shares of our common stock not owned by Parent, Merger Sub, Mr. Fertitta or any of their respective affiliates, which we refer to as the “majority of the minority vote”, and (ii) a majority of the outstanding shares of our common stock, which, together with the majority of the minority vote, we refer to as the “requisite stockholder vote”. As of the date hereof, Mr. Fertitta controls approximately 55.0% of our voting power and has agreed to vote all of the outstanding shares of common stock owned beneficially or of record by him or his affiliates in favor of the merger agreement, which will ensure that the merger agreement is approved by a majority of the outstanding shares of our common stock but will not have any effect on whether the majority of the minority vote is obtained.

If you fail to vote on the merger agreement, the effect will be the same as a vote against the approval of the merger agreement. If you do not vote in favor of the approval and adoption of the merger agreement and you fulfill the procedural requirements that are summarized in the accompanying proxy statement, Delaware law entitles you to a judicial appraisal of the fair value of your shares.

 

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We hope you will be able to attend the meeting, but whether or not you plan to attend, please vote your shares by:

 

   

signing and returning the enclosed proxy card as soon as possible;

 

   

calling the toll-free number listed on the proxy card; or

 

   

accessing the Internet as instructed on the proxy card.

Voting by proxy will not prevent you from voting your shares in person in the manner described in the accompanying proxy statement if you subsequently choose to attend the special meeting. If you hold your shares in “street name” through a bank, broker or custodian, you must obtain a legal proxy from such custodian in order to vote in person at the meeting. You should not send in your certificates representing shares of our common stock until you receive written instructions to do so.

BY ORDER OF THE BOARD OF DIRECTORS,

 

 

Steven L. Scheinthal
Secretary

 

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TABLE OF CONTENTS

 

     Page

SUMMARY TERM SHEET

   1

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

   11

What is the proposed transaction?

   11

What happens if the merger is not consummated?

   11

What will our stockholders receive when the merger occurs?

   11

Why am I receiving this proxy statement and proxy card?

   12

Where and when is the special meeting?

   12

What matters will be voted on at the special meeting?

   12

Who is entitled to vote at the special meeting?

   12

What happens if I sell my shares of common stock before the special meeting?

   12

May I attend the special meeting?

   12

What constitutes a quorum for the special meeting?

   12

What vote is required to approve the merger agreement and to approve the adjournment of the meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement?

   13

Why is my vote important?

   13

What if the merger receives the majority vote but not the majority of the minority vote?

   13

How does our board of directors recommend that I vote on the proposals?

   14

How do our directors and executive officers intend to vote?

   14

How do I vote?

   14

If my shares are held in “street name” by my broker, banker or other nominee will my broker or banker vote my shares for me?

   14

What does it mean if I receive more than one proxy card?

   15

May I change my vote?

   15

How are votes counted?

   15

Should I send in my stock certificates now?

   15

When can I expect to receive the merger consideration for my shares?

   15

I do not know where my stock certificate is. How will I get my cash?

   16

When do you expect the merger to be completed?

   16

What are the material U.S. federal income tax consequences of the merger to stockholders?

   16

Do stockholders have appraisal rights?

   16

Who is soliciting my vote?

   16

What should I do now?

   16

Who can help answer my questions?

   16

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

   17

SPECIAL FACTORS

   19

Background of the Merger

   19

Recommendation of the Special Committee and Board of Directors; Reasons for Recommending Approval of the Merger Agreement

   29

Opinion of Moelis & Company

   37

Financial Analyses

   38

Comparable Public Trading Multiples Analysis

   39

Precedent Transaction Analysis

   42

Discounted Cash Flow Analysis

   45

Illustrative Leveraged Buyout Analysis

   45

Position of Tilman J. Fertitta, Parent, and Merger Sub as to Fairness

   46

 

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     Page

Purposes and Reasons of Tilman J. Fertitta for the Merger

   47

Purposes and Reasons for the Merger of Parent and Merger Sub

   47

Purposes, Reasons and Plans for Us After the Merger

   47

Effects of the Merger

   48

Conduct of Our Business if the Merger is Not Completed

   50

Interests of Tilman J. Fertitta

   50

The Voting Agreement

   50

Interests of Our Directors and Officers

   51

Special Committee

   52

Indemnification and Insurance

   52

Arrangements with Respect to Us and Parent Following the Merger

   53

Capitalization of Parent Immediately Following the Merger

   53

Capitalization of Landry’s Immediately Following the Merger

   53

Financing of the Merger

   53

Cash and Equity Contributions by Tilman J. Fertitta

   55

Debt Financing

   55

Senior Secured Credit Facility

   55

Senior Secured Notes

   56

Other Debt Outstanding

   57

Fees and Expenses of the Merger

   58

Regulatory Approvals

   58

Accounting Treatment of the Merger

   59

Provisions for Unaffiliated Security Holders

   59

Appraisal Rights of Stockholders

   59

Projected Financial Information

   60

Summary Financial Projections as of October 27, 2009

   61

Material United States Federal Income Tax Consequences

   62

Litigation Related to the Merger

   64

IMPORTANT INFORMATION REGARDING THE PARTIES TO THE TRANSACTION

   66

Fertitta Group, Inc.

   66

Fertitta Merger Co.

   66

Tilman J. Fertitta

   66

THE SPECIAL MEETING

   67

Date, Time and Place

   67

Purpose

   67

Our Board Recommendation

   67

Record Date, Outstanding Shares and Voting Rights

   67

Vote Required

   67

Voting of Proxies

   68

Revocation of Proxies

   69

Solicitation of Proxies and Expenses

   69

Adjournment of the Special Meeting

   69

THE MERGER AGREEMENT

   70

The Merger

   70

Closing; Effective Time

   70

Merger Consideration

   70

Treatment of Options and Restricted Stock

   71

Payment for the Shares of Our Common Stock

   71

Appraisal Rights

   72

 

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     Page

Representations and Warranties

   72

Conduct of Business Prior to Closing

   75

Agreement to Use Commercially Reasonable Efforts; Consents and Governmental Approvals

   76

Special Meeting

   79

Access to Information

   80

Debt Financing

   80

Solicitation of Other Offers

   81

Notices of Certain Events

   84

Indemnification and Insurance

   84

Public Announcements

   85

Control of Operations

   85

Conditions to the Merger

   85

Termination of the Merger Agreement

   86

Termination Fees and Expenses

   88

Fertitta Voting Agreement

   91

Limited Guarantee

   92

Amendment and Waiver

   92

Specific Performance

   93

Remedies

   93

Fees and Expenses

   93

APPRAISAL RIGHTS

   93

OTHER MATTERS

   96

Other Matters for Action at the Special Meeting

   96

Future Stockholder Proposals

   96

Householding of Special Meeting Materials

   96

OTHER IMPORTANT INFORMATION REGARDING US

   97

Our Directors and Executive Officers

   97

Selected Historical Consolidated Financial Data

   98

Discontinued Operations

   99

Price Range of Common Stock, Dividend Information and Stock Repurchases

   100

Security Ownership of Certain Beneficial Owners and Management

   102

Security Ownership of Parent and Merger Sub

   103

Ratio of Earnings to Fixed Charges

   103

Book Value Per Share

   104

WHERE YOU CAN FIND MORE INFORMATION

   104

Annex A—Agreement and Plan of Merger

   A-1

Annex B—Opinion of Moelis & Company

   B-1

Annex C—Section 262 of the Delaware General Corporation Law

   C-1

Revocable Proxy

   P-1

 

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SUMMARY TERM SHEET

The following summary and “Questions and Answers About the Special Meeting and the Merger” highlight selected information contained in this proxy statement. These sections may not contain all of the information that might be important in your consideration of the proposed merger. We encourage you to read carefully this proxy statement in its entirety, including the annexes and the documents we have incorporated by reference into this proxy statement, before voting. See “Where You Can Find More Information” beginning on page . In this proxy statement, the terms “Landry’s”, the “Company”, “we”, “our”, “ours” and “us” refer to Landry’s Restaurants, Inc. and its subsidiaries. Where appropriate, we have set forth a section and page reference directing you to a more complete description of the topics described in this summary.

The Parties to the Merger (Page ).

We are a national, diversified restaurant, hospitality and entertainment company principally engaged in the ownership and operation of full-service, specialty location restaurants, with 173 locations in 27 states and Canada as of September 30, 2009. We are one of the largest full-service restaurant operators in the United States, operating primarily under the names of Rainforest Cafe, Chart House, Saltgrass Steak House, Charley’s Crab and Landry’s Seafood House. Our concepts range from upscale steak and seafood restaurants to theme-based restaurants, and consist of a broad array of formats, menus and price points that appeal to a wide range of markets and consumer tastes. We are also engaged in the ownership and operation of select hospitality and entertainment businesses, which include hotels, casino resorts, aquarium complexes and the Kemah Boardwalk, a 40-acre amusement, entertainment and retail complex in Kemah, Texas, among others. We also own the Golden Nugget Hotels and Casinos located in Las Vegas and Laughlin, Nevada. We believe these businesses complement our restaurant operations and provide our customers with unique dining, leisure and entertainment experiences.

Fertitta Group, Inc., which we refer to as “Parent”, is a Delaware corporation that, following the consummation of the merger, will own all of our outstanding common stock. Parent is wholly-owned by Tilman J. Fertitta, our Chairman of the Board, Chief Executive Officer and President.

Mr. Fertitta has agreed to contribute $40.0 million in cash and all of his outstanding shares of our common stock to Parent in exchange for all of the common stock of Parent and to vote his and any of his affiliates’ outstanding shares of common stock in favor of the merger. As of the record date, Mr. Fertitta owned 8,894,155 shares of our common stock, including 775,000 shares of restricted stock that have not yet vested. Under the terms of his restricted stock agreements, Mr. Fertitta is entitled to vote all of his unvested shares of restricted stock.

Fertitta Merger Co., which we refer to as “Merger Sub”, is a Delaware corporation and, prior to the effective time of the merger, is a wholly-owned subsidiary of Parent.

The Proposal (Page ).

You are being asked to consider and vote on a proposal to approve the Agreement and Plan of Merger, dated as of November 3, 2009, which we refer to as the “merger agreement”, that we entered into with Parent, Merger Sub, and, for certain limited purposes, Mr. Fertitta, pursuant to which Merger Sub will be merged with and into us and we will continue as the surviving corporation.

The merger will have the following effects when it is completed:

 

   

Parent will own all of our common stock and we will be privately owned and controlled by Mr. Fertitta through his ownership of all the equity interests in Parent;

 

   

you will no longer own any shares in us;

 

 

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you will no longer have an interest in our future earnings or growth;

 

   

we will cease to be a publicly traded company and will no longer be listed or traded on the New York Stock Exchange; and

 

   

we may no longer be required to file annual, quarterly and current reports with the Securities and Exchange Commission, or “SEC”, except to the extent such reports are required by any indenture governing the outstanding indebtedness of the surviving corporation or applicable law.

Merger Consideration (Page ).

If the merger is consummated, holders of shares of our outstanding common stock (other than shares owned by Parent or Merger Sub, shares owned by stockholders who properly exercise dissenter’s rights of appraisal under Delaware law and shares of our common stock held in treasury by us) will be entitled to receive $14.75 in cash, without interest, which we refer to as the “merger consideration”, for each share of our common stock owned at the effective time of the merger. We will be entitled to deduct and withhold from the merger consideration any amounts required to be withheld under any applicable tax law, and any such amounts so withheld shall be treated as having been paid to the holder from whose merger consideration the amounts were so deducted and withheld.

Treatment of Outstanding Options and Restricted Stock (Page ).

If the merger is consummated, each outstanding option to purchase shares of our common stock will, except as otherwise provided by the terms of the plan governing such option, become fully vested to the extent not already vested. At the effective time of the merger, all outstanding and unexercised options having an option exercise price of less than $14.75 will be cancelled and the holder of each such cancelled option will be entitled to receive a cash payment (subject to applicable withholding taxes) equal to the number of shares of our common stock subject to the cancelled option multiplied by the amount by which $14.75 exceeds the option exercise price, without interest, except that all options owned by Mr. Fertitta that remain unexercised at the effective time of the merger will be cancelled and he will not receive any cash or consideration for his unexercised options. All options having an exercise price equal to or greater than $14.75 will be cancelled without payment of any consideration therefor. In addition, each share of restricted stock will be treated in the same manner as other shares of outstanding common stock and will be cancelled and converted automatically into the right to receive $14.75 in cash, without interest, except that Mr. Fertitta’s shares of restricted stock will be contributed to Parent immediately prior to the effective time of the merger and cancelled and he will not receive any cash or consideration for his shares of restricted stock.

Interests of Certain Persons in the Merger (Page ).

In considering the proposal to approve and adopt the merger agreement, you should be aware that some of our directors and officers have interests in the merger that may be different from, or in addition to, your interests as one of our stockholders generally, including:

 

   

Accelerated vesting and cash-out of options held by our directors and officers other than Mr. Fertitta, which will result in the payment of consideration in the aggregate amount of approximately $23,500 to such directors and officers;

 

   

Cash-out of restricted stock held by our directors and officers other than Mr. Fertitta, which will result in the payment of consideration in the aggregate amount of approximately $292,876 to such directors and officers;

 

   

Mr. Fertitta’s ownership of us prior to the merger and his anticipated direct ownership of all of the common stock of Parent, and indirect ownership of all of our common stock following the merger;

 

   

Continued service of our officers and directors after the merger;

 

 

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Certain derivative litigation under which our directors are named parties relating to Mr. Fertitta’s proposal to acquire all of our outstanding stock in 2008 and the current proposed merger could be terminated and thus resolved in a manner favorable to such directors upon consummation of the merger; and

 

   

Continued indemnification and directors’ and officers’ liability insurance coverage to be provided by Parent and the surviving corporation for at least six years following the effective time of the merger.

The special committee and our board of directors were aware of these interests and considered them, among other matters, prior to providing their respective recommendations with respect to the merger agreement.

Requisite Stockholder Vote (Page ).

The presence, in person or by proxy, of stockholders holding at least a majority of the voting power of our stock outstanding on the record date will constitute a quorum for the special meeting. The merger cannot be completed unless the merger agreement is approved by the affirmative vote of both (i) a majority of the outstanding shares of our common stock not owned by Parent, Merger Sub, Mr. Fertitta or any of their respective affiliates, which we refer to as the “majority of the minority vote”, and (ii) a majority of the outstanding shares of our common stock, which, together with the majority of the minority vote, we refer to as the “requisite stockholder vote”. Approval of the adjournment of the meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement requires the affirmative vote of the holders of a majority of the shares of our common stock present, in person or by proxy, and entitled to vote at the special meeting on that matter, even if less than a quorum. If you fail to vote on the merger agreement, the effect will be the same as a vote against the approval of the merger agreement.

As of the date hereof, Mr. Fertitta controls approximately 55.0% of our voting power and has agreed to vote all of the outstanding shares of common stock owned beneficially or of record by him or his affiliates in favor of the merger agreement, which will ensure that the merger agreement is approved by a majority of the outstanding shares of our common stock but will not have any effect on whether the majority of the minority vote is obtained. As of the record date, Mr. Fertitta owned 8,894,155 shares of our common stock, including 775,000 shares of restricted stock that have not yet vested. Under the terms of his restricted stock agreements, Mr. Fertitta is entitled to vote all of his unvested shares of restricted stock. As of the record date, there were 7,280,296 shares of common stock outstanding and held by other stockholders, and the affirmative vote of holders of at least 3,640,149 of those shares is required to obtain the majority of the minority vote.

Pershing Square Capital Management, L.P., PS Management GP, LLC, Pershing Square GP, LLC, William A. Ackman and Richard T. McGuire, in their joint Schedule 13D filings with the SEC, have disclosed beneficial ownership of our common stock equal to an aggregate of 1,604,255 shares, representing approximately 9.9% of our outstanding common stock, and additional economic exposure to approximately 2,404,126 shares of our common stock under certain cash-settled total return swaps, which brings their total aggregate economic exposure to 4,008,387 shares, representing approximately 24.8% of our outstanding common stock. The holders of the 1,604,255 shares have indicated that they do not intend to support the proposed merger.

Recommendations (Page ).

Our board of directors formed a special committee of outside, non-employee directors on August 14, 2009 to consider strategic alternatives with respect to enhancing value to our stockholders. On September 4, 2009, Mr. Fertitta sent a letter to the special committee expressing his desire to enter into formal discussions on a non-binding proposal regarding a going-private transaction and a related tax-free split-off of our wholly-owned subsidiary, Saltgrass, Inc., in which Mr. Fertitta would acquire all of the shares of our common stock that he did

 

 

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not own and our stockholders, including Mr. Fertitta, would receive shares of Saltgrass in exchange for their shares of our common stock. After reviewing the proposal, the special committee rejected the proposal as inadequate. Mr. Fertitta then proposed an all cash transaction, and Mr. Fertitta and the special committee negotiated the merger agreement you are being asked to consider. The special committee has unanimously determined that the merger agreement and the merger are advisable, fair to and in the best interests of us and our unaffiliated stockholders, and recommended to our full board of directors that the board of directors approve the merger agreement and the merger, and that our board of directors recommend that our stockholders approve and adopt the merger agreement. After considering certain factors, including the unanimous recommendation of the special committee, our board of directors (with Mr. Fertitta taking no part in the vote or recommendation) has unanimously determined that the merger agreement and the merger are advisable, fair to and in the best interest of us and our unaffiliated stockholders, has approved the merger agreement and the merger and has recommended that our stockholders approve and adopt the merger agreement.

Accordingly, the board of directors (with Mr. Fertitta taking no part in the recommendation) unanimously recommends that you vote “FOR” the approval and adoption of the merger agreement.

Opinion of Moelis & Company (Page ).

On November 3, 2009, at a meeting of the special committee held to evaluate the merger, Moelis & Company LLC (“Moelis”), delivered to the special committee its oral opinion subsequently confirmed by delivery of a written opinion, dated November 3, 2009, to the effect that, based upon and subject to the limitations and qualifications set forth in the written opinion, as of the date of the opinion, the consideration of $14.75 per share in cash to be received by the stockholders of the Company in the merger was fair, from a financial point of view, to such stockholders, other than Mr. Fertitta, Parent, Merger Sub and their respective affiliates. The full text of the Moelis opinion describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Moelis. The opinion is attached in its entirety as Annex B to this proxy statement. We encourage you to read carefully this opinion in its entirety. The opinion of Moelis was provided for the use and benefit of the special committee in its evaluation of the merger and does not constitute a recommendation to any stockholder as to how you should vote with respect to the merger.

What Needs to be Done to Consummate the Merger (Page ).

We will consummate the merger only if the conditions set forth in the merger agreement are satisfied or waived, where permissible. The conditions to each party’s obligations include the following:

 

   

adoption of the merger agreement by the requisite stockholder vote;

 

   

the absence of any legal restraint or prohibition that has the effect of making the merger illegal or otherwise preventing the consummation of the merger;

 

   

the expiration or termination of any applicable waiting period under the HSR Act; and

 

   

the consummation of certain equity financing and the debt financing by Mr. Fertitta and us, respectively.

The obligations of Parent and Merger Sub to consummate the merger are subject to the satisfaction or waiver of the following further conditions at or prior to the effective time of the merger:

 

   

our representations and warranties contained in the merger agreement will be true and correct (without giving effect to any limitation as to materiality or Material Adverse Effect (as defined below) set forth in such representations and warranties) as of the closing date as though made at and as of the closing date (except for the representations and warranties that address matters only as of a particular date, which will remain true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not in the aggregate reasonably be expected to have a Material Adverse Effect as of the closing date, except that neither Parent nor Merger Sub may assert that this condition has not been satisfied if the representation by Parent concerning its knowledge of inaccuracies of our representations and warranties was inaccurate as of the date of the merger agreement, unless the

 

 

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matters resulting in the inaccuracy of such representation as of the date of the merger agreement would not in the aggregate reasonably be expected to have a Material Adverse Effect as of the closing date;

 

   

we shall have performed in all material respects all of our obligations and shall have complied in all material respects with all of our agreements and covenants to be performed or complied with by us under the merger agreement prior to the effective time of the merger; and

 

   

we shall have delivered to Parent a certificate, dated the date of the closing, signed by any of our executive officers or any member of the special committee, certifying our satisfaction of the closing conditions set forth in the two bullet points above.

Our obligation to consummate the merger is subject to the satisfaction or waiver of the following further conditions at or prior to the effective time of the merger:

 

   

Parent’s and Merger Sub’s representations and warranties contained in the merger agreement will be true and correct (without giving effect to any limitation as to materiality or Parent Material Adverse Effect (as defined below) set forth in such representations and warranties) as of the closing date as though made at and as of the closing date (except for the representations and warranties that address matters only as of a particular date, which will remain true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not in the aggregate reasonably be expected to have a Parent Material Adverse Effect as of the closing date;

 

   

Parent and Merger Sub shall have performed in all material respects all of their respective obligations and shall have complied in all material respects with all of their agreements and covenants to be performed or complied with by them under the merger agreement on or prior to the effective time of the merger; and

 

   

Parent shall have delivered to us a certificate, dated the date of the closing, signed by any executive officer of Parent, certifying the satisfaction by Parent and Merger Sub of the closing conditions set forth in the two bullet points above.

At any time before the effective time of the merger, our board of directors, if approved by the special committee, or the board of directors of Parent or Merger Sub, as the case may be, may (1) extend the time for the performance of any obligation or other act of any other party to the merger agreement, (2) waive any inaccuracy in the representations and warranties contained in the merger agreement or in any document delivered pursuant thereto and (3) waive compliance with any agreement or condition contained in the merger agreement. As of the date of this proxy statement, none of us, Parent or Merger Sub expects that any condition will be waived.

Termination of the Merger Agreement (Page ).

The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after stockholder approval has been obtained:

 

   

by mutual written consent of each of Parent, Merger Sub and us duly authorized with respect to Parent and Merger Sub, by their respective boards of directors or other governing body and with respect to us, by the special committee if then in existence or otherwise by resolution of a majority of our disinterested directors;

 

   

by us (with the prior approval of the special committee, if then in existence, or otherwise by resolution of a majority of our disinterested directors), Parent or Merger Sub if:

 

   

the effective time shall not have occurred on or before May 31, 2010, unless the failure by the party seeking to exercise such termination right caused, or resulted in, the failure of the merger to be consummated on or before such date;

 

 

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any governmental authority enacts, promulgates, issues, enforces or enters any order or applicable law that is final and nonappealable and has the effect of preventing or prohibiting the consummation of the merger, except that such termination right shall not be available to any party (1) whose failure to fulfill any obligation under the merger agreement has been the cause of, or resulted in, any such order to have been enacted, issued, promulgated, enforced or entered or (2) that did not use reasonable best efforts to have such order vacated prior to its becoming final and nonappealable;

 

   

our stockholders, at the special meeting or at any adjournment or postponement thereof at which the merger agreement was voted on, fail to approve the merger agreement by the requisite stockholder vote, except that such termination right shall not be available to any party whose breach of any provision of the merger agreement caused, or resulted in, the failure to obtain the requisite stockholder vote;

 

   

by Parent or Merger Sub if any of the following actions or events occur:

 

   

our board of directors directly or indirectly withdraws or modifies, or publicly proposes to withdraw or modify, its recommendation in favor of the merger in a manner that is adverse to Parent or Merger Sub, unless we (acting through the special committee if then in existence or by resolution of a majority of our disinterested directors) duly call, give notice of, convene and hold the special meeting;

 

   

our board of directors (acting through the special committee, if then in existence, or by resolution of a majority of our disinterested directors) recommends to our stockholders an Acquisition Proposal or resolves or publicly proposes to recommend an Acquisition Proposal or enters into any letter of intent or similar document or any contract accepting any Acquisition Proposal, unless we (acting through the special committee if then in existence or by resolution of a majority of our disinterested directors) duly call, give notice of, convene and hold the special meeting (other than if our board (acting through the special committee if then in existence or by resolution of a majority of our disinterested directors) enters into a contract accepting an Acquisition Proposal); or

 

   

we intentionally or materially breach any of our obligations under the merger agreement relating to the solicitation of Acquisition Proposals (as defined below);

 

   

by Parent or Merger Sub if there has been a breach by us (other than a breach caused by any action taken or omitted to be taken by or at the direction of Mr. Fertitta) of any representation, warranty, covenant or agreement contained in the merger agreement, or if any representation or warranty of us becomes untrue, in either case that would result in a failure of our representations and warranties contained in the merger agreement to be true and correct (without giving effect to any limitation as to materiality or Material Adverse Effect set forth in such representations and warranties) as of the closing date as though made at and as of the closing date (except for the representations and warranties that address matters only as of a particular date, which will remain true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not in the aggregate reasonably be expected to have a Material Adverse Effect as of the closing date, or that would result in our failure to perform in all material respects all of our obligations or to comply in all material respects with all of our agreements and covenants to be performed or complied with by us under the merger agreement prior to the effective time of the merger, except that Parent and Merger Sub may not terminate unless (1) neither Parent nor Merger Sub is in material breach of any of its obligations (including, in the case of Parent, Mr. Fertitta’s guarantee obligations) or any of its representations and warranties under the merger agreement, (2) Parent has delivered written notice to us of such breach and (3) if such breach is capable of being cured by us within thirty days after the delivery of such notice, Parent may not terminate the merger agreement until the earlier of the expiration of such thirty-day period and May 31, 2010;

 

 

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by us (acting through the special committee if then in existence or by resolution of a majority of our disinterested directors) if:

 

   

there has been a breach by Parent or Merger Sub of any representation, warranty, covenant or agreement contained in the merger agreement, or if any representation or warranty of Parent or Merger Sub becomes untrue, in either case that would result in a failure of Parent’s and Merger Sub’s representations and warranties contained in the merger agreement to be true and correct (without giving effect to any limitation as to materiality or Parent Material Adverse Effect set forth in such representations and warranties) as of the closing date as though made at and as of the closing date (except for the representations and warranties that address matters only as of a particular date, which will remain true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not in the aggregate reasonably be expected to have a Parent Material Adverse Effect as of the closing date, or that would result in Parent’s or Merger Sub’s failure to perform in all material respects all of their respective obligations or to comply in all material respects with all of their agreements and covenants to be performed or complied with by them under the merger agreement on or prior to the effective time of the merger, except that we may not terminate unless (1) we are not in material breach of any of our obligations or any of our representations and warranties under the merger agreement, (2) we, acting through the special committee if then in existence or by resolution of a majority of our disinterested directors, have delivered written notice to Parent of such breach and (3) if such breach is capable of being cured by Parent within thirty days after the delivery of such notice, we, acting through the special committee if then in existence or by resolution of a majority of our disinterested directors, may not terminate the merger agreement until the earlier of the expiration of such thirty-day period and May 31, 2010;

 

   

prior to obtaining the requisite stockholder vote, our board of directors, acting through the special committee if then in existence or otherwise by resolution of a majority of its disinterested directors, concludes in good faith, after consultation with its outside legal advisors, that the failure to terminate the merger agreement (whether or not to enter into a definitive agreement with respect to a Superior Proposal (as defined below)) could reasonably be determined to be inconsistent with its fiduciary duties to the stockholders under applicable law and we are not in material breach of our obligations under the merger agreement relating to solicitations of Acquisition Proposals and we pay the termination fee described under “—Termination Fees and Expenses—Payable by Us” concurrently with such termination; or

 

   

the merger has not been consummated due to the failure to consummate the equity financing or debt financing within two business days following the satisfaction or waiver of all of the other conditions to the consummation of the merger (other than those conditions that, by their nature, cannot be satisfied until the consummation of the merger), although we may not exercise this right to terminate until 15 days following the special meeting.

Termination Fees and Expenses (Page ).

We have agreed to reimburse the reasonable out-of-pocket fees and expenses incurred by Parent, Merger Sub and their affiliates in connection with the merger agreement, up to $3.5 million in the aggregate, within 10 business days of receipt of a reasonably detailed accounting of such expenses if the merger agreement is terminated (1) because the merger has not been consummated by May 31, 2010 where there has been a cancellation, delay or postponement of the special meeting or (2) as a result of a breach of or failure by us to perform any representation, warranty, covenant or agreement on our part set forth in the merger agreement, which resulted in a failure of a condition to Parent’s or Merger Sub’s obligation to consummate the merger. We have agreed to pay a termination fee of $4.8 million to Parent in specified circumstances, or $2.4 million if the action or event forming the basis for termination is an Acquisition Proposal submitted to us or the special

 

 

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committee or that is publicly disclosed or otherwise becomes generally known to the public before the end of the go-shop period. Parent has agreed to pay us a reverse termination fee of $20.0 million in certain circumstances.

Except in the event where a termination fee or reverse termination fee is payable, in the case of a willful breach of any representation, warranty or covenant, Parent, Merger Sub and we have agreed that the damages suffered or to be suffered by us, in the case of a willful breach of the merger agreement by Parent or Merger Sub, or by Parent and Merger Sub, in the case of a willful breach of the merger agreement by us, will not be limited and, to the extent proven, may include the benefit of the bargain of the merger to such party, including the benefit of the bargain lost by our unaffiliated stockholders, adjusted to account for the time value of money.

Limited Guarantee (Page ).

Mr. Fertitta agreed in the merger agreement to guarantee certain of Parent’s payment obligations under the merger agreement, including the payment of fees and expenses for regulatory filings, consents and approvals, fees and expenses incurred in connection with the merger agreement, the reverse termination fee, if any, and any costs and expenses incurred by us to enforce payment of any reverse termination fee.

Financing of the Merger (Page ).

The consummation of the merger is contingent upon the consummation of the equity financing commitment from Mr. Fertitta and the consummation of the refinancing of certain of our debt obligations, which financings, in the aggregate, Parent has represented to us in the merger agreement will be sufficient to pay the aggregate merger consideration and any other amounts required to be paid by Parent and Merger Sub in connection with the consummation of the transactions contemplated by the merger agreement. The refinancing of our indebtedness was completed on November 30, 2009.

The total amount of funds necessary to consummate the merger is anticipated to be approximately $114.0 million, consisting of (i) approximately $107.5 million to be paid to our stockholders (other than Mr. Fertitta, Parent and Merger Sub) and option holders (other than Mr. Fertitta) under the merger agreement and (ii) approximately $6.5 million to pay fees and expenses incurred in connection with the merger, which we collectively refer to as the “merger payments”. At September 30, 2009, we had outstanding (i) no borrowings under our senior secured revolving credit facility, (ii) $160.6 million under our senior secured term loan facility, and (iii) $295.5 million under our 14% senior secured notes, which have been called for redemption pursuant to the refinancing.

On November 30, 2009, we (1) completed an offering of $406.5 million of 11 5/8% senior secured notes due 2015 (the “11 5/8% Notes”), which resulted in our receiving $400.1 million in net proceeds; and (ii) closed a four year $235.6 million amended and restated senior secured credit facility consisting of a $75.0 million revolving credit facility and a $160.6 million term loan. Pursuant to these loans, up to $79.5 million of our cash and the cash of certain of our subsidiaries can be used to consummate the transactions contemplated by the merger agreement, so long as Mr. Fertitta contributes at least $40.0 million to the equity of Parent, Merger Sub or us. In the event the merger is not consummated, these funds will be used for general corporate purposes.

The funds to pay the merger payments are anticipated to come from the following sources:

 

   

at least $40.0 million of cash to be contributed by Mr. Fertitta to Parent; and

 

   

up to $79.5 million from our cash and the cash of certain of our subsidiaries.

The foregoing amounts do not include the value of all of the shares of common stock and shares of restricted stock held by Mr. Fertitta that are being contributed to Parent immediately prior to the effective time of the merger, and which will be cancelled as of the effective time, or Mr. Fertitta’s stock options that are being

 

 

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cancelled in connection with the merger. As of the date of this proxy statement, Mr. Fertitta owned 8,894,155 shares of our common stock, which includes 775,000 shares of restricted stock, and options to purchase 900,000 shares of our common stock with an aggregate value of $133.5 million at $14.75 per share.

We have been provided an equity commitment letter related to Mr. Fertitta’s cash and equity contributions to Parent.

Restrictions on Solicitations of Other Offers (Page ).

The merger agreement provides that during the go-shop period, which began on the date of the signing of the merger agreement and ends on the later of (1) 11:59 p.m., New York City time, on December 17, 2009 and (2) the consummation of the debt financing, we are permitted to:

 

   

initiate, solicit and encourage Acquisition Proposals, including by way of public disclosure and by way of providing access to non-public information to any person pursuant to one or more confidentiality agreements that contain terms and provisions that are substantially similar to those contained in the confidentiality agreements entered into by us or on our behalf during the 30-day period prior to the date of the merger agreement with persons having a potential interest in making an Acquisition Proposal; and

 

   

enter into and maintain, or participate in, discussions or negotiations with respect to Acquisition Proposals or otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, discussions or negotiations or the making of any Acquisition Proposals.

After the end of the go-shop period and until the effective time of the merger or the earlier termination of the merger agreement, we have agreed that we will not, and will use reasonable efforts to cause our representatives not to, directly or indirectly:

 

   

initiate, solicit or encourage (including by way of providing non-public information) the submission of any Acquisition Proposal or engage in any substantive discussions or negotiations with respect thereto; or

 

   

approve or recommend, or publicly propose to approve or recommend, an Acquisition Proposal or enter into any merger agreement, letter of intent, agreement in principle, share purchase agreement, asset purchase agreement or share exchange agreement, option agreement or other similar agreement providing for or relating to an Acquisition Proposal or consummate any such transaction or enter into any agreement or agreement in principle requiring us to abandon, terminate or fail to consummate the merger or any of the other transactions contemplated by the merger agreement or resolve or agree to do any of the foregoing.

However, under certain circumstances, our board of directors, acting through the special committee if then in existence or otherwise by resolution of a majority of disinterested directors: (1) from and after the end of the go-shop period, may continue discussions or negotiations with any third party with respect to an Acquisition Proposal if such discussions or negotiations commenced prior to the end of the go-shop period and were ongoing as of the end of the go-shop period; and (2) may respond to an unsolicited Acquisition Proposal, withdraw or modify its recommendation to stockholders in favor of the merger, terminate the merger agreement or enter into an acquisition agreement with respect to a Superior Proposal, in each case so long as we comply with certain terms of the merger agreement described under “The Merger Agreement—Solicitation of Other Offers.”

Prior to terminating the merger agreement or entering into an agreement with respect to an Acquisition Proposal, we are required to comply with certain terms of the merger agreement described under “The Merger Agreement—Solicitation of Other Offers.”

 

 

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An “Acquisition Proposal”, as defined in the merger agreement, means any bona fide inquiry, offer or proposal (other than from Parent or Merger Sub or their respective affiliates) concerning any (i) merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving us, (ii) direct or indirect sale, lease, pledge or other disposition of our assets or business representing 15% or more of our consolidated revenues, net income or assets, in a single transaction or a series of related transactions, (iii) our issuance, sale or other disposition to any person or group (other than Parent or Merger Sub or any of their respective affiliates) of securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing 15% or more of our voting power, or (iv) transaction or series of related transactions in which any person or group (other than Parent or Merger Sub or their respective affiliates) acquires beneficial ownership, or the right to acquire beneficial ownership, of 15% or more of our outstanding common stock.

A “Superior Proposal”, as defined in the merger agreement, means an Acquisition Proposal (except the references therein to “15%” shall be replaced by “50%”) which was not obtained in violation of the solicitation provisions of the merger agreement, and which our board of directors, acting through the special committee, if then in existence, or a majority of disinterested directors, in good faith determines (after consultation with our financial advisors and outside counsel), taking into account the various legal, financial and regulatory aspects of the proposal, including the financing terms thereof, and the person making the proposal, (i) if accepted, is reasonably likely to be consummated and (ii) if consummated, would result in a transaction that is more favorable to our stockholders, from a financial point of view, than the merger.

Material United States Federal Income Tax Consequences (Page ).

In general, the receipt of cash in exchange for shares of our common stock pursuant to the merger will be a taxable sale transaction for U.S. federal income tax purposes. In general, you will recognize gain or loss as a result of the merger in an amount equal to the difference, if any, between the cash you receive and your tax basis in the shares of our common stock you surrender. Payment of the cash consideration to a holder of our common stock with respect to the disposition of shares of our common stock pursuant to the merger may be subject to information reporting. A holder of our common stock may also be subject to U.S. backup withholding tax at the applicable rate (currently 28%), unless the holder of our common stock properly certifies as to its taxpayer identification number or otherwise establishes an exemption from backup withholding and complies with all other applicable requirements of the backup withholding rules. The tax consequences of the merger to you will depend upon your particular circumstances. You should consult your tax advisor for a full understanding of the U.S. federal, state, local and non-U.S. tax consequences of the merger to you.

Accounting Treatment of the Merger (Page ).

The Company is expected to retain its historical cost basis accounting records.

 

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers are intended to address some commonly asked questions regarding the special meeting and the proposed merger. These questions and answers may not address all the questions that may be important to you as one of our stockholders. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

 

Q: What is the proposed transaction?

 

A: The proposed transaction is the merger of Merger Sub with and into us pursuant to the merger agreement. Once the merger agreement has been adopted by our stockholders and the other closing conditions under the merger agreement have been satisfied or waived, Merger Sub will merge with and into us and we will continue as the surviving corporation.

The merger will have the following effects when it is completed:

 

   

Parent will own all of our common stock and we will be privately owned and controlled by Mr. Fertitta through his ownership of all the equity interests in Parent;

 

   

you will no longer own any shares in us;

 

   

you will no longer have an interest in our future earnings or growth;

 

   

we will cease to be a publicly traded company and will no longer be listed or traded on the New York Stock Exchange; and

 

   

we may no longer be required to file annual, quarterly and current reports with the SEC, except to the extent such reports are required by any indenture governing the outstanding indebtedness of the surviving corporation or applicable law.

 

Q: What happens if the merger is not consummated?

 

A: If the merger agreement is not approved by our stockholders or if the merger is not consummated for any other reason, you will not receive any payment for your shares in connection with the merger. Instead, we will remain an independent public company and our common stock will continue to be listed and traded on the New York Stock Exchange. In addition, if the merger is not consummated, we expect that, except as otherwise noted in this proxy statement, management will operate our business in a manner similar to the manner in which it currently is being operated and that our stockholders will continue to be subject to the same risks and opportunities as they currently are.

Under specified circumstances, we may be required to pay Parent a termination fee or reimburse Parent for some of its out-of-pocket expenses, or Parent may be required to pay us a reverse termination fee, in each case as described under “The Merger Agreement—Termination Fees and Expenses” beginning on page . In the event we or Parent are required to pay a termination fee, payment of the termination fee will be the receiving party’s exclusive remedy with respect to any liability or obligation relating to or arising out of the merger agreement or the transactions contemplated thereby.

 

Q: What will our stockholders receive when the merger occurs?

 

A: For every share of our common stock owned at the effective time of the merger, a stockholder (other than Mr. Fertitta, Parent, Merger Sub, us or stockholders who properly exercise dissenters’ rights of appraisal under Delaware law) will have the right to receive $14.75 in cash, without interest, less any applicable withholding taxes.

 

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Q: Why am I receiving this proxy statement and proxy card?

 

A: You are being asked to consider and vote upon a proposal to approve and adopt a merger agreement that we entered into on November 3, 2009. The merger agreement is attached as Annex A to this proxy statement. We urge you to read it carefully. In the event that there are not sufficient votes at the time of the special meeting to adopt the merger agreement, stockholders may also be asked to vote upon the adjournment of the special meeting to a later date so that we may solicit additional proxies. See “The Merger Agreement” beginning on page .

 

Q: Where and when is the special meeting?

 

A: We will hold a special meeting of our stockholders on , 2010 at 10:00 a.m. Houston time, at the Company’s corporate office located at 1510 West Loop South, Houston, Texas.

 

Q: What matters will be voted on at the special meeting?

 

A: You will be asked to consider and vote on the following proposals:

 

   

to approve and adopt the merger agreement;

 

   

to approve the adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement; and

 

   

to transact such other business as may properly come before the special meeting or any adjournment or postponement of the special meeting.

 

Q: Who is entitled to vote at the special meeting?

 

A: The record date for the special meeting is , 2010. Only holders of our outstanding common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting or any adjournment or postponement thereof. On the record date, there were 16,174,451 shares of our common stock outstanding of which Mr. Fertitta owned 8,894,155 shares or 55.0%.

 

Q: What happens if I sell my shares of common stock before the special meeting?

 

A: The record date for the special meeting is earlier than the expected date of the merger. If you transfer your shares of common stock after the record date but before the special meeting, you will, unless other arrangements are made, retain your right to vote at the special meeting but will transfer the right to receive the merger consideration to the person to whom you transfer your shares.

 

Q: May I attend the special meeting?

 

A: All stockholders of record as of the close of business on , 2010, the record date for the special meeting, may attend the special meeting.

If your shares are held in “street name” by your broker, bank or other nominee, and you plan to attend the special meeting, you must present proof of your ownership of our common stock, such as a bank or brokerage account statement, to be admitted to the meeting. You also must present at the meeting a proxy issued to you by the holder of record of your shares.

 

Q: What constitutes a quorum for the special meeting?

 

A: The presence, in person or by proxy, of stockholders holding at least a majority of the voting power of our common stock outstanding on the record date will constitute a quorum for the special meeting. Mr. Fertitta owns 55.0% of our outstanding stock, which constitutes a quorum for the special meeting, and has indicated that such shares will be present at the special meeting.

 

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Q: What vote is required to approve the merger agreement and to approve the adjournment of the meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement?

 

A: The merger cannot be completed unless the merger agreement is approved by the affirmative vote of both (i) a majority of the outstanding shares of our common stock not owned by Parent, Merger Sub, Mr. Fertitta or any of their respective affiliates, which we sometimes refer to as the “majority of the minority vote”, and (ii) a majority of the outstanding shares of our common stock, which, together with the majority of the minority vote, we refer to as the “requisite stockholder vote”. Approval of the adjournment of the meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement requires the affirmative vote of the holders of a majority of the shares of our common stock present, in person or by proxy, and entitled to vote at the special meeting on that matter, even if less than a quorum. If you fail to vote on the merger agreement, the effect will be the same as a vote against the approval of the merger agreement.

As of the date hereof, Mr. Fertitta controls approximately 55.0% of our voting power and has agreed to vote all of the outstanding shares of common stock owned beneficially or of record by him or his affiliates in favor of the merger agreement, which will ensure that the merger agreement is approved by a majority of the outstanding shares of our common stock but will not have any effect on whether the majority of the minority vote is obtained. As of the record date, Mr. Fertitta owned 8,894,155 shares of our common stock, including 775,000 shares of restricted stock that have not yet vested. Under the terms of his restricted stock agreements, Mr. Fertitta is entitled to vote all of his unvested shares of restricted stock. As of the record date, there were 7,280,296 shares of common stock outstanding and held by other stockholders, and the affirmative vote of holders of at least 3,640,149 of those shares is required to obtain the majority of the minority vote. Mr. Fertitta has indicated that he intends to vote in favor of the adjournment of the meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement, which will ensure that the adjournment proposal is approved.

 

Q: Why is my vote important?

 

A: Because the proposal to approve and adopt the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of common stock not owned by Parent, Merger Sub, Mr. Fertitta or any of their respective affiliates, a failure to vote or an abstention will have the same effect as a vote against the proposal to approve and adopt the merger agreement.

 

Q: What if the merger receives the majority vote but not the majority of the minority vote?

 

A: As of the date hereof, Mr. Fertitta controls approximately 55.0% of our voting power and has agreed to vote all of the outstanding shares of common stock owned beneficially or of record by him or his affiliates in favor of the merger agreement, which will ensure that the merger agreement is approved by a majority of the outstanding shares of our common stock but will not have any effect on whether the majority of the minority vote is obtained. The merger will not be consummated if the majority of the minority vote is not received.

 

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Q: How does our board of directors recommend that I vote on the proposals?

 

A: The board of directors (with Mr. Fertitta taking no part in the recommendations) recommends that you vote:

 

   

“FOR” the proposal to approve and adopt the merger agreement; and

 

   

“FOR” the adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement.

You should read “Special Factors—Recommendation of the Special Committee and the Board of Directors; Reasons for Recommending Approval of the Merger Agreement” beginning on page for a discussion of factors that our board of directors considered in deciding to recommend the approval of the merger agreement. See also “Special Factors—Interests of Our Directors and Officers” beginning on page .

 

Q: How do our directors and executive officers intend to vote?

 

A: As of the record date, our directors and executive officers (excluding Mr. Fertitta) held and are entitled to vote, in the aggregate, 30,872 shares of our common stock, representing less than 1% of our outstanding shares, excluding options to purchase shares of our common stock. We believe our directors and executive officers intend to vote all of their shares of our common stock owned as of the record date “FOR” the approval and adoption of the merger agreement and “FOR” the adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement.

Moreover, Mr. Fertitta has agreed in the merger agreement to vote all of his and any of his affiliates’ outstanding shares of our common stock, which comprise approximately 55.0% of our outstanding common stock as of the record date, excluding shares of common stock issuable upon his exercise of stock options, “FOR” the approval and adoption of the merger agreement. As of the record date, Mr. Fertitta owned 8,894,155 shares of our common stock, including 775,000 shares of restricted stock that have not yet vested. Under the terms of his restricted stock agreements, Mr. Fertitta is entitled to vote all of his unvested shares of restricted stock. Mr. Fertitta has indicated that he intends to vote “FOR” the adjournment of the meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement, which will ensure that the adjournment proposal is approved.

 

Q: How do I vote?

 

A: After carefully reading and considering the information contained in this proxy statement, and whether or not you plan to attend the special meeting in person, please complete, sign, date and return your proxy card in the enclosed return envelope as soon as possible so that your shares will be represented and voted at the special meeting. In addition, you may deliver your proxy via telephone or via the Internet in accordance with the instructions on the enclosed proxy card or the voting instruction form received from any broker, bank or other nominee that may hold shares of our common stock on your behalf. If you sign your proxy and do not indicate how you want to vote, your shares will be voted “FOR” the approval and adoption of the merger agreement, “FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies, and in accordance with the recommendations of our board of directors on any other matters properly brought before the special meeting for a vote. Please remember that if you fail to vote on the merger agreement, the effect will be the same as a vote against the approval and adoption of the merger agreement.

 

Q: If my shares are held in “street name” by my broker, banker or other nominee will my broker or banker vote my shares for me?

 

A:

Your broker, banker or other nominee will not vote your shares of our common stock without specific instructions from you. You should instruct your broker, banker or other nominee to vote your shares of our

 

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common stock by following the instructions provided to you by such firm. Failure to instruct your broker to vote your shares will have the effect of voting against approval and adoption of the merger agreement.

 

Q: What does it mean if I receive more than one proxy card?

 

A: This means you own shares of common stock that are registered under different names. For example, you may own some shares directly as a stockholder of record and other shares through a broker or you may own shares through more than one broker. In these situations, you will receive multiple sets of proxy materials. You must complete, sign, date and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the proxy cards that you receive in order to vote all of the shares you own. Each proxy card you receive comes with its own prepaid return envelope; if you vote by mail, make sure you return each proxy card in the return envelope that accompanies that proxy card.

 

Q: May I change my vote?

 

A: Yes. You may change your vote at any time before your proxy is voted at the special meeting. You may do this by (i) delivering prior to the special meeting a written notice of revocation addressed to our Secretary at the address under “Other Important Information Regarding Us” beginning on page , (ii) completing and submitting prior to the special meeting a new proxy card bearing a later date, (iii) submitting a later-dated proxy using the telephone or Internet voting procedures on the proxy card prior to the deadline of 11:59 p.m., Houston time, on , 2010 or (iv) attending the special meeting and voting in person. Simply attending the special meeting, without voting in person, will not revoke your proxy. If your shares are held in “street name” and you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote or to vote at the special meeting.

 

Q: How are votes counted?

 

A: For the proposal to approve and adopt the merger agreement, you may vote “FOR”, “AGAINST” or “ABSTAIN”. If you abstain or fail to vote, it will have the same effect as if you voted against the approval and adoption of the merger agreement. In addition, if your shares are held in the name of a broker, bank or other nominee, your broker, bank or other nominee will not be entitled to vote your shares in the absence of specific instructions, which, if not given, will have the effect of a vote against approval and adoption of the merger agreement.

For the proposal to adjourn the special meeting, if necessary, to solicit additional proxies, you may vote “FOR”, “AGAINST” or “ABSTAIN”. Abstentions will count for the purpose of determining whether a quorum is present, but will have the same effect as a vote against the proposal to adjourn the meeting, which requires the vote of the holders of a majority of the shares of our common stock present or represented by proxy at the meeting and entitled to vote on the matter.

If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the approval and adoption of the merger agreement and “FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies, and in accordance with the recommendations of our board of directors on any other matters properly brought before the special meeting for a vote.

 

Q: Should I send in my stock certificates now?

 

A: No. Promptly after completion of the merger, each stockholder entitled to receive his, her or its portion of the merger consideration will receive a transmittal letter and instructions specifying the procedures to be followed for surrendering stock certificates in exchange for payment of the merger consideration. PLEASE DO NOT SEND YOUR CERTIFICATES IN NOW.

 

Q: When can I expect to receive the merger consideration for my shares?

 

A: If the merger is consummated and you have submitted your properly completed letter of transmittal, stock certificates and other required documents to the paying agent, the paying agent will send you the merger consideration payable with respect to your shares.

 

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Q: I do not know where my stock certificate is. How will I get my cash?

 

A: The materials the paying agent will send you after completion of the merger will include the procedures that you must follow if you cannot locate your stock certificate. This will include an affidavit that you will need to sign attesting to the loss of your certificate. You may also be required to provide a bond to us in order to cover any potential loss.

 

Q: When do you expect the merger to be completed?

 

A: We are working toward completing the merger promptly after the special meeting. We expect the merger to be completed during the first half of 2010, although there can be no assurance that we will be able to do so.

 

Q: What are the material U.S. federal income tax consequences of the merger to stockholders?

 

A: In general, your receipt of cash in exchange for shares of our common stock pursuant to the merger will be a taxable sale transaction for U.S. federal income tax purposes. Since the tax consequences of the merger to you will depend on your particular circumstances, you should consult your tax advisor for a full understanding of the U.S. federal, state, local and non-U.S. tax consequences of the merger to you.

 

Q: Do stockholders have appraisal rights?

 

A: Yes. As a holder of our common stock, you are entitled to exercise appraisal rights under Delaware law in connection with the merger. If you do not vote in favor of the merger and it is completed, you may seek payment of the fair value of your shares under Delaware law. To do so, however, you must strictly comply with all of the procedures Delaware law requires. See “Special Factors—Appraisal Rights” and Annex C attached to this proxy statement.

 

Q: Who is soliciting my vote?

 

A: This proxy solicitation is being made and paid for by us. In addition, we have retained Mackenzie Partners, Inc. to assist in the solicitation. We will pay Mackenzie Partners, Inc. approximately $30,000 plus out-of-pocket expenses for its assistance. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or by other means of communication. These persons will not be paid additional remuneration for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of our common stock that the brokers and fiduciaries hold of record. We will reimburse them for their reasonable out-of-pocket expenses.

 

Q: What should I do now?

 

A: We urge you to read this proxy statement carefully, including its annexes and the documents referenced under “Where You Can Find More Information” beginning on page , and to consider how the transaction affects you as a stockholder. Then simply mark, sign, date and promptly mail the enclosed proxy card in the postage-paid envelope provided. Should you prefer, you may deliver your proxy via telephone or via the Internet in accordance with the instructions on the enclosed proxy card or the voting instruction form received from any broker, bank or other nominee that may hold shares of our common stock on your behalf. Please act as soon as possible so that your shares of our common stock will be voted at the special meeting.

 

Q: Who can help answer my questions?

 

A: If you have any questions about the merger or if you need additional copies of this proxy statement or the enclosed proxy card, you should contact MacKenzie Partners, Inc., which is acting as the proxy solicitation agent in connection with the merger, at the following address.

105 Madison Avenue, New York, New York 10016

 

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This proxy statement includes certain forward-looking statements within the meaning of the federal securities laws. You can generally identify forward-looking statements by the appearance in such a statement of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should” or “will” or other comparable words or the negative of these words. Our forward-looking statements are only predictions based on expectations that we believe are reasonable and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The following risks related to our business, among others, could cause or contribute to actual results differing materially from those described in the forward-looking statements:

 

   

the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement;

 

   

the inability to consummate the merger due to the failure to obtain stockholder approval for the merger or the failure to satisfy other conditions to consummate the merger;

 

   

the failure to obtain the necessary financing arrangements pursuant to the merger agreement;

 

   

risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the merger;

 

   

the amount of the costs, fees, expenses and charges related to the merger;

 

   

our ability to implement our business strategy;

 

   

our ability to expand and grow our business and operations;

 

   

the outcome of legal proceedings that have been, or may be, initiated against us related to the 2008 going private transaction and its termination;

 

   

the outcome of legal proceedings that have been, or may be, initiated against us related to Mr. Fertitta’s current proposal to acquire us;

 

   

the impact of potential divestitures of restaurants, restaurant concepts and other operations or lines of business;

 

   

the impact of future commodity prices;

 

   

the availability of food products, materials and employees;

 

   

consumer perceptions of food safety;

 

   

changes in local, regional and national economic conditions;

 

   

the effects of local and national economic, credit and capital market conditions on the economy in general and our business in particular;

 

   

the effectiveness of our marketing efforts;

 

   

changing demographics surrounding our restaurants, hotels and casinos;

 

   

the effect of changes in tax laws;

 

   

actions of regulatory, legislative, executive or judicial decisions at the federal, state or local level with regard to our business and the impact of any such actions;

 

   

our ability to maintain regulatory approvals for our existing businesses and our ability to receive regulatory approval for our new businesses;

 

   

our expectations of the continued availability and cost of capital resources;

 

   

our ability to obtain long-term financing and the cost of such financing, if available;

 

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the seasonality and cyclical nature of our business;

 

   

weather and acts of God;

 

   

whether the final property and business interruption losses resulting from Hurricane Ike will be in accordance with our current estimates;

 

   

the ability to maintain existing management;

 

   

the impact of potential acquisitions of other restaurants, gaming operations and lines of businesses in other sectors of the hospitality and entertainment industries;

 

   

food, labor, fuel and utilities costs; and

 

   

other risks described in our filings with the SEC, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, 2008, our Quarterly Reports on Form 10-Q, as amended, for the quarters ended March 31, 2009, June 30, 2009 and September 30, 2009 and our Current Reports on Form 8-K, as amended, filed since December 31, 2008.

All forward-looking statements are based on our current expectations and projections about future events. All forward-looking statements speak only as of the date hereof and, unless required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Additional financial information, including presentations from recent investor conferences, is available in the “Investor Relations” section of our website at www.landrysrestaurants.com. None of the information contained on our website shall be deemed incorporated by reference or otherwise included herein.

ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR ANY PERSON ACTING ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS SECTION.

 

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SPECIAL FACTORS

Background of the Merger

We operate primarily in the restaurant, hospitality and gaming industries, which are particularly affected by trends and fluctuations in demand and are highly competitive industries. Both the restaurant and gaming industries in the United States have been severely challenged since the beginning of 2008, and the current economic conditions in the United States have continued to have a negative impact on our results of operations during 2009. A decline in discretionary spending attributable to tighter credit markets, increased unemployment, increased home foreclosures, the decline in the financial markets and other factors have impacted our customer’s level of spending on dining out, gaming, and tourism in general. Because we operate in such highly competitive and ever-fluctuating industries, our board of directors has from time to time held discussions on strategic alternatives focused on exploring ways to enhance stockholder value.

On December 20, 2007, Mr. Tilman J. Fertitta, our chairman of the board, chief executive officer and president, discussed with representatives of Jefferies & Company, Inc. the possibility of pursuing a going-private transaction. Jefferies & Company expressed the belief that high transportation costs, economic turmoil and an apparent credit crunch were factors which could depress stockholder value for some time and advised that a going-private transaction would be the best way to enhance stockholder value.

On January 5, 2008, our board of directors held a meeting, with Richard Liem, our chief financial officer, also participating. During this meeting, our board of directors discussed strategic alternatives for us, as well as issues surrounding, among other things, our reduced growth opportunities resulting from lower consumer spending, the impact on us of disruptions to the credit markets and our need to refinance our long-term debt during 2008, our increased costs of operating as a public company, our reduced analyst coverage, the volatile industry and market conditions in which we were then operating and their negative impact on our business, including how short-term stock price fluctuations affect perceptions about our long-term prospects. Mr. Fertitta expressed to our board of directors that he had an interest in exploring a going-private transaction with us and desired, among other things, to focus on long-range value building strategies, which strategy Mr. Fertitta believed was better suited for a non-public company. After discussion, our board of directors unanimously determined that it was advisable, advantageous and in our best interest to allow Mr. Fertitta to access and utilize our personnel and incidental corporate resources to explore a going-private transaction to enhance stockholder value.

On January 27, 2008, our board of directors held a telephonic meeting, with Mr. Liem and a representative of Haynes and Boone, LLP, our outside counsel (“Haynes and Boone”), also participating. During this meeting, Mr. Fertitta delivered to our board of directors a letter in which Mr. Fertitta, acting on his own behalf, proposed to acquire, through an acquisition vehicle he would form, all of our outstanding common stock for $23.50 per share in cash by way of a merger transaction. Mr. Fertitta stated in the proposal letter that he had spoken with potential financing sources for the proposed transaction and he was confident that he could obtain the necessary debt financing to fund the proposed transaction given that he would be contributing all of our common stock that he owned and substantial additional equity in the form of cash to his acquisition company.

After discussing Mr. Fertitta’s proposal, our board of directors discussed the advisability of forming a special committee to evaluate Mr. Fertitta’s proposal. Our board of directors unanimously resolved (without Mr. Fertitta voting) to establish a special committee of three of our independent directors and delegated to the special committee the exclusive power and authority to, among other things, (a) perform a strategic alternatives analysis for us in order to determine the best strategy to enhance value to our stockholders, (b) receive, review, evaluate and study the strategic alternatives resulting from such analysis, (c) receive, review, evaluate and study Mr. Fertitta’s proposal and any other alternative proposals or strategic alternatives, (d) negotiate on our behalf, if appropriate, the terms and conditions of Mr. Fertitta’s proposal or any other alternative proposals or strategic alternatives with the applicable parties and (e) make a recommendation to our board of directors at the appropriate time as to Mr. Fertitta’s proposal or any other alternative proposal or strategic alternative. The

 

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resolutions also empowered the special committee to retain legal, financial and other advisors to assist the special committee in the fulfillment of its duties. After discussion, our board of directors appointed Michael Chadwick, Kenneth Brimmer and Michael Richmond to serve on the special committee. The special committee subsequently retained independent counsel and an independent financial advisor.

On April 4, 2008, Mr. Fertitta submitted a revised proposal letter to the special committee in which Mr. Fertitta reduced his per share offer price from $23.50 to $21.00. Mr. Fertitta indicated in his letter to the special committee that the reduced per share offer price was a result of the following occurrences since the date of his initial offer: (i) the credit market conditions worsening significantly, which was making it far more costly to obtain the debt financing required to consummate his proposed transaction, (ii) the economy had continued its downward trend, (iii) there was a risk of continued deterioration in the credit markets and (iv) our results of operations and our stock price had declined. Mr. Fertitta’s letter further provided that he was prepared to proceed with his proposed transaction at the revised offer price of $21.00 per share. Mr. Fertitta also provided to the special committee a letter from Jefferies indicating that it was highly confident in its ability to consummate the debt financing required to complete Mr. Fertitta’s proposed transaction.

On June 16, 2008, we announced that we had entered into a definitive agreement with Fertitta Holdings, Inc., a newly formed holding company wholly-owned by Mr. Fertitta (“Fertitta Holdings”), and Fertitta Acquisition Co., a wholly-owned subsidiary of Fertitta Holdings (“Fertitta Acquisition”), pursuant to which Fertitta Holdings agreed to acquire all of our outstanding common stock not owned by Mr. Fertitta for $21.00 per share in cash. The purchase price represented a premium of approximately 37% over the closing share price of our common stock on April 3, 2008, the last trading day before disclosure of the revised offer made by Mr. Fertitta to acquire us. The total value of the transaction was approximately $1.3 billion, which included approximately $885.0 million of debt. Mr. Fertitta received debt financing commitments from Jefferies Funding, LLC, Jefferies & Company, Inc., Jefferies Finance, LLC (collectively, “Jefferies”) and Wells Fargo Foothill, LLC (“Wells Fargo Foothill”) to fund the acquisition. Our board of directors, acting upon the unanimous recommendation of the special committee, approved the merger agreement, including the fully financed commitments consisting of Mr. Fertitta’s equity contribution and the debt financing commitments of Jefferies and Wells Fargo Foothill presented by Mr. Fertitta, and recommended that our stockholders vote in favor of the merger agreement. Under the merger agreement, there was a “go-shop” provision whereby the special committee, with the assistance of its independent advisors, would actively solicit superior acquisition proposals from third parties for approximately 45 days following the signing of the merger agreement. The transaction was subject to the approval of the merger agreement by a majority of the outstanding shares of our common stock.

During the go-shop period, the special committee’s financial advisor contacted on behalf of the special committee a total of 47 parties, consisting of 38 financial sponsors and nine potential strategic acquirers. Seven of the parties contacted requested a draft confidentiality agreement for purposes of receiving our confidential information memorandum, and of those, six parties ultimately executed a confidentiality agreement with us. The other parties contacted declined to participate further in an evaluation of us or otherwise pursue a transaction with us. We promptly made available our confidential information memorandum to the six parties that executed confidentiality agreements. At the direction of the special committee, our financial advisor followed up with each of these six parties during the go-shop period to determine whether any of the parties required any additional information from us in order to submit an indication of interest. Prior to the end of the go-shop period, all six parties that received our confidential information memorandum withdrew their interest and terminated discussions without submitting to the special committee an indication of interest in making a competing proposal to acquire us. Certain parties contacted expressed that the $21.00 per share offer price and the current macroeconomic environment for restaurants and casinos were major factors in determining not to submit an indication of interest or otherwise participate in the “go-shop” process. The go-shop period ended at 11:59 p.m. (New York time) on July 31, 2008 and, at that time, the special committee was not engaged in on-going discussions with any parties with respect to a competing proposal to acquire us.

On September 13, 2008, Hurricane Ike caused substantial damage to certain of our properties in Kemah and Galveston, Texas.

 

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On September 18, 2008, the special committee received a letter from Mr. Fertitta advising the special committee that, due to (a) the damage to our properties in Galveston, Kemah and Houston arising out of Hurricane Ike, (b) the turmoil in the credit markets and (c) continued worsening of general economic conditions, he believed that Jefferies and Wells Fargo Foothill would likely determine that a material adverse effect, as defined in their debt commitment letter issued to Mr. Fertitta, had occurred, which would result in Jefferies and Wells Fargo Foothill withdrawing the debt commitment letter for the acquisition financing for the merger. Mr. Fertitta pointed out in his letter that the Kemah and Galveston properties had been a significant driver of our overall performance in 2008 and that the damage to the Kemah and Galveston properties was expected to adversely affect both our business and near- and long-term prospects. Mr. Fertitta also advised the special committee in his letter that the cost to rebuild the Kemah and Galveston properties was likely to exceed our insurance recovery. Further, Mr. Fertitta stated in his letter his belief that there was a risk that Kemah and Galveston would face a permanent loss of population. Because of these factors and the turmoil in the credit markets, Mr. Fertitta expressed in his letter concern about the willingness of Jefferies and Wells Fargo Foothill to provide any financing absent a reduction in leverage in the debt financing. Mr. Fertitta further stated in his letter that he believed that he could persuade Jefferies and Wells Fargo Foothill to move forward with debt financing if Mr. Fertitta revised his offer to reflect our reduced value, which he believed at such time was $17.00 per share. Mr. Fertitta further stated his concern that failure to consummate a merger could result in a depressed stock price for an extended period of time.

On October 7, 2008, having concluded that the acquisition financing under the original merger agreement was likely not feasible despite vigorous efforts by Fertitta Holdings to maintain the Jefferies and Wells Fargo Foothill debt commitment letter, we issued a press release announcing that, in view of the closing of our Kemah and Galveston properties, the instability in the credit markets, and the deterioration in the casual dining and gaming industries, the debt financing required to complete the merger was in jeopardy at the $21.00 per share price. The press release also reported that Mr. Fertitta was in negotiations with Jefferies about the financing for a transaction at a substantially reduced price. The press release concluded by stating that the special committee and Mr. Fertitta had not yet agreed upon the terms of a new transaction and that there was no assurance that a revised agreement would be reached.

On October 10, 2008, Mr. Fertitta informed the special committee that, based on his views of our current financial condition, our revised financial projections and our substantially decreased near- and long-term business prospects, he was willing to acquire us at a revised price of $13.00 per share.

On October 18, 2008, we announced that we had entered into an amendment to the merger agreement previously entered into with Fertitta Holdings and Fertitta Acquisition. The amended merger agreement provided that, among other things, Fertitta Holdings would acquire the outstanding shares of our common stock not owned by Mr. Fertitta for $13.50 per share in cash, a premium of 49% over the closing price of our common stock on October 17, 2008. Fertitta Holdings also delivered amended equity and debt financing commitments to the special committee.

As part of a compromise that was reached among Jefferies, Wells Fargo Foothill, Mr. Fertitta and us, Jefferies and Wells Fargo Foothill agreed under their amended debt financing commitment and Fertitta Holdings agreed under the amended merger agreement that they would not claim that a material adverse effect had occurred as a result of the occurrence of any event known to them through the date of execution of the amended financing commitment and the amended merger agreement, respectively. Moreover, due to the credit market crisis, and the substantial increase in the cost of capital as well as the limited availability of capital, Jefferies and Wells Fargo Foothill agreed under the amended debt financing commitment to provide Fertitta Holdings with funded debt financing for the acquisition on terms reflecting the then credit market disruption. As part of the compromise reached among the parties, Fertitta Holdings negotiated and obtained on our behalf an alternative financing commitment from Jefferies and Wells Fargo Foothill to provide us with alternative financing on terms similar to the terms for the transaction financing in the event the acquisition was not consummated and certain other conditions were satisfied. We announced that the alternative financing would be sufficient to repay our existing indebtedness, which was subject to acceleration and redemption starting in December 2008.

 

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Our board of directors, acting upon the unanimous recommendation of the special committee, approved the amended merger agreement and recommended that our stockholders vote in favor of the amended merger agreement. The special committee also approved the terms of the alternative financing commitment in the event the transaction was not consummated. Under the amended merger agreement, there was a new “go-shop” provision whereby the special committee, with the assistance of its independent advisors, would actively solicit superior acquisition proposals from third parties for another 30 days following the signing of the amended merger agreement. The amended merger agreement required the approval of a majority of the outstanding shares of our common stock.

On October 20, 2008, pursuant to the solicitation provisions set forth in the amended merger agreement, the special committee’s financial advisor, at the direction and on behalf of the special committee, began contacting the parties it had previously identified and discussed with the special committee during the initial go-shop period as being potential acquirers of us. The special committee conducted the go-shop period using substantially the same process and protocol it used for the initial go-shop period. During this go-shop period, the special committee’s financial advisor contacted, on behalf of the special committee, a total of 47 parties, which consisted of the same 38 potential financial sponsors and nine potential strategic acquirers contacted during the initial go-shop period. One of the parties contacted expressed a potential interest in acquiring only our restaurant division. The special committee discussed the possible sale of our restaurant division, including the potential advantages and disadvantages to us and our stockholders of such a transaction, and determined that a sale of our restaurant division in a separate transaction would not be in the best interest of our stockholders. None of the other parties contacted during this go-shop period expressed an interest during this go-shop period in receiving our confidential information memorandum or submitted to the special committee an indication of interest in making a competing proposal to acquire us. Certain parties contacted during this go-shop period expressed that the $13.50 per share offer price, our capital structure and the current macroeconomic environment for restaurants and casinos were major factors in determining not to submit an indication of interest or otherwise participate in the go-shop process. This go-shop period ended at 11:59 p.m. (New York time) on November 17, 2008 and, at that time, the special committee was not engaged in ongoing discussions with any parties with respect to a competing proposal to acquire us.

On January 11, 2009, the amended merger agreement among us, Fertitta Holdings and Fertitta Acquisition was terminated. In connection with the proxy statement required to be provided to our stockholders voting on the merger, the SEC was requiring us to disclose certain information from the amended debt financing commitment letter issued by Jefferies and Wells Fargo Foothill to Fertitta Holdings, Fertitta Acquisition and us about the proposed financing for the merger and for the alternative financing (in the event the merger did not occur). The commitment letter issued by Jefferies and Wells Fargo Foothill required that such information not be disclosed and be kept confidential. Although we informed the SEC of the foregoing and requested confidential treatment of the information, the SEC insisted upon disclosure of the confidential terms. When Jefferies and Wells Fargo Foothill were informed of the SEC’s position, they advised Fertitta Holdings, Fertitta Acquisition and us that disclosure of the confidential information would be in violation of the terms of the commitment letter and would result in Jefferies and Wells Fargo Foothill terminating their commitments for both the merger and the alternative financing. If Jefferies and Wells Fargo Foothill had pulled their commitments, there would not have been financing available for the proposed merger, and we would have lost our alternative financing commitment. However, if the merger agreement was terminated, no proxy statement would be required to be distributed to stockholders, which would allow us to preserve the confidentiality of the terms of the alternative financing until the final terms were decided. Given the economic environment and our need to refinance our existing approximately $400 million in senior notes, we informed Mr. Fertitta that we were not prepared to risk losing our alternative financing commitment and were therefore unable to comply with a condition of the merger agreement which required distribution of an SEC-approved proxy statement to our stockholders to vote on the adoption of the merger proposal. As a result of our inability to provide a proxy statement to our stockholders, we informed Mr. Fertitta that we would be unable to consummate the merger transaction. Mr. Fertitta and the special committee met and agreed that due to the foregoing, it was in the best interests of us and our stockholders to terminate the proposed merger transaction. As a result of our decision to terminate the merger agreement, neither Fertitta nor we were obligated to make any payments to each other.

 

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On February 13, 2009, we announced the closing of new $510 million financing, which included an offering of $295.5 million in aggregate principal amount of 14% senior secured notes due 2011 and a $215.6 million amended and restated senior secured credit facility consisting of a $50 million revolving credit line and a $165.6 million term loan. Gross proceeds from the 14% notes and senior credit facility, together with our cash on hand, were used to pay our former $400 million in senior notes as well as transaction fees and expenses.

On August 14, 2009, our board of directors held a telephonic meeting with a representative from Haynes and Boone also participating. During this meeting, Mr. Fertitta stated that in view of the market conditions relating to the casual dining and gaming industries he believed we should consider exploring strategic alternatives. He further stated that there was a possibility that he would propose a going-private transaction and for this reason he did not believe it was appropriate for him to be involved in any such discussion of strategic alternatives. Our board of directors (without Mr. Fertitta participating) then determined that a special committee should be formed to review strategic alternatives and such committee should be empowered to retain counsel, financial advisors and such other consultants as the special committee may deem appropriate or necessary in conducting a review of strategic alternatives. Our board of directors unanimously resolved (without Mr. Fertitta voting) to establish a special committee composed of two of our outside, non-employee directors and delegated to the special committee the exclusive power and authority to, among other things, (1) review and evaluate strategic alternatives for us and determine the advisability of entering into one or more transactions in connection therewith, which may include, but not be limited to: refinancing or restructuring our debt or the debt of one of our subsidiaries, the Golden Nugget, Inc.; selling various product lines or concepts; spinning off various product lines or concepts; or selling us entirely, (2) solicit proposals from third parties in connection therewith, (3) negotiate with third parties with respect to the terms and conditions of any proposed transaction, (4) should any new proposal be made by one of our affiliates, review, evaluate, negotiate and determine whether the terms and conditions of the proposed transaction are no less favorable to us than those that could be obtained in arm’s length dealings with a person who is not one of our affiliates, (5) determine whether any proposed transaction is fair to, and in the best interests of, us and all of our stockholders, and (6) recommend to the board of directors what action, if any, should be taken by us with respect to any proposal or strategic alternative. After discussion, our board of directors appointed Michael Chadwick and Kenneth Brimmer to serve on the special committee.

On August 18, 2009, the special committee met with representatives of several law firms, including Cadwalader, Wickersham & Taft LLP (“Cadwalader”), to discuss their serving as counsel to the special committee. After discussion, the special committee determined to retain Cadwalader as its legal counsel.

On August 20, 2009 and August 25, 2009, the special committee held a total of three telephonic meetings with a representative from Cadwalader in attendance at each of these meetings. During these meetings, the special committee interviewed representatives from three investment banks to discuss such investment banks serving as financial advisor to the special committee. The representatives from the investment banks discussed their respective qualifications, experience in advising special committees in connection with similar transactions and their experience in and perspectives on the restaurant and gaming industries. The special committee asked questions regarding, among other things, their firms’ qualifications and their relationships with us, Mr. Fertitta and others that might pose potential conflicts of interest or affect the ability of their firms to serve as independent financial advisor to the special committee. Each investment bank also made a proposal to the special committee regarding its fees and the other terms of its engagement.

On August 26, 2009, the special committee determined to retain Moelis as its financial advisor.

On September 4, 2009, the special committee received a letter from Mr. Fertitta expressing his desire to enter into formal discussions with the special committee regarding a going-private transaction and a related tax-free split-off of our wholly-owned subsidiary, Saltgrass, Inc. (“Saltgrass”) in which Mr. Fertitta would acquire all of the shares of our common stock that he did not currently own and our stockholders, including Mr. Fertitta, would receive shares of Saltgrass in exchange for their shares of our common stock. In the transaction, our stockholders other than Mr. Fertitta would receive a greater percentage of shares of Saltgrass

 

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than would Mr. Fertitta. Mr. Fertitta’s letter stated that Saltgrass would be a reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and would be listed for trading on a national securities exchange as of the closing of the transaction. Mr. Fertitta further indicated that he would be willing to have approval of the transaction conditioned on the affirmative vote of the holders of a majority of our common stock not owned by him. Mr. Fertitta also noted as part of the transaction that he anticipated we would refinance our outstanding debt and Saltgrass would have stand-alone debt at an appropriate level with terms supportive of higher unit growth.

On September 8, 2009, the special committee held a telephonic meeting with representatives from Cadwalader and Moelis in attendance. At the meeting, the special committee discussed the letter sent by Mr. Fertitta concerning the proposed going-private transaction and related tax-free split-off of Saltgrass. The participants agreed that it would be appropriate for the special committee to advise Mr. Fertitta that the special committee had received the letter and that the special committee would not be in a position to evaluate and make any recommendations regarding any transaction described in the letter until such time that it had had the opportunity to explore alternative proposals. The participants discussed the process of exploring strategic alternatives. The representatives from Moelis confirmed their plan to proceed with a review of our financial condition in order to assist the special committee in evaluating proposals for strategic alternatives.

On September 9, 2009, Mr. Brimmer sent a letter to Mr. Fertitta stating that the special committee would need more detailed information on his proposal and that the special committee would not make any recommendations regarding his proposal until such time as it has had the opportunity to explore alternative proposals and concluded that Mr. Fertitta’s proposal is superior to any other proposal and in the best interest of us and our stockholders.

On September 15, 2009, Mr. Fertitta provided additional material to the special committee concerning the proposed going-private transaction and related tax-free split-off of Saltgrass. Under the terms of the proposal, our common stock not held by Mr. Fertitta would be cancelled and converted into the right to receive 66.1% of the shares of Saltgrass. Our common stock held by Mr. Fertitta would be cancelled and converted into the right to receive 33.9% of the shares of Saltgrass. Mr. Fertitta would acquire sole control of us through the merger of us with and into a newly formed, wholly-owned entity of Mr. Fertitta. Saltgrass would be a reporting company under the Exchange Act and would be listed for trading on a national securities exchange as of the closing of the transaction. Saltgrass’ board of directors would consist of a majority of independent directors. We would provide Saltgrass with general, administrative and support services at an initial cost of 4% of revenue for a guaranteed period of at least three years. The merger agreement would require the approval of our stockholders and Mr. Fertitta indicated a willingness to have the merger conditioned on the majority of the minority vote.

On September 16, 2009, the special committee held a telephonic meeting with representatives from Cadwalader and Moelis in attendance. At the meeting, the special committee and the representatives from Moelis discussed its process for exploring strategic alternatives, including any proposals from Mr. Fertitta. After discussion, the special committee determined that the review of all strategic alternatives should continue to be conducted concurrently with any discussions with Mr. Fertitta regarding a potential transaction.

On September 21, 2009, the special committee held a telephonic meeting with representatives from Cadwalader and Moelis in attendance. At the meeting, the representatives from Moelis discussed with the special committee Mr. Fertitta’s proposal. The special committee directed Moelis to begin the process of contacting third parties that might be interested in pursuing a transaction with us.

On September 29, 2009, Mr. Fertitta’s legal advisor, Olshan Grundman Frome Rosenzweig & Wolosky LLP (“Olshan”), sent to Cadwalader an initial draft of a merger agreement for the going-private transaction and related tax-free split-off of Saltgrass.

 

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On October 7, 2009, the special committee held a meeting at Moelis’ New York offices with representatives from Cadwalader and Moelis in attendance. At the meeting, the special committee noted that Mr. Fertitta had requested a meeting that afternoon. It was agreed that the special committee and its advisors would meet with Mr. Fertitta and explain that the review of all strategic alternatives, including Mr. Fertitta’s proposal, was ongoing. The representatives from Moelis then discussed with the special committee various strategic alternatives for us. The representatives from Moelis reviewed with the special committee a list of over 80 potential buyers they were contacting as part of the strategic alternative process, which potential buyers included financial investors and strategic buyers as well as certain individual investors. The representatives from Moelis informed the special committee that initial contact had been made with 44 potential buyers. The representatives from Moelis then discussed with the special committee strategic alternatives we could pursue, which included maintaining the status quo, pursuing acquisitions, pursuing selected asset sales/spin offs, conducting a stand-alone restructuring of certain assets, engaging in a stock or cash merger with a strategic or financial party or pursuing Mr. Fertitta’s proposal. The representatives from Moelis responded to all questions raised by the special committee with respect to these potential alternatives.

In the afternoon of October 7, 2009, the special committee, together with representatives of Moelis and Cadwalader, met at Moelis’ New York offices with Mr. Fertitta and representatives from Jefferies & Company and Olshan. At the meeting, the special committee informed Mr. Fertitta that it was proceeding with its review of strategic alternatives and continuing in its review of Mr. Fertitta’s proposal, and that the special committee wanted to further review potential strategic alternatives before engaging in discussions regarding Mr. Fertitta’s proposal.

On October 15, 2009, the special committee held a telephonic meeting with representatives from Cadwalader and Moelis in attendance. At the meeting, the representatives from Moelis updated the special committee on discussions they had had with Jefferies & Company concerning Mr. Fertitta’s proposal, which discussions had included valuation, timing, financing and diligence topics. In addition, the representatives from Moelis informed the special committee that in connection with the review of strategic alternatives, six confidentiality agreements had been signed with potential buyers and an additional 10 confidentiality agreements had been delivered for execution to interested parties. A confidential information memorandum had been provided to each potential buyer that had signed a confidentiality agreement. The representatives from Moelis informed the special committee that they were continuing to contact potential buyers. A representative from Cadwalader informed the special committee that he had been in touch with Olshan regarding tax issues and that Cadwalader was preparing a mark-up of the merger agreement. It was agreed that the representatives from Moelis would follow up with Jefferies & Company and Mr. Fertitta on remaining diligence items and that Moelis would continue its discussions with Jefferies & Company regarding valuation.

On October 19, 2009, the special committee held a telephonic meeting with representatives from Cadwalader and Moelis in attendance. At the meeting, the representatives from Moelis updated the special committee on their diligence efforts and noted that additional information had been provided and that Mr. Fertitta and his advisors were in the process of gathering further requested information for them. The representatives from Moelis informed the special committee that in connection with the consideration of strategic alternatives, eight confidentiality agreements had been signed with potential buyers and an additional eight confidentiality agreements had been delivered for execution to interested parties. A confidential information memorandum had been provided to each potential buyer that had signed a confidentiality agreement. The representatives from Moelis stated that they would continue to contact potential buyers. A representative from Cadwalader noted that a mark-up of the merger agreement would be sent to Mr. Fertitta the following day. The special committee discussed next steps and agreed that the representatives from Moelis should contact Mr. Fertitta and his advisors and inform them that, based on the information provided to the special committee to date, the special committee believed that the proposal submitted on September 15, 2009 was not adequate.

On October 20, 2009, Cadwalader sent a mark-up of the merger agreement to Olshan.

On October 21, 2009, Moelis conveyed to Mr. Fertitta the special committee’s views as to why the Saltgrass proposal submitted on September 15, 2009 was inadequate, including: the transition services agreement for

 

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general, administrative and support expenses for Saltgrass at an initial cost of 4% of revenue was less than Saltgrass would have to pay an unaffiliated third party for these services and, accordingly, the expiration of this agreement could negatively impact Saltgrass’ shares; the identified CEO of Saltgrass did not have public company experience; a CFO had not yet been identified; the projected unit growth was uncertain given Saltgrass’ recent history; the proposed Saltgrass indebtedness could constrain future growth; and Saltgrass faced a difficult operating environment. Thereafter, on October 21, 2009, the special committee sent a letter to Mr. Fertitta rejecting the Saltgrass proposal as inadequate.

On October 22, 2009, the special committee received a letter from Mr. Fertitta regarding an all cash transaction at a price of $13.00 per share for each share of our common stock not owned by Mr. Fertitta. In his letter, Mr. Fertitta indicated that the all cash transaction was subject to obtaining necessary financing and that he was highly confident that such financing could be arranged. Later that evening, Olshan sent to Cadwalader a revised merger agreement reflecting an all cash transaction.

On October 23, 2009, the special committee held a telephonic meeting with representatives from Cadwalader and Moelis in attendance. At the meeting, the representatives from Moelis discussed with the special committee Mr. Fertitta’s all cash proposal. The representatives from Moelis informed the special committee that in connection with the consideration of strategic alternatives, nine confidentiality agreements had been signed with interested parties and the special committee authorized the representatives from Moelis to distribute process letters to potential buyers the following week. It was agreed that the representatives from Moelis should continue their analysis of Mr. Fertitta’s all cash proposal.

On October 23, 2009, we received from Jefferies & Company a letter confirming that, subject to customary conditions, it was highly confident of its ability to arrange the debt financing necessary to refinance a portion of our existing indebtedness and consummate, together with an equity contribution from Mr. Fertitta, the proposed all-cash transaction.

On October 27, 2009, the special committee held a meeting at Moelis’ New York offices with representatives from Cadwalader and Moelis in attendance. The representatives from Moelis stated that they had reviewed and were continuing to review Mr. Fertitta’s proposed all cash transaction at a price of $13.00 per share. In addition, the representatives from Moelis noted that the special committee received the highly confident letter from Jefferies & Company on October 23, 2009. The representatives from Moelis informed the special committee that in connection with the consideration of strategic alternatives, 10 confidentiality agreements had been signed with interested parties and an additional 17 confidentiality agreements had been delivered for execution to interested parties. The representatives from Moelis also discussed with the special committee Mr. Fertitta’s all cash transaction at a price of $13.00 per share. The special committee noted that Mr. Fertitta had requested a meeting that afternoon. It was agreed that the members of the special committee and their advisors would meet with Mr. Fertitta to discuss Mr. Fertitta’s most recent proposal.

In the afternoon of October 27, 2009, the special committee, together with representatives of Moelis and Cadwalader, met at Moelis’ New York offices with Mr. Fertitta and representatives from Jefferies & Company and Olshan to discuss Mr. Fertitta’s all cash transaction at a price of $13.00 per share. The parties agreed to meet the next day to continue discussions.

In the morning of October 28, 2009, the special committee held a meeting at Moelis’ New York offices with representatives from Cadwalader and Moelis in attendance. At the meeting, the representatives from Moelis discussed with members of the special committee Mr. Fertitta’s all cash transaction at a price of $13.00 per share. After discussion, the special committee agreed that it should adjourn and meet again with Mr. Fertitta and reject Mr. Fertitta’s proposed $13.00 per share all cash transaction as inadequate.

Later in the morning of October 28, 2009, the special committee, together with representatives of Moelis and Cadwalader, met at Moelis’ New York offices with Mr. Fertitta and representatives from Jefferies & Company and Olshan. At the meeting, the special committee informed Mr. Fertitta that it was rejecting Mr. Fertitta’s proposed $13.00 per share all cash transaction as inadequate. In response to the special committee’s rejection of his $13.00 cash proposal, Mr. Fertitta offered to increase the all cash transaction to

 

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$13.75 per share. He also said he was prepared to move forward, as an alternative, with the Saltgrass transaction previously proposed with indebtedness of the Saltgrass entity reduced from $90 million to $80 million and Mr. Fertitta’s equity position in the Saltgrass entity reduced from 33.9% to 27.5%.

At midday on October 28, 2009, the special committee reconvened its meeting with representatives from Cadwalader and Moelis in attendance. The representatives from Moelis discussed with the special committee their preliminary view of Mr. Fertitta’s counteroffers and responded to several questions from the special committee. After discussion, the special committee determined to reject Mr. Fertitta’s revised proposal as inadequate. The special committee adjourned the meeting.

The representatives from Moelis then conveyed to Jefferies & Company that the special committee was rejecting Mr. Fertitta’s revised proposal as inadequate. In response to this rejection, Mr. Fertitta increased the price of his all cash transaction to $14.00 per share.

In the afternoon of October 28, 2009, the special committee reconvened its meeting with representatives from Cadwalader and Moelis in attendance. The representatives from Moelis discussed with the special committee their preliminary view of Mr. Fertitta’s counteroffer and responded to several questions from the special committee. After discussion, the special committee determined to reject Mr. Fertitta’s offer of an all cash transaction at $14.00 per share as inadequate. The special committee adjourned the meeting.

The special committee then conveyed to Mr. Fertitta that it was rejecting the all cash transaction at $14.00 per share as inadequate. In response to this rejection, Mr. Fertitta increased the price of his all cash transaction to $14.25 per share.

Later in the afternoon of October 28, 2009, the special committee reconvened its meeting with representatives from Cadwalader and Moelis in attendance. The representatives from Moelis discussed with the special committee their preliminary view of Mr. Fertitta’s counteroffer and responded to several questions from the special committee. After discussion, the special committee determined to reject Mr. Fertitta’s offer of an all cash transaction at $14.25 per share as inadequate. The special committee adjourned the meeting.

A representative from Cadwalader then met with Mr. Fertitta and informed Mr. Fertitta that the special committee was rejecting the all cash transaction at $14.25 per share as inadequate. Mr. Fertitta increased the amount of his proposed all cash transaction to $14.75 per share, which offer Mr. Fertitta indicated was his best and final offer.

In the early evening of October 28, 2009, the special committee reconvened its meeting with representatives from Cadwalader and Moelis in attendance. The representatives from Moelis discussed with the special committee their preliminary view of Mr. Fertitta’s counteroffer and responded to several questions from the special committee. The special committee agreed that Cadwalader should prepare and distribute to Olshan a revised merger agreement.

Later in the evening of October 28, 2009, Cadwalader sent a mark up of the merger agreement for the all cash transaction to Olshan, and between October 28, 2009 and November 3, 2009, Cadwalader, Olshan and the parties negotiated the terms of the merger agreement.

In the morning of November 3, 2009, the special committee met to discuss the proposed transaction and received a presentation from Moelis including financial analyses of the proposed transaction. The representatives from Moelis reviewed with the special committee the background of the transaction, including the negotiations that led to Mr. Fertitta’s best and final offer as well as the structure and significant terms of Mr. Fertitta’s proposal. The representatives from Moelis informed the special committee that in connection with the review of strategic alternatives a total of 70 potential buyers had been contacted, 13 confidentiality agreements had been signed and an additional eight confidentiality agreements had been delivered for execution to potential buyers. A

 

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confidential information memorandum had been provided to each potential buyer that had signed a confidentiality agreement. The representatives from Moelis informed the special committee that the parties that had signed confidentiality agreements would be informed of the go shop period if the proposed merger agreement was approved and that such parties would be notified that initial indications of interest with respect to us would be due in mid-November. The special committee then reviewed the terms of the proposed merger agreement. It was noted that the current market conditions could likely yield more favorable rates than we currently had with respect to our indebtedness and that the refinancing contemplated by the merger agreement was an opportunistic move by us in light of current market conditions even if the merger agreement did not require us to refinance our debt. It was also noted that the merger agreement provided the special committee with an opportunity to conduct an affirmative market check through a post-signing go-shop period to ensure that third parties had the opportunity to make an offer for us. It was further noted that the termination fees payable to Parent if we were to enter into another acquisition proposal were $4.8 million (representing approximately 2% of the equity value of the transaction) or, if the acquisition proposal that resulted in the action or event that formed the basis for termination of the merger agreement arose no later than the end of the go-shop period, $2.4 million (representing approximately 1% of the equity value of the transaction) and that these low termination fees should not discourage potentially interested third parties. Moelis then delivered its oral opinion, subsequently confirmed in writing, to the effect that, based upon and subject to the limitations and qualifications set forth in the written opinion, the $14.75 per share merger consideration to be received by our stockholders in the merger was fair, from a financial point of view, to such stockholders other than Mr. Fertitta, Parent, Merger Sub and their respective affiliates. With the benefit of the presentation and after discussion, the special committee unanimously determined that the merger, the merger agreement and the transactions contemplated thereby are advisable, fair to and in the best interests of us and our unaffiliated stockholders, approved the merger, the merger agreement and the transactions contemplated thereby and recommended that our stockholders approve and adopt the merger agreement. The special committee further recommended that our board of directors approve the proposed transaction, including the merger, the merger agreement and the other transactions contemplated thereby, and recommend to our stockholders that they approve and adopt the merger agreement.

Thereafter, also in the morning of November 3, 2009, our board of directors (other than Mr. Fertitta) met to receive and deliberate upon the report of the special committee. A representative of Haynes and Boone was present at the meeting. The special committee, together with Cadwalader and Moelis, reported to the board on the process undertaken by the special committee and the special committee’s review of the merger agreement, and unanimously recommended to our board of directors that the board accept the offer of $14.75 per share of our common stock held by our stockholders other than Mr. Fertitta and his affiliates and approve and adopt the merger, the merger agreement and the other transactions contemplated thereby. After the presentation of the report, and responses to questions posed by various members of the board to the special committee and its advisors, our board of directors determined that the merger, the merger agreement and the transactions contemplated thereby are advisable, fair to and in the best interests of us and our unaffiliated stockholders, approved the merger, the merger agreement and the transactions contemplated thereby and recommended that our stockholders approve and adopt the merger agreement. We then entered into a definitive agreement with Parent, Merger Sub and, for certain limited purposes, Mr. Fertitta, pursuant to which Parent agreed to acquire all of our outstanding common stock not owned by Mr. Fertitta for $14.75 per share in cash. The parties thereafter announced the proposed transaction on November 3, 2009.

On November 13, 2009 and November 20, 2009, Pershing Square Capital Management, L.P., PS Management GP, LLC, Pershing Square GP, LLC, William A. Ackman and Richard T. McGuire (the “Pershing Square Group”) made joint Schedule 13D filings with the SEC pursuant to which the Pershing Square Group disclosed beneficial ownership of our common stock equal to an aggregate of 1,604,255 shares, representing approximately 9.9% of our outstanding common stock, and additional economic exposure to approximately 2,404,126 shares of our common stock under certain cash-settled total return swaps, which brings their total aggregate economic exposure to 4,008,387 shares, representing approximately 24.8% of our outstanding common stock. In their Schedule 13D filings, the holders of the 1,604,255 shares indicated that they do not intend to support the proposed merger.

 

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On November 17, 2009, the special committee received two non-binding preliminary indications of interest from third parties contacted as part of the strategic alternatives process. The first preliminary indication of interest contemplated the acquisition of 100% of our common stock at a purchase price between $17.00 to $18.00 per share. The second preliminary indication of interest contemplated the acquisition of all of our common stock not owned by insiders at a purchase price between $16.00 to $19.00 per share. Each of these preliminary indications of interest was subject to, among other things, confirmatory due diligence and satisfactory financing arrangements. Each of the potentially interested parties indicated its desire to work in partnership with Mr. Fertitta. Accordingly, the special committee provided these preliminary indications of interest to Mr. Fertitta on November 19, 2009. On November 20, 2009, the special committee received a letter from Mr. Fertitta indicating that at the present time he did not have any interest in engaging in discussions with either of the two potentially interested parties. The special committee is evaluating each of these preliminary indications of interest and has instructed management to permit each of the potentially interested parties to conduct a due diligence review of us. The special committee plans to engage in discussions with these potentially interested parties and will consider all of our alternatives with respect to these preliminary indications of interest and the transaction with Mr. Fertitta consistent with its fiduciary duties under applicable law and subject to the terms and conditions of the merger agreement. In addition, in light of the Pershing Square Group’s ownership of approximately 9.9% of our outstanding common stock and their announced intention not to support the proposed merger, the special committee intends to meet with representatives of the Pershing Square Group to understand and evaluate the Pershing Square Group’s concerns with the proposed merger and our alternatives with respect thereto.

Recommendation of the Special Committee and Board of Directors; Reasons for Recommending Approval of the Merger Agreement

The Special Committee. On August 14, 2009, our board of directors unanimously resolved (without Mr. Fertitta voting) to establish a special committee composed of two of our outside, non-employee directors and delegated to the special committee the exclusive power and authority to, among other things, (1) review and evaluate strategic alternatives for us and determine the advisability of entering into one or more transactions in connection therewith, which may include, but not be limited to: refinancing or restructuring our debt or the debt of one of our subsidiaries, the Golden Nugget, Inc.; selling various product lines or concepts; spinning off various product lines or concepts; or selling us entirely, (2) solicit proposals from third parties in connection therewith, (3) negotiate with third parties with respect to the terms and conditions of any proposed transaction, (4) should any new proposal be made by one of our affiliates, review, evaluate, negotiate and determine whether the terms and conditions of the proposed transaction are no less favorable to us than those that could be obtained in arm’s length dealings with a person who is not one of our affiliates, (5) determine whether any proposed transaction is fair to, and in the best interests of, us and all of our stockholders, and (6) recommend to the board of directors what action, if any, should be taken by us with respect to any proposal or strategic alternative. Our board of directors appointed Michael Chadwick and Kenneth Brimmer to serve on the special committee. See “Background of the Merger” for more information about the formation and authority of the special committee.

The special committee, on behalf of us as authorized by our board of directors, by unanimous vote at a meeting held on November 3, 2009 and after a presentation by its financial advisor, determined that the merger, the merger agreement and the transactions contemplated thereby are advisable, fair to and in the best interests of us and our unaffiliated stockholders. The special committee approved the merger, the merger agreement and the transactions contemplated thereby and recommended that our stockholders approve and adopt the merger agreement. The special committee also recommended that our board of directors approve the proposed transaction, including the merger, the merger agreement and the other transactions contemplated thereby, and recommend to our stockholders that they approve and adopt the merger agreement.

 

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In the course of reaching the determinations and making the recommendations described above, the special committee considered the following factors as being generally positive or favorable in coming to its determinations and recommendations:

 

   

that the merger enhances value for our stockholders by providing them with liquidity, without the risk to them of our current business plan that is currently constrained by a highly leveraged capital structure and has faced a slowdown due to the general economy and general downward trends in the restaurant and gaming industries;

 

   

that the merger consideration of $14.75 per share represents a premium of approximately (a) 36% over the closing price of our common stock on September 8, 2009, the last trading day before Mr. Fertitta’s initial proposal was made public, and (b) 37% over the closing price of our common stock on November 2, 2009, the last trading day before it was publicly announced that Parent, Merger Sub and Mr. Fertitta had entered into the merger agreement with us;

 

   

the special committee’s understanding of our business, assets, financial condition and results of operations, our competitive position, our historical and projected financial performance, the nature of our business and the industry in which we compete;

 

   

the fact that the merger consideration will be paid in all cash to our stockholders, eliminating any uncertainties in value to our stockholders;

 

   

that holders of our common stock that do not vote in favor of the approval and adoption of the merger agreement and that do not otherwise waive their appraisal rights will have the opportunity to demand appraisal of the fair value of their shares under Delaware law;

 

   

the negotiations with respect to the merger consideration that, among other things, led to an increase in Mr. Fertitta’s initial proposal from the Saltgrass proposal to $13.00 per share of our common stock to $13.75 per share of our common stock or a revised Saltgrass proposal to $14.00 per share of our common stock to $14.25 per share of our common stock and, finally, to $14.75 per share of our common stock, and the special committee’s determination that, following extensive negotiations between the special committee and Mr. Fertitta, $14.75 per share was the highest price that Mr. Fertitta would agree to pay, with the special committee basing its belief on a number of factors, including the duration and tenor of negotiations, assertions made by Mr. Fertitta during the negotiation process and the experience of the special committee and its advisors;

 

   

the fact that no alternative acquisition proposal for us had been submitted to us, the special committee or any of their respective advisors between September 9, 2009, the date that we announced Mr. Fertitta’s initial proposal, and November 3, 2009, the date of the merger agreement;

 

   

the increase in the merger consideration payable to our stockholders when compared to the merger consideration payable pursuant to the terms of the prior merger agreement between us and Mr. Fertitta entered into on October 18, 2008;

 

   

that the special committee received from its financial advisor, Moelis, an opinion delivered orally at the special committee meeting on November 3, 2009, and subsequently confirmed in writing as of the same date, to the effect that based upon and subject to the limitations and qualifications set forth in the written opinion, as of the date of the opinion, the merger consideration of $14.75 per share in cash to be received by our stockholders in the merger was fair, from a financial point of view, to such stockholders, other than Mr. Fertitta, Parent, Merger Sub and their respective affiliates;

 

   

the presentation by Moelis to the special committee on November 3, 2009 in connection with the foregoing opinion;

 

   

the current and historical market prices of our common stock, including its market price relative to those of other participants in our industries and general market indices;

 

   

that as a result of the merger, our stockholders would no longer be subject to the market, economic and other risks which arise from owning an interest in a public company;

 

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that fact that we had not received any bids from potentially interested third parties other than Mr. Fertitta since the special committee first began its review of strategic alternatives in January 2008;

 

   

the special committee’s belief that the debt refinancing to be arranged and consummated by us under the merger agreement, as more fully described under the caption “Special Factors—Financing of the Merger”, is being undertaken by us at a favorable time in light of current debt market conditions and that, notwithstanding the merger agreement, such refinancing was an opportunistic move by us in light of current debt market conditions;

 

   

the efforts made by the special committee and its advisors to negotiate at arm’s length and execute a merger agreement that the special committee believed was favorable to us;

 

   

the consideration and negotiation of the merger agreement was conducted entirely under the oversight of the members of the special committee, which consists of two of our directors, each of whom is an outside, non-employee director, and that no limitations were placed on the special committee’s authority;

 

   

the special committee was advised by independent legal counsel and an independent financial advisor, each of whom was selected by the special committee;

 

   

the fact that all of the members of the special committee, each of whom has investments in our common stock, were unanimous in their determination to approve the merger agreement and the merger, and that the merger agreement and the merger were approved and adopted by all of our directors who are not participating with Mr. Fertitta in the transaction;

 

   

the fact that we had received a letter indicating that Jefferies & Company, Inc. is highly confident of its ability to arrange, subject to the customary conditions set forth therein, debt financing in a funded amount up to $550 million, as more fully described under the caption “Special Factors—Financing of the Merger”;

 

   

the fact that Parent delivered an equity commitment from Mr. Fertitta, under which we are a named third-party beneficiary, stating that, subject to the customary conditions set forth therein, Mr. Fertitta will contribute to Parent, in exchange for equity interests in Parent, an amount in cash equal to $40.0 million and all shares of our common stock that he owns immediately prior to the effective time of the merger, and that such shares and Mr. Fertitta’s options to purchase our common stock will be cancelled at the effective time of the merger;

 

   

the terms and conditions of the merger agreement including:

 

   

the merger is conditioned upon the approval and adoption of the merger agreement by our stockholders, including the approval and adoption of the merger agreement by a majority of the minority vote;

 

   

the provisions in the merger agreement that provide the special committee with a post-signing go-shop period that continues until the later of 11:59 p.m., New York City time, on December 17, 2009 and the consummation of the debt financing and during which the special committee has the right to actively initiate, solicit and encourage other acquisition proposals involving us and enter into and maintain, or participate in, discussions or negotiations with respect to acquisition proposals or otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, discussions or negotiations or the making of any acquisition proposals and, after such post-signing go-shop period, the special committee is permitted to continue any then ongoing discussions with any third party that has made an acquisition proposal prior to the end of the go-shop period and with whom we are having ongoing discussions or negotiations as of the end of the go-shop period, as more fully described under “The Merger Agreement—Solicitation of Other Offers”;

 

   

the provisions in the merger agreement that provide that, prior to our stockholders adopting the merger agreement, the special committee may, if it determines in good faith, after consultation with its outside legal advisors, that the failure to take such action could reasonably be determined

 

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to be inconsistent with its fiduciary duties to our stockholders under applicable law, withdraw or modify its recommendation in favor of the merger, cause us to terminate the merger agreement or cause us to terminate the merger agreement and enter into a definitive agreement with respect to a superior proposal, upon payment to Parent, in the case of any such termination, of $4.8 million, representing only approximately 2% of the equity value of the transaction (or $2.4 million, representing only approximately 1% of the equity value of the transaction, if the acquisition proposal that results in the action or event that forms the basis for such termination arose no later than the end of the go-shop period), as more fully described under “The Merger Agreement—Solicitation of Other Offers” and “The Merger Agreement—Termination Fees and Expenses”;

 

   

the provisions in the merger agreement that provide that, prior to our stockholders adopting the merger agreement and in addition to our right to actively solicit other acquisition proposals during the go-shop period, if we receive a written acquisition proposal from a third party that the special committee believes in good faith to be credible and reasonably capable of making a superior proposal, then the special committee may furnish information with respect to us to the person making such acquisition proposal and participate in discussions or negotiations with the person making such acquisition proposal regarding such acquisition proposal, as more fully described under “The Merger Agreement—Solicitation of Other Offers”;

 

   

the provisions in the merger agreement that provide that we are permitted to cancel, delay or postpone convening the special meeting to the extent the special committee, after consultation with outside legal counsel, determines that such cancellation, delay or postponement is consistent with its fiduciary duties under applicable law;

 

   

the provisions in the merger agreement that authorize us to terminate the merger agreement and require Parent to pay us a reverse termination fee of $20.0 million, if, due to the failure of the debt or equity financing to be consummated, the closing fails to occur within two business days after all of the other closing conditions to consummate the merger have been satisfied or waived, except that no fee will be payable if the lenders providing the debt financing are not able to make the debt financing available on terms that are substantially similar to those specified in the merger agreement, by reason of the occurrence of (1) an act of God, (2) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or a general moratorium on commercial banking activities in New York declared by either Federal or New York State authorities or a suspension of payments in respect of federal or state banks in the United States (whether or not mandatory), (3) the outbreak or escalation of hostilities directly involving the United States or the declaration by the United States of a national emergency or war or an act of terrorism or (4) an adverse and material change in financial or securities markets or commercial banking conditions in the United States;

 

   

the provisions in the merger agreement that authorize us to terminate the merger agreement and require Parent to pay us a reverse termination fee of $20.0 million, if Parent or Merger Sub breaches any representation, warranty, covenant or agreement set forth in the merger agreement, or any representation or warranty of Parent or Merger Sub becomes untrue, in either case that would result in the failure to satisfy certain conditions to our obligation to close the merger, and such breach is not capable of being cured by Parent within 30 days after we give Parent notice of such breach, provided that we are not in material breach of any of our representations, warranties or obligations under the merger agreement;

 

   

the provisions in the merger agreement in which Parent represents to us that the aggregate proceeds contemplated by the equity commitment letter, including the cash and shares of our common stock to be contributed by Mr. Fertitta to Parent immediately prior to the effective time of the merger pursuant to the equity commitment letter, together with cash on hand of Parent, Merger Sub and us, including the proceeds from the debt financing, at the effective time of the merger, will be sufficient to pay the aggregate merger consideration and any other amounts required to be paid by Parent and Merger Sub in connection with the merger;

 

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the provisions in the merger agreement that prohibit Parent from terminating the merger agreement or otherwise claiming a breach by us for our failure to obtain the debt financing;

 

   

Mr. Fertitta’s agreement that, from the execution and delivery of the merger agreement until the earlier of the termination of the merger agreement and the effective time of the merger, he will not, directly or indirectly, purchase or otherwise acquire any shares of our common stock or economic ownership of any shares of our common stock, except pursuant to the exercise of stock options outstanding as of the date of the merger agreement;

 

   

the provisions in the merger agreement that prohibits Parent or Merger Sub from terminating the merger agreement after a change of the special committee’s recommendation in favor of the merger or the special committee’s recommendation of another acquisition proposal or the resolution or public proposal of the special committee to recommend another acquisition proposal, so long as we duly call, give notice of, convene and hold the special meeting after any such occurrence;

 

   

Mr. Fertitta has guaranteed to us the payment by Parent of certain of its payment obligations under the merger agreement, including payment of the reverse termination fee; and

 

   

the provisions in the merger agreement that provide in the event of a willful breach of a representation, warranty or covenant by Parent, Merger Sub or Mr. Fertitta where the reverse termination fee is not payable, that monetary damages may not be limited to reimbursement of expenses or out-of-pocket costs and, to the extent proven, may include the benefit of the bargain of the merger to us, including the benefit of the bargain lost by our unaffiliated stockholders, adjusted to account for the time value of money.

In the course of reaching the determinations and making the recommendations described above, the special committee considered the following factors to be generally negative or unfavorable in making its determinations and recommendations:

 

   

the fact that our stockholders, other than Mr. Fertitta, will have no ongoing equity participation in us following the merger, and that our stockholders will cease to participate in our future earnings or growth, if any, or to benefit from increases, if any, in the value of our common stock, and will not participate in any potential future sale of us to a third party or any potential recapitalization of us which could include a dividend to stockholders;

 

   

the other strategic alternatives potentially available to us;

 

   

that Mr. Fertitta and any other investors in Parent could realize significant returns on their equity investment in Parent following the merger;

 

   

the fact that we are obligated under the merger agreement to use our commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange and consummate the debt financing, as more fully described under the caption “Special Factors—Financing of the Merger”, and the fact that the consummation of the debt financing is a condition to the closing of the merger;

 

   

Mr. Fertitta’s participation in the merger and the fact that he has interests in the transaction that differ from, or are in addition to, those of our unaffiliated stockholders;

 

   

the risks and costs to us if the merger does not close, including paying the fees and expenses associated with the transaction, the diversion of management and employee attention, potential employee attrition and the potential effect on business and customer relationships;

 

   

the fact that the merger consideration consists of cash and will therefore generally be taxable for U.S. federal income tax purposes to our stockholders who surrender shares of our common stock in the merger;

 

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the fact that other competing transactions could trigger the change of control provisions under our debt agreements and other material agreements, and the impact of such additional costs under such circumstances, including the potential obligation to refinance approximately $1.0 billion of our indebtedness;

 

   

the fact that other competing transactions could trigger the change of control provisions under Mr. Fertitta’s employment agreement, in which case we estimate that Mr. Fertitta could be entitled to receive benefits under the employment agreement in the amount of approximately $45.0 million;

 

   

the fact that the special committee did not receive competing bids for us from other potentially interested third parties prior to signing the merger agreement with Mr. Fertitta, Parent and Merger Sub, although the special committee was satisfied that the merger agreement provided the special committee with an adequate opportunity to conduct an affirmative post-signing market check to ensure that the $14.75 per share merger consideration was the best available to our unaffiliated stockholders;

 

   

the risk that the transactions might not be completed in a timely manner or at all;

 

   

the merger consideration payable to our stockholders is less than the merger consideration payable pursuant to the terms of the prior merger agreement between us and Mr. Fertitta entered into on June 16, 2008;

 

   

the fact that Mr. Fertitta, as the beneficial owner of 57.4% of our common stock, currently has the right to elect our board of directors as a result of his common stock ownership and can control the outcome of most matters submitted to a vote of our stockholders;

 

   

the potential impact Mr. Fertitta’s beneficial ownership of approximately 57.4% of our common stock could have on the interest of third parties in making offers competitive with Mr. Fertitta’s offer;

 

   

the fact that the merger agreement contains restrictions on the conduct of our business prior to the completion of the merger, generally requiring us to conduct our business only in the ordinary course, subject to specific limitations, which may delay or prevent us from undertaking business opportunities that may arise pending completion of the merger and the length of time between signing and closing when these restrictions are in place; and

 

   

the provisions in the merger agreement that require us to reimburse Mr. Fertitta’s expenses up to $3.5 million if (1) we cancel, delay or postpone convening the special meeting and the merger agreement is terminated because the effective time of the merger has not occurred by May 31, 2010 or (2) the merger agreement is terminated as a result of our breach of our representations, warranties, covenants or agreements in the merger agreement.

In the course of reaching the determinations and decisions, and making the recommendations, described above, the special committee considered the following factors relating to the procedural safeguards that the special committee believes were present to ensure the fairness of the merger and to permit the special committee to represent the interests of our unaffiliated stockholders, each of which the special committee believes supports its decision and provides assurance of the fairness of the merger to us and our unaffiliated stockholders:

 

   

the merger is conditioned upon the approval and adoption of the merger agreement by our stockholders, including the approval and adoption of the merger agreement by the holders of a majority of the then-outstanding shares of our common stock not owned by Mr. Fertitta, Parent, Merger Sub or any of their respective affiliates;

 

   

that the special committee consists solely of outside, non-employee directors;

 

   

that the special committee members were adequately compensated for their services prior to commencing their consideration of strategic alternatives and that their compensation for serving on the special committee was in no way contingent on their approving the merger agreement and taking the other actions described in the proxy statement;

 

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that the special committee retained and was advised by Cadwalader as its independent legal counsel and Moelis as its independent financial advisor;

 

   

that the special committee received from its financial advisor, Moelis, an opinion delivered orally at the special committee meeting on November 3, 2009, and subsequently confirmed in writing as of the same date, to the effect that based upon and subject to the limitations and qualifications set forth in the written opinion, as of the date of the opinion, the merger consideration of $14.75 per share in cash to be received by our stockholders in the merger was fair, from a financial point of view, to such stockholders, other than Mr. Fertitta, Parent, Merger Sub and their respective affiliates;

 

   

the fact that the merger agreement provides the special committee with a post-signing go-shop period that continues until the later of 11:59 p.m., New York City time, on December 17, 2009 and the consummation of the debt financing and during which the special committee has the right to actively initiate, solicit and encourage other acquisition proposals involving us and enter into and maintain, or participate in, discussions or negotiations with respect to acquisition proposals or otherwise cooperate with, assist or participate in, or facilitate any such inquiries, proposals, discussions or negotiations or the making of any acquisition proposals and, after such post-signing go-shop period, the special committee is permitted to continue any then ongoing discussions with any third party that has made an acquisition proposal prior to the end of the go-shop period and with whom we are having ongoing discussions or negotiations as of the end of the go-shop period;

 

   

that the special committee was involved in extensive deliberations since its formation on August 14, 2009 regarding strategic alternatives for us to enhance stockholder value, including Mr. Fertitta’s proposals, and was provided with full access to our management and documentation in connection with the due diligence conducted by its advisors;

 

   

that the special committee, with the assistance of its legal and financial advisors, negotiated on an arm’s length basis with Mr. Fertitta and his representatives;

 

   

the fact that the special committee had ultimate authority to decide whether to proceed with a transaction or any alternative transaction, subject to our board of directors’ approval of a definitive transaction agreement;

 

   

that the special committee, from its inception, was authorized to consider all strategic alternatives with respect to us, including our sale;

 

   

the fact that the special committee was aware that it had no obligation to recommend any transaction, including any proposal by Mr. Fertitta; and

 

   

that the special committee made its evaluation of the merger agreement and the merger based upon the factors discussed in this proxy statement, independent of the other members of our board of directors, including Mr. Fertitta, and with knowledge of the interests of Mr. Fertitta in the merger.

In analyzing the transaction relative to our going concern value, the special committee adopted the analysis and the opinion of Moelis. The special committee did not consider liquidation value as a factor because we are a viable going concern business and the trading history of our common stock is an indication of its value as such. The special committee did not view the prices paid by us for the repurchase of our common stock in our open market stock buy back program over the prior two years or the prices paid by our affiliates in open market purchases of our common stock prior to the date of the merger agreement as relevant beyond indicating the trading price of our common stock during such periods. In addition, due to the fact that we are being sold as a going concern, the special committee did not consider our liquidation value relevant in determining whether the merger is procedurally and substantively fair to our unaffiliated stockholders and in the best interest of our stockholders, other than Mr. Fertitta, Parent, Merger Sub and their respective affiliates. Further, the special committee did not consider net book value a material indicator of our value because it is merely indicative of historical costs.

 

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The foregoing discussion of the information and factors considered by the special committee addresses the material factors considered by the special committee. In view of the variety of factors considered in connection with its evaluation of the merger agreement and the merger, the special committee did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual special committee members may have given different weights to factors. The special committee approved the merger agreement and the merger and recommended approval and adoption of the merger agreement based upon the totality of the information presented to and considered by it. The special committee conducted extensive discussions of, among other things, the factors described above, including asking questions of our management and the special committee’s financial and legal advisors, and unanimously determined that the merger is both procedurally and substantively fair to our unaffiliated stockholders and in the best interest of our stockholders, other than Mr. Fertitta, Parent, Merger Sub and their respective affiliates, and to recommend to the board of directors that it approve the merger agreement and the merger.

The Board of Directors. On November 3, 2009, our board of directors met to consider the reports and recommendations of the special committee with respect to the merger agreement. The special committee, with representatives of Moelis and Cadwalader participating, reported to the board of directors on its review of the proposed transaction and the merger agreement. On the basis of the special committee’s recommendations and the other factors described below, our board of directors expressly adopted the special committee’s conclusion and analysis with respect to the fairness of the transaction and unanimously (with Mr. Fertitta taking no part in the meeting, vote or the recommendations) determined that the merger agreement and the merger are advisable, fair to and in the best interests of us and our unaffiliated stockholders, approved the merger, the merger agreement and the transactions contemplated thereby and recommended that our stockholders approve and adopt the merger agreement.

In the course of reaching the determinations and making the recommendations described above, the board of directors considered the following factors:

 

   

the unanimous determinations and recommendations of the special committee; and

 

   

the factors considered by the special committee, including the generally positive and favorable factors as well as the generally negative and unfavorable factors, and the factors relating to procedural safeguards.

The foregoing discussion of the information and factors considered by our board of directors includes the material factors considered by the board of directors. In view of the variety of factors considered in connection with its evaluation of the merger, our board of directors did not find it practicable to, and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The board of directors approved the merger agreement and the merger and recommended approval and adoption of the merger agreement based upon the totality of the information presented to and considered by it.

Other than as described in this proxy statement, the board of directors is not aware of any firm offers by any other person during the prior two years for a merger or consolidation of us with another company, the sale or transfer of all or substantially all of our assets or a purchase of our securities that would enable such person to exercise control of us.

Our board of directors recommends that you vote “FOR” the approval and adoption of the merger agreement.

 

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Opinion of Moelis & Company

On November 3, 2009, at a meeting of the special committee of the board of directors of the Company held to evaluate the transaction, Moelis delivered to the special committee its oral opinion, subsequently confirmed by delivery of a written opinion, dated November 3, 2009, to the effect that, based upon and subject to the limitations and qualifications set forth in the written opinion, as of the date of the opinion the consideration of $14.75 per share in cash to be received by the stockholders of the Company in the transaction was fair from a financial point of view to such stockholders, other than Tilman J. Fertitta, Parent, Merger Sub and their respective affiliates (collectively, the “Excluded Persons”).

The full text of the Moelis opinion describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Moelis. This opinion is attached as Annex B to this proxy statement and is incorporated into this proxy statement by reference. The Company’s stockholders are encouraged to read this opinion carefully in its entirety.

Moelis’s opinion does not address the Company’s underlying business decision to effect the transaction or the relative merits of the transaction as compared to alternative business strategies or transactions that might be available to the Company. Moelis was not asked to, nor did it, offer any opinion as to the material terms of the merger agreement or the form of the transaction. Moelis also assumed, with the consent of the special committee, that the representations and warranties of all parties to the merger agreement are true and correct, that each party to the merger agreement will perform all of the covenants and agreements required to be performed by such party, that all conditions to the consummation of the transaction will be satisfied without waiver thereof, and that the merger will be consummated in a timely manner in accordance with the terms described in the merger agreement, without any modifications or amendments thereto or any adjustment to the merger consideration (through indemnification claims, offset, purchase price adjustments or otherwise). In rendering its opinion, Moelis assumed, with the special committee’s consent, that the final executed form of the merger agreement does not differ in any material respect from the draft that Moelis examined. At the special committee’s direction, Moelis solicited indications of interest in a possible transaction with the Company from certain third parties; however, at the special committee’s request, Moelis delivered the opinion prior to an initial bid date.

Moelis, in arriving at its opinion, among other things:

 

   

reviewed certain publicly available business and financial information relating to the Company that Moelis deemed relevant;

 

   

reviewed certain internal information relating to the business, including financial forecasts, earnings, cash flow, assets, liabilities and prospects of the Company furnished to Moelis by the Company;

 

   

conducted discussions with members of senior management and representatives of the Company concerning the matters described in the first two bullet points of this paragraph, as well as the business and prospects of the Company generally;

 

   

reviewed publicly available financial and stock market data, including valuation multiples, for the Company and compared them with those of certain other companies in lines of business that Moelis deemed relevant;

 

   

compared the proposed financial terms of the merger with the financial terms of certain other transactions that Moelis deemed relevant;

 

   

reviewed a draft of the merger agreement, dated November 2, 2009;

 

   

reviewed the highly confident letter that the Company received from Jefferies & Company regarding the debt financing;

 

   

reviewed the equity commitment letter between Parent and Mr. Fertitta;

 

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participated in certain discussions and negotiations among representatives of the Company and Mr. Fertitta, Parent, Merger Sub and their respective financial and legal advisors; and

 

   

conducted such other financial studies and analyses and took into account such other information as Moelis deemed appropriate.

In connection with its review, Moelis did not assume any responsibility for independent verification of any the information supplied to, discussed with, or reviewed by Moelis for the purpose of its opinion and, with the special committee’s consent, relied on such information being complete and accurate in all material respects. In addition, at the special committee’s direction Moelis did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet, or otherwise) of the Company, nor has Moelis been furnished with any such evaluation or appraisal. With respect to the forecasted financial information referred to above, Moelis assumed, with the special committee’s consent, that they were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company as to the future performance of the Company.

Moelis’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Moelis as of, the date of the opinion. Moelis’s opinion does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the merger or any other matter, nor does it constitute legal, tax or accounting advice.

Moelis provided its opinion for the use and benefit of the special committee of the board of directors of the Company in its evaluation of the merger. In addition, the special committee did not ask Moelis to address, and Moelis’s opinion did not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of the Company, other than the holders of the Company common stock that are not Excluded Persons.

In addition, Moelis did not express any opinion as to the fairness of the amount or nature of any compensation to be received by any of the Company’s officers, directors or employees, or any class of such persons, relative to the $14.75 per share cash consideration to be received by the Company stockholders in the merger. The Moelis opinion was approved by a Moelis fairness opinion committee.

Financial Analyses

The following is a summary of the material financial analyses presented by Moelis to the special committee on November 3, 2009, in connection with the delivery of the opinion described above.

In its evaluation of the proposed transaction, Moelis considered several valuation methodologies, including a comparable public trading multiples analysis, a precedent transaction analysis, a discounted cash flow analysis and an illustrative leveraged buyout analysis. For purposes of the comparable public trading multiples, precedent transaction and discounted cash flow analyses, Moelis calculated an implied valuation range for each of the Company’s restaurant and gaming businesses separately, prior to calculating an implied valuation range for the combined business. Furthermore, in connection with each such analysis, Moelis calculated separate implied equity value ranges for the combined business assuming that (i) the Company’s gaming business debt is treated as consolidated debt of the Company for valuation purposes and (ii) the Company’s gaming business debt is non-recourse to the restaurant business, such that in computing the equity value of the combined business the gaming business would not be assigned an equity value less than $0. In connection with the second scenario, Moelis did not deduct any breakage costs, penalties or other negative financial impacts to the restaurant business if the gaming business debt is not honored, though Company management indicated to Moelis that the Company would likely incur such costs but has not been able to quantify them.

The summary set forth below does not purport to be a complete description of the analyses performed by Moelis in arriving at its opinion, nor is the order of analyses described below meant to indicate the relative

 

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weight or importance given to those analyses by Moelis. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances; therefore, such an opinion is not readily susceptible to partial analysis or summary description. No business or transaction used in such analyses as a comparison is identical to the Company, the Company’s businesses or the proposed transaction, nor is an evaluation of such analyses entirely mathematical. In arriving at its opinion, Moelis did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Moelis believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all factors and analyses, would, in the view of Moelis, create an incomplete and misleading view of the analyses underlying Moelis’s opinion.

Some of the summaries of financial analyses below include information presented in tabular format. In order to understand fully Moelis’s analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Moelis’s analyses.

The analyses performed by Moelis include analyses based upon forecasts of future results, which results might be significantly more or less favorable than those upon which Moelis’s analyses were based. The analyses do not purport to be appraisals or to reflect the prices at which the Company’s shares might trade at any time. Because the analyses are inherently subject to uncertainty, being based upon numerous factors and events, including, without limitation, factors relating to general economic and competitive conditions beyond the control of the parties or their respective advisors, neither Moelis nor any other person assumes responsibility if future results or actual values are materially different from those contemplated below.

A copy of Moelis’s written presentation, substantially in the form delivered to the special committee on November 3, 2009 in connection with Moelis’s opinion letter, has been filed as an exhibit to the Schedule 13E-3. A copy of such presentation will also be available for inspection and copying at the Company’s principal executive offices during regular business hours by any interested stockholder of the Company or any representative of such stockholder who has been so designated in writing.

Comparable Public Trading Multiples Analysis

Moelis reviewed selected financial information, on a stand-alone basis, for each of the Company’s restaurant business and gaming business, and compared such information to corresponding financial information of publicly traded companies in the restaurant and gaming industry, respectively.

Moelis selected the companies based on a number of criteria, including the nature of the companies’ operations, size and target markets. For the selected restaurant companies, Moelis focused on companies in the casual dining, upscale casual dining and fine dining sub-sectors within the restaurant industry. For the selected gaming companies, Moelis considered mid-cap publicly traded operators as well as Monarch Casino and Resort, Inc., a single asset property.

The restaurant companies selected included:

 

   

Casual Dining:

 

   

Brinker International, Inc.

 

   

Darden Restaurants, Inc.

 

   

O’Charley’s Inc.

 

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Red Robin Gourmet Burgers, Inc.

 

   

Ruby Tuesday, Inc.

 

   

Texas Roadhouse, Inc.

 

   

Upscale Casual Dining:

 

   

BJ’s Restaurants, Inc.

 

   

California Pizza Kitchen, Inc.

 

   

The Cheesecake Factory Incorporated

 

   

PF Chang’s China Bistro, Inc.

 

   

Fine Dining:

 

   

McCormick & Schmick’s Seafood Restaurants, Inc.

 

   

Morton’s Restaurant Group, Inc.

 

   

Ruth’s Hospitality Group, Inc.

The gaming companies selected included:

 

   

Mid-Cap (Major Markets*):

 

   

Boyd Gaming Corporation

 

   

Mid-Cap (Other Markets):

 

   

Penn National Gaming, Inc.

 

   

Ameristar Casinos, Inc.

 

   

Isle of Capri Casinos, Inc.

 

   

Pinnacle Entertainment, Inc.

 

   

Single Asset:

 

   

Monarch Casino & Resort, Inc.

 

* Major markets defined as companies receiving a majority of property EBITDA in Atlantic City, NJ and Las Vegas, NV.

For each of the companies identified above, Moelis calculated various multiples, including the ratio of enterprise value to projected earnings before interest, tax, depreciation and amortization, or EBITDA, for calendar year 2010. For purposes of its analysis, Moelis calculated the enterprise value as the market capitalization plus total debt, minority interests and preferred stock, less cash and cash equivalents, and used 2010 EBITDA based on consensus analyst estimates compiled by Reuters. Moelis used closing trading prices of equity securities of each identified company as of October 30, 2009.

Based upon the foregoing and qualitative judgments related primarily to differing sizes, growth prospects, profitability levels and degree of operational risk between the Company’s restaurant and gaming businesses and the appropriate selected companies, Moelis selected a range of enterprise value to 2010 EBITDA multiples for the selected restaurant companies and selected gaming companies, respectively. Moelis then applied such multiple ranges to the Company’s 2010 estimated EBITDA for each of the Company’s restaurant and gaming business, as appropriate, to derive an implied range of enterprise and equity value for each of the Company’s restaurant business and gaming business. For each of the Company’s restaurant and gaming business, Moelis

 

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used 2010 EBITDA based on estimates and projections prepared by the Company’s management for each such business. The following summarizes the results of these calculations:

 

Restaurant Business

  

Selected Enterprise Value / 2010 EBITDA Multiple Range

   4.5x-6.5x

Implied Company Restaurant Business Enterprise Value

   $630mm-$910mm

Implied Company Restaurant Business Equity Value

   $150mm-$430mm

Gaming Business

  

Selected Enterprise Value / 2010 EBITDA Multiple Range

   6.5x-8.0x

Implied Company Gaming Business Enterprise Value

   $280mm-$345mm

Implied Company Gaming Business Equity Value

   ($220)mm-($155)mm

Based on the foregoing calculations, Moelis then calculated the combined equity value of the Company’s restaurant and gaming businesses. Assuming that the debt of the gaming business is treated as consolidated debt of the entire Company, such calculations resulted in an implied equity value of the combined Company of ($70) million to $275 million, and a price per Company share of ($4.75) to $16.75. Moelis noted that the merger consideration of $14.75 per share was within such range.

Moelis also completed the foregoing analysis assuming the gaming business debt is non-recourse to the restaurant business. Such calculations resulted in an implied equity value of the combined Company of $150 million to $430 million, and a price per Company share of $9.25 to $26.00. Moelis noted that the merger consideration of $14.75 per share was within such range.

It should be noted that no company used in the above analysis is identical to the Company’s restaurant or gaming business. In evaluating companies identified by Moelis as comparable to the Company’s businesses, Moelis made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company.

 

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Precedent Transaction Analysis

Moelis reviewed the financial terms of 21 precedent transactions involving restaurant companies and 20 precedent transactions involving gaming companies.

Moelis selected the transactions based on a number of criteria, including the nature of the target companies’ operations, size and target markets. For restaurant precedent transactions, Moelis focused on transactions over the past five years involving casual dining companies as targets, highlighting regional casual diners or mixed entertainment/restaurant businesses. However, Moelis excluded transactions with significant real estate holdings. For gaming precedent transactions, Moelis focused on recent gaming operator transactions with an emphasis on transactions involving the Golden Nugget hotel and casino, assets in or around the Las Vegas strip and/or local markets and small/mid-cap gaming operators. Moelis focused less on transactions completed during 2006 to July 2007, due to potential inflated asset values due to the financing and real estate environment. The transactions selected included:

Selected Restaurant Precedent Transactions

 

Announcement Date

 

Acquiror

 

Target

August 16, 2007

  Darden Restaurants, Inc.   Rare Hospitality International, Inc.

July 16, 2007

  IHOP Corp.   Applebee’s International, Inc.

June 17, 2007

  Sun Capital Partners, Inc.   Friendly Ice Cream Corporation

May 7, 2007

  Bunker Hill Capital   The Smith & Wollensky Restaurant Group

November 6, 2006

  Bain Capital & Catterton Partners   OSI Restaurant Partners, Inc.

October 30, 2006

  Bruckmann, Rosser, Sherril & Co.
Inc., Canyon Capital Advisors
LLC & Black Canyon Capital
LLC
  Logan’s Roadhouse, Inc.

October 9, 2006*

  J.H. Whitney Capital Partners,
LLC
  Joe’s Crab Shack

August 28, 2006

  Oak Investment Partners &
Catterton Partners
  Cheddar’s Holding Corp.

August 18, 2006

  Lone Star Funds   Lone Star Steakhouse & Saloon, Inc.

August 10, 2006*

  Sun Capital Partners, Inc.   Real Mex Restaurants, Inc.

July 25, 2006

  Buffets Inc.   Ryan’s Restaurant Group, Inc.

June 5, 2006

  Bruckmann, Rosser, Sherril & Co.
Inc. & Castle Harlan, Inc.
  Bravo Development, Inc.

January 10, 2006

  Centre Partners   Uno Restaurant Holdings Corporation

December 12, 2005*

  Newcastle Partners, L.P.   Fox & Hound Restaurant Group

December 9, 2005*

  Wellspring Capital Management
LLC
  Dave & Buster’s Inc.

September 16, 2005

  Leonard Green & Partners, L.P.   Claim Jumper Restaurants Inc.

January 20, 2005

  Trimaran Capital Partners   Charlie Brown’s

June 14, 2004

  Bob Evan’s Farms, Inc.   Mimi’s Cafés

 

* Most comparable transactions

The following restaurant precedent transactions involving the Company were also noted for reference:

 

Announcement Date

  

Acquiror

  

Target

September 30, 2002

   Landry’s Restaurant, Inc.    Saltgrass Steak House and Seafood

February 19, 2002

   Landry’s Restaurant, Inc.    C.A. Muer Corp.

September 26, 2000

   Landry’s Restaurant, Inc.    Rainforest Cafe, Inc.

 

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Selected Gaming Precedent Transactions

 

Announcement Date

  

Acquiror

  

Target

August 15, 2008

   Ruffin Acquisition, LLC    Treasure Island Hotel and Casino

September 23, 2008

   Carl Icahn, Black Diamond Capital Management & Schultze Asset management    Tropicana Atlantic City

December 11, 2006

   Crown Limited    Cannery Casino Resorts, LLC

June 15, 2007

   Fortress Investment Group & Centerbridge Partners    Penn National Gaming Inc.

April 23, 2007

   Whitehall Street Real Estate Funds    American Casino & Entertainment Properties, LLC

April 4, 2007

   Publishing & Broadcasting Ltd. & Macquarie Bank Ltd.    Gateway Casinos Income Fund

April 3, 2007

   Ameristar Casinos Inc.    Resorts East Chicago

December 19, 2006

   Apollo Management LP & Texas Pacific Group    Harrah’s Entertainment Inc.

December 4, 2006

   Fertitta Colony Partners LLC    Station Casinos, Inc.

May 19, 2006

   Wilmar Tahoe, Inc., d/b/a Columbia Entertainment    Aztar Corp.

March 20, 2006

   Investor Group    Kerzner International Limited

February 4, 2005

   Landry’s Restaurant, Inc.    Poster Financial Group, Inc. (Golden Nugget)

November 3, 2004

   Penn National Gaming, Inc.    Argosy Gaming Company

September 27, 2004

   Colony Capital, LLC    Harrah’s Entertainment, Inc. (Caesars Assets)

July 15, 2004

   Harrah’s Entertainment, Inc.    Caesars Entertainment, Inc.

June 4, 2004

   MGM Mirage, Inc.    Mandalay Resort Group

February 9, 2004

   Boyd Gaming Corp.    Coast Casinos Inc.

September 11, 2003

   Harrah’s Entertainment, Inc.    Horseshoe Gaming Holding Corp.

June 26, 2003

   Poster Financial Group, Inc.    MGM Mirage, Inc. (Golden Nugget Hotel-Casinos)

February 22, 2000

   MGM Grand, Inc.    Mirage Resorts, Inc.

For each of the restaurant transactions identified above, Moelis calculated the ratio of enterprise value to last twelve months EBITDA at the time the transaction took place, as last twelve months EBITDA rather than forward EBITDA is viewed as most relevant for restaurant industry transactions. For purposes of that analysis, Moelis used last twelve months EBITDA based on public filings, independent research analyst reports and Capital IQ.

The following table presents the results of such analysis:

 

     Enterprise Value /LTM EBITDA
     Mean    Median

All Selected Restaurant Transactions

   9.2x    9.7x

Most Comparable Selected Restaurant Transactions

   6.7x    6.3x

For each of the gaming transactions identified above, Moelis calculated the ratio of enterprise value to the forward EBITDA estimate for the year the transaction took place, if the transaction took place in the first half of the year, and the ratio of enterprise value to the forward EBITDA estimate for the next calendar year, if the transaction took place in the second half of the year, unless otherwise noted. For purposes of that analysis,

 

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Moelis used forward EBITDA based on public filings, projections reported by independent research analyst reports and Capital IQ.

The following table presents the results of such analysis:

 

Selected Gaming Transactions

   Enterprise Value /Forward
EBITDA (Mean)

August 2007 to Present

   8.2x

2006 to July 2007

   12.8x

Prior to 2006

   8.2x

Overall

   9.9x

Based upon the foregoing and qualitative judgments related to the characteristics of the precedent transactions, Moelis selected a range of enterprise value to last twelve months EBITDA multiples for the precedent restaurant transactions and enterprise value to forward EBITDA for the selected precedent gaming transactions. Moelis then applied such multiple ranges to the Company’s last twelve months adjusted EBITDA for the Company’s restaurant business and 2010 estimated EBITDA (based on estimates prepared by the Company’s management) for the Company’s gaming business, respectively, to derive an implied range of enterprise and equity value for each of the Company’s restaurant business and gaming business. The following tables summarize the results of these calculations:

 

Restaurant Group

  

Selected Enterprise Value / LTM EBITDA Multiple Range

   6.0x-7.5x

Implied Company Restaurant Business Enterprise Value

   $815mm-$1,020mm

Implied Company Restaurant Business Equity Value

   $335mm-$540mm

Gaming Group

  

Selected Enterprise Value / Forward EBITDA Multiple Range

   6.5x-9.0x

Implied Company Gaming Business Enterprise Value

   $280mm-$390mm

Implied Company Gaming Business Equity Value

   ($220)mm-($115)mm

Based on the foregoing calculations, Moelis then calculated the combined equity value of the Company’s restaurant and gaming businesses. Assuming that the debt of the gaming business is treated as consolidated debt of the Company, such calculations resulted in an implied equity value of the combined Company of $70 million to $380 million, and a price per Company share of $4.25 to $23.00. Moelis noted that the merger consideration of $14.75 per share was within such range.

Moelis also completed the foregoing analysis assuming the gaming business debt is non-recourse to the restaurant business. Such calculations resulted in an implied equity value of the combined Company of $290 million to $495 million, and a price per Company share of $17.75 to $29.75. Moelis noted that the merger consideration of $14.75 was below such range.

It should be noted that the foregoing calculations of the combined equity value of the Company were made net of estimated $45 million change in control payments to Mr. Fertitta that he could be entitled to receive in a transaction other than the merger. Also, no transaction used in the above analysis is identical to the proposed transaction. In evaluating transactions identified by Moelis as comparable to the proposed transaction, Moelis made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company.

 

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Discounted Cash Flow Analysis

Moelis conducted a discounted cash flow, or DCF, analysis of the Company to calculate a range of implied equity values for the Company. A DCF analysis is a method of evaluating an asset using estimates of the future unlevered free cash flows generated by assets and taking into consideration the time value of money with respect to those future free cash flows by calculating their “present value.” “Present value” refers to the current value of one or more future cash payments from the asset, which Moelis refers to as that asset’s free cash flows, and is obtained by discounting those free cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, capitalized returns and other appropriate factors. “Terminal value” refers to the capitalized value of all free cash flows from an asset for periods beyond the final forecast period.

Moelis analyzed the five-year projections provided by the Company’s management with respect to future unlevered free cash flows of each of the Company’s restaurant and gaming businesses. The future unlevered free cash flows for such five-year period were discounted back to present value as of December 31, 2009 using discount rates ranging from 11.0% to 12.0% for the restaurant business and 11.0% to 13.5% for the gaming business, which discount ranges were based upon each business’ and its comparable companies’ weighted average cost of capital. The restaurant and gaming businesses’ respective terminal value was then calculated using perpetuity growth rates ranging from 0.0% to 3.0% in each case, based upon guidance provided by the Company’s management.

The foregoing analysis indicated a combined equity value for the consolidated Company of $5 million to $435 million, assuming that the gaming business debt is treated as consolidated debt of the entire Company. The foregoing equity range was equal to a price per share range of $0.25 to $26.25. Moelis noted that the merger consideration of $14.75 per share fell within such range.

Moelis also completed the foregoing analysis assuming the gaming business debt is non-recourse to the restaurant business. Such analysis indicated a combined equity value for the Company of $235 million to $515 million. The foregoing equity range was equal to a price per share range of $14.50 to $31.00. Moelis noted that the merger consideration of $14.75 per share fell within such range.

Illustrative Leveraged Buyout Analysis

Moelis performed an illustrative leveraged buyout analysis using financial information provided by the Company’s management projections and financing assumptions based on Moelis estimates. Assuming an exit multiple of 6.0x to 6.5x, which is based on the Company’s enterprise value to last twelve months EBITDA multiple, the refinancing of all existing debt upon a transaction and a hypothetical required internal rate of return of 25% to a financial buyer, Moelis calculated financial buyer enterprise value to 2010 EBITDA entry multiples of 5.5x to 6.0x. The foregoing analysis indicated a combined equity value for the Company of $25 million to $120 million, or a price per share range of $1.50 to $7.50. Moelis noted that the merger consideration of $14.75 per share was above this range.

The merger consideration was determined through arms’ length negotiations between the special committee, on the one hand, and Mr. Fertitta and certain of his affiliates, on the other hand, and the decision by the Company to enter into the merger agreement was solely that of the Company. Moelis acted as financial advisor to the special committee in connection with its consideration of the transaction and participated in certain of the negotiations leading to the transaction. Moelis did not, however, recommend any specific amount of consideration to the Company or the special committee or that any specific amount of consideration constituted the only appropriate consideration for the merger. The Moelis opinion and financial analyses were only one of many factors considered by the special committee in its evaluation of the transaction and should not be determinative of the views of the special committee or management with respect to the transaction or the merger consideration.

 

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The Company retained Moelis based upon Moelis’s experience and expertise. Moelis is an investment banking firm with substantial experience in transactions similar to the proposed merger. Moelis, as part of its investment banking business, is continually engaged in the valuation of businesses and securities in connection with business combinations and acquisitions and for other purposes. In the ordinary course of business, Moelis, its successors and its affiliates may trade securities of the Company for its own account and the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

Under the terms of the engagement letter between Moelis and the Company, the Company agreed to pay Moelis (i) a retainer of $200,000, which will be offset on a one-time basis against the Opinion Fee and any Transaction Fee, (ii) an opinion fee of $1,000,000 (the “Opinion Fee”), which became payable upon delivery of the Moelis opinion described above, regardless of the conclusion reached in such opinion, and which fee will be offset against any Transaction Fee and (iii) a transaction fee (the “Transaction Fee”) of an amount determined as follows: (a) $2,000,000 if a transaction is consummated with Mr. Fertitta in which Mr. Fertitta acquires substantially all of the stock or assets of the Company, including by a merger or combination of the Company; (b) 0.85% of the transaction value if a transaction is consummated with an acquirer other than Mr. Fertitta in which such acquirer acquires greater than 50% of the stock or assets of the Company, including by a merger or combination of the Company; and (c) 1.25% of the transaction value if a transaction is consummated involving a sale of a significant portion of the assets of the Company, subject to a minimum Transaction Fee of $1,000,000 for each such transaction. In addition, the Company has agreed to indemnify Moelis and its affiliates (and their respective directors, officers, agents, employees and controlling persons) against certain liabilities and expenses, including liabilities under the federal securities laws, related to or arising out of Moelis’s engagement. Moelis may provide investment banking services to the Company, Mr. Fertitta, Parent and their respective affiliates in the future, for which Moelis would expect to receive compensation.

Position of Tilman J. Fertitta, Parent, and Merger Sub as to Fairness

Under the rules governing “going-private” transactions, Mr. Fertitta, Parent and Merger Sub are required to express their beliefs as to the substantive and procedural fairness of the merger to our stockholders. Mr. Fertitta, Parent and Merger Sub are making the statements included in this subsection solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Securities Exchange Act of 1934. The views of Mr. Fertitta, Parent and Merger Sub as to the fairness of the proposed merger should not be construed as a recommendation to any of our stockholders as to how such stockholder should vote on the proposal to adopt and approve the merger agreement.

The interests of our unaffiliated stockholders were represented by the special committee comprised of outside, non-employee directors, which had the exclusive authority to review, evaluate and negotiate the terms and conditions of the merger agreement on our behalf, with the assistance of the special committee’s financial and legal advisors. Accordingly, Mr. Fertitta, Parent and Merger Sub did not undertake a formal evaluation of the merger or engage a financial advisor for the purpose of reviewing and evaluating the merits of the proposed merger from our stockholders’ viewpoint. Mr. Fertitta, Parent and Merger Sub believe that the merger agreement and the merger are substantively and procedurally fair to the unaffiliated stockholders on the basis of the factors described under “—Recommendation of the Special Committee and Board of Directors; Reasons for Recommending Approval of the Merger Agreement” and agree with the analyses and conclusions of the special committee and the board of directors, based upon the reasonableness of those analyses and conclusions, which they adopt, and their respective knowledge of us, as well as the factors considered by, and the findings of, the special committee and the board of directors with respect to the fairness of the merger to such unaffiliated stockholders. In addition, Mr. Fertitta, Parent and Merger Sub considered the fact that the special committee received an opinion from Moelis to the effect that based upon and subject to the limitations and qualifications set forth in the written opinion, as of the date of the opinion, the merger consideration of $14.75 per share in cash to be received by our stockholders in the merger was fair, from a financial point of view, to such stockholders, other than Mr. Fertitta, Parent, Merger Sub and their respective affiliates. See “—Recommendation of the Special Committee and Board of Directors; Reasons for Recommending Approval of the Merger Agreement.”

 

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The foregoing discussion of the information and factors considered and given weight by Mr. Fertitta, Parent and Merger Sub in connection with the fairness of the merger agreement and the merger is not intended to be exhaustive but is believed to include all material factors they considered. Mr. Fertitta, Parent and Merger Sub did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the merger agreement and the merger. Mr. Fertitta, Parent and Merger Sub believe that the foregoing factors provide a reasonable basis for their belief that the merger is fair to us and our unaffiliated stockholders.

Purposes and Reasons of Tilman J. Fertitta for the Merger

For Mr. Fertitta, the primary purpose of the merger is to benefit from our future earnings and growth after our stock ceases to be publicly traded through his ownership of all of the common stock of Parent. Mr. Fertitta believes that structuring the transaction in such a manner is preferable to other transaction structures because it will enable the acquisition of all of our shares at the same time and it represents an opportunity for our unaffiliated stockholders to immediately receive a substantial premium for their shares based upon the closing price for our common stock on November 2, 2009, the last trading day before the merger agreement was publicly announced. In addition, Mr. Fertitta believes that this is an appropriate time to pursue this merger since the current effects of the economy on the casual dining and gaming industries might inhibit us from accessing the public equity markets for the foreseeable future. Mr. Fertitta believes that, following the merger, we will have greater operating flexibility, allowing management to concentrate on long-term growth, reduce our focus on the quarter-to-quarter performance often emphasized by the public markets and pursue alternatives that we would not have as a public company, such as the ability to pursue transactions without focusing on the market reaction or risk profile of our unaffiliated stockholders with respect to such transactions.

Purposes and Reasons for the Merger of Parent and Merger Sub

If the proposed merger is completed, we will become a direct subsidiary of Parent. For Parent and Merger Sub, the purpose of the merger is to effectuate the transactions contemplated by the merger agreement.

Purposes, Reasons and Plans for Us After the Merger

The purpose of the merger for us is to enable our stockholders (other than Mr. Fertitta, Parent and Merger Sub and stockholders who properly exercise their dissenters’ rights of appraisal under Delaware law) to immediately realize the value of their investment in us through their receipt of the per share merger consideration of $14.75 in cash, representing a premium of approximately 37% over the closing market price of our common stock on November 2, 2009, the last trading day before the merger agreement was publicly announced. For the reasons discussed under “—Recommendation of the Special Committee and Board of Directors; Reasons for Recommending Approval of the Merger Agreement,” our board of directors unanimously determined (with Mr. Fertitta taking no part in the vote or recommendation) that the merger agreement and the merger are advisable, fair to and in the best interests of us and our unaffiliated stockholders.

It is expected that, upon consummation of the merger, our operations will be conducted substantially in the same manner as they currently are being conducted except that our common stock will cease to be publicly traded and will no longer be listed on any exchange or quotation system, including the New York Stock Exchange, so price quotations will no longer be available. We will not be subject to many of the obligations and constraints, and the related direct and indirect costs, associated with having publicly traded equity securities. We will, however, continue to file periodic reports with the SEC to the extent such reports are required by any indenture governing the outstanding indebtedness of the surviving corporation or applicable law.

Following the merger, we will continue to evaluate and review our business and operations and may develop new plans and proposals or elect to pursue acquisitions or other opportunities that we consider appropriate to maximize our value.

 

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Effects of the Merger

If the merger is consummated, Merger Sub will be merged with and into us, and we will continue as the surviving corporation. Following the consummation of the merger, all of our issued and outstanding common stock will be owned by Parent.

Upon consummation of the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by Parent or Merger Sub, held in treasury by us or owned by stockholders who properly exercise their dissenters’ rights of appraisal under Delaware law) will be cancelled and converted automatically into the right to receive $14.75 in cash, without interest. At the effective time of the merger, all outstanding and unexercised options having an option exercise price of less than $14.75 will be cancelled and the holder of each such cancelled option will be entitled to receive a cash payment (subject to applicable withholding taxes) equal to the number of shares of our common stock subject to the cancelled option multiplied by the amount by which $14.75 exceeds the option exercise price, without interest, except that all options owned by Mr. Fertitta that remain unexercised at the effective time of the merger will be cancelled and he will not receive any cash or consideration for his unexercised options. All options having an exercise price equal to or greater than $14.75 will be cancelled without payment of any consideration therefor. In addition, each share of restricted stock will be treated in the same manner as other shares of outstanding common stock and will be cancelled and converted automatically into the right to receive $14.75 in cash without interest, except that Mr. Fertitta’s shares of restricted stock will be contributed to Parent immediately prior to the effective time of the merger and will be cancelled and he will not receive any cash or consideration for his shares of restricted stock.

Immediately prior to the merger, in exchange for all of the common stock of Parent, Mr. Fertitta will contribute to Parent $40.0 million in cash and all of the shares of our common stock that he owns, which as of the date of this proxy statement totals 8,894,155 shares (which includes 775,000 shares of restricted stock that have not yet vested). Parent will own all of our issued and outstanding shares of common stock following the consummation of the merger. The cash contribution and equity rollover of Mr. Fertitta is more fully described under “—Interests of Tilman J. Fertitta.” A table detailing the expected capitalization of us and Parent following the merger is set forth under “—Arrangements with Respect to Us and Parent Following the Merger.”

If the merger is consummated, our stockholders other than Mr. Fertitta will have no interest in our net book value or net earnings after the merger. The table below sets forth the direct and indirect interests in our book value and net earnings of Mr. Fertitta and Parent prior to and immediately following the merger, based on our net book value as of December 31, 2008 and September 30, 2009 and net income for the year ended December 31, 2008.

 

     Ownership Prior to the Merger
     Net Book Value    Earnings

Name

   December 31, 2008    September 30, 2009    December 31, 2008
     %    $(000’s)      %        $(000’s)        %        $(000’s)  

Tilman J. Fertitta

   55    $ 161,962    55    $ 182,121    55    $ 1,600
     Ownership After the Merger
     Net Book Value    Earnings

Name

   December 31, 2008    September 30, 2009    December 31, 2008
     %    $(000’s)    %    $(000’s)    %    $(000’s)

Tilman J. Fertitta (1)

   100    $ 294,477    100    $ 331,130    100    $ 2,908

 

(1) Following the consummation of the merger, Mr. Fertitta will have an indirect interest in our net book value and earnings as a result of his ownership of all the equity interests in Parent.

A primary benefit of the merger to our stockholders (other than Mr. Fertitta) will be the right of such stockholders to receive a cash payment of $14.75, without interest, for each share of our common stock held by

 

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such stockholders as described above, an approximately 37% premium over the closing market price of our common stock on November 2, 2009, the last full trading day prior to the public announcement of the execution of the merger agreement. Additionally, such stockholders will avoid the risk of any possible decrease in our future earnings, growth or value, and the risks related to our additional leverage, following the merger.

The primary detriments of the merger to such stockholders include the lack of interest of such stockholders in our potential future earnings, growth or value. Additionally, the receipt of cash in exchange for shares of our common stock pursuant to the merger will generally be a taxable sale transaction for U.S. federal income tax purposes to our stockholders who surrender shares of our common stock in the merger.

In connection with the merger, Mr. Fertitta will receive benefits and be subject to obligations that are different from, or in addition to, the benefits of our stockholders generally. These benefits and detriments arise from (i) the right to a continued ownership interest in us following the consummation of the merger and (ii) a continuing employment agreement with us. These incremental benefits and detriments are described in more detail under “—Interests of Tilman J. Fertitta.”

The primary benefits of the merger to Mr. Fertitta, based on his ownership of all the equity interests in Parent, include his interest in our potential future earnings and growth which, if we successfully execute our business strategies, could be substantial. Additionally, following the merger, we will be a private company, and as such will be relieved of the burdens imposed on companies with publicly traded equity, including the requirements and restrictions on trading that our directors, officers and beneficial owners of more than 10% of the shares of our common stock face as a result of the provisions of Section 16 of the Exchange Act. Additionally, following the merger, Mr. Fertitta will retain his position as Chairman, Chief Executive Officer and President of the surviving corporation.

The primary detriments of the merger to Mr. Fertitta include the fact that all of the risk of any possible decrease in our earnings, growth or value, and all of the risks related to our additional leverage, following the merger will be borne by Parent. Additionally, the investment in Parent and us will not be liquid, with no public trading market for such securities, and the equity securities of Parent and us may be subject to contractual restrictions on transfer, including, in the case of our securities, liens to the extent provided under the terms of our debt financing.

Our common stock is currently registered under the Exchange Act and is quoted on the New York Stock Exchange under the symbol “LNY”. As a result of the merger, we, as the surviving corporation, will become a privately held corporation, and there will be no public market for our common stock. After the merger, our common stock will cease to be quoted on the New York Stock Exchange, and price quotations with respect to sales of shares of our common stock in the public market will no longer be available. The surviving corporation will, however, continue to file periodic reports with the SEC to the extent such reports are required by any indenture governing the outstanding indebtedness of the surviving corporation or applicable law.

At the effective time of the merger, our certificate of incorporation, as in effect immediately prior to the merger, will be amended in the form of Exhibit A to the merger agreement and will become the certificate of incorporation of the surviving corporation until thereafter amended in accordance with its terms and applicable law. The bylaws of Merger Sub, as in effect immediately prior to the merger, will become the bylaws of the surviving corporation until thereafter amended in accordance with their terms and applicable law. Upon consummation of the merger, the directors of Merger Sub will be the initial directors of the surviving corporation and our officers will be the initial officers of the surviving corporation. All surviving corporation directors and officers will hold their positions in accordance with and subject to applicable law and the certificate of incorporation and bylaws of the surviving corporation.

 

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Conduct of Our Business if the Merger is Not Completed

If the merger agreement is not approved by the requisite stockholder vote or if the merger is not consummated for any other reason, stockholders will not receive any payment for their shares. Instead, we will remain a public company and our common stock will continue to be listed and traded on the New York Stock Exchange. In addition, if the merger is not consummated, we expect that, except as noted below, management will operate our business in a manner similar to the manner in which it is being operated today and that our stockholders will continue to be subject to the same risks and opportunities as they currently are.

From time to time, our board of directors will evaluate and review, among other things, our business operations, properties, dividend policy and capitalization and make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to enhance stockholders’ value. If the merger agreement is not approved by our stockholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction that we find acceptable will be offered, or that our business, prospects, results of operations or stock price will not be adversely impacted or that our management team will remain intact. In addition, if the merger is not consummated, it is anticipated that Mr. Fertitta will continue to hold a controlling interest in us and would effectively control whether an alternative change in control transaction could be approved by our stockholders.

Interests of Tilman J. Fertitta

In connection with the merger agreement, Mr. Fertitta, our Chairman, Chief Executive Officer and President, entered into an equity commitment letter with Parent, under which we are a named third party beneficiary. Pursuant to the equity commitment letter, and subject to the satisfaction or waiver of the conditions to the merger, Mr. Fertitta agreed that in exchange for all of the common stock of Parent, immediately prior to the effective time of the merger, (i) he will contribute to Parent $40.0 million in cash, (ii) he will contribute to Parent all 8,894,155 of his shares of our common stock, including 775,000 shares of restricted stock that have not yet vested (which contribution of shares is valued at approximately $131.2 million as of the date of this proxy statement, which is based on Mr. Fertitta’s ownership of 8,894,155 shares as of the date of this proxy statement valued at the merger consideration of $14.75 per share) and any additional shares that he may acquire prior to the effective time of the merger pursuant to the exercise of options to purchase our common stock and (iii) all options to purchase our common stock that he holds immediately prior to the effective time of the merger will be cancelled. As a result, following the merger, Mr. Fertitta will own all of our common stock through his ownership of all of the common stock of Parent.

The foregoing summary of the equity commitment letter does not purport to be complete and is qualified in its entirety by reference to the copy of the equity commitment letter attached as Exhibit 99.1(d)(2) to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.

In addition, Mr. Fertitta is a party to an employment agreement with us and we expect this employment agreement will stay in effect following the merger. The employment agreement provides Mr. Fertitta benefits upon a change of control. In connection with the merger, no change of control payments will be made to Mr. Fertitta. However, if we do not consummate the merger and instead consummate a Superior Proposal that constitutes a change of control under Mr. Fertitta’s employment agreement, and Mr. Fertitta’s employment is terminated in connection with such transaction, we estimate that Mr. Fertitta could receive benefits under the employment agreement in the amount of approximately $40.0 million.

The Voting Agreement

Pursuant to a voting agreement entered into as part of the merger agreement, Mr. Fertitta has agreed (i) to vote all shares of our common stock then owned by him and his affiliates (which consists of 8,894,155 shares of our common stock, which includes 775,000 shares of restricted stock that have not yet vested, as of the date of

 

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this proxy statement) in favor of the approval and adoption of the merger agreement and (ii) to certain restrictions on the transfer of his shares and certain other restrictions on his rights with respect to our common stock. All of the outstanding shares of our common stock owned beneficially or of record by Mr. Fertitta or his affiliates are subject to the voting agreement. Furthermore, in the voting agreement, Mr. Fertitta waived, to the full extent of the applicable law, and agreed not to assert any appraisal rights pursuant to Section 262 of the Delaware General Corporation Law (the “DGCL”) or assert any rights to dissent or otherwise in connection with the merger with respect to any and all of his shares of common stock subject to the voting agreement. In addition, Mr. Fertitta agreed that, until the termination of the voting agreement, he will not, directly or indirectly, purchase or otherwise acquire any shares of our common stock or economic ownership thereof, except pursuant to the exercise of options outstanding as of the date of the merger agreement.

The voting agreement is contained in the merger agreement and will terminate upon the earlier of the termination of the merger agreement in accordance with its terms and the effective time of the merger. The foregoing summary of the voting agreement does not purport to be complete and is qualified in its entirety by reference to the voting agreement which is contained in the merger agreement, attached hereto as Annex A and incorporated herein by reference.

Interests of Our Directors and Officers

Pursuant to the merger agreement, (i) the board of directors of the surviving corporation will be the same as the directors of Merger Sub immediately prior to the consummation of the merger and (ii) the officers of the surviving corporation will be the same as our officers immediately prior to the consummation of the merger.

None of our executive officers, other than Mr. Fertitta, is a party to an employment agreement that would provide such executive officer benefits upon a change of control, see “—Interests of Tilman J. Fertitta.”

Our directors are named parties to certain derivative litigation relating to Mr. Fertitta’s proposal to acquire all of our outstanding stock in 2008 and the current proposed merger, which litigation could be terminated and thus resolved in a manner favorable to such directors upon consummation of the merger.

As of November 24, 2009, there were 1,200,950 shares of our common stock subject to options granted under our equity incentive plans or otherwise and 39,976 shares of unvested restricted stock outstanding. Upon the consummation of the merger, all of our equity compensation awards, including awards held by our directors and executive officers (other than Mr. Fertitta), will be subject to the following treatment:

 

   

all outstanding and unexercised options granted under any of our employee or director equity plans or otherwise, whether vested or unvested, will vest and be cancelled, and the holder of each cancelled option having an exercise price of less than $14.75 will be entitled to receive a cash payment (subject to applicable withholding taxes) equal to the number of shares of our common stock subject to the cancelled option multiplied by the amount by which $14.75 exceeds the option exercise price, without interest; and

 

   

each share of restricted stock will be treated in the same manner as other shares of outstanding common stock and will be cancelled and converted automatically into the right to receive $14.75 in cash, without interest.

In connection with the merger, we estimate that our officers and directors (other than Mr. Fertitta) will receive $23,500 from the settlement of options and $292,876 from the settlement of restricted stock. Mr. Fertitta’s unexercised options to purchase our common stock will be cancelled and he will not receive any cash or consideration for his options. Mr. Fertitta’s shares of restricted stock will be contributed to Parent immediately prior to the effective time of the merger and cancelled and he will not receive any cash or consideration for his shares of restricted stock.

 

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The following table reflects the consideration to be provided to each of our directors and officers (other than Mr. Fertitta) in connection with the merger, based on their ownership of common stock, options and restricted common stock as of November 24, 2009:

 

Name

   Merger
consideration to be
received for
common stock
   Merger
consideration to be
received for
restricted stock
   Merger
consideration to be
received for
options
   Total
consideration

Richard H. Liem

   $ -0-    $ 88,500    $ -0-    $ 88,500

Steven L. Scheinthal

     -0-      118,000      -0-      118,000

Jeffrey L. Cantwell

     -0-      25,282      -0-      25,282

Kenneth Brimmer

     54,767      14,750      23,500      93,017

Michael S. Chadwick

     7,375      14,750      -0-      22,125

Joe Max Taylor

     -0-      14,750      -0-      14,750

K. Kelly Roberts

     99,017      16,845      -0-      115,862
                           

Totals

   $ 161,159    $ 292,876    $ 23,500    $ 477,535

Special Committee

We paid each of Michael Chadwick and Kenneth Brimmer a one-time fee of $60,000 for serving as the co-chairmen of the special committee. In addition, we have agreed to reimburse the expenses incurred by each member of the special committee in connection with his service on the special committee. Finally, pursuant to the terms of a special committee indemnification agreement we entered into with each member of the special committee, we have agreed to (i) indemnify each member of the special committee in respect of liabilities for acts or omissions arising out of such member’s service as a special committee member and (ii) advance to each member of the special committee expenses actually incurred in connection with any action or suit arising out of such member’s service as a special committee member. None of the above payments are dependent on the success of the merger or the special committee’s recommendations with respect to the merger.

Indemnification and Insurance

From and after the effective time of the merger, Parent will, and will cause the surviving corporation to, indemnify and hold harmless to the fullest extent permitted under applicable law each of our present and former directors and officers, and their heirs, executors and administrators, each of whom we refer to as an “indemnified party”, against any and all costs, expenses, including reasonable attorneys’ fees, judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any action or investigation arising out of, pertaining to or in connection with any act or omission or matters existing or occurring or alleged to have occurred at or prior to the effective time of the merger, including the merger and the other transactions contemplated by the merger agreement and any acts or omissions in connection with such persons serving as an officer, director or other fiduciary in any entity if such service was at our request or for our benefit. If any such action or investigation occurs, Parent or the surviving corporation will advance to each indemnified party the expenses it incurs in the defense of any such action or investigation within 10 business days of Parent or the surviving corporation receiving from such indemnified party a written request for reimbursement. However, (i) any advancement of expenses will be only to the fullest extent permitted under applicable law and (ii) the indemnified party must provide an undertaking to repay such advances to Parent or the surviving corporation, as applicable, if it is ultimately determined by a court of competent jurisdiction (which determination is not subject to any appeal) that the indemnified party is not entitled to indemnification under applicable law.

The certificate of incorporation and bylaws of the surviving corporation will contain provisions no less favorable with respect to indemnification than are set forth in our certificate of incorporation and bylaws, each as amended, as of the date of the merger agreement, unless any modification is required by law and then Parent will cause the surviving corporation to make such modification only to the minimum extent required by law. The indemnification provisions may not be amended, repealed or otherwise modified (except as provided in this

 

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paragraph) for a period of six years from the effective time of the merger in any manner that would affect adversely the rights of individuals who, at or prior to the effective time of the merger, were our directors or officers.

We will purchase at or prior to the effective time of the merger, and the surviving corporation will maintain in effect, tail policies to our current directors’ and officers’ liability insurance, which tail policies (i) will be effective for a period of six years after the effective time of the merger with respect to claims arising from acts or omissions occurring prior to the effective time of the merger with respect to those persons who are currently covered by our directors’ and officers’ liability insurance and (ii) will contain terms with respect to coverage and amount no less favorable, in the aggregate, than those of such policy or policies as in effect on the date of the merger agreement. If the tail policies described in the immediately preceding sentence cannot be obtained or can only be obtained by paying aggregate premiums in excess of 150% of the aggregate annual amount currently paid by us for such coverage, the surviving corporation will only be required to provide as much coverage as can be obtained by paying aggregate premiums equal to 150% of the aggregate annual amount currently paid by us for such coverage.

Arrangements with Respect to Us and Parent Following the Merger

In connection with the merger, we will become a privately held company. Following the consummation of the merger, all of the issued and outstanding shares of our common stock will be owned by Parent. Mr. Fertitta will own all of the common stock of Parent, and thus indirectly own all of our common stock.

The table below sets forth the expected capitalization of Landry’s and Parent following the merger.

Capitalization of Parent Immediately Following the Merger

 

     Cash    Contributed
Landry’s
Common
Stock
   Imputed Value
Landry’s
Common
Stock (1)
   Total
Common
Stock
   % Common
Stock
 

Tilman J. Fertitta

   $ 40,000,000    8,894,155    $ 133,526,286    $ 173,526,286    100

Capitalization of Landry’s Immediately Following the Merger

 

     Common Stock    % Common Stock  

Tilman J. Fertitta

   $ 173,526,286    100

 

(1) Includes equity in unexercised options.

Financing of the Merger

The consummation of the merger is contingent upon the consummation of the equity financing commitment from Mr. Fertitta and the consummation of the refinancing of certain of our debt obligations, which financings, in the aggregate, Parent has represented to us in the merger agreement will be sufficient to pay the aggregate merger consideration and any other amounts required to be paid by Parent and Merger Sub in connection with the consummation of the transactions contemplated by the merger agreement. The refinancing of our indebtedness was completed on November 30, 2009.

The total amount of funds necessary to consummate the merger is anticipated to be approximately $114.0 million, consisting of (i) approximately $107.5 million to be paid to our stockholders (other than Mr. Fertitta, Parent and Merger Sub) and option holders (other than Mr. Fertitta) under the merger agreement and

 

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(ii) approximately $6.5 million to pay fees and expenses incurred in connection with the merger, which we collectively refer to as the “merger payments”. At September 30, 2009, we had outstanding (i) no borrowings under our senior secured revolving credit facility, (ii) $160.6 million under our senior secured term loan facility, and (iii) $295.5 million under our 14% senior secured notes.

On November 30, 2009, we completed (1) an offering of $406.5 million of 11 5/8% senior secured notes due 2015 (the “11 5/8% Notes”), which resulted in our receiving $400.1 million in net proceeds; and (ii) closed a four year $235.6 million amended and restated senior secured credit facility consisting of a $75.0 million revolving credit facility and a $160.6 million term loan. Pursuant to these loans, up to $79.5 million of our cash and the cash of certain of our subsidiaries can be used to consummate the transactions contemplated by the merger agreement, so long as Mr. Fertitta contributes at least $40.0 million to the equity of Parent, Merger Sub or us.

The funds to pay the merger payments are anticipated to come from the following sources:

 

   

at least $40.0 million of cash to be contributed by Mr. Fertitta to Parent; and

 

   

up to $79.5 million from our cash and the cash of certain of our subsidiaries.

The foregoing amounts do not include the value of all of the shares of common stock held by Mr. Fertitta, including restricted shares, that are being contributed to Parent immediately prior to the effective time of the merger, and which will be cancelled as of the effective time, or Mr. Fertitta’s stock options that are being cancelled in connection with the merger. As of the date of this proxy statement, Mr. Fertitta owned 8,894,155 restricted and unrestricted shares of our common stock in the aggregate and options to purchase 900,000 shares of our common stock with an aggregate value of $133.5 million at $14.75 per share.

We have been provided an equity commitment letter related to Mr. Fertitta’s cash and equity contributions to Parent.

We have agreed to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange and consummate the debt financing as promptly as practicable but in any event on or before the consummation of the merger, including using our commercially reasonable efforts to:

 

   

negotiate definitive agreements with respect to the debt financing; and

 

   

satisfy on a timely basis all conditions applicable to us or our affiliates in such definitive agreements that are within their control.

We have also agreed to use commercially reasonable efforts to comply, and to cause our subsidiaries to comply, in all material respects with the terms of the definitive agreements with respect to the debt financing and any related commitment, fee and engagement letters, if any, entered into with respect to the debt financing. We agreed to:

 

   

furnish to Parent complete, correct and executed copies of the definitive agreements with respect to the debt financing promptly upon their execution; and

 

   

otherwise keep Parent reasonably informed of the status of our efforts to arrange the debt financing , including providing to Parent copies of definitive agreements with respect to the debt financing in substantially final form following the negotiation of such definitive agreements.

Parent may not terminate the merger agreement for, or otherwise claim, a breach of our obligations with respect to the debt financing.

 

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Cash and Equity Contributions by Tilman J. Fertitta

Parent has received an equity commitment letter from Mr. Fertitta, pursuant to which, subject to the conditions contained therein, he has agreed:

 

   

to contribute to Parent $40.0 million in cash;

 

   

to contribute to Parent the 8,894,155 shares of common stock that he owns (which includes 775,000 shares of restricted stock that have not yet vested), the aggregate value of which is approximately $131.2 million based on the merger consideration of $14.75 per shares, and any additional shares that he acquires prior to the effective time of the merger pursuant to the exercise of outstanding options; and

 

   

that all options to purchase shares of our common stock that he owns immediately prior to the effective time of the merger will be cancelled.

The obligation to fund the commitments under the equity commitment letter is subject to, and will occur immediately prior to, the consummation of the merger. In addition, the obligation to fund the cash and equity commitments will terminate automatically upon the earliest to occur of (a) the effective time of the merger (at which time the obligations shall be discharged) and (b) the termination of the merger agreement, and may be terminated earlier upon agreement of Parent and Mr. Fertitta. The equity commitment letter may be amended upon the mutual consent of Mr. Fertitta and Parent. We are a named third party beneficiary under the equity commitment letter and the special committee, if then inexistence, or otherwise our disinterested directors, is entitled to enforce the terms of the equity commitment letter.

Debt Financing

On November 30, 2009, we refinanced our 14% senior secured notes with a larger debt financing, a portion of which will be used to fund a portion of the merger payments if the merger is consummated or for general corporate purposes if the merger is not consummated. In addition we refinanced our existing secured credit facility. These new debt facilities are made up of the following:

 

   

up to $75.0 million aggregate principal amount under an amended senior secured revolving credit facility;

 

   

$160.6 million aggregate principal amount under an amended senior secured term loan facility; and

 

   

$406.5 million aggregate principal amount of debt from the issuance of our 11 5/8% Notes (from which we received $400.1 million in net proceeds).

Senior Secured Credit Facility

We are able to borrow up to $235.6 million under the amended senior secured credit facility, which is comprised of:

 

   

a 4-year $75.0 million senior secured revolving credit facility; and

 

   

an up to 4-year $160.6 million senior secured term loan facility.

The amended revolver includes a $25 million sublimit for the issuance of letters of credit and a $5 million sublimit for swingline loans. Wells Fargo Foothill LLC and Jefferies Finance LLC and/or their designees were co-lead arrangers, co-bookrunners and co-syndication agents for the amended senior secured credit facility. Wells Fargo Foothill LLC and/or its designees will act as sole administrative agent and collateral agent for the amended senior secured credit facility.

Loans under the amended senior secured credit facility bear interest, at our election, at a rate of interest equal to either (i) LIBOR plus 6.0% with a LIBOR floor fixed at a minimum of 2.0% or (ii) 5.0% plus the highest

 

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of (a) the prime rate announced periodically by Wells Fargo (b) the U.S. federal funds effective rate plus 0.50% or (c) a fixed rate of 4.0% per annum.

Our obligations under the amended senior secured credit facility are unconditionally guaranteed jointly and severally by each direct and indirect, existing and future subsidiary of ours, other than our unrestricted and foreign subsidiaries, including the subsidiaries that own and operate the Golden Nugget, and any subsidiary that is a controlled foreign corporation.

Our obligations under the amended senior secured credit facility are secured by a perfected first priority security interest in substantially all of our and the guarantors’ tangible and intangible assets and all of the capital stock of each guarantor (but limited, in the case of the voting stock of a controlled foreign corporation, to 65% of all such voting stock to the extent the pledge of a greater percentage would result in material adverse tax consequences to us).

The amended senior secured credit facility contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, investments, sales of assets, mergers and consolidations, prepayments of subordinated indebtedness, liens and dividends and other distributions. The amended senior secured credit facility also includes customary events of default.

Senior Secured Notes

On November 30, 2009, we issued $406.5 million in aggregate principal amount of 11 5/8% Notes, from which we received $400.1 million in net proceeds. We will pay interest on the 11 5/8% Notes semi-annually in arrears at an annual interest rate of 11 5/8%, beginning November 30, 2009. The first interest payment date is June 1, 2010. The notes are fully guaranteed on a senior secured basis by each of our existing and future domestic restricted subsidiaries. Our unrestricted and foreign subsidiaries, including the subsidiaries that own and operate the Golden Nugget Hotels and Casinos, will not guarantee the 11 5/8% Notes.

The 11 5/8% Notes and the guarantees are secured by liens on substantially all of our and the guarantors’ assets; provided, however, that pursuant to the terms of an intercreditor agreement, such liens will be contractually subordinated to liens that secure our amended senior secured credit facility. Consequently, the 11 5/8% Notes and the guarantees are effectively subordinated to all obligations under our amended senior secured credit facility.

The 11 5/8% Notes and the guarantees of the 11 5/8% Notes rank pari passu in right of payment with all of our and the guarantors’ existing and future senior indebtedness and senior in right of payment to all our and the guarantors’ future subordinated indebtedness. The 11 5/8% Notes and the guarantees are effectively subordinated, however, to indebtedness and other obligations under our amended senior secured credit facility described above, and certain other indebtedness to the extent of the assets securing such indebtedness, and are effectively senior to our and the guarantors’ existing and future senior unsecured indebtedness to the extent of the assets securing the 11 5/8% Notes.

We agreed to file an exchange offer registration statement to exchange the 11 5/8% Notes for a new issue of substantially identical debt securities, the issuance of which has been registered under the Securities Act of 1933, as evidence of the same underlying obligation of indebtedness. Under a registration rights agreement, we have agreed:

 

   

to file a registration statement with respect to an offer to exchange the 11 5/8% Notes for senior secured notes with substantially identical terms to the 11 5/8% Notes within 90 days after the issue date of the 11 5/8% Notes;

 

   

to use our best efforts to cause such registration statement to become effective within 150 days after the issue date of the 11 5/8% Notes;

 

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to consummate the exchange offer contemplated by such registration statement within 30 business days after its effective date; and

 

   

under certain circumstances, to file and to use our best efforts to cause to become effective, a shelf registration statement relating to the resale of the 11 5/8% Notes.

We will be obligated to pay additional interest as liquidated damages to holders of the notes under certain circumstances if we are not in compliance with our obligations under the registration rights agreement.

At any time prior to December 1, 2012, we may redeem up to 35% of the 11 5/8% Notes at a redemption price of 111.625% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of certain equity offerings. Additionally, on or after December 1, 2012, we may redeem all or a part of the 11 5/8% Notes at a premium that will decrease over time, plus accrued and unpaid interest on the notes redeemed.

If we experience a change of control (as defined in the indenture governing the 11 5/8% Notes), we will be required to make an offer to repurchase the 11 5/8% Notes at a price of 101% of their aggregate principal amount, plus accrued and unpaid interest. An acquisition of us by Mr. Fertitta or his affiliates will not be considered a change of control.

If we or our restricted subsidiaries sell assets and do not use the proceeds for specified purposes, we may be required to offer to use the net proceeds to purchase the 11 5/8% Notes at 100% of their principal amount, plus accrued and unpaid interest.

The indenture governing the 11 5/8% Notes, among other things, limits our ability and the ability of our restricted subsidiaries to:

 

   

incur or guarantee additional indebtedness or issue disqualified capital stock;

 

   

transfer or sell assets;

 

   

pay dividends or distributions, redeem subordinated indebtedness, make certain types of investments or make other restricted payments;

 

   

create or incur liens;

 

   

incur dividend or other payment restrictions affecting certain subsidiaries;

 

   

consummate a merger, consolidation or sale of all or substantially all of our assets;

 

   

enter into transactions with affiliates;

 

   

designate subsidiaries as unrestricted subsidiaries;

 

   

engage in a business other than a business that is the same or similar to our current business and reasonably related businesses; and

 

   

take or omit to take any actions that would adversely affect or impair in any material respect the collateral securing the 11 5/8% Notes.

Other Debt Outstanding

At September 30, 2009, we had approximately $497.4 million of indebtedness that will remain outstanding following the merger, substantially all of which will consist of amounts outstanding under the Golden Nugget, Inc.’s $545.0 million credit facility. In addition, we have approximately $1.5 million under our existing 7.5% notes and 9.5% notes that will remain outstanding following the merger.

 

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Fees and Expenses of the Merger

The following is an estimate of our fees and expenses to be incurred in connection with the merger:

 

Expense

   Amount

Legal

   $ 2,100,000

Financial Advisors

   $ 3,550,000

Accounting

   $ 300,000

Printing and Mailing

   $ 250,000

Securities and Exchange Commission Filing Fees

   $ 6,000

Paying Agent

   $ 20,000

Proxy Solicitation and Information Agent

   $ 30,000

Miscellaneous

   $ 244,000
      

Total

   $ 6,500,000

Regulatory Approvals

The following discussion summarizes the material regulatory requirements that we believe relate to the merger, although we may determine that additional consents from or notifications to governmental agencies are necessary or appropriate.

In the merger agreement, the parties have agreed to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws in order to obtain the expiration or termination of the applicable waiting periods under the competition laws of any relevant competition authority required for the consummation of the transactions contemplated by the merger agreement, including the payment when due of all filing fees associated with any notifications, reports or other filings required by any relevant competition authority, except as otherwise provided in the merger agreement, and to effect all necessary filings, consents, waivers, authorizations, permits and approvals from governmental authorities, gaming authorities and other third parties required for the consummation of the transactions contemplated by the merger agreement, including under any applicable gaming laws and liquor laws.

The failure to obtain the approvals required as a result of the merger, comply with the procedural requirements prescribed by any applicable gaming regulatory authority, or of us or Parent to qualify or make disclosures or applications as required under the laws and regulations of any applicable gaming regulatory authority may result in the loss of license or denial of application for licensure in any such applicable jurisdiction.

Nevada Gaming Regulation. As a result of our ownership and operation of the Golden Nugget Hotel & Casino, Las Vegas, Nevada and the Golden Nugget Hotel & Casino, Laughlin, Nevada, we are, and upon consummation of the merger, will be, subject to the jurisdiction of the Nevada gaming authorities. The ownership and operation of casino gaming facilities in Nevada are subject to the Nevada Gaming Control Act and the regulations of the Nevada Gaming Commission (collectively the “Nevada Act”), and various local ordinances and regulations. Our respective gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission (the “Nevada Commission”), the Nevada State Gaming Control Board (the “Nevada Board”), and the local gaming authorities of the cities of Las Vegas and Laughlin, Nevada (collectively, the “Nevada Gaming Authorities”).

The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy that are concerned with, among other things:

 

   

the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity;

 

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the establishment and maintenance of responsible accounting practices and procedures;

 

   

the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record-keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities;

 

   

the prevention of cheating and fraudulent practices; and

 

   

the establishment of a source of state and local revenues through taxation and licensing fees.

The Nevada Act provides that the acquisition of control of a registered publicly traded corporation such as ours must have the prior approval of the Nevada Commission. However, in this instance, Mr. Fertitta, the sole stockholder of Parent, has already been found suitable as our controlling stockholder. Accordingly, no prior approval of the merger by the Nevada Gaming Authorities is required. Following the closing of the merger transaction, Parent will be required to file an application for registration as a holding company and a finding of suitability as our sole stockholder, and Mr. Fertitta will be required to file an application for a finding of suitability as the sole stockholder of Parent. Certain officers and directors of Parent may also be required to file applications for relevant approvals and to obtain such approvals. The Nevada Board reviews and investigates applications and makes recommendations on those applications to the Nevada Commission for final action. Parent, Mr. Fertitta and, if required, officers and directors of Parent will file applications with the Nevada Board for the approvals referred to above, and will also file related applications with all appropriate local jurisdictions after the merger transaction has closed.

We are currently registered by the Nevada Commission and have been found suitable to own gaming subsidiaries that have licensed gaming facilities in Nevada. We, together with our operating gaming subsidiaries, currently hold all gaming licenses and approvals necessary to our continued operation. The merger will not result in our having to re-register with the Nevada Commission or any of the local jurisdictions. However, if we do not consummate the merger and instead consummate an alternative transaction, the party making the proposal for an alternative transaction would be required to register with the Nevada Commission and file applications with the appropriate local jurisdictions. This approval process can take in excess of a year to complete.

Liquor Licenses. The restaurant industry is subject to extensive state and local government regulation relating to the sale of alcoholic beverages. Alcoholic beverage control regulations require each of our restaurants to apply for and obtain from state authorities a license to sell alcohol on the premises. We currently have all of the liquor licenses required to operate our business and these licenses will not be terminated as a result of the merger. However, if we do not consummate the merger and instead consummate an alternative transaction, the party making the proposal for an alternative transaction would be required to obtain new liquor licenses in many of the states in which we operate to the extent it does not already have such licenses.

Accounting Treatment of the Merger

The Company is expected to retain its historical cost basis accounting records.

Provisions for Unaffiliated Security Holders

No provision has been made to grant our stockholders, other than Mr. Fertitta, access to our corporate files, any other party to the merger agreement or Mr. Fertitta, or to obtain counsel or appraisal services at our expense or the expense of any other such party.

Appraisal Rights of Stockholders

Our stockholders have the right under Delaware law to dissent from the approval and adoption of the merger agreement, to exercise appraisal rights and to receive payment in cash of the judicially determined fair value for

 

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their shares, plus interest, if any, on the amount determined to be the fair value, in accordance with Delaware law. The fair value of shares of our common stock, as determined in accordance with Delaware law, may be more or less than, or equal to, the merger consideration to be paid to non-dissenting stockholders in the merger. To preserve their rights, stockholders who wish to exercise appraisal rights must not vote in favor of the approval and adoption of the merger agreement and must follow the specific procedures provided under Delaware law for perfecting appraisal rights. Dissenting stockholders must precisely follow these specific procedures to exercise appraisal rights or their appraisal rights may be lost. These procedures are described in this proxy statement, and a copy of Section 262 of the DGCL, which grants appraisal rights and governs such procedures, is attached as Annex C to this proxy statement. See “Appraisal Rights” beginning on page .

Projected Financial Information

Our senior management does not as a matter of course make public projections as to future performance or earnings beyond the current year and is especially reluctant to make projections for extended earnings periods due to the unpredictability of the underlying assumptions and estimates. However, non-public prospective financial information for the four years ending December 31, 2012 was prepared by our senior management as of October 27, 2009 and made available to Parent, as well as to the board of directors, the special committee and Moelis, the special committee’s financial advisor, in connection with their respective considerations of the merger.

We have included the material projections in this proxy statement to give our stockholders access to certain nonpublic information considered by Parent, the special committee, Moelis and the board of directors for purposes of considering and evaluating the merger. The inclusion of this information should not be regarded as an indication that Parent, Merger Sub, Mr. Fertitta, the special committee, our board of directors, Moelis or any other recipient of this information considered, or now considers, it to be a reliable prediction of future results.

We have advised the recipients of the projections that our internal financial forecasts upon which the projections were based are subjective in many respects. The projections reflect numerous assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions and other matters, all of which are difficult to predict and beyond our control. The projections also reflect estimates and assumptions related to our business that are inherently subject to significant economic, political, and competitive uncertainties, all of which are difficult to predict and many of which are beyond our control. As a result, there can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. The financial projections were prepared for internal use and to assist Parent, the special committee and Moelis with their respective due diligence investigations of us and not with a view toward public disclosure or toward complying with GAAP, the published guidelines of the Securities and Exchange Commission regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The projected financial information included herein has been prepared by, and is the responsibility of our management, and none of Parent, Merger Sub, the board of directors, the special committee or Moelis was involved in the preparation of the projected financial information or has any responsibility for the projected financial information. Grant Thornton LLP, our independent registered public accounting firm, has not examined or compiled any of the accompanying projected financial information, and accordingly, Grant Thornton LLP does not express an opinion or any other form of assurance with respect thereto. The Grant Thornton LLP report incorporated by reference in this proxy statement relates to our historical financial information. It does not extend to the projected financial information and should not be read to do so.

Projections of this type are based on estimates and assumptions that are inherently subject to factors such as industry performance, general business, economic, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of our operations, including the factors described under “Cautionary Statement Regarding Forward-Looking Information,” which factors may cause the financial projections or the underlying assumptions to be inaccurate. Since the projections cover multiple years, such

 

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information by its nature becomes less reliable with each successive year. The financial projections do not take into account any circumstances or events occurring after the date they were prepared.

Readers of this proxy statement are cautioned not to place undue reliance on any of the projections set forth below. No one has made or makes any representation to any stockholder regarding the information included in these projections.

The projected financial information has been prepared on a basis consistent with the accounting principles used in the historical financial statements. For the foregoing reasons, as well as the basis and assumptions on which the financial projections were compiled, the inclusion of the material projections in this proxy statement should not be regarded as an indication that such projections will be an accurate prediction of future events, and they should not be relied on as such. Except as required by applicable securities laws, we do not intend to update, or otherwise revise the material projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown to be incorrect.

Summary Financial Projections as of October 27, 2009

We prepared our financial projections, as set forth below, on October 27, 2009.

Landry’s Restaurants, Inc.

Summary Financial Projections as of October 27, 2009

(amounts in thousands)

 

     2009    2010     2011    2012

EBITDA (1) (2)

   $ 205,510    $ 182,796      $ 193,535    $ 208,344

Capital expenditures

   $ 151,889    $ 29,500      $ 29,500    $ 29,500

Operating income, continuing operations

   $ 119,473    $ 101,201      $ 110,289    $ 123,695

Revenues

   $ 1,066,855    $ 1,084,320      $ 1,114,719    $ 1,151,855

Net income (loss) attributable to Landry’s

   $ 11,802    $ (17,391   $ 638    $ 25,742

 

(1) EBITDA consists of net income plus income tax provision, depreciation and amortization, interest expense, asset impairment expense.
(2) 2009 EBITDA includes gains on debt extinguishment ($19.4 million), lease termination ($7.5 million) and asset sales/insurance proceeds ($5.7 million) and expenses for debt retirement ($4.0 million) and interest rate swaps ($1.3 million). Excluding these items, 2009 EBITDA would be $178.2 million.

We made a number of key assumptions in preparing these projections, including:

 

   

Construction of three restaurants in 2010 and beyond with a projected construction cost of $3.0 million;

 

   

Opening of a hotel tower at the Golden Nugget Hotel and Casino in Las Vegas opens in late November 2009 with a construction cost of $140.0 million;

 

   

Low sales growth in the restaurant and hospitality segment throughout the projection period; and

 

   

Continued aggressive discounting of hotel room rates in Las Vegas negating the additional rooms from the new hotel tower in 2010 with moderate growth from the lower base in 2011 and 2012.

 

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Material United States Federal Income Tax Consequences

The following summarizes the material U.S. federal income tax consequences of the merger to U.S. Holders (as defined below) of shares of our common stock who exchange such shares for the cash consideration pursuant to the merger. This summary is based upon the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), existing regulations promulgated thereunder, and published rulings and court decisions, all as in effect and existing on the date of this proxy statement and all of which are subject to change at any time, which change may be retroactive or prospective. No rulings have been sought or are expected to be sought from the Internal Revenue Service (the “IRS”) with respect to any of the tax consequences discussed below, and no assurance can be given that the IRS will not take contrary positions. Unless otherwise specifically noted, this summary applies only to U.S. Holders (as defined below) that hold their shares of our common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code. Finally, this summary does not address issues, rules, etc. that are currently pending in the Congress and which relate to U.S. taxes.

This summary addresses only the material U.S. federal income tax consequences, and not all tax consequences, of the merger that may be relevant to U.S. Holders of shares of our common stock. It also does not address any of the tax consequences of the merger to holders of shares of our common stock that are Non-U.S. Holders (as defined below) or to holders that may be subject to special treatment under U.S. federal income tax law, such as, for example, financial institutions, real estate investment trusts, personal holding companies, tax-exempt organizations, regulated investment companies, persons who hold shares of our common stock as part of a straddle, hedge, conversion, constructive sale or other integrated transaction or whose functional currency is not the U.S. dollar, traders in securities who elect to use the mark-to-market method of accounting, persons who acquired their shares of our common stock through the exercise of employee stock options or other compensation arrangements, insurance companies, S corporations, brokers and dealers in securities or currencies and certain U.S. expatriates. Further, this summary does not address the U.S. federal estate, gift or alternative minimum tax consequences of the merger, or any state, local or non-U.S. tax consequences of the merger, or the U.S. federal income tax consequences to any person (other than Mr. Fertitta or Parent) that will own actually or constructively shares of our capital stock following the merger. For example, this summary does not address the U.S. federal income tax consequences of the merger to persons related to Mr. Fertitta or Parent under applicable constructive ownership rules set forth in the Internal Revenue Code or the Treasury regulations promulgated thereunder.

Each holder of shares of our common stock should consult his, her or its tax advisor regarding the tax consequences of the merger in light of such holder’s particular situation, including any tax consequences that may arise under the laws of any state, local or non-U.S. taxing jurisdiction and the possible effects of changes in U.S. federal or other tax laws.

A “U.S. Holder” means a beneficial owner of shares of our common stock that, for U.S. federal income tax purposes, is:

 

   

a citizen or individual resident of the United States;

 

   

a corporation, including any entity treated as a corporation for U.S. federal income tax purposes, created or organized in the United States or under the laws of the United States, any State thereof or the District of Columbia;

 

   

an estate, the income of which is subject to U.S. federal income tax without regard to its source; or

 

   

a trust, if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.

If a partnership or limited liability company that is treated as a partnership for U.S. federal income tax purposes holds shares of our common stock, the tax treatment of each of its partners or members generally will depend upon the status of such partner or member and the activities of the partnership or limited liability

 

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company. A partner of a partnership or member of a limited liability company that is treated as a partnership for U.S. federal income tax purposes holding shares of our common stock should consult its own tax advisors regarding the U.S. federal income tax consequences of the merger.

A “Non-U.S. Holder” means a beneficial owner of shares of our common stock that is not a U.S. Holder. We urge holders of shares of our common stock that are Non-U.S. Holders to consult their own tax advisors regarding the U.S. federal income tax consequences of the merger.

Disposition of Shares of our Common Stock

In general, the exchange of shares of our common stock for the cash consideration pursuant to the merger will be a taxable sale transaction for U.S. federal income tax purposes. In general, a U.S. Holder who receives the cash consideration in exchange for shares of our common stock pursuant to the merger will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received and the U.S. Holder’s adjusted tax basis in the shares of our common stock sold. The U.S. Holder’s gain or loss will be determined separately for each block of shares (that is, shares acquired at the same cost in a single transaction). The U.S. Holder’s gain or loss will generally be capital gain or loss, and will generally be long-term capital gain or loss if, on the date of the merger, the shares of our common stock exchanged pursuant to the merger were held by the tendering U.S. Holder for more than one year. In the case of U.S. Holders who are individuals, long-term capital gain is currently eligible for reduced rates of U.S. federal income tax. There are limitations on the deductibility of capital losses.

The merger will be a tax-free transaction for each of Parent, Merger Sub, Mr. Fertitta and us for U.S. federal income tax purposes. Parent will be treated for U.S. federal income tax purposes as purchasing our common stock from our tendering stockholders and will have a cost basis in the acquired shares.

Appraisal Rights

In general, a U.S. Holder who exercises appraisal rights with respect to the merger will recognize gain or loss equal to the difference, if any, between the cash received via appraisal and the U.S. Holder’s adjusted tax basis in the shares of our common stock with respect to which the appraisal rights were exercised. The U.S. Holder’s gain or loss will generally be capital gain or loss, and will generally be long-term or short-term capital gain or loss depending on the U.S. Holder’s holding period for our common stock with respect to which the appraisal rights were exercised, as described in the immediately preceding paragraph. We urge stockholders who exercise appraisal rights to consult their own tax advisors regarding the U.S. federal income tax consequences of the receipt of cash in respect of appraisal rights pursuant to the merger.

Backup Withholding Tax and Information Reporting

Payment of the cash consideration to a U.S. Holder with respect to the exchange of shares of our common stock pursuant to the merger may be subject to information reporting. A U.S. Holder of our common stock may also be subject to U.S. backup withholding tax at the applicable rate (currently 28%), unless the U.S. Holder properly certifies its taxpayer identification number or otherwise establishes an exemption from backup withholding and complies with all other applicable requirements of the backup withholding rules. Each beneficial owner of shares of our common stock that is a U.S. Holder should complete and sign the substitute Form W-9 that will be part of the letter of transmittal to be returned to the disbursing agent in order to provide the information and certification necessary to avoid backup withholding. Backup withholding is not an additional tax. Any amounts so withheld may be allowed as a refund or a credit against such holder’s U.S. federal income tax liability, if any, provided that the required information is properly and timely furnished to the IRS.

 

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Litigation Related to the Merger

Following Mr. Fertitta’s proposal to acquire all of our outstanding stock in 2008, two putative class action law suits were filed as follows:

James F. Stuart, individually and on behalf of all others similarly situated v. Landry’s Restaurants, Inc. et al., was filed on June 26, 2008 in the Court of Chancery of the State of Delaware (“Stuart”). We are named as a defendant along with our directors, Fertitta Holdings, Inc. (“Fertitta Holdings”) and Fertitta Acquisition Co. (“Fertitta Acquisition”). Stuart is a putative class action in which plaintiff alleges that the 2008 merger agreement unduly hinders obtaining the highest value for shares of our stock. Plaintiff also alleges that the proposed 2008 merger is unfair. Plaintiff seeks an accounting and damages along with costs and fees.

David Barfield v. Landry’s Restaurants, Inc. et al., was filed on June 27, 2008 in the Court of Chancery of the State of Delaware (“Barfield”). We are named in this case along with our directors, Fertitta Holdings and Fertitta Acquisition. Barfield is a putative class action in which plaintiff alleges that our directors aided and abetted Fertitta Holdings and Fertitta Acquisition, and have breached their fiduciary duties by failing to engage in a fair and reliable sales process leading up to the 2008 merger agreement. Plaintiff seeks an accounting and damages along with costs and fees.

Stuart and Barfield were consolidated by court order. The consolidated action is proceeding under Consolidated C.A. No. 3856-VCL; In re: Landry’s Restaurants, Inc. Shareholder Litigation. In their consolidated complaint, plaintiffs allege that our directors breached fiduciary duties to our stockholders and that the preliminary proxy statement filed on July 17, 2008 fails to disclose what plaintiffs contend are material facts. Plaintiffs also alleged that we, Fertitta Holdings and Fertitta Acquisition aided and abetted the alleged breach of fiduciary duty.

On February 5, 2009, following abandonment of the transaction, a purported class action and derivative lawsuit entitled Louisiana Municipal Police Employee’s Retirement System on behalf of itself and all other similarly situated shareholders of Landry’s Restaurant’s, Inc. and derivatively on behalf of nominal defendant Landry’s Restaurant’s, Inc. was brought against all members of our board of directors, Fertitta Holdings, and Fertitta Acquisition in the Court at Chancery of the State of Delaware. The lawsuit alleges, among other things, a breach of a fiduciary duty by the directors for renegotiating the 2008 merger agreement with the Fertitta entities, allowing Mr. Fertitta to acquire shares of stock in the Company and gain majority control thereof, and terminating the 2008 merger agreement without requiring payment of the reverse termination fee. The suit seeks consummation of the transaction at $21.00 a share or damages representing the difference between $21.00 per share and the price at which class members sold their stock in the open market, or damages for allowing Mr. Fertitta to acquire control of the Company without paying a control premium, or alternately requiring payment of the reverse termination fee or damages for the devaluation of the Company’s stock.

Following Mr. Fertitta’s latest proposal to acquire all of our outstanding stock, the following putative class actions were filed:

Frederic Goldfein, Individually and on behalf of all others similarly situated v. Landry’s Restaurants, Inc., et al., a putative class action, was filed on November 3, 2009 in the District Court of Harris Country, 164th Judicial District. We are named in the petition as a defendant along with all of our directors. Plaintiff has alleged that in connection with the proposed merger transaction, defendants have violated their fiduciary duties, duties of loyalty and good faith and fair dealing and have placed an artificial lid on the price of our stock by announcing a transaction at an inadequate price. Plaintiff seeks to enjoin the transaction until we adopt procedures and a process to obtain the highest price for stockholders, or alternatively to rescind the transaction.

Ralph Biancalana, Individually and on behalf of all others similarly situated v. Tilman J. Fertitta, et al., a putative class action, was filed on November 10, 2009 in the District Court of Harris County, 165th Judicial

 

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District, following the execution of the merger agreement signed on November 3, 2009. We are named in the petition as a defendant along with all of our directors. Plaintiff has alleged, among other things, that in connection with the proposed merger transaction, our directors have knowingly and recklessly violated their fiduciary duty of care, have violated their fiduciary duties of loyalty, good faith, candor and independence, and that the transaction contains an inadequate and unfair price. Plaintiff also alleged that we aided and abetted our directors’ alleged breach of fiduciary duty. Plaintiff seeks to enjoin the transaction and the payment of a termination fee to Mr. Fertitta. Plaintiff also requests declarations from the court that the termination fee is unfair, and that our directors have breached their fiduciary duties to our stockholders. Plaintiff seeks recovery of attorneys fees and costs.

Robert Caryer, Individually and on behalf of all others similarly situated v. Landry’s Restaurants, Inc., et al., a putative class action, was filed on November 17, 2009 in the District Court of Harris County, Texas, 125th Judicial District, following Mr. Fertitta’s latest proposal to acquire all of our outstanding stock. We are named in the petition as a defendant along with all of our directors. Plaintiff has alleged, among other things, that in connection with the proposed merger transaction, defendants violated their fiduciary duties, duties of candor, loyalty and good faith and fair dealing and have placed an artificial lid on the price of our stock by announcing a transaction at an inadequate price. Plaintiff seeks to enjoin the transaction until we adopt procedures and a process to obtain the highest value for stockholders and to rescind the proposed merger transaction or merger agreement to the extent already implemented. Plaintiff also requests declarations from the Court that our directors have breached their fiduciary duties to our stockholders and that our directors must exercise their fiduciary duties to obtain a transaction which is in the best interest of our stockholders. Finally, Plaintiff seeks recovery of attorneys fees and costs.

We believe that these actions are without merit and intend to contest the above matters vigorously. Upon consummation of the merger, the plaintiffs who have asserted derivative claims on behalf of us may lose standing to assert such claims on behalf of us because they will no longer be stockholders of the Company.

 

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IMPORTANT INFORMATION REGARDING THE PARTIES TO THE TRANSACTION

Fertitta Group, Inc.

Fertitta Group, Inc. is a Delaware corporation. The business address of Fertitta Group, Inc. is: c/o Landry’s Restaurants, Inc., 1510 West Loop South, Houston, Texas, 77027, telephone: (713) 850-1010. Fertitta Group, Inc. was formed solely for purposes of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. Fertitta Group, Inc. has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement.

The material occupations, positions, offices or employment during the past five years of Mr. Fertitta, the sole director, executive officer and the sole stockholder of Fertitta Group, Inc., are set forth below.

Fertitta Merger Co.

Fertitta Merger Co. is a Delaware corporation and a wholly-owned subsidiary of Fertitta Group, Inc. The business address of Fertitta Merger Co. is: c/o Landry’s Restaurants, Inc., 1510 West Loop South, Houston, Texas 77027, telephone: (713) 850-1010. Fertitta Merger Co. was formed solely for purposes of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. Fertitta Merger Co. has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement.

The material occupations, positions, offices or employment during the past five years of Mr. Fertitta, the sole director and executive officer of Fertitta Merger Co., are set forth below

Tilman J. Fertitta

The business address for Tilman J. Fertitta is c/o Landry’s Restaurants, Inc., 1510 West Loop South, Houston, Texas, 77027, telephone: (713) 850-1010.

Mr. Fertitta has served as our President and Chief Executive Officer since 1987. In 1988, he became the controlling stockholder and assumed full responsibility for all of our operations. Prior to serving as our President and Chief Executive Officer, he devoted his full time to the control and operation of a hospitality and development company. Mr. Fertitta serves on numerous boards and charitable organizations.

During the past five years, neither Fertitta Group, Inc., Fertitta Merger Co., nor Mr. Fertitta have been (i) convicted in a criminal proceeding or (ii) party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws or a finding of any violation of federal or state securities laws. Mr. Fertitta is a United States citizen.

 

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THE SPECIAL MEETING

Date, Time and Place

The special meeting will be held at 10:00 a.m. Houston time, on •, 2010, at our corporate office located at 1510 West Loop South, Houston, Texas. We are sending this proxy statement to you in connection with the solicitation of proxies for use at the special meeting and any adjournments or postponements of the special meeting.

Purpose

At the special meeting, stockholders will be asked to:

 

   

consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as of November 3, 2009, among us, Parent, Merger Sub and, for certain limited purposes, Mr. Fertitta;

 

   

approve the adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the foregoing proposal; and

 

   

transact such other business as may properly come before the special meeting or any adjournment or postponement of the special meeting.

Our Board Recommendation

The board of directors (with Mr. Fertitta taking no part in the discussion and vote) has determined that the merger agreement and the merger are advisable, fair to and in the best interests of us and our unaffiliated stockholders and has unanimously approved the merger, the merger agreement and the transactions contemplated thereby. The board of directors (with Mr. Fertitta taking no part in the recommendation) recommends that you vote “FOR” approval and adoption of the merger agreement and “FOR” the adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement.

Record Date, Outstanding Shares and Voting Rights

Only holders of record at the close of business on the record date will be entitled to vote at the special meeting or any adjournment or postponement of the special meeting. On the record date, there were 16,174,451 shares of common stock outstanding, of which 8,894,155, or 55.0%, were owned by Mr. Fertitta. Each share of common stock is entitled to one vote on all matters presented at the special meeting. Votes may be cast at the special meeting in person or by proxy.

Vote Required

The presence, in person or by proxy, of stockholders holding at least a majority of the voting power of our stock outstanding on the record date will constitute a quorum for the special meeting. The merger cannot be completed unless the merger agreement is approved by both (i) the majority of the minority vote and (ii) the affirmative vote of a majority of the outstanding shares of our common stock. Approval of the adjournment of the meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement requires the affirmative vote of the holders of a majority of the shares of our common stock present, in person or by proxy, and entitled to vote at the special meeting on that matter, even if less than a quorum. In order to vote, you should simply indicate on your proxy card how you want to vote, and sign and mail your proxy card in the enclosed return envelope as soon as possible so that your shares will be represented at the special meeting. You may also vote your shares by telephone or Internet using the instructions on your proxy card. If you receive more than one proxy card, it means that you have multiple accounts at the transfer agent and/or with brokers, banks or other nominees. Please sign and return all the proxy cards you have received to ensure that all your shares are voted.

 

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If you sign and send in your proxy and do not indicate how you want to vote, your proxy will be counted as a vote “FOR” the approval and adoption of the merger agreement and “FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies. Under Delaware law, shares as to which a broker abstains or withholds from voting will have the same legal effect as a vote against a proposal. If you fail to vote on the merger agreement, the effect will be the same as a vote against the approval of the merger agreement.

If your shares are held in the name of a broker, bank or nominee, often referred to as held in “street name,” only your broker, bank or nominee can execute a proxy and vote your shares and only after receiving your specific instructions on proposals as to which it does not have discretionary authority. Please sign, date and promptly mail the proxy card in the envelope provided to your broker, bank or nominee (or its agent). Remember, your shares cannot be voted unless you return a signed and executed proxy card (or voting instruction form) to your broker, bank or nominee on proposals as to which it does not have discretionary authority. Failure to instruct your broker to vote your shares will have the same effect as voting against the approval of the merger agreement. Pursuant to New York Stock Exchange rules, brokers will not have discretionary authority over any of the proposals to be presented at the special meeting. If your shares are held in the name of your broker, bank or other nominee, please contact your broker, bank or other nominee to determine whether you will be able to vote by telephone or electronically.

As of the record date, our directors and executive officers (excluding Mr. Fertitta) beneficially owned less than 1% of our outstanding shares, excluding options to purchase our common stock. We believe our directors and executive officers intend to vote all of their shares of our outstanding common stock “FOR” the approval and adoption of the merger agreement and “FOR” the adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement.

Mr. Fertitta has agreed in the merger agreement to vote all of his and any of his affiliates’ outstanding shares of our common stock, which comprise approximately 55.0% of our outstanding common stock as of the record date, “FOR” the approval and adoption of the merger agreement, which will ensure that the merger agreement is approved by a majority of the outstanding shares of our common stock but will not have any effect on whether the majority of the minority vote is obtained. The merger will not be consummated if the majority of the minority vote is not received. As of the record date, Mr. Fertitta owned 8,894,155 shares of our common stock, including 775,000 shares of restricted stock that have not yet vested. Under the terms of his restricted stock agreements, Mr. Fertitta is entitled to vote all of his unvested shares of restricted stock. As of the record date, there were 7,280,296 shares of common stock outstanding and held by other stockholders, and the affirmative vote of holders of at least 3,640,149 of those shares is required to obtain the majority of the minority vote and approve the merger. Mr. Fertitta has indicated that he intends to vote “FOR” the adjournment of the meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement, which will ensure that the adjournment proposal is approved.

Pershing Square Capital Management, L.P., PS Management GP, LLC, Pershing Square GP, LLC, William A. Ackman and Richard T. McGuire, in their joint Schedule 13D filings with the SEC, have disclosed beneficial ownership of our common stock equal to an aggregate of 1,604,255 shares, representing approximately 9.9% of our outstanding common stock, and additional economic exposure to approximately 2,404,126 shares of our common stock under certain cash-settled total return swaps, which brings their total aggregate economic exposure to 4,008,387 shares, representing approximately 24.8% of our outstanding common stock. The holders of the 1,604,255 shares of our common stock have indicated that they do not intend to support the proposed merger.

Voting of Proxies

Shares of our common stock represented by duly executed and unrevoked proxies in the form of the enclosed proxy card received by the board of directors will be voted at the special meeting in accordance with specifications made therein by the stockholders, unless authority to do so is withheld. If no specification is made,

 

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shares represented by duly executed and unrevoked proxies in the form of the enclosed proxy card will be voted “FOR” approval and adoption of the merger agreement and “FOR” the adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement.

The board of directors does not know of any matters other than those described in the notice of the special meeting that are expected to come before the special meeting. However, if any other matters are properly presented at the special meeting for consideration, the persons named in the proxy card and acting thereunder generally will have discretion to vote on such matters in accordance with their best judgment unless authority is specifically withheld.

Revocation of Proxies

Any holder of shares of our common stock giving a proxy with respect to such shares may revoke it at any time prior to its exercise at the special meeting by sending us a written notice of such revocation or completing and submitting a new proxy card bearing a later date to our Secretary at our executive offices, or attending the special meeting and voting in person. You may also submit a later-dated proxy using the telephone or Internet voting procedures on the proxy card so long as you do so before the deadline of 11:59 p.m., Houston time, on , 2010. Attendance at the special meeting will not, by itself, constitute revocation of a proxy. If your shares are held in “street name” and you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote or to vote at the special meeting.

Solicitation of Proxies and Expenses

In connection with the special meeting, proxies are being solicited by us, and on our behalf. We will bear the cost of soliciting proxies from our stockholders. In addition to solicitation by mail, proxies may be solicited from our stockholders by our directors, officers and employees in person or by telephone, facsimile or other means of communication. These directors, officers and employees will not receive special compensation. We have retained Mackenzie Partners, Inc. to assist in the solicitation of proxies from our stockholders for the special meeting for a fee of $25,000, and reimbursement of certain out-of-pocket expenses. We also have agreed to indemnify Mackenzie Partners, Inc. against certain liabilities including liabilities arising under the federal securities laws. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward soliciting materials to beneficial owners and will be reimbursed for their reasonable out-of-pocket expenses incurred in sending proxy materials to beneficial owners.

Adjournment of the Special Meeting

We may ask our stockholders to vote on a proposal to adjourn the special meeting to a later date to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement. We currently do not intend to propose adjournment at our special meeting if there are sufficient votes to approve and adopt the merger agreement. If the proposal to adjourn our special meeting for the purpose of soliciting additional proxies is submitted to our stockholders for approval, such approval requires the affirmative vote of the holders of a majority of the shares of our common stock present or represented by proxy and entitled to vote on the matter, even if less than a quorum.

Please do not send any certificates representing shares of our common stock with your proxy card. If the merger is consummated, the procedure for the exchange of certificates representing shares of our common stock will be as described in this proxy statement. See “The Merger Agreement—Payment for the Shares of Our Common Stock.”

 

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THE MERGER AGREEMENT

This section of the proxy statement describes the material provisions of the merger agreement but does not purport to describe all of the terms of the merger agreement. The following summary is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement and is incorporated into this proxy statement by reference. We urge you to read the full text of the merger agreement because it is the legal document that governs the merger. The merger agreement is not intended to provide you with any other factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the Securities and Exchange Commission, as described in the section entitled “Where You Can Find More Information.”

The Merger

At the effective time of the merger, Merger Sub will merge with and into us upon the terms, and subject to the conditions, of the merger agreement. As the surviving corporation, we will continue to exist following the merger. Upon consummation of the merger, our certificate of incorporation, as in effect immediately prior to the merger, will be amended in the form of Exhibit A to the merger agreement and will become the certificate of incorporation of the surviving corporation until thereafter amended in accordance with its terms and applicable law. The bylaws of Merger Sub, as in effect immediately prior to the merger, will be the bylaws of the surviving corporation until thereafter amended in accordance with their terms and applicable law. The directors of Merger Sub will serve as the initial directors of the surviving corporation and our officers will be the initial officers of the surviving corporation. All surviving corporation officers and directors will hold their positions in accordance with and subject to the certificate of incorporation and bylaws of the surviving corporation.

Closing; Effective Time

Unless otherwise agreed by the parties to the merger agreement, the parties are required to close the merger no later than the second business day after the satisfaction or, if permissible, waiver of the conditions described under “—Conditions to the Merger.”

The merger will be effective in accordance with applicable law after the time the certificate of merger is filed with the Secretary of State of the State of Delaware or such later date and time as may be agreed upon by Merger Sub and us in writing and specified in the certificate of merger. We expect to consummate the merger as promptly as practicable after we obtain the necessary regulatory approvals and our stockholders approve and adopt the merger agreement.

Merger Consideration

Each share of our common stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by Parent, Merger Sub or any direct or indirect wholly-owned subsidiary of Parent, shares owned by stockholders who properly exercise dissenter’s rights of appraisal under Delaware law and shares of our common stock held in treasury by us) will be cancelled and converted automatically into the right to receive $14.75 in cash, without interest.

Each share of our common stock held in treasury by us and each share owned by Parent, Merger Sub or any direct or indirect wholly-owned subsidiary of Parent will be cancelled automatically without any conversion of such shares and no consideration shall be delivered in exchange for such shares. Each share of common stock of Merger Sub shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the surviving corporation.

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tax law, provided that all withheld amounts are timely remitted to the applicable governmental authority, and any amounts so withheld shall be treated as having been paid to the holder from whose merger consideration the amounts were so deducted and withheld.

After the merger is effective, each holder of shares of our common stock will cease to have any rights with respect to the shares, except for the right to receive the merger consideration or to receive payment of the appraised value of the shares if the holder has properly exercised appraisal rights under Section 262 of the DGCL.

Treatment of Options and Restricted Stock

If the merger is consummated, each outstanding option to purchase shares of our common stock granted under our 1993 Stock Option Plan, Non-Qualified Formula Stock Option Plan for Non-Employee Directors, 1995 Flexible Incentive Plan, 2002 Employee/Rainforest Conversion Plan and 2003 Equity Incentive Plan or granted outside of a formal plan, in each case as amended through the date of the merger agreement, will, except as otherwise provided by the terms of any such plan, become fully vested to the extent not already vested. At the effective time of the merger, all outstanding and unexercised options having an option exercise price of less than $14.75 will be cancelled and the holder of each such cancelled option will be entitled to receive a cash payment (subject to applicable withholding taxes) equal to the number of shares of our common stock subject to the cancelled option multiplied by the amount by which $14.75 exceeds the option exercise price, without interest, except that all options owned by Mr. Fertitta that remain unexercised at the effective time of the merger will be cancelled and he will not receive any cash or consideration for his unexercised options. All options having an exercise price equal to or greater than $14.75 will be cancelled without payment of any consideration for such options. In addition, each share of restricted stock will be treated in the same manner as other shares of outstanding common stock and will be cancelled and converted automatically into the right to receive $14.75 in cash without interest, except that Mr. Fertitta’s shares of restricted stock will be contributed to Parent immediately prior to the effective time of the merger and cancelled and he will not receive any cash or consideration for his shares of restricted stock.

Payment for the Shares of Our Common Stock

Prior to the effective time of the merger, Parent will designate a paying agent who is reasonably satisfactory to us to make payment of the merger consideration as described above. At the effective time, Parent will deposit (or cause to be deposited) with the paying agent cash in an amount sufficient to pay (1) the merger consideration in respect of all outstanding shares of our common stock immediately prior to the effective time of the merger (other than shares owned by Parent or Merger Sub or any direct or indirect wholly-owned subsidiary of Parent, shares owned by stockholders who properly exercise dissenter’s rights of appraisal under Delaware law and shares of our common stock held in treasury by us) and (2) if instructed by us, the payments to be made to option holders (other than Mr. Fertitta).

At the effective time of the merger, we will close our stock transfer books. After that time, there will be no further registrations of transfers of shares of common stock on our records.

Within five business days after the effective time of the merger, the surviving corporation will cause to be delivered to each record holder of shares of our common stock or holder of book-entry shares, in each case, as of the effective time, a form of letter of transmittal. The paying agent will send you your merger consideration after you have (1) surrendered your stock certificates or book-entry shares for cancellation to the paying agent and (2) provided to the paying agent your signed letter of transmittal and any other items specified by the letter of transmittal. Interest will not be paid or accrue in respect of the merger consideration. YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES UNTIL YOU RECEIVE A LETTER OF TRANSMITTAL AND INSTRUCTIONS. DO NOT SEND CERTIFICATES WITH THE ENCLOSED PROXY CARD, AND DO NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT A PROPERLY COMPLETED LETTER OF TRANSMITTAL.

 

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If any cash deposited with the paying agent is not claimed within six months following the effective time of the merger, such cash will be returned to Parent upon demand. Any former stockholder of ours who has not complied with the terms set forth in the merger agreement relating to payment of the merger consideration prior to the end of the applicable period shall thereafter look only to the surviving corporation and/or Parent for payment of his, her or its claim for the merger consideration, without any interest thereon. Any amounts remaining unclaimed as of a date that is immediately prior to when such amounts would escheat to or become the property of any government entity will, to the extent permitted by law, become the surviving corporation’s property free and clear of any prior claims or interest thereto.

If payment is to be made to a person other than the registered owner of the shares of our common stock or holder of book-entry shares, it is a condition to such payment that the stock certificate is properly endorsed or in otherwise proper form for transfer or such book-entry share is properly transferred and the person requesting such payment must pay to the paying agent any applicable stock transfer tax or establish that such stock transfer taxes have been paid or are not payable.

Except as described in the aforementioned provisions, from and after the effective time of the merger, the holders of the shares of our common stock outstanding immediately prior to the consummation of the merger will cease to have any rights with respect to such shares of common stock, other than the right to receive the merger consideration, without interest, as provided in the merger agreement, or appraisal rights.

In the event that you have lost your stock certificate, or if it has been stolen or destroyed, you must make an affidavit of that fact and, if required by the surviving corporation, post a bond in such reasonable amount as the surviving corporation may direct as indemnity against any claim that may be made against the surviving corporation with respect to such certificate, in order for the paying agent to deliver the merger consideration.

Appraisal Rights

Any shares of our common stock outstanding immediately prior to the effective time of the merger (other than shares owned by Parent, Merger Sub or any direct or indirect wholly-owned subsidiary of Parent and shares of our common stock held in treasury by us) that are held by a stockholder who has (a) neither voted in favor of the adoption of the merger agreement nor consented in writing to the adoption of the merger agreement, (b) demanded properly in writing appraisal for such shares and (c) otherwise properly perfected and not withdrawn or lost his or her rights in accordance with Section 262 of the DGCL, will not be converted into, or represent the right to receive, the merger consideration. Each such stockholder will be entitled to receive payment of the appraised value of such shares held by it in accordance with the provisions of such Section 262. However, if a stockholder fails to perfect, withdraws or loses such stockholder’s right to appraisal pursuant to Section 262 of the DGCL or if a court of competent jurisdiction shall determine that such stockholder is not entitled to the relief provided by Section 262 of the DGCL, such shares held by such stockholder will be deemed to have been converted into, and represent the right to receive, the merger consideration, without any interest thereon. We agreed to give Parent prompt notice of any written demands for appraisal, attempted withdrawals of such demands, and any other instruments served pursuant to applicable laws received by us relating to stockholders’ rights of appraisal. We agreed to give Parent the opportunity to participate in and direct all negotiations and proceedings with respect to demands for appraisal. We may not, except with the prior written consent of Parent, unless otherwise required by applicable law, make any payment with respect to any demands for appraisals of dissenting shares, offer to settle or settle any such demands or approve any withdrawal or other treatment of any such demands. See “Appraisal Rights” beginning on page and Annex C attached to this proxy statement.

Representations and Warranties

The merger agreement contains representations and warranties made by us to Parent and Merger Sub and representations and warranties made by Parent and Merger Sub to us. The assertions embodied in those representations and warranties were made solely for purposes of the merger agreement and may be subject to

 

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important qualifications and limitations agreed to by the parties in connection with negotiating the terms of the merger agreement. Moreover, some of those representations and warranties may not be accurate or complete as of any particular date because they are subject to a contractual standard of materiality, Material Adverse Effect or Parent Material Adverse Effect (each as defined below) different from that generally applicable to public disclosures to stockholders or used for the purpose of allocating risk between the parties to the merger agreement rather than establishing matters of fact. For the foregoing reasons, you should not rely on the representations and warranties contained in the merger agreement as statements of factual information.

In the merger agreement, we, Parent and Merger Sub each made representations and warranties relating to, among other things:

 

   

corporate existence and power;

 

   

authority to enter into and perform its obligations under, and enforceability of, the merger agreement;

 

   

required regulatory filings, consents and approvals of governmental entities;

 

   

the absence of conflicts with or defaults under, and consents or approvals required under, organizational documents, applicable laws and contracts;

 

   

the accuracy of the information supplied for inclusion in this proxy statement and the Schedule 13E-3 being filed concurrently herewith; and

 

   

litigation.

In the merger agreement, Parent and Merger Sub also each made representations and warranties relating to:

 

   

the funds necessary to pay the aggregate merger consideration and any other amounts required to be paid by them in connection with the consummation of the transactions;

 

   

no contracts with our management;

 

   

the ownership and operations of Merger Sub;

 

   

required consents and approvals of Parent as the sole equity owner of Merger Sub;

 

   

their acknowledgement that we make no inaccurate representations and warranties in the merger agreement and that we make no other representations and warranties as to any matter, except as expressly set forth in the merger agreement;

 

   

no ownership of our common stock by Parent or Merger Sub;

 

   

votes required for the merger;

 

   

gaming approvals and licensing matters; and

 

   

no payment of brokers’ fees except to Jefferies.

We also made representations and warranties relating to:

 

   

organizational documents;

 

   

capital structure;

 

   

governmental permits;

 

   

compliance with applicable laws, including gaming and liquor laws;

 

   

forms and financial statements filed with the Securities and Exchange Commission;

 

   

employee benefits plans;

 

   

labor matters;

 

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taxes;

 

   

no payment of brokers’ fees except to Moelis;

 

   

the stockholder vote that is required to consummate the merger;

 

   

applicable takeover laws;

 

   

Jefferies’ highly confident letter regarding its ability to arrange the debt financing; and

 

   

the absence of any other representations or warranties by us other than as set forth in the merger agreement.

Many of our representations and warranties are qualified by a “Material Adverse Effect” standard. For purposes of the merger agreement, “Material Adverse Effect” is defined to mean any event, development, change or circumstance that, either individually or in the aggregate, has caused or would reasonably be expected to cause a material adverse effect on the financial condition, assets, liabilities (contingent or otherwise) or business of us and our subsidiaries taken as a whole, except in each case for any event, development, change or circumstance resulting from, arising out of or relating to any of the following, either alone or in combination:

 

   

any change in or interpretations of United States generally accepted accounting principles (“GAAP”) or any applicable law, including gaming laws and liquor laws;

 

   

changes generally affecting the economy, financial or securities markets or political or regulatory conditions;

 

   

changes in the industries or markets in which we or any of our subsidiaries operate;

 

   

any natural disaster or act of God;

 

   

any act of terrorism or outbreak or escalation of hostilities or armed conflict;

 

   

the public announcement or pendency of the merger agreement or the consummation of the merger, including (1) the identity of the acquiror, (2) any delays or cancellations of orders, contracts or payments for our products or services, (3) any loss of customers or suppliers or changes in such relationships or (4) any loss of employees or labor disputes or employee strikes, slowdowns, job actions or work stoppages or labor union activities;

 

   

changes in the share price or trading volume of our common stock or our failure to meet our projections or the issuance of revised projections that are more pessimistic than those in existence as of the date of the merger agreement;

 

   

the taking of any action expressly provided by the merger agreement or consented to by Parent or Merger Sub; or

 

   

any action or omission by us or any of our subsidiaries taken by or at the direction of Mr. Fertitta and not approved by the special committee, if then in existence, or otherwise by the disinterested directors.

Many of Parent’s and Merger Sub’s representations and warranties are qualified by a “Parent Material Adverse Effect” standard. For purposes of the merger agreement, “Parent Material Adverse Effect” is defined to mean any event, development, change or circumstance that, either individually or in the aggregate, prevents, materially delays or materially impairs, or would reasonably be expected to prevent, materially delay or materially impair, Parent or Merger Sub from consummating the merger or any of the other transactions contemplated by the merger agreement.

 

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Conduct of Business Prior to Closing

We have agreed in the merger agreement that, until the earlier of the consummation of the merger and termination of the merger agreement, except to the extent permitted by the merger agreement (including as permitted by the debt financing) or consented to in writing by Parent (which consent may not be unreasonably withheld, conditioned or delayed), or as required by applicable law, the board of directors, acting through the special committee if then in existence or otherwise by resolution of a majority of disinterested directors will:

 

   

conduct, and cause our subsidiaries to conduct, our respective businesses, in all material respects, in the ordinary course of business of us and our subsidiaries consistent with past practice; and

 

   

use commercially reasonable efforts to preserve substantially intact our business organization and the business organization of each of our subsidiaries, to keep available the services of our and each of our subsidiaries’ current officers, employees and consultants, and to preserve, in all material respects, current relationships that we and each of our subsidiaries have with customers, licensees, suppliers and other persons with which we and each of our subsidiaries have business relations.

We have also agreed that, until the earlier of the consummation of the merger and termination of the merger agreement, except as expressly permitted by the merger agreement (including as permitted by the debt financing) or consented to in writing by Parent (which consent may not be unreasonably withheld, conditioned or delayed), or as required by law, we will not and will cause our subsidiaries not to, other than in the ordinary course of business of us and our subsidiaries consistent with past practice, directly or indirectly:

 

   

revoke or change any material tax election, change in any material respect any method of tax accounting, settle or compromise any material liability for taxes, fail to timely file any material tax return that is due, file any material amended tax return or material claim for refund, surrender any right to claim a material tax refund, or consent to any extension or waiver of the statute of limitations period applicable to any material tax claim or assessment, in each case except as required by GAAP or applicable law;

 

   

make any material change in the accounting principles used by us unless required by a change in GAAP, applicable law or any governmental authority;

 

   

incur or guarantee indebtedness for borrowed money or commit to borrow money, except for short-term borrowings incurred under our existing credit facility or other indebtedness not in excess of $1.5 million in the aggregate;

 

   

make any capital expenditure in excess of $1.5 million in the aggregate, except for capital expenditures approved prior to the date of the merger agreement as part of our capital expenditures budget for the year ending December 31, 2009;

 

   

sell, lease, license, dispose or effect an encumbrance (by merger, consolidation, sale of stock or assets or otherwise) of any material assets, except as permitted by the solicitation provisions of the merger agreement;

 

   

make any material change in any compensation arrangement or contract with any present or former employee, officer, director, consultant or other service providers we or any of our subsidiaries engage, or establish, terminate or materially amend any employee benefit plan or increase benefits (including acceleration of benefits under such plans other than our stock award plans) under any such plan, or grant any stock awards or other awards under any of our stock award plans, in each case other than (1) as required pursuant to the terms of any such plan or contract as in effect on the date of the merger agreement or (2) as required by law;

 

   

declare, set aside or pay any dividend or make any other distribution with respect to our common stock or the common stock of any of our subsidiaries, or otherwise make any payments to stockholders in their capacity as such;

 

   

effect a “plant closing” or “mass layoff,” as those terms are defined in the Worker Adjustment and Retraining Notification Act;

 

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issue, deliver, sell, pledge, transfer, convey, dispose or permit the imposition of an encumbrance on any (1) equity interest, or any options, warrants, securities exercisable, exchangeable or convertible into any equity interest, (2) stock appreciation rights, stock awards, restricted stock, restricted stock awards, performance units, phantom stock, profit participation or similar rights with respect to us or any of our subsidiaries or (3) bonds, debentures, notes or other similar obligations the holders of which have the right to vote (or convertible into or exercisable or exchangeable for securities having the right to vote or other common stock in us or any of our subsidiaries) with our stockholders or any of our subsidiaries on any matter, other than the issuance of common stock upon the exercise of options outstanding as of the date of the merger agreement;

 

   

redeem, purchase or otherwise acquire, or propose to redeem, purchase or otherwise acquire, any of our outstanding common stock (except as required by the terms of any stock award plan or necessary for the administration of, or satisfaction of withholding obligations in respect to, stock awards);

 

   

split, combine, subdivide or reclassify any of our common stock;

 

   

enter into any material contract providing for the sale or license of intellectual property owned by us or any of our subsidiaries;

 

   

license, lease, acquire, sublease, grant any encumbrance affecting and/or transfer any material interest in any real property, or enter into any amendment, extension or termination of any leasehold interest in any real property;

 

   

make any acquisition of, capital contributions to, or investment in, assets or stock of any person (whether by way of merger, consolidation, tender offer, share exchange or other activity);

 

   

merge or consolidate with any person, except as otherwise expressly permitted by the solicitation provisions of the merger agreement;

 

   

enter into, terminate or materially amend certain material contracts;

 

   

enter into or materially modify any commitment with any person with respect to potential gaming activities in any jurisdiction;

 

   

change any policy regarding the issuance of credit instruments at any of our gaming operations, except consistent with applicable gaming laws;

 

   

offer, place or arrange any issue of debt securities or commercial bank or other credit facilities that would be reasonably expected to compete with or impede the debt financing;

 

   

waive, release, assign, settle or compromise any material claims, or any material litigation or arbitration;

 

   

satisfy, discharge, waive or settle any material liabilities;

 

   

amend our or any of our subsidiaries’ organizational or governing documents; or

 

   

enter into any contract to do any of the above-listed actions.

In no event shall any action taken or omitted to be taken by or at the direction of Mr. Fertitta that would otherwise constitute a breach of any of the above provisions be deemed to constitute such a breach.

Agreement to Use Commercially Reasonable Efforts; Consents and Governmental Approvals

General; HSR Act

From the date of the merger agreement through the date of consummation of the merger, Parent and Merger Sub agreed to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws in order to obtain the expiration or termination of the applicable waiting periods under the competition laws of any relevant competition authority required for the

 

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consummation of the transactions contemplated by the merger agreement, including the payment when due of all filing fees associated with any notifications, reports or other filings required by any relevant competition authority (except as otherwise provided for in “—Termination Fees and Expenses”), and to effect all necessary filings, consents, waivers, authorizations, permits and approvals from governmental authorities, gaming authorities and other third parties required for the consummation of the transactions, including under any applicable gaming laws and liquor laws.

From the date of the merger agreement through the date of consummation of the merger, we agreed to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws required for the consummation of the transactions contemplated by the merger agreement, and to effect all necessary filings, consents, waivers, authorizations, permits and approvals from governmental authorities, gaming authorities and other third parties required for the consummation of the transactions, including under any applicable gaming laws and liquor laws.

To the extent permissible under applicable law, Parent, Merger Sub and we agreed, in connection with the efforts to obtain all requisite approvals, clearances and authorizations for the transactions contemplated by the merger agreement under the competition laws of any relevant competition authority, to use commercially reasonable efforts to:

 

   

cooperate in all respects with each other in connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party;

 

   

promptly inform the other party of any communication received by such party from, or given by such party to, the Antitrust Division of the Department of Justice, the Federal Trade Commission or any other relevant competition authority and of any material communication received or given in connection with any proceeding by a private party, in each case regarding any of the transactions contemplated by the merger agreement;

 

   

permit the other party, or the other party’s legal counsel, to review any communication given by it to, and consult with each other in advance of any meeting or conference with, the Antitrust Division of the Department of Justice, the Federal Trade Commission or any other relevant competition authority or, in connection with any proceeding by a private party, with any other person;

 

   

give the other party the opportunity to attend and participate in such meetings and conferences to the extent allowed by applicable law or by the applicable relevant competition authority;

 

   

in the event one party is prohibited by applicable law or by the applicable relevant competition authority from participating in or attending any meetings or conferences, keep the other promptly and reasonably apprised with respect thereto; and

 

   

cooperate in the filing of any memoranda, white papers, filings, correspondence, or other written communications explaining or defending the transactions contemplated by the merger agreement, articulating any regulatory or competitive argument, and/or responding to requests or objections made by any relevant competition authority.

Without limiting the above:

 

   

Parent, Merger Sub and we agreed to provide or cause to be provided promptly to any relevant competition authority information and documents requested by any relevant competition authority or necessary, proper or advisable to permit consummation of the transactions contemplated by the merger agreement;

 

   

Parent, Merger Sub and we agreed to file any notification and report form and related material required under the HSR Act as soon as practicable after the date of the merger agreement;

 

   

Parent and Merger Sub agreed to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or reasonably advisable to obtain approval

 

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for consummation of the transactions contemplated by the merger agreement by any relevant competition authority before May 31, 2010, including, without limitation, using commercially reasonable efforts to (A) sell or otherwise dispose of specific assets or categories of assets or businesses or any of Parent’s or Merger Sub’s other assets or businesses owned as of, or acquired after, the date of the merger agreement by Parent or Merger Sub, (B) terminate any existing relationships and contractual rights and obligations and (C) amend or terminate such existing licenses or other intellectual property agreements and enter into such new licenses or other intellectual property agreements (and, in each case, enter into agreements with the relevant competition authority giving effect thereto) (we refer to any of these actions as a “divestiture”); and

 

   

Parent and Merger Sub agreed to use commercially reasonable efforts, in the event that any permanent or preliminary injunction or other order is entered or becomes reasonably foreseeable to be entered in any proceeding that would make consummation of the transactions in accordance with the terms of the merger agreement unlawful or that would prevent or materially delay consummation of the transactions contemplated by the merger agreement, to cause such injunction or order to be vacated, modified or suspended so as to permit such consummation by May 31, 2010.

To assist Parent and Merger Sub in complying with these obligations, we agreed to, and to cause our affiliates to, enter into one or more agreements reasonably requested by Parent or Merger Sub to be entered into by any of them prior to the closing of the merger with respect to any divestiture. However, (1) any such agreement shall relate solely to the transactions contemplated by the merger agreement, (2) the effectiveness of such agreement shall be conditioned on the occurrence of the closing of the merger, (3) all of our and our affiliates’ rights and obligations pursuant thereto shall be assumed by Parent or the surviving corporation effective at the effective time of the merger and (4) Parent and Merger Sub shall indemnify for and hold us and our affiliates harmless from all liabilities arising from or relating to any such agreement. It is the intent of the parties that we and our affiliates, on the one hand, and Parent and Merger Sub, on the other hand, are treated as if any divestiture was effected for the account of Parent and Merger Sub and their affiliates. We agreed that, except for any agreement referred to in the immediately preceding sentence, we will not, nor will we permit any of our affiliates to, enter into any agreement with respect to any divestiture relating to the transactions contemplated by the merger agreement. Each party will consult with the other party, and consider in good faith the views of the other party, prior to entering into any agreement with any relevant competition authority with respect to the transactions contemplated by the merger agreement.

Gaming Approvals

Parent and Merger Sub each agreed to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws to:

 

   

obtain as promptly as practicable after the date of the merger agreement all licenses, permits, approvals, authorizations, registrations, findings of suitability, franchises, entitlements, waivers and exemptions issued by any gaming authority required to permit the parties to the merger agreement to consummate the transactions contemplated by the merger agreement;

 

   

avoid any action or proceeding by any gaming authority challenging the consummation of the transactions;

 

   

make or cause to be made all necessary filings, and thereafter make or cause to be made any other required submissions, with respect to the merger agreement and the transactions, as required to permit the parties to the merger agreement to consummate the transactions under the gaming laws;

 

   

schedule and attend any hearings or meetings with gaming authorities to obtain the gaming approvals as promptly as possible; and

 

   

comply with the terms and conditions of any and all of the foregoing necessary to obtain the gaming approvals.

 

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Parent and Merger Sub each agreed to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or reasonably advisable to obtain approval for consummation of the transactions contemplated by the merger agreement by any gaming authority before May 31, 2010, including, without limitation, using commercially reasonable efforts to engage in divestitures. Parent and Merger Sub agreed to use commercially reasonable efforts, in the event that any permanent or preliminary injunction or other order is entered or becomes reasonably foreseeable to be entered in any proceeding that would make consummation of the transactions in accordance with the terms of the merger agreement unlawful or that would prevent or materially delay consummation of the transactions contemplated by the merger agreement, to cause the injunction or order to be vacated, modified or suspended so as to permit consummation of the transactions by May 31, 2010.

Parent and Merger Sub will cause all of their affiliates who are, in the view of the applicable gaming authorities, required to be licensed under applicable gaming laws in order to consummate the transactions contemplated by the merger agreement, to submit to the licensing process and, as promptly as reasonably practicable, to prepare and file all documentation to effect all necessary filings, consents, waivers, approvals, authorizations, permits or orders for all gaming authorities required to permit the parties to the merger agreement to consummate the transactions.

Parent will, and will cause its representatives and affiliates to, use commercially reasonable efforts to:

 

   

file or cause to be filed, as promptly as practicable after the date of the merger agreement, (A) all required initial applications and documents in respect of officers and directors of Parent, affiliates of Parent or holders of equity in Parent or its affiliates, as applicable, in connection with obtaining gaming approvals and (B) all other required applications and documents in connection with obtaining gaming approvals;

 

   

request or cause to be requested an accelerated review from the gaming authorities in connection with such filings;

 

   

act diligently and promptly to pursue the gaming approvals;

 

   

cooperate with us in connection with making all filings referenced above; and

 

   

keep the special committee reasonably informed of the status of Parent’s application for gaming approvals and its activities related to obtaining the gaming approvals, as applicable, including promptly advising the special committee upon receiving any communication from any gaming authority that causes Parent or Merger Sub to believe that there is a reasonable likelihood that any gaming approval required from such gaming authority will not be obtained or that the receipt of any such approval will be delayed materially.

Except as otherwise permitted by the merger agreement, Parent, Merger Sub and we agreed not to take or agree to take any action, including entering into any contracts with respect to any acquisitions, mergers, consolidations or business combinations, that would reasonably be expected to adversely affect the ability of the parties to obtain an early termination of any applicable waiting period under the HSR Act or any consents, waivers, approvals, authorizations, permits and approvals from governmental authorities, gaming authorities and other third parties required for the consummation of the transactions contemplated by the merger agreement or otherwise to prevent, materially delay or materially impair the ability of the parties to consummate the transactions contemplated by the merger agreement.

Special Meeting

The merger agreement requires us to duly call, give notice of, convene and, unless the merger agreement is terminated, hold a special meeting of our stockholders for the purpose of obtaining the approval and adoption of the merger agreement, including adjourning such meeting for up to 10 business days to obtain such approval. We

 

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are permitted to cancel, delay or postpone convening the special meeting to the extent the special committee if then in existence or otherwise by resolution of a majority of disinterested directors, after consultation with outside legal counsel, determines that such cancellation, delay or postponement is consistent with its fiduciary duties under applicable law.

We agreed to use commercially reasonable efforts to solicit the approval and adoption of the merger agreement by our stockholders, including the majority of the minority vote. We also have agreed to include in our proxy statement (1) the recommendation of our board of directors that our stockholders approve and adopt the merger agreement and (2) the declaration of the special committee and our board of directors regarding the fairness and advisability of the merger agreement and (3) disclosure regarding the approval of our board and the special committee. In this regard, our board of directors has unanimously resolved (with Mr. Fertitta taking no part in the recommendation) to recommend that our stockholders approve and adopt the merger agreement. We may adjourn or postpone the special meeting as and to the extent required by applicable law.

Access to Information

During the period prior to the earlier of the effective time of the merger and the termination of the merger agreement, we have agreed to, and have agreed to cause our subsidiaries and representatives to:

 

   

provide Parent and Merger Sub and their representatives reasonable access at all reasonable times to our and our subsidiaries’ officers, employees, properties, offices and other facilities, books and records; and

 

   

furnish Parent and Merger Sub with such financial, operating and other data and information as Parent, Merger Sub or their representatives may reasonably request.

Neither we nor our subsidiaries will be obligated to disclose any information that, in our reasonable judgment: (1) we are not legally permitted to disclose or the disclosure of which would contravene any applicable law or order, (2) would be reasonably likely to cause the loss of any attorney-client or other legal privilege or trade secret protection held by us or any of our subsidiaries or (3) would cause us or any of our subsidiaries to violate the terms or result in the breach of any material contract.

Debt Financing

Prior to the effective time of the merger, we agreed to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange and consummate the debt financing as promptly as practicable, but in any event on or before the consummation of the merger, including using our commercially reasonable efforts to:

 

   

negotiate definitive agreements with respect to the debt financing; and

 

   

satisfy on a timely basis all conditions applicable to us or any of our subsidiaries in such definitive agreements that are within our control.

Prior to the effective time of the merger, we also agreed to use commercially reasonable efforts to comply, and to cause our applicable subsidiaries to comply, in all material respects with the terms of the definitive agreements with respect to the debt financing and any related commitment, fee and engagement letters, if any, entered into with respect to the debt financing. We agreed to:

 

   

furnish to Parent complete, correct and executed copies of the definitive agreements with respect to the debt financing promptly upon their execution; and

 

   

otherwise keep Parent reasonably informed of the status of our efforts to arrange the debt financing, including providing to Parent copies of definitive agreements with respect to the debt financing in substantially final form following the negotiation of such definitive agreements.

 

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Parent may not terminate the merger agreement for, or otherwise claim, a breach of our obligations with respect to the debt financing.

Solicitation of Other Offers

The merger agreement provides that during the go-shop period, which began on the date of the merger agreement and ends on the later of (1) 11:59 p.m., New York City time, on December 17, 2009 and (2) the consummation of the debt financing, we are permitted to:

 

   

initiate, solicit and encourage Acquisition Proposals (as defined below), including by way of public disclosure and by way of providing access to non-public information to any person pursuant to one or more confidentiality agreements that contain terms and provisions that are substantially similar to those contained in the confidentiality agreements entered into by us or on our behalf during the 30-day period prior to the date of the merger agreement with persons having a potential interest in making an Acquisition Proposal; and

 

   

enter into and maintain, or participate in, discussions or negotiations with respect to Acquisition Proposals or otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, discussions or negotiations or the making of any Acquisition Proposals.

After the end of the go-shop period and until the effective time of the merger or the earlier termination of the merger agreement, we have agreed that we will not, and will use reasonable efforts to cause our representatives not to, directly or indirectly:

 

   

initiate, solicit or encourage (including by way of providing non-public information) the submission of any Acquisition Proposal or engage in any substantive discussions or negotiations with respect thereto; or

 

   

approve or recommend, or publicly propose to approve or recommend, an Acquisition Proposal or enter into any merger agreement, letter of intent, agreement in principle, share purchase agreement, asset purchase agreement or share exchange agreement, option agreement or other similar agreement providing for or relating to an Acquisition Proposal or consummate any such transaction or enter into any agreement or agreement in principle requiring us to abandon, terminate or fail to consummate the merger or any of the other transactions contemplated by the merger agreement or resolve or agree to do any of the foregoing.

However, we, acting through the special committee if then in existence or otherwise by resolution of a majority of disinterested directors, may continue to initiate, solicit or encourage the submission of any Acquisition Proposal or engage in any substantive discussions or negotiations with respect thereto, from and after the end of the go-shop period with respect to any person, who we refer to as an “excluded party”, that has made an Acquisition Proposal prior to the end of the go-shop period and with whom we are having ongoing discussions or negotiations as of the end of the go-shop period regarding an Acquisition Proposal to the extent that we have not intentionally or materially breached any of our obligations under the merger agreement relating to the solicitation of Acquisition Proposals with respect to the excluded party’s Acquisition Proposal.

An excluded party will no longer be an excluded party for all purposes under the merger agreement immediately at such time as

 

   

the Acquisition Proposal made by the excluded party is withdrawn, is terminated, expires or our board of directors, acting through the special committee if then in existence or otherwise by resolution of a majority of disinterested directors, no longer believes in good faith that the excluded party is credible and reasonably capable of making a Superior Proposal (as defined below) or

 

   

our discussions or negotiations with the excluded party have been terminated.

 

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We, acting through the special committee if then in existence or otherwise by resolution of a majority of disinterested directors, will notify Parent promptly when an excluded party ceases to be an excluded party.

At the end of the go-shop period, other than with respect to excluded parties (or with respect to any excluded party, at any subsequent date that the excluded party ceases to be an excluded party), we will immediately cease and cause to be terminated any solicitation, encouragement, discussion or negotiation with any person previously conducted by us or any of our representatives with respect to any Acquisition Proposal and use our (and cause our representatives to use their) commercially reasonable efforts to cause to be returned or destroyed all confidential information provided or made available to any such person on our behalf.

If at any time prior to obtaining the approval of the merger agreement by the requisite stockholder vote,

 

   

we receive a written Acquisition Proposal from a third party that our board of directors, acting through the special committee if then in existence or otherwise by resolution of a majority of its disinterested directors, believes in good faith to be credible and reasonably capable of making a Superior Proposal and

 

   

we have not intentionally or materially breached any of our obligations under the merger agreement relating to the solicitation of Acquisition Proposals,

then we, acting through the special committee if then in existence or otherwise by resolution of a majority of disinterested directors, may

 

   

furnish information with respect to us to the person making the Acquisition Proposal and

 

   

participate in discussions or negotiations with the person making the Acquisition Proposal regarding the Acquisition Proposal.

Prior to obtaining the approval of the merger agreement by the holders of a majority of the outstanding shares of our common stock entitled to vote thereon, we, acting through the special committee if then in existence or otherwise by resolution of a majority of disinterested directors, are also permitted to take these actions with respect to any excluded party until the excluded party ceases to qualify as an excluded party. However, we may not, and may not allow any of our representatives to, disclose any material non-public information to the person that has made an Acquisition Proposal without entering into a confidentiality agreement having terms and provisions that are substantially similar to those contained in the confidentiality agreements entered into by us or on our behalf during the 30-day period prior to the date of the merger agreement with persons having a potential interest in making an Acquisition Proposal.

Promptly following the end of the go-shop period, we, acting through the special committee if then in existence or otherwise by resolution of a majority of disinterested directors, will notify Parent, in writing, of the identity of each excluded party and will notify Parent of the material terms and conditions of each written Acquisition Proposal received from any excluded party. From and after the end of the go-shop period, we, acting through the special committee if then in existence or otherwise by resolution of a majority of disinterested directors, will notify Parent promptly in writing if we receive or after we become aware that one of our representatives has received an Acquisition Proposal from a person or group of related persons, including the material terms and conditions thereof and the identity of the person making the Acquisition Proposal, to the extent known, and keep Parent reasonably apprised and update Parent promptly as to the status and any material developments, discussions and negotiations concerning the Acquisition Proposal. We, acting through the special committee if then in existence or otherwise by resolution of a majority of disinterested directors, will also inform Parent in writing promptly in the event that we determine to begin providing information or engaging in discussions or negotiations concerning an Acquisition Proposal.

Neither our board of directors nor any committee thereof, including the special committee, if then in existence, will directly or indirectly withdraw or modify in a manner adverse to Parent or Merger Sub, or publicly propose to withdraw or modify in a manner adverse to Parent or Merger Sub, its recommendation in

 

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favor of the merger or any of the other transactions contemplated by the merger agreement. Nevertheless, our board of directors, acting through the special committee if then in existence or otherwise by resolution of a majority of its disinterested directors, may, at any time prior to obtaining the approval of the merger agreement by the requisite stockholder vote, if it determines in good faith, after consultation with its outside legal advisors, that the failure to take any of the following actions could reasonably be determined to be inconsistent with its fiduciary duties to our stockholders under applicable law,

 

   

cause us to terminate the merger agreement, provided that we have not materially breached any of our obligations in the merger agreement relating to the solicitation of Acquisition Proposals and we concurrently pay to Parent the termination fee described in “—Termination Fees and Expenses—Payable by Us”,

 

   

cause us to enter into a definitive agreement with respect to a Superior Proposal and concurrently terminate the merger agreement, provided that we have not materially breached any of our obligations in the merger agreement relating to the solicitation of Acquisition Proposals and we concurrently pay to Parent the termination fee described in “—Termination Fees and Expenses—Payable by Us”, and/or

 

   

withdraw or modify its recommendation to stockholders in a manner adverse to Parent.

We may not terminate, waive, amend or modify any material provision of any standstill or confidentiality agreement to which we are a party that relates to a transaction of a type described in the definition of Acquisition Proposal. We may, however, permit to be taken any of the actions prohibited under a standstill agreement if our board of directors, acting through the special committee if then in existence or otherwise by resolution of a majority of its disinterested directors, determines in good faith, after consultation with outside counsel, that such action is advisable.

Nothing contained in the merger agreement prohibits us from taking and disclosing to our stockholders a position with respect to certain tender offers or otherwise making any disclosure to our stockholders if our board of directors, acting through the special committee if then in existence or otherwise by resolution of a majority of its disinterested directors, determines in good faith, after consultation with outside counsel, that failure to disclose could reasonably be determined to be inconsistent with its fiduciary duties under applicable law or that such disclosure is necessary to comply with obligations under federal securities laws or the rules and regulations of the New York Stock Exchange.

Nothing contained in the merger agreement prohibits us from responding to any unsolicited proposal or inquiry solely by advising the person making such proposal or inquiry of the terms of the solicitation provisions under the merger agreement.

Neither Parent, Merger Sub nor any of their affiliates may take any action with the purpose of discouraging in any material way or preventing any person from making a competing Acquisition Proposal.

An “Acquisition Proposal”, as defined in the merger agreement, means any bona fide inquiry, offer or proposal (other than from Parent or Merger Sub or their respective affiliates) concerning any

 

   

merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving us,

 

   

direct or indirect sale, lease, pledge or other disposition of our assets or business representing 15% or more of our consolidated revenues, net income or assets, in a single transaction or a series of related transactions,

 

   

our issuance, sale or other disposition to any person or group (other than Parent or Merger Sub or any of their respective affiliates) of securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing 15% or more of our voting power, or

 

   

transaction or series of related transactions in which any person or group (other than Parent or Merger Sub or their respective affiliates) acquires beneficial ownership, or the right to acquire beneficial ownership, of 15% or more of our outstanding common stock.

 

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A “Superior Proposal”, as defined in the merger agreement, means an Acquisition Proposal (except the references therein to “15%” shall be replaced by “50%”) which was not obtained in violation of the solicitation provisions of the merger agreement, and which the special committee, if then in existence, or a majority of disinterested directors in good faith determines (after consultation with our financial advisors and outside counsel), taking into account the various legal, financial and regulatory aspects of the proposal, including the financing terms thereof, and the person making the proposal, if accepted, is reasonably likely to be consummated and if consummated, would result in a transaction that is more favorable to our stockholders, from a financial point of view, than the merger.

Notices of Certain Events

We, Parent and Merger Sub agreed to promptly notify the other of:

 

   

any notice or other communication received by such party from any governmental authority in connection with the merger or the related transactions from any person alleging that the consent of such person is or may be required in connection with the merger or the related transactions, if the subject matter of such communication or the failure of such party to obtain such consent would be material to us or Parent;

 

   

any action commenced or, to such party’s knowledge, threatened against, relating to or involving or otherwise affecting such party or any of its subsidiaries which relates to the merger or the related transactions; and

 

   

the discovery of any fact or circumstance or the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which would be reasonably likely to cause or result in any of conditions to the merger not being satisfied or the satisfaction of any of those conditions being materially delayed.

Indemnification and Insurance

From and after the effective time of the merger, Parent will, and will cause the surviving corporation to, indemnify and hold harmless to the fullest extent permitted under applicable law each of our present and former directors and officers, and their heirs, executors and administrators, each of whom we refer to as an “indemnified party”, against any and all costs, expenses, including reasonable attorneys’ fees, judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any action or investigation arising out of, pertaining to or in connection with any act or omission or matters existing or occurring or alleged to have occurred at or prior to the effective time of the merger, including the merger and the other transactions contemplated by the merger agreement and any acts or omissions in connection with such persons serving as an officer, director or other fiduciary in any entity if such service was at our request or for our benefit. If any such action or investigation occurs, Parent or the surviving corporation will advance to each indemnified party the expenses it incurs in the defense of any such action or investigation within 10 business days of Parent or the surviving corporation receiving from such indemnified party a written request for reimbursement. However, (1) any advancement of expenses will be only to the fullest extent permitted under applicable law and (2) the indemnified party must provide an undertaking to repay such advances to Parent or the surviving corporation, as applicable, if it is ultimately determined by a court of competent jurisdiction by a final, non-appealable judgment that the indemnified party is not entitled to indemnification under applicable law.

The certificate of incorporation and bylaws of the surviving corporation will contain provisions no less favorable with respect to indemnification than are set forth in our certificate of incorporation and bylaws, each as amended, as of the date of the merger agreement, unless any modification is required by law and then Parent will cause the surviving corporation to make such modification only to the minimum extent required by law. The indemnification provisions may not be amended, repealed or otherwise modified (except as provided in this paragraph) for a period of six years from the effective time of the merger in any manner that would affect adversely the rights of individuals who, at or prior to the effective time of the merger, were our directors or officers.

 

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We will purchase at or prior to the effective time of the merger, and the surviving corporation will maintain in effect, tail policies to our current directors’ and officers’ liability insurance, which tail policies (1) will be effective for a period of six years after the effective time of the merger with respect to claims arising from acts or omissions occurring prior to the effective time of the merger with respect to those persons who are currently covered by our directors’ and officers’ liability insurance and (2) will contain terms with respect to coverage and amount no less favorable, in the aggregate, than those of such policy or policies as in effect on the date of the merger agreement. If the tail policies described in the immediately preceding sentence cannot be obtained or can only be obtained by paying aggregate premiums in excess of 150% of the aggregate annual amount currently paid by us for such coverage, the surviving corporation will only be required to provide as much coverage as can be obtained by paying aggregate premiums equal to 150% of the aggregate annual amount currently paid by us for such coverage.

Public Announcements

Parent and we agreed that no public release or announcement concerning the merger or the transactions contemplated by the merger agreement will be issued by either party without the prior consent of the other party (in our case, acting through the special committee if then in existence or otherwise by resolution of a majority of disinterested directors), which consent shall not be unreasonably withheld, conditioned or delayed, except any such release or announcement that may be required by law or the rules or regulations of any securities exchange, in which case the party required to make the release or announcement shall use commercially reasonable efforts to allow the other party reasonable time to comment on such release or announcement in advance of such issuance. However, each of Parent and we may make any public statement in response to specific questions by the press, analysts, investors or those attending industry conferences or financial analyst conference calls, so long as any such statements are not inconsistent with previous public releases or announcements made by Parent or us in compliance with the merger agreement and do not reveal non-public information regarding the other party. In addition, we may issue any public release or announcement, without prior consultation with Parent, contemplated by, or with respect to any action taken pursuant to, the solicitation provisions in the merger agreement.

Control of Operations

Without in any way limiting any party’s rights or obligations under the merger agreement, each of Parent and we agreed and acknowledged that:

 

   

nothing contained in the merger agreement shall give Parent, directly or indirectly (other than Mr. Fertitta in his capacity as a member of the board and as our President and Chief Executive Officer), the right to control or direct our operations prior to the effective time of the merger; and

 

   

prior to the effective time of the merger, we will exercise, consistent with the terms and conditions of the merger agreement, complete control and supervision over our operations, including through Mr. Fertitta in his capacity as a member of the board and as our President and Chief Executive Officer.

Conditions to the Merger

Conditions to the Parties’ Obligations

We will consummate the merger only if the conditions set forth in the merger agreement are satisfied or waived, where permissible. The conditions to each party’s obligations include the following:

 

   

adoption of the merger agreement by the holders of a majority of the outstanding shares of our common stock entitled to vote and by the holders of a majority of the then-outstanding shares of our common stock not owned by Parent, Merger Sub, Fertitta or any of their respective affiliates;

 

   

the absence of any legal restraint or prohibition that has the effect of making the merger illegal or otherwise preventing the consummation of the merger;

 

   

the expiration or termination of any applicable waiting period under the HSR Act; and

 

   

the consummation of the equity financing and the debt financing.

 

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Conditions to Parent’s and Merger Sub’s Obligations

The obligations of Parent and Merger Sub to consummate the merger are subject to the satisfaction or waiver of the following further conditions at or prior to the effective time of the merger:

 

   

our representations and warranties contained in the merger agreement will be true and correct (without giving effect to any limitation as to materiality or Material Adverse Effect set forth in such representations and warranties) as of the closing date as though made at and as of the closing date (except for the representations and warranties that address matters only as of a particular date, which will remain true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not in the aggregate reasonably be expected to have a Material Adverse Effect as of the closing date, except that neither Parent nor Merger Sub may assert that this condition has not been satisfied if the representation by Parent concerning its knowledge of inaccuracies of our representations and warranties was inaccurate as of the date of the merger agreement, unless the matters resulting in the inaccuracy of such representation as of the date of the merger agreement would not in the aggregate reasonably be expected to have a Material Adverse Effect as of the closing date;

 

   

we shall have performed in all material respects all of our obligations and shall have complied in all material respects with all of our agreements and covenants to be performed or complied with by us under the merger agreement prior to the effective time of the merger; and

 

   

we shall have delivered to Parent a certificate, dated the date of the closing, signed by any of our executive officers or any member of the special committee, certifying our satisfaction of the closing conditions set forth in the two bullet points above.

Conditions to Our Obligations

Our obligation to consummate the merger is subject to the satisfaction or waiver of the following further conditions at or prior to the effective time of the merger:

 

   

Parent’s and Merger Sub’s representations and warranties contained in the merger agreement will be true and correct (without giving effect to any limitation as to materiality or Parent Material Adverse Effect set forth in such representations and warranties) as of the closing date as though made at and as of the closing date (except for the representations and warranties that address matters only as of a particular date, which will remain true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not in the aggregate reasonably be expected to have a Parent Material Adverse Effect as of the closing date;

 

   

Parent and Merger Sub shall have performed in all material respects all of their respective obligations and shall have complied in all material respects with all of their agreements and covenants to be performed or complied with by them under the merger agreement on or prior to the effective time of the merger; and

 

   

Parent shall have delivered to us a certificate, dated the date of the closing, signed by any executive officer of Parent, certifying the satisfaction by Parent and Merger Sub of the closing conditions set forth in the two bullet points above.

Termination of the Merger Agreement

The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after stockholder approval has been obtained:

 

   

by mutual written consent of each of Parent, Merger Sub and us duly authorized with respect to Parent and Merger Sub, by their respective boards of directors or other governing body and with respect to us, by the special committee if then in existence or otherwise by resolution of a majority of our disinterested directors;

 

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by us (with the prior approval of the special committee, if then in existence, or otherwise by resolution of a majority of our disinterested directors), Parent or Merger Sub if:

 

   

the effective time shall not have occurred on or before May 31, 2010, unless the failure by the party seeking to exercise such termination right caused, or resulted in, the failure of the merger to be consummated on or before such date;

 

   

any governmental authority enacts, promulgates, issues, enforces or enters any order or applicable law that is final and nonappealable and has the effect of preventing or prohibiting the consummation of the merger, except that such termination right shall not be available to any party (1) whose failure to fulfill any obligation under the merger agreement has been the cause of, or resulted in, any such order to have been enacted, issued, promulgated, enforced or entered or (2) that did not use reasonable best efforts to have such order vacated prior to its becoming final and nonappealable;

 

   

our stockholders, at the special meeting or at any adjournment or postponement thereof at which the merger agreement was voted on, fail to approve the merger agreement by the requisite stockholder vote, except that such termination right shall not be available to any party whose breach of any provision of the merger agreement caused, or resulted in, the failure to obtain the requisite stockholder vote;

 

   

by Parent or Merger Sub if any of the following actions or events occur:

 

   

our board of directors directly or indirectly withdraws or modifies, or publicly proposes to withdraw or modify, its recommendation in favor of the merger in a manner that is adverse to Parent or Merger Sub, unless we (acting through the special committee if then in existence or by resolution of a majority of our disinterested directors) duly call, give notice of, convene and hold the special meeting;

 

   

our board of directors (acting through the special committee, if then in existence, or by resolution of a majority of our disinterested directors) recommends to our stockholders an Acquisition Proposal or resolves or publicly proposes to recommend an Acquisition Proposal or enters into any letter of intent or similar document or any contract accepting any Acquisition Proposal, unless we (acting through the special committee if then in existence or by resolution of a majority of our disinterested directors) duly call, give notice of, convene and hold the special meeting (other than if our board (acting through the special committee if then in existence or by resolution of a majority of our disinterested directors) enters into a contract accepting an Acquisition Proposal); or

 

   

we intentionally or materially breach any of our obligations under the merger agreement relating to the solicitation of Acquisition Proposals;

 

   

by Parent or Merger Sub if there has been a breach by us (other than a breach caused by any action taken or omitted to be taken by or at the direction of Mr. Fertitta) of any representation, warranty, covenant or agreement contained in the merger agreement, or if any of our representations or warranties becomes untrue, in either case that would result in a failure of our representations and warranties contained in the merger agreement to be true and correct (without giving effect to any limitation as to materiality or Material Adverse Effect set forth in such representations and warranties) as of the closing date as though made at and as of the closing date (except for the representations and warranties that address matters only as of a particular date, which will remain true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not in the aggregate reasonably be expected to have a Material Adverse Effect as of the closing date, or that would result in our failure to perform in all material respects all of our obligations or to comply in all material respects with all of our agreements and covenants to be performed or complied with by us under the merger agreement prior to the effective time of the merger, except that Parent and Merger Sub may not terminate unless (1) neither Parent nor Merger Sub is in material breach of any of its obligations (including, in the case of Parent, Mr. Fertitta’s guarantee obligations) or any of its representations and warranties under the merger agreement, (2) Parent has delivered written notice to us of such breach and (3) if such breach is capable of being cured by us

 

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within thirty days after the delivery of such notice, Parent may not terminate the merger agreement until the earlier of the expiration of such thirty-day period and May 31, 2010;

 

   

by us (acting through the special committee if then in existence or by resolution of a majority of our disinterested directors) if:

 

   

there has been a breach by Parent or Merger Sub of any representation, warranty, covenant or agreement contained in the merger agreement, or if any representation or warranty of Parent or Merger Sub becomes untrue, in either case that would result in a failure of Parent’s and Merger Sub’s representations and warranties contained in the merger agreement to be true and correct (without giving effect to any limitation as to materiality or Parent Material Adverse Effect set forth in such representations and warranties) as of the closing date as though made at and as of the closing date (except for the representations and warranties that address matters only as of a particular date, which will remain true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not in the aggregate reasonably be expected to have a Parent Material Adverse Effect as of the closing date, or that would result in Parent’s or Merger Sub’s failure to perform in all material respects all of their respective obligations or to comply in all material respects with all of their agreements and covenants to be performed or complied with by them under the merger agreement on or prior to the effective time of the merger, except that we may not terminate unless (1) we are not in material breach of any of our obligations or any of our representations and warranties under the merger agreement, (2) we, acting through the special committee if then in existence or by resolution of a majority of our disinterested directors, have delivered written notice to Parent of such breach and (3) if such breach is capable of being cured by Parent within thirty days after the delivery of such notice, we, acting through the special committee if then in existence or by resolution of a majority of our disinterested directors, may not terminate the merger agreement until the earlier of the expiration of such thirty-day period and May 31, 2010;

 

   

prior to obtaining the requisite stockholder vote, our board of directors, acting through the special committee if then in existence or otherwise by resolution of a majority of its disinterested directors, concludes in good faith, after consultation with its outside legal advisors, that the failure to terminate the merger agreement (whether or not to enter into a definitive agreement with respect to a Superior Proposal) could reasonably be determined to be inconsistent with its fiduciary duties to the stockholders under applicable law and we are not in material breach of our obligations under the merger agreement relating to solicitations of Acquisition Proposals and we pay the termination fee described under “—Termination Fees and Expenses—Payable by Us” concurrently with such termination; or

 

   

the merger has not been consummated due to the failure to consummate the equity financing or debt financing within two business days following the satisfaction or waiver of all of the other conditions to the consummation of the merger (other than those conditions that, by their nature, cannot be satisfied until the consummation of the merger), although we may not exercise this right to terminate until 15 days following the special meeting.

Termination Fees and Expenses

Payable by Us

We have agreed to reimburse the reasonable out-of-pocket fees and expenses incurred by Parent, Merger Sub and their affiliates in connection with the merger agreement, up to $3.5 million in the aggregate, within 10 business days of receipt of a reasonably detailed accounting of such expenses if the merger agreement is terminated (1) because the merger has not been consummated by May 31, 2010 where there has been a cancellation, delay or postponement of the special meeting or (2) as a result of a breach of or failure by us to perform any representation, warranty, covenant or agreement on our part set forth in the merger agreement, which resulted in a failure of a condition to Parent’s or Merger Sub’s obligation to consummate the merger. Upon payment of such expenses, we will have no further liability under the merger agreement except in the case of a willful breach of any representation, warranty, covenant or agreement or with respect to the payment of the termination fee as set forth below.

 

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We must pay Parent a termination fee (with a credit for any expense reimbursement amount previously paid by us) of $4.8 million (or $2.4 million if the Acquisition Proposal that formed the basis for termination of the merger agreement was submitted to us or the special committee or publicly disclosed or otherwise became generally known to the public prior to the end of the go-shop period) if:

 

   

Parent or Merger Sub terminates the merger agreement because:

 

   

our board of directors directly or indirectly withdraws or modifies, or publicly proposes to withdraw or modify, its recommendation in favor of the merger in a manner that is adverse to Parent or Merger Sub, unless we (acting through the special committee if then in existence or by resolution of a majority of our disinterested directors) duly call, give notice of, convene and hold the special meeting;

 

   

our board of directors (acting through the special committee, if then in existence, or by resolution of a majority of our disinterested directors) recommends to our stockholders an Acquisition Proposal or resolves or publicly proposes to recommend an Acquisition Proposal or enters into any letter of intent or similar document or any contract accepting any Acquisition Proposal, unless we (acting through the special committee if then in existence or by resolution of a majority of our disinterested directors) duly call, give notice of, convene and hold the special meeting (other than if our board (acting through the special committee if then in existence or by resolution of a majority of our disinterested directors) enters into a contract accepting an Acquisition Proposal); or

 

   

we intentionally or materially breach any of our obligations under the merger agreement relating to the solicitation of Acquisition Proposals;

 

   

we terminate the merger agreement because, prior to obtaining the requisite stockholder vote, our board of directors, acting through the special committee, if it still exists, or otherwise by resolution of a majority of its disinterested directors, concludes in good faith, after consultation with its outside legal advisors, that the failure to terminate the merger agreement (whether or not to enter into a definitive agreement with respect to a Superior Proposal) could reasonably be determined to be inconsistent with its fiduciary duties to the stockholders under applicable law, provided that we are not in material breach of our obligations under the merger agreement relating to solicitations of Acquisition Proposals and we pay the termination fee set forth above concurrently with such termination;

 

   

within 12 months after the date of termination of the merger agreement for any of the following three reasons, we enter into a definitive agreement with respect to or consummate an Acquisition Proposal as described below (provided that the references to “15%” in the definition of Acquisition Proposal shall be deemed to be references to “80%”):

 

   

Parent or Merger Sub or we terminate the merger agreement because the effective time has not occurred on or before May 31, 2010 and, at any time after the date of the merger agreement and prior to May 31, 2010, an Acquisition Proposal shall have been publicly disclosed or otherwise becomes generally known to the public and is not withdrawn or terminated;

 

   

(1) Parent or Merger Sub terminate the merger agreement because there has been a breach by us (other than a breach caused by any action taken or omitted to be taken by or at the direction of Mr. Fertitta) of any representation, warranty, covenant or agreement contained in the merger agreement, or if any representation or warranty of us becomes untrue, in either case that would result in a failure of our representations and warranties contained in the merger agreement to be true and correct (without giving effect to any limitation as to materiality or Material Adverse Effect set forth in such representations and warranties) as of the closing date as though made at and as of the closing date (except for the representations and warranties that address matters only as of a particular date, which will remain true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not in the aggregate reasonably be expected to have a Material Adverse Effect as of the closing date, or that would result in our failure to perform in all material respects all of our obligations or to comply in all material respects with all of our agreements and covenants to be performed or complied with by us under the merger agreement prior to the effective time of the merger, except

 

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that Parent and Merger Sub may not terminate unless (a) neither Parent nor Merger Sub is in material breach of any of its obligations (including, in the case of Parent, Mr. Fertitta’s guarantee obligations) or any of its representations and warranties under the merger agreement, (b) Parent has delivered written notice to us of such breach and (c) if such breach is capable of being cured by us within thirty days after the delivery of such notice, Parent may not terminate the merger agreement until the earlier of the expiration of such thirty-day period and May 31, 2010, and (2) at any time after the date of the merger agreement and prior to such breach, an Acquisition Proposal shall have been publicly disclosed or otherwise becomes generally known to the public and is not withdrawn or terminated; or

 

   

Parent or Merger Sub or we terminate the merger agreement because our stockholders, at the special meeting or at any adjournment or postponement thereof at which the merger agreement was voted on, fail to approve the merger agreement by the requisite stockholder vote and, at any time after the date of the merger agreement and prior to the vote of our stockholders on the merger agreement at the special meeting, an Acquisition Proposal shall have been publicly disclosed or otherwise becomes generally known to the public and is not withdrawn or terminated.

In no event will we be obligated to pay the termination fee more than once. Parent’s right to receive payment of the termination fee from us is its sole and exclusive remedy against us and any of our affiliates, stockholders, directors, officers, employees, agents or representatives for any loss, claim, damage, liability or expense suffered as a result of the transactions contemplated by the merger not being consummated.

Upon payment of the termination fee, neither we nor any of our affiliates, stockholders, directors, officers, employees, agents or representatives will have any further liability or obligations relating to or arising out of the merger agreement or the transactions contemplated by the merger agreement.

Payable by Parent

Parent must pay us a reverse termination fee of $20.0 million if we terminate the merger agreement for either of the following reasons:

 

   

there has been a breach by Parent or Merger Sub of any representation, warranty, covenant or agreement contained in the merger agreement, or any representation or warranty of Parent or Merger Sub becomes untrue, in either case that would result in a failure of Parent’s and Merger Sub’s representations and warranties contained in the merger agreement to be true and correct (without giving effect to any limitation as to materiality or Parent Material Adverse Effect set forth in such representations and warranties) as of the closing date as though made at and as of the closing date (except for the representations and warranties that address matters only as of a particular date, which will remain true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not in the aggregate reasonably be expected to have a Parent Material Adverse Effect as of the closing date, or that would result in Parent’s or Merger Sub’s failure to perform in all material respects all of their respective obligations or to comply in all material respects with all of their agreements and covenants to be performed or complied with by them under the merger agreement on or prior to the effective time of the merger, except that we may not terminate unless (1) we are not in material breach of any of our obligations or any of our representations and warranties under the merger agreement, (2) we, acting through the special committee if then in existence or by resolution of a majority of our disinterested directors, have delivered written notice to Parent of such breach and (3) if such breach is capable of being cured by Parent within thirty days after the delivery of such notice, we, acting through the special committee if then in existence or by resolution of a majority of our disinterested directors, may not terminate the merger agreement until the earlier of the expiration of such thirty-day period and May 31, 2010; or

 

   

the merger has not been consummated due to the failure to consummate the equity financing or debt financing within two business days following the satisfaction or waiver of all of the other conditions to the consummation of the merger (other than those conditions that, by their nature, cannot be satisfied until the consummation of the merger), although we may not exercise this right to terminate until

 

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15 days following the special meeting. However, in the case of such a termination, if the merger agreement is terminated because the lenders providing the debt financing are not able to make the debt financing available on terms that are substantially similar to those contemplated at the time of the merger agreement due to the occurrence of (1) an act of God, (2) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or a general moratorium on commercial banking activities in New York declared by either Federal or New York State authorities or a suspension of payments in respect of federal or state banks in the United States (whether or not mandatory), (3) the outbreak or escalation of hostilities directly involving the United States or the declaration by the United States of a national emergency or war or an act of terrorism or (4) an adverse and material change in financial or securities markets or commercial banking conditions in the United States, then no reverse termination fee will be payable to us and none of Parent, Merger Sub or any of their respective affiliates, stockholders, directors, officers, employees, agents or representatives shall have any liability or obligation relating to or arising out of the merger agreement or the transactions contemplated by the merger agreement. Parent may not claim that a breach of our obligations to obtain the debt financing caused the debt financing not to be made available.

Our right to receive payment of the reverse termination fee from Parent or Mr. Fertitta, as the guarantor of payment of the fee, is our sole and exclusive remedy against Parent, Merger Sub, Mr. Fertitta and their respective affiliates, stockholders, directors, officers, employees, agents and representatives for any loss, claim, damage, liability or expense suffered as a result of the transactions contemplated by the merger agreement not being consummated. Upon payment of the reverse termination fee, neither Parent, Merger Sub, Mr. Fertitta nor any of their respective affiliates, stockholders, directors, officers, employees, agents or representatives will have any further liability or obligations relating to or arising out of the merger agreement or the transactions contemplated by the merger agreement.

Fertitta Voting Agreement

Mr. Fertitta agreed that until the voting agreement termination, which is the earlier of (1) the termination of the merger agreement in accordance with its terms and (2) the effective time of the merger, at the special meeting or any other meeting of our stockholders, however called, and in any action by written consent of our stockholders, Mr. Fertitta will vote, or cause to be voted, all of his shares of our common stock then owned beneficially or of record by him and his affiliates, as of the record date for the meeting or consent, in favor of the adoption of the merger agreement and the approval of the merger and any actions required in furtherance thereof.

Mr. Fertitta also agreed that until the voting agreement termination, except as otherwise contemplated by the merger agreement (including the equity commitment letter), neither he nor any of his affiliates will directly or indirectly (1) sell, assign, transfer, tender, pledge, encumber or otherwise dispose any of his shares of our common stock to a third party, (2) deposit any of his shares of our common stock into a voting trust or enter into a voting agreement or arrangement with respect to his shares of our common stock or grant any proxy or power of attorney with respect thereto that is inconsistent with his voting agreement, (3) enter into any contract, option or other arrangement or undertaking with respect to the direct or indirect transfer of any of his shares of our common stock to a third party, (4) enter into any hedging transactions, borrowed or loaned shares, swaps or other derivative security, contract or instruction in any way related to the price of any shares of our capital stock or (5) take any action that would make any representation or warranty of Mr. Fertitta with respect to his shares of our common stock untrue or incorrect or have the effect of preventing, materially delaying or materially impairing Mr. Fertitta from performing his obligations under his voting agreement.

Mr. Fertitta is, nevertheless, permitted to transfer his shares of our common stock to (1) any of his affiliates, (2) any member of his immediate family or (3) any trust for the benefit of one or more members of his immediate family or affiliates if the transferee covenants and agrees to adhere to and be subject to the voting, transfer and standstill provisions in the merger agreement that relate to Mr. Fertitta’s shares of our common stock.

 

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Mr. Fertitta waived, to the full extent of the law, and agreed not to assert any appraisal rights pursuant to Section 262 of the DGCL or assert any rights to dissent or otherwise in connection with the merger with respect to any and all of his shares of our common stock.

Mr. Fertitta agreed that from the execution and delivery of the merger agreement until the voting agreement termination, he will not, directly or indirectly, purchase or otherwise acquire any shares of our common stock or economic ownership of such shares, except pursuant to the exercise of options outstanding as of the date of the merger agreement.

Limited Guarantee

As a condition and inducement to our willingness to enter into the merger agreement, Mr. Fertitta absolutely and irrevocably guarantees to us the prompt payment, on demand, of the following payment obligations of Parent:

 

   

the obligation of Parent to pay (1) one-half of any and all fees related to any filings required pursuant to the HSR Act and (2) any and all fees and expenses related to any filings under any applicable gaming laws and liquor laws or filings required in connection with any other consents or approvals of governmental authorities and any consents or approvals of third parties required in connection with the consummation of the merger;

 

   

the obligation of Parent to pay to us the reverse termination fee, if any, as described under “—Termination Fees and Expenses—Payable by Parent”; and

 

   

if Parent fails to timely pay us the reverse termination fee, the obligation of Parent to reimburse us for all costs and expenses actually incurred or accrued by us (including reasonable fees and expenses of counsel) in connection with the collection and enforcement of Parent’s obligation to pay us the reverse termination fee.

The guaranty is a continuing guaranty and will remain in full force and effect until the first to occur of (1) the payment in full of the guaranteed obligations, (2) the termination of the merger agreement in accordance with its terms, but only if neither Parent nor Merger Sub has any obligation to us that survives such termination and (3) the effective time of the merger. The guaranteed obligations are binding upon Mr. Fertitta and his successors and assigns.

Amendment and Waiver

The parties may amend the merger agreement at any time, except that after our stockholders have approved the merger agreement, there shall be no amendment that (1) would reduce the amount or change the type of consideration into which each share of common stock shall be converted upon consummation of the merger or (2) under applicable law, require the further approval of our stockholders, without such further approval. All amendments to the merger agreement shall be in writing signed by each of the parties thereto.

At any time before the consummation of the merger, each of the parties to the merger agreement may, by written instrument:

 

   

extend the time for the performance of any obligations or other acts of the other parties;

 

   

waive any inaccuracies in the representations and warranties of the other parties contained in the merger agreement or in any document delivered pursuant to the merger agreement; or

 

   

waive compliance with any of the agreements or conditions contained in the merger agreement.

 

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Specific Performance

The parties agreed that irreparable damage would occur in the event any provision of the merger agreement was not performed in accordance with the terms thereof and that the parties are entitled to seek specific performance of the terms thereof, in addition to any other remedy at law or equity, including monetary damages (which the parties agree, in the case of a willful breach of a representation, warranty or covenant, may not be limited to reimbursement of expenses or out-of-pocket costs and, to the extent proven, may include the benefit of the bargain of the merger to such party, including the benefit of the bargain lost by our unaffiliated stockholders, adjusted to account for the time value of money).

Remedies

Except in the event where a termination fee or reverse termination fee is payable, in the case of a willful breach of any representation, warranty or covenant, the parties agreed that the damages suffered or to be suffered by us, in the case of a willful breach of the merger agreement by Parent or Merger Sub, or by Parent and Merger Sub, in the case of a willful breach of the merger agreement by us, will not be limited and, to the extent proven, may include the benefit of the bargain of the merger to such party, including the benefit of the bargain lost by our unaffiliated stockholders, adjusted to account for the time value of money.

Fees and Expenses

All transaction costs incurred in connection with the merger agreement and the transactions contemplated thereby are to be paid by the party incurring those expenses, whether or not any of the transactions is consummated. Transaction costs include all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, financing sources, experts and consultants to a party to the merger agreement and its affiliates) incurred by a party or any of its affiliates, or incurred on behalf of a party, in connection with or related to the authorization, preparation, negotiation, execution or performance of the merger agreement, the preparation, printing, filing or mailing of the Schedule 13E-3, the proxy statement, the solicitation of stockholder approvals and all other matters related to the consummation of the transactions contemplated by the merger agreement. Parent and we will each pay one-half (1/2) of any and all fees related to any filings required pursuant to the HSR Act, and Parent will pay any and all fees and expenses related to any filings under any applicable gaming laws and liquor laws or filings required in connection with any other consents or approvals of governmental authorities and any consents or approvals of third parties required in connection with the consummation of the transactions.

APPRAISAL RIGHTS

The discussion of the provisions set forth below is not a complete summary regarding your appraisal rights under Delaware law and is qualified in its entirety by reference to the text of Section 262 of the DGCL, a copy of which is attached to this proxy statement as Annex C.

ANY STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS OR HER RIGHT TO DO SO SHOULD REVIEW ANNEX C CAREFULLY AND SHOULD CONSULT HIS OR HER LEGAL ADVISOR, AS FAILURE TO TIMELY COMPLY WITH THE PROCEDURES SET FORTH IN ANNEX C WILL RESULT IN THE LOSS OF YOUR APPRAISAL RIGHTS.

If the merger is consummated, dissenting holders of our common stock who follow the procedures specified in Section 262 of the DGCL within the appropriate time periods will be entitled to have their shares of our common stock appraised by the Delaware Court of Chancery (the “Court”) and to receive the “fair value” of such shares in cash as determined by the Delaware Court of Chancery, together with a fair rate of interest, if any, to be paid on the amount determined to be the fair value, in lieu of the merger consideration that such stockholder would otherwise be entitled to receive pursuant to the merger agreement.

 

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The following is a brief summary of Section 262, which sets forth the procedures for dissenting from the merger and demanding and perfecting appraisal rights. Failure to follow the procedures set forth in Section 262 precisely could result in the loss of appraisal rights. Under Section 262, where a merger is to be submitted for approval at a meeting of stockholders, such as the special meeting, not less than 20 days prior to the meeting a constituent corporation, such as us, must notify each of its holders of its stock for whom appraisal rights are available that such appraisal rights are available and include in each such notice a copy of Section 262. This proxy statement constitutes such notice to holders of our common stock concerning the availability of appraisal rights under Section 262. A stockholder of record wishing to assert appraisal rights must hold the shares of stock on the date of making a demand for appraisal rights with respect to such shares and must continuously hold such shares through the effective time of the merger.

Stockholders who desire to exercise their appraisal rights must satisfy all of the conditions of Section 262. A written demand for appraisal of shares must be filed with us before the special meeting. This written demand for appraisal of shares must be in addition to and separate from a vote against the adoption of the merger agreement, or an abstention or failure to vote for the approval of the merger agreement. Stockholders electing to exercise their appraisal rights must not vote “FOR” the approval of the merger agreement. Any proxy or vote against the merger will not constitute a demand for appraisal within the meaning of Section 262.

A demand for appraisal must be executed by or for the stockholder of record, fully and correctly, as such stockholder’s name appears on the share certificate. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, the demand must be executed by or for the record owner. If the shares are owned by or for more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in exercising the demand, he is acting as agent for the record owner or owners. A person having a beneficial interest in our common stock held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to follow the steps summarized herein and in a timely manner to perfect whatever appraisal rights the beneficial owner may have. If common stock is held through a broker who in turn holds the common stock through a central securities depository nominee such as Cede & Co., a demand for appraisal of such common stock must be made by or on behalf of the depository nominee and must identify the depository nominee as record holder.

A stockholder who elects to exercise appraisal rights should mail or deliver the required written demand to us at Landry’s Restaurants, Inc., 1510 West Loop South, Houston, Texas 77027, Attention: Steven L. Scheinthal, Secretary. The demand must reasonably inform us of the identity of the holder as well as the holder’s intention to demand an appraisal of the “fair value” of the shares held by the holder. A stockholder’s failure to make the written demand prior to the taking of the vote on the approval of the merger agreement at the special meeting will constitute a waiver of appraisal rights. Within 10 days after the effective time of the merger, we must provide notice of the effective time of the merger to all of our stockholders who have complied with Section 262 and have not voted “FOR” the adoption of the merger agreement.

Within 120 days after the effective time of the merger (but not thereafter), any stockholder who has satisfied the requirements of entitlement to perfection of appraisal rights will be entitled, upon written request, to receive from us a statement listing the aggregate number of shares not voted in favor of the merger and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. The statement must be mailed within 10 days after a written request therefor has been received by us or within 10 days after the expiration of the period for delivery of demands for appraisal, whichever is later. A person who is the beneficial owner of shares of common stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, request from us the statement described in this paragraph.

Within 120 days after the effective time of the merger (but not thereafter), either we or any stockholder who has complied with the required conditions of Section 262 and who is otherwise entitled to appraisal rights may commence an appraisal proceeding by filing a petition in the Court demanding a determination of the fair value

 

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of the shares of our common stock owned by stockholders entitled to appraisal rights. We have no obligation or present intention to file such a petition if demand for appraisal is made, and holders should not assume that we will file a petition. Accordingly, it is the obligation of the holders of common stock to initiate all necessary action to perfect their appraisal rights in respect of shares of common stock within the time prescribed in Section 262. A person who is the beneficial owner of shares of common stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file such a petition.

Upon the filing of any petition by a stockholder in accordance with Section 262, service of a copy must be made upon us. We must, within 20 days after service, file in the office of the Register in Chancery in which the petition was filed, a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom we have not reached agreements as to the value of their shares. The Court may require the stockholders who have demanded an appraisal for their shares (and who hold stock represented by certificates) to submit their stock certificates to the Register in Chancery for notation of the pendency of the appraisal proceedings and the Court may dismiss the proceedings as to any stockholder that fails to comply with such direction.

After notice to the stockholders as required by the Court, the Court is empowered to conduct a hearing on the petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights thereunder. After the Court determines the holders of common stock entitled to appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court, including any rules specifically governing appraisal proceedings. Through such proceeding, the Court shall determine the “fair value” of the shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. Unless the Court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment.

In determining fair value, the Court will take into account all relevant factors. Stockholders considering seeking appraisal of their shares should note that the fair value of their shares determined under Section 262 could be more, or less than, or equal to, the consideration they would receive pursuant to the merger agreement if they did not seek appraisal of their shares. Although we believe that the merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Court.

The costs of the appraisal proceeding (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Court and taxed against the parties as the Court deems equitable under the circumstances. Upon application of a dissenting stockholder, the Court may order all or a portion of the expenses incurred by any dissenting stockholder in connection with the appraisal proceeding, including reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. In the absence of a determination or assessment, each party bears his, her or its own expenses. The exchange of shares for cash pursuant to the exercise of appraisal rights generally will be a taxable transaction for U.S. federal income tax purposes and possibly state, local and non-U.S. income tax purposes as well.

Any stockholder who has duly demanded appraisal in compliance with Section 262 will not, after the effective time of the merger, be entitled to vote for any purpose the shares subject to demand or to receive payment of dividends or other distributions on such shares, except for dividends or distributions payable to stockholders of record at a date prior to the effective time of the merger.

At any time within 60 days after the effective time of the merger, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party will have the right to withdraw his, her or its demand for appraisal and to accept the terms offered in the merger agreement. After this period, a stockholder may withdraw his, her or its demand for appraisal and receive payment for his, her or its shares as provided in the

 

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merger agreement only with our consent. No appraisal proceeding in the Court will be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however, that any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and accept the merger consideration offered pursuant to the merger agreement within 60 days after the effective time of the merger. If we do not approve a request to withdraw a demand for appraisal when that approval is required, or, except with respect to any stockholder who withdraws such stockholder’s right to appraisal in accordance with the proviso in the immediately preceding sentence, if the Court does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding, which value could be more or less than, or equal to, the consideration being offered pursuant to the merger agreement. If no petition for appraisal is filed with the court within 120 days after the effective time of the merger, stockholders’ rights to appraisal (if available) will cease. Inasmuch as we have no obligation to file such a petition, any stockholder who desires a petition to be filed is advised to file it on a timely basis.

Failure by any stockholder to comply fully with the procedures of Section 262 of the DGCL (as reproduced in Annex C to this proxy statement) may result in termination of such stockholder’s appraisal rights.

THE PROCESS OF DISSENTING REQUIRES STRICT COMPLIANCE WITH TECHNICAL PREREQUISITES. THOSE INDIVIDUALS OR ENTITIES WISHING TO DISSENT AND TO EXERCISE THEIR APPRAISAL RIGHTS SHOULD CONSULT WITH THEIR OWN LEGAL COUNSEL IN CONNECTION WITH COMPLIANCE UNDER SECTION 262 OF THE DGCL. TO THE EXTENT THERE ARE ANY INCONSISTENCIES BETWEEN THE FOREGOING SUMMARY AND SECTION 262 OF THE DGCL, THE DGCL WILL CONTROL.

OTHER MATTERS

Other Matters for Action at the Special Meeting

As of the date of this proxy statement, our board of directors knows of no matters that will be presented for consideration at the special meeting other than as described in this proxy statement.

Future Stockholder Proposals

If we obtain the requisite stockholder vote at the special meeting, we do not expect to hold a 2010 Annual Meeting of Stockholders. If the merger is consummated, we will not have public stockholders and there will be no public participation in any future meeting of stockholders.

Householding of Special Meeting Materials

Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of this notice and proxy statement may have been sent to multiple stockholders in your household, unless we have received contrary instructions from any such stockholders. If you would prefer to receive separate copies of a proxy statement or annual report either now or in the future, please contact your bank, broker or other nominee. Upon written or oral request to our office at 1510 West Loop South, Houston, Texas, 77027, telephone: (713) 850-1010, we will promptly deliver a separate copy of the annual reports and proxy statements, as applicable, to any stockholder at a shared address to which a single copy of documents was delivered. In addition, stockholders sharing an address can request delivery of a single copy of annual reports or proxy statements, as applicable, if receiving multiple copies upon written or oral request to our office at the address and telephone number stated above.

 

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OTHER IMPORTANT INFORMATION REGARDING US

Our Directors and Executive Officers

The merger agreement provides that upon consummation of the merger, the directors of Merger Sub will be the initial directors of the surviving corporation and our officers will be the officers of the surviving corporation (including Steven L. Scheinthal and Richard H. Liem, members of our board of directors and executive officers). Mr. Fertitta is the sole director of Merger Sub. All surviving corporation officers and directors will hold their positions in accordance with and subject to the certificate of incorporation and bylaws of the surviving corporation.

The following table sets forth our directors and certain of our executive officers as of the date of this proxy statement and provides their respective ages and positions with us. None of these persons has been convicted in a criminal proceeding during the past five years (excluding traffic violations or similar misdemeanors), and none of these persons has been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws or a finding of any violation of federal or state securities laws. All of our directors and executive officers are citizens of the United States, and can be reached at Landry’s Restaurants, Inc., 1510 West Loop South, Houston, Texas 77027.

 

Name

   Age   

Positions

   Director
Since
   Term
Expires

Tilman J. Fertitta (2)

   52    President, Chief Executive Officer and Director    1993    2010

Steven L. Scheinthal (2)

   48    Executive Vice President and General Counsel, Secretary and Director    1993    2010

Kenneth Brimmer (1)(3)

   54    Director    2004    2010

Michael S. Chadwick (1)(3)

   57    Director    2001    2010

Richard H. Liem

   56    Executive Vice President, Chief Financial Officer and Director    2008    2010

Joe Max Taylor (1)

   77    Director    1993    2010

 

(1) Member of Audit Committee
(2) Member of Executive Committee
(3) Member of Special Committee

Tilman J. Fertitta has served as our President and Chief Executive Officer since 1987. In 1988, he became our controlling stockholder and assumed full responsibility for all of our operations. Prior to serving as our President and Chief Executive Officer, Mr. Fertitta devoted his full time to the control and operation of a hospitality and development company. Mr. Fertitta serves on numerous boards and charitable organizations.

Steven L. Scheinthal has served as our Executive Vice President or Vice President of Administration, General Counsel and Secretary since September 1992. He devotes a substantial amount of time to lease and contract negotiations and is primarily responsible for our compliance with all federal, state and local ordinances. Prior to joining us, he was a partner in the law firm of Stumpf & Falgout in Houston, Texas. Steven L. Scheinthal represented us for approximately five years before joining us. He has been licensed to practice law in the State of Texas since 1984.

Kenneth Brimmer is the Chief Executive Officer and Chairman of the Board of STEN Corporation, a publicly-traded, diversified business. He has served as a director of STEN Corporation since 1998 and has been Chief Executive Officer of STEN Corporation since October 2003. From April 2000 until June 2003, Kenneth Brimmer served as Chairman and Director of Active IQ Technologies, Inc. and was Chief Executive Officer from April 2000 until December 2001. Previously, he was President of Rainforest Cafe, Inc. from April 1997 until April 2000 and was Treasurer from its inception in 1995 until April 2000. Prior to that, Kenneth Brimmer was employed by Grand Casinos, Inc. and its predecessor from 1990 until April 1997. He also is a director and

 

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serves on both the Audit and Compensation Committees of Hypertension Diagnostics. Kenneth Brimmer has a degree in accounting and worked as a certified public accountant in the audit division of Arthur Andersen & Co. from 1977 through 1981. He was elected to our board of directors in 2004.

Michael S. Chadwick has been engaged in the commercial and investment banking businesses since 1975. From 1988 to 1994, he was President of Chadwick, Chambers & Associates, Inc., a private merchant investment banking firm in Houston, Texas, which he founded in 1988. In 1994, Michael S. Chadwick joined Sanders Morris Harris, an investment banking and financial advisory firm, as Senior Vice President and as Managing Director in the Corporate Finance Group. He was elected to our board of directors in 2001.

Richard (“Rick”) H. Liem serves as our Executive Vice President and Chief Financial Officer and has served as our Senior Vice President and Chief Financial Officer since June 2004. He started with us in 1999 as the Vice President of Accounting and Corporate Controller. Rick Liem joined us from Carrols Corporation, a restaurant company located in Syracuse, New York, where he was the Vice President of Financial Operations from 1994 to 1999. He was with the audit division of Price Waterhouse, L.L.P. from 1983 to 1994. He is a certified public accountant.

Joe Max Taylor was formerly the chief law enforcement administrator for Galveston County, Texas. He served as a Director and Executive Committee member of American National Insurance Company, a publicly-traded insurance company, for 10 years and served on the board of directors of Moody Gardens, a hospitality and entertainment complex located in Galveston, Texas. Joe Max Taylor was elected to our board of directors in 1993.

In addition to Mr. Fertitta, Steven L. Scheinthal, and Richard H. Liem, for which information is provided above, the following persons are executive officers:

 

Name

   Age   

Position

   Officer
Since

Jeffrey L. Cantwell

   44    Senior Vice President of Development    2006

K. Kelly Roberts

   51    Chief Administration Officer—Hospitality and Gaming Division    2007

Jeffrey L. Cantwell serves as Senior Vice President of Development and has served as Vice President of Development, and Director of Design and Construction. He was promoted to an executive officer in 2006. Jeffrey L. Cantwell has been employed by us since his graduation from Southwest Texas State University in June, 1992. While in college, he worked in many of our restaurants and developed a significant understanding of restaurant operations.

K. Kelly Roberts serves as Chief Administration Officer—Hospitality and Gaming Division and has served as Chief Financial Officer—Hotel Division and Controller—Hotel Division. He has been employed by us since 1996. He has over 25 years experience in the hospitality business in finance and operations working for various hotel chains and independent management companies. K. Kelly Roberts also currently serves on the executive board of The Greater Houston Convention and Visitor’s Bureau.

Selected Historical Consolidated Financial Data

The following table sets forth our selected consolidated financial information as of and for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 and as of and for the nine months ended September 30, 2009 and 2008. The information as of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006 is derived from our consolidated financial statements incorporated by reference into this proxy statement from our Annual Report on Form 10-K for the year ended December 31, 2008, which have been audited by Grant Thornton, LLP, as independent registered public accountants. The information as of and for the nine months ended September 30, 2009 and 2008 is derived from our unaudited consolidated financial statements incorporated by reference into this proxy statement from our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009, and include, in the opinion of management, all adjustments, consisting only of

 

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normal, recurring adjustments, necessary for a fair presentation of the information. The information as of December 31, 2006, 2005 and 2004 and for the years ended December 31, 2005 and 2004 is derived from our audited consolidated financial statements, which are not incorporated by reference into this proxy statement.

The selected consolidated financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the related notes, incorporated by reference into this proxy statement from our Annual Report on Form 10-K for the year ended December 31, 2008 and from our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009.

Discontinued Operations

During 2006, as part of a strategic review of our operations, we initiated a plan to divest certain restaurants, including 136 Joe’s Crab Shack units. Subsequently, several additional locations were added to our disposal plan. The results of operations for all units included in the disposal plan have been reclassified as discontinued operations in the statements of income for all periods presented.

 

    Nine Months Ended
September 30,
    Year Ended December 31,  
    2009     2008     2008     2007     2006     2005     2004  
    (Unaudited)                                
    (Dollars in Thousands)  

REVENUES

  $ 814,904      $ 890,160      $ 1,143,889      $ 1,160,368      $ 1,101,994      $ 864,156      $ 769,280   

OPERATING COSTS AND EXPENSES:

             

Cost of revenues

    167,187        191,642        245,381        256,336        249,575        223,864        214,966   

Labor

    261,444        284,874        366,395        375,144        357,748        258,469        221,059   

Other operating expenses

    197,535        224,092        288,090        292,298        278,172        213,697        189,945   

General and administrative expense

    36,225        36,876        51,294        55,756        57,977        47,443        48,446   

Depreciation and amortization

    53,365        53,121        70,292        65,287        55,857        43,262        37,616   

Asset impairment expense (1)

    608        20,085        2,409        —          2,966        —          1,709   

Pre-opening expenses

    894        1,392        2,266        3,477        5,214        3,030        2,990   

Loss (gain) on disposal of assets and insurance claims

    (5,774     —          (59     (18,918     (2,295     (524     (100
                                                       

Total operating costs and expenses

    711,484        812,082        1,026,068        1,029,380        1,005,214        789,241        716,631   
                                                       

OPERATING INCOME

    103,420        78,078        117,821        130,988        96,780        74,915        52,649   

OTHER EXPENSE (INCOME):

             

Interest expense, net (2)

    82,466        60,175        79,817        72,322        49,139        31,208        10,482   

Other, net (3)

    (13,306     3,877        17,300        16,690        (128     530        13,566   
                                                       

Total other expense

    69,160        64,052        97,117        89,012        49,011        31,738        24,048   
                                                       

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

    34,260        14,026        20,704        41,976        47,769        43,177        28,601   

PROVISION (BENEFIT) FOR INCOME TAXES

    9,960        5,152        7,227        14,238        13,393        13,556        (10,392
                                                       

INCOME FROM CONTINUING OPERATIONS

    24,300        8,874        13,477        27,738        34,376        29,621        38,993   

INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES (1)

    (155     (10,536     (10,569     (9,626     (56,146     15,194        27,528   
                                                       

NET INCOME (LOSS) ATTRIBUTABLE TO LANDRY’S

    24,145        (1,662     2,908        18,112        (21,770     44,815        66,521   

Less: Accretion of redeemable noncontrolling interests

  $ 4,811        —          —          —          —          —          —     
                                                       

Net income (loss) available to Landry’s common stockholders

  $ 19,334      $ (1,662   $ 2,908      $ 18,112      $ (21,770   $ 44,815      $ 66,521   
                                                       

 

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    Nine Months Ended
September 30,
    Year Ended December 31,
    2009     2008     2008     2007     2006     2005   2004
    (Unaudited)                            
    (Dollars in Thousands)

BALANCE SHEET DATA (AT END OF PERIOD)

             

Working capital (deficit)

  $ (100,581   $ (502,840   $ (86,036   $ (149,883   $ (50,056   $ 217,461   $ 161,515

Total assets

    1,567,134        1,486,472        1,515,324        1,502,983        1,464,912        1,612,579     1,344,952

Short-term notes payable and current portion of notes and other obligations

    16,710        454,214        8,753        87,243        748        1,852     1,700

Long term notes and other obligations, net of current portion

    906,078        438,784        862,375        801,428        710,456        816,044     559,545

Stockholders’ equity

    330,130        315,133        294,477        316,899        494,707        516,770     600,897

 

(1) In 2008, we recorded asset impairment charges of $20.1 million ($13.1 million after tax), net of insurance proceeds primarily as a result of damage sustained in Hurricane Ike. In 2006 and 2004, we recorded asset impairment charges related to continuing operations of $3.0 million ($2.0 million after tax) and $1.7 million ($1.2 million after tax), respectively, related to the adjustment to estimated fair value of certain restaurant properties and assets. In 2008, 2007 and 2006, we also recorded asset impairment charges and other losses totaling $10.3 million ($6.7 million after tax), $9.9 million ($6.5 million after tax) and $79.8 million ($51.8 million after-tax), respectively, related to discontinued operations.
(2) In 2007, we recognized an $8.0 million ($5.3 million after-tax) charge for deferred loan costs previously being amortized over the term of the 7.5% senior notes.
(3) For the nine months ended September 30, 2009 and 2008, other, net includes net income attributable to non-controlling interests of $679,000 and $95,000, respectively. In 2007, we recorded expenses associated with exchanging the 7.5% senior notes for 9.5% senior notes of approximately $5.0 million ($3.3 million after tax) and incurred approximately $6.3 million ($4.2 million after tax) in call premiums and expenses associated with refinancing the Golden Nugget debt. We also recorded $5.4 million ($3.5 million after tax) reflecting a non-cash expense for the change in fair value of interest rate swaps related to the new Golden Nugget financing. In 2004, we recorded prepayment penalty expense and other costs related to the refinancing of our long-term debt of approximately $16.6 million ($11.3 million after tax).

Price Range of Common Stock, Dividend Information and Stock Repurchases

Our common stock trades on the New York Stock Exchange under the symbol “LNY.” As of , 2010, there were approximately stockholders of record of our common stock.

The following table presents the quarterly high and low sales prices for our common stock, as reported on the New York Stock Exchange Composite Tape under the symbol “LNY” and dividends paid per common share.

 

     High    Low    Dividends
Paid

2007

        

First Quarter

   $ 31.55    $ 28.16    $ 0.05

Second Quarter

   $ 30.30    $ 28.31    $ 0.05

Third Quarter

   $ 32.30    $ 24.65    $ 0.05

Fourth Quarter

   $ 29.39    $ 19.54    $ 0.05

2008

        

First Quarter

   $ 21.89    $ 14.18    $ 0.05

Second Quarter

   $ 20.15    $ 14.74    $ 0.05

Third Quarter

   $ 19.47    $ 10.33      —  

Fourth Quarter

   $ 15.72    $ 7.30      —  

2009

        

First Quarter

   $ 12.87    $ 3.60      —  

Second Quarter

   $ 11.19    $ 5.08      —  

Third Quarter

   $ 11.71    $ 7.75      —  

Fourth Quarter (through November 30, 2009)

   $ 22.19    $ 9.80      —  

 

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On November 2, 2009, the last full trading day prior to the public announcement of the execution of the merger agreement, the high and low reported sales prices of our common stock were $11.02 and $10.18, respectively. On , 2010, the most recent practicable date before the printing of this proxy statement, the high and low reported sales prices of our common stock were $ and $, respectively. You are urged to obtain a current market price quotation for our common stock.

Dividend Policy

Commencing in 2000, we began paying an annual $0.10 per share dividend, declared and paid in quarterly installments of $0.025 per share. In April 2004, the annual dividend was increased to $0.20 per share, declared and paid in quarterly installments of $0.05 per share. On June 16, 2008, we announced that we were discontinuing our dividends.

Stock Repurchases by Us and Stock Purchases by Tilman J. Fertitta

In November 1998, we announced the authorization of an open market stock repurchase program, which was renewed in April 2000, for an additional $36.0 million. In October 2002, we authorized a $50.0 million open market stock repurchase program and in September 2003, we authorized another $60.0 million open market stock repurchase program. In October 2004, we authorized a $50.0 million open market stock repurchase program. In March 2005, we announced a $50.0 million authorization to repurchase common stock. In May 2005, we announced a $50.0 million authorization to repurchase common stock. In March, July and November 2007, we authorized an additional $50.0 million, $75.0 million and $1.5 million, respectively, of open market stock repurchases. These programs have resulted in our aggregate repurchasing of approximately 24.0 million shares of common stock for approximately $472.4 million through September 30, 2009.

There were no repurchases of our common stock by us during the quarter ended September 30, 2009.

There were no transactions with respect to our common stock during the past 60 days effected by us, any of our subsidiaries, any of our affiliates or any of our directors, officers, or other persons controlling us.

In addition, Mr. Fertitta agreed that, until the termination of the voting agreement, he will not, directly or indirectly, purchase or otherwise acquire any shares of our common stock or economic ownership thereof, except pursuant to the exercise of options outstanding as of the date of the merger agreement.

The following table sets forth information regarding purchases of our common stock by us and purchases by Mr. Fertitta, including the exercises of his stock options, showing for each fiscal quarter since January 1, 2007 the number of shares of our common stock purchased and the average price paid per quarter for those shares. Our purchases of our common stock were made pursuant to our stock repurchase programs. Purchases by Mr. Fertitta were made in open market transactions, unless otherwise indicated. Neither Parent nor Merger Sub purchased any shares of our common stock during this period.

 

     Quarter Ended
     March 31, 2007    June 30, 2007
     Average
Price($)
   Number of
Shares
   Average
Price($)
    Number of
Shares

Landry’s

   $ 29.05    771,598    $ 29.81      1,269,691

Tilman J. Fertitta

   $ 31.26    100,000    $ 12.88 (1)    150,000

 

(1) Shares of common stock acquired upon the exercise of options having an exercise price of $12.88 per share.

 

     Quarter Ended
     September 30, 2007    December 31, 2007
     Average
Price($)
   Number of
Shares
   Average
Price($)
   Number of
Shares

Landry’s

   $ 28.69    3,437,570    $ 27.42    838,541

Tilman J. Fertitta

   $ —      —      $ —      —  

 

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     Quarter Ended
     March 31, 2008    June 30, 2008
     Average
Price($)
   Number of
Shares
   Average
Price($)
   Number of
Shares

Landry’s

   $ 18.95    806    $ —      —  

Tilman J. Fertitta

   $ —      —      $ —      —  
     Quarter Ended
     September 30, 2008    December 31, 2008
     Average
Price($)
   Number of
Shares
   Average
Price($)
   Number of
Shares

Landry’s

   $ —      —      $ —      —  

Tilman J. Fertitta

   $ 12.31    400,000    $ 11.23    2,627,374
     Quarter Ended
     March 31, 2009    June 30, 2009
     Average
Price($)
   Number of
Shares
   Average
Price($)
   Number of
Shares

Landry’s

   $ 12.18    3,072    $ 10.35