UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2008~~ 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-52992

Hard Rock Hotel Holdings, LLC

(Exact name of registrant as specified in its charter)

Delaware		16-1782658
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
4455 Paradise Road, Las Vegas, NV		89169
(Address of principal executive office)		(Zip Code)

(702) 693-5000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Class A Membership Interests

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark ifwhether ~~disclosure~~the ofregistrant ~~delinquent~~has ~~filers~~submitted ~~pursuant~~electronically toand ~~Item 405~~posted ~~of Regulation~~on ~~S-K~~its iscorporate ~~not~~Web ~~contained~~site, ~~herein~~if any, ~~and~~every ~~will~~Interactive ~~not~~Data beFile ~~contained,~~required to ~~the~~be ~~best~~submitted ofand ~~registrant’s~~posted pursuant ~~knowledge,~~to ~~in definitive~~Rule 405 ~~proxy~~of orRegulation S-T ~~information~~(§232.405 ~~statements~~of ~~incorporated~~this bychapter) ~~reference~~during inthe ~~Part~~preceding 12 ~~III~~months (or offor ~~this~~such ~~Form~~shorter ~~10-K or~~period ~~any~~that ~~amendment~~the registrant was required to ~~this~~submit ~~Form~~and ~~10-K~~post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.


Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

As of June 30, ~~2007~~2009, the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was $0. There currently is no established public trading market for our membership interests.

INDEX

	Page
PART I
ITEM 1 BUSINESS		42
ITEM 1A RISK FACTORS		2116
ITEM 1B UNRESOLVED STAFF COMMENTS		3125
ITEM 2 PROPERTIES		3126
ITEM 3 LEGAL PROCEEDINGS		3226
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		3226
PART II
ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		3327
ITEM 6 SELECTED FINANCIAL INFORMATION		3427
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		3630
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		5651
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		5751
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		5751
ITEM 9A(T) CONTROLS AND PROCEDURES		57
ITEM 9A (T) CONTROLS AND PROCEDURES		51
ITEM 9B OTHER INFORMATION		5752
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		5853
ITEM 11 EXECUTIVE COMPENSATION		6056
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		7067
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		71
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		69
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES		7371
PART IV
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		7472
Exhibit 10.9
Exhibit 10.12
Exhibit 21.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which represent our expectations or beliefs concerning future events. Statements containing expressions such as “believes,” “anticipates,” “expects” or other similar words or expressions are intended to identify forward-looking statements. We caution that these and similar statements included in this report are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. Although we believe our expectations are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, we cannot guarantee future results, levels of activity, performance or achievements. The factors that could cause actual results to differ materially from expected results include changes in economic, business, competitive market and regulatory conditions. Important risks and factors that could cause our actual results to differ materially from any forward-looking statements include, but are not limited to:

• continued ~~downturns~~recessionary in economic and market conditions, particularly in levels of spending in the Las Vegas hotel, resort and casino industry;

•

changes in the competitive environment in our industry;

•

hostilities, including future terrorist attacks, or fear of hostilities that affect travel;

•

the seasonal nature of the hotel, resort and casino industry;

•

the use of the “Hard Rock” brand name by entities other than us;

•

costs associated with compliance with extensive regulatory requirements;

•

increases in interest rates and operating costs;

•

increases in uninsured and underinsured losses;

•

risks associated with conflicts of interest with entities which control us;

•

the loss of key members of our senior management;

•

the impact of any material litigation;

•

risks related to natural disasters, such as earthquakes and floods; and

• the other risks discussed in this report in the section entitled “Risk Factors”.”

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date thereof. We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date hereof. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

PART I

ITEM 1 BUSINESS

THE COMPANY

Hard Rock Hotel Holdings, LLC (the “Company,” “we,” “us” or “our ”) is a Delaware limited liability company that ~~was~~is ~~formed~~owned by affiliates of DLJ Merchant Banking Partners (the “DLJMB Parties”) and Morgans Hotel Group Co. (“Morgans”) and an affiliated entity (together with Morgans, the “Morgans Parties”). toIn ~~acquire~~February 2007, the Company acquired Hard Rock Hotel, Inc. (“HRHI ” or the “Predecessor”) and certain related assets ~~in February 2007. HRHI owns the Hard Rock Hotel & Casino in Las Vegas (the “Hard Rock”). As a result of the acquisition (the “Acquisition”)~~, ~~the~~including ~~Company is the successor (the “Successor”) to HRHI. In connection with the Acquisition, the Company also acquired~~ an approximately 23-acre parcel of land adjacent to the Hard Rock, and the parcel of land on which the Hard Rock Cafe restaurant in Las Vegas is situated. ~~and~~HRHI ~~plans,~~owns ~~specifications~~the ~~and~~Hard ~~other~~Rock ~~documents related~~Hotel to& aCasino ~~former~~in ~~proposal~~Las ~~for~~Vegas (the “Hard Rock”). As a result ~~condominium~~of ~~development~~the onacquisition (the ~~property~~“Acquisition”), ~~adjacent~~the toCompany is the ~~Hard~~successor (the “Successor”) to ~~Rock~~HRHI.

Prior to March 1, 2008, gaming operations at the Hard Rock were operated by Golden HRC, LLC (“Casino Operator”) pursuant to a definitive Casino Sublease we entered into with the Casino Operator effective as of the closing date of the Acquisition. We entered into the lease agreement with the Casino Operator because we had not yet obtained a license from the Nevada Gaming Commission to operate the gaming facilities, and were therefore prohibited from receiving any revenues from such facilities. We believed that we were the primary beneficiary of the gaming operations because we were ultimately responsible for a majority of the operations’ losses and were entitled to a majority of the operations’ residual returns. The gaming operations conducted by the Casino Operator therefore were consolidated in our financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

On January 24, 2008, we received a license from the Nevada Gaming Commission to serve as the operator of the gaming facilities at the Hard Rock, subject to our Registration Statement on Form 10 becoming effective under the Exchange Act. The Securities and Exchange Commission (the “SEC”) declared our Registration Statement effective on February 14, 2008. On March 1, 2008, we assumed operation of the gaming facilities and the definitive lease agreement with the Casino Operator was terminated effective as of February 29, 2008.

The principal executive offices of the Hard Rock are located at 4455 Paradise Road, Las Vegas, Nevada 89169 and the telephone number is (702) 693-5000. The Hard Rock’s Internet website is located at www.hardrockhotel.com.

OVERVIEW OF HARD ROCK HOTEL AND CASINO

We own and operate the Hard Rock , which we believe is a premier destination entertainment resort with a rock music theme. Commencing operations in 1995, the resort is modeled after the highly successful Hard Rock Cafe restaurant chain and is decorated with an extensive collection of rare rock memorabilia. The original Hard Rock Cafe was co-founded in 1971 by Peter Morton, and the “Hard Rock” name has grown to become widely recognized throughout the world. The Hard Rock brand was honored by Advertising Age, an advertising and marketing industry publication, as one of the top 50 brands of 2008. Since opening, we believe the resort has developed a strong following among its target customer base, generally between the ages of 25 and 45, who seek a vibrant, energetic entertainment and gaming experience with the services and amenities associated with a boutique luxury resort hotel. AsIn ~~evidence~~2009, ofTravel ~~its appeal~~& toLeisure ~~its target customer base~~Magazine, ~~Wasted~~stated ~~Space~~that ~~was~~“Hard ~~voted~~Rock ~~best~~throws ~~new bar~~some inof ~~Las Vegas and Ago was~~the ~~recognized~~best asparties ~~top new bar/restaurant~~ in ~~2008 by City Search~~Vegas”. In addition, ~~Body~~in ~~English~~2009, ~~nightclub was~~Fodor’s ~~selected~~Travel byGuide ~~Cosmopolitan~~stated ~~Magazine~~that as“The ~~one~~Hard ofRock doesn’t ~~the~~try ~~“Top~~to 25be ~~Sexiest~~cool ~~Places~~— init ~~the~~just ~~World~~is.”

In 2009, we completed the majority of a large-scale expansion project at the Hard Rock. The expansion includes the addition of approximately 865 guest rooms and suites, approximately 490 of which are in our new Paradise Tower that opened in July 2009 and the remaining approximately 375 of which are in our new all-suite HRH Tower that opened in late December 2009. As part of the expansion project, in April 2009, we opened approximately 74,000 square feet of additional meeting and convention space, several new food and beverage outlets and a new and larger The Joint live entertainment venue. In December 312009, ~~2008~~we opened approximately 30,000 square feet of new casino space, a new spa, salon and fitness center, Reliquary and a new nightclub, Vanity. The expansion project also included the addition of a new authentic rock lounge, Wasted Space, a new Poker Lounge and upgrades to existing suites, restaurants and bars, retail shops and common areas, each of which were completed in 2008. We have transformed the property into what we believe is a world class destination resort ~~consists~~offering a luxurious Las Vegas experience. During this transformation, we focused on retaining the heart and soul that we believe has made the Hard Rock the icon that it is today, and preserving an intimate and exclusive environment with unique advantages such as a world-class pool and a comfortable boutique feel. In March 2010, we expect to open an expanded hotel pool, outdoor gaming and additional food and beverage outlets, which would complete the remaining portions of: the expansion project as scheduled and within the parameters of the original budget.

•As anof ~~eleven-story~~December 31, ~~hotel tower with 640 stylishly furnished hotel rooms averaging approximately 500 square feet in size (including 62 suites and one 4~~2009,~~500~~ ~~square~~the ~~foot~~resort ~~“mega~~consists ~~suite”);~~of:

• anthree ~~approximately~~hotel ~~30,000~~towers ~~square-foot~~with ~~uniquely~~approximately ~~styled~~1,500 ~~circular~~stylishly ~~casino~~furnished ~~with~~hotel ~~544~~rooms ~~slot~~averaging ~~machines~~approximately ~~and~~500 82square ~~table~~feet ~~games,~~in ~~for~~size ~~Las~~(including ~~Vegas~~450 ~~locals~~suites, asnine ~~well as tourists~~penthouses, ~~where~~10 ~~rock~~pool ~~music~~villas ~~is played continuously to provide the casino with an energetic~~ and ~~entertaining,~~eight ~~club~~multi-~~like~~level ~~atmosphere~~spa villas);

•

an approximately 60,000 square-foot uniquely styled casino with 835 slot machines and 125 table games, for Las Vegas locals, as well as tourists, where rock music is played continuously to provide the casino with an energetic and entertaining, club-like atmosphere;

•

an approximately 5,000 square-foot high-end Poker Lounge with 18 tables and a 1,000 square-foot connected bar;

• an approximately 3,600 square-foot retail store (the “Retail Store”), a jewelry store and a lingerie store;

~~• an approximately 8,500 square-foot nightclub, called “Body English,” with a capacity of 1,100 persons;~~2

•

an approximately 15,400 square-foot night club, called “Vanity,” with a capacity of 1,400 persons, and which replaced Body English that closed on January 1, 2010;

•

an approximately 5,000 square-foot rock n’ roll bar, called “Wasted Space,” with a capacity of 500 persons;

• an approximately 680,000 square~~-foot~~ ~~banquet~~feet ~~facility~~of ~~with~~banquet aand ~~capacity~~meeting ~~of 390 persons~~facilities;

• a premier live music concert hall, called “The Joint,” with a capacity of 24,~~050~~100 persons and which ~~successfully~~ draws audiences from Las Vegas visitors, as well as ~~the~~ local ~~Las Vegas population~~residents;

•

a beach club including a 300-foot long sand bottomed tropical theme outdoor swimming pool area, with a water slide, water fall, a running stream and underwater rock music (the “Beach Club”);

• ~~five~~six high quality restaurants at multiple price points (Nobu Las Vegas, Ago, ~~AJ’s~~Rare ~~Steakhouse~~120, Pink Taco, Espumoso Caffé and Mr. Lucky’s) and a Starbucks;

• ~~three~~eight cocktail lounges, including antwo ~~elevated~~circular lounges, called “Luxe Bar” and “Center Bar,” that are elevated and surrounded by the ~~circular~~ gaming floor; and

• an approximately 821,000 square-foot spa/, salon/ and fitness center, called “Reliquary,” and an approximately 8,000 square-foot health club, called the “Rock Spa.”

BUSINESS STRATEGY

We ~~believe~~attribute our continued success in the Las Vegas marketplace ~~is attributable~~ to ~~our~~uniquely ~~unique~~ positioning ofthe resort within the Las Vegas hotel, resort and casino industry. Our primary business and marketing strategies ~~strategy~~center ~~for~~on ~~the~~creating ~~resort is to create~~ a vibrant and energetic entertainment and gaming environment that ~~primarily~~ appeals to a customer base of youthful and “hip” individuals. We ~~successfully~~leverage ~~use~~certain of our strengths, including the Hard Rock theme, and our vibrant atmosphere and personalized service, to differentiate the resort from the substantially larger “mega resorts” approximately one mile west on the Las Vegas Strip. Key elements of our business strategy include the following:

Target Clientele

We believe that we have successfully differentiated the resort in the Las Vegas market by targeting a predominantly youthful and “hip” customer base, ~~which~~that consists primarily of rock music fans and youthful individuals, as well as actors, musicians and other members of the entertainment industry. To attract this target audience, we promote the resort as “the place to be” in Las Vegas. The “Hard Rock Hotel” and the “Hard Rock Casino” trademarks, along with an extensive network of of contacts in the music and entertainment industry, have helped to attract a number of famous actors, musicians and celebrities to the resort. We believe ~~these~~this ~~customers~~customer ~~form~~base ais ~~combined demographic~~comprised ~~group~~of demographic groups that ~~continues~~remain ~~to be~~ underserved by competing facilities despite recent competition from other properties in Las Vegas.

Entertainment

As a live music venue with a capacity ~~for~~of 24,~~050 persons~~100, The Joint ~~successfully~~ draws audiences from Las Vegas visitors and ~~from the~~ local ~~Las Vegas population~~residents. In ~~2008~~2009, ~~the~~we ~~Joint hosted~~closed ~~more~~the ~~major~~original ~~concerts than any venue in Las Vegas including acts by legends such as Bob Dylan~~2, ~~Billy~~000-person ~~Idol~~capacity ~~and~~Joint ~~Duran Duran~~ and opened ~~more~~a ~~recent~~brand ~~acts~~new ~~such~~$60.0 million asJoint ~~the~~with ~~Raconteurs~~over ~~and~~double the ~~Foo Fighters~~capacity. ~~We believe~~In ~~that the~~ addition ofto increased capacity, the ~~all-~~new ~~4,000 capacity~~ Joint inincludes ~~2009~~enhanced ~~will~~production ~~make~~capabilities and a ~~statement~~high-end ~~both locally~~VIP ~~and nationally~~level. ~~The~~In 2009, the new Joint ishosted ~~expected~~major toconcerts, ~~have~~highlighted ~~production~~by ~~capabilities~~performances ~~akin~~from toThe aKillers, ~~major~~Paul ~~arena~~McCartney, ~~and~~Bon ~~seven~~Jovi, ~~VIP~~Kenny ~~suites~~Chesney, ~~with~~Incubus, ~~high-end~~Blink ~~features~~182, ~~while~~No ~~maintaining the look~~Doubt, ~~feel~~Bob Dylan and ~~grit~~Kings of ~~the~~Leon. In ~~original~~addition, ~~Joint.~~the ~~The~~new Joint’s ~~concerts,~~has hosted mixed- martial arts events, televised boxing, matches and ~~the resort’s~~other special events, ~~generate~~which ~~significant~~coupled ~~worldwide~~with ~~publicity~~its ~~and~~live ~~reinforce~~music ~~the~~concerts, ~~resort’s~~have ~~marquee~~helped ~~image~~generate significant ~~and~~publicity ~~unique~~for ~~position~~us inas ~~the~~well ~~Las~~as ~~Vegas~~attracted ~~marketplace~~additional ~~and provide an added source of~~ visitors for ~~the~~ our hotel, casino, retail and food and beverage operations.

Gaming Mix Targeted To Customer Base

As of December 31, ~~2008~~2009, our casino housed ~~544~~835 slot machines, 82125 table games, 18 poker tables and an approximately 1,100 square-foot race and sports book. Our target gaming customer has a higher propensity to play table games and we strive to create a fun and enthusiastic gaming environment through the use of music themed gaming chips and playing surfaces and by promoting interaction between table game dealers and customers. The casino also features the latest slot machines, some of which reflect the resort’s rock music theme, as well as more traditional machines.

Significant Revenues From Non-Gaming Operations

We derive significant revenues from non-gaming operations. Our hotel, beach club, retail, food and beverage, and other operations allow us to market the resort as a full-service destination. Our diversified revenue base should allow us to be less dependent on the casino as a source of revenues and profits. We believe this diversified revenue base may result in less volatility in our earnings.

Emphasis on Customer Service

We believe that one of the cornerstones of our business strategy is providing our customers with a high level of personal service. Our management trains our employees to interact with guests and continually strives to instill in ~~each~~our ~~employee~~employees a dedication to superior service designed to exceed guests’ expectations. Our senior management ~~is a visible proponent of the resort’s emphasis on customer service and~~ regularly ~~speaks~~gathers ~~to employees~~ and ~~customers. In addition, management personally~~ responds to ~~suggestions~~feedback regarding ~~made~~customer ~~on comment cards placed in each of the resort’s hotel rooms~~satisfaction.

LOCATION

The resort occupies what we believe is one of the most highly visible and easily accessible sites in Las Vegas. The resort is located on approximately 41 acres of land near the intersection of Paradise Road and Harmon Avenue, approximately two miles from McCarran International Airport and approximately one mile east of the Las Vegas Strip, the main tourist area in Las Vegas. We believe the resort represents an attractive alternative for tourists, business travelers and locals who wish to ~~avoid~~maintain ~~the~~close ~~crowds~~ and ~~congestion~~easy ofaccess to the Las Vegas Strip, while ~~maintaining~~avoiding ~~close~~its ~~and~~crowds ~~easy~~and ~~access to the Las Vegas Strip~~congestion. We have agreements in place with major hotels and casinos and retail establishments ~~pursuant~~ to provide ~~which~~ shuttle services ~~are~~to ~~provided between such locations~~ and from the resort. We believe the resort’s location is particularly attractive due to its proximity to:

•

a high concentration of popular Las Vegas restaurants and nightclubs;

•

the Las Vegas Convention Center;

•

the Thomas & Mack Center at the University of Nevada Las Vegas, Las Vegas’ primary sporting and special events arena; and

•

a number of non-gaming hotels, which have an aggregate of more than 1,000 guest rooms.

THE RESORT

As of December 31, ~~2008~~2009, the resort consists of the hotel, casino, retail stores, ~~Body English~~Vanity, Wasted Space, banquet ~~facility~~and meeting facilities, The Joint, the Beach Club, ~~five~~six restaurants, ~~three cocktail~~eight cocktail lounges, Reliquary Spa, Rock Spa, Brannon Hair and a Starbucks.

The Hotel

The hotel’s ~~eleven-story~~three ~~tower~~towers ~~houses~~consist ~~640~~of approximately 1,500 spacious hotel rooms, ~~including~~450 ~~577~~or approximately ~~guest~~30% ~~rooms~~of ~~and 62~~which are suites, ~~and~~including ~~one~~nine 4penthouses,~~500~~ ~~square~~10 ~~foot~~pool ~~“mega~~villas ~~suite~~and eight multi-level spa villas.” The ~~guest~~hotel rooms ~~and deluxe suites~~ average approximately 500 square feet ~~in size~~, which is larger than the ~~size of the~~ average Las Vegas hotel room. ~~Our “mega suite” is approximately 4,500 square feet in size and includes numerous amenities.~~ Consistent with the resort’s distinctive decor, the hotel rooms are stylishly furnished, with ~~stainless~~ ~~steel~~oversized ~~bathroom sinks~~bathrooms, pedestal beds with leather headboards and ~~black-and-white~~ photos of of famous rock musicians. The rooms also include special amenities such as large 4240-plus inch ~~plasma screen~~flat screen televisions with high speed internet access, stereo systems and, ~~French~~in certain cases, French doors that open to the outdoors and/or personal ipod compatible sound systems. A full-service concierge and 24-hour room service are available to all guests of the hotel.

~~The following table illustrates certain historical information relating to the hotel for the~~4 ~~years ended December 31, 2008, 2007 and 2006:~~

	Year Ended
	December 31,			December 31,			December 31,
	2008			2007(2)			2006
Average number of hotel rooms		612			637			642
Average occupancy rate(1)		91.7	%		93.9	%		95.3	%
Average daily rate(1)	$	190		$	209		$	183

(1)		The Company calculates (a) average daily rate by dividing total daily lodging revenue by total daily rooms rented and (b) average occupancy rate by dividing total rooms occupied by total number of rooms available. The Company accounts for lodging revenue on a daily basis. As is customary for companies in the gaming industry, average occupancy rate and average daily rate include rooms provided on a complimentary basis. Rooms provided on a complimentary basis include rooms provided free of charge or at a discount to the rate normally charged to customers as an incentive to use the casino. Complimentary rooms reduces average daily rate for a given period to the extent the provision of such rooms reduces the amount of revenue the Company would otherwise receive. The Company does not separately account for the number of occupied rooms that are provided on a complimentary basis, and obtaining such information would require unreasonable effort and expense within the meaning of Rule 12b-21 under the Exchange Act. The decrease in average daily rate in 2008 was a result of management’s decision to strategically lower room prices to maximize occupancy levels and remain competitive within the Las Vegas market.
(2)		The Company combined the results of the Predecessor for the period from January 1, 2007 to February 1, 2007 with the Company’s results for the period from February 2, 2007 to December 31, 2007.

The Casino

We believe that the innovative, distinctive style of the 30,000 square-foot circular casino at the Hard Rock is a major attraction for both Las Vegas visitors and local residents. The casino is designed with an innovative circular layout around the elevated Center Bar, which allows the casino’s patrons to see and be seen from nearly every area of the casino as well as play Blackjack at three gaming tables in the bar. Rock music is played continuously to provide the casino with an energetic and entertaining club-like atmosphere. In addition, the casino promotes a friendly, intimate atmosphere by encouraging its employees to smile at and interact with casino players. Dealers, for example, are encouraged to “High Five” winning players.

As of December 31, 2008, the casino houses 82 table games including 59 Blackjack tables, five Craps tables, five Roulette tables, one Caribbean Stud Poker table, three Midi Baccarat tables, one Mini-Baccarat table, one War table, two Three Card Poker tables, one Big 6 table, one Let-it-Ride table, one No-Bust Blackjack table, one Bonus Texas Holdem table, one Pai-Gow Poker table, 544 slot and video machines, an approximate 1,100 square-foot race and sports book, a 5,000 square-foot Poker Lounge as well as the 2,000 square-foot Center Bar. Some of the casino’s gaming chips are themed to coincide with current concerts and the casino also offers patrons other attractions, such as cutting edge slot technology, proprietary slot graphics, distinctive slot signage, guitar neck-shaped levers on certain slot machines and piano-like roulette tables complete with keyboards.

The following table illustrates certain historical information relating to our hotel for the years ended December 31, 2009, 2008 and 2007:


	Year Ended
	December 31,			December 31,			December 31,
	2009			2008			2007 (2)
Average number of hotel rooms		792			612			637
Average occupancy rate(1)		88.2	%		91.7	%		93.9	%
Average daily rate(1)	$	134		$	190		$	209


(1)		The Company calculates (a) average daily rate by dividing total daily lodging revenue by total daily rooms rented and (b) average occupancy rate by dividing total rooms occupied by total number of rooms available. The Company accounts for lodging revenue on a daily basis. As is customary for companies in the gaming industry, average occupancy rate and average daily rate include rooms provided on a complimentary basis. Rooms provided on a complimentary basis include rooms provided free of charge or at a discount to the rate normally charged to customers as an incentive to use the casino. Complimentary rooms reduces average daily rate for a given period to the extent the provision of such rooms reduces the amount of revenue the Company would otherwise receive. The Company does not separately account for the number of occupied rooms that are provided on a complimentary basis, and obtaining such information would require unreasonable effort and expense within the meaning of Rule 12b-21 under the Exchange Act. The decrease in average daily rate in 2008 and 2009 was a result of management’s decision to strategically lower room prices to maximize occupancy levels and remain competitive within the Las Vegas market.

(2)		The Company combined the results of the Predecessor for the period from January 1, 2007 to February 1, 2007 with the Company’s results for the period from February 2, 2007 to December 31, 2007.

The Casino

We believe that the innovative, distinctive style of the 60,000 square-foot casino at the Hard Rock is a major attraction for both Las Vegas visitors and local residents. The casino is designed with an innovative layout around the two elevated lounges, Luxe Bar and Center Bar, which allows the casino’s patrons to see and be seen from nearly every area of the casino. Rock music is played continuously to provide the casino with an energetic and entertaining club-like atmosphere. In addition, the casino promotes a friendly, intimate atmosphere by encouraging its employees to smile at and interact with casino players. Dealers, for example, are encouraged to “High Five” winning players.

As of December 31, 2009, the casino houses 125 table games including 90 Blackjack tables, eight Craps tables, 11 Roulette tables, four Midi Baccarat tables, one Mini-Baccarat table, one War table, three Three Card Poker tables, one Big 6 table, one Let-it-Ride table, one No-Bust Blackjack table, one Bonus Texas Holdem table, three Pai-Gow Poker tables, 835 slot and video machines, an approximate 1,100 square-foot race and sports book and a 5,000 square-foot Poker Lounge. Some of the casino’s gaming chips are themed to coincide with current concerts and the casino also offers patrons other attractions, such as cutting edge slot technology, proprietary slot graphics and distinctive slot signage.

Retail

The resort’s retail operations consist of the Retail Store, a 3,600 square-foot retail shop. Visitors may purchase clothing and other accessories, including merchandise displaying the popular “Hard Rock Hotel” and “HRH” logos, from the Retail Store and from a sundry store located in the resort. Our retail operations offer a convenient and inexpensive outlet to market and advertise the “Hard Rock Hotel” trademark and attract other Las Vegas visitors to the resort. Our in-house design team is responsible for maintaining the consistency of the resort’s image while creating new merchandise to expand and diversify the retail selection.

~~Body English~~Vanity

~~During~~On ~~May~~December ~~2004~~31, 2009, the Company opened a new 15,400 square-foot night club, Vanity, and closed Body English on January 1, 2010. ~~Body~~An ~~English~~eclectic jewel box, Vanity is anadorned ~~approximately~~with ~~8,500~~pearls and ~~square-foot~~hand ~~facility,~~cut crystals fused with anbronze ~~1,100~~and ~~person~~gold ~~capacity~~metallic surrounded by antique mirrors, ~~featuring~~rubbed ~~two~~brass and ~~rooms~~black onchrome. ~~two~~The ~~levels,~~heartbeat ~~including~~of the club is a cyclone chandelier of over 20 thousand lit ~~sunken~~crystals bringing the dance floor, ~~three~~to ~~bars~~life. ~~and~~The ~~lighting~~venue ~~and~~features ~~sound~~two ~~equipment~~marble ~~featuring~~bars, ~~popular~~a ~~and~~sunken ~~innovative~~dance ~~DJs~~floor, ~~from~~50 ~~all~~intimate ~~around~~VIP ~~the~~booths, ~~country~~an tooutdoor ~~provide~~terrace ~~the~~including ~~proper~~five ~~entertainment~~cabanas toand ~~attract~~a ~~our~~women’s ~~target~~lounge that ~~clientele~~will truly impress.

Wasted Space

~~During July 2008, the Company opened~~ Wasted Space. ~~Wasted Space~~ is an approximately 5,000 square-foot ~~facility~~rock n’ roll bar, with a 500 -person capacity, ~~featuring~~that features 17 tables/ and booths in ~~the~~a primary space and five more in ~~the~~a 24-hour lounge. We ~~The~~equipped ~~unique~~Wasted ~~sound~~Space with an advanced audio system that offers an enhanced entertainment sound package and ~~the~~enables ~~ability~~nightly ~~for~~ live ~~performers~~performances tofrom ~~rock~~musicians, ~~the~~DJs ~~house~~and ~~every~~other ~~night of the week~~artists. ~~Wasted Space represents the ultimate depiction of the decadent rock n` roll lifestyle.~~ We designed Wasted Space as an anti-club with an intimate, exclusive feel and a backstage atmosphere that melds high-end rock n` roll culture with fashion, art and design to create a unique nightlife experience.

Banquet ~~Facility~~and Meeting Facilities

Our 680,000 square-foot conference center and entertainment ~~area~~areas ~~has~~have capacity ~~for~~to ~~390~~accommodate groups of up to 8,000 persons. The banquet facility is located adjacent to ~~the~~The ~~Beach~~Joint ~~Club area~~ and can accommodate one large event/group ~~and~~or has the capability of being separated into ~~three~~smaller ~~distinct 2,000 square-foot~~ convention spaces.

The Joint

As a live music venue with a capacity ~~for~~of 24,~~050 persons~~100, The Joint ~~successfully~~ draws audiences from Las Vegas visitors and ~~from the~~ local ~~Las Vegas population~~residents. In ~~2008~~2009, ~~the~~we ~~Joint hosted~~closed ~~more~~the ~~major~~original ~~concerts than any venue in Las Vegas including acts by legends such as Bob Dylan~~2, ~~Billy~~000-person ~~Idol~~capacity ~~and~~Joint ~~Duran Duran~~ and opened ~~more~~a ~~recent~~brand ~~acts~~new ~~such~~$60.0 million asJoint ~~the~~with ~~Raconteurs~~over ~~and~~double the ~~Foo Fighters~~capacity. ~~We believe~~In ~~that the~~ addition ofto ~~the all-new 4~~increased capacity,~~000~~ ~~capacity~~the ~~Joint in 2009 will make a statement both locally and nationally. The~~ new Joint isincludes ~~expected~~enhanced ~~to have~~ production capabilities ~~akin~~and to a ~~major arena and seven VIP suites with~~ high-end ~~features~~VIP ~~while maintaining the look, feel and grit of the original Joint~~level. ~~The Joint’s concerts, mixed-martial arts events, televised boxing, and the resort’s~~ special events generate significant worldwide publicity and reinforce the resort’s marquee image and unique position in the Las Vegas marketplace and provide an added source of visitors for the hotel, casino, retail and food and beverage operations.

The Beach Club

The Beach Club features a 300-foot long, sand bottomed pool with a water slide, a water fall, a running stream and underwater rock music. The Beach Club also features beaches with white sand imported from Monterey, California, rock outcroppings and whirlpools. In addition, the Beach Club features swim-up blackjack, a Beach Club bar and grill, 42 Tahitian-style private cabanas, and a removable dance floor that extends from one of the beach areas, providing the perfect party space amid thousands of tons of imported sand. The private cabanas include water misters, a refrigerator, a safe, a television and (for an additional fee) an on-site massage service.

Food and Beverage

The resort offers its patrons a selection of high-quality food and beverages at multiple price points. The resort’s food and beverage operations include ~~five~~six restaurants (Ago, ~~AJ’s~~Rare ~~Steakhouse~~120, ~~Pink~~ Pink Taco, Mr. Lucky’s, Espumoso Caffé and Nobu Las Vegas), ~~three~~eight bars in(Luxe ~~the~~Bar, ~~casino~~Lobby (Lounge, Midway Bar, Sports Deluxe, Helle’s Belles Bar, Wasted Space, Poker Lounge Bar and Center Bar), ~~three~~four bars in The Joint, a bar at the Beach Club and catering service for corporate events, conventions, banquets and parties. ~~AJ’s~~Rare ~~Steakhouse~~120, with seating capacity for approximately ~~100~~180 persons, is ~~reminiscent~~a contemporary ofsteakhouse ~~classic~~accented ~~steakhouses~~with ~~that~~exotic ~~reigned~~wood infinishes ~~1960’s~~and ~~Las~~brushed ~~Vegas, with~~stainless ~~an open kitchen~~steel, and serves organic ~~prime~~and ~~Chicago~~farm-raised ~~stockyard~~meats ~~beef~~along with high-quality seasonal ingredients. Pink Taco, with seating capacity of approximately ~~150~~260 persons, is a stylish, authentic Mexican eatery with seasonal outside dining. Mr. Lucky’s, a 24-hour restaurant with seating capacity for approximately 200 persons, ~~specializes~~ specializes in high-quality, moderately priced American cuisine. Nobu Las Vegas, with seating capacity of approximately ~~120~~ 300 persons, is aan ~~ground~~upscale ~~breaking~~Japanese ~~temple~~restaurant ofcreated by renowned chef Nobu Matsuhisa and serves traditional Japanese cuisine infused with ~~Latin~~South American ~~influences~~and ~~created~~Western byflavors. ~~Master Chef~~ Nobu ~~Matsuhisa~~Las ~~and~~Vegas is owned and operated independently of the resort. InAgo, ~~early~~with ~~January~~at seating ~~2008,~~capacity weof ~~opened~~approximately ~~Ago~~200 persons, is an elegant Northern Italian trattoria that features authentic Tuscany style Italian food. In December 2009, ~~which~~we ~~also~~opened ~~has~~Espumoso Caffé, a Latin-infused coffee house, with a seating capacity ~~for~~ of approximately ~~180~~35, ~~persons. AJ’s~~that ~~Steakhouse~~offers ~~was~~a ~~closed~~diverse inarray ~~January 2009~~of toorganic coffees, ~~undergo~~loose ~~renovations~~leaf teas, ~~prior~~house tomade ~~opening~~Panini’s, inempanadas, ~~April 2009~~Italian gelato, freshly-blended smoothies asand ~~Rare~~European ~~120~~pastries.

We believe Wasted Space, Poker Lounge Bar and the approximately 2,000 square-foot Center Bar have become popular with both Las Vegas tourists and local residents who are attracted to the resort’s entertainment and vibrant, energetic atmosphere. As a result, these bars frequently reach their service capacity on weekends, holidays and when special events and concerts are held in The Joint or at the Beach Club. In addition, The Joint and the Beach Club offer their customers a selection of menu items and beverages.

The Hard Rock Cafe

The resort also features a world famous Hard Rock Cafe, known as the Hard Rock Cafe, Las Vegas. ~~Although~~The Hard Rock Cafe Las Vegas is not operated by the resort, webut ~~believe~~does ~~the~~provide ~~Hard Rock Cafe Las Vegas adds~~ another onsite ~~mid-priced~~dining ~~restaurant~~option ~~venue~~ to appeal to our clientele.

Reliquary

Our new spa, salon and fitness center, which opened in late December 2009, features a 1,500 square-foot Roman bath, 21 treatment rooms, including couples facilities and hydro therapy rooms, a fitness room with CYBEX machines and a Spa Bar. We anticipate that Reliquary will stand out in the marketplace as a destination spa and attract additional visitors to the resort.

The Rock Spa

Our health club ~~and~~facility ~~spa~~features ~~facilities feature~~ amenities such as treadmills, stair-masters, ~~stationary~~ stationary bicycles, CYBEX machines, and a variety of free weights~~, steam rooms, showers, massage, facial and other personal services~~. We believe the Rock Spa is a health club facility suitable for a first class destination resort.

Banquets and Corporate Events

The resort hosts a number of corporate events, conventions, banquets and private parties for up to 3,000 persons. Past clients include AMX, Avid Technologies, Directed Electronics, Anderson Real Estate, Anheuser-Busch, Neilson Business Media, MTV, VH1, Transworld Media, Affliction, Hewlett Packard, AT&T, Blackberry, Wells Fargo, Beam Global Spirits, QUALCOMM, Red Bull, Sports Illustrated, Monster Energy and Sprint PCS. Depending upon the size of the event, customers can choose to host their corporate functions, conventions and banquets either indoors, at The Joint or in the banquet facility, or outdoors, around the swimming pool at the Beach Club.

EXPANSION AND RENOVATION PROJECT

In March 2007, we announced a large-scale expansion project at the Hard Rock. The expansion is expected to include the addition of approximately 875 guest rooms, including an all-suite tower with upgraded amenities, approximately 60,000 square feet of meeting and convention space, and approximately 30,000 square feet of casino space. The project also includes an expansion of the hotel’s pool, several new food and beverage outlets, a new and larger “The Joint” live entertainment venue, a new spa and exercise facility and additional retail space.

We are currently transforming the property into what we believe will be a world class destination resort offering a luxurious Las Vegas experience. During this transformation, we are focused on retaining the heart and soul that has made the Hard Rock the icon that it is today. This project has already completed significant milestones with the recent openings of the Italian restaurant Ago, the authentic rock lounge Wasted Space, and the highly regarded Poker Lounge. We expect that two new ballrooms will open in the spring of 2009 with the new Joint following close behind. We expect that the first new tower of guestrooms will be ready for occupancy by late summer of 2009 with the remaining all-suite tower opening at the end of 2009. The new Joint is expected to double the size of the existing concert venue with a seating capacity of approximately 3,100 and general admission of approximately 4,000. The new venue will retain the same look and feel as the original and will be outfitted with a state-of-the-art house audio system, luxurious dressing rooms, expanded lighting capabilities, and three levels of seating. In addition, the new Joint is expected to have easy load-in with stage and fly space capable of handling full-scale concert productions.

Renovations to the existing property began during 2007 and included upgrades to existing suites, restaurants and bars, retail shops, and common areas, and a new ultra lounge and poker room. These renovations were completed in 2008. Upon completion, the Hard Rock is expected to have approximately 1,500 fully modern, state-of-the-art rooms and all of the services and amenities of the larger casino hotels, while preserving an intimate and exclusive environment with unique advantages such as its world-class pool and comfortable boutique feel. We are currently on time to complete the expansion as scheduled and within the parameters of the original budget. We expect the expansion to be complete by late 2009.

MARKETING

Our marketing efforts are targeted at both the visitor market (tourists and business travelers) as well as local patrons. Our marketing department uses both traditional and innovative marketing strategies to promote the “Hard Rock Hotel” and “Hard Rock Casino” trademarks. We employ targeted marketing programs through the use of our proprietary database~~, which contains in excess of 400,000 names and addresses and in excess of 300,000 email addresses~~. This proprietary database was acquired by the Company when it acquired HRHI in February 2007. The resort is aggressively marketed not only through domestic and international public relations activities, direct mail, internet blasts, print, radio and television advertising, but also through special arrangements with various members of the entertainment industry. The Hard Rock also hosts many well-publicized and often televised events such as the World Extreme Cage Fighting, Top Rank Boxing and various awards shows. We believe these types of events are held at the resort because its stylish and distinctive atmosphere is consistent with the theme of the events. The events, in turn, reinforce the resort’s image as a destination resort among its target clientele. The concerts in The Joint by popular artists, some of which have been televised, are another form of promotional activity that reinforces the resort’s image.

The most established property event is the Sunday pool party known as Rehab. Entering its ~~sixth~~seventh season this spring, Rehab has become aninternationally ~~international~~known ~~phenomenon~~ with ~~record breaking attendance and revenue numbers,~~ its own line of branded merchandise, ~~reality~~and ~~show~~a ~~and~~reality ~~beverage~~show. The reality show, ~~REHAB~~Rehab: ~~PARTY~~Party ATat ~~THE~~the ~~HARD~~Hard ~~ROCK~~Rock ~~HOTEL~~Hotel, which debuted ~~last~~in November 2008, achieved top ratings with an average 1.5 million viewership on TruTV. ~~The beverage, Rehab Recovery Supplement,~~ ~~is produced under a license agreement with Fuze Beverage, LLC, a subsidiary of the Coca-Cola Co.~~

The casino marketing staff has developed the Rockstar Player’s Club program for visitors to the casino. The Rockstar Player’s Club player loyalty program utilizes a casino player tracking card. The program, which is available to all casino visitors, tracks each patron’s gaming record, and based upon the level of gaming activity, members may become eligible for discounted or complimentary services, invitations to special events and merchandise at the resort.

Management targets local residents through direct mail advertising as well as through hosting special events and parties specifically geared to the local population. In addition, management believes the off-Las Vegas Strip location and close proximity to a variety of restaurants and nightclubs attracts local residents to the resort.

TRADEMARKS

“Hard Rock Hotel” and “Hard Rock Casino” are registered trademarks owned by Hard Rock Cafe International (USA), Inc., which is controlled by the Seminole Tribe of Florida. We have obtained the exclusive, royalty-free and perpetual right to use and exploit these trademarks in connection with hotel/casino operations or casino operations in the State of Illinois and all states and possessions of the United States that are located west of the Mississippi River, including the entire state of Louisiana, but excluding Texas, except for the Greater Houston Area. The right also extends to the nations of Australia, Brazil, Israel and Venezuela, and the Greater Vancouver Area, British Columbia, Canada. In addition, we have obtained the right to sell licensed merchandise bearing the geographic location where it is sold in stores located in or contiguous to a Hard Rock Hotel/Casino or a Hard Rock Casino and licensed merchandise bearing the Interest address through the Internet.

~~On November 11, 2008, we executed a license agreement with Cherokee Nation Enterprises, LLC~~7 (“CNE”), an entity indirectly wholly owned by the Cherokee Nation. Pursuant to the license agreement, we have agreed to license certain intellectual property, including the “Hard Rock Hotel” and “Hard Rock Casino” trademarks, to CNE in connection with a Hard Rock hotel and a Hard Rock casino that CNE intends to open in Catoosa, Oklahoma. Under the terms of the license agreement, CNE has agreed to pay us a certain percentage of its annual gross revenues based on the performance of its Hard Rock as well as certain other license fees.

TheTable effectiveness of the license agreement is conditioned upon receipt of confirmation from the National Indian Gaming Commission (the “NIGC”) that the license agreement does not require its approval. On February 9, 2009, we and CNE signed an amendment to the license agreement in response to requests from the NIGC for clarification of certain provisions of the license agreement. The license agreement, as amended, is currently being reviewed by the NIGC. We anticipate that this review and confirmation process could continue through at least March 2009, and there can be no assurance that such confirmation from the NIGC will be received on a timely basis, if at all. Contents

On November 11, 2008, we executed a license agreement with Cherokee Nation Enterprises, LLC (“CNE”), an entity indirectly wholly owned by the Cherokee Nation. Pursuant to the license agreement, we have agreed to license certain intellectual property, including the “Hard Rock Hotel” and “Hard Rock Casino” trademarks, to CNE in connection with a Hard Rock hotel and a Hard Rock casino that CNE intends to open in Catoosa, Oklahoma. Under the terms of the license agreement, CNE has agreed to pay us a certain percentage of its annual gross revenues based on the performance of its Hard Rock as well as certain other license fees. On February 17, 2009, we received notice from the National Indian Gaming Commission (the “NIGC”) that the CNE license agreement (i) is not a management agreement requiring the NIGC Chairman’s approval under the Indian Gaming Regulatory Act, and (ii) does not provide us or any other party with an impermissible proprietary interest in Indian gaming. The CNE license agreement became effective upon receipt of this NIGC notice.

On October 13, 2009, we executed a license agreement with the Pueblo of Isleta (“Isleta”). Pursuant to the Isleta license agreement, we have agreed to license certain intellectual property, including the “Hard Rock Hotel” and “Hard Rock Casino” trademarks, to Isleta in connection with a Hard Rock hotel and a Hard Rock casino that Isleta intends to open in Albuquerque, New Mexico. Under the terms of the Isleta license agreement, Isleta has agreed to pay us a certain percentage of its annual gross revenues based on the performance of its Hard Rock as well as certain other license fees. Similar to the CNE license agreement, the effectiveness of the Isleta license agreement was conditioned upon receipt of confirmation from the NIGC that the Isleta license agreement does not require its approval. On December 9, 2009, we received notice from the NIGC that the Isleta license agreement does not constitute a management contract and does not need to be approved by the NIGC Chairman. The Isleta license agreement became effective upon receipt of this NIGC notice.

LAS VEGAS MARKET

During ~~2008~~2009, according to the Las Vegas Convention and Visitors Authority (the “LVCVA”), gaming revenues in Clark County decreased 9.98% to approximately $98.8 billion from $~~10.~~9.8 billion in ~~2007~~2008; however the market has still shown a positive growth rate over the last 20 years. In addition, according to the LVCVA:

• the number of visitors traveling to Las Vegas was approximately 3736.54 million in ~~2008~~2009, representing a compound annual growth rate of approximately 3.76% since 1989’s 18.1 million visitors;

• the aggregate expenditures by Las Vegas visitors was $4142.68 billion in ~~2007~~2008 and $10.0 billion in 1988, representing a compound annual growth rate of 7.05%; and

• the number of hotel and motel rooms in Las Vegas was 67,391 in 1989 and ~~140~~148,~~529~~941 in ~~2008~~2009, representing a compound annual growth rate of approximately 34.70%.

10The Las Vegas market has been adversely affected by weakness in the United States economy. This economic trend negatively impacted our operating results for the year ended December 31, 2009, as we experienced lower visitation at our property and strategically lowered room prices to maximize occupancy levels. We expect the trend to continue for some portion, if not all, of 2010 and that it could adversely affect our revenue in future periods.

The ~~Las~~following ~~Vegas~~table ~~market~~sets ~~has~~forth ~~been~~certain ~~adversely~~statistical ~~affected~~information byfor ~~weakness in~~ the ~~United~~Las ~~States~~Vegas ~~economy. This~~market ~~economic trend negatively impacted our operating results~~ for the ~~year~~years ~~ended~~2005 ~~December 31,~~through ~~2008~~2009, as wereported ~~experienced~~by ~~lower visitation at our property and strategically lowered room prices to maximize occupancy levels. We expect~~ the ~~trend to continue for some portion, if not all, of 2009 and that it could adversely affect our revenue in future periods~~LVCVA.

The following table sets forth certain statistical information for the Las Vegas market for the years 2004 through 2008, as reported by the LVCVA.

LAS VEGAS MARKET STATISTICS

2008

2007

2006

2005

2004

2009

2008

2007

2006

2005

Visitor Volume (in thousands)

3736,~~482~~351

3937,~~197~~482

3839,~~915~~197

38,~~566~~915

3738,~~389~~566

Clark County Gaming Revenues (in millions)

98,~~797~~834

109,~~868~~797

10,~~643~~868

910,~~709~~643

89,~~711~~709

Hotel/Motel Rooms

~~140~~148,~~529~~941

~~132~~140,~~947~~529

132,~~605~~947

~~133~~132,~~186~~605

~~131~~133,~~503~~186

Airport Passenger Traffic (in thousands)

4440,~~075~~469

4744,~~728~~075

4647,~~193~~728

4446,~~267~~193

4144,~~442~~267

Convention Attendance (in thousands)

54,~~900~~492

65,~~209~~900

6,~~308~~209

6,~~166~~308

56,~~725~~166

COMPETITION

The hotel and casino industry in general, and the markets in which we compete in particular, are highly competitive. The Hard Rock, located less than one mile east of the Las Vegas Strip, competes with other high-quality Las Vegas resorts and other Las Vegas hotel casinos, including those located on the Las Vegas Strip, on the basis of overall atmosphere, range of amenities, price, location, entertainment offered, theme and size. Many of these Las Vegas resorts seek to attract customers to their properties by not only offering casino gaming, but also by providing hotel accommodations, food and beverage outlets, retail stores and other related amenities. To the extent that the Hard Rock seeks to enhance its revenue base by offering its own various resort amenities, it competes with the service offerings provided by these Las Vegas resorts. Some of these hotel casinos are operated by companies that have more than one operating facility and may have greater name recognition and financial and marketing resources than we do and market to the same target demographic group. Furthermore, additional hotel casinos, containing a significant number of hotel rooms, have recently opened or are expected to open in Las Vegas within the coming years. There can be no assurance the Las Vegas market will show future growth or hotel casinos will continue to be popular,. ~~and~~In the event we lose market share due to competition or there is a continued decline or sustained leveling off of the growth or popularity of ~~such~~gaming facilities generally, this would adversely affect our financial condition and results of operations.

We face additional competition from competing “Hard Rock” hotels and hotel casinos that may be established in jurisdictions other than Las Vegas. ~~Although~~We we have obtained the exclusive, royalty-free and perpetual right to use and exploit the “Hard Rock Hotel” and the “Hard Rock Casino” trademarks in connection with hotel/casino operations or casino operations in the State of Illinois and all states and possessions of the United States that are located west of the Mississippi River, including the entire state of Louisiana, but excluding Texas, except for the Greater Houston Area,. The right also extends to the nations of Australia, Brazil, Israel and Venezuela, and the Greater Vancouver Area, British Columbia, Canada. Although we have obtained this right, Hard Rock Cafe International (USA), Inc., which is controlled by the Seminole Tribe of Florida, is the sole owner of the rights to the “Hard Rock Cafe,” the “Hard Rock Hotel” and the “Hard Rock Casino” trademarks. As a result, Hard Rock Cafe International (USA), Inc., or its licensee, can use and exploit the “Hard Rock” name and logo, other than in connection with hotel/casino operations or casino operations in our exclusive territory, including marketing “Hard Rock” merchandise anywhere in the world. For example, Hard Rock Cafe International (USA), Inc. has licensed the use of the “Hard Rock” name in connection with its Seminole Hard Rock Hotels in Hollywood and Tampa, Florida. There can be no assurance that our business and results of operations will not be adversely affected by the management or the enforcement of the “Hard Rock” brand name by parties outside of our control.

~~The~~Our resort competes with hotel casinos in the Mesquite, Laughlin, Reno and Lake Tahoe areas of Nevada, and in a growing number of other jurisdictions in which gaming is now permitted. The resort also competes with state-sponsored lotteries, on- and off-track wagering, card parlors, riverboat and Native American gaming ventures, and other forms of legalized gaming in the United States, as well as with gaming on cruise ships, Internet gaming ventures and international gaming operations. In 1998, California enacted The Tribal Government Gaming and Economic Self-Sufficiency Act (the “Tribal Act”). The Tribal Act provides a mechanism for federally recognized Native American tribes to conduct certain types of gaming on their land. The California electorate approved Proposition 1A on March 7, 2000. Proposition 1A gives all California Indian tribes the right to operate a limited number of certain kinds of gaming machines and other forms of casino wagering on California Indian reservations. In February 2008, additional propositions were approved in California permitting certain Indian tribes to increase the number of slot machines on their properties. Continued proliferation of gaming activities permitted by Proposition 1A may materially negatively affect Nevada gaming markets and our financial position and results of operations. Management currently is unable, however, to assess the magnitude of the specific impact on us. See “Risk Factors—Risks Related to Our Business—We face intense local competition which could impact our operations and adversely affect our business and results of operations.”

119

EMPLOYEES

As of December 31, ~~2008~~2009, we had 1,~~176~~362 full-time employees and ~~488~~1,011 on-call employees who are employed on an as-needed basis. None of our employees are members of unions; however, ~~various~~on November ~~unions~~6, 2009 the National Labor Relations Board conducted an election to determine whether approximately 35 valet employees wished to be represented by the Teamsters Union. The outcome of the election is not yet determined as there are legal challenges that have been ~~aggressively~~filed ~~soliciting~~by ~~new~~both ~~members~~the inCompany ~~Las~~and ~~Vegas~~the union. We have been approached by other unions on various occasions and cannot assure that one or more unions will not approach our employees. We consider our relations with our employees to be good and have never experienced an organized work stoppage, strike or labor dispute.

NEVADA GAMING REGULATION AND LICENSING

Introduction

The gaming industry is highly regulated. Gaming registrations, licenses and approvals, once obtained, can be suspended or revoked for a variety of reasons. We cannot assure you that our registrations, findings of suitability, licenses and approvals will not be suspended, conditioned, limited or revoked. The ownership and operation of casino gaming facilities in the State of Nevada are subject to the Nevada Gaming Control Act and the regulations made under such Act, as well as to various local ordinances. The Hard Rock is subject to the licensing and regulatory control of the Nevada Gaming Commission, the Nevada State Gaming Control Board and the Clark County Liquor and Gaming Licensing Board (together with the Nevada Gaming Commission and the Nevada State Gaming Control Board, collectively, the “Nevada Gaming Authorities”).

Owner and Operator Licensing Requirements

On January 24, 2008, our indirect subsidiary, HRHH Gaming, LLC, received a license from the Nevada Gaming Commission to serve as the operator of the gaming facilities at the Hard Rock, subject to our Registration Statement on Form 10 becoming effective. The SEC declared the Registration Statement effective on February 14, 2008, and we assumed operation of the gaming facilities on March 1, 2008. HRHH Gaming, LLC is licensed to operate the gaming facilities at the Hard Rock as a nonrestricted licensee, which we refer to herein as a company licensee. As a company licensee, HRHH Gaming, LLC must pay periodic fees and taxes. The gaming licenses are not transferable.

Company Registration Requirements

We have been registered with the Nevada Gaming Commission as a “publicly traded corporation,” which we refer to herein as a registered company, for the purposes of the Nevada Gaming Control Act. The Company and its subsidiaries in the line of ownership of HRHH Gaming, LLC have been found to be suitable by the Nevada Gaming Commission to own the equity interests of their respective subsidiaries and have been registered with the Nevada Gaming Commission as intermediary companies.

We are required to submit detailed financial and operating reports to the Nevada Gaming Commission and provide any other information that the Nevada Gaming Commission may require. Substantially all of our material loans, leases, sales of securities and similar financing transactions must be reported to, or approved by, the Nevada Gaming Commission.

Individual Licensing Requirements

No person may become a stockholder of, or receive any percentage of the profits of, a registered intermediary company or company licensee without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Nevada Gaming Authorities may investigate any individual who has a material relationship to or material involvement with us to determine whether the individual is suitable or should be licensed as a business associate of a gaming licensee. We and our officers, directors and certain key employees have filed applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. An applicant for licensing or an applicant for a finding of suitability must pay or must cause to be paid all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a finding of suitability or licensing, the Nevada Gaming Authorities have the jurisdiction to disapprove a change in a corporate position.

If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. In addition, the Nevada Gaming Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Nevada.

Consequences of Violating Gaming Laws

If the Nevada Gaming Commission decides that we have violated the Nevada Gaming Control Act or any of its regulations, it could limit, condition, suspend or revoke our applications, or registrations and gaming license. In addition, we and the persons involved could be subject to substantial fines for each separate violation of the Nevada Gaming Control Act, or of the regulations of the Nevada Gaming Commission, at the discretion of the Nevada Gaming Commission. Further, the Nevada Gaming Commission could appoint a supervisor to operate the gaming-related activities at the Hard Rock and, under specified circumstances, earnings generated during the supervisor’s appointment (except for the reasonable rental value of the premises) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming licenses obtained and the appointment of a supervisor could, and revocation of any such gaming license would, have a significant negative effect on our gaming operations.

Requirements for Security Holders

Regardless of the number of shares or other interests held, any beneficial holder of the voting or non-voting securities of a registered company may be required to file an application, be investigated and have that person’s suitability as a beneficial holder of voting or non-voting securities determined if the Nevada Gaming Commission has reason to believe that the ownership would otherwise be inconsistent with the declared policies of the State of Nevada. If the beneficial holder of such securities who must be found suitable is a corporation, partnership, limited partnership, limited liability company or trust, it must submit detailed business and financial information including a list of its beneficial owners. The applicant must pay all costs of the investigation incurred by the Nevada Gaming Authorities in conducting any investigation.

13The Nevada Gaming Control Act requires any person who acquires more than 5% of the voting securities of a registered company to report the acquisition to the Nevada Gaming Commission. The Nevada Gaming Control Act requires beneficial owners of more than 10% of a registered company’s voting securities to apply to the Nevada Gaming Commission for a finding of suitability within 30 days after the Chairman of the Nevada State Gaming Control Board mails the written notice requiring such filing. However, an “institutional investor,” as defined in the Nevada Gaming Control Act, which beneficially owns more than 10% but not more than 11% of a registered company’s voting securities as a result of a stock repurchase by the registered company may not be required to file such an application. Further, an institutional investor which acquires more than 10%, but not more than 25%, of the registered company’s voting securities may apply to the Nevada Gaming Commission for a waiver of a finding of suitability if the institutional investor holds the voting securities for investment purposes only. An institutional investor that has obtained a waiver may own more than 25% but not more than 29% of the voting securities of a registered company and maintain the waiver where the additional ownership results from a stock repurchase by the registered company. An institutional investor will not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the registered company, a change in the corporate charter, bylaws, management, policies or operations of the registered company, or any of its gaming affiliates, or any other action which the Nevada Gaming Commission finds to be inconsistent with holding the registered company’s voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include:

The Nevada Gaming Control Act requires any person who acquires more than 5% of the voting securities of a registered company to report the acquisition to the Nevada Gaming Commission. The Nevada Gaming Control Act requires beneficial owners of more than 10% of a registered company’s voting securities to apply to the Nevada Gaming Commission for a finding of suitability within 30 days after the Chairman of the Nevada State Gaming Control Board mails the written notice requiring such filing. Under certain circumstances, an “institutional investor,” as defined in the Nevada Gaming Control Act, which acquires more than 10%, but not more than 15%, of the registered company’s voting securities may apply to the Nevada Gaming Commission for a waiver of a finding of suitability if the institutional investor holds the voting securities for investment purposes only. An institutional investor that has obtained a waiver may, in certain circumstances, own up to 19% of the voting securities of a registered company for a limited period of time and maintain the waiver. An institutional investor will not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the registered company, a change in the corporate charter, bylaws, management, policies or operations of the registered company, or any of its gaming affiliates, or any other action which the Nevada Gaming Commission finds to be inconsistent with holding the registered company’s voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include:

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voting on all matters voted on by stockholders or interest holders;

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making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and

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other activities that the Nevada Gaming Commission may determine to be consistent with such investment intent.

Consequences of Being Found Unsuitable

Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Gaming Commission or by the Chairman of the Nevada State Gaming Control Board, or who refuses or fails to pay the investigative costs incurred by the Nevada Gaming Authorities in connection with the investigation of its application, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of any security of a registered company beyond the period of time as may be prescribed by the Nevada Gaming Commission may be guilty of a criminal offense. We will be subject to disciplinary action if, after we receive notice that a person is unsuitable to hold an equity interest or to have any other relationship with, we:

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pay that person any dividend or interest upon any voting securities;

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allow that person to exercise, directly or indirectly, any voting right held by that person relating to our Company;

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pay remuneration in any form to that person for services rendered or otherwise; or

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fail to pursue all lawful efforts to require the unsuitable person to relinquish such person’s voting securities including, if necessary, the immediate purchase of the voting securities for cash at fair market value.

Approval of Public Offerings

A registered company may not make a public offering of its securities without the prior approval of the Nevada Gaming Commission if it intends to use the proceeds from the offering to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for those purposes or for similar transactions. Any approval that we might receive in the future relating to future offerings will not constitute a finding, recommendation or approval by any of the Nevada State Gaming Control Board or the Nevada Gaming Commission as to the accuracy or adequacy of the offering memorandum or the investment merits of the securities. Any representation to the contrary is unlawful.

The regulations of the Nevada Gaming Commission also provide that any entity which is not an “affiliated company,” as that term is defined in the Nevada Gaming Control Act, or which is not otherwise subject to the provisions of the Nevada Gaming Control Act or regulations, such as our Company, that plans to make a public offering of securities intending to use such securities, or the proceeds from the sale thereof, for the construction or operation of gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes, may apply to the Nevada Gaming Commission for prior approval of such offering. The Nevada Gaming Commission may find an applicant unsuitable based solely on the fact that it did not submit such an application, unless upon a written request for a ruling, referred to as a Ruling Request, the Chairman of the Nevada State Gaming Control Board has ruled that it is not necessary to submit an application.

Approval of Changes in Control

We must obtain prior approval of the Nevada Gaming Commission with respect to a change in control through:

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merger;

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consolidation;

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stock or asset acquisitions;

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management or consulting agreements; or

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any act or conduct by a person by which the person obtains control of us.

Entities seeking to acquire control of a registered company must satisfy the Nevada State Gaming Control Board and Nevada Gaming Commission with respect to a variety of stringent standards before assuming control of the registered company. The Nevada Gaming Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control to be investigated and licensed as part of the approval process relating to the transaction.

Approval of Defensive Tactics

The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licenses or affecting registered companies that are affiliated with the operations permitted by Nevada gaming licenses may be harmful to stable and productive corporate gaming. The Nevada Gaming Commission has established a regulatory scheme to reduce the potentially adverse effects of these business practices upon Nevada’s gaming industry and to further Nevada’s policy to:

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assure the financial stability of corporate gaming operators and their affiliates;

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preserve the beneficial aspects of conducting business in the corporate form; and

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promote a neutral environment for the orderly governance of corporate affairs.

Approvals may be required from the Nevada Gaming Commission before we can make exceptional repurchases of voting securities above their current market price and before a corporate acquisition opposed by management can be consummated. The Nevada Gaming Control Act also requires prior approval of a plan of recapitalization proposed by a registered company’s board of directors in response to a tender offer made directly to its stockholders for the purpose of acquiring control.

Fees and Taxes

License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the licensed subsidiaries’ respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable monthly, quarterly or annually and are based upon:

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a percentage of the gross revenue received;

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the number of gaming devices operated; or

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the number of table games operated.

A live entertainment tax is also paid by gaming operations where entertainment is furnished in connection with admission fees, the selling or serving of food or refreshments or the selling of merchandise.

Foreign Gaming Investigations

Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with those persons (collectively, “ licensees ”), and who proposes to ~~become~~ become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada State Gaming Control Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada State Gaming Control Board of the licensee’s or registrant’s participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Gaming Commission. Licensees and registrants are required to comply with the reporting requirements imposed by the Nevada Gaming Control Act. A licensee or registrant is also subject to disciplinary action by the Nevada Gaming Commission if it:

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knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation;

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fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations;

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engages in any activity or enters into any association that is unsuitable because it poses an unreasonable threat to the control of gaming in Nevada, reflects or tends to reflect, discredit or disrepute upon the State of Nevada or gaming in Nevada, or is contrary to the gaming policies of Nevada;

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engages in activities or enters into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees; or

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employs, contracts with or associates with a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of unsuitability.

License for Conduct of Gaming and Sale of Alcoholic Beverages

The conduct of gaming activities and the service and sale of alcoholic beverages at the Hard Rock are subject to licensing, control and regulation by the Clark County Liquor and Gaming Licensing Board. In addition to approving the licensee, the Clark County Liquor and Gaming Licensing Board has the authority to approve all persons owning or controlling the stock of any business entity controlling a gaming or liquor license. All licenses are revocable and are not transferable. The Clark County Liquor and Gaming Licensing Board has full power to limit, condition, suspend or revoke any license. Any disciplinary action could, and revocation of a license would, have a substantial negative impact upon the operations of the Hard Rock.

AGREEMENTS GOVERNING THE OPERATION OF THE HARD ROCK

Joint Venture Agreement

The DLJMB Parties, the Morgans Parties and our Class C Members have entered into a Second Amended and Restated Limited Liability Company Agreement (as amended, the “JV Agreement ”), dated May 30, 2008, that governs their relationship with each other as our members.

Classes of Membership Interests. We have three classes of membership interests: Class A Membership Interests, Class B Membership Interests and Class C Membership Interests. Holders of Class A Membership Interests are entitled to vote on any matter to be voted upon by our members. Except as provided by law, the holders of Class B Membership Interests and Class C Membership Interests do not have any right to vote. For the year ended December 31, ~~2008 and for the period February 2~~2009, ~~2007 through December 31, 2007,~~ the DLJMB Parties and the Morgans Parties contributed approximately $~~244~~179.86 million and $6114.71 million in cash to the Company, respectively. After taking these and all prior cash fundings into consideration, as of December 31, ~~2008~~2009, the DLJMB Parties and the Morgans Parties had funded 7984.9% and 2015.1%, respectively, of the amount of cash contributed to the Company. ~~In addition, for the year ended December 31, 2008 and for the period February 2, 2007 through December 31,~~ ~~2007, the DLJMB Parties and the Morgans Parties funded approximately $119.3 million and $11.1 million in letters of credit, respectively.~~

Including ~~both~~contributions in the form of either cash ~~and~~or letters of credit, as of ~~November~~March 41, ~~2008~~2010, DLJMB HRH VoteCo, LLC (a DLJMB Party) (“DLJMB VoteCo”) and Morgans held 8586.8436% and 1413.1664% of our Class A Membership Interests, respectively, and DLJ MB IV HRH, LLC (“DLJMB IV HRH”), DLJ Merchant Banking Partners IV, L.P. (“DLJMB Partners”) , and Morgans Group LLC (“Morgans LLC”) held approximately 68.~~117~~53%, 17.~~725~~83% and 1413.1664% of our Class B Membership Interests, respectively. The foregoing percentages have been calculated in accordance with the JV Agreement, which assigns different weightings to the fundings made by the members in accordance with their agreed upon economic terms. Additional upward adjustments of the DLJMB Parties’ Class A Membership Interests and Class B Membership Interests as a result of disproportionate cash contributions and letters of credit posted (and corresponding downward adjustments to the Morgans’ Parties’ Class A Membership ~~Interests~~ Interests and Class B Membership Interests) since ~~November~~February 418, ~~2008~~2009, ~~remain~~which ~~subject~~are being treated as interest-free loans that will convert into new equity in the Company on terms to be agreed upon by the ~~receipt~~parties ofor ~~gaming~~by ~~approval~~a ~~and~~written appraisal or fairness opinion, are not reflected in the membership interests described above. WeAny adjustments to our members’ respective voting and non-voting percentage interests resulting therefrom would remain subject to the receipt of gaming approval. We may issue Class C Membership Interests from time to time pursuant to our 2008 Profits Interest Award Plan. In the aggregate, the Class C Membership Interests represent up to a 5% percentage interest in the Company (depending on the number of interests granted and the extent to which the DLJMB Parties and Morgans Parties make capital contributions to us over a certain threshold).

16Additional Capital Contributions. The JV Agreement provides that in certain cases DLJMB IV HRH may request that our members make necessary capital contributions contemplated by the operating plans and budgets approved by our board of directors, or in the event of an unexpected shortfall in capital. If we require additional capital with respect to matters approved by our board of directors, DLJMB IV HRH also has the right, without the approval of our board of directors, to determine appropriate sources of such capital in the form of debt or equity financing. Such financing must be funded either by third parties who are not specified competitors of Morgans or our existing members or their affiliates on fair market terms (as determined by our board of directors, or, in some cases by a written appraisal or fairness opinion).

Board of Directors. We are managed by our board of directors. Under the JV Agreement, DLJMB VoteCo currently is entitled to designate three directors and Morgans is entitled to designate two directors. The current members of the board that have been designated by DLJMB VoteCo are Edward A. Johnson, Neal Pomroy and Ryan Sprott and the two current members that have been designated by Morgans are Fred J. Kleisner and Richard Szymanski.

Additional Capital Contributions. Subject to the terms and conditions contained therein, under the JV Agreement, the DLJMB Parties have committed to make additional capital contributions to us in an aggregate amount of up to $254.0 million (referred to as the “New Capital”). The $254.0 million new commitment will be reduced by New Capital provided by the DLJMB Parties after February 8, 2008. Of the New Capital amount, up to $144.0 million will be allocated to the expansion project (including certain interest payment and cash requirements of the Company during the pre-construction and construction periods of the project). As of December 31, 2008, $5.8 million was remaining under this commitment. Up to $110.0 million of the New Capital amount will be made available (to the extent needed) to fund capital requirements relating to the approximately 15 acres of excess land located adjacent to the Hard Rock. On August 1, 2008, certain of our subsidiaries completed an intercompany land purchase and a related financing with respect to approximately 11 of the acres. The DLJMB Parties contributed approximately $75.1 million under the $110.0 million commitment to fund a portion of the $110.0 million purchase price for the intercompany land purchase and to pay for all costs and expenses in connection with its closing and related financing. Another $50.0 million was borrowed by one of our subsidiaries under a new land acquisition loan to fund the remaining portion of the purchase price. The remaining portion of the DLJMB Parties’ commitment relating to the excess land may be used (to the extent needed) to fund certain interest reserve and prepayment premium requirements under the land acquisition loan.

The JV Agreement also provides that in certain cases DLJMB IV HRH may request that our members make necessary capital contributions contemplated by the operating plans and budgets approved by our board of directors, or in the event of an unexpected shortfall in capital. If we require additional capital with respect to matters approved by our board of directors, DLJMB IV HRH also has the right, without the approval of our board of directors, to determine appropriate sources of such capital in the form of debt or equity financing. Such financing must be funded either by third parties who are not specified competitors of Morgans or our existing members or their affiliates on fair market terms (as determined by our board of directors, or, in some cases by a written appraisal or fairness opinion).

Board of Directors. We are managed by our board of directors. Under the JV Agreement, DLJMB VoteCo currently is entitled to designate three directors and Morgans is entitled to designate two directors. The current members of the board that have been designated by DLJMB VoteCo are Steven Rattner, Neal Pomroy and Ryan Sprott and the two current members that have been designated by Morgans are Fred J. Kleisner and Richard Szymanski.

Subject to certain provisions in the JV Agreement, at a meeting of our board of directors, no decision of our board will be effective unless at least one director appointed by each of DLJMB VoteCo and Morgans, respectively, votes in favor of the decision. The members of our board of directors also may act by written consent if at least two directors designated by each party execute the written consent. The authority of our board of directors is subject to DLJMB VoteCo’s right in its sole discretion to cause us to take certain actions relating to financing our operations.

The JV Agreement provides that certain decisions made on our behalf must be made by our board of directors, including, among other things, approval of our operating plan and budget, amendments to the development budget and plans for the expansion project for the Hard Rock, any decision to postpone or cancel the commencement of the expansion project and material construction work. ~~We are~~ ~~currently on time to complete the expansion as scheduled and within the parameters of the original budget.~~

In the event that we terminate the Management Agreement (as defined below) for cause (including as a result of a failure by the manager under the Management Agreement to meet the EBITDA performance requirements set forth in the Management Agreement), the Morgans Parties cease to be our members or a “change of control” (as defined in the JV Agreement) of either of the Morgans Parties occurs, then DLJMB VoteCo will be entitled to expand our board of directors by two additional directors and appoint the two new directors. Following the expansion of our board, certain actions relating to the scope of our business, amendments of the JV Agreement and certain other actions requiring board approval will require both Morgans LLC’s and DLJMB IV HRH’s consent.

DLJMB VoteCo also has the right at any time to expand our board of directors by adding two directors to the number of directors serving on our board at such time. In such an event, DLJMB VoteCo will be permitted to appoint one of the directors and Morgans will be permitted to appoint the other director.

Officers. Our officers currently are Mr. Kleisner (President) and Mr. Szymanski (Secretary, Treasurer and Vice President). The board may vest the officers with certain powers to act on our behalf (i.e., to execute documents and take certain other actions).

Property Management Agreement

Engagement of Morgans Management. Our subsidiaries, HRHH Hotel/Casino, LLC, HRHH Development, LLC and HRHH Cafe, LLC have entered into an Amended and Restated Property Management Agreement, dated as of May 30, 2008, (the “Management Agreement”) with Morgans Hotel Group Management LLC (“Morgans Management”), pursuant to which we have engaged Morgans Management as (i) the exclusive operator and manager of the Hard Rock (excluding the operation of the gaming facilities which are operated by our subsidiary, HRHH Gaming, LLC) and (ii) the asset manager of the approximately 23-acre parcel adjacent to the Hard Rock and the land on which the Hard Rock Cafe restaurant is ~~situated~~ situated (which is subject to a lease between our subsidiary, HRHH Cafe, LLC, as landlord, and ~~Hard~~ Hard Rock Cafe International (USA), Inc., as tenant).

Term; Termination Fee. The Management Agreement originally commenced on February 2, 2007 and ~~expires~~has ~~after~~an ~~a 20-year~~ initial term of 20-years. ~~This~~Morgans ~~term~~Management may beelect ~~extended~~to atextend ~~our~~this ~~election~~initial term for two ~~additional~~ ~~ten~~additional 10-year periods. The Management Agreement provides certain termination rights for us and ~~Morgans~~ Morgans Management. Morgans Management may be entitled to a termination fee if such a termination occurs in connection with a sale of the Company or the hotel at the Hard Rock.

Base Fee, Chain Service Expense Reimbursement and Annual Incentive Fee. As compensation for its services, Morgans Management receives a management fee equal to 4% of defined net non-gaming revenues including casino rents and all other rental income, a gaming facilities support fee equal to $828,000 per year and a chain service expense reimbursement, which reimbursement is subject to a cap of 1.5% of defined non-gaming revenues and all other income. Morgans Management is also entitled to receive an annual incentive fee of 10.0% of the “Hotel EBITDA” (as defined in the Management Agreement) in excess of certain threshold amounts, which increase for each subsequent calendar year. Following completion of the expansion and renovation of the Hard Rock, the amount of such annual incentive fee will be equal to 10% of annual “Hotel EBITDA” in excess of 90% of annual projected post-expansion “EBITDA” of the Hard Rock, the property on which the Hard Rock Cafe restaurant is situated and the property adjacent to the Hard Rock (excluding any portion of the adjacent property not being used for the expansion). For purposes of the Management Agreement, “EBITDA” generally is defined as earnings before interest, taxes, depreciation and amortization in accordance with generally accepted accounting principles applicable to the operation of hotels and the uniform system of accounts used in the lodging industry, but excluding income, gain, expenses or loss that is extraordinary, unusual, non-recurring or non-operating. “Hotel EBITDA” generally is defined as EBITDA of the Hard Rock, the property on which the Hard Rock Cafe restaurant is situated and the adjacent property (excluding any portion of the adjacent property not being used for the expansion), excluding an annual consulting fee payable to DLJMB VoteCo under the JV Agreement. Hotel EBITDA generally does not include any EBITDA attributable to any facilities operated by third parties at the Hard Rock, unless the Company owns or holds an interest in the earnings or profits of, or any equity interests in, such third party facility.

~~The Company accrued or paid a base management fee of $4.6 million and $5.7 million and a~~15 gaming facilities support fee of $0.7 million and $0.0 million to Morgans Management and accrued or reimbursed chain service expenses of $1.7 million and $2.1 million to Morgans Management for the year ended December 31, 2008 and the period February 2, 2007 to December 31, 2007, respectively. No gaming facilities support fee was owed in 2007 because the fee was implemented in an amendment to the Management Agreement entered into in May 2008 following the Company’s assumption of the operation of gaming facilities at the Hard Rock in March 2008.

~~Casino~~The ~~Sublease~~Company accrued or paid a base management fee of $4.5 million, $4.6 million and $5.7 million and a gaming facilities support fee of $0.8 million, $0.7 million and $0.0 million to Morgans Management and accrued or reimbursed chain service expenses of $1.7 million, 1.7 million and $2.1 million to Morgans Management for the years ended December 31, 2009, 2008 and 2007, respectively. No gaming facilities support fee was owed in 2007 because the fee was implemented in an amendment to the Management Agreement entered into in May 2008 following the Company’s assumption of the operation of gaming facilities at the Hard Rock in March 2008.

Prior to March 1, 2008, gaming operations at the Hard Rock were operated by the Casino Operator pursuant to the Casino Sublease. On January 24, 2008, our subsidiary received a license from the Nevada Gaming Commission to serve as the operator of the gaming facilities at the Hard Rock, and on March 1, 2008, our subsidiary assumed the gaming operations at the Hard Rock and the Casino Sublease was terminated.

During the initial term of the Casino Sublease, ending February 2, 2008, the Casino Operator withheld $275,000 per month from the revenue arising from gaming operations at the Hard Rock. This sum was paid to Golden Gaming, Inc. or its designee for the general management services it provided to the Casino Operator. In addition, the Company paid a fee of $225,000 to Golden Gaming, Inc. to extend the term of the Casino Sublease to February 29, 2008.

Cafe Lease

We are party to a lease with the operator of the Hard Rock Cafe, pursuant to which we are entitled to (a) minimum ground rent in an amount equal to $15,000 per month and (b) additional rent, if any, equal to the amount by which six percent of the annual Gross Income (as defined in the lease) of the operator exceeds the minimum ground rent for the year. ~~For~~During the ~~period~~year ~~from~~ended ~~January 1, 2008 to~~ December 31, ~~2008~~2009, we received $0.75 million in rent from the Hard Rock Cafe, which consisted of $0.2 million in base rent and $0.53 million in percentage rent. The current term of the lease expires on June 30, ~~2010~~2015. Under the lease, the operator has ~~two~~one five-year ~~options~~option to extend the lease, so long as it is not in default at the time of the extension.

ITEM 1A RISK FACTORS

Set forth below are risks and uncertainties that we believe are material to the Company. You should consider carefully the following risks and uncertainties, together with the other information contained in and incorporated by reference in this report, and the descriptions included in our consolidated financial statements and accompanying notes.

Risks Related to Our Business

The recent downturn in the U.S. economy, ~~the~~particularly ~~volatility~~in ~~and~~the ~~disruption~~Las ofVegas ~~the~~hotel, ~~capital~~resort and ~~credit~~casino ~~markets~~industry, and ~~adverse~~the ~~changes~~volatility inand disruption of the ~~global~~capital ~~economy~~and credit markets have and could continue to negatively impact our financial performance and our ability to access financing.

Due to a number of factors affecting consumers, including a slowdown in ~~global~~U.S. and global economies, ~~contracting~~ contracted credit markets, and reduced consumer spending, ~~and new U.S. political leadership,~~ the outlook for the gaming, travel, and entertainment industries remains highly uncertain. Auto traffic into Las Vegas and air travel to McCarran International airport has declined, resulting in lower casino volumes and reduced hotel occupancy rates. These factors have and could continue to result in fewer customers visiting, or customers spending less, at our property, as compared to prior periods. Gaming and other leisure activities we offer represent discretionary expenditures and participation in such activities tend to decline during economic downturns, during which consumers generally earn less disposable income. Furthermore, during periods of economic contraction such as the current period, our revenues may decrease while some of our costs remain fixed or even increase, resulting in decreased earnings. There can be no assurances that government responses to the disruptions in the financial and credit markets will restore consumer confidence. As a result, customer demand for the luxury amenities and leisure activities that we offer may continue to be depressed or continue to decline for an extended period. The recent severe economic downturn and adverse conditions in the local, regional, national and global markets have negatively affected our operations, and may continue to negatively affect our operations in the future.

Our business depends on one key market and has a limited base of operations and, accordingly, we could be disproportionately harmed by the economic downturn. All of our revenues are currently generated from one source—our hotel casino. As a result, the profitability of our operations is linked to local economic conditions in Las Vegas and, indirectly, Southern California, where many of our hotel casino’s targeted customers reside. A decline in the local economies of Las Vegas or Southern California has and could continue to negatively impact our business and the results of our operations. Furthermore, due to our single location, we are subject to greater risks than a more diversified hotel and casino resort operator. The combination of the single location and the significant investment associated with it may cause our operating results to fluctuate significantly and may adversely affect us. Due to the single location, poor operating results at the resort would materially affect our total profitability.

~~We are a highly leveraged company. While we intend to finance expansion and renovation~~16 projects with existing cash, cash flow from operations and borrowings under our existing debt arrangements, we may require additional financing to support our continued growth. However, due to the existing uncertainty in the capital and credit markets, our access to capital may not be available on terms acceptable to us or at all. The cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. Continued turbulence in the U.S. and international markets and economies and prolonged declines in business consumer spending may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers, including our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs.

We are a highly leveraged company. While we intend to finance our liquidity needs with existing cash, cash flow from operations, borrowings under our existing debt arrangements and, if needed, equity contributions from our members, we may require additional financing to support our continued growth. However, due to the existing uncertainty in the capital and credit markets, our access to capital may not be available on terms acceptable to us or at all. The cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. Continued turbulence in the U.S. and international markets and economies and prolonged declines in business consumer spending may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers, including our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs.

We have incurred substantial losses and have a significant total members’ deficit, and due to the current negative economic environment, may continue to incur losses in the future.

We reported pre-tax net losses of $70.9 million, $282.9 million, $210.8 million, for the years ended December 31, 2007, 2008 and 2009, respectively. As a result of the global economic recession and its impact on our operations, we have recognized significant non-cash impairment charges in 2008 and 2009. There can be no assurance that we will attain profitability and generate net income for our members in the near term or at all.

We face intense local competition which could impact our operations and adversely affect our business and results of operations.

We generally compete in the highly-competitive Las Vegas hotel, resort and casino industry. Our hotel casino, located less than one mile east of the Las Vegas Strip, competes with other high-quality Las Vegas resorts and other Las Vegas hotel casinos, including those located on the Las Vegas Strip. Many of these Las Vegas resorts seek to attract customers to their properties by not only offering casino gaming, but also by providing hotel accommodations, food and beverage outlets, retail stores and other related amenities. To the extent that we seek to enhance our revenue base by offering our own various resort amenities, we compete with the service offerings provided by these Las Vegas resorts.

21Many of the competing properties have themes and attractions which draw a significant number of visitors and directly compete with our operations. Some of these properties are operated by subsidiaries or divisions of large public companies that may have greater name recognition and financial and marketing resources than we do and market to the same target demographic group as we do. Various competitors are expanding and renovating their existing facilities. Furthermore, in Las Vegas, additional hotel casinos containing a significant number of rooms either have recently opened, or are expected to open over the next several years, which could significantly increase competition. By contrast, growth in the Las Vegas market has been negatively impacted by the recession and may not resume in the near term, or hotel casinos may become less popular, and a decline or leveling off of the popularity of such properties could adversely affect the results of our operations.

Many of the competing properties have themes and attractions which draw a significant number of visitors and directly compete with our operations. Some of these properties are operated by subsidiaries or divisions of large public companies that may have greater name recognition and financial and marketing resources than we do and market to the same target demographic group as we do. Various competitors are expanding and renovating their existing facilities. Furthermore, additional hotel casinos containing a significant number of rooms are expected to open in Las Vegas over the next several years, which could significantly increase competition. By contrast, the Las Vegas market may not continue to grow at the current pace or hotel casinos may become less popular, and a decline or leveling off of the growth or popularity of such properties could adversely affect the results of our operations.

We believe that competition in the Las Vegas hotel, resort and casino industry is based on certain property-specific factors, including overall atmosphere, range of amenities, price, location, entertainment attractions, theme and size. Market perception that we did not excel with respect to such property-specific factors would adversely affect our ability to compete effectively. If we are unable to compete effectively, we would lose market share, which could adversely affect our business and results of operations.

We also compete with hotel casinos in the Mesquite, Laughlin, Reno and Lake Tahoe areas of Nevada, Atlantic City, New Jersey and gambling destinations elsewhere in the United States as well as with state-sponsored lotteries, on- and off-track wagering, card parlors, riverboat gaming ventures, and other forms of legalized gaming in the United States, gaming on cruise ships, Internet gaming ventures and international gaming operations. Continued proliferation of gaming activities could significantly and adversely affect our business and results of operations.

Another area of competition is legalized gaming from casinos located on Native American tribal lands. Native American tribes in California are permitted to operate casinos with video slot machines, black jack and house-banked card games. The governor of California has entered into compacts with numerous tribes in California, and ~~has announced~~ the ~~execution of a number of new compacts with no limits on the number of gaming machines (which had been limited under the prior compacts). The~~ federal government has approved numerous compacts in California and casino-style gaming is now legal on those tribal lands. While the competitive impact on our operations in Las Vegas from the continued growth of Native American gaming establishments in California remains uncertain, the proliferation of gaming in California and other areas located near the Hard Rock could have an adverse effect on our results of operations.

~~In addition, certain states have legalized, and others may legalize, casino gaming in specific~~17 areas, including metropolitan areas from which we traditionally attract customers, such as New York, Philadelphia, Los Angeles, San Francisco and Boston. The current global trend toward liberalization of gaming restrictions and resulting proliferation of gaming venues could result in a decrease in the number of visitors to the Hard Rock by attracting customers close to home and away from Las Vegas, which could adversely affect our business and results of operations.

In addition, certain states have legalized, and others may legalize, casino gaming in specific areas, including metropolitan areas from which we traditionally attract customers, such as New York, Philadelphia, Los Angeles, San Francisco and Boston. The current global trend toward liberalization of gaming restrictions and resulting proliferation of gaming venues could result in a decrease in the number of visitors to the Hard Rock by attracting customers close to home and away from Las Vegas, which could adversely affect our business and results of operations.

Our success depends on the value of our name, image and brand. If demand for, or the value of, our name, image or brand diminishes, our business and results of operations would be adversely affected.

Our success depends, to a large extent, on our ability to shape and stimulate consumer tastes and demands by maintaining our name, image and brand. We may not be successful in this regard and we may not be able to anticipate and react to changing consumer tastes and demands in a timely manner.

Furthermore, a high media profile is an integral part of our ability to shape and stimulate demand for our hotel casino with our target customers. A key aspect of our marketing strategy is to focus on attracting media coverage. If we fail to attract that media coverage, we may need to substantially increase our advertising and marketing costs, which would adversely affect our business and results of operations. In addition, other types of marketing tools, such as traditional advertising and marketing, may not be successful in attracting our target customers.

Our business would be adversely affected if our public image or reputation were to be diminished. Our brand names and trademarks are integral to our marketing efforts. If the value of our name, image or brands were diminished, our business and operations would be adversely affected.

Use of the “Hard Rock” brand name by entities other than us could damage the brand and our operations and adversely affect our business and results of operations.

Our operations benefit from the global name recognition and reputation generated by the Hard Rock Cafes that are operated or franchised by the Seminole Tribe of Florida. As of December 31, ~~2008~~2009, the Seminole Tribe of Florida operated or franchised over 130 Hard Rock Cafes located throughout the United States and abroad. The Seminole Tribe of Florida is, however, under no obligation to continue to own, operate or franchise Hard Rock Cafes, and it may decide to sell, change the focus of, or manage such restaurants in a manner that would adversely affect our business and results of operations.

~~Although~~We we have obtained the exclusive, royalty-free and perpetual right to use and exploit the “Hard Rock Hotel” and the “Hard Rock Casino” trademarks in connection with hotel/casino operations or casino operations in the State of Illinois and all states and possessions of the United States that are located west of the Mississippi River, including the entire state of Louisiana, but excluding Texas, except for the Greater Houston Area,. This right also extends to the nations of Australia, Brazil, Israel and Venezuela, and the Greater Vancouver Area, British Columbia, Canada. Although we have obtained this right, Hard Rock Cafe International (USA), Inc., which is controlled by the Seminole Tribe of Florida, is the sole owner of the rights to the “Hard Rock Cafe,” the “Hard Rock Hotel” and the “Hard Rock Casino” trademarks. As a result, Hard Rock Cafe International (USA), Inc., or its licensee, can use and exploit the “Hard Rock” name and logo, other than in connection with hotel/casino operations or casino operations in our exclusive territory, including marketing “Hard Rock” merchandise anywhere in the world. For example, Hard Rock Cafe International (USA), Inc. has licensed the use of the “Hard Rock” name in connection with its Seminole Hard Rock Hotels in Hollywood and Tampa, Florida. Our business and results of operations may be adversely affected by the management or the enforcement of the “Hard Rock” brand name by parties outside of our control.

23We may have disputes with third parties for infringement or misappropriation of their proprietary rights, which could have a negative impact on our business.

Other parties may assert trademark, copyright or other intellectual property rights that have a negative impact on our business. We cannot assure you that others will not seek to block our use of certain marks or seek monetary damages or other remedies for the prior use of our brand names or other intellectual property or the sale of our products or services as a violation of their trademark, copyright or other proprietary rights. Defending any claims, even claims without merit, could divert our management’s attention, be time-consuming, result in costly settlements, litigation or restrictions on our business and damage our reputation.

In addition, there may be prior registrations or use of trademarks in the United States or foreign countries for similar or competing marks or other proprietary rights of which we are not aware. In all such countries it may be possible for any third-party owner of a national trademark registration or other proprietary right to enjoin or limit our expansion into those countries or to seek damages for our use of such intellectual property in such countries.

For example, on August 8, 2008, Jimmy Daniel Alexander, individually and doing business as “Rehab,” filed a lawsuit, Alexander v. Hard Rock Hotel, Inc., Hard Rock Hotel Holdings, LLC and HRHH Hotel/Casino, LLC (sued erroneously as Hard Rock Hotel & Casino, Inc.), in the United States District Court for the District of Nevada. Plaintiff asserted claims for trademark infringement, unfair competition, breach of contract and unjust enrichment, all of which relate to our use of the REHAB RX trademarks. The named defendants in the lawsuit have filed an answer to this action and asserted counterclaims against plaintiff alleging trademark infringement and unfair competition, and seeking cancellation of plaintiff’s federal registrations for the trademark REHAB. On November 11, 2008, plaintiff filed a motion for preliminary injunction based on his trademark infringement claims. On November 3, 2009, the judge entered an order approving the parties’ stipulation to dismiss the lawsuit and counterclaims with prejudice, with each party to bear its own attorneys’ fees and costs.

In the event a claim against us were successful and we could not obtain a license to the relevant intellectual property or redesign or rename our products or operations to avoid infringement, our business, financial condition or results of operations could be harmed. Securing registrations does not fully insulate us against intellectual property claims, as another party may have rights superior to our registration or our registration may be vulnerable to attack on various grounds.

The threat of terrorism could adversely affect the number of customer visits to our hotel casino.

The threat of terrorism has caused, and may in the future cause, a significant decrease in customer visits to Las Vegas due to disruptions in commercial and leisure travel patterns and concerns about travel safety. The attacks of September 11, 2001 had a dramatic adverse impact on commercial and leisure travel. Management cannot predict the extent to which disruptions in air or other forms of travel as a result of any further terrorist act, outbreak of hostilities or escalation of war would adversely affect ~~the~~our ~~Company’s~~ financial condition, results of operations or cash flows. The possibility of future attacks may hamper business and leisure travel patterns and, accordingly, the performance of our business and our operations.

The Las Vegas hotel, resort and casino industry is capital intensive; financing our ~~expansion~~renovations and ~~renovation project and~~ future capital improvements could reduce our cash flow and adversely affect our financial performance.

WeOur ~~have~~hotel ~~commenced~~casino ahas ~~large-scale~~an ~~expansion~~ongoing ~~and~~need ~~renovation project~~ for ~~the~~renovations ~~Hard~~and ~~Rock.~~other ~~See “Business—Expansion~~capital ~~Project.”~~improvements ~~We are currently on time~~ to ~~complete the expansion as scheduled and within the parameters of the~~remain ~~original~~competitive, ~~budget.~~including ~~However~~replacement, ~~there~~from ~~can~~time ~~be no assurance that we will be able~~ to ~~complete our expansion and renovation project on~~ time, ifof ~~at all~~furniture, orfixtures ~~within~~and ~~budget~~equipment. ~~Our inability to complete our~~We ~~expansion~~will ~~and~~also ~~renovation~~need ~~project~~to onmake ~~time~~capital orexpenditures ~~within~~to ~~budget~~comply ~~could~~with ~~adversely~~applicable ~~affect~~laws ~~our financial condition~~ and ~~results of operations~~regulations.

In addition, our hotel casino has an ongoing need for renovations and other capital improvements to remain competitive, including replacement, from time to time, of furniture, fixtures and equipment. We will also need to make capital expenditures to comply with applicable laws and regulations.

Renovations and other capital improvements of hotel casinos require significant capital expenditures. In addition, renovations and capital improvements of hotel casinos usually generate little or no cash flow until the project’s completion. We may not be able to fund such projects solely from cash provided from our operating activities. Consequently, we will rely upon the availability of debt or equity capital to fund renovations and capital improvements and our ability to carry them out will be limited if we cannot obtain satisfactory debt or equity financing, which will depend on, among other things, market conditions. No assurances can be made that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms.

Renovations and other capital improvements, ~~including our current expansion and renovation project,~~ may give rise to the following additional risks, among others:

•

construction cost overruns and delays;

•

temporary closures of all or a portion of the hotel casino to customers;

•

uncertainties as to market demand or a loss of market demand after capital improvements have begun;

•

disruption in service and room availability causing reduced demand, occupancy and rates;

•

disruption in gaming operations; and

•

possible environmental problems.

~~As a result, our current expansion and renovation project and any other future capital~~19 improvement projects may increase our expenses and reduce our cash flows and our revenues. If capital expenditures exceed our expectations, this excess would have an adverse effect on our available cash.

~~Our~~As ~~business~~a ~~model~~result, ~~involves~~renovations ~~high~~and ~~fixed~~any ~~costs,~~other ~~including~~future ~~property~~capital ~~taxes~~improvement ~~and~~projects ~~insurance~~may ~~costs,~~increase ~~which~~our weexpenses ~~may~~and bereduce ~~unable~~our tocash ~~adjust~~flows inand aour ~~timely~~revenues. ~~manner~~If incapital ~~response~~expenditures toexceed ~~a reduction in~~ our ~~revenues. In~~ ~~addition~~expectations, ~~our~~this ~~property~~excess ~~taxes~~would have ~~increased~~an inadverse ~~recent~~effect ~~years~~on ~~and~~our weavailable ~~expect those increases to continue~~cash.

Our business model involves high fixed costs, including property taxes and insurance costs, which we may be unable to adjust in a timely manner in response to a reduction in our revenues.

The costs associated with owning and operating hotel casinos are significant, some of which may not be altered in a timely manner in response to changes in demand for services, and failure to adjust our expenses may adversely affect our business and results of operations. Property taxes and insurance costs are a significant part of our operating expenses. Our real property taxes may increase as property tax rates change and as the values of properties are assessed and reassessed by tax authorities. Our real estate taxes do not depend on our revenues, and generally we could not reduce them other than by disposing of our real estate assets.

Insurance premiums for the Las Vegas hotel, resort and casino industry have increased significantly in recent years, and continued escalation may result in our inability to obtain adequate insurance at acceptable premium rates. A continuation of this trend would appreciably increase the operating expenses of our hotel casino. If we do not obtain adequate insurance, to the extent that any of the events not covered by an insurance policy materialize, our financial condition may be materially adversely affected.

In the future, our property may be subject to increases in real estate and other tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses, which could reduce our cash flow and adversely affect our financial performance. If our revenues decline and we are unable to reduce our expenses in a timely manner, our business and results of operations could be adversely affected.

We have substantial debt, and we may incur additional indebtedness, which may negatively affect our business and financial results.

We have substantial debt service obligations. As of December 31, ~~2008~~2009, our total long-term debt, including the current portion, was approximately $1.12 billion and our total member’s deficit was approximately $6163.59 million. Our indebtedness and the covenants applicable to our ~~indebtedness~~ indebtedness are described under “Financial Information—Liquidity and Capital Resources~~—Acquisition Financing.~~”.

Our substantial debt may negatively affect our business and operations in several ways, including:

•

requiring us to use a substantial portion of our funds from operations to make required payments on principal and interest, which will reduce funds available for operations and capital expenditures, future business opportunities and other purposes;

•

making us more vulnerable to economic and industry downturns and reducing our flexibility in responding to changing business and economic conditions;

• limiting ~~the~~ our flexibility in planning for, or reacting to, changes in the business and the industry in which the we operate;

• ~~place~~placing us at a competitive disadvantage compared to our competitors that have less debt;

•

limiting our ability to borrow more money for operations, capital or to finance acquisitions in the future; and

• requiring us to dispose of portions of the hotel casino property, if needed, in order to make required payments of interest and principal.

A majority of our debt is secured by first deeds of trust on our property. If we were to default on our secured debt, the loss of property securing the debt would harm our ability to satisfy other obligations. Using our property as collateral increases our risk of property losses because defaults on indebtedness secured by property may result in foreclosure and ultimately our loss of the property that secures any loans for which we are in default. For tax purposes, a foreclosure on our property would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure but would not receive any cash proceeds. In addition, because of various cross-default provisions in our debt, our default under some of our mortgage debt obligations may result in a default on our other indebtedness. If this occurs, our business and results of operations would be materially adversely affected.

Our working capital and liquidity reserves may not be adequate to cover all of our cash needs and we may have to obtain additional debt financing. Sufficient financing may not be available or, if available, may not be available on terms acceptable to us. Additional borrowings for working capital purposes will increase our interest expense and, therefore, may harm our business and results of operations.

The instruments governing our current indebtedness do not limit the amount of indebtedness that we may incur. If we increase our leverage, the resulting increase in debt service could adversely affect our ability to make payments on our indebtedness and harm our business and results of operations.

We anticipate that we will refinance our indebtedness from time to time to repay our debt, and our inability to refinance on favorable terms, or at all, could harm our business and operations.

Since we anticipate that our internally generated cash will be inadequate to repay our indebtedness prior to maturity, we expect that we will be required to repay debt from time to time through refinancings of our indebtedness and/or offerings of equity or debt. The amount of our existing indebtedness may harm our ability to repay our debt through refinancings. If we are unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to sell portions of our property on disadvantageous terms, which might result in losses to us. We have placed mortgages on our hotel casino property to secure our indebtedness. To the extent we cannot meet our debt service obligations, we risk losing some or all of our property to foreclosures. If prevailing interest rates or other factors at the time of any refinancing result in higher interest rates on any refinancing, our interest expense would increase, which would harm our business and results of operations.

Recent global market and economic conditions ~~have~~continue ~~been~~to ~~unprecedented~~be ~~and~~ challenging with ~~tighter~~ ~~credit~~tight credit conditions and recession in most major economies continuing into ~~2009~~2010. As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. These factors may adversely affect our liquidity and financial condition, including our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs.

~~On August 1,~~If ~~2008,~~ we ~~completed~~fail ~~an intercompany land purchase with respect~~ to anmaintain ~~approximately~~effective ~~11-acre parcel~~internal ofcontrol ~~land~~over ~~located~~financial ~~adjacent~~reporting toas ~~the~~required ~~Hard~~by ~~Rock. In connection with the intercompany land~~Section ~~purchase,~~404 ~~one~~ of ~~our subsidiaries entered into a $50.0 million land acquisition financing with Column Financial, Inc. All outstanding amounts owed under~~ the ~~applicable~~ ~~loan agreement become due and payable no later than August 9, 2009, subject to two six~~Sarbanes-~~month~~Oxley ~~extension options. We are currently considering various options with respect to the adjacent land~~Act, ~~including~~it ~~potentially~~may ~~selling~~have ~~all~~an ~~or a~~adverse ~~portion~~effect ofon ~~the land to a third party. In the event we do not repay or otherwise satisfy~~ our ~~obligations~~ ~~under the applicable loan agreement through a transaction with a third party prior to its maturity date, we will be subject to the risks relating to refinancing the debt described above~~business.

26We are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX, and the applicable SEC rules and regulations that require our management to conduct an annual assessment and to report on the effectiveness of our internal controls over financial reporting. While our internal control over financial reporting currently meet all of the standards required by SOX, failure to maintain an effective internal control environment could have a material adverse effect on our business, financial condition and results of operations. We cannot be certain as to our ability to continue to comply with the requirements of SOX. If we are not able to continue to comply with the requirements of SOX in a timely manner or with adequate compliance, we may be subject to sanctions or investigation by regulatory authorities, including the SEC or Financial Industry Regulatory Authority. In addition, should we identify a material weakness, there can be no assurance that we would be able to remediate such material weakness in a timely manner in future periods. Moreover, if we are unable to assert that our internal control over financial reporting is effective in any future period, we could incur significant expenses to restructure our internal controls over financial reporting, which may have an a material adverse effect on our business and operations.

We depend on our key personnel for the future success of our business and the loss of one or more of our key personnel could have an adverse effect on our ability to manage our business and operate successfully and competitively, or could be negatively perceived in the capital markets.

Our ability to manage our business and operate successfully and competitively is dependent, in part, upon the efforts and continued service of our executive officers. Arnold ~~Andrew~~D. Boswell is the Chief Financial Officer of HRHI. On March 9, 2010, Andrew A. Kwasniewski, President and ~~Arnold~~ DChief Operating Officer of HRHI, passed away. We ~~Boswell~~have commenced a search for a new president and chief operating officer of HRHI. The Hard Rock will be managed in the interim by the property’s existing management team and with oversight by executives of Morgans. It could be difficult for us to find ~~replacements~~a replacement for ~~these~~Mr. Kwasniewski or other of our key personnel, as competition for such personnel is intense. The departure of key personnel could have an adverse effect on our ability to manage our business and operate successfully and competitively.

Our officers, directors and key employees are required to file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny any application for any cause that they deem reasonable. In the event the Nevada Gaming Authorities were to find any person unsuitable for licensing or unsuitable to continue having a relationship with us, we would be required to sever all relationships with such person. We cannot assure that any such person will be able to obtain or maintain any requisite license or finding of suitability by the Nevada Gaming Authorities.

Risks Related to the Las Vegas Hotel Casino Industry

In addition to the risks enumerated above, a number of factors, many of which are beyond our control and common to the Las Vegas hotel, resort and casino industry, could affect our business, including the following:

•

adverse effects of international and national market conditions, which have and could continue to diminish the desire for high-end leisure travel;

•

adverse effects of national, regional and local economic market conditions where we operate and where our customers live;

•

increased competition from other hotel casinos in Las Vegas;

•

increased threat of terrorism, terrorist events, airline strikes, natural disasters or other factors that may affect travel patterns and reduce the number of business and commercial travelers and tourists to Las Vegas;

•

new hotel casino supply in Las Vegas;

•

dependence on business and commercial travel, leisure travel and tourism;

•

increases in operating costs due to inflation, labor costs (including the impact of unionization), workers’ compensation and health-care-related costs, utility costs, insurance and unanticipated costs such as acts of nature;

•

changes in interest rates and in the availability, cost and terms of debt financing;

•

changes in laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances, including changes in gaming laws and regulations; and

•

adverse effects of a downturn in the Las Vegas hotel casino industry.

These factors could harm our financial condition and results of operations.

Seasonality and other related factors such as weather can be expected to cause quarterly fluctuations in revenue at our hotel casino.

The Las Vegas hotel, resort and casino industry is seasonal in nature. This seasonality can tend to cause quarterly fluctuations in revenues at our hotel casino. For instance, our revenues generally peak in the second and third quarters. Our quarterly earnings may also be adversely affected by other related factors outside our control, including weather conditions and poor economic conditions. As a result, we may have to enter into short-term borrowings in certain quarters in order to offset these quarterly fluctuations in our revenues.

The gaming industry is heavily regulated and failure to comply with extensive regulatory requirements may result in an adverse effect on our business.

The gaming operations and the ownership of our securities are subject to extensive regulation by the Nevada Gaming Authorities and the Hard Rock must maintain its licenses and pay gaming taxes to continue operations. The Nevada Gaming Authorities have broad authority with respect to licensing and registration of entities and individuals involved with the Company. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations. Violations of laws could result in, among other things, disciplinary action. If we fail to comply with regulatory requirements, this may result in an adverse effect on our business.

Our property is subject to numerous laws, including those relating to the preparation and sale of food and beverages, including alcohol. We are also subject to laws governing our relationship with our employees in such areas as minimum wage and maximum working hours, overtime, working conditions, hiring and firing employees and work permits. Also, our ability to remodel, refurbish or add to our property may be dependent upon our obtaining necessary building permits from local authorities. The failure to obtain any of these permits could adversely affect our ability to increase revenues and net income through capital improvements of our property. In addition, we are subject to the numerous rules and regulations relating to state and federal taxation. Compliance with these rules and regulations requires significant management attention. Furthermore, compliance costs associated with gaming laws, regulations and licenses are significant. Any ~~failure~~change in the laws, regulations or licenses applicable to ~~comply~~our business or a violation of any current or future laws or regulations applicable to our business or gaming license could require us to make substantial expenditures or could otherwise negatively affect our gaming operations. Any failure to comply with all such rules and regulations could subject us to fines or audits by the applicable ~~taxation~~ taxation authority.

The Nevada Gaming Authorities may, upon any future violation of a gaming law or regulation and after disciplinary complaint and public hearing, among other things, revoke, suspend, limit or condition the gaming license of any corporate entity, which we will refer to as a corporate licensee, or the registration of a registered company or any entity registered as a holding company of a corporate licensee or fine each person or entity or both up to $250,000 for each violation. In addition, the Nevada Gaming Authorities may revoke the license or finding of suitability of any officer, director, controlling person, shareholder, noteholder or key employee of a licensed or registered entity. If our gaming licenses and/or registrations were ever revoked for any reason, the Nevada Gaming Authorities could require the closing of our gaming operations, which would result in a material adverse effect on our business.

Uninsured and underinsured losses could adversely affect our financial condition and results of operations.

We are responsible for insuring our hotel casino and for obtaining the appropriate insurance coverage to reasonably protect our interests in the ordinary course of business. Additionally, the instruments governing our current indebtedness typically specify that comprehensive insurance be maintained on our hotel casino, including liability, fire and extended coverage. There are certain types of losses, generally of a catastrophic nature, such as earthquakes and floods or terrorist acts, which may be uninsurable or not economically insurable, or may be subject to insurance coverage limitations, such as large deductibles or co-payments. We will use our discretion in determining amounts, coverage limits, deductibility provisions of insurance and the appropriateness of self-insuring, with a view to maintaining appropriate insurance coverage on our investments at a reasonable cost and on suitable terms. Uninsured and underinsured losses could harm our financial condition and results of operations. We could incur liabilities resulting from loss or injury to our hotel casino or to persons at our hotel casino. Claims, whether or not they have merit, could harm the reputation of our hotel or cause us to incur expenses to the extent of insurance deductibles or losses in excess of policy limitations, which could harm our results of operations.

In the event of a catastrophic loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in our hotel casino, as well as the anticipated future revenue from the property. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the hotel casino. In the event of a significant loss, our deductible may be high and we may be required to pay for all such repairs and, as a consequence, it could materially adversely affect our financial condition. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate aour hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property.

Since September 11, 2001, it has generally become more difficult and expensive to obtain property and casualty insurance, including coverage for terrorism. When our current insurance policies expire, we may encounter difficulty in obtaining or renewing property or casualty insurance on our property at the same levels of coverage and under similar terms. Such insurance may be more limited and for some catastrophic risks (e.g., earthquake, flood and terrorism) may not be generally available at current levels. Even if we are able to renew our policies or to obtain new policies at levels and with limitations consistent with our current policies, we cannot be sure that we will be able to obtain such insurance at premium rates that are commercially reasonable. If we were unable to obtain adequate insurance on our hotel casino for certain risks, it could cause us to be in default under specific covenants on certain of our indebtedness or other contractual commitments that require us to maintain adequate insurance on our hotel casino to protect against the risk of loss. If this were to occur, or if we were unable to obtain adequate insurance and our hotel casino experienced damage which would otherwise have been covered by insurance, it could materially adversely affect our financial condition and the operations of our hotel casino.

In addition, insurance coverage for our hotel casino and for casualty losses does not customarily cover damages that are characterized as punitive or similar damages. As a result, any claims or legal proceedings, or settlement of any such claims or legal proceedings that result in damages that are characterized as punitive or similar damages may not be covered by our insurance. If these types of damages are substantial, our financial resources may be adversely affected.

Environmental and other non-gaming governmental laws and regulations could increase our compliance costs and liabilities and adversely affect our financial condition and results of operations.

Our hotel casino is subject to various federal, state and local laws relating to the environment, fire and safety and access and use by disabled persons. Under these laws, courts and government agencies have the authority to require us, if the hotel casino was found to be located on contaminated property, to clean up the hotel casino property, even if we did not know of or were not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated. In addition to the costs of clean-up, environmental contamination can affect the value of a property and, therefore, an owner’s ability to borrow funds using the property as collateral or to sell the property. Under such environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, such as a landfill or an incinerator, to pay for the clean-up of that facility if it becomes contaminated and threatens human health or the environment.

Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a person exposed to asbestos while staying in or working at a hotel may seek to recover damages for injuries suffered. Additionally, some of these environmental laws restrict the use of a property or place conditions on various activities. For example, some laws require a business using chemicals (such as swimming pool chemicals at a hotel) to manage them carefully and to notify local officials that the chemicals are being used.

We could be responsible for the types of costs discussed above. The costs to clean up a contaminated property, to defend against a claim, or to comply with environmental laws could be material and could reduce the funds available for distribution to our ~~interest holders~~members. Future laws or or regulations may impose material environmental liabilities on us, or the current environmental condition of our hotel casino property may be affected by the condition of the properties in the vicinity of our hotel casino (such as the presence of leaking underground storage tanks) or by third parties unrelated to us.

Our hotel casino is also subject to the Americans with Disabilities Act of 1990 (the “ADA”). Under the ADA, all public accommodations must meet various federal requirements related to access and use by disabled persons. Compliance with the ADA’s requirements could require removal of access barriers and non-compliance could result in the United States government imposing fines or in private litigants’ winning damages. If we are required to make substantial modifications to our hotel casino, whether to comply with the ADA or other changes in governmental rules and regulations, our financial condition and results of operations could be harmed. In addition, we are required to operate our hotel casino facilities in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and become applicable to our property.

Our hotel casino may be faced with labor disputes, a strike or labor unionization, which would adversely affect our business and results of operations.

We rely heavily on our employees providing high-quality personal service at our hotel casino. If we are unable to preserve positive labor relationships or we become the target of labor unionization campaigns, the resulting labor unrest or work stoppage could adversely affect our ability to provide those services, which in turn could reduce hotel and casino revenues, tarnish our reputation and hurt our business and results of operations. Our relationship with our employees could deteriorate due to disputes relating to, among other things, wage or benefit levels or management responses to various economic and industry conditions.

~~Competitors within our industry have been the target of unionization campaigns by labor~~24 unions. While we believe that our employee relations are satisfactory, we have been approached by labor unions on various occasions and could experience pressure from those labor unions or become the target of campaigns similar to those faced by our competitors. If we do encounter pressure from labor unions, any resulting labor unrest or work stoppage could disrupt our business by impairing our ability to provide high-quality personal services at our hotel casino. In addition, significant union representation would require us to negotiate with many of our employees collectively and could adversely affect our financial performance by restricting our ability to maximize the efficiency of our operations.

Competitors within our industry have been the target of unionization campaigns by labor unions. While we believe that our employee relations are satisfactory, we have been approached by labor unions on various occasions and could experience pressure from those labor unions or become the target of campaigns similar to those faced by our competitors. If we do encounter pressure from labor unions, any resulting labor unrest or work stoppage could disrupt our business by impairing our ability to provide high-quality personal services at our hotel casino. In addition, significant union representation would require us to negotiate with many of our employees collectively and could adversely affect our financial performance by restricting our ability to maximize the efficiency of our operations.

On November 6, 2009 the National Labor Relations Board conducted an election to determine whether approximately 35 valet employees wished to be represented by the Teamsters Union. The outcome of the election is not yet determined as there are legal challenges that have been filed by both the union and us.

Risks Related to Our Organization and Corporate Structure

We are a holding company with no operations.

We are a holding company and conduct all of our operations through our subsidiaries. We do not generally have, apart from our ownership of HRHI and certain other subsidiaries, any independent operations. As a result, we would rely on dividends and other payments or distributions from HRHI and our other subsidiaries to pay ~~dividends~~distributions. The ability of HRHI and our other subsidiaries to pay dividends or make other payments or distributions to us will depend on HRHI’s operating results, and the terms of our current and future financing agreements, which may preclude dividends, distributions or ~~distributions~~other payments.

In addition, because we are a holding company, claims of our interest holders will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our subsidiaries will be able to satisfy the claims of our ~~interest~~members ~~holders~~ only after all of our and our subsidiaries’ liabilities and obligations have been paid in full.

We may experience conflicts of interest with entities which control the Company.

~~85.84%~~As of the ~~Company’s~~date of this report, 86.36% of our membership interests are controlled by investment funds affiliated with DLJ Merchant Banking, Inc. (“DLJMB”), a private equity firm and an affiliate of Credit Suisse. DLJMB and Credit Suisse and its other affiliates may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. The remaining 1413.1664% of the Company’s membership interests isare controlled by Morgans and its subsidiaries. Morgans is a ~~fully~~ fully integrated hospitality company that operates, owns, acquires, develops and redevelops ~~boutique~~ boutique hotels in gateway cities and select resort markets in the United States and Europe and may ~~from~~ from time to time acquire and operate businesses that compete directly or indirectly with us.

Under the JV Agreement, to the maximum extent permitted by law, except to the extent expressly provided in the JV Agreement, none of our directors or members, nor any affiliate of any of the members, or any officer, member, director, shareholder, employee, partner or agent of any of the foregoing members or affiliates (each, a “Responsible Party”) will owe any duties (including fiduciary duties) to ~~the~~us ~~Company~~ or any other member other than to act in accordance with the ~~implied~~ implied contractual covenant of good faith and fair dealing. Our members have agreed that any such Responsible Parties acting in accordance with the JV Agreement will be deemed to be acting in compliance with such implied contractual covenant, and will not be liable to ~~the Company~~us, any member, or any other person that is a party to or is otherwise bound by the JV Agreement for such good faith reliance on the provisions of the JV Agreement.

Some of our officers and directors may also serve as officers or directors of DLJMB and/or Morgans and may have conflicts of interest because they may own equity interests in DLJMB and/or Morgans or they may receive cash- or equity-based awards based on the performance of DLJMB and/or Morgans. Messrs. Johnson, Sprott and Pomroy are directors and/or officers of DLJMB. Messrs. Kleisner, and Szymanski are directors and/or officers of Morgans.

ITEM 1B UNRESOLVED STAFF COMMENTS

None.

ITEM 2 PROPERTIES

We own approximately 17 acres of land where the Hard Rock is located, approximately 23 acres of land adjacent to the Hard Rock and approximately one acre of land on which the Hard Rock Cafe restaurant is located.

We intend to sell an approximately 15-acre parcel of land adjacent to the Hard Rock that is ~~not~~ not being used in our expansion project; however, we are not actively marketing the parcel. The approximately 15-acre parcel consists of (i) approximately 11 acres held by one of our subsidiaries, HRHH Development Transferee, LLC (“HRHH Transferee”), and (ii) approximately four acres held by another of our subsidiaries, HRHH Development, LLC. ~~We have reflected an asset value for the entire approximately 15-acre parcel of $95.2 million,~~ ~~which represents the fair value of $100.0 million less estimated sale costs of $4.8 million.~~

ITEM 3 LEGAL PROCEEDINGS

~~Between~~The ~~March 2006~~Company ~~and~~was ~~February 2007,~~named ~~four~~as ~~lawsuits~~a ~~were~~defendant ~~filed~~ in ~~Nevada~~two ~~state~~lawsuits, ~~courts~~Matix, ~~and~~LLC, ~~one in~~et ~~federal~~al. ~~district~~v. ~~court~~Peter inMorton, ~~Nevada~~et al., byCase ~~brokers~~No. A518414, ~~investors~~and Stealth Holdings, ~~and~~LLC ~~prospective~~v. ~~purchasers~~Christopher ~~associated with~~Milam, ~~the~~et ~~formerly~~al., ~~proposed~~Case ~~condominium~~No. A527202, which ~~development~~were onconsolidated in the ~~real~~Eighth ~~property~~Judicial ~~adjacent~~District toCourt of the ~~Hard~~State ~~Rock~~of Nevada. These Oflawsuits ~~these~~stemmed ~~five~~from ~~lawsuits,~~the ~~one~~cancellation ~~names~~of the ~~Company~~formerly asproposed acondominium ~~defendant,~~development ~~and~~on ~~four~~the ~~name~~real property ~~subsidiaries~~adjacent ofto the ~~Company~~ asHard ~~defendants~~Rock. The plaintiffs inasserted ~~the~~that ~~suit~~they ~~brought~~were byinvestors ~~the~~who ~~prospective purchasers decided to~~invested ~~dismiss~~in ~~their~~entities ~~action~~controlled ~~(without~~by ~~prejudice)~~Christopher ~~after~~Milam, ~~the~~which ~~Company~~had ~~successfully~~contracted ~~compelled~~with ~~them~~entities toowned and/or ~~participate~~controlled inby anPeter ~~arbitration,~~Morton ~~and~~for the ~~parties~~construction ~~have~~and ~~reached~~ownership ~~settlements~~of in the ~~two~~proposed ~~suits brought by~~condominium ~~brokers~~development. ~~The~~Following ~~allegations~~cancellation inof ~~these~~the ~~five~~proposed ~~lawsuits~~condominium ~~are primarily~~development, ~~though~~the ~~not~~plaintiffs ~~entirely~~sued, ~~directed~~ ~~towards~~claiming ~~Peter~~that A.they ~~Morton~~were ~~and~~entitled ~~entities~~to ~~under~~recovery ~~his~~of ~~ownership~~their orinvestments. ~~control,~~As ~~rather~~their ~~than~~claims ~~the~~related ~~Company~~to ~~or its~~the ~~affiliates.~~Company, ~~The~~the ~~relief~~plaintiffs ~~sought~~alleged, ininter ~~these~~alia, ~~five~~that ~~proceedings~~the isCompany ~~monetary~~aided ~~damages~~ and ~~equitable~~abetted ~~relief~~Mr. Morton’s ~~Under~~commission ~~the~~of ~~terms~~fraud, ~~set~~and ~~forth~~that in the ~~contract under which the~~ Company ~~purchased~~ ~~the~~was ~~Hard~~unjustly ~~Rock,~~enriched ~~Peter~~by A.plaintiffs’ investments. Mr. Morton ~~has~~ agreed to indemnify the Company and its affiliates against all costs associated ~~with~~ with these lawsuits, including both legal and defense fees and any ultimate judgment against the ~~Company~~ Company or its affiliates~~. Accordingly~~, weunder dothe ~~not~~terms ~~believe~~set ~~that~~forth in the ~~course~~contracts orunder ~~outcome~~which the Company acquired the Hard Rock and related assets. The trial of these consolidated lawsuits ~~will~~began ~~have~~in aSeptember 2009. ~~material~~In October 2009, ~~adverse~~at ~~effect~~the onclose ~~our~~of ~~business~~the orplaintiffs’ ~~results~~direct case, the judge granted the defendant’s motion to dismiss the Company and its affiliates as defendants. Subsequently, the jury returned a verdict in favor of ~~operations~~the remaining defendants on all outstanding issues.

~~In October~~On August 8, 2008, aJimmy ~~lawsuit~~Daniel ~~was~~Alexander, ~~filed~~individually ~~naming~~and ~~HRHH~~doing IPbusiness as “Rehab,” ~~LLC~~filed (a lawsuit, ~~subsidiary~~Alexander ofv. ~~the~~Hard ~~Company)~~Rock Hotel, ~~Morgans~~ Inc., ~~Live!~~Hard Rock Hotel Holdings, LLC and ~~The~~HRHH ~~Cordish~~Hotel/Casino, LLC ~~Companies~~(sued byerroneously as Hard Rock ~~Cafe~~Hotel ~~International~~& ~~(USA)~~Casino, Inc. ~~(“HRCI”~~)., Onin ~~December 17,~~the ~~2008,~~United ~~HRCI~~States ~~dismissed~~District Court for ~~its~~the ~~lawsuit~~District ~~without~~of ~~prejudice~~Nevada. ~~before~~Plaintiff ~~HRHH~~asserted IPclaims for trademark infringement, ~~LLC~~unfair competition, ~~appeared.~~breach ~~The~~of ~~allegations~~contract inand ~~the~~unjust ~~lawsuit~~enrichment, ~~claim~~all aof ~~breach~~which ofrelate ~~certain~~to ~~provisions~~the Company’s use of the ~~Trademark~~REHAB RX ~~License~~trademarks. ~~and~~The ~~Cooperation~~named ~~Agreement,~~defendants ~~dated~~in asthe oflawsuit ~~June 7,~~have ~~1996,~~filed byan ~~which~~answer weto ~~use~~this ~~the~~action ~~trademarks~~and ~~“Hard~~asserted ~~Rock~~counterclaims ~~Hotel”~~against ~~and~~plaintiff ~~“Hard~~alleging ~~Rock~~trademark ~~Casino”~~infringement inand ~~our~~unfair ~~business~~competition, ~~together~~and ~~with~~seeking cancellation ~~certain~~of ~~other~~Plaintiff’s ~~claims~~federal registrations for the trademark REHAB. On November 11, ~~including~~2008, ~~federal~~plaintiff ~~and~~filed ~~New~~a ~~York~~motion ~~State~~for preliminary injunction based on his trademark infringement claims. On November 3, ~~dilution~~2009, ~~and~~the ~~false~~judge ~~origin~~entered ~~claims~~an byorder ~~all~~approving ofthe parties’ stipulation to dismiss the ~~named~~lawsuit ~~defendants.~~and ~~The~~counterclaims ~~relief~~with ~~sought~~prejudice, bywith ~~the~~each ~~lawsuit~~party isto ~~injunctive~~bear ~~relief,~~its ~~exemplary~~own ~~damages~~attorneys’ fees and ~~unspecified monetary damages~~costs.

OnWe ~~August 8,~~are ~~2008, Jimmy Daniel Alexander, individually and doing business as “Rehab,” filed~~ a ~~case,~~ ~~Alexander~~defendant v.in ~~Hard~~various ~~Rock~~other ~~Hotel,~~lawsuits ~~Inc.,~~relating ~~Hard~~to ~~Rock~~routine ~~Hotel~~matters ~~Holdings,~~incidental ~~LLC~~to ~~and HRHH Hotel/Casino, LLC~~our ~~(sued~~business. ~~erroneously~~Management asprovides ~~Hard~~an ~~Rock~~accrual ~~Hotel~~for &estimated ~~Casino,~~losses ~~Inc.),~~that ~~which~~may isoccur ~~pending~~and indoes ~~the~~not ~~United States District~~believe ~~Court~~that ~~for~~ the ~~District~~outcome of ~~Nevada.~~any ~~Plaintiff~~pending ~~asserts~~ claims ~~for~~or ~~trademark infringement~~litigation, ~~unfair~~individually ~~competition,~~or ~~breach~~in ofthe ~~contract~~aggregate, ~~and~~will ~~unjust~~have ~~enrichment, all of which relate to~~a ~~our~~material ~~use~~adverse ofeffect ~~the~~on ~~REHAB RX trademarks. The named defendants in~~ the ~~suit have filed an answer to this action and asserted counterclaims against plaintiff alleging trademark infringement and unfair competition, and seeking cancellation of Plaintiff~~Company’s ~~federal~~financial ~~registrations for the trademark REHAB. On November 11~~position, ~~2008,~~results ~~plaintiff~~of ~~filed~~operations aor ~~motion for preliminary injunction based on his~~liquidity ~~trademark~~beyond ~~infringement claims, and~~ the ~~named~~amounts ~~defendants~~recorded ~~opposed~~in ~~that motion. The court has not set a hearing or issued a ruling regarding~~ the ~~preliminary~~accompanying ~~injunction~~balance ~~motion.~~sheet ~~The~~as ~~case is presently in discovery. No trial date has been set. Management does not believe that the outcome~~ of ~~any~~December 31, ~~such litigation will have a material adverse effect on our business or results of operations~~2009.

We are a defendant in various other lawsuits relating to routine matters incidental to our business. Management does not believe that the outcome of any such litigation, in the aggregate, will have a material adverse effect on our business or results of operations.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders during the fourth quarter of ~~2008~~2009.

3226

PART II

ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

There currently is no established public trading market for our membership interests. As of December 31, ~~2008~~2009, none of our membership interests were subject to any outstanding options or warrants, and we had not issued any securities convertible into our membership interests. The JV Agreement also places significant limitations on the transfer of our membership interests. ~~See~~ ~~“Business—Agreements Governing the Operation of the Hard Rock—Joint Venture Agreement—Restrictions on Transfer.”~~

HOLDERS

As of December 31, ~~2008~~2009, there were two holders of record of our Class A Membership Interests, three holders of record of our Class B Membership Interests and notwelve holders of record of our Class C Membership Interests.

DIVIDENDS

We have not in the past paid cash distributions on our membership interests. We currently intend to retain ~~all~~any available funds and ~~any~~ future earnings for use in the operation and expansion of of our business and do not anticipate paying any cash distributions in the foreseeable future. The terms of any future financing agreements may preclude us from paying any distributions. To the extent not prohibited by the terms of any financing agreement or applicable law, however, our board of directors at some future date may cause us to distribute cash available for distribution to our members.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Equity Compensation Plan Information

Please see the information from “Equity Compensation Plan Information” under Item 12 of this report.

RECENT SALES OF UNREGISTERED SECURITIES

None.

ISSUER PURCHASES OF EQUITY SECURITIES

None.

ITEM 6 SELECTED FINANCIAL INFORMATION

The selected historical ~~income~~ statement of operations data of Hard Rock Hotel Holdings, LLC, the Successor, set forth below for the ~~period~~periods ~~from~~ended ~~January 1, 2008 to~~ December 31, 2009 and 2008 and period from February 2, 2007 to December 31, 2007 and the selected historical balance sheet data set forth below at December 31, ~~2008~~ 2009 and December 31, ~~2007~~2008 have been derived from our audited consolidated financial statements, which appear elsewhere herein. The selected historical ~~income~~ statement of operations data of Hard Rock Hotel, Inc., the Predecessor, set forth below for the period from January 1, 2007 to February 1, 2007 and for the years ended December 31, 2006, ~~2005~~ and ~~2004~~2005 and the selected historical balance sheet data set forth below at February 1, 2007 and December 31, 2006, and 2005 ~~and 2004~~ have been derived from the Predecessor’s audited consolidated financial statements. The Predecessor’s consolidated ~~income~~ statements of operations for the period January 1, 2007 to February 1, 2007 ~~and for the year ended December 31, 2006~~ are included herein. The Predecessor’s consolidated balance sheets as of February 1, 2007 and December 31, 2006, ~~2005~~ and ~~2004~~2005 and consolidated ~~income~~ statements of operations for the years ended December 31, ~~2005~~2006 and ~~2004~~2005 are not included herein. Historical results are not necessarily indicative of the results of operations to be expected for future periods. The selected financial and operating data set forth below should be read in conjunction with our and the Predecessor’s consolidated financial statements and notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	Successor(1)						Predecessor(1)
				Period From			Period From
	Year Ended			Feb 2, 2007 to			Jan 1, 2007 to			Year Ended
	Dec 31, 2008			Dec 31, 2007			Feb 1, 2007			Dec 31, 2006			Dec 31, 2005			Dec 31, 2004
INCOME STATEMENT DATA:
REVENUES:
Casino	$	53,282	(2)	$	51,501	(2)	$	3,904		$	59,626		$	65,878		$	56,916
Lodging		39,008			42,220			3,438			41,513			38,422			35,065
Food and beverage		70,119			70,202			5,320			69,838			66,427			54,030
Retail		6,146			6,358			399			7,039			7,832			7,860
Other		15,741			17,896			1,073			16,462			16,606			12,839
Gross revenues		184,296			188,177			14,134			194,478			195,165			166,710
Less: promotional allowances		(19,951	)		(14,739	)		(1,116	)		(12,512	)		(14,140	)		(11,610	)
Net revenues		164,345	(2)		173,438	(2)		13,018			181,966			181,025			155,100
COSTS AND EXPENSES:
Casino		37,694	(2)		33,671	(2)		3,008			34,966			36,257			33,186
Lodging		7,901			8,903			896			10,018			9,742			8,955
Food and beverage		37,809			35,897			3,261			37,515			34,558			29,325
Retail		2,896			3,092			285			4,075			3,825			3,603
Other		11,668			15,236			913			15,569			16,723			11,151
Marketing		5,044			5,032			296			5,533			6,602			5,899
Related-party expenses		7,009			7,837			1,525			6,404			6,738			4,834
General and administrative		39,170			26,743			2,865			27,770			26,923			22,002
Merger costs		—			—			1,723			4,546			—			—
Depreciation and amortization		23,454			17,413			1,184			12,823			11,954			11,388
Loss on disposal of assets(3)		25			1,725			—			495			605			2,701
Pre-opening		5,933			1,167			—			—			286			530
Acquisition and transition related costs		—			2,358			—			—			—			—
Impairment of goodwill and license rights		191,349	(5)		—			—			—			—			—
Total costs and expenses		369,952	(2)		159,074	(2)		15,956			159,714			154,213			133,574
(LOSS) INCOME FROM OPERATIONS		(205,607	)		14,364			(2,938	)		22,252			26,812			21,526
Interest income		1,542			698			—			359			343			76
Interest expense, net of capitalized interest		(78,822	)		(85,953	)		(1,516	)		(18,308	)		(19,307	)		(19,125	)
Loss on early extinguishment of debt(4)		—			—			—			—			(1,181	)		—
(Loss) income before income tax (benefit) expense		(282,887	)		(70,891	)		(4,454	)		4,303			6,667			2,477
Income tax (benefit) expense		(585	)		(2,277	)		(1,521	)		1,665			(7,375	)		—
Net income (loss)		(282,302	)		(68,614	)		(2,933	)		2,638			14,042			2,477
Other Comprehensive Loss:
Unrealized loss on interest rate caps, net of tax		(17,168	)		(26	)		—			—			—			—
Comprehensive (loss) income	$	(299,470	)	$	(68,640	)	$	(2,933	)	$	2,638		$	14,042		$	2,477

	Successor(1)						~~Predecessor(1)~~			Predecessor(1)
	Year Ended						Period Ended			Year Ended
							Period From			Period From
	Dec 31, 2008			Dec 31, 2007			Feb 1, 2007			Dec 31, 2006			Dec 31, 2005			Dec 31, 2004
	Year Ended						Feb 2, 2007 to			Jan 1, 2007 to			Year Ended
BALANCE SHEET DATA:
	Dec 31, 2009			Dec 31, 2008			Dec 31, 2007			Feb 1, 2007			Dec 31, 2006			Dec 31, 2005
Cash and cash equivalents	$	10,148		$	14,157		$	11,241		$	8,536		$	8,895		$	10,655
STATEMENT OF OPERATIONS DATA:
Total assets	$	1,162,954	(2)	$	942,562	(2)	$	193,368		$	193,625		$	198,957		$	196,082
REVENUES:
Total debt	$	1,083,813		$	793,452		$	188,429		$	184,929		$	197,915		$	210,737
Casino	$	43,527		$	53,282	(2)	$	51,501	(2)	$	3,904		$	59,626		$	65,878
Shareholders’/Members’ equity (deficit)	$	(61,514	)	$	112,487		$	(22,648	)	$	(19,715	)	$	(22,353	)	$	(36,395	)
Lodging		35,063			39,008			42,220			3,438			41,513			38,422
Food and beverage		74,555			70,119			70,202			5,320			69,838			66,427
Retail		5,019			6,146			6,358			399			7,039			7,832
Other		27,534			15,741			17,896			1,073			16,462			16,606
Gross revenues		185,698			184,296			188,177			14,134			194,478			195,165
Less: promotional allowances		(24,144	)		(19,951	)		(14,739	)		(1,116	)		(12,512	)		(14,140	)
Net revenues		161,554			164,345	(2)		173,438	(2)		13,018			181,966			181,025
COSTS AND EXPENSES:
Casino		42,421			37,694	(2)		33,671	(2)		3,008			34,966			36,257
Lodging		7,293			7,901			8,903			896			10,018			9,742
Food and beverage		37,818			37,809			35,897			3,261			37,515			34,558
Retail		3,014			2,896			3,092			285			4,075			3,825
Other		21,686			11,668			15,236			913			15,569			16,723
Marketing		4,830			5,044			5,032			296			5,533			6,602
Fee and expense reimbursements — related party		7,046			7,009			7,837			1,525			6,404			6,738
General and administrative		28,305			39,170			26,743			2,865			27,770			26,923
Merger costs		—			—			—			1,723			4,546			—
Depreciation and amortization		23,062			23,454			17,413			1,184			12,823			11,954
Loss on disposal of assets(3)		97			25			1,725			—			495			605
Pre-opening		9,886			5,933			1,167			—			—			286
Acquisition and transition related costs		—			—			2,358			—			—			—
Impairment of land, goodwill and license rights		108,720	(6)		191,349	(5)		—			—			—			—
Total costs and expenses		294,178			369,952	(2)		159,074	(2)		15,956			159,714			154,213
(LOSS) INCOME FROM OPERATIONS		(132,624	)		(205,607	)		14,364			(2,938	)		22,252			26,812
Interest income		329			1,542			698			—			359			343
Interest expense, net of capitalized interest		(79,570	)		(78,822	)		(85,953	)		(1,516	)		(18,308	)		(19,307	)
Loss on early extinguishment of debt(4)		—			—			—			—			—			(1,181	)
(Loss) income before income tax (benefit) expense		(211,865	)		(282,887	)		(70,891	)		(4,454	)		4,303			6,667
Income tax (benefit) expense		—			(585	)		(2,277	)		(1,521	)		1,665			(7,375	)
Net income (loss)		(211,865	)		(282,302	)		(68,614	)		(2,933	)		2,638			14,042
Other Comprehensive Income (Loss):
Interest rate cap market value adjustment gain (loss), net of tax		14,883			(17,168	)		(26	)		—			—			—
Comprehensive (loss) income	$	(196,982	)	$	(299,470	)	$	(68,640	)	$	(2,933	)	$	2,638		$	14,042

(1)		The Company was formed by the DLJMB Parties and the Morgans Parties to acquire the Hard Rock and certain related assets. The Hard Rock was owned by the Predecessor. The Company effectuated the acquisition of the Hard Rock through the merger of a wholly owned subsidiary of the Company with and into the Predecessor. As a result of the merger, the Company, through a subsidiary, is the successor to the Predecessor and all of the assets comprising its business.
(2)		We evaluated our variable interests in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, as amended (“FIN 46R”), to determine if they are variable interests in variable interest entities. FIN 46R requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The gaming operations at our casino were operated by the Casino Operator, a third party lessee, which purchased the gaming assets located at the premises with a Gaming Asset Note in an amount equal to approximately $6.8 million. Upon termination of the Casino Sublease on February 29, 2008, the Casino Operator relinquished all of the gaming assets to us and, in return, we forgave any remaining balance on the Gaming Asset Note. In addition, where and to the extent that the monthly Casino EBITDAR (as defined in the Casino Sublease) for the previous month fell below the base rent under the Casino Sublease, the Casino Operator would provide us with the difference between the base rent and the Casino EBITDAR in monthly Shortfall Notes. In contrast, where and to the extent that monthly Casino EBITDAR exceeded the base rent, the Casino Operator would establish a reserve account for excess cash flow, which would be applied toward satisfying certain amounts due under the Shortfall Notes. Once the Casino Operator paid out such amounts as became due under the Shortfall Notes, 75.0% of any surplus fund reserves remaining would be earmarked for repayment of the Gaming Asset Note and a Working Capital Note, according to the terms contained in the Casino Sublease. On March 1, 2008, we assumed the gaming operations at the Hard Rock and the Casino Sublease was terminated. Upon termination of the Casino Sublease, there were no excess funds remaining in the surplus fund reserve. We believe that we were the primary beneficiary of the gaming operations because we were ultimately responsible for a majority of the operations’ losses and were entitled to a majority of the operations’ residual returns. Therefore, the gaming operations conducted by the Casino Operator were consolidated in our financial statements. See “Business—Agreements Governing the Operation of the Hard Rock—Casino Sublease.”
(3)		During 2005, the Predecessor recorded a $0.6 million loss on the disposal of assets, $0.3 million loss related to hotel expansion which was abandoned when the Predecessor started a condominium expansion on its property and $0.3 million loss related to other operating assets being retired. During 2004, the Predecessor recorded a $2.6 million loss on the disposal of assets related to the closure of Baby’s nightclub.
(4)		Loss on early extinguishment of debt in 2005 is related to a $1.2 million premium paid to the holders of the Predecessor’s junior subordinated notes, a portion of which were retired during the fourth quarter of 2005.
(5)		The Company completed its 2008 annual impairment tests of goodwill and indefinite-lived intangible assets as of October 31, 2008. The income approach, market approach, and cost approach were considered in arriving at a fair value estimate of the Company’s intangible assets. As a result of this analysis, the Company recognized a non-cash impairment charge of approximately $181.3 million related to goodwill and $10.0 million related to certain indefinite-lived intangible assets in the fourth quarter of 2008. The impairment charge represents all of the goodwill recognized at the time of the Acquisition and a portion of the value of the Hard Rock license. The impairment charge resulted from factors impacted by current market conditions including: (i) lower market valuation multiples for gaming assets; (ii) higher discount rates resulting from turmoil in the credit and equity markets; and (iii) current cash flow forecasts for the Company. See “Critical Accounting Policies—Impairment of Goodwill, Intangible Assets and Other Long-lived Assets.”


	Successor(1)									Predecessor(1)
	Year Ended									Period Ended			Year Ended
	Dec 31, 2009			Dec 31, 2008			Dec 31, 2007			Feb 1, 2007			Dec 31, 2006			Dec 31, 2005
BALANCE SHEET DATA:
Cash and cash equivalents	$	12,277		$	10,148		$	14,157		$	11,241		$	8,536		$	8,895
Total assets	$	1,301,082		$	1,162,954	(2)	$	942,562	(2)	$	193,368		$	193,625		$	198,957
Total debt	$	1,210,874		$	1,083,813		$	793,452		$	188,429		$	184,929		$	197,915
Shareholders’/Members’ equity (deficit)	$	(64,873	)	$	(61,514	)	$	112,487		$	(22,648	)	$	(19,715	)	$	(22,353	)


(1)		The Company was formed by the DLJMB Parties and the Morgans Parties to acquire the Hard Rock and certain related assets. The Hard Rock was owned by the Predecessor. The Company effectuated the acquisition of the Hard Rock through the merger of a wholly owned subsidiary of the Company with and into the Predecessor. As a result of the merger, the Company, through a subsidiary, is the successor to the Predecessor and all of the assets comprising its business.

(2)		We evaluated our variable interests in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10, Consolidation ( prior authoritative literature: FASB Interpretation No. (“FIN”) 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, as amended) (“FASB ASC 810-10 (FIN 46R)”), to determine if they are variable interests in variable interest entities. FASB ASC 810-10 (FIN 46R) requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Prior to early 2008, the gaming operations at our casino were operated pursuant to a Casino Sublease with Golden HRC, LLC (the “Casino Operator”), a third party lessee, which purchased the gaming assets located at the premises with a Gaming Asset Note in an amount equal to approximately $6.8 million. In addition, where and to the extent that the monthly Casino EBITDAR (as defined in the Casino Sublease) for the previous month fell below the base rent under the Casino Sublease, the Casino Operator would provide us with the difference between the base rent and the Casino EBITDAR in monthly Shortfall Notes. In contrast, where and to the extent that monthly Casino EBITDAR exceeded the base rent, the Casino Operator would establish a reserve account for excess cash flow, which would be applied toward satisfying certain amounts due under the Shortfall Notes. Once the Casino Operator paid out such amounts as became due under the Shortfall Notes, 75.0% of any surplus fund reserves remaining would be earmarked for repayment of the Gaming Asset Note and a Working Capital Note, according to the terms contained in the Casino Sublease. In early 2008, we received a license from the Nevada Gaming Commission to serve as the operator of the gaming facilities at the Hard Rock, we assumed operation of the gaming facilities and the Casino Sublease was terminated. Upon termination of the Casino Sublease on February 29, 2008, the Casino Operator relinquished all of the gaming assets to us and, in return, we forgave any remaining balance on the Gaming Asset Note. At that time, there were no excess funds remaining in the surplus fund reserve. We believe that we were the primary beneficiary of the gaming operations because we were ultimately responsible for a majority of the operations’ losses and were entitled to a majority of the operations’ residual returns. Therefore, the gaming operations conducted by the Casino Operator were consolidated in our financial statements.

(3)		During 2005, the Predecessor recorded a $0.6 million loss on the disposal of assets, $0.3 million loss related to hotel expansion which was abandoned when the Predecessor started a condominium expansion on its property and $0.3 million loss related to other operating assets being retired.

(4)		Loss on early extinguishment of debt in 2005 is related to a $1.2 million premium paid to the holders of the Predecessor’s junior subordinated notes, a portion of which were retired during the fourth quarter of 2005.

(5)		The Company completed its 2008 annual impairment tests of goodwill and indefinite-lived intangible assets as of October 31, 2008. The income approach, market approach, and cost approach were considered in arriving at a fair value estimate of the Company’s intangible assets. As a result of this analysis, the Company recognized a non-cash impairment charge of approximately $181.3 million related to goodwill and $10.0 million related to certain indefinite-lived intangible assets in the fourth quarter of 2008. The impairment charge represents all of the goodwill recognized at the time of the Acquisition and a portion of the value of the Hard Rock license. The impairment charge resulted from factors impacted by market conditions including: (i) lower market valuation multiples for gaming assets; (ii) higher discount rates resulting from turmoil in the credit and equity markets; and (iii) current cash flow forecasts for the Company. See “Critical Accounting Policies—Impairment of Land, Goodwill, Intangible Assets and Other Long-lived Assets.”

(6)		The Company completed its 2009 annual impairment tests of land intended for sale and indefinite-lived intangible assets as of October 31, 2009. The income approach, market approach, and cost approach were considered in arriving at a fair value estimate of the Company’s intangible assets and land intended for sale. As a result of this analysis, the Company recognized a non-cash impairment charge of approximately $108.7 million related to the land intended for sale and determined there was no impairment indicated for indefinite-lived intangible assets in the fourth quarter of 2009. The impairment charge resulted from factors impacted by current market conditions including: (i) lower market valuation multiples for gaming assets; (ii) higher discount rates resulting from turmoil in the credit and equity markets; and (iii) current cash flow forecasts for the Company. See “Critical Accounting Policies—Impairment of Land, Goodwill, Intangible Assets and Other Long-lived Assets.”

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Financial Information” and our consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under “Risk Factors” and elsewhere in this report.

Overview

Substantially all of our current business is comprised of the operation of the Hard Rock. For the year ended December 31, ~~2008~~2009, Hard Rock’s gross revenues were derived 2923% from gaming operations, 3840% from food and beverage, 2119% from lodging and 1218% from retail and other sales. Our business strategy is to provide our guests with an energetic and exciting gaming and entertainment environment with the services and amenities of a luxury boutique hotel. In March 2007, we ~~announced~~ announced a large-scale expansion and renovation project at the Hard Rock. ~~The~~As ~~expansion~~of isDecember 31, 2009, ~~expected~~a tomajority ~~include~~of the ~~addition of~~expansion ~~approximately~~project ~~875~~was ~~guest rooms~~completed, including antwo ~~all-suite~~new ~~tower~~hotel ~~with~~and ~~upgraded~~suite ~~amenities~~towers, ~~approximately~~new 60casino space,~~000~~ ~~square~~additional ~~feet of~~ meeting and convention space, ~~and approximately 30,000 square feet of casino space. The project also includes an expansion of the hotel’s pool,~~ several new food and beverage outlets, a new and larger “The Joint” live entertainment venue, ~~a new spa~~ and ~~exercise facility~~other ~~and additional retail space~~amenities. In ~~2008~~March 2010, we ~~completed renovations~~expect to open ~~the~~an ~~existing~~expanded ~~property~~hotel ~~that~~pool, ~~commenced~~outdoor ~~during~~gaming ~~2007~~ and ~~which~~additional ~~included upgrades~~food ~~to existing suites, restaurants~~ and ~~bars,~~beverage ~~retail shops~~outlets, ~~common~~which ~~areas and a new ultra~~would ~~lounge~~complete ~~and poker room. We expect~~ the ~~expansion~~remaining toportions ~~be complete by late 2009 and have currently budgeted approximately $750.0 million for its completion. As~~ of ~~December 31, 2008, we were on pace to complete~~ the expansion project as scheduled and within the parameters of the original budget. Because of the substantial costs we ~~expect~~have toincurred ~~incur~~ during the ~~expansion~~ expansion project, our financial condition, results of operation and liquidity for periods during the project are not expected to be comparable to our financial condition, results of operation and ~~liquidity~~ liquidity for periods before or after completion of the project.

Due to a number of factors affecting consumers, including acontinued ~~slowdown~~recessionary inconditions in global economies, ~~contracting~~ contracted credit markets, and reduced consumer spending, ~~and new U.S. political leadership,~~ the outlook for the gaming, travel, and entertainment industries both domestically and abroad remains highly uncertain. Auto traffic into Las Vegas and air travel to McCarran International airport has declined, resulting in lower casino volumes and a reduced demand for hotel rooms. Based on these ~~adverse~~ adverse circumstances, we believe that we will continue to experience lower hotel occupancy rates ~~and~~ and casino volumes as compared to that of prior periods. Changes in discretionary consumer spending ~~in the markets where we operate resulting from the slowdown in economies globally,~~has ~~continued~~resulted ~~disruptions~~ in ~~the world financial and credit markets may result in~~ fewer customers visiting, or customers spending less, at our property, which ~~will~~has adversely impacted and may continue to adversely impact our revenues and the availability and cost of credit. The current situation in the world credit markets ~~and the disruption in the normal flow of credit among financial institutions~~ may adversely impact the ~~availability~~ availability and cost of credit, which could adversely affect our liquidity, future growth and operations. There can be no assurances that government responses to the disruptions in the financial and credit markets will restore consumer confidence, stabilize the markets or increase liquidity and the availability of credit. As a result, customer demand for the luxury amenities and leisure activities that we offer may be depressed or decline for an extended period.

~~The~~Recent ~~recent severe~~ economic ~~downturn and adverse~~ conditions in the local, regional, national and global markets have negatively affected our results of operations, and may continue to negatively affect our results of operations in the future. During periods of economic ~~contraction~~recessions such as the current period, our revenues may decrease while some of our costs remain fixed or even increase, resulting in decreased earnings. Gaming and other leisure activities we offer represent discretionary expenditures and participation in such activities may decline during economic downturns, during which consumers generally earn less disposable income. ~~Even~~These ~~an uncertain economic outlook may adversely affect consumer spending in our gaming operations~~ and ~~related facilities, as consumers spend less in anticipation of a potential economic downturn. Furthermore,~~ other uncertainties~~, including~~ ~~national~~have and ~~global economic conditions, terrorist attacks or other global events,~~ could ~~adversely~~ ~~affect~~continue ~~consumer~~to ~~spending, and~~ adversely affect our results of operations.

We completed the Acquisition on February 2, 2007. The following discussion and analysis covers periods both prior and subsequent to the Acquisition. Our Predecessor’s historical consolidated financial statements included herein for the periods prior to February 2, 2007 represent the financial condition, results of operations and liquidity of the Predecessor prior to the closing of the Acquisition. Our historical consolidated financial statements included herein for the period following the closing of the Acquisition represent our financial condition, results of operation and liquidity after the closing of the Acquisition. As a result of various factors, the financial condition, results of operations and liquidity for the periods beginning on or after February 2, 2007 may not be comparable to the information prior to that date. For comparative purposes, below we have included a comparison of our results of operations for the ~~year~~ years ended December 31, 2009 and 2008 to our and our Predecessor’s combined results of operations for the ~~year~~ year ended December 31, 2007 ~~to our Predecessor’s results of operations for the year ended December 31, 2006~~. While the Company believes that a comparison of the results of operations for these three periods provides useful information regarding the changes in operating data between the periods, not all of the data is comparable due to the impact that the Acquisition and the financing for the Acquisition have had on the amount of interest expense and depreciation and amortization we incur following the closing of the Acquisition.

3630

~~Prior to~~We ~~the~~evaluate ~~time~~our wevariable ~~satisfied~~interests ~~all~~in ~~conditions~~accordance ~~for~~with ~~obtaining~~FASB ~~the~~ASC ~~necessary~~810-10 ~~gaming~~(FIN ~~approvals~~46R), weto ~~were~~determine ~~prohibited~~if ~~from~~they ~~receiving~~are ~~any~~variable ~~revenues~~interests ofin ~~the~~variable ~~gaming~~interest ~~facilities~~entities. atFASB ~~the~~ASC ~~Hard~~810-10 ~~Rock.~~(FIN As46R) ~~such,~~requires certain wevariable ~~leased~~interest ~~our gaming~~entities ~~facilities~~ to abe ~~licensed~~consolidated ~~third~~by ~~party~~the ~~Casino~~primary ~~Operator~~beneficiary ~~pursuant~~of tothe aentity ~~Casino~~if the ~~Sublease~~equity ~~under~~investors ~~which~~in the ~~Casino~~ ~~Operator~~entity ~~conducted~~do ~~the~~not ~~gaming~~have ~~operations at~~ the ~~casino.~~characteristics ~~The~~of ~~Casino~~a ~~Sublease~~controlling ~~provided for~~financial ~~base~~interest ~~rent~~or ~~equal~~do tonot ~~$1.725 million~~have ~~per~~sufficient ~~month.~~equity Inat ~~addition~~risk tofor the ~~base~~entity ~~rent,~~to ~~the~~finance ~~Casino~~its ~~Operator~~activities ~~was~~without ~~required~~additional tosubordinated ~~pay~~financial ~~for~~support ~~certain~~from ~~rent-related~~other ~~costs~~parties. ~~According~~Prior to ~~the~~early ~~Casino Sublease~~2008, the ~~Casino~~gaming ~~Operator~~operations ~~would~~at ~~withhold,~~our ascasino anwere ~~expense,~~operated ~~from~~pursuant ~~the~~to ~~revenue~~a ~~arising~~Casino ~~from~~Sublease ~~operations~~with at the ~~casino~~Casino Operator, a ~~sum~~third inparty ~~the amount equal to $275,000 per month~~lessee. OnIn ~~January 24,~~early 2008, we received a license from the Nevada Gaming Commission to serve as the operator of the gaming facilities at the Hard Rock, ~~which~~we ~~became~~assumed operation of the gaming ~~effective~~facilities onand ~~February 14,~~the ~~2008~~Casino Sublease was terminated. OnDue ~~March 1,~~to ~~2008~~various arrangements we had with the Casino Operator, we ~~assumed~~believe that we were the primary beneficiary of the gaming operations atbecause we were ultimately responsible for a majority of the ~~Hard~~operations’ ~~Rock~~ losses and ~~terminated~~were entitled to a majority of the operations’ residual returns. Therefore, the gaming operations conducted by the Casino ~~Sublease~~Operator were consolidated in our financial statements.

We evaluated our variable interests in accordance with FIN 46R, to determine if they are variable interests in variable interest entities. FIN 46R requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The gaming operations at our casino were operated by the Casino Operator, which purchased the gaming assets located at the premises with a Gaming Asset Note in an amount equal to approximately $6.8 million. Upon termination of the Casino Sublease on February 29, 2008, the Casino Operator relinquished all of the gaming assets to us and, in return, we forgave the remaining balance on the Gaming Asset Note. In addition, where and to the extent that the monthly Casino EBITDAR (as defined in the Casino Sublease) for the previous month fell below the base rent under the Casino Sublease, the Casino Operator would provide us with the difference between the base rent and the Casino EBITDAR in monthly Shortfall Notes. In contrast, where and to the extent that monthly Casino EBITDAR exceeded the base rent, the Casino Operator would establish a reserve account for excess cash flow, which would be applied toward satisfying certain amounts due under the Shortfall Notes. Once the Casino Operator paid out such amounts as became due under the Shortfall Notes, 75.0% of any surplus fund reserves remaining would be earmarked for repayment of the Gaming Asset Note and a Working Capital Note, according to the terms contained in the Casino Sublease. On March 1, 2008, we assumed the gaming operations at the Hard Rock and the Casino Sublease was terminated. Upon termination of the Casino Sublease, there were no excess funds remaining in the surplus fund reserve. We believe that we were the primary beneficiary of the gaming operations because we were ultimately responsible for a majority of the operations’ losses and were entitled to a majority of the operations’ residual returns. Therefore, the gaming operations conducted by the Casino Operator were consolidated in our financial statements. See “Business—Agreements Governing the Operation of the Hard Rock—Casino Sublease.”

As is customary for companies in the gaming industry, we present average occupancy rate and average daily rate for the Hard Rock including rooms provided on a complimentary basis. Operators of hotels in the lodging industry generally may not follow this practice, as they may present average occupancy rate and average daily rate net of rooms provided on a complimentary basis. We calculate (a) average daily rate by dividing total daily lodging revenue by total daily rooms rented and (b) average occupancy rate by dividing total rooms occupied by total number of rooms available. We account for lodging revenue on a daily basis. Rooms provided on a complimentary basis include rooms provided free of charge or at a discount to the rate normally charged to customers as an incentive to use the casino. Complimentary rooms reduce average daily rate for a given period to the extent the provision of such rooms reduces the amount of revenue we would otherwise receive. We do not separately account for the number of occupied rooms that are provided on a complimentary basis, and obtaining such information would require unreasonable effort and expense within the meaning of Rule 12b-21 under the Exchange Act.

The following are key gaming industry-specific measurements we use to evaluate casino revenues. “Table game drop,” “slot machine handle” and “race and sports book write” are used to identify the amount wagered by patrons for a casino table game, slot machine or racing events and sports games, respectively. “Drop” and “Handle” are abbreviations for table game drop and slot machine handle. “Table game hold percentage,” “slot machine hold percentage” and “race and sports book hold percentage” represent the percentage of the total amount wagered by patrons that the casino has won. Such hold percentages are derived by dividing the amount won by the casino by the amount wagered by patrons. Based on historical experience, in the normal course of business we expect table games hold percentage for any period to be within the range of 12% to 16%, slot machine hold percentage for any period to be within the range of 4% to 7% and race and sports book hold percentage to be within the range of 4% to 8%.

3731

Results of Operations

The following table presents consolidated statement of operations data for each of the periods indicated as a percentage of revenues.

	Successor									~~Predecessor~~			Predecessor
				~~Period From~~			~~Combined~~Period ~~Year~~From			~~Period~~Combined ~~From~~Year			Period From
	Year Ended			~~Feb 2, 2007 to~~			~~Ended~~Feb 2, 2007 to			~~Jan 1, 2007 to~~Ended			~~Year~~Jan ~~Ended~~1, 2007 to
	Dec 31, 2008			Dec 31, 2007			Dec 31, 2007			Feb 1, 2007			Dec 31, 2006
	Dec 31, 2009			Dec 31, 2008			Dec 31, 2007			Dec 31, 2007			Feb 1, 2007
INCOME STATEMENT DATA:
STATEMENT OF OPERATIONS DATA:
REVENUES:
Casino		3226.49	%		2932.74	%		29.7	%		3029.07	%		3230.80	%
Lodging		2321.7			2423.37			24.53			2624.45			2226.84
Food and beverage		4246.71			4042.57			40.5			40.95			3840.49
Retail		3.71			3.7			3.67			3.16			3.91
Other		917.60			109.36			10.23			810.2			98.02
Gross revenues		~~112~~114.19			~~108~~112.51			108.5			108.65			~~106~~108.96
Less: promotional allowances		(1214.19	)		(812.51	)		(8.5	)		(8.65	)		(68.96	)
Net revenues		100.0			100.0			100.0			100.0			100.0
COSTS AND EXPENSES:
Casino		2226.93			1922.49			19.74			2319.17			1923.21
Lodging		4.85			54.18			5.31			65.93			56.59
Food and beverage		23.04			2023.70			2120.07			2521.0			2025.60
Retail		1.89			1.8			1.8			21.28			2.2
Other		713.14			87.81			8.78			78.07			87.60
Marketing		3.10			23.91			2.9			2.39			32.03
Management fee—related party		4.3			4.5			5.0			11.7			3.5
Fee and expense reimbursements - related party		4.4			4.3			4.5			5.0			11.7
General and administrative		2317.85			1523.48			15.94			2215.09			1522.30
Merger costs		—			—			~~0.9~~—			130.29			213.52
Depreciation and amortization		14.3			1014.03			10.0			910.10			79.01
Loss on disposal of assets		0.01			10.0			01.90			—0.9			~~0.3~~—
Pre-opening		3.6.1			03.76			0.67			—0.6			—
Acquisition and transition related costs		~~0.0~~—			10.40			1.34			—1.3			—
Impairment of goodwill and license rights		116.4			—			—			—			—
Impairment of land, goodwill and license rights		67.3			116.4			—			—			—
Total costs and expenses		~~225~~182.1			91225.71			9391.97			~~122~~93.69			87122.86
(LOSS) INCOME FROM OPERATIONS		(~~125~~82.1	)		8(125.31	)		68.13			~~(22.~~6.1	)		12(22.26	)
Interest income		0.92			0.49			0.4			—0.4			~~0.2~~—
Interest expense, net of capitalized interest		(4849.03	)		(4948.60	)		(4649.96	)		(1146.69	)		(1011.16	)
Loss on early extinguishment of debt		—			—			—			—			—
(Loss) income before income tax (benefit) expense		(~~172~~131.1	)		(40172.91	)		(40.49	)		(3440.24	)		2(34.42	)
Income tax (benefit) expense		~~(0.4~~—	)		(10.34	)		(21.03	)		(112.70	)		0(11.97	)
Net income (loss)		(~~171~~131.81	)		(39171.68	)		(3839.46	)		(2238.54	)		1(22.45	)
Other Comprehensive (Loss) Income:
Unrealized loss on interest rate caps, net of tax		(10.4	)		—			—			—			—
Interest rate cap market value adjustment, net of tax		9.2			(10.4	)		—			—			—
Comprehensive (loss) income		(~~182~~121.29	)%		(39182.62	)%		(3839.46	)%		(2238.54	)%		1(22.45	)%

3832

The following table presents consolidated statement of operations data for the year ended December 31, ~~2008~~2009 and ~~2007~~2008 and the change in such data between the two periods.

				Period From						Combined Year			Change From Combined Year Ended Dec 31, 2007 to
							Change From
	Year Ended			Feb 2, 2007 to			Jan 1, 2007 to			Ended			Year Ended Dec 31, 2008
							Year Ended Dec 31, 2008 to
	Dec 31, 2008			Dec 31, 2007			Feb 1, 2007			Dec 31, 2007			Change ($)			Change (%)
	Year Ended			Year Ended			Year Ended Dec 31, 2009
	(in thousands)
	Dec 31, 2009			Dec 31, 2008			Change ($)			Change (%)
INCOME STATEMENT DATA:
	(in thousands)
REVENUES:
STATEMENT OF OPERATIONS DATA:
Casino	$	53,282		$	51,501		$	3,904		$	55,405		$	(2,123	)		(3.8	)%
REVENUES:
Lodging		39,008			42,220			3,438			45,658			(6,650	)		(14.6	)
Casino	$	43,527		$	53,282		$	(9,755	)		(18.3	)%
Food and beverage		70,119			70,202			5,320			75,522			(5,403	)		(7.2	)
Lodging		35,063			39,008			(3,945	)		(10.1	)
Retail		6,146			6,358			399			6,757			(611	)		(9.0	)
Food and beverage		74,555			70,119			4,436			6.3
Other		15,741			17,896			1,073			18,969			(3,228	)		(17.0	)
Retail		5,019			6,146			(1,127	)		(18.3	)
Less: promotional allowances		(19,951	)		(14,739	)		(1,116	)		(15,855	)		(4,096	)		25.8
Other		27,534			15,741			11,793			74.9
Net revenues		164,345			173,438			13,018			186,456			(22,111	)		(11.9	)
Gross Revenues		185,698			184,296			1,402			0.8
COSTS AND EXPENSES:
Less: promotional allowances		(24,144	)		(19,951	)		(4,193	)		21.0
Casino		37,694			33,671			3,008			36,679			1,015			2.8
Net revenues		161,554			164,345			(2,791	)		(1.7	)
Lodging		7,901			8,903			896			9,799			(1,898	)		(19.4	)
COSTS AND EXPENSES:
Food and beverage		37,809			35,897			3,261			39,158			(1,349	)		(3.4	)
Casino		42,421			37,694			(4,727	)		(12.5	)
Retail		2,896			3,092			285			3,377			(481	)		(14.2	)
Lodging		7,293			7,901			608			7.7
Other		11,668			15,236			913			16,149			(4,481	)		(27.7	)
Food and beverage		37,818			37,809			(9	)		0.0
Marketing		5,044			5,032			296			5,328			(284	)		(5.3	)
Retail		3,014			2,896			(118	)		(4.1	)
Management fee—related party		7,009			7,837			1,525			9,362			(2,353	)		(25.1	)
Other		21,686			11,668			(10,018	)		(85.9	)
General and administrative		39,170			26,743			2,865			29,608			9,562			32.3
Marketing		4,830			5,044			214			4.2
Merger costs		—			—			1,723			1,723			(1,723	)		(100.0	)
Fees and expense reimbursements — related party		7,046			7,009			(37	)		(0.5	)
Depreciation and amortization		23,454			17,413			1,184			18,597			4,857			26.1
General and administrative		28,305			39,170			10,865			27.7
Loss on disposal of assets		25			1,725			—			1,725			(1,700	)		(98.6	)
Depreciation and amortization		23,062			23,454			392			1.7
Pre-opening		5,933			1,167			—			1,167			4,766			408.4
Loss on disposal of assets		97			25			(72	)		(288.0	)
Acquisition and transition related costs		—			2,358			—			2,358			(2,358	)		(100.0	)
Pre-opening		9,886			5,933			(3,953	)		(66.6	)
Impairment of goodwill and license rights		191,349			—			—			—			(191,349	)		100.0
Impairment of land, goodwill and license rights		108,720			191,349			82,629			43.2
Total costs and expenses		~~369~~294,~~952~~178			~~159~~369,~~074~~952			1575,~~956~~774			~~175,030~~20.5			~~3,573~~			~~2.0~~
(LOSS) INCOME FROM OPERATIONS		(205,607	)		14,364			(2,938	)		11,426			(25,684	)		(224.8	)
LOSS FROM OPERATIONS		(132,624	)		(205,607	)		72,983			(35.5	)
Interest income		~~1,542~~329			~~698~~1,542			—(1,213	)		~~698~~(78.7	)		~~844~~			~~120.9~~
Interest expense, net of capitalized interest		(7879,~~822~~570	)		(8578,~~953~~822	)		(~~1,516~~748	)		~~(87,469~~0.9	)		~~8,647~~			~~(9.9~~	)
Loss before income tax benefit		(~~282~~211,~~887~~865	)		(70282,~~891~~887	)		(471,~~454~~022	)		(~~75,345~~25.1	)		~~(207,542~~	)		~~275.5~~
Income tax benefit		~~(585~~—	)		(~~2,277~~585	)		(~~1,521~~585	)		~~(3,798~~100.0	)		~~3,213~~			~~(84.6~~	)
Net loss		(~~282~~211,~~302~~865	)		(68282,~~614~~302	)		(270,~~933~~437	)		(~~71,547~~25.0	)		~~(210,755~~	)		~~294.6~~
Other Comprehensive Loss:
Unrealized loss on interest rate caps, net of tax		(17,168	)		(26	)		—			(26	)		(17,142	)		65,930.8
Interest rate cap market value adjustment, net of tax		14,883			(17,168	)		32,051			(186.7	)
Comprehensive loss	$	(~~299~~196,~~470~~982	)	$	(68299,~~640~~470	)	$	(2102,~~933~~488	)	$	(~~71,573~~34.2	)%	$	~~(227,897~~	)		~~318.4~~	%

3933

Results of Operations for the Year Ended December 31, 2009 Compared to the Results of Operations for the Year Ended December 31, 2008

Net Revenues. Net revenues decreased 1.7% for the year ended December 31, 2009 to $161.6 million compared to $164.3 million for the year ended December 31, 2008. The $2.8 million decrease in net revenues was primarily attributable to a $3.9 million or 10.1% decrease in lodging revenue, a $9.8 million or 18.3% decrease in casino revenue, a $1.1 million or 18.3% decrease in retail revenue and a $4.1 million or 21.0% increase in promotional allowances related to items furnished to customers on a complimentary basis. These decreases were offset by an $11.8 million or 74.9% increase in other revenue and a $4.4 million or 6.3% increase in food and beverage revenue. Management believes these decreases are a result of decline in visitor volume into Las Vegas and parking convenience from the loss of the surface lots used in the expansion of The Joint and meeting space.

Casino Revenues. The $9.8 million decrease in casino revenues was primarily due to a $9.8 million or 26.1% decrease in table games revenue, a $0.3 million or 2.0% decrease in slot revenue and a $0.5 million or 34.5% decrease in race and sports revenue which was offset by a $0.8 million or 115.8% increase in poker revenue from the poker lounge, which opened in August 2008. The decrease in table games revenues was due to a decrease in table games hold percentage and a decrease in table games drop. Management believes that table games drop declined because of lower visitor volume in Las Vegas and a decrease in “hosted play” (i.e., players attracted to the Hard Rock’s casino by our casino hosts). Table games hold percentage decreased 290 basis points to 11.0% from 13.9%, which was slightly less than the expected range of 12% to 16%. Table games drop decreased $17.6 million or 6.5% to $251.0 million from $268.6 million. The average number of table games in operations decreased to 81 from 84 tables. The net result of these changes in drop and hold percentage was a decrease in win per table game per day to $937 from $1,219, a decrease of $282 or 23.1%. We have historically reported table games hold percentage using the gross method, while casinos on the Las Vegas Strip report hold percentage using the net method (which reduces the table game drop by marker repayments made in the gaming pit area). For the purpose of comparison to properties on the Las Vegas Strip, our net hold percentage for the year ended December 31, 2009 was 13.7% compared to 17% for the year ended December 31, 2008. Slot machine revenues decreased $0.3 million from $13.7 million to $13.4 million. Slot machine handle decreased $71.7 million from $392 million to $321.1 million. The decrease in slot machine handle was offset by an increase in slot machine hold percentage. Management believes that a high limit slot tournament contributed to the increased slot machine handle for the year ended December 31, 2008, which was not held in 2009. Slot machine hold percentage increased 70 basis points to 4.2% from 3.5%, which was within the expected range of 4% to 7%. The average number of slot machines in operation increased to 526 from 514, an increase of 12 machines or 2.3%. The net result of these changes in handle, hold percentage and average number of slot machines in operation was a decrease in win per slot machine per day to $70 from $73, a decrease of $3 or 4.0%. Race and sports book revenue decreased $0.5 million due to a decrease in race and sports book write and a decrease in hold percentage. The race and sports book write decreased $3 million to $23 million in the year ended December 31, 2009 from $26 million in the year ended December 31, 2008. Race and sports book hold percentage decreased 1.5 percentage points to 4.1% from 5.6%, which was within the expected range of 4% to 8%.

Lodging Revenues. The $3.9 million decrease in lodging revenues to $35.1 million was primarily due to a decrease in average daily rate to $138 from $190. The decrease in average daily rate was a result of management’s decision to strategically lower room prices to maximize occupancy levels and remain competitive within the Las Vegas market. Hotel occupancy decreased slightly to 88% from 92% between periods. There was an increase in average number of rooms to 792 from 612 as a result of opening the Paradise tower in August of 2009, which consists of 492 guest rooms and suites. This increase in average number of rooms also contributed to the decrease in average daily rate and hotel occupancy. The 2009 revenue per available room of $121 was down in comparison to 2008 revenue per available room of $174 or by 30%. The 2009 average daily room rate of $138 decreased in comparison to 2008 average daily room rate of $190 or by 27.6%.

Food and Beverage Revenues. The $4.4 million increase in food and beverage revenues was due a $2.3 million increase in Beach Club, as a result of the continued success of our pool party Rehab, a $1.6 million increase in Wasted Space, a $1.3 million increase in The Joint, as a result of increased capacity, a $0.9 million increase in the Poker Lounge, a $0.9 million increase in Rare 120 over its predecessor AJ’s Steakhouse, a $0.3 million increase in Mr. Lucky’s, a $0.3 million increase in Starbucks and $0.4 million in revenue from Vanity, Espumoso Caffé, Luxe Bar and MidwayBar, which opened in late December 2009. These increases were offset by a $0.8 million decrease in Ago, a $0.5 million decrease in banquets and a $1.7 million decrease in Body English. Management believes that the overall increase in food and beverage revenues is a result of additional customer volumes due to the opening of the new larger The Joint and Paradise Tower.

Retail Revenues. We believe the $1.1 million decrease in retail revenues was due in part to continued general market decline in the themed merchandise market segment and the addition of other retail operations in Las Vegas.

Other Revenues. Other revenue increased $11.8 million primarily due to a $11.8 million increase in entertainment and box office revenues as a result of opening the new larger Joint

Promotional Allowances. Promotional allowances increased $4.2 million or 21.0% over the prior period for the year ended December 31, 2009. Promotional allowances increased as a percentage of total revenues to 11.4% from 10.8% between periods. This increase is due to additional promotional allowances offered by Body English and increased promotional activity by the casino marketing staff.

Casino Expenses. Casino expenses increased $4.7 million or 12.5% to $42.4 million from $37.7 million. The increase was primarily due to $2.0 million increase in bad debt expense, a $2.9 million increase in complimentaries and $0.5 million increase in customer discounts, which was partially offset by a $0.7 million decrease in payroll and related expenses. We issue credit in the form of “markers” to approved casino customers following investigations of creditworthiness. Non-performance by these parties would result in losses up to the recorded amount of the related receivables. Business or economic conditions or other significant events could also affect the collectibility of such receivables. The Company’s provision and allowance for doubtful accounts are based on estimates by management of the collectability of the receivable balances at each period end. Management’s estimates consider, among other factors, the age of the receivables, the type or source of the receivables and the results of collection efforts to date, especially with regard to significant accounts. Management believes bad debt is increasing due to a number of factors affecting consumers, including a slowdown in global economies and contracting credit markets.

Lodging Expenses. Lodging costs and expenses decreased 7.7% or $0.6 million to $7.3 million for the year ended December 31, 2009. Lodging expenses in relation to lodging revenues increased to 20.8% from 20.3% in the prior period due primarily to a $0.4 million decrease in expenses as a result of an increase in complimentaries provided to customers without charge, a $0.3 million decrease in contract services, a $0.3 million decrease in contract maintenance and a $0.7 million decrease in decrease in miscellaneous operating supplies, which were offset by a $0.7 million increase in payroll related expenses and a $0.4 million increase in laundry expenses as a result of opening 492 more rooms in the Paradise Tower.

Food and Beverage Costs And Expenses. Food and beverage costs and expenses remained flat on increases in revenue of $4.4 million. Food and beverage costs and expenses in relation to food and beverage revenues decreased to 50.8% from 53.9% in the prior year due primarily to an increase in revenues, while costs and expenses remained flat year over year.

Retail Costs and Expenses. Retail costs and expenses increased 4.1% or $0.1 million from the prior period for the year ended December 31, 2009. Retail costs and expenses in relation to retail revenues increased to 60.1% from 47.1% in the prior period due to a decrease in revenues of $1.1 million.

Other Costs and Expenses. Other costs and expenses increased 85.9% or $10.0 million over the prior period for the year ended December 31, 2009. Other costs and expenses in relation to other income increased to 78.1% from 70.3%. This increase was primarily due to a $11.4 million increase in event costs, a $0.5 million increase in payroll related expenses, which were offset by a $1.7 million decrease in expenses as a result of an increase in complimentaries provided to customers without charge and a $0.2 million decrease in equipment rental.

Marketing, General and Administrative. Marketing, general and administrative expenses decreased 25.1% or $11.1 million over the prior period for the year ended December 31, 2009. Marketing, general and administrative expenses in relation to gross revenues decreased to 17.8% from 23.9%. The $11.1 million decrease in these expenses was primarily due to a $2.1 million decrease in professional services primarily associated with the acquisition of our gaming license, a $1.3 million decrease in legal and professional services associated with our Form 10 registration and ongoing public filing requirements, a $0.5 million decrease in legal and professional services associated with the protection and development of our intellectual property, a $0.3 million decrease in legal and professional services associated with Sarbanes Oxley compliance work and a $5.5 million decrease in legal and professional services associated with joint venture and expansion costs, a $1.2 million decrease in stock based compensation expense, a $0.2 million decrease in payroll and related expenses.

Fees and Expense Reimbursements — Related Party. Fees and expense reimbursements — related party expenses remained flat at $7.0 million year over year. As compensation for its services, Morgans Management receives a management fee equal to 4% of defined non-gaming revenues including casino rents and all other rental income, a gaming facilities support fee equal to $828,000 per year and a chain service expense reimbursement, which reimbursement is subject to a cap of 1.5% of defined non-gaming revenues and all other income.

Depreciation and Amortization. Depreciation and amortization expense decreased by $0.4 million to $23.1 million for the year ended December 31, 2009 from $23.5 million for the year ended December 31, 2008. Depreciation expense increased $2.1 million as a result of the additional assets placed into service from the expansion, which was offset by a $2.5 million decrease in amortization expense as a result of certain intangible assets being fully amortized.

Interest Expense. Interest expense increased $0.7 million to $79.5 million for the year ended December 31, 2009 from $78.8 million for the year ended December 31, 2008, an increase of 0.9%. This increase is a result of an increase in the amount outstanding under the CMBS facility of $123.2 million and a decrease in the London Interbank Offered Rate (“LIBOR”) and an increase in additional capitalized interest, as a result of the expansion and deferred financing amortization in connection with the Acquisition. The initial deferred financing amortization occurs over the 36-month life of the debt under the CMBS facility at approximately $1.5 million per month and over the 12-month life of the land acquisition financing at approximately $0.2 million per month. As part of the 2009 Loan Restructuring described under “—Liquidity and Capital Resources—2009 Loan Restructuring,” we incurred an additional $1.7 million in deferred financing costs on the CMBS facility and $0.5 million in deferred financing costs on the land acquisition financing. The subsequent deferred financing amortization occurs over the life of the debt at approximately $33.0 thousand and $9.0 thousand per month on the CMBS facility and the land acquisition financing respectively. We incurred approximately $123.2 million of new debt under the CMBS facility and $3.85 million of new debt under the land acquisition financing during the year ended December 31, 2009. Payments of the new debt under the CMBS facility are based upon LIBOR, subject to an interest rate cap of 2.5%, plus a spread of 4.25% (subject to a portion of the interest being deferred) and payments of the land acquisition financing are based upon LIBOR, plus a blended spread of 6.83%. A portion of the interest payable on the land acquisition financing from August 9, 2009 through December 24, 2009 was deferred.

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The outstanding debt under our CMBS facility has a variable interest rate. We use derivative financial instruments, primarily interest rate caps, to manage our exposure to interest rate risks related to our floating rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. As of December 31, 2009, our total outstanding debt, including the current portion, was approximately $1.2 billion, all of which was variable rate debt. The Company has entered into hedge agreements for our CMBS facility that cap LIBOR at 2.5%. These hedge agreements expired February 9, 2010 and at such time the Company purchased five new interest rate caps. At December 31, 2009, the LIBOR index rate applicable to the Company was 0.23%, thereby making the caps for the CMBS facility and the land acquisition financing out of the money. Subject to the caps, as of December 31, 2009, an increase in market rates of interest by 0.125% would have increased our annual interest expense by $1.5 million, and a decrease in market interest rates by 0.125% would have decreased our annual interest expense by $1.5 million.

Loss on Disposal of Assets. During 2009, the Company recorded $0.1 million loss on the disposal of assets, which was related to closing the previous Joint and the closing of AJ’s Steakhouse.

Impairment of Land, Goodwill and License Rights. The Company completed its 2009 annual impairment tests of land intended for sale and indefinite-lived intangible assets as of October 31, 2009. The income approach, market approach, and cost approach were considered in arriving at a fair value estimate of the Company’s intangible assets and land intended for sale. As a result of this analysis, the Company recognized a non-cash impairment charge of approximately $108.7 million related to the land intended for sale and determined indefinite-lived intangible assets were fairly valued in the fourth quarter of 2009. The impairment charge resulted from factors impacted by current market conditions including: (i) lower market valuation multiples for gaming assets; (ii) higher discount rates resulting from turmoil in the credit and equity markets; and (iii) current cash flow forecasts for the Company. See “Critical Accounting Policies—Impairment of Land, Goodwill, Intangible Assets and Other Long-lived Assets.”

On February 13, 2009, the Company completed its 2008 annual impairment tests of goodwill and indefinite-lived intangible assets as of October 31, 2008. The income approach, market approach, and cost approach were considered in arriving at a fair value estimate of the Company’s intangible assets. As a result of this analysis, the Company recognized a non-cash impairment charge of approximately $181.3 million related to goodwill and $10.0 million related to certain indefinite-lived intangible assets in the fourth quarter of 2008. The impairment charge represents all of the goodwill recognized at the Acquisition and a portion of the value of the Hard Rock license. The impairment charge resulted from factors impacted by current market conditions including: (i) lower market valuation multiples for gaming assets; (ii) higher discount rates resulting from turmoil in the credit and equity markets; and (iii) current cash flow forecasts for the Company. See “Critical Accounting Policies—Impairment of Land, Goodwill, Intangible Assets and Other Long-lived Assets.”

Income Taxes. The income tax benefit decreased $0.6 million to $0.0 million for the year ended December 31, 2009 from an income tax benefit of $0.6 million for the year ended December 31, 2008. As of December 31, 2009, the Company had net deferred tax liabilities of $56.9 million. In addition, the Company established a full valuation allowance on the net deferred tax assets (not including deferred tax liabilities related to indefinite life intangibles) because it could not be determined that it is more likely than not that future taxable income will be realized to recognize deferred tax assets.

During the year ended December 31, 2008, in conjunction with preparing our 2007 income tax returns, we determined that certain deferred tax liabilities relating to book to tax basis differences in certain assets we acquired were not reflected on our balance sheet. As a result, we recorded an adjustment during the quarter ended September 30, 2008 to reflect such deferred tax liabilities. The net effect of the adjustment resulted in an increase to both deferred tax liabilities and goodwill of $42.2 million. The adjustment had no material effect on our income statement for the year ended December 31, 2008. The adjustment was not considered material to our historical financial statements and therefore restatement was not considered necessary.

Other Comprehensive Loss. For the year ended December 31, 2009, the total fair value of derivative instruments that qualify for hedge accounting changed by $14.9 million and is included in other comprehensive loss. Amounts reported in accumulated other comprehensive loss related to derivatives that qualify for hedge accounting will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company reflects the change in fair value of all hedging instruments in cash flows from operating activities.

Net (Loss) Income. Net loss was $211.9 million compared to net loss of $282.3 million during the prior year period. The decrease in net loss was due to the factors described above.

Results of Operations for the Year Ended December 31, 2008 Compared to the Results of Operations for the Combined Year Ended December 31, 2007

Net Revenues. Net revenues decreased 11.9% for the year ended December 31, 2008 to $164.3 million compared to $186.5 million for the combined year ended December 31, 2007. The $22.1 million decrease in net revenues was primarily attributable to a $6.7 million or 14.6% decrease in lodging revenue, a $5.4 million or 7.2% decrease in food and beverage revenue, a $3.2 million or 17.0% decrease in other revenues, a $2.1 million or 3.8% decrease in casino revenue, a $0.6 million or 9.0% decrease in retail revenue and a $4.1 million or 25.8% increase in promotional allowances related to items furnished to customers on a complimentary basis. Management believes these decreases are a result of decline in visitor volume into Las Vegas and parking convenience from the loss of the surface lots used in the expansion of the new Joint and meeting space. Although the visitor volume into Las Vegas declined 4.4% and the Clark County gaming revenues declined 9.9%, the Company’s gaming revenue only declined 3.8%.

Casino Revenues. The $2.1 million decrease in casino revenues was primarily due to a $3.7 million or 21.4% decrease in slot revenue which was offset by a $0.5 million or 1.4% increase in table games revenues, a $0.4 million or 38% increase in race and sports revenue and $0.7 million in poker revenue from the poker lounge, which opened in August 2008. The increase in table games revenues was due to an increase in table games hold percentage offset by a decrease in table games drop. Management believes that table games drop declined because of a decrease in ~~“non-hosted~~visitors ~~play” (i.e., players attracted~~ to the Hard Rock’s casino ~~by means other than by our casino hosts)~~, resulting from the loss of the surface lots used in the expansion of ~~the~~ new The Joint and meeting space. Table games hold percentage increased 20 basis points to 13.9% from 13.7%, which was within the expected range of 12% to 16%. Table games drop decreased $0.7 million or 0.3% to $268.6 million from $269.3 million. The average number of table games in operations decreased to 84 from 88 tables. The net result of these changes in drop and hold percentage was an increase in win per table game per day to $1,219 from $1,147, an increase of $72 or 6.3%. We have historically ~~reported~~ reported table games hold percentage using the gross method, while casinos on the Las Vegas Strip ~~report~~ report hold percentage using the net method (which reduces the table game drop by marker repayments ~~made~~ made in the gaming pit area). For the purpose of comparison to properties on the Las Vegas Strip, ~~our~~ our net hold percentage for the year ended December 31, 2008 was 17% compared to 15.8% for the ~~combined~~ combined year ended December 31, 2007. Slot machine revenues decreased $3.7 million from $17.4 million to $13.7 million. Slot machine handle increased $63 million from $329 million to $392 million. The increase in slot machine handle was offset by a decrease in slot machine hold percentage. Management believes that a high limit slot tournament contributed to the increased slot ~~machine~~ machine handle for the year ended December 31, 2008. However, slot machine revenues decreased for ~~the~~ the period due to lower slot machine hold percentage. Slot machine hold percentage decreased 180 ~~basis~~ basis points to 3.5% from 5.3%, which was less than the expected range of 4% to 7%, as a result of ~~the~~ the high limit slot tournament. The average number of slot machines in operation decreased to 514 ~~from~~ from 555, a decrease of 41 machines or 7.4%. The net result of these changes in handle, hold ~~percentage~~ percentage and average number of slot machines in operation was a decrease in win per slot machine per day to $73 from $86, a decrease of $13 or 15.3%. Race and sports book revenue increased $0.4 million due to an increase in race and sports book write and an increase in hold percentage. The race and sports book write increased $0.6 million to $26 million in the year ended December 31, 2008 from $25.4 million in the combined year ended December 31, 2007. Race and sports book hold ~~percentage~~ percentage increased 1.5 percentage points to 5.6% from 4.1%, which was within the expected range of 4% to 8%.

Lodging Revenues. The $6.7 million decrease in lodging revenues to $39.0 million was primarily due to a decrease in average daily rate to $190 from $209. The decrease in average daily rate was a result of management’s decision to strategically lower room prices to maximize occupancy levels and remain competitive within the Las Vegas market. Hotel occupancy decreased slightly to 92% from 94% between periods. In addition, there was a decrease in average number of rooms to 612 from 638 as a result of rooms being out of inventory due to of the remodel of the existing guest suites and guestroom corridors. The 2008 revenue per available room of $174 was down in comparison to 2007 revenue per available room of $196 or by 11%, which was less than the reported amount for the Las Vegas market, which experienced a revenue per available room decline of 14%. The 2008 average daily room rate of $190 decreased in comparison to 2007 average daily room rate of $209 or by 9%, which was less than the reported amount for the Las Vegas market, which experienced an average room rate decline of 10%.

Food and Beverage Revenues. The $5.4 million decrease in food and beverage revenues was due to food revenues decreasing by approximately $3.5 million and beverage revenues decreasing by approximately $1.9 million. Food revenues decreased due primarily to a $1.8 million decrease in banquet facility food, a $0.7 million decrease in Pink Taco food, a $0.8 million decrease in Mr. Lucky’s food, a $0.4 million decrease in AJ’s Steakhouse food, and a $0.2 million decrease in room service food. These decreases were partially offset by a $0.2 million increase in Beach Club food and a $0.2 million increase in Ago food over its predecessor Simons Kitchen and Bar. Beverage revenues decreased due primarily to a $1.2 million decrease in Body English, a $0.7 million decrease in Casino Bars, a $0.6 million decrease in Banquet Bar, a $0.3 million decrease in the Joint Bar, a $0.2 million decrease in AJ’s Steakhouse Bar, a $0.1 million decrease in Mr. Lucky’s Bar, and a $0.1 million decrease in Pink Taco Bar. These decreases in beverage revenues were partially offset by an increase of $0.4 million Beach Club Bar, due to the continued success of our pool party Rehab, a $0.5 million increase in Wasted Space over its predecessor Las Vegas Lounge and a $0.4 million increase in Ago over its predecessor Simon Kitchen and Bar. Management believes that the disruption to parking due to the construction of the expansion project has had a negative impact on patron visitation of its food and beverage outlets.

Retail Revenues. We believe the $0.6 million decrease in retail revenues was due in part to continued general market decline in the themed merchandise market segment and the addition of other retail operations in Las Vegas.

Other Revenues. Other revenue decreased $3.2 million primarily due to a $1.2 million decrease in entertainment revenue, a $0.5 million decrease in sundry store revenues, a $0.5 million decrease in Beach Club retail revenues and a $0.5 million decrease in Rock Spa revenues, a $0.1 million decrease in Brannon Hair and a $0.4 million decrease in Cuba Libre, which was closed as a result of the new Poker Lounge.

Promotional Allowances. Promotional allowances increased $4.1 million or 25.8% over the prior period for the year ended December 31, 2008. Promotional allowances increased as a percentage of total revenues to 10.8% from 8.5% between periods. This increase is due to additional promotional allowances offered by Body English and increased promotional activity by the casino marketing staff.

Casino Expenses. Casino expenses increased $1.0 million or 2.8% to $37.7 million from $36.7 million. The increase was primarily due to $2.0 million increase in bad debt expense, a $1.6 million increase in complimentaries, $1.1 million increase in customer discounts and a $0.2 million increase in professional services, which was partially offset by a $1.0 million decrease in taxes as a result of the $2.0 million decrease in revenues, $0.2 million decrease in promotional events and activities, a $0.2 million decrease in payroll and related expenses and the elimination of the priority management fee of $2.5 million paid to the Casino Operator during the Casino Sublease. We issue credit in the form of “markers” to approved casino customers following investigations of creditworthiness. Non-performance by these parties would result in losses up to the recorded amount of the related receivables. Business or economic conditions or other significant events could also affect the collectibility of such receivables. The Company’s provision and allowance for doubtful accounts are based on estimates by management of the collectability of the receivable balances at each period end. Management’s estimates consider, among other factors, the age of the receivables, the type or source of the receivables and the results of collection efforts to date, especially with regard to significant accounts. Management believes bad debt is increasing due to a number of factors affecting consumers, including a slowdown in global economies and contracting credit markets.

Lodging Expenses. Lodging costs and expenses decreased 19.4% or $1.9 million to $7.9 million for the year ended December 31, 2008. Lodging expenses in relation to lodging revenues decreased to 20.3% from 21.5% in the prior period due primarily to a $0.5 million decrease in expenses as a result of an increase in complimentaries provided to customers without charge, a $0.3 million decrease in payroll and related expenses, a $0.3 million decrease in credit card fees as a result of decreased revenues of $6.7 million and a $0.8 million decrease in miscellaneous operating supplies.

Food and Beverage Costs And Expenses. Food and beverage costs and expenses decreased 3.4% or $1.3 million over the prior period for the year ended December 31, 2008. Food and beverage costs and expenses in relation to food and beverage revenues increased to 53.9% from 51.8% in the prior year due primarily to a reduction in revenues. The decrease in expenses are due primarily to a $2.6 million decrease in expenses as a result of an increase in complimentaries provided to customers without charge, a $1.0 million decrease in product costs and a $0.9 million decrease in miscellaneous operating supplies, which were partially offset by a $1.6 million increase in payroll and related expenses, a $1.3 million increase in professional services and a $0.3 million increase in advertising, concert and maintenance expenses.

Retail Costs and Expenses. Retail costs and expenses decreased 14.2% or $0.5 million from the prior period for the year ended December 31, 2008. Retail costs and expenses in relation to retail revenues decreased to 47.1% from 57.9% in the prior period due to improved controls and a more focused buying effort.

Other Costs and Expenses. Other costs and expenses decreased 27.7% or $4.5 million over the prior period for the year ended December 31, 2008. Other costs and expenses in relation to other income decreased to 70.3% from 85.1%. This decrease was primarily due to a $2.6 million decrease in event costs, a $0.5 million decrease in equipment rental, as a result of hosting less concerts and events, a $0.5 million decrease in payroll and related expenses, a $0.4 million decrease in product costs, a $0.2 million decrease in professional services and a $0.3 million decrease in miscellaneous operating supplies.

Marketing, General and Administrative. Marketing, general and administrative expenses increased 26.6% or $9.2 million over the prior period for the year ended December 31, 2008. Marketing, general and administrative expenses in relation to gross revenues increased to 23.9% from 20.5%. The $9.2 million increase in these expenses was primarily due to a $3.2 million increase in professional services primarily associated with the acquisition of our gaming license, a $1.4 million increase in legal and professional services associated with our Form 10 registration and ongoing public filing requirements, a $5.0 million increase in legal and professional services associated with the protection and development of our intellectual property, Sarbanes Oxley compliance work and joint venture costs, a $1.4 million increase in stock based compensation expense, a $2.2 million increase in other promotional event expenses and a $0.8 million increase in engineering costs. These increases were partially offset by a $0.7 million refund in use taxes related to meals served in our employee dining room, a decrease of $0.4 million in the early retirement of debt, which the Predecessor paid in January 2007, a $0.9 million decrease in payroll and related expenses, a $0.8 million decrease in management bonus expense and a $1.7 million decrease in other miscellaneous expenses and a $0.3 million decrease in utilities.

Management Fee—Related Party. Management fee—related party expenses decreased $2.4 million or 25.1% to $7.0 million from $9.4 million. As compensation for its services, Morgans Management receives a management fee equal to 4% of defined non-gaming revenues including casino rents and all other rental income, a gaming facilities support fee equal to $828,000 per year and a chain service expense reimbursement, which reimbursement is subject to a cap of 1.5% of defined non-gaming revenues and all other income.

Merger Costs. The Predecessor expensed $1.7 million for the period from January 1, 2007 to February 1, 2007 related to the Acquisition. The amount expensed for the year ended December 31, 2007 consisted of $1.1 million for bonuses to executives, $0.5 million for stay bonuses and $0.1 million for legal advisors.

Depreciation and Amortization. Depreciation and amortization expense increased by $4.9 million to $23.5 million for the year ended December 31, 2008 from $18.6 million for the year ended December 31, 2007. The increase in depreciation is a result of the additional assets placed into service from the expansion.

Interest Expense. Interest expense decreased $8.7 million to $78.8 million for the year ended December 31, 2008 from $87.5 million for the year ended December 31, 2007, a decrease of 9.9%. ~~This~~ This decrease reflects the interest expense resulting from a decrease in ~~the London Interbank Offered Rate (“~~LIBOR”) and an increase in additional capitalized interest, as a result of the expansion and deferred financing amortization in connection with the acquisition. The deferred financing amortization occurs over the 36-month life of ~~our~~the ~~commercial~~loans ~~mortgage-backed~~under ~~securities (“~~the CMBS”) ~~loans~~facility at approximately $1.5 million per month and over the 12-month life of ~~our~~ the land acquisition ~~loan~~financing at approximately $0.2 million per month. ~~The Company~~ We incurred approximately $240.4 million of new debt under ~~our~~the CMBS facility and $50.0 million of new debt under athe land acquisition ~~loan~~financing ~~we entered into~~ during the year ended December 31, 2008. Payments of the new debt under the CMBS facility and land acquisition ~~loan~~financing are based upon LIBOR, subject to an interest rate cap of 2.5%, plus a spread of 4.25% for the CMBS facility and a blended spread of 15.90% for the land acquisition ~~loan~~financing. An amendment to the ~~applicable~~ loan agreement governing the land acquisition financing increased the blended spread from 15.90% to 17.90%. At any time and from time to time, the lender under the land acquisition financing may increase the applicable blended spread ~~on the land acquisition loan~~ up to a maximum interest rate specified in the ~~related~~ loan documents governing the land acquisition financing.

~~Our future income, cash flows and fair values relevant to financial instruments are dependent~~39 upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The outstanding debt under our CMBS facility has a variable interest rate. We use derivative financial instruments, primarily interest rate caps, to manage our exposure to interest rate risks related to our floating rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. As of December 31, 2008, our total outstanding debt, including the current portion, was approximately $1.1 billion, all of which was variable rate debt. The Company has entered into hedge agreements for our CMBS facility that cap LIBOR at 2.5%. We have also entered into a hedge agreement for the land acquisition financing that occurred in August 2008 that caps LIBOR at 2.5%. At December 31, 2008, the LIBOR index rate applicable to the Company was 1.4%, thereby making the caps for the CMBS facility and the land acquisition financing out of the money. Subject to the caps, as of December 31, 2008, an increase in market rates of interest by 0.125% would have increased our annual interest expense by $1.2 million, and a decrease in market interest rates by 0.125% would have decreased our annual interest expense by $1.2 million.

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The outstanding debt under our CMBS facility has a variable interest rate. We use derivative financial instruments, primarily interest rate caps, to manage our exposure to interest rate risks related to our floating rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. As of December 31, 2008, our total outstanding debt, including the current portion, was approximately $1.1 billion, all of which was variable rate debt. We have entered into hedge agreements for the CMBS facility that cap LIBOR at 2.5%. We have also entered into a hedge agreement for the land acquisition financing that caps LIBOR at 2.5%. At December 31, 2008, the LIBOR index rate applicable to the Company was 1.4%, thereby making the caps for the CMBS facility and the land acquisition financing out of the money. Subject to the caps, as of December 31, 2008, an increase in market rates of interest by 0.125% would have increased our annual interest expense by $1.2 million, and a decrease in market interest rates by 0.125% would have decreased our annual interest expense by $1.2 million.

Loss on Disposal of Assets. During 2007, the Company recorded $1.7 million loss on the disposal of assets, which was related to remodeling the suites, the closing of Simon Bar and Kitchen, the closing of Cuba Libre and the closing of Las Vegas Lounge.

Acquisition and Transition Related Costs. During 2007, the Company expensed $2.4 million in acquisition and transition related costs in connection with the Acquisition, which consisted of $0.8 million in payroll and related expenses, $0.5 million in celebrity acquisition costs, $0.4 million in fees to legal advisors, $0.3 in fees to gaming related professional advisors and $0.4 million in professional fees and other expenses.

Impairment of Goodwill and License Rights. On February 13, 2009, the Company completed its 2008 annual impairment tests of goodwill and indefinite-lived intangible assets as of October 31, 2008. The income approach, market approach, and cost approach were considered in arriving at a fair value estimate of the Company’s intangible assets. As a result of this analysis, the Company recognized a non-cash impairment charge of approximately $181.3 million related to goodwill and $10.0 million related to certain indefinite-lived intangible assets in the fourth quarter of 2008. The impairment charge represents all of the goodwill recognized at the Acquisition and a portion of the value of the Hard Rock license. The impairment charge resulted from factors impacted by current market conditions including: (i) lower market valuation multiples for gaming assets; (ii) higher discount rates resulting from turmoil in the credit and equity markets; and (iii) current cash flow forecasts for the Company. See “Critical Accounting Policies—Impairment of Goodwill, Intangible Assets and Other Long-lived Assets.”

Income Taxes. The income tax benefit decreased $3.2 million to $0.6 million for the year ended December 31, 2008 from an income tax benefit of $3.8 million for the year ended December 31, 2007. As of December 31, 2008, the Company had net deferred tax liabilities of $57.4 million which was $0.6 million in excess of deferred tax liabilities on indefinite life intangible assets. As of December 31, 2008, deferred tax liabilities of $0.6 million were utilized against deferred tax assets recognized as a result of post-Acquisition net operating losses. In addition, the Company established a full valuation allowance on the net deferred tax assets (not including deferred tax liabilities related to indefinite life intangibles) because it could not be determined that it is more likely than not that future taxable income will be realized to recognize deferred tax assets.

Other Comprehensive Loss. For the year ended December 31, 2008, the total fair value of derivative instruments that qualify for hedge accounting changed by $17.1 million and is included in other comprehensive loss. Amounts reported in accumulated other comprehensive loss related to derivatives that qualify for hedge accounting will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company reflects the change in fair value of all hedging instruments in cash flows from operating activities.

~~Net (Loss) Income. Net loss was $282.3 million compared to net loss of $71.6 million during~~40 ~~the prior year period. The decrease in net income was due to the factors described above.~~

Results of Operations for Combined Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Net Revenues. Net revenues increased 2.5% for the combined year ended December 31, 2007 to $186.5 million compared to $182.0 million for the year ended December 31, 2006. The $4.5 million increase in net revenues was primarily attributable to a $4.1 million or 10.0% increase in lodging revenue, a $5.7 million or 8.1% increase in food and beverage revenue, and a $2.5 million or 15.2% increase in other revenue. These increases in revenue were partially offset by a $4.2 million or 7.1% decrease in casino revenue, a $0.3 million or 4.0% decrease in retail revenue and a $3.3 million or 27.6% increase in promotional allowances related to items furnished to customers on a complimentary basis.

Casino Revenues. The $4.2 million decrease in casino revenues was primarily due to a $0.8 million or 4.5% decrease in slot revenue and a $2.9 million or 7.3% decrease in table games revenues and a $0.5 million or 30.9% decrease in race and sports revenue. The decrease in table games revenues was due to a decrease in table games hold percentage as well as a decrease in table games drop. Management believes that table games drop declined because of a decrease in “hosted play” (i.e., players attracted to the Hard Rock’s casino by our casino hosts). Table games hold percentage decreased 94 basis points to 13.8% from 14.7%, which was within the expected range of 12% to 16%. Table games drop decreased $2 million or less than 1.0% to $269 million from $271 million. The average number of table games in operations remained the same year over year at 88 tables. The net result of these changes in drop and hold percentage was a decrease in win per table game per day to $1,147 from $1,236, a decrease of $89 or 7.2%. We have historically reported table games hold percentage using the gross method, while casinos on the Las Vegas Strip report hold percentage using the net method (which reduces the table game drop by marker repayments made in the gaming pit area). For the purpose of comparison to properties on the Las Vegas Strip, our net hold percentage for the combined year ended December 31, 2007 was 14.7% compared to 16.6% for the year ended December 31, 2006. Slot machine revenues decreased $0.8 million from $18.3 million to $17.4 million. Slot machine handle increased $1.1 million from $328 million to $329 million. The increase in slot machine handle was partially offset by a decrease in slot machine hold percentage. Management believes that the Hard Rock’s concert and other entertainment events have driven additional patron volume to the casino, which resulted in increased slot machine handle for the combined year ended December 31, 2007. However, slot machine revenues decreased for the period due to lower slot machine hold percentage. Slot machine hold percentage decreased 47 basis points to 5.9% from 6.3%, which was within the expected range of 4% to 7%. The average number of slot machines in operation decreased to 509 from 558, a decrease of 49 machines or 8.8%. The net result of these changes in handle, hold percentage and average number of slot machines in operation was an increase in win per slot machine per day to $94 from $90, an increase of $4 or 4.6%. Race and sports book revenue decreased $0.5 million due to an increase in race and sports book write and a decrease in hold percentage. The race and sports book write increased $6.5 million to $25 million in the combined year ended December 31, 2007 from $19 million in the year ended December 31, 2006. Race and sports book hold percentage decreased 3.9 percentage points to 4.1% from 8.0%, which was within the expected range of 4% to 8%.

~~Lodging~~Net ~~Revenues~~(Loss) Income. ~~The~~Net loss was $4282.13 million ~~increase~~compared into ~~lodging~~net ~~revenues~~loss toof $4571.76 million ~~was primarily~~during ~~due~~the toprior anyear period. The increase in ~~average~~net ~~daily~~loss ~~rate~~was todue ~~$206 from $183, which resulted from management’s decision~~ to ~~increase room rates after~~ the ~~closing~~factors ofdescribed ~~the Acquisition~~above. ~~Hotel occupancy decreased~~ ~~slightly to 93% from 95% between periods.~~

~~Food~~Cash ~~and~~Flows ~~Beverage~~for Revenues. The $5.7 million increase in food and beverage revenues was due to food revenues increasing by approximately $1.4 million and beverage revenues increasing by approximately $4.3 million. Food revenues increased due primarily to a $0.7 million increase in Beach Club food, a $0.6 million increase in Mr. Lucky’s, a $0.4 million increase in Pink Taco and a $0.3 million increase in room service. Management believes that the ~~Hard~~Year ~~Rock’s~~Ended ~~concert and other entertainment events have driven additional patron volume to its food and beverage outlets. These increases were partially offset by a $0.04~~December ~~million decline in AJ’s Steakhouse and a $0.2 million decline in Simon Kitchen and Bar. Beverage revenues increased due primarily to a $3.2 million increase in Beach Club Bar~~31, ~~due to the continued success of our pool party called Rehab, a $1.8~~2009 million increase in Body English, due to opening an additional day each Wednesday, and a $0.2 million increase in Pink Taco Bar. These increases in beverage revenues were partially offset by a decrease of $0.7 million in Casino Bars, Banquet Bar, Sports Deluxe, Simon Kitchen and Bar, AJ’s Steakhouse and The Joint Bar revenue.

~~Retail~~Operating ~~Revenues~~Activities. WeNet ~~believe~~cash ~~the~~used by operating activities was $021.32 million ~~decrease~~for inthe ~~retail~~year ended ~~revenues~~December 31, ~~was~~2009, ~~due~~which inresulted ~~part~~primarily ~~to continued~~from ~~general~~a ~~market~~$211.9 million ~~decline~~loss infrom ~~the~~operations, offset ~~themed~~by ~~merchandise~~$43.6 million ~~market~~of ~~segment~~depreciation and ~~the~~amortization ~~addition~~expense, $108.7 million of ~~other~~impairment expense ~~retail~~on excess land intended for sale, $18.8 million increase in non-cash expenses, and $19.6 ~~operations~~million increase in ~~Las~~other ~~Vegas~~operating assets and liabilities.

~~Other~~Investing ~~Revenues~~Activities. ~~Other~~Net ~~revenue~~cash ~~increased~~used ~~$2.5 million~~in ~~primarily~~investing ~~due~~activities amounted to a $1295.2 million ~~increase~~for in the year ~~Hard~~ended ~~Rock Cafe and Apartment rental income and a $1.3~~December ~~million increase in Love Jones~~31, ~~Beach Club and entertainment revenue~~2009. ~~Hard~~The ~~Rock~~cash ~~Cafe~~used ~~and~~in ~~Apartment~~investing ~~rental~~activities ~~income~~primarily ~~increased~~relates asto the ~~related~~ ~~leases~~construction ~~were~~expenses ~~not~~of ~~owned by~~ the ~~Predecessor~~ongoing inexpansion of the ~~prior~~Hard ~~period.~~Rock ~~Management~~and ~~believes~~the ~~Love~~change ~~Jones,~~in ~~Beach~~restricted ~~Club~~reserve ~~and~~accounts ~~entertainment~~under ~~revenue increased due to additional patron volume attracted to~~ the ~~Hard~~CMBS ~~Rock by its concert and other entertainment events~~facility.

~~Promotional~~Financing ~~Allowances~~Activities. ~~Promotional~~Net ~~allowances~~cash ~~increased~~provided ~~$3.3 million~~by orfinancing ~~26.7%~~activities ~~over~~amounted ~~the~~to ~~prior period~~$318.5 million for the ~~combined~~ year ended December 31, ~~2007~~2009. ~~Promotional~~Cash ~~allowances~~provided ~~increased~~by asfinancing aactivities represented an additional ~~percentage~~$123.2 million of ~~total~~borrowings ~~revenues~~under tothe ~~8.5%~~CMBS ~~from~~facility, 6$3.9%85 million ~~between~~of ~~periods.~~proceeds ~~This~~from ~~increase~~borrowings under isthe ~~due~~land toacquisition ~~additional promotional~~financing ~~allowances~~offset ~~offered~~ by ~~Body~~$2.2 million ~~English~~in loan financing costs and ~~increased~~$193.6 ~~promotional~~million ~~activity~~of byproceeds ~~the~~from ~~casino marketing~~additional ~~staff~~cash equity contributions from our members.

~~Casino~~Cash ~~Expenses.~~Flows ~~Casino~~for ~~expenses increased $1.7 million or 4.9% to $36.7 million from $35.0 million. The increase was primarily due to~~ the ~~priority~~Year ~~management~~Ended ~~fee of $3.0~~December ~~million paid to the Casino Operator~~31, ~~$0.3 million increase in payroll and related expenses, $0.2 million increase in~~2008 promotional events and activities, which was partially offset by a $0.9 million decrease in bad debt expense, a $0.7 million decrease in taxes as a result of the $4.2 million decrease in revenues, $0.2 million decrease in customer discounts and other miscellaneous operating supplies. The Company’s provision and allowance for doubtful accounts are based on estimates by management of the collectability of the receivable balances at each period end. Management’s estimates consider, among other factors, the age of the receivables, the type or source of the receivables and the results of collection efforts to date, especially with regard to significant accounts.

~~Lodging~~Operating ~~Expenses~~Activities. ~~Lodging~~Net ~~costs~~cash ~~and~~used ~~expenses~~by ~~decreased~~operating ~~2.2%~~activities orwas $046.~~2 million to $~~9.8 million for the ~~combined~~ year ended December 31, ~~2007.~~2008, ~~Lodging~~which ~~expenses~~resulted inprimarily ~~relation~~from toa ~~lodging~~$282.3 million ~~revenues decreased~~loss tofrom ~~21.5%~~operations, offset ~~from~~by 24$42.1%7 million inof ~~the~~depreciation ~~prior~~and ~~period~~amortization ~~due~~expense, ~~primarily~~$191.3 million toincrease ain ~~higher average daily rate~~the ~~while~~impairment ~~total~~of ~~operating~~goodwill ~~expenses~~and ~~decreased~~license ~~approximately~~rights, $04.21 million ~~primarily~~increase ~~related~~in tonon-cash expenses, and $2.7 million from a decrease in ~~labor~~other ~~and~~operating ~~related~~assets ~~expenses~~and liabilities.

~~Food~~Investing ~~and Beverage Costs And Expenses~~Activities. ~~Food~~Net ~~and~~cash ~~beverage~~used ~~costs~~in ~~and~~investing ~~expenses~~activities ~~increased~~amounted ~~4.4%~~to or $1347.63 million ~~over the prior period~~ for the ~~combined~~ year ended December 31, ~~2007~~2008. ~~Food~~The ~~and~~cash ~~beverage costs~~used ~~and expenses~~ in ~~relation~~investing toactivities ~~food~~primarily ~~and~~relates ~~beverage revenues decreased~~ to ~~51.8% from 53.7% in~~ the ~~prior~~construction ~~year~~expenses ~~due~~of ~~primarily~~the toongoing ~~increases~~expansion ~~in Beach Club and Body English revenues~~ of ~~24.6%~~the toHard ~~$28.1 million from $22.6 million. These revenue increases were primarily derived from admissions and bottle service~~Rock, ~~which have low associated costs and, therefore, decreased~~ the ~~percentage~~change ~~of costs and expenses~~ in ~~relation~~restricted ~~to food and beverage revenues. Payroll and~~reserve ~~related~~accounts ~~expenses~~under ~~increased~~the ~~from~~CMBS ~~the prior~~facility ~~year~~as ~~3.5%~~compared to ~~$21.3 million~~the ~~from~~purchase ~~$20.5 million,~~of ~~professional services for Disc Jockeys and special events increased from~~ the ~~prior~~Hard ~~year~~Rock ~~57.1% to $2.7 million from $1.7 million~~ and ~~other operating~~related ~~supplies~~assets ~~increased from~~ in the prior year 48.~~9% to $0.9 million from $0.6 million. These~~ ~~increases are primarily due to the increased volume in Beach Club and Body English revenues.~~

44Financing Activities. Net cash provided by financing activities amounted to $390.2 million for the year ended December 31, 2008. The cash provided by financing activities for the year ended December 31, 2008 represents an additional $240.4 million of proceeds from borrowings under the CMBS facility and $50.0 million of proceeds from borrowings under the land acquisition loan, offset by $5.8 million in loan financing costs, $125.5 million of proceeds from additional cash equity contributions and $19.8 million in costs to purchase interest rate caps in comparison to the initial loan to purchase the Hard Rock during the year ended December 31, 2007.

Retail Costs and Expenses. Retail costs and expenses decreased 17.1% or $0.7 million from the prior period for the combined year ended December 31, 2007. Retail costs and expenses in relation to retail revenues decreased to 50.0% from 57.9% in the prior period due to improved controls and a more focused buying effort.

Other Costs and Expenses. Other costs and expenses increased 3.7% or $0.6 million over the prior period for the combined year ended December 31, 2007. Other costs and expenses in relation to other income decreased to 85.1% from 94.6% due to an increase in rental income with which no costs were associated.

Marketing, General and Administrative. Marketing, general and administrative expenses increased 4.9% or $1.6 million over the prior period for the combined year ended December 31, 2007. Marketing, general and administrative expenses in relation to gross revenues increased to 20.5% from 19.7%. The $1.6 million increase in these expenses was primarily due to a $0.9 million increase in customer promotions, a $0.1 million increase in advertising expense, a $0.3 million increase in Rehab pool party promotional costs, a $0.2 million increase in utilities, a $0.4 million increase in professional services primarily associated with the acquisition of our gaming license, and a $0.4 million termination fee paid to the former operator in connection with the closing of Simon Bar and Kitchen. These costs were slightly offset by a $0.5 million decrease in payroll and related expenses and a decrease of $0.2 million in engineering costs.

Management Fee—Related Party. Management fee—related party expenses increased $3.0 million or 46.2% to $9.4 million from $6.4 million. As compensation for its services, Morgans Management receives a management fee equal to four percent of defined non-gaming revenues including casino rents and all other rental income and a chain service expense reimbursement, which reimbursement is subject to a cap of one and one half percent of defined non-gaming revenues including casino rents and all other income. In contrast, the Predecessor paid Mr. Morton and his affiliates a supervisory fee equal to two percent of annual gross revenues (as defined), net of complimentaries for each year, plus additional reimbursable expenses.

Merger Costs. The Predecessor expensed $1.7 million and $4.5 million for the year ended December 31, 2007 and December 31, 2006, respectively, related to the Acquisition. The amount expensed for the year ended December 31, 2007 consisted of $1.1 million for bonuses to executives, $0.5 million for stay bonuses and $0.1 million for legal advisors. The amount expensed for the year ended December 31, 2006 consisted of $2.0 million for stay bonuses, $1.0 million in fees to financial advisors and $1.5 million in fees to legal advisors.

Depreciation and Amortization. Depreciation and amortization expense increased by $5.8 million to $18.6 million for the year ended December 31, 2007 from $12.8 million for the year ended December 31, 2006. The increase in depreciation is based upon the estimated fair value of the assets acquired in the Acquisition.

Interest Expense. Interest expense increased $69.2 million to $87.5 million from $18.3 million, an increase of 377.8%. This increase reflects the interest expense resulting from the incurrence and retirement of debt related to the Acquisition and the increase in deferred financing amortization in connection with the Acquisition. The deferred financing amortization occurs over the 36-month life of the CMBS loans on a straight-line basis at approximately $1.3 million per month. The Company incurred approximately $793 million of new debt under the CMBS facility. Payments of the new debt under the CMBS facility are based upon LIBOR plus a spread of 4.25%.

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The outstanding debt under our CMBS facility has a variable interest rate. We use some derivative financial instruments, primarily interest rate caps, to manage our exposure to interest rate risks related to our floating rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. As of December 31, 2007, our total outstanding debt, including the current portion, was approximately $793.5 million, all of which was variable rate debt. The Company has entered into hedge agreements that cap LIBOR at 5.50% through February 9, 2009. At December 31, 2007, the LIBOR rate was 4.6%, thereby making our cap out of the money. Subject to the cap, as of December 31, 2007, an increase in market rates of interest by 0.125% would have increased our annual interest expense by $1.0 million, and a decrease in market interest rates by 0.125% would have decreased our annual interest expense by $1.0 million.

Loss on Disposal of Assets. During 2007, the Company recorded $1.7 million loss on the disposal of assets, which was related to remodeling the suites, the closing of Simon Bar and Kitchen, the closing of Cuba Libre and the closing of Las Vegas Lounge. During 2006, the Predecessor recorded a $0.5 million loss on the disposal of assets, which was related to the pool remodel and other operating assets being retired.

Acquisition and Transition Related Costs. The Company expensed $2.4 million in acquisition and transition related costs in connection with the Acquisition, which consisted of $0.8 million in payroll and related expenses, $0.5 million in celebrity acquisition costs, $0.4 million in fees to legal advisors, $0.3 in fees to gaming related professional advisors and $0.4 million in professional fees and other expenses.

Income Taxes. The income tax benefit decreased $5.5 million for the year ended December 31, 2007 to an income tax benefit of $3.8 million. As a result of the purchase allocation, the Company had net deferred tax liabilities of $17.5 million which was $2.3 million in excess of deferred tax liabilities on indefinite life intangible assets. Subsequent to the closing of the Acquisition, deferred tax liabilities of $2.3 million were utilized against deferred tax assets recognized as a result of post acquisition net operating losses. In addition, subsequent to the closing of the Acquisition, the Company established a full valuation allowance on the net deferred tax assets (not including deferred tax liabilities related to indefinite life intangibles) because it could not be determined that it is more likely than not that future taxable income will be realized to recognize deferred tax assets.

Other Comprehensive Loss. For the period from February 2, 2007 to December 31, 2007, the total fair value of derivative instruments that qualify for hedge accounting changed by $26,000 and is included in other comprehensive loss. Amounts reported in accumulated other comprehensive loss related to derivatives that qualify for hedge accounting will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company reflects the change in fair value of all hedging instruments in cash flows from operating activities.

Net (Loss) Income. Net loss was $71.6 million compared to net income of $2.6 million during the prior year period. The decrease in net income was due to the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2009, we had approximately $12.3 million in available cash and cash equivalents. As of December 31, 2009, our total long-term debt, including the current portion, was approximately $1.2 billion and our total member’s deficit was approximately $64.9 million.

Potential Sources of Liquidity

CMBS Facility. In connection with our acquisition of the Hard Rock, we entered into a debt financing in the form of a real estate loan in the commercial mortgage-backed securities (“CMBS”) market. The CMBS facility provides for, among other borrowing availability, a construction loan of up to $620.0 million for the expansion project. As of December 31, ~~2008~~2009, we had drawn $~~325~~492.70 million under the construction loan. We anticipate drawing additional amounts from the ~~construction~~ construction loan under the CMBS facility as needed. WeThe ~~are~~financing ~~currently~~incurs oninterest ~~time~~payable through a funded interest reserve initially, then through cash, at a rate (blended among the debt secured by assets and the junior and senior mezzanine debt, if applicable) of LIBOR plus 4.25%, subject to ~~complete~~adjustment upwards in certain circumstances (i.e., failure to achieve substantial completion of the ~~expansion~~construction asprojects ~~scheduled~~in a timely manner and ~~within~~extension of the ~~parameters~~term of the ~~original~~financing). ~~budget~~The loan agreements under the CMBS facility include customary affirmative and negative covenants for similar financings, including, among others, restrictive covenants regarding incurrence of liens, sales or assets, distributions to affiliates, changes in business, cancellation of indebtedness, dissolutions, mergers and consolidations, as well as limitations on security issuances, transfers of any of our real property and removal of any material article of furniture, fixture or equipment from our real property. We have evaluated these requirements and determined we were in compliance as of December 31, 2009.

~~The financing incurs interest payable through a funded interest reserve initially, then~~41 through cash, at a rate (blended among the debt secured by assets and the junior and senior mezzanine debt, if applicable) of LIBOR plus 4.25%, subject to adjustment upwards in certain circumstances (i.e., failure to achieve substantial completion of the construction projects in a timely manner and extension of the term of the financing).

The loan agreements under the CMBS facility include customary affirmative and negative covenants for similar financings, including, among others, restrictive covenants regarding incurrence of liens, sales or assets, distributions to affiliates, changes in business, cancellation of indebtedness, dissolutions, mergers and consolidations, as well as limitations on security issuances, transfers of any of our real property and removal of any material article of furniture, fixture or equipment from our real property. The Company has evaluated these requirements and determined it was in compliance, as set forth within the CMBS loan documents, as of December 31, 2008.

Equity Contributions. Subject to the terms and conditions contained therein, under the JV Agreement, the DLJMB Parties have committed to make additional capital contributions to us in an aggregate amount of up to $254.0 million (referred to as the “New Capital”). The $254.0 million new commitment will be reduced by New Capital provided by the DLJMB Parties after February 8, 2008. Of the New Capital amount, up to $144.0 million will be allocated to the expansion project (including certain interest payment and cash requirements of the Company during the pre-construction and construction periods of the project). As of December 31, 2008, $5.8 million was remaining under this commitment. Up to $110.0 million of the New Capital amount will be made available (to the extent needed) to fund capital requirements relating to the approximately 15 acres of excess land located adjacent to the Hard Rock. On August 1, 2008, certain of our subsidiaries completed an intercompany land purchase and a related financing with respect to approximately 11 of the acres. The DLJMB Parties contributed approximately $75.1 million under the $110.0 million commitment to fund a portion of the $110.0 million purchase price for the intercompany land purchase and to pay for all costs and expenses in connection with its closing and related financing. Another $50.0 million was borrowed by one of our subsidiaries under a new land acquisition loan to fund the remaining portion of the purchase price. The remaining portion of the DLJMB Parties’ commitment relating to the excess land may be used (to the extent needed) to fund certain interest reserve and prepayment premium requirements under the land acquisition loan.

Pursuant to the JV Agreement, subject to certain terms and conditions, the DLJMB Parties are also permitted to contribute additional capital to the Company in their discretion. To the extent that the DLJMB Parties’ commitment to contribute New Capital has been exhausted, these provisions could permit the DLJMB Parties to make necessary fundings to the Company. However, we cannot assure you that the conditions to such fundings will be satisfied or that the DLJMB Parties will make these discretionary fundings in the future.

During the year ended December 31, 2008, the DLJMB Parties had contributed $123.8 million in cash and $102.2 million in letters of credit and the Morgans Parties had contributed $1.1 million in cash and $2.5 million in letters of credit to the Company. Pursuant to the JV Agreement, the Morgans Parties no longer have the option to fund up to their pro rata share of the capital required for the expansion project.

Equity Contributions. During the year ended December 31, 2009, the DLJMB Parties contributed $179.6 million in cash and conversions of previous letters of credit and the Morgans Parties contributed $14.1 million in cash (including through the conversion of previous letters of credit) to the Company. As of December 31, 2009, the members had funded all of the required capital contributions we expect will be needed to fund the equity for the expansion project. The JV Agreement provides that in certain cases DLJMB IV HRH may request that our members make necessary capital contributions contemplated by the operating plans and budgets approved by our board of directors, or in the event of an unexpected shortfall in capital. If we require additional capital with respect to matters approved by our board of directors, DLJMB IV HRH also has the right, without the approval of our board of directors, to determine appropriate sources of such capital in the form of debt or equity financing. Such financing must be funded either by third parties who are not specified competitors of Morgans or our existing members or their affiliates on fair market terms (as determined by our board of directors, or, in some cases by a written appraisal or fairness opinion).

Liquidity Requirements

AsIn ~~of December~~March 312007, ~~2008,~~ we ~~had~~announced ~~approximately~~a ~~$10.1 million~~large-scale inexpansion ~~available~~and ~~cash~~renovation ~~and~~project ~~cash equivalents.~~at the Hard Rock. As of December 31, ~~2008~~2009, ~~our~~a ~~total~~majority ~~long-term~~of ~~debt~~the expansion project was completed, including ~~the~~two ~~current~~new ~~portion~~hotel and suite towers, ~~was~~new casino space, additional meeting and convention space, several new food and ~~approximately~~beverage ~~$1.1 billion~~outlets, a new and ~~our~~larger ~~total~~The ~~member’s~~Joint ~~deficit~~live ~~was~~entertainment ~~approximately~~venue ~~$61~~and other amenities.~~5 million.~~ ~~The~~In March ~~Company~~2010, ~~has~~we ~~both~~expect ~~short-term~~to open an expanded hotel pool, outdoor gaming and ~~long-term~~additional ~~liquidity~~food ~~requirements~~and beverage outlets, which would complete the remaining portions of the expansion project as ~~described~~scheduled inand within ~~more~~the ~~detail~~parameters ~~below~~of the original budget.

InWe ~~March 2007,~~have weentered ~~announced~~into a ~~large-scale~~construction ~~expansion~~management and ~~renovation~~general ~~project~~contractor’s atagreement ~~the~~with ~~Hard Rock~~M.J. ~~Renovations~~Dean toConstruction, Inc. (“M.J. Dean”), which sets forth the ~~property~~terms ~~that~~and ~~began~~conditions inpursuant to which M.J. Dean will construct the ~~fourth~~expansion ~~quarter~~project. ofThe ~~2007,~~contract ~~including~~provides ~~upgrades~~that ~~to existing~~the ~~suites,~~project ~~restaurants~~will ~~and~~be broken ~~bars~~into multiple phases, ~~retail~~each ~~shops~~of ~~and~~which ~~common~~will ~~areas~~be ~~and~~governed by a ~~new~~separate ~~ultra~~guaranteed ~~lounge~~maximum ~~and~~price ~~poker~~work ~~room~~authorization order. As of December 31, ~~were~~2009, ~~completed~~we byhad ~~the~~delivered ~~end~~work ofauthorization ~~the~~orders ~~third~~to M.J. ~~quarter~~Dean for an aggregate of ~~2008~~$569.3 million Weof ~~anticipate~~work. ~~the~~The ~~remainder~~work of called for under the ~~expansion~~work authorization ~~will~~orders becover ~~completed~~each bysignificant ~~late~~phase ~~2009~~of the expansion project.

We have also entered into a ~~construction~~design ~~management~~build ~~and general contractor’s~~ agreement with ~~M.J. Dean~~Pacific ~~Construction~~Custom Pools, Inc. (“~~M.J. Dean~~PCI”), which sets forth the terms and conditions pursuant to which ~~M.J.~~ ~~Dean~~PCI will construct the ~~expansion~~new west pool project at the Hard Rock. The contract ~~provides~~includes ~~that~~all ~~the~~conceptual ~~project~~design, ~~will~~design bedevelopment, ~~broken~~construction ~~into~~documents, ~~multiple~~construction ~~phases~~administration, ~~each~~engineering ofand ~~which~~construction ~~will~~for bethe ~~governed~~site ~~by a separate guaranteed maximum price~~as ~~work~~it ~~authorization~~pertains ~~order.~~to Asthe ~~of December 31~~pools, ~~2008~~spas, welounge ~~had~~pool, ~~delivered~~site ~~work~~service ~~authorization~~structures, ~~orders~~service tobars, cabanas, ~~M.J.~~perimeter ~~Dean~~walls, ~~for~~landscape, anaudio ~~aggregate~~visual ofsystem, ~~$570.5 million~~site oflighting, ~~work.~~pool ~~The~~pavilion ~~work~~building, ~~called~~grading ~~for~~and gravity ~~under~~site drainage within the ~~work authorization~~perimeter. ~~orders~~The ~~cover~~project ~~each~~calls ~~significant~~for ~~phase~~an aggregate of ~~the~~$22.7 million ~~expansion project~~of work.

We have also entered into a design build agreement with Pacific Custom Pools, Inc (“PCI”), which sets forth the terms and conditions pursuant to which PCI will construct the new west pool project at the Hard Rock. The contract includes all conceptual design, design development, construction documents, construction administration, engineering and construction for the site as it pertains to the pools, spas, lounge pool, site service structures, service bars, cabanas, perimeter walls, landscape, audio visual system, site lighting, pool pavilion building, grading and gravity site drainage within the perimeter. The project calls for an aggregate of $19.2 million of work.

Short-Term Liquidity Requirements. We generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred within the next 12 months and believe those requirements consist primarily of funds necessary to pay operating expenses, debt amortization, expansion project costs, requirements and other expenditures associated with our property, including the funding of our reserve accounts.

We expect our short-term liquidity requirements for the next twelve months to include ~~(a)~~ expenditures of $~~427~~237 million (of the total budgeted amount of $760 million) for the expansion and renovation of the Hard Rock, ~~(b)~~ and additional expenses of 3% of the Hard Rock’s gross revenues for replacements and refurbishments at the Hard Rock ~~and (c) $50~~.~~0 million in maturing debt under our land acquisition~~ ~~financing.~~

We have signed construction commitments of which approximately $~~442~~126 million was unfunded at December 31, ~~2008~~2009. These commitments consist of commitments to the general contractor and for ~~other~~ other items related to the expansion and renovation of the Hard Rock. ~~Substantially~~All ~~all~~ of these commitments are expected to be expended during ~~2009 and~~ 2010. For a further description of these payments, see “—Capital Expenditures, Interest Expense and Reserve Funds” and “—Contractual Obligations and Commitments.”

~~On August 1,~~We ~~2008,~~expect weto ~~completed~~meet anour ~~intercompany~~short-term ~~land~~liquidity ~~purchase~~needs ~~with respect~~through toexisting anworking ~~approximately~~capital, ~~11-acre~~cash ~~parcel~~provided ofby ~~land~~our ~~located~~operations, ~~adjacent~~debt tofunding ~~the~~under ~~Hard~~our ~~Rock.~~CMBS Infacility ~~connection~~and ~~with~~capital ~~the~~contributions ~~intercompany~~from ~~land~~our ~~purchase,~~members. ~~one~~Management ofanticipates ~~our~~that ~~subsidiaries~~we ~~entered~~will ~~into~~not areturn ~~$50.0 million~~to ~~land acquisition financing with~~a ~~Column~~positive ~~Financial~~cash position, ~~Inc.~~at ~~All~~the ~~outstanding~~earliest ~~amounts~~until ~~owed under~~ the ~~applicable~~ ~~loan~~expansion ~~agreement~~project ~~become~~has ~~due~~been completed and the ~~payable~~economic noenvironment ~~later~~has ~~than~~improved ~~August 9,~~from ~~2009,~~its ~~subject~~current tocondition. ~~two~~We ~~six-month~~believe ~~extension~~that ~~options.~~these Wesources ~~are currently~~of ~~considering~~capital ~~various~~will ~~options~~be ~~with~~sufficient ~~respect~~ to ~~the~~meet ~~adjacent~~our ~~land,~~short-term ~~including~~liquidity ~~selling a portion of the land to a third party~~requirements.

~~We expect to meet our short-term liquidity needs through existing working capital, cash~~42 provided by our operations, debt funding under our CMBS facility and capital contributions from our members. Management anticipates the Company will not return to a positive cash position , at the earliest until the expansion project has opened and the economic environment has improved from its current condition. We believe that these sources of capital will be sufficient to meet our short-term liquidity requirements.

In addition, gaming regulators require that we maintain a certain amount of cash on hand for our gaming operations. Under the CMBS facility, we established a cash management account to hold ~~the~~ the cash that we generate from our operations. This account is under the sole control of the lenders under the CMBS ~~lender~~ facility, which has a first priority security interest in the account and any amounts on deposit therein. Until construction of the expansion project for the Hard Rock has been completed, amounts on deposit in the cash management account are distributed first to fund various reserves, including tax, insurance, a replacement reserve used to periodically replace and upgrade existing hotel furniture, fixtures and equipment and any amounts in excess of the amount of gaming revenue used to fund any reserve required under applicable Nevada gaming regulations, next to us in an amount to cover certain operating expenses and extraordinary expenses, then to the administrative agent and the CMBS lender to cover fees and debt service in respect of the mortgage and three mezzanine loans, and finally to a general reserve fund from which amounts on deposit may be distributed to us if certain debt ratios and other conditions are met (or, in certain circumstances, to a working capital account until funds on deposit in such account equal $7.0 million, which amounts may be used upon satisfaction of certain conditions for payment of specified expenses, described in more detail in “2009 Loan Restructuring,” below). After construction of the expansion project has been completed, the priority of payments will change such that payments to the CMBS lender to cover fees and debt service on the mortgage loan will have priority over payments to fund the replacement reserve fund and payments made to us to cover certain operating expenses.

Long-Term Liquidity Requirements. We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next 12 months and believe these requirements consist primarily of funds necessary to complete our expansion project, pay scheduled debt payments, and perform necessary renovations and other non-recurring capital expenditures that need to be made periodically to our property. The initial maturity date of the CMBS facility of $1.12 billion ~~will~~was be February 9, 2010, with ~~two~~four one-year options to extend the maturity date provided that the Company satisfies certain conditions. As of February 9, ~~including~~2010, ~~meeting~~the applicable aborrowers ~~specified~~under the CMBS facility exercised the first extension option, extending the ~~debt-yield~~maturity ~~percentage~~date of the loans to February 9, 2011. We intend to satisfy our long-term liquidity requirements through various sources of capital, including our existing working capital, cash provided by operations, licensing of our intellectual property, borrowings under the CMBS facility and capital contributions from our members, ~~and~~if ~~borrowings under our CMBS facility~~needed. Other sources may be sales of equity securities and/or cash generated through property dispositions and joint venture transactions.

Our ability to incur additional debt is dependent upon our ability to satisfy the borrowing restrictions imposed by our current lenders. In addition, our ability to raise funds through the issuance of equity securities is dependent upon, among other things, general market conditions and market perceptions about us. We will continue to analyze which source of capital is most advantageous to us at any particular point in time, but the equity markets may not be consistently available on terms that are attractive or at all.

~~Recent~~Global ~~global~~ market and economic conditions ~~have~~continue ~~been~~to ~~unprecedented~~be ~~and~~ challenging with ~~tighter~~ tight credit conditions and ~~recession~~recessionary conditions in most major economies continuing into ~~2009~~2010. As a result of these market conditions, the cost and availability of credit has been and may continue to be ~~adversely~~ adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. These factors also have lead to a decrease in spending by businesses and consumers alike, ~~and~~especially ain ~~corresponding~~the ~~decrease~~markets in ~~global~~which ~~infrastructure~~we ~~spending~~do business. Continued ~~turbulence~~ instability in the U.S. and international markets and economies and a prolonged slowness ~~declines~~ in business and consumer spending have and may continue to adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers, including our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs.

Management anticipates the Company will not return to a positive cash position at the earliest until the expansion project has opened and the economic environment has improved from its current condition. We believe that the sources of capital described above will continue to be available to us in the future and will be sufficient to meet our long-term liquidity requirements.

4843

~~Cash~~Contractual ~~Flows~~Obligations ~~for~~and ~~the Year Ended December 31, 2008~~Commitments

~~Operating~~We ~~Activities.~~have ~~Net~~various ~~cash~~contractual ~~used~~obligations bythat ~~operating~~we ~~activities~~record ~~was~~as ~~$46.9 million~~liabilities ~~for~~in ~~the~~our ~~year~~consolidated ~~ended~~financial ~~December 31,~~statements. ~~2008,~~We ~~which~~also ~~resulted~~enter ~~primarily~~into ~~from~~other apurchase ~~$282.3 million~~commitments ~~loss~~and ~~from~~other ~~operations,~~executory contracts ~~offset~~that byare ~~$42.7 million~~not ofrecognized ~~depreciation~~as ~~and~~liabilities ~~amortization~~until ~~expense,~~services ~~$191.3 million~~are ~~increase~~performed inor ~~the impairment~~goods ofare ~~goodwill~~received. ~~and~~The following ~~license~~table ~~rights,~~summarizes ~~$4.1 million~~our ~~increase~~contractual inobligations ~~non-cash~~and ~~expenses,~~other ~~and~~commitments ~~$2.7 million~~as ~~from~~of aDecember 31, 2009 ~~decrease~~(amounts in ~~other operating assets and liabilities.~~thousands):

Investing Activities. Net cash used in investing activities amounted to $347.3 million for the year ended December 31, 2008. The cash used in investing activities primarily relates to the construction expenses of the ongoing expansion of the Hard Rock, the change in restricted reserve accounts under the CMBS facility as compared to the purchase of the Hard Rock and related assets in the prior year.


			Payment due by Period
							2012 and
Total	Total		2010		2011		Thereafter
Long-term debt (1)(2)	$	1,210,874	$	—	$	1,157,024	$	53,850
Employment agreement(3)		1,450		725		725		—
Estimated interest payments on long-term debt(4)		120,266		58,540		61,409		317
Construction Commitments(5)		125,949		125,949		—		—

Total contractual cash obligations	$	1,458,539	$	185,214	$	1,219,158	$	54,167

Financing Activities. Net cash provided by financing activities amounted to $390.2 million for the year ended December 31, 2008. The cash provided by financing activities for the year ended December 31, 2008, represents an additional $240.4 million of proceeds from borrowings under the CMBS facility and $50.0 million of proceeds from borrowings under the land acquisition loan, offset by $5.8 million in loan financing costs, $125.5 million of proceeds from additional cash equity contributions and $19.8 million in costs to purchase interest rate caps in comparison to the initial loan to purchase the Hard Rock during the year ended December 31, 2007.


(1)		On August 1, 2008, we completed an intercompany land purchase and a related land acquisition financing with respect to an approximately 11-acre parcel of land located adjacent to the Hard Rock. Under the land acquisition financing, interest will accrue at an annual rate equal to the 30-day LIBOR, plus a blended spread of 17.90%, however, a portion of such interest is being deferred. The loan agreement governing the land acquisition financing contains customary covenants for financing transactions of this type. Our obligations under the land acquisition financing are secured by a first mortgage lien on the approximately 11 acres as well as certain intellectual property and other personal and real property rights. Pursuant to the 2009 Land Restructuring (as defined below) the initial maturity date of the land acquisition financing was extended to February 9, 2012, subject to two one-year extension options, and the principal amount of the land acquisition financing was increased to $53.85 million. The land acquisition financing is subject to acceleration upon the occurrence of events of default which we consider usual and customary for an agreement of this type, including failure to make payments under the applicable loan agreement, non-performance of covenants and obligations or insolvency or bankruptcy (as defined in such loan agreement). We delivered to the lender under the land acquisition financing a deed in lieu of foreclosure agreement that would facilitate the transfer of the property securing the land acquisition financing to such lender upon specified future events of default.

(2)		The initial maturity date of the CMBS facility was February 9, 2010, subject to four one-year extension options. We exercised the first extension option, extending the maturity date to February 9, 2011. The current maturity date of the CMBS facility is February 9, 2011, subject to the remaining extension options provided we satisfy certain conditions.

(3)		Under Mr. Kwasniewski’s offer letter, as amended, if Morgans Management terminated his employment without cause (as defined in his offer letter), he would have been entitled to receive the following: (i) one year’s base salary, (ii) a bonus equal to the number of months he worked during the year in which his termination occurred multiplied by the monthly equivalent of the actual bonus he received in the prior year, with a minimum payment of one-half of his prior year’s bonus and a maximum payment of $280,000, and (iii) accelerated vesting such that any restricted stock units or stock options which would have vested prior to December 31 of the year in which he would have been terminated would have immediately vested on his termination date. See “Executive Compensation—Compensation Discussion and Analysis—Employment Agreements.” In March 2010, Mr. Kwasniewski’s employment with Morgans Management terminated upon his passing away.

(4)		Estimated interest payments on long-term debt are based on average principal amounts outstanding under our CMBS facility and land acquisition financing as of December 31, 2009 and anticipated additional borrowings thereunder required to complete our hotel expansion and renovation, based on the applicable LIBOR index rate of 0.23% plus a spread of 4.25% on the CMBS facility and a spread of 6.83% on the land acquisition financing as of December 31, 2009. Subject to an interest rate cap, as of December 31, 2009, an increase in market rates of interest by 0.125% would have increased our estimated annual interest expense by $1.6 million and $1.7 million in 2010 and 2011 respectively and a decrease in market interest rates by 0.125% would have decreased our estimated annual interest expense by $1.6 million and $1.7 million in 2010 and 2011 respectively. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

(5)		We have signed construction commitments for an aggregate of approximately $649.3 million, which consists of commitments to the general contractor and for other items related to the expansion and renovation of the Hard Rock. As of December 31, 2009, approximately $125.9 million of these commitments remained outstanding.

~~Cash Flows for the Period from February 2, 2007 to December 31, 2007~~44

Operating Activities. Net cash used by operating activities was $43.7 million for the period from February 2, 2007 to December 31, 2007, which resulted primarily from a $68.6 million loss from operations, offset by $32.1 million of depreciation and amortization expense, $2.0 million increase in non-cash expenses, and $9.2 million from a decrease in other operating assets and liabilities.

Investing Activities. Net cash used in investing activities amounted to $807.1 million for the period from February 2, 2007 to December 31, 2007. The cash used in investing activities primarily relates to the Acquisition and establishment of the restricted reserve accounts under the CMBS facility.

Financing Activities. Net cash provided by financing activities amounted to $864.9 million for the period from February 2, 2007 to December 31, 2007. The cash provided by financing represents the $113.9 million of cash equity contributions at the closing of the Acquisition, $760 million of proceeds from borrowings under the CMBS facility at the closing of the Acquisition, $33.5 million of proceeds from additional borrowings subsequent to the Acquisition, which were partially offset by $50.2 million in loan financing costs and $9.0 million of additional cash equity contributions subsequent to the Acquisition. The DLJMB Parties provided $6.0 million of such cash equity contribution and the Morgans Parties provided $3.0 million of such cash equity contribution.

We made cash interest payments on our long-term debt of $65.8 million for the year ended December 31, 2009.

We paid or accrued to Morgans Management amounts in respect of the base fee, a gaming facilities support fee and chain service expense reimbursement equal to $4.5 million, $0.8 million and $1.7 million, respectively for the year ended December 31, 2009. We also reimbursed Morgans Management approximately $1.5 million for costs it incurred under the Technical Services Agreement we have entered into with it for the year ended December 31, 2009.

Our ability to service our contractual obligations and commitments will be dependent on our future performance, which will be affected by, among other things, prevailing economic conditions and financial, business and other factors, certain of which are beyond our control.

We are a defendant in various lawsuits relating to routine matters incidental to its business. Management provides an accrual for estimated losses that may occur and does not believe that the outcome of any pending claims or litigation, in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or liquidity. See “Item 3. Legal Proceedings.”

2009 Loan Restructuring

On December 24, 2009, each of the mortgage and mezzanine loans under the CMBS facility was amended (collectively, the “2009 Loan Restructuring”) to, among other things:

•

waive the specified debt-yield percentage requirement to exercise the existing one-year option to extend the maturity date until February 9, 2012 and add two additional one-year options to extend the maturity date until a final maturity date of February 9, 2014, provided certain conditions are satisfied and no default or event of default exists at the time each extension is exercised (neither the existing one-year option to extend the maturity date until February 9, 2011 nor the two additional one-year options to extend have a debt-yield requirement);

•

increase the blended rate from LIBOR plus 4.25% to LIBOR plus 5.08% for the mortgage loan and increase the interest rate under the mezzanine loans, however a portion of such interest is being deferred and will compound and accrue until either certain cash flow covenants have been met or the maturity date of such loan;

•

require the funding by certain borrowers of approximately $1.0 million into the interest reserve account and approximately $7.0 million into a new working capital account to be used for operating expenses, extraordinary expenses, debt service and certain other expenses in accordance with the applicable loan documents;

•

amend the order of application of any prepayments of loans under the CMBS facility so that any prepayment is applied, until the applicable loan is paid in full, (1) first to the mortgage loan, (2) second to the senior mezzanine loan, (3) third to the junior mezzanine loan and (4) fourth to the subordinated junior mezzanine loan; and

•

remove or modify certain covenants, including, without limitation, covenants related to maintenance of a monthly minimum interest reserve balance, circumstances under which intellectual property may be released and restrictions on permitted capital leases.

In connection with the 2009 Loan Restructuring, we also agreed to enter into documentation providing for (i) the payment of a subordinated exit fee under each of the senior mezzanine loan and the junior mezzanine loan to be paid from certain equity proceeds received by certain members of the Company and (ii) transfer of a participation interest in the junior mezzanine loan from the second mezzanine loan lender to affiliates of the Company, subject to the approval of the mortgage loan lender, the first mezzanine loan lender and the third mezzanine loan lender and certain other conditions. We are currently working with the lenders under the CMBS facility on definitive documentation with respect to the agreements described above.

As of February 9, 2010, the applicable borrowers under each of the mortgage loan and the mezzanine loans exercised their respective first extension options, so that the current maturity date under each of such loans is February 9, 2011. In connection with such extensions, replacement interest rate caps for each loan were purchased at a strike price of 1.23313%.

Capital Expenditures, Interest Expense and Reserve Funds

We are obligated to maintain reserve funds for capital expenditures at the Hard Rock as determined pursuant to our CMBS facility. These capital expenditures relate primarily to initial renovations at the Hard Rock and the periodic replacement or refurbishment of furniture, fixtures and equipment. On the closing date of the Acquisition, we deposited $35 million into an initial renovation reserve fund to be held as additional collateral for the CMBS loan for the payment of initial renovations to the Hard Rock. The CMBS lenders will make disbursements from the initial renovation reserve fund for initial renovation costs incurred by us upon our satisfaction of conditions to disbursement under the CMBS facility. Our CMBS facility also requires us to deposit funds into a replacements and refurbishments reserve fund at amounts equal to three percent of the Hard Rock’s gross revenues and requires that the funds to be set aside in restricted cash. As of December 31, ~~2008~~2009, anwe ~~aggregate~~completed all of $5the initial renovations required under the CMBS facility and the initial renovation reserve account was closed.5 As of December ~~million~~31, ~~and~~2009, $12.94 million ~~were~~was available in restricted cash reserves for future capital expenditures in the ~~initial~~replacements ~~renovation reserve fund~~ and ~~replacements and~~ refurbishments reserve fund~~, respectively~~.

In addition, we are also obligated to maintain a reserve fund for interest expense as determined pursuant to the CMBS facility. On the closing date of the Acquisition, we deposited $45 million into an interest reserve fund to be held as additional collateral under the CMBS facility for the payment of interest expense shortfalls and on the closing date of the 2009 Loan Restructuring we deposited an additional $1.0 million into the interest reserve fund. The lenders under the CMBS ~~lenders~~facility will make disbursements from the interest reserve fund upon our satisfaction of conditions to disbursement under the CMBS facility. As of December 31, ~~2008~~2009, $1411.5 4 million was available in restricted cash reserves in the interest reserve fund.

~~Pursuant~~At to the ~~CMBS~~applicable ~~facility~~lenders option, the unfunded portion of the construction loan asunder of the ~~second~~CMBS ~~anniversary~~facility ~~of the closing date of the Acquisition~~ may be advanced and deposited with ~~lender~~the lenders in an account ~~which shall be~~ referred to as the “construction loan reserve account.” ~~Additionally,~~The portions of the construction loan may be advanced as quarterly deficiency advances from time to time, which quarterly deficiency advances shall be deposited with lender in the construction loan reserve account. Additionally, on November 9, 2007, the third mezzanine construction funds ~~were deposited with lender~~ in the construction loan reserve account. ~~The funds in the construction loan reserve account~~ shall be disbursed when we are entitled to a construction loan advance from the construction loan. We may elect, at our option, to receive a disbursement from the construction loan reserve account in lieu of ~~thereof~~a construction loan advance, to the extent funds are available in the construction loan reserve account. As of December 31, ~~2008~~2009, $~~143~~35.83 million was available in restricted cash reserves in the construction loan reserve account.

In addition, we are also obligated to maintain reserve funds for interest expense and property tax as determined pursuant to the land acquisition loan. The lenders will make disbursements from the interest and property tax reserve funds upon our satisfaction of conditions to disbursement under the land acquisition loan. As of December 31, 2009 and 2008, $5.0 million and $6.9 million and $1.0 million and $0.6 million was available in restricted cash reserves in the interest and property tax reserve funds, respectively. The lender under the land acquisition financing funded a portion of the interest and property tax reserves for 2009, which amounts were added to the principal balance of the land acquisition financing in connection with the 2009 Land Restructuring.

Derivative Financial Instruments

We use derivative financial instruments to manage our exposure to the interest rate risks related to the variable rate debt under our CMBS facility. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. The fair value of our derivative financial instruments is determined by our management. Such methods incorporate standard market conventions and techniques such as discounted cash flow and option pricing models to determine fair value. We believe these methods of estimating fair value result in general approximation of value, and such value may or may not be realized.

InOn ~~connection with a refinancing in November~~February ~~2007~~9, 2010, we purchased five new interest rate ~~caps~~cap agreements with an aggregate notional amount of $~~885~~1.0285 ~~million~~billion ~~and~~with a LIBOR cap of 51.5023313%. ~~which~~We ~~expire~~purchased ~~February 9,~~the ~~2009~~new interest rate cap agreements for an amount equal to approximately $1.6 million. We determined that ~~two~~four ofout of the ~~caps~~five ~~did~~interest ~~not~~ rate caps qualify for hedge accounting. ~~Three~~and of the caps ~~were~~are designated as cash flow hedges. The changes in fair value of the remaining interest rate cap that does not qualify for hedge accounting will be recognized directly in earnings.

On May 30, 2008, we purchased five new interest rate cap agreements with an aggregate notional amount of $871.0 million with a LIBOR cap of 2.5%. The aggregate notional amount accretes to $1.383 billion over the life of the cap based on the draw schedule for the construction loan. We purchased the new interest rate cap agreements for an amount equal to approximately $19.1 million, which was funded through a cash contribution made by the DLJMB Parties. We determined that all five of the caps qualify for hedge accounting and the caps are designated as cash flow hedges.

On August 1, 2008, we purchased a new interest rate cap agreement with an aggregate notional amount of $50.0 million and with a LIBOR cap of 2.5% for an amount equal to $244,980. The purchase price was funded through a cash contribution made by the DLJMB Parties. We determined that the cap qualifies for hedge accounting and the cap has been designated as a cash flow hedge.

On September 22, 2008, we amended the accretive interest rate cap agreement to adjust the notional amount upward in order to meet the lender-required cap on future debt. In addition, we determined that the amended interest rate cap qualifies for hedge accounting and the cap is designated as a cash flow hedge.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. We assess the effectiveness under the hypothetical derivative method where the cumulative change in fair value of the actual cap is compared to the cumulative change in fair value of a hypothetical cap having terms that exactly match the critical terms of the hedged transaction. For derivatives that do not qualify for hedge accounting or when hedge accounting is discontinued, the changes in fair value of the derivative instrument is recognized directly in earnings.

Off-Balance-Sheet Arrangements

We do not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. Currently, we have no guarantees, such as performance guarantees, keep-well agreements or indemnities in favor of third parties.

~~Contractual Obligations and Commitments~~46

We have various contractual obligations that we record as liabilities in our consolidated financial statements. We also enter into other purchase commitments and other executory contracts that are not recognized as liabilities until services are performed or goods are received. The following table summarizes our contractual obligations and other commitments as of December 31, 2008 (amounts in thousands):

				Payment due by Period
									2011 and
Total	Total			2009			2010		thereafter
Long-term debt	$	1,083,813	(1)	$	50,000	(1)	$	1,033,813	$	—
Employment agreement(3)		1,330			725			605		—
Estimated interest payments on long-term debt(4)		145,864			72,966			72,898		—
Construction Commitments(5)		441,756			427,456			14,300		—
Total contractual cash obligations	$	1,672,763		$	551,147		$	1,121,616	$	—

(1) On August 1, 2008, we completed an intercompany land purchase and a related financing with respect to an approximately 11-acre parcel of land located adjacent to the Hard Rock. The proceeds from the financing, together with an equity contribution from the DLJMB Parties, were used to fully satisfy a $110 million amortization payment under the CMBS facility due in August 2008. In connection with the intercompany land purchase and related financing, HRHH Transferee, one of our subsidiaries, entered into a land acquisition financing with Column Financial, Inc. The financing provided $50 million of the $110 million of proceeds necessary to purchase the approximately 11-acre parcel from HRHH Development, LLC, another one of our subsidiaries. Under the financing, interest will accrue at an annual rate equal to the 30-day LIBOR, plus a blended spread of 15.90%. An amendment to the applicable loan agreement increased the blended spread from 15.90% to 17.90%. At any time and from time to time, the lender may increase the blended spread up to a maximum interest rate specified in the related loan documents. The loan agreement governing the land aquisition financing contains customary covenants for financing transactions of this type. HRHH Transferee’s obligations under the land aquisition loan are secured by a first mortgage lien on the approximately 11 acres as well as certain intellectual property and other personal and real property rights of HRHH Transferee. The loan is also assumable by certain third party purchasers of a portion of the approximately 11 acres from HRHH Transferee, which assumption is conditioned upon the provision by HRHH Transferee of certain additional collateral support for the loan. All outstanding amounts owed under the land aquisition loan become due and payable no later than the maturity date of August 9, 2009, subject to two six-month extension options, and are subject to acceleration upon the occurrence of events of default which we consider usual and customary for an agreement of this type, including failure to make payments under the applicable loan agreement, non-performance of covenants and obligations or insolvency or bankruptcy (as defined in such loan agreement).

(2) The initial maturity date of the CMBS facility will be February 9, 2010, with two one-year options to extend the maturity date provided we satisfy certain conditions, including meeting a specified debt-yield percentage.

(3)		Under Mr. Kwasniewski’s offer letter, if Morgans Management terminates his employment without cause on or after the second anniversary of employment, he will be entitled to receive one year’s base salary. If Morgans Management terminates his employment without cause after 2007, he will be entitled to receive a bonus equal to the number of months he worked during the year prior to his termination multiplied by the monthly equivalent of the actual bonus he received in the prior year, with a minimum payment of one-half of his prior year’s bonus. See “Executive Compensation—Compensation Discussion and Analysis—Employment Agreements.”
(4)		Estimated interest payments on long-term debt are based on average principal amounts outstanding under our CMBS facility and land acquisition financing as of December 31, 2008 and anticipated additional borrowings thereunder required to complete our hotel expansion and renovation, based on the LIBOR index rate applicable to the Company of 1.42% plus a spread of 4.25% (for a total of 5.67%) as of December 31, 2008. Subject to an interest rate cap, as of December 31, 2008, an increase in market rates of interest by 0.125% would have increased our projected annual interest expense by $1.5 million and $1.6 million in 2009 and 2010 respectively and a decrease in market interest rates by 0.125% would have decreased our projected annual interest expense by $1.5 million and $1.6 million in 2009 and 2010 respectively. See “Financial Information—Quantitative and Qualitative Disclosure About Market Risk.”
(5)		We have signed construction commitments for an aggregate of approximately $632.4 million, which consists of commitments to the general contractor and for other items related to the expansion and renovation of the Hard Rock, of which approximately $442 million remained at December 31, 2008.

We made cash interest payments on our long-term debt of $64.1 million for the year ended December 31, 2008.

We paid or accrued to Morgans Management amounts in respect of the base fee, a gaming facilities support fee and chain service expense reimbursement equal to $4.6 million, $0.7 million and $1.7 million, respectively for the year ended December 31, 2008. We also reimbursed Morgans Management approximately $0.9 million for costs it incurred under the Technical Services Agreement (as defined below) we have entered into with it for the year ended December 31, 2008.

The Company is a defendant in various lawsuits relating to routine matters incidental to its business. Management provides an accrual for estimated losses that may occur and does not believe that the outcome of any pending claims or litigation, in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or liquidity. See “Legal Proceedings.”

CRITICAL ACCOUNTING POLICIES

Critical accounting policies and estimates are those that are both important to the presentation of our financial condition and results of operations and requires our most difficult, complex or subjective judgments and that have the most significant impact on our financial condition and results of operations.

The preparation of our consolidated financial statements in conformity accounting principles generally accepted in the United States (“GAAP”) require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience, information that is currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Impairment of Land, Goodwill, Intangible Assets and Other Long-lived Assets

We evaluate our goodwill, intangible assets and other long-lived assets in accordance with the applications of ~~Statement~~FASB ofASC ~~Financial~~350 ~~Accounting~~(prior ~~Standards~~authoritative (“literature: SFAS”) No. 142, Accounting for Goodwill and Other Intangible Assets, (“SFAS No. 142”)), related to goodwill and other intangible assets and of FASB ASC 360-10 (prior authoritative literature: SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144 ”)), related to possible impairment of or disposal of long-lived assets. For goodwill and indefinite-life intangible assets, we will review the carrying values on an annual basis and between annual dates in certain circumstances. For assets to be disposed of, we recognize the asset at the lower of carrying value or fair market value less costs of disposal, as estimated based on comparable asset sales, solicited offers, or a discounted cash flow model. For assets to be held and used, we review for impairment whenever indicators of impairment exist.

Inherent in reviewing the carrying amounts of the above assets is the use of various estimates. First, our management must determine the usage of the asset. Impairment of an asset is more likely to be recognized where and to the extent our management decides that such asset may be disposed of or sold. Assets must be tested at the lowest level for which identifiable cash flows exist. This testing means that some assets must be grouped and our management exercises some discretion in grouping those assets. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates. If our ongoing estimates of future cash flows are not met, we may have to record additional impairment charges in future accounting periods. Our estimates of cash flows are based on the current regulatory, social and economic climates where we conduct our operations as well as recent operating information and budgets for our business. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting various forms of travel and access to our hotel casino.

Goodwill represents the excess of purchase price over fair market value of net assets acquired in business combinations. Goodwill and indefinite-lived intangible assets must be reviewed for impairment at least annually and between annual test dates in certain circumstances. ~~The~~We ~~Company performs~~perform ~~its~~ our annual impairment test for goodwill and indefinite-lived intangible assets in the fourth quarter of each fiscal year. Prior to the 2008 annual impairment test, ~~the~~our ~~Company’s~~ goodwill and indefinite-lived intangible asset balances included goodwill of approximately $181.3 million and $44.9 million related to the acquisition of the Hard Rock Hotel and Casino in 2007.

~~The~~We ~~Company~~ completed ~~its~~our 2008 annual impairment tests of goodwill and indefinite-lived ~~intangible~~ intangible assets as of October 31, 2008. The income approach, market approach, and cost approach ~~were~~ were considered in arriving at a fair value estimate of ~~the~~our ~~Company’s~~ intangible assets. As a result of this analysis, ~~the~~we ~~Company~~ recognized a non-cash impairment charge of approximately $181.3 million related to goodwill and $10.0 million related to certain indefinite-lived intangible assets in the fourth quarter of 2008. The impairment charge represents all of the goodwill recognized at the time of the Acquisition and a portion of the value of the Hard Rock license. The impairment charge resulted from factors impacted by current market conditions including: (i) lower market valuation multiples for gaming assets; (ii) higher discount rates resulting from turmoil in the credit and equity markets; and (iii) our current cash flow forecasts ~~for the Company~~.

~~In the~~We ~~income~~completed ~~approach,~~our ~~expected~~2009 ~~future~~annual ~~returns~~impairment ~~from~~tests ~~the~~of land intended for sale and indefinite-lived intangible assets inas ~~the~~of ~~form~~October 31, of2009. ~~cash flows~~The ~~are~~income ~~discounted~~approach, tomarket ~~present~~approach, ~~value~~and cost approach were considered in arriving at ana ~~appropriate~~fair ~~rate~~value estimate of ~~return.~~our ~~The~~intangible ~~selected~~assets ~~discount~~and ~~rate~~land intended for orsale. ~~rate~~As a result of ~~return~~this ~~should~~analysis, ~~reflect~~we ~~the~~recognized ~~degree~~a ofnon-cash ~~uncertainty~~impairment orcharge ~~risk~~of ~~associated~~approximately $108.7 million ~~with~~related to the ~~future returns~~land ~~and~~intended ~~returns~~for ~~available~~sale ~~from~~and ~~alternative~~determined ~~investments.~~indefinite-lived ~~Higher~~intangible assets ~~uncertainty~~were orfairly ~~risk~~valued ~~leads~~in tothe ~~a higher~~fourth ~~expected~~quarter ~~rate~~ of ~~return,~~2009. ~~which~~The ~~produces~~impairment acharge ~~lower~~resulted ~~value~~from factors ~~for~~impacted ~~the~~by ~~investment.~~current ~~Income~~market ~~Approach valuation~~conditions ~~methods~~including: ~~used~~(i) lower tomarket ~~calculate~~valuation ~~the~~multiples ~~fair~~for gaming ~~value~~assets; of(ii) higher ~~the~~discount ~~Company’s~~rates ~~intangible~~resulting ~~assets~~from ~~include~~turmoil in the ~~excess~~ ~~earnings~~credit and ~~relief~~equity ~~from~~markets; and ~~royalty~~(iii) our ~~methods~~current cash flow forecasts.

In47 the excess earnings method, a discounted cash flow analysis is used to measure the anticipated future benefits accruing from the intangible asset. A projection of the future revenue stream attributable to the intangible asset was provided by management. After deducting operating expenses based on the expected profit margin of the intangible asset, as indicated by management, corporate taxes are subtracted at the Company’s forecasted state and federal corporate tax rate. Next, asset charges are deducted to account for the subject asset’s reliance on the Company’s other tangible and intangible assets. The resulting future cash flows are discounted to present value at the Company’s weighted average cost of capital, plus an appropriate premium to account for the additional risk inherent in investing in intangible assets. Free cash flow, as used in the excess earnings method, is defined as follows: (attributable sales, less operating expenses, less income taxes on pretax income, less asset charges from contributing assets, equals free cash flow). From the discounted cash flow value calculated in the excess earnings method, a tax amortization benefit was then added to the tax affected value.

In the relief from royalty method, the present value of projected royalty cash flows is calculated using an appropriate rate of return. Appropriate royalty rates for each intangible asset were estimated after examining market royalty data from RoyaltySource, a database of transactions involving the licensed use of intangible assets. Free cash flow, as used in the relief from royalty method, is defined as follows: (royalty from sales, less income taxes on royalties relieved, equals free cash flow). Income taxes were subtracted from royalty revenue at the Company’s state and federal corporate tax rate to arrive at estimated free cash flows for each intangible asset. The future value of free cash flows were discounted to present value at the Company’s weighted average cost of capital, plus an additional risk premium to account for the added risk inherent in each intangible asset. Sales attributable to each intangible asset were based on management’s projections. A tax amortization benefit was then added to the tax affected value.

The market approach determines fair value by comparing the subject intangible asset to transactions of similar intangible assets in the same or competing markets. This technique uses values established by informed buyers and sellers in the market and is based on the assumption that a prudent buyer would pay no more for an asset than the cost of acquiring an equally desirable substitute in the open market. No sales transactions of intangible assets similar to the subject assets were located as stand-alone assets. Transaction values typically include multiple tangible and intangible assets. As a result, it is difficult to allocate value to an individual intangible asset.

The cost approach considers the current cost of reproducing or replacing an asset new, less accrued depreciation from physical deterioration, functional obsolescence and economic obsolescence. As applied to valuing the Company’s intangible assets, the cost approach determines the cost to develop the intangible assets, and subtracts depreciation based on the actual age and economic life of the intangible assets.

In the income approach, expected future returns from the intangible assets in the form of cash flows are discounted to present value at an appropriate rate of return. The selected discount rate or rate of return should reflect the degree of uncertainty or risk associated with the future returns and returns available from alternative investments. Higher uncertainty or risk leads to a higher expected rate of return, which produces a lower value for the investment. Income Approach valuation methods used to calculate the fair value of our intangible assets include the excess earnings and relief from royalty methods.

In the excess earnings method, a discounted cash flow analysis is used to measure the anticipated future benefits accruing from the intangible asset. A projection of the future revenue stream attributable to the intangible asset was provided by management. After deducting operating expenses based on the expected profit margin of the intangible asset, as indicated by management, corporate taxes are subtracted at our forecasted state and federal corporate tax rate. Next, asset charges are deducted to account for the subject asset’s reliance on our other tangible and intangible assets. The resulting future cash flows are discounted to present value at the Company’s weighted average cost of capital, plus an appropriate premium to account for the additional risk inherent in investing in intangible assets. Free cash flow, as used in the excess earnings method, is defined as follows: (attributable sales, less operating expenses, less income taxes on pretax income, less asset charges from contributing assets, equals free cash flow). From the discounted cash flow value calculated in the excess earnings method, a tax amortization benefit was then added to the tax affected value.

In the relief from royalty method, the present value of projected royalty cash flows is calculated using an appropriate rate of return. Appropriate royalty rates for each intangible asset were estimated after examining market royalty data from RoyaltySource, a database of transactions involving the licensed use of intangible assets. Free cash flow, as used in the relief from royalty method, is defined as follows: (royalty from sales, less income taxes on royalties relieved, equals free cash flow). Income taxes were subtracted from royalty revenue at our state and federal corporate tax rate to arrive at estimated free cash flows for each intangible asset. The future value of free cash flows were discounted to present value at our weighted average cost of capital, plus an additional risk premium to account for the added risk inherent in each intangible asset. Sales attributable to each intangible asset were based on management’s projections. A tax amortization benefit was then added to the tax affected value.

The cost approach considers the current cost of reproducing or replacing an asset new, less accrued depreciation from physical deterioration, functional obsolescence and economic obsolescence. As applied to valuing our intangible assets, the cost approach determines the cost to develop the intangible assets, and subtracts depreciation based on the actual age and economic life of the intangible assets.

Depreciation and Amortization Expense

Depreciation expense is based on the estimated useful life of our assets. The respective lives of the assets are based on a number of assumptions made by us, including the cost and timing of capital expenditures to maintain and refurbish our hotel casino, as well as specific market and economic conditions. Depreciation and amortization are computed using the straight-line method over the estimated useful lives for financial reporting purposes and accelerated methods for income tax purposes.

While our management believes its estimates are reasonable, a change in the estimated lives could affect depreciation expense and net income or the gain or loss on the sale of our hotel casino or any of its assets. Substantially all property and equipment is pledged as collateral for long-term debt.

Capitalized Interest

We capitalize interest costs associated with major construction projects as part of the cost of the constructed assets. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using our weighted average cost of borrowing. Capitalization of interest ceases when the project or discernible portions of the project are complete. We amortize capitalized interest over the estimated useful life of the related asset. For the year ended December 31, ~~2008~~2009, capitalized interest totaled $820.54 million.

Derivative Instruments and Hedging Activities

We manage risks associated with our current and anticipated future borrowings, such as interest rate risk and its potential impact on our variable rate debt. FASB ASC 815-10 (prior authoritative literature: SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted (“SFAS No. 133”)), establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by FASB ASC 815-10 (SFAS No. 133), we record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

Our objective in using derivatives is to add stability to interest expense and to manage ~~its~~our exposure to interest rate movements or other identified risks. To accomplish this objective, we primarily use interest rate swaps and caps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. During ~~2008~~2009, interest rate caps were used to hedge the variable cash flows associated with existing variable-rate debt.

Derivative instruments and hedging activities require us to make judgments on the nature of our derivatives and their effectiveness as hedges. These judgments determine if the changes in fair value of the derivative instruments are reported as a component of interest expense in the consolidated statements of operations or as a component of equity on the consolidated balance sheets. While we believe our judgments are reasonable, a change in a derivative’s fair value or effectiveness as a hedge could affect expenses, net income and equity.

For the years ended December 31, ~~2008~~2009 and December 31, ~~2007~~2008, the total fair value of derivative instruments was $~~106,000~~0 and $11106,000, respectively. The change in fair value included in comprehensive income for December 31, ~~2008~~2009 and December 31, ~~2007~~2008 was $1714.29 million and $2617.2 million,~~000,~~ net of premium amortization, respectively. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on ~~the~~our ~~Company’s~~ variable-rate debt. ~~The~~We ~~Company~~reflect ~~reflects~~ the change in fair value of all hedging instruments in cash flows from operating activities. The net gain or loss recognized in earnings during the reporting period representing the amount of the hedges’ ineffectiveness was insignificant. For the years ended December 31, ~~2008~~2009 and December 31 ~~2007~~2008, ~~the Company~~we expensed $415.60 million and $1.4.6 million to interest expense attributable to the derivatives not designated as hedges according to FASB ASC 815-10 (SFAS No. 133), respectively.

Income Taxes

Under FASB ASC 740-10 (prior authoritative literature: SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”)), a ~~Company~~company is required to record a valuation allowance against some or all of of the deferred tax assets if it is more likely than not that some or all of the deferred tax ~~assets~~ assets will not be realized. To make such determination, ~~the~~we ~~Company~~analyze ~~analyzes~~ positive and negative evidence, including history of earnings or losses, loss carryback potential, impact of reversing ~~temporary~~ temporary differences, tax planning strategies, and future taxable income. ~~The~~We ~~Company~~have ~~has~~ reported net operating losses for consecutive years and does not have projected taxable income in the near future. This significant negative evidence causes management to believe a full valuation allowance should be recorded against the deferred tax assets. The deferred tax liability related to the stepped-up basis on land and indefinite-lived intangibles are the only deferred tax items not offset by the valuation allowance. This treatment is consistent with the valuation allowance calculations in prior periods.

~~We utilize estimates related to cash flow projections for the application of SFAS No. 109 to~~49 the realization of deferred income tax assets. Our estimates are based upon recent operating results and budgets for future operating results. These estimates are made using assumptions about the economic, social and regulatory environments in which we operate. These estimates could be negatively impacted by numerous unforeseen events, including changes to the regulations affecting how we operate our business, changes in the labor market or economic downturns in the areas where we operate.

We assess our projected future taxable income (loss) based on our expansion plans, debt service and history of earnings and losses. Management could not determine that it is more likely than not that future taxable income will be realized to recognize deferred tax assets. Accordingly, during the year ended December 31, 2008, we established a valuation allowance equal to our “Net Deferred Tax Assets” (excluding deferred tax liabilities relating to land and indefinite life intangible assets).

Allowance for Uncollectible Receivables

Substantially all of our accounts receivable are unsecured and are due primarily from the Company’s casino and hotel patrons and convention functions. Financial instruments that potentially subject us to concentrations of credit risk consist principally of casino accounts receivable. We issue credit in the form of “markers” to approved casino customers following investigations of creditworthiness. Non-performance by these parties would result in losses up to the recorded amount of the related receivables. Business or economic conditions or other significant events could also affect the collectibility of such receivables.

Accounts receivable, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce our receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of customer accounts as well as our management’s experience with collection trends in the casino industry and current economic and business conditions. Management’s estimates consider, among other factors, the age of the receivables, the type or source of the receivables, and the results of collection efforts to date, especially with regard to significant accounts. Change in customer liquidity or financial condition could affect the collectibility of that account, resulting in the adjustment upward or downward in the provision for bad debts, with a corresponding impact to our results of operations.

We utilize estimates related to cash flow projections for the application of FASB ASC 740-10 (SFAS No. 109) to the realization of deferred income tax assets. Our estimates are based upon recent operating results and budgets for future operating results. These estimates are made using assumptions about the economic, social and regulatory environments in which we operate. These estimates could be negatively impacted by numerous unforeseen events, including changes to the regulations affecting how we operate our business, changes in the labor market or economic downturns in the areas where we operate.

We assess our projected future taxable income (loss) based on our expansion plans, debt service and history of earnings and losses. Management could not determine that it is more likely than not that future taxable income will be realized to recognize deferred tax assets. Accordingly, a full valuation allowance is recorded equal to our “Net Deferred Tax Assets” (excluding deferred tax liabilities relating to land and indefinite life intangible assets).

Allowance for Uncollectible Receivables

Substantially all of our accounts receivable are unsecured and are due primarily from our casino and hotel patrons and convention functions. Financial instruments that potentially subject us to concentrations of credit risk consist principally of casino accounts receivable. We issue credit in the form of “markers” to approved casino customers following investigations of creditworthiness. Non-performance by these parties would result in losses up to the recorded amount of the related receivables. Business or economic conditions or other significant events could also affect the collectibility of such receivables.

Accounts receivable, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce our receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of customer accounts as well as our management’s experience with collection trends in the casino industry and current economic and business conditions. Management’s estimates consider, among other factors, the age of the receivables, the type or source of the receivables, and the results of collection efforts to date, especially with regard to significant accounts. Change in customer liquidity or financial condition could affect the collectability of that account, resulting in the adjustment upward or downward in the provision for bad debts, with a corresponding impact to our results of operations.

Recently Issued and Adopted Accounting Pronouncements

~~In September 2006~~FASB ASC 820-10, ~~the~~Fair ~~FASB~~Value ~~issued~~Measurements ~~SFAS~~and Disclosures (prior authoritative literature: SFAS No. 157, Fair Value Measurements, ~~(“SFAS~~issued ~~No.157”~~September 2006), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FASB ASC 820-10 (SFAS No. 157) applies under other accounting pronouncements that require or permit ~~fair~~ fair value measurement. FASB ASC 820-10 (SFAS No. 157) does not require any new fair value measurements. ~~The~~ The provisions of FASB ASC 820-10 (SFAS No. 157) are effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In January 2008, the FASB deferred the effective date for one year for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the ~~financial~~ financial statements on a recurring basis (at least annually). ~~The~~We ~~Company~~have ~~has~~ adopted the provisions of ~~this~~ this standard and such application did not have a material effect on its financial condition, results of operations or cash flows. See “— Note 1 —to ~~Fair~~our ~~Value~~consolidated ~~Measurements”~~financial ~~for~~statements for disclosures required by this standard.

~~In February 2007,~~FASB ~~the~~ASC ~~FASB~~810-10 ~~issued~~(prior authoritative literature: SFAS No. ~~159~~160, ~~The~~Noncontrolling ~~Fair~~Interests ~~Value~~in Consolidated ~~Option for~~ Financial ~~Assets~~Statements, ~~and Financial~~issued ~~Liabilities (“SFAS No.159”~~December 2007)., ~~SFAS~~which, ~~No. 159~~among ~~permits companies to choose to measure many financial instruments and certain~~ other ~~items~~things, ~~at fair value. The objective is to improve financial reporting~~provides byguidance ~~providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets~~ and ~~liabilities~~establishes ~~differently~~amended ~~without having to apply complex hedge~~ accounting ~~provisions.~~and ~~The~~reporting ~~fair~~standards ~~value~~for ~~option~~a ~~established~~parent ~~by SFAS No. 159 permits all companies to~~company’s ~~choose~~noncontrolling toor ~~measure~~minority ~~eligible~~interest ~~items~~in ~~at fair value at specified election dates. At each subsequent reporting date,~~ a ~~company~~subsidiary ~~shall report in earnings any unrealized gains~~ and ~~losses on items for which~~ the ~~fair~~deconsolidation ~~value~~of ~~option~~a ~~has~~subsidiary. ~~been~~FASB ASC ~~elected.~~810-10 (SFAS No. ~~159~~160) is effective asfor ~~of the beginning of a company’s first~~ fiscal ~~year~~years ~~that begins after November 15, 2007. Early adoption is permitted as of the~~ beginning ~~of a fiscal year that begins~~ on or ~~before~~after ~~November~~December 15, ~~2007, provided the company~~2008. ~~also~~The ~~elects~~adoption ~~to apply the provisions~~ of ~~SFAS~~FASB ~~No. 157.~~ASC ~~The~~810-10 ~~adoption of~~ (SFAS No. ~~159~~160) had no material impact on ~~the~~our ~~Company’s~~ consolidated financial statements.

~~In December 2007,~~FASB ~~the~~ASC ~~FASB~~815-10 ~~issued~~(prior authoritative literature: SFAS No. ~~141R~~161, ~~Business~~Disclosures about Derivative ~~Combinations~~Instruments and Hedging Activities, ~~(“SFAS~~issued ~~No.~~March 2008, ~~141R”)~~amending ~~which~~FASB ~~replaces~~Statement ~~SFAS~~ No. ~~141~~133.FASB ASC 815-10 (SFAS No. ~~141R,~~161) ~~among~~required ~~other~~enhanced ~~things,~~disclosures ~~establishes~~related ~~principles~~to derivative and hedging activities ~~requirements~~and ~~for~~thereby seeks to improve the transparency of financial reporting. Under FASB ASC 815-10 (SFAS No. 161), entities are required to provide enhanced disclosure related to (i) how anand ~~acquirer~~why an entity uses ~~recognizes~~derivative ~~and~~instruments ~~measures~~(ii) how inderivative ~~its~~instruments ~~financial~~and ~~statements~~related ~~the~~hedge items are accounted ~~identifiable~~for ~~assets~~under ~~acquired~~FASB ASC 815-10 (~~including~~SFAS ~~intangibles~~No. 133), ~~the~~and ~~liabilities~~its ~~assumed~~related interpretations; and ~~any~~(iii) how derivative ~~noncontrolling~~instruments ~~interest~~and inrelated ~~the~~hedged ~~acquired~~items affect an entity.’s ~~Additionally~~financial position, financial performance, and cash flows. FASB ASC 815-10 (SFAS No. ~~141R~~161) ~~requires~~must ~~that~~be applied prospectively to all derivative ~~transaction~~instruments ~~costs~~and ~~will~~non-derivative beinstruments ~~expensed~~that are designated and qualify as ~~incurred.~~hedging ~~The~~instruments and ~~Company~~related ishedged ~~currently~~items ~~evaluating~~accounted ~~the~~for ~~impact~~under ~~of adopting~~FASB ~~the~~ASC ~~Statement,~~815-10 ~~which~~(SFAS isNo. 133) ~~effective~~for all financial statements issued for fiscal years ~~beginning~~and oninterim orperiod beginning after ~~December~~November 15, 2008 with early application encouraged. ~~Adoption~~The isadoption ~~prospective~~of ~~and~~FASB ~~early~~ASC ~~adoption~~815-10 is(SFAS ~~not~~No. 161) ~~permitted~~had no material impact on our consolidated financial statements or disclosures.

In50 December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS No. 160”), which, among other things, provides guidance and establishes amended accounting and reporting standards for a parent company’s noncontrolling or minority interest in a subsidiary and the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company is currently evaluating the impact of adopting SFAS No. 160.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 required enhanced disclosures related to derivative and hedging activities and thereby seeks to improve the transparency of financial reporting. Under SFAS No. 161, entities are required to provide enhanced disclosure related to (i) how and why an entity uses derivative instruments (ii) how derivative instruments and related hedge items are accounted for under SFAS No. 133, and its related interpretations; and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 must be applied prospectively to all derivative instruments and non-derivative instruments that are designated and qualify as hedging instruments and related hedged items accounted for under SFAS No. 133 for all financial statements issued for fiscal years and interim period beginning after November 15, 2008 with early application encouraged. We are currently evaluating the impact that SFAS No. 161 will have on the Company’s financial statements.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The outstanding debt under our loan agreements have a variable interest rate. We are therefore most vulnerable to changes in short-term U.S. prime interest rates. We use some derivative financial instruments, primarily interest rate caps, to manage our exposure to interest rate risks related to our floating rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. As of December 31, 2008, our total outstanding debt, including the current portion, was approximately $1.1 billion, all of which was variable rate debt. We have entered into hedge agreements for our CMBS facility that cap LIBOR at 2.5%. We have also entered into a hedge agreement for the land acquisition financing that occurred in August 2008 that caps LIBOR at 2.5%. At December 31, 2008, the LIBOR index rate applicable to the Company was 1.42% thereby making the caps for the CMBS facility and the land acquisition financing out of the money. Subject to the caps, as of December 31, 2008, an increase in market rates of interest by 0.125% would have increased our annual interest expense by $1.2 million, and a decrease in market interest rates by 0.125% would have decreased our annual interest expense by $1.2 million.

FASB ASC 855-10, Generally Accepted Accounting Principles (prior authoritative literature: FASB SFAS No. 165, Subsequent Events, issued May 2009) (“FASB ASC 105-10 (SFAS No. 165)”) establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FASB ASC 105-10 (SFAS No. 165) requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, specifically, whether that date represents the date the financial statements were issued or were available to be issued. See “Basis of Presentation and Nature of Business” for the related disclosures. The adoption of FASB ASC 105-10 (SFAS No. 165) in the second quarter of 2009 did not have a material impact on our consolidated financial statements.

FASB ASC 105-10, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (prior authoritative literature: FASB SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, issued June 2009) (“FASB ASC 105-10-65 (SFAS No. 168)”), establishes the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental GAAP. The Codification is effective for fiscal years and interim periods ending after September 15, 2009. The adoption of FASB ASC 105-10-65 (SFAS No. 168) did not have a material impact on our consolidated financial statements.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The outstanding debt under our loan agreements have a variable interest rate. We are therefore most vulnerable to changes in short-term U.S. prime interest rates. We use some derivative financial instruments, primarily interest rate caps, to manage our exposure to interest rate risks related to our floating rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. As of December 31, 2009, our total outstanding debt, including the current portion, was approximately $1.2 billion, all of which was variable rate debt. We have entered into hedge agreements for our CMBS facility that cap LIBOR at 2.5%. These interest rate caps expire on February 9, 2010. On February 9, 2010, we purchased five new interest rate cap agreements with an aggregate notional amount of $1.285 billion with a LIBOR cap of 1.23313%. We purchased the new interest rate cap agreements for an amount equal to approximately $1.6 million. At December 31, 2009, the LIBOR index rate applicable to us was 0.23% thereby making the caps for the CMBS facility out of the money. Subject to the caps, as of December 31, 2009, an increase in market rates of interest by 0.125% would have increased our annual interest expense by $1.5 million, and a decrease in market interest rates by 0.125% would have decreased our annual interest expense by $1.5 million.

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Predecessor and the Company and the notes related to the foregoing financial statements, together with the independent registered public accounting firms’ reports thereon, are set forth beginning on pages F-1 ~~through [F-47]~~ of this report.

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A(T) CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. ~~The~~Our ~~Company’s~~ management, with the participation of ~~the Company’s~~our Chief Operating Officer and Chief Financial Officer, has evaluated the effectiveness of ~~the~~ ~~Company’s~~our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, ~~the Company’s~~ our Chief Operating Officer and Chief Financial Officer have concluded that, as of the end of such period, ~~the~~our ~~Company’s~~ disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by ~~the~~us ~~Company~~ in the reports that itwe file ~~files~~ or ~~submits~~submit under the Exchange Act. ~~The Company’s~~Our Chief Operating Officer and Chief Financial Officer ~~have~~ have concluded the controls and procedures were effective in ensuring that information required to be disclosed by ~~the~~us ~~Company~~ in the reports that itwe ~~files~~file or ~~submits~~submit under the Exchange Act is accumulated and communicated to ~~the~~our ~~Company’s~~ management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding ~~required~~ required disclosure.

~~(b) Management’s Annual Report on Internal Control Over Financial Reporting. The Company’s~~51 management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

(b) Management’s Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of ~~the~~our ~~Company’s~~ annual financial statements, management ~~has~~ has undertaken an assessment of the effectiveness of ~~the~~our ~~Company’s~~ internal control over financial reporting as of December 31, ~~2008~~2009. The assessment was based upon the framework described in “Integrated Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment included an evaluation of the design of ~~internal~~ internal control over financial reporting and testing of the operational effectiveness of internal ~~control~~ control over financial reporting. We have reviewed the results of the assessment with our board of directors. Based on our assessment under the criteria set forth in COSO, management has concluded that, as of December 31, 2009, we maintained effective internal control over financial reporting.

~~Based~~This onannual report does not include an attestation report of our ~~assessment~~registered ~~under~~public ~~the~~accounting firm ~~criteria~~regarding ~~set~~internal ~~forth~~control inover ~~COSO,~~financial ~~management~~reporting. ~~has~~Management’s ~~concluded~~report ~~that,~~was not subject to asattestation ofby ~~December 31,~~our ~~2008,~~registered ~~the~~public ~~Company~~accounting ~~maintained~~firm ~~effective~~pursuant to temporary rules of the SEC that ~~internal~~permit ~~control~~us ~~over~~to ~~financial~~provide ~~reporting~~only management’s report in this annual report.

~~This~~(c) Changes ~~annual~~in ~~report~~Internal ~~does~~Control ~~not~~Over ~~include~~Financial anReporting. ~~attestation~~There ~~report~~have ofnot ~~the~~been ~~Company’s~~any ~~registered~~changes ~~public~~in ~~accounting~~our ~~firm regarding~~ internal control over financial reporting. ~~Management’s~~(as ~~report~~such ~~was~~term ~~not subject~~is todefined ~~attestation~~in byRules 13a-15(f) and 15d-15(f) under the ~~Company’s~~Exchange ~~registered~~Act) ~~public~~during ~~accounting~~the ~~firm~~quarter ~~pursuant~~ended toDecember 31, ~~temporary rules~~2009 ofthat ~~the~~have ~~SEC~~materially affected, ~~that~~or ~~permit~~are ~~the~~reasonably ~~Company~~likely to ~~provide~~materially ~~only management’s~~affect, ~~report~~our ininternal ~~this~~control ~~annual~~over ~~report~~financial reporting.

(c) Changes in Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B OTHER INFORMATION

None.

5752

PART III

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

The following table sets forth the name, age and position of each of our directors and executive officers as of ~~December 31~~March 12, ~~2008~~2010:

Name	Age		Position
Steven Rattner		47	Director
Edward A. Johnson		47	Director
Neal Pomroy		4849	Director
Ryan Sprott		3536	Director
Fred J. Kleisner		6465	President and Director
Richard Szymanski		5152	Vice President, Secretary, Treasurer and Director
Andrew A. Kwasniewski		55	President and Chief Operating Officer of HRHI
Arnold D. Boswell		49	Chief Financial Officer of HRHI
Arnold D. Boswell		48	Chief Financial Officer of HRHI

~~Steven~~Edward ~~Rattner~~A. Johnson has served as a Director of the Company since ~~February~~September ~~2007~~2009. Mr. ~~Rattner~~Johnson ~~joined~~is ~~DLJ’s~~a ~~Investment~~Managing ~~Banking~~Director ~~Division~~of inCredit ~~1985~~Suisse ~~and~~in ~~DLJMB~~the inAsset ~~2001.~~Management ~~Prior~~division, tobased ~~joining~~in ~~DLJMB,~~New MrYork. ~~Rattner~~ ~~was~~He ~~one~~has responsibility offor ~~the~~DLJ ~~founding~~Growth ~~members~~Capital ~~of Donaldson~~Partners, ~~Lufkin~~a &mid-market ~~Jenrette’s~~leveraged ~~(or~~buyout ~~DLJ)~~fund, ~~number-one-ranked~~and ~~leveraged~~DLJ Merchant ~~finance~~Banking ~~business,~~Partners. ~~where~~He heis ~~was Head~~a member of ~~Sales~~the management and ~~Trading~~investment committees for DLJ Merchant Banking Partners and ~~Head~~DLJ ofGrowth Capital ~~Markets~~Partners. ~~Upon~~Mr. Johnson ~~the~~joined ~~merger of~~ Credit Suisse First Boston ~~(or~~in ~~CSFB)~~September 1998 ~~and~~from ~~DLJ~~E.M. Warburg Pincus, LLC where he ~~became~~worked ~~the~~for ~~Head~~four ofyears ~~European~~as ~~Leveraged~~a generalist ~~Finance~~in the private equity area, ~~responsible~~and for ~~all~~two years as a consultant for the Boston Consulting ~~underwriting~~Group, ~~and~~Inc. ~~client~~Prior ~~coverage~~to ~~involving~~that, ~~high-yield~~he ~~and~~spent ~~syndicated~~six ~~loan~~years ~~products~~at Chevron as a refinery planner. Mr. ~~Rattner received~~Johnson holds a B.AS. in Chemical Engineering with Honors from ~~Franklin~~Stevens &Institute ~~Marshall~~of ~~College,~~Technology aand Jan M.DB.A. from The Wharton School of the University of ~~Pittsburgh~~Pennsylvania, where he was a ~~member~~Palmer ofScholar. Mr. Johnson has served as a director on numerous boards over the ~~Law~~past ~~Review~~ten years, ~~and~~including: anDen-Mat MHoldings, LLC, Deffenbaugh Industries, Inc.B, The Service Companies, Inc.A, 21 Acquisition Corp., ~~from~~21 ~~the~~TSC ~~Stern~~VoteCo LLC, RathGibson, Inc., Sentient Jet, Inc., Connecticut School of ~~Business~~Broadcasting, atInc., ~~New~~United ~~York~~Site ~~University~~Services, Inc., HeAircast isInc., aAmerican ~~director~~Biophysics ofCorp., Thompson Publishing Group, Inc., LSS Holding Company, Inc., Wastequip, Inc., CommVault Systems, Inc., Focus Technologies, Inc., Accellent, Inc., Peach Holdings, Inc., and ~~Warner~~NextPharma ~~Chilcott Corporation~~Technologies Ltd.

~~Neal Pomroy has served as a Director of the Company since February 2007.~~ Mr. ~~Pomroy~~Johnson ~~joined DLJMB~~brings into ~~2004~~the ~~and~~board ishis ~~involved~~many inyears ~~the oversight~~ of ~~DLJMB’s~~experience ~~portfolio companies and~~ in ~~providing assistance in~~ the ~~due~~financial ~~diligence~~services industry and ~~review~~his ofextensive ~~business~~experience ~~processes~~as ~~for~~a ~~prospective~~director ~~investments.~~for ~~Prior to~~numerous ~~joining~~companies ~~DLJMB,~~in ~~Mr. Pomroy was~~ a ~~Managing~~wide ~~Director~~range ~~with Mercer Management Consulting, Head~~ of ~~the~~ ~~Private Equity and Mergers and Acquisitions practice in North America, where he held several senior management positions including the North American Operating Committee and New York Region Head~~industries. Mr. ~~Pomroy has supported the industry~~Johnson’s ~~largest~~breadth ~~private~~of ~~equity~~knowledge ~~firms~~in ~~with~~directorship ~~specific portfolio company value growth initiatives, turnaround support~~ and ~~total~~corporate ~~portfolio~~ management ~~approaches.~~positions ~~From~~him ~~1983~~ to ~~1987,~~provide ~~Mr. Pomroy~~the ~~worked~~board inwith ~~Leveraged Buyout Finance and Private Equity for Bank of Boston. He received~~ a ~~B.S.~~variety ~~from University~~ of ~~Virginia~~perspectives inon ~~1983~~corporate ~~and~~governance ~~an M.B.A. from the Harvard Business School in 1988. Mr. Pomroy is a director of United Site Services~~ and ~~Professional~~other ~~Career Development Institute, LLC~~issues.

~~Ryan~~Neal ~~Sprott~~Pomroy has served as a Director of the Company since February 2007. Mr. ~~Sprott~~Pomroy joined ~~CSFB~~DLJMB ~~Private~~in ~~Equity~~2004 and is involved in ~~1998~~the ~~and~~oversight of DLJMB’s portfolio companies and in ~~2001~~providing assistance in the due diligence and isreview ~~currently~~of abusiness processes for prospective investments. Prior to joining DLJMB, Mr. Pomroy was a Managing Director ofwith ~~DLJMB.~~Mercer ~~From~~Management ~~1996~~Consulting, ~~to 1998~~Inc., heHead of ~~worked~~the inPrivate ~~the~~Equity ~~Natural~~and ~~Resources~~Mergers ~~Group~~and ofAcquisitions ~~CSFB’s~~practice ~~Investment~~in ~~Banking~~North ~~Division~~America, where he held several ~~focused~~senior onmanagement ~~mergers~~positions ~~and~~including ~~acquisitions,~~the ~~equity~~North ~~offerings~~American Operating Committee and ~~debt~~New ~~financings~~York ~~for~~Region Head. Mr. Pomroy has supported the ~~firm~~industry’s ~~oil~~largest ~~and~~private equity firms with specific portfolio ~~gas~~company ~~clients~~value growth initiatives, turnaround support and total portfolio management approaches. From 1983 to 1987, Mr. ~~Sprott~~Pomroy worked in Leveraged Buyout Finance and Private Equity for Bank of Boston. He received a B.S. from University of Virginia in ~~1995~~1983 and an M.B.A. ~~in 1996~~ from the ~~University of~~Harvard ~~Kansas~~Business School in 1988. HeMr. Pomroy is a director of ~~Gateway~~Den-Mat ~~Energy~~Holdings, ~~Services~~LLC, ~~Corporation~~and has served as a director of United Site Services, ~~Connecticut~~Inc. ~~School~~and ~~of Broadcasting~~Professional ~~and~~Career ~~Specialized~~Development ~~Technology~~Institute, ~~Resources~~LLC.

58Mr. Pomroy has a distinguished career as a leader in management consulting and private equity. Mr. Pomroy brings to the board his extensive knowledge of operational and business processes and years of experience in developing corporate strategy across a broad range of industries. Mr. Pomroy’s expertise in business operations and corporate strategy stemming from his more than 15 years of experience as a Managing Director at Mercer Management Consulting and his experience serving on numerous boards of directors allows him to provide the board with a variety of perspectives on corporate governance and other critical decision-making issues.

~~Fred~~Ryan J.Sprott ~~Kleisner~~ has served as ~~the President and~~ a Director of the Company since ~~October~~February 2007. Mr. ~~Kleisner~~Sprott isjoined CSFB ~~the~~Private ~~President~~Equity ~~and~~in ~~Chief~~1998 ~~Executive~~and ~~Officer~~DLJMB ofin ~~Morgans~~2001 and is currently a ~~consultant~~Managing toDirector ~~the hotel~~of ~~industry~~DLJMB. From 1996 ~~January 2006~~ to ~~September 2007~~1998, ~~Mr. Kleisner~~he ~~was~~worked in the ~~Chairman~~Natural ~~and~~Resources ~~Chief~~Group ~~Executive Officer~~ of ~~Rex~~ ~~Advisors, LLC, a hotel advisory firm, and, from February 2006 to September 2007, served as Chairman of Morgans~~CSFB’s ~~Audit~~Investment ~~Committee.~~Banking ~~From March 2000 to August 2005~~Division, ~~Mr. Kleisner~~where ~~was~~he ~~the~~focused ~~Chief Executive~~on ~~Officer~~mergers ofand ~~Wyndham International~~acquisitions, ~~a hotel company that owned, leased, managed and~~equity ~~franchised~~offerings ~~hotels~~ and ~~resorts~~debt infinancings ~~the~~for ~~U.S., Canada, Mexico,~~ the ~~Caribbean and Europe. Mr. Kleisner also has served as the Chairman of Wyndham International~~firm’s ~~Board~~oil ~~from~~and ~~October 13,~~gas ~~2000~~clients. ~~From August 1999 to October 2000,~~ Mr. ~~Kleisner~~Sprott ~~served~~received asa ~~President and from July 1999 to March 2000, Mr~~B. ~~Kleisner also served as Chief Operating Officer~~S. ~~From March 1998 to August 1999, he served as~~in ~~President~~1995 and ~~Chief~~an ~~Operating Officer of The Americas for Starwood Hotels & Resorts Worldwide, Inc~~M. ~~Hotel Group~~B.A. ~~His experience~~ in ~~the~~1996 ~~industry also includes senior positions with Westin Hotels and Resorts, where he served as President and Chief Operating Officer~~ from ~~1995~~the toUniversity ~~1998;~~of ~~Interstate Hotels~~Kansas. ~~Company~~He ~~where~~is hea ~~served~~director ~~as Executive Vice President and Group President~~ of ~~Operations~~Gateway ~~from~~Energy ~~1990~~Services toCorp., ~~1995;~~Specialized ~~The~~Technology ~~Sheraton Corporation~~Resources, ~~where he served as Senior Vice President~~Inc., ~~Director~~Deffenbaugh ~~of Operations~~Industries, ~~North America Division—East from 1985 to 1990; and Hilton Hotels~~Inc., ~~where for 16 years he~~Den-Mat ~~served as General Manager of several landmark hotels~~Holdings, ~~including The Waldorf Astoria and The Waldorf Towers in New York~~LLC, ~~The Capital Hilton in Washington~~HealthMarkets, DInc.C., and ~~The~~Merrill ~~Hilton Hawaiian Village in Honolulu~~Corp. Mr. ~~Kleisner~~Sprott ~~has~~serves ~~been~~on ~~one~~the ofCompensation ~~Morgans’ Directors since February 2006. Mr. Kleisner, who~~and ~~holds~~Governance acommittees ~~Bachelor~~at ofSpecialized ~~Arts~~Technology ~~degree in Hotel Management from Michigan State University~~Resources, ~~completed advanced~~and ~~studies~~serves aton the ~~University~~Executive, ~~of Virginia~~ Investment, and ~~Catholic~~Nominating ~~University~~committees ofat ~~America~~HealthMarkets.

~~Richard~~Mr. Sprott ~~Szymanski~~brings ~~has~~to ~~served~~the asboard ~~the~~his ~~Vice~~years ~~President,~~of ~~Secretary~~experience ~~and~~in ~~Treasurer~~corporate finance and ahis ~~Director of~~knowledge ~~the~~and ~~Company~~skills ~~since~~in ~~February 2007~~strategic planning. Mr. ~~Szymanski~~Sprott’s isexperience ~~the~~as ~~Chief~~a ~~Financial~~member ~~Officer~~ of ~~Morgans. Before joining Morgans in 2005, Mr. Szymanski was~~ the ~~Senior~~board ~~Vice~~of ~~President~~directors ~~and~~for a ~~Chief~~wide ~~Financial~~array ~~Officer~~ of ~~Prime~~ ~~Hospitality~~companies ~~LLC.~~in ~~From~~different ~~2003~~industries toenables ~~2004,~~him ~~Mr. Szymanski~~to ~~was~~provide ~~the~~a ~~Senior~~variety ~~Vice~~of ~~President and Chief~~perspectives ~~Financial~~on ~~Officer~~corporate ofmanagement ~~Prime~~and ~~Hospitality~~governance ~~Corp~~matters. ~~From~~As ~~1998~~a toleader ~~2003,~~in ~~Mr. Szymanski was~~ the ~~Vice President~~financial ofservices ~~Finance of Prime Hospitality Corp. In these positions~~industry, Mr. ~~Szymanski was responsible~~ ~~for~~Sprott ~~overseeing~~is ~~the~~positioned ~~accounting~~to ~~department,~~provide ~~budget~~valuable ~~and~~insights ~~planning,~~to ~~internal~~the ~~audits~~board ~~and~~on ~~cash~~numerous management~~. Mr. Szymanski~~ ~~received~~and ~~a Bachelor of Science degree in accounting from Rutgers University~~strategic issues.

~~Andrew~~Fred AJ. ~~Kwasniewski~~Kleisner has served as the President and a Director of the Company since October 2007. Mr. Kleisner is the Chief ~~Operating~~Executive Officer of ~~HRHI since~~Morgans. ~~February~~From January 2006 to September 2007., Mr. ~~Kwasniewski~~Kleisner ~~also~~was ~~serves~~the asChairman ~~President~~and Chief Executive Officer of Rex Advisors, LLC, a hotel advisory firm, and, from February 2006 to September 2007, served as a Director of Morgans Hotel Group, ~~Las~~as ~~Vegas~~well ~~and~~ as Chairman of Morgans’ Audit Committee. From March 2000 to August 2005, Mr. Kleisner was the Chairman, President and Chief Executive ~~Operating~~ Officer of Wyndham International, Inc., a hotel company that owned, leased, managed and franchised hotels and resorts in the ~~Hard~~U.S., ~~Rock~~Canada, Mexico, the Caribbean and Europe. ~~From~~Mr. Kleisner also ~~May~~has served as the Chairman of Wyndham International’s Board from October ~~2005~~13, 2000. From August 1999 to October ~~2006~~2000, Mr. ~~Kwasniewski~~Kleisner served as ~~Senior~~President ~~Vice~~and from July 1999 to March 2000, Mr. Kleisner also served as Chief Operating Officer of Wyndham International. From March 1998 to August 1999, he served as President and Chief Operating Officer of The Americas for Starwood ~~Capital~~Hotels & Resorts Worldwide, Inc. Hotel Group. His experience in the industry also includes senior positions with Westin Hotels and Resorts, where he ~~played~~served anas President and Chief Operating Officer from 1995 ~~integral~~to ~~role~~1998; inInterstate ~~the~~Hotels ~~acquisition~~Company ~~and~~where ~~operational~~he ~~aspects~~served as Executive Vice President and Group President of ~~Starwood~~Operations ~~hotel~~from ~~portfolios~~1990 to 1995; The Sheraton Corporation, ~~including~~where he served as Senior Vice ~~the~~President, ~~Societe~~Director duof ~~Louvre~~Operations, North America Division—East from 1985 to 1990; and LeHilton ~~Meridien~~Hotels Corp., ~~Prior~~where tofor ~~joining~~16 years ~~Starwood~~he served as General Manager of several landmark hotels, including The Waldorf Astoria and The Waldorf Towers in New York, The Capital ~~Group~~Hilton in Washington, ~~from~~D.C., ~~January 2004~~and The toHilton ~~May~~Hawaiian Village in Honolulu. Mr. ~~2005~~Kleisner has been one of Morgans’ Directors since February 2006. Mr. ~~Kwasniewski~~Kleisner also has been a Director at Innkeepers USA Trust since November 2007, and has served as ~~the~~a ~~Vice~~Director ~~President~~at ofKindred ~~Operations~~Healthcare, ~~for~~Inc. since April 2009, where he serves on the ~~Hard~~Audit Committee ~~Rock~~and Compliance and, ~~from January 2001~~Quality toCommittee. ~~August~~Mr. ~~2002~~Kleisner, aswho ~~Executive~~holds ~~Vice~~a ~~President~~Bachelor of ~~Operations~~Arts ~~for~~degree in ~~Starwood~~Hotel ~~Hotels~~Management &from the College of Business, Michigan State University, completed advanced studies at the University of ~~Resorts~~Virginia ~~Worldwide~~and attended Catholic University of America.

59Mr. Kleisner brings to the board his extensive experience in corporate management, operations, financial compliance and governance matters, including his extensive experience as a leader in the hotel industry. Mr. Kleisner has over 40 years of experience in the hotel industry, and has served in senior management or as an executive officer for over 25 years. Mr. Kleisner’s membership on the board of directors at Morgans, Innkeepers USA Trust, and Wyndham International, Inc. positions him to bring a wealth of directorial and governance knowledge to the board. As the Chief Executive Officer of Morgans, Mr. Kleisner is also positioned to serve as a bridge between the leadership of the Company and the leadership of Morgans.

Richard Szymanski has served as the Vice President, Secretary and Treasurer and a Director of the Company since February 2007. Mr. Szymanski is the Chief Financial Officer of Morgans. Prior to joining Morgans in 2005, Mr. Szymanski was the Senior Vice President and Chief Financial Officer of Prime Hospitality LLC and its predecessor, Prime Hospitality Corp, from 2003 to 2005. From 1986 to 2003, Mr. Szymanski held a number of senior positions at Prime Hospitality Corp. and its predecessor, including Vice President of Finance and Vice President and Corporate Controller. In these positions, Mr. Szymanski was responsible for overseeing the accounting department, budget and planning, internal audits and cash management. Mr. Szymanski previously worked for Ernst and Young from 1979 to 1986 in several positions including audit manager. Mr. Szymanski received a Bachelor of Science degree in accounting from Rutgers University.

Mr. Szymanski brings to the board his extensive experience in finance and accounting, especially as it relates to the hospitality industry. Mr. Szymanski’s knowledge and experience in managing corporate accounting at a high level, including internal audits, and overseeing the budgeting and planning process are assets to the Company. As the Chief Financial Officer of Morgans, Mr. Szymanski also brings to the board a wealth of knowledge and understanding of the operations at Morgans Management.

Arnold D. Boswell has served as the Chief Financial Officer of HRHI since February 2007. Prior to that, Mr. Boswell served as Vice President of Hotel Asset Management with Starwood Capital Group LLC from April 2006 to February 2007, as Vice President of Finance for Omni Hotels from October 2005 to April 2006 and as Vice President of Finance for the Procaccianti Group from November 2004 to September 2005. Mr. Boswell spent fifteen years with Wyndham International, Inc., serving in roles including that of Senior Vice President of Audit Services and Vice President of Finance for various divisions within that organization from January 2002 to January 2004. As the Senior Vice President of Audit Services and as Vice President of Finance, Mr. Boswell had responsibility for overseeing the internal audit and operational finance functions for 170 owned and managed hotels, both nationally and internationally.

Board Leadership Structure

Our board is structured in accordance with the JV Agreement, which specifies that DLJMB VoteCo is currently entitled to designate three directors and Morgans is entitled to designate two directors. In accordance with the JV Agreement, our board has not designated a Chairman. We believe that this structure is an appropriate reflection of the Company’s underlying ownership structure and our nature as a joint venture between the DLJMB Parties and Morgans Parties. Subject to certain provisions of the JV Agreement, decisions made by the board at a meeting of the directors will require the approval of at least one director appointed by each of DLJMB VoteCo and Morgans. This arrangement helps to ensure that decisions made by the board reflect the concerns of both members.

Board Risk Oversight

With a view toward managing the Company’s exposure to ongoing operational risks, our board of directors performed extensive diligence in selecting Morgans Management as operator and manager of the Hard Rock (excluding the gaming facilities). Morgans Management has substantial experience and a proven track record in hotel management. The board also has a direct role in overseeing matters that impact the Company’s risk management. Prospective ventures are presented to our board of directors, which allows the board to evaluate and approve those ventures that optimize potential rewards against likely risks. Additionally, under the JV Agreement, certain significant decisions made on behalf of the Company must be made by the board, including, among other things, approval of our operating plan and budget, amendments to the development budget and plans for the expansion project for the Hard Rock, and other material transactions.

Board Diversity

Given the ownership structure of the Company, our board of directors has not adopted a formal policy with respect to diversity. Under the JV Agreement, the persons serving on the board are designated by our members in their sole discretion.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires that our executive officers, directors, and persons who own more than 10% of a registered class of our equity securities, file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. These reporting persons are required by the SEC to furnish us with copies of all Forms 3, 4 and 5 that they file. Based solely on our review of the copies of such forms received by us, and/or on written representations from certain reporting persons that they were not required to file a Form 5 for the fiscal year, we believe that our executive officers, directors and persons who own more than 10% of our equity securities complied with all Section 16(a) filing requirements applicable to them with respect to transactions during the year ended ~~2008 except a late Form 4 filing by each of HRHI’s two named executive officers in connection with the rescission of Class C Units in November 2008~~2009.

Other Matters

Given the ownership structure of the Company, it has not adopted any procedures by which ~~security~~ security holders may recommend nominees to ~~the~~our ~~Company’s~~ board of directors.

Given the ownership structure of the Company and the financial experience and business acumen of the directors serving on our board of directors, our board of directors has determined (i) not to to establish an audit committee in accordance with Section 3(a)(58)(A) of the Exchange Act or a committee performing similar functions, and (ii) not to appoint a new director that meets the qualifications of an “audit committee financial expert” as defined under Item 401(h) of Regulation S-K.

Given the ownership and management structure of the Company, our board of directors has determined that it is not necessary to adopt a code of ethics at this time.

~~ITEM 11 EXECUTIVE COMPENSATION~~55

We were formed by the DLJMB Parties and the Morgans Parties in early 2007 in preparation for the closing of their Acquisition of HRHI and certain related assets. Because we were formed in 2007, we do not have a history of executive officer compensation practices for fiscal years prior to 2007. In addition, the compensation paid to our Predecessor’s executive officers is not necessarily indicative of how we compensate our executive officers. Set forth below is a description of our current policies and practices with respect to the compensation of HRHI’s executive officers. Neither Mr. Kleisner nor Mr. Szymanski is compensated in his capacity as an officer or director of the Company. We currently do not compensate these officers because our operations are managed by HRHI’s executive officers (and these officers do not provide significant services to the operation of the Hard Rock).

ITEM 11 EXECUTIVE COMPENSATION

Set forth below is a description of our current policies and practices with respect to the compensation of HRHI’s executive officers. Neither Mr. Kleisner nor Mr. Szymanski is compensated in his capacity as an officer or director of the Company. For 2009, we did not compensate these officers because our operations were managed by HRHI’s executive officers (and these officers did not provide significant services to the operation of the Hard Rock).

On March 9, 2010, Andrew A. Kwasniewski, President and Chief Operating Officer of HRHI passed away at the age of 56. We have commenced a search for a new president and chief operating officer of HRHI. The Hard Rock will be managed in the interim by the property’s existing management team and with oversight by executives of Morgans.

COMPENSATION DISCUSSION AND ANALYSIS

Overview

This Compensation Discussion and Analysis section discusses the compensation policies and programs for our named executive officers, which ~~consists~~for 2009 consisted of Andrew A. Kwasniewski, HRHI’s former President and Chief Operating Officer and Arnold D. Boswell, HRHI’s Chief Financial Officer. On March 9, 2010, Mr. Kwasniewski passed away and is no longer an executive officer of HRHI.

The compensation program for Mr. Kwasniewski was determined through negotiations between Morgans and Mr. Kwasniewski, subject to the approval of our board of directors. Mr. Kwasniewski entered into an offer letter with Morgans Management in in September 2006, which ~~provides~~generally provided that he would assist in the Acquisition and, upon its closing, would be responsible for operation of the Hard Rock as its President and Chief Operating Officer. In October 2007, Morgans and Mr. Kwasniewski amended his offer letter to increase his base salary and the number of equity awards he is entitled to receive under Morgans’ equity incentive plans. In October 2008, Morgans and Mr. Kwasniewski further amended his offer letter to increase his base salary and target annual bonus. The terms of Mr. Kwasniewski’s offer letter, ~~provides~~as amended, provide for the compensation package described below and ~~serves~~served as his employment agreement for his services to HRHI. In January ~~addition~~2009, ~~in April 2008, as a result of negotiations between~~ Mr. Kwasniewski ~~and~~received ~~Morgans,~~a ~~Mr. Kwasniewski~~profits ~~received~~interest ~~additional~~award ~~compensation~~ in the form of ~~equity~~Class C ~~awards~~Membership Interests under ~~Morgans~~the Company’s ~~equity incentive~~2008 ~~plans~~Profits Interest Award Plan (the “Profits Interest Plan”).

The compensation program for Mr. Boswell was determined through negotiations between he and Mr. Kwasniewski, in his capacity as an officer of HRHI, subject to the approval of our board of directors. Mr. Boswell entered into an offer letter with Morgans Management in December 2006, ~~which~~ which provides for him to serve as Chief Financial Officer of the Hard Rock commencing February 2007. The terms of Mr. Boswell’s offer letter provide for the base salary and annual bonus described below and serves as his employment agreement for his services to HRHI. ~~In May 2007 and 2008, Mr. Boswell received additional compensation in the form of equity awards under Morgans’ equity incentive plans consistent with similarly situated Morgans’ employees.~~ On May 29, 2008, the ~~Company~~ Company increased the base salary of Mr. Boswell in an effort to align our compensation practices ~~with~~ with Morgans’ and Mr. Kwasniewski’s assessment of compensation practices in the Las Vegas hotel and casino market. In January 2009, Mr. Boswell received a profits interest award in the form of Class C Membership Interests under the Company’s Profits Interest Plan.

Executive Compensation Philosophy and Objectives

The executive compensation program for HRHI’s executive officers is designed to provide them with compensation that is competitive in the market place and to reward and incentivize executive contributions to increasing and maximizing value to our members. Specifically, the primary tenets of our executive compensation philosophy, similar to other companies in the Las Vegas hotel and casino industry, are the following:

• Attract, retain and motivate qualified, high-performing executives. The compensation packages for Messrs. Kwasniewski and Boswell were initially designed and negotiated to attract each of them to HRHI in anticipation of or following the closing of the Acquisition. For these executives, our focus iswas on retaining their services to continue to build on the operational success we have achieved since the closing of the Acquisition. In addition, we must continually ensure that our executive compensation program is competitive and attractive to qualified executives with the level of industry experience that we generally seek.

• Provide rewards commensurate with performance by emphasizing variable, at-risk compensation that is dependent on both company and individual achievements and continued service . Generally, of the three main elements of our executive compensation program—base salary, annual cash bonus and long-term equity incentives—the only element that is “fixed” or “guaranteed” is base salary. Each of the other two elements is based on the achievement of performance targets or the continued service, typically in the case of long-term equity awards over a three- or four-year period, of the executive to the Company. We believe executives with higher levels of responsibility and a greater ability to influence enterprise results, which includes each of the named executive officers, should have a greater percentage of their total compensation based on variable compensation. We further believe such a focus directly rewards our named executive officers for creating, sustaining and, more importantly, increasing value to our members.

6156

•

Align the interests of executives and our members through equity-based compensation. As a further reinforcement of our overall philosophy to maximize value to our members, Morgans and the Company have made equity grants to the named executive officers, in order to align their interests and those of our members.

With these tenets in mind, we intend to adhere to the following objectives when making executive compensation decisions:

•

provide compensation that is competitive in the marketplace as determined by us in negotiation with our named executive officers;

•

create and emphasize a pay-for-performance culture to drive the creation of value to members; and

•

allow for judgment and discretion to adjust for individual performance and the role, responsibilities and achievements of the individual within the organization.

Setting of Executive Compensation

In setting the compensation of our named executive officers, we made our decisions based on the negotiating positions of the officers, the scope of the officers’ responsibilities and our general knowledge of compensation practices in the Las Vegas hotel and casino market. The ~~companies~~ companies in the Las Vegas hotel and casino market are likely to compete with us in the marketplace in terms of recruiting and retaining key executives. As discussed above, subject to the approval of our board of directors, Morgans iswas responsible for determining Mr. Kwasniewski’s compensation package and Mr. Kwasniewski, iswith the oversight and approval of Morgans and our board of directors, was responsible for determining the compensation package of Mr. Boswell. The amount and form of compensation paid or granted to the named executive officers also is a function of the seniority of their position and their anticipated roles and responsibilities within our organization. In general, officers with higher levels of responsibility and a greater ability to influence results have a greater percentage of their total compensation based on variable compensation.

Elements of Executive Compensation

Base salary. Base salaries are the primary fixed component of compensation paid to the named executive officers and are paid for retention purposes and for performing the daily duties of their jobs. Pursuant to each officer’s offer letter, ~~each~~as ofamended, ~~Messrs~~Mr. Kwasniewski was entitled to receive $725,000 and Mr. Boswell currently is entitled to receive $~~725,000 and $~~265,000 ~~respectively,~~ of annual base compensation. The amount of annual compensation paid to each of the named executive officers was set through negotiations with the officers and at a level designed to attract the officers to HRHI and retain their services.

Annual Bonus ~~Incentive~~ Compensation. Annual ~~incentive~~bonus awards are a performance-based component of executive compensation that are designed to motivate and reward the achievement of annual financial results relative to company ~~targeted~~goals ~~or budgeted levels~~ and individual goals. We believe that annual cash ~~incentive~~bonus awards further our objectives of creating a culture of paying-for-performance and, through the exercise of discretion inherent in the annual ~~incentive~~bonus plan, such awards allow for rewarding individual performance and achievement. ~~The target amount of Mr. Kwasniewski’s annual~~ bonus is 100% of his base salary, with a guaranteed minimum bonus of $725,000 for 2008. Under his offer letter, the actual amount of Mr. Kwasniewski’s annual bonus is set by Morgans within these guidelines in its discretion. Based on a verbal agreement with Morgans Management, for 2008, Mr. Boswell was eligible to receive a discretionary annual bonus of 60% of his base salary, provided that HRHI met its annual budgeted earnings before interest, taxes, depreciation and amortization (referred to as “EBITDA”) for the year. Mr. Boswell’s annual bonus could have been decreased by the percentage that actual EBITDA varies from annual budgeted EBITDA for the year and, in Morgans’ discretion, to the extent he has not met objectives and contributed to the performance of HRHI. We believe that tying the named executive officers’ annual bonuses to their individual performance and our evaluation of the performance of HRHI will focus their attention on creating, sustaining and increasing value to our members. We believe that it is important to maintain a significant level of discretion in setting the ultimate amount of the annual bonuses so that we can take into consideration various factors in deciding whether or not the executives have delivered the results we expect from them.

62According to the terms of Mr. Kwasniewski’s offer letter, as amended, the target amount of Mr. Kwasniewski’s annual bonus was 100% of his base salary, with a minimum guaranteed bonus of $725,000 for 2009. However, Morgans and Mr. Kwasniewski verbally agreed to reduce his 2009 bonus to 12.5% of his base salary ($90,625) from a guaranteed bonus of 100% of his base salary ($725,000). In determining the amount of Mr. Kwasniewski’s annual bonus for 2009, Morgans determined that a performance bonus based primarily on the Company’s annual budgeted earnings before interest, taxes, depreciation and amortization (referred to as “EBITDA”) for the year would not accurately reflect the contributions made by Mr. Kwasniewski during a period of weak national, regional and local economic market conditions. In addition, Morgans took into consideration that we remain on schedule for the expansion project at the Hard Rock in accordance with the development budget approved by our board of directors and that we faced considerable disruption from ongoing construction.

InBased ~~January 2009,~~on ~~Morgans~~a ~~Management~~verbal ~~determined~~agreement ~~the~~with ~~actual~~Morgans ~~annual~~Management, ~~cash~~for ~~incentive~~2009, ~~award paid to~~ Mr. ~~Kwasniewski~~Boswell ~~for services~~was ~~performed~~eligible ~~during~~to ~~2008,~~receive a ~~subject~~discretionary toannual ~~the~~bonus ~~approval~~ of ~~our~~60% ~~board~~ of ~~directors,~~his ~~and~~base Mrsalary. ~~Kwasniewski~~ ~~determined~~In ~~the~~determining ~~actual annual cash incentive award paid to~~ Mr. Boswell’s ~~for~~annual discretionary ~~services~~bonus ~~performed~~for ~~during~~2009, ~~2008. Both Morgans Management and~~ Mr. Kwasniewski ~~took~~determined ~~into consideration~~ that ~~our~~ ~~2008~~a ~~casino~~performance ~~total~~bonus ~~drop~~based ofprimarily on ~~$687.5 million~~the ~~exceeded~~Company’s ~~the~~annual ~~prior~~budgeted ~~year~~EBITDA ~~amount~~for ofthe ~~$624.2 million~~year bywould ~~10%~~not ~~and~~accurately ~~that~~reflect the ~~Hard~~contributions ~~Rock~~made ~~performed~~by ~~better~~Mr. Boswell during ~~2008~~a ~~than~~period ~~certain~~ of ~~its~~weak ~~competitors on the Las Vegas Strip in certain key areas such as gaming revenues~~national, ~~revenue~~regional ~~per available room~~ and ~~average~~local ~~daily~~economic ~~room rate~~market conditions. ~~Morgans~~In ~~Management~~addition, ~~and~~ Mr. ~~Kwasnieswki~~Kwasniewski ~~also factored~~took ininto consideration that ~~the~~we ~~Hard~~remain ~~Rock’s~~on ~~2008~~schedule ~~performance~~for ~~faced considerable disruption from ongoing construction related to~~the ~~our~~ expansion project ~~and~~at ~~took~~the ~~place~~Hard ~~during~~Rock ain ~~period~~accordance ofwith ~~weak~~the ~~national,~~development ~~regional~~budget ~~and~~approved ~~local~~by ~~economic~~our ~~market conditions.~~board ~~Based on such factors discussed above, each~~ of ~~Messrs. Kwasniewski~~directors and ~~Boswell~~that ~~received~~we ~~awards~~faced ~~for~~considerable ~~services~~disruption ~~performed during~~from ~~2008~~ongoing ~~equal to 100% and 40% of their 2008 base salary, or $725,000 and $107,490, respectively~~construction.

~~For~~Based ~~2009~~on such factors described above, ~~the~~each ~~targeted~~of ~~annual~~Messrs. Kwasniewski ~~cash~~and ~~incentive~~Boswell received awards for ~~(as~~services aperformed ~~percentage~~during 2009 equal to 12.5% and 7.5% of ~~annual~~their 2009 base salary), or $90,625 ~~will~~and ~~remain~~$19,875, atrespectively. ~~100%~~We ~~for~~believe ~~Mr. Kwasniewski~~that ~~and~~tying ~~60%~~the ~~for~~named ~~Mr. Boswell.~~executive ~~Mr. Kwasniewski~~officers’s ~~maximum~~ annual bonuses to ~~cash~~their ~~incentive~~individual ~~award~~performance ~~for~~and ~~2009~~our evaluation of the performance of HRHI will ~~remain~~focus ~~100%~~their attention on creating, sustaining and increasing value to our members. We believe that it is important to maintain a significant level of ~~his~~discretion in setting the ultimate amount of the annual ~~base~~bonuses ~~salary~~so that we can take into consideration various factors in deciding whether or not the executives have delivered the results we expect from them.

For 2010, the targeted annual cash incentive award (as a percentage of annual base salary) will remain at 60% for Mr. Boswell.

Company Equity Grants. We believe that granting awards tied to the value of the Company’s equity provides another incentive to our named executive officers and certain other employees to maximize value for our members.

On September 10, 2008, our board of directors adopted the ~~Company’s 2008~~ Profits Interest ~~Award~~ Plan ~~(the “Plan”)~~. The purpose of the Profits Interest Plan is to provide eligible officers and employees with an opportunity to participate in the Company’s future by granting them profits interest awards in the form of Class C Units of the Company so as to enhance the Company’s ability to attract and retain certain valuable individuals. The Class C Units are membership interests in the Company whose terms are governed by the JV Agreement, the Profits Interest Plan and an individual profits interest Award Agreement. The maximum aggregate number of Class C Units available for issuance under the Profits Interest Plan is 1,000,000 units. In the aggregate, the Class C Units represent up to a 5% percentage interest in the Company (depending on the number of interests granted and the extent to which the DLJMB Parties and Morgans Parties make capital contributions to us over a certain threshold).

On January 14, 2009, the Company’s named executive officers received aggregate awards totaling 360,000 Class C Units which ~~includes~~included an aggregate award of 300,000 Class C Units to Mr. Kwasniewski and 60,000 Class C Units to Mr. Boswell. Each grantee’s award consists of the following three vesting components, which are equally spread and are generally subject to the grantee’s continued employment with the Company: (i) a time-based vesting award that vests over the period commencing on the date of grant and continuing through December 31, 2010; (ii) a performance-based vesting award that vests with respect to 25% of the units on the date of grant and the remaining 75% of the units based on the Company’s attainment of pre-established EBITDA targets for each of the Company’s fiscal years through December 31, 2010; and (iii) a “milestone” vesting award that vests based on the Company’s timely completion of the expansion project at the Hard Rock in accordance with the development budget approved by our board of directors. Due to the challenges companies in the Las Vegas market experienced and are expected to experience in the near-term, the Company did not achieve ~~its~~the EBITDA targets, asfor ~~indicated~~2008 inand ~~the~~2009 ~~Plan~~of ~~for~~$49.5 million ~~2008,~~ and is$76.5 million, respectively, ~~expected~~with ~~not~~respect to ~~achieve~~the ~~its~~performance-based ~~EBITDA~~vesting ~~targets,~~award asof Class C ~~indicated~~Units inas the ~~Plan~~Company’s actual EBITDA for 2008 and 2009 was $41.1 million and $23.4 million, respectively.

If a “Sale of the Company” (as defined in the Profits Interest Plan) occurs prior to December 31, 2010 and the grantee remains employed with the Company until the closing of the Sale of the Company, 100% of the remaining outstanding unvested Class C Units covered by the award will vest immediately prior to the closing. Vesting ismay also be accelerated if the grantee’s ~~employment~~ employment with the Company is terminated without cause (as defined in the grantee’s Award Agreement) or by the grantee for good reason (as defined in the grantee’s Award Agreement) as set forth in the Award Agreement. Awards of Class C Units will be forfeited to the extent that the award is not vested as of the date of a termination of the grantee’s employment or to the extent that the award fails to satisfy the performance or milestone targets set forth in the Award Agreement. With respect to awards held by grantees other than Mr. Kwasniewski, the entire award, whether vested or unvested, will be forfeited upon a termination of the grantee’s employment for cause (as defined in his or her Award Agreement). Mr. Kwasniewski’s Award Agreement ~~provides~~provided that his vested Class C Units were ~~are~~ generally only subject to forfeiture upon breach of his non-competition covenant. The Award Agreements include a number of restrictions permitted under the Profits Interest Plan, ~~including~~ including without limitation the following: The Company will have a right to repurchase any or all ~~vested~~ vested Class C Units from the holder within a specified period of time following the holder’s ~~termination~~ termination of employment or December 31, 2010, if later. The repurchase price per unit is determined pursuant to a methodology set forth in the Award Agreement that is intended to approximate the fair market value of a Class C Unit as of the date on which the repurchase right arises.

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Morgans Equity Grants. We believe that granting awards tied to the trading price or value of Morgans’ equity provides another incentive to our named executive officers. Our named executive officers are eligible to ~~maximize~~participate ~~value~~in the Morgans Hotel Group Co. 2007 Amended and Restated Omnibus Stock Incentive Plan (the “Morgans Stock Incentive Plan”), which provides for the issuance ~~our~~of ~~members~~stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of Morgans, including restricted stock units, and other equity-based awards, including membership units which are structured as profits interests, or any combination of the foregoing. Equity awards are approved by the compensation committee or the equity award committee of the board of directors of Morgans and are not timed to precede the release of material nonpublic information.

~~Each~~Prior to 2009, each of Messrs. Kwasniewski and Boswell received grants of restricted stock units which ~~may~~could be settled in shares of Morgans common stock and options to purchase shares of ~~Morgans~~ Morgans stock. In addition, Mr. Kwasniewski received grants of membership units in Morgans LLC that ~~are~~ were structured as profit interests (“LTIP Units”). As a result of receiving Class C Units of the Company on January 14, 2009, neither Mr. Kwasniewski nor Mr. Boswell received any equity grants under the Morgans Stock Incentive Plan during 2009.

LTIP Units, whether vested or not, will receive the same quarterly per unit distributions as membership units in Morgans LLC, which equal per share dividends on Morgans’ common stock. Initially, LTIP Units will not have full parity with other membership units of Morgans LLC with respect to liquidating distributions. Depending upon the occurrence of certain specified events, as provided in the limited liability company agreement of Morgans LLC, LTIP units may become convertible into shares of Morgans’ common stock. These LTIP units vest ratably in three annual installments beginning on the first anniversary of the grant date subject to continued service by the named executive officer with HRHI. Thus, these equity awards provide an incentive to the named executive officers to remain with HRHI. Upon the occurrence of specified events, LTIP Units may over time achieve full parity with other membership units for all purposes, and therefore accrete to an economic value for participants equivalent to Morgans’ common stock on a one-for-one basis. If such parity is reached, vested LTIP Units may be converted into an equal number of membership units at any time, and thereafter enjoy all the rights of membership units of Morgans LLC. Holders of membership units of Morgans LLC may redeem their membership units for an equivalent number of shares of Morgans’ common stock, unless the managing member of Morgans LLC determines, in its reasonable discretion, that such redemption would create a material risk that Morgans LLC would be classified as a publicly traded partnership under Section 7704 of the Internal Revenue Code. However, there are circumstances under which the LTIP Units will not achieve full parity with membership units. Until and unless such parity is reached, the value that a participant will realize for a given number of vested LTIP Units will be less than the value of an equal number of shares of Morgans’ common stock.

Morgans’ restricted stock units will vest ratably on each anniversary of the grant date over a three-year period if the named executive officer remains employed with HRHI through the vesting period(s). The ~~named executive~~holders ~~officers~~ are required to purchase the shares underlying the restricted stock units granted to them from Morgans at a purchase price equal to the greater of (i) the aggregate par value of the shares of stock represented by such restricted stock units or (ii) the purchase price, if any, specified in the award agreement relating to such restricted stock units. Once the shares underlying the restricted stock units ~~vest~~are delivered upon vesting, the holders of such stock are entitled to the right to vote such stock and the right to receive any dividends declared or paid with respect to such stock. Upon termination of the named ~~executive~~ executive officer’s service with HRHI, all restricted stock units held by the named executive officer which have not vested, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited.

The ~~grant~~vesting commencement date of equity awards is generally the date of compensation committee approval, ~~and~~except ~~the exercise~~in ~~price for grants of stock options is~~ the ~~closing~~case ~~market price~~ of ~~Morgans’ common stock on the grant date. Exceptions to this general principle result from~~ grants to new hires or in connection with a promotion. In such instances, the ~~grant~~vesting commencement date would typically be the start date or the effective date of the promotion. The exercise price for grants of stock options is the closing market price of Morgans’ common stock on the grant date.

Pursuant to company policy, Morgans prohibits its executive officers, senior management and directors from purchasing or selling options to sell or buy Morgans’ common stock or engaging in short sales with respect to Morgans’ common stock.

~~Hard Rock Hotel, Inc. 401(k) Savings Plan. Our named executive officers and substantially all~~59 other employees over the age of 21 are eligible to participate in the Hard Rock Hotel, Inc. 401(k) Savings Plan after six months of continuous employment and 1,000 hours of service. Such employees may contribute, through salary deductions, no less than 1% nor greater than 50% of their annual compensation to the plan. The Hard Rock Hotel, Inc. 401(k) Savings Plan provides a company match equal to one-half of the first six percent of the participant’s base salary and annual bonus that is contributed by the participant. Matched amounts vest over a three year period, with 33% vesting on each of the first two anniversaries and 34% vesting on the third anniversary of the plan year, provided that the participant is credited with at least 1,000 hours of employment service during the plan year. All investment options in the Hard Rock Hotel, Inc. 401(k) Savings Plan are market-based—there are no “above-market” or guaranteed rates of return offered in this plan.

Perquisites. During 2008, we did not pay our named executive officers compensation that would be viewed as a perquisite or other personal benefit.

Hard Rock Hotel, Inc. 401(k) Savings Plan. Our named executive officers and substantially all other employees over the age of 21 are eligible to participate in the Hard Rock Hotel, Inc. 401(k) Savings Plan after six months of continuous employment and 1,000 hours of service. Such employees may contribute, through salary deductions, no less than 1% nor greater than 50% of their annual compensation to the plan. The Hard Rock Hotel, Inc. 401(k) Savings Plan had provided a company matching contribution equal to one-half of the first six percent of the participant’s base salary and annual bonus that was contributed by the participant. On March 16, 2009, the Company reduced the amount of the 401(k) matching contribution to one-half of the first three percent of the participant’s base salary and annual bonus that is contributed by the participant and on November 9, 2009, the Company suspended the 401(k) matching contribution. Matching contributions vest over a three year period, with 33% vesting on each of the first two anniversaries and 34% vesting on the third anniversary of the plan year, provided that the participant is credited with at least 1,000 hours of employment service during the plan year. All investment options in the Hard Rock Hotel, Inc. 401(k) Savings Plan are market-based—there are no “above-market” or guaranteed rates of return offered in this plan.

Perquisites. We generally provide our named executive officers with perquisites and other personal benefits that apply uniformly to all of our employees. Other than these standard benefits that apply uniformily to all of our employees, we did not pay our named executive officers any compensation that would be viewed as a perquisite or other personal benefit during 2009.

Employment Agreements

Andrew A. Kwasniewski Offer Letter. Mr. Kwasniewski’s offer letter from Morgans Management ~~provides~~provided for him to serve as President and Chief Operating Officer of HRHI. Pursuant to the offer letter, as amended in October 2007 and 2008 and July 2009, Mr. Kwasniewski ~~has~~ received ~~or is entitled to receive~~ the base salary, annual ~~incentive~~ bonus and equity awards described above under “—Elements of ~~Executive~~ Executive Compensation.”

Under the terms of the offer letter, as amended, Mr. Kwasniewski iswas entitled to receive employee benefits on the same basis as other, similarly situated employees. The offer letter, ~~provides~~as amended, provided for the at-will employment of Mr. Kwasniewski. However, if Morgans Management terminated ~~terminates~~ Mr. Kwasniewski’s employment without cause (as defined in his offer letter), he ~~will~~would have bebeen entitled to receive the following: (i) one year’s base salary~~. If Morgans Management terminates his employment without cause~~, ~~he will be entitled to receive~~ (ii) a bonus equal to the number of months he worked during the year ~~prior~~in towhich his termination occurred multiplied by the monthly equivalent of the actual bonus he received in the prior year, with a minimum payment of one-half of his prior year’s bonus and a maximum payment of $280,000, and (iii) accelerated vesting such that any restricted stock units or stock options which would have vested prior to December 31 of the year in which he is terminated would have immediately vested on his termination date.

In the event that there iswas a change in control of Morgans Management and, as a result, ~~Morgans~~ Morgans Management ~~terminates~~terminated Mr. Kwasniewski’s employment, he ~~will~~would behave been paid a sum equal to two years’ base salary (based on his then-current base salary) plus $280,000. In addition, in the event that Morgans Management ~~terminates~~terminated his employment as a result of a change in control, any unvested stock options ~~will~~would have immediately ~~vest~~ vested on his termination date. As used in the offer letter, as amended, a “change in control” generally ~~means~~meant (a) a sale or exchange of all or substantially all the assets of Morgans Management, (b) the liquidation or dissolution of Morgans Management or (c) any merger, consolidation, reorganization or other transaction or event that results in a change of ownership of Morgans Management. For purposes of the offer letter, as amended, a “change of ownership” ~~means~~meant the acquisition by any individual, entity or group of of beneficial ownership of or the right to vote 51% or more of the then-outstanding stock of ~~Morgans~~ Morgans Management.

Mr. Kwasniewski’s offer letter, as amended, generally ~~provides~~provided that, during the period he is employed by Morgans Management, and for a period of two years thereafter, he ~~will~~would not, directly or indirectly, solicit any employee of Morgans Management to leave the employ of Morgans Management and/or hire or solicit any employee of Morgans Management to become employed with a competitor of ~~Morgans~~ Morgans Management.

Arnold D. Boswell Offer Letter. Mr. Boswell’s offer letter from Morgans Management governs his employment as the Chief Financial Officer of HRHI. Pursuant to the offer letter, Mr. Boswell has received or is entitled to receive the base salary and annual ~~incentive~~ bonus described above under “—Elements of Executive Compensation.” Under the terms of the offer letter, Mr. Boswell is entitled to receive a full range of comprehensive health and dental care coverage and may participate in our 401(k) plan. The offer letter provides for the at-will employment of Mr. Boswell.

Mr. Boswell’s employment agreement generally provides that, during the period he is employed by Morgans Management, and for a period of one year thereafter, he will not, directly or indirectly, solicit any employee of Morgans Management to leave the employ of Morgans Management and/or hire or cause to be hired any employee of Morgans Management by any competitor of Morgans Management.

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Accounting Considerations

Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“ASC Topic 718”) (formerly known as Financial Accounting Standard No. 123(R), Share-Based Payments) requires us to recognize an expense for the fair value of equity-based compensation awards. Grants of stock-based compensation are accounted for under ASC Topic 718. We regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to equity compensation awards. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.

Compensation Committee Interlocks and Insider Participation

Our board of directors does not have a compensation committee. Mr. Kleisner is a member of our board and is also the President and Chief Executive Officer and a member of the board of directors of Morgans. Mr. Kleisner does not receive any compensation for his services to us as an officer or director. No other interlocking relationship exists between the members of our board of directors and the board of directors or compensation committee or similar committees of any other company.

As discussed above, subject to the approval of our board of directors, Morgans iswas responsible for determining Mr. Kwasniewski’s compensation package and Mr. Kwasniewski iswas responsible for determining the compensation package of Mr. Boswell.

Compensation Committee Report

Our board of directors does not have a compensation committee. A majority of our board of directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on such review and discussions, our board of directors has approved the inclusion of the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K in this report.

~~Neal~~Edward A. Johnson Neal Pomroy Ryan Sprott Fred J. Kleisner Richard Szymanski

Director Compensation

Under the JV Agreement, we are required to pay the reasonable out-of-pocket costs and expenses incurred by each of the members of our board of directors in connection the performance of his or her duties as a director. Our directors do not receive any other compensation for their service as directors to us.

EXECUTIVE COMPENSATION TABLES

We were formed in January 2007 and did not conduct any business operations until February 2, 2007, the closing date of the Acquisition. As such, the following tables and related discussion describes compensation information for each of our named executive officers for services performed for us during the ~~year~~years ended December 31, 2009, 2008 and the period from February 2, 2007 through December 31, 2007.

Summary Compensation Table

The following table sets forth summary information regarding the compensation awarded to, paid to or earned by each of our named executive officers for all services rendered in all capacities to us and HRHI for the year ended December 31, 2009 and 2008 and the period from February 2, 2007 ~~through~~ through December 31, 2007.

												All
												Other
								Stock				Other
								Stock		Option		Compen-
								Awards		Option		Compen-
	Year/Period		Salary			Bonus(1)		~~Awards~~(2)		Awards(3)		sation(4)		Total
Name and Principal Position	Ending		($)			($)		($)		($)		($)		($)
Andrew A. Kwasniewski		2008		663,846			725,000		453,034		233,924		8,209		2,084,013
Andrew A. Kwasniewski(5)		2009		725,000			90,625		0		—		8,250		823,875
President and Chief Operating Officer		2007		484,375			625,000		234,253		158,490		5,926		1,508,044
Former President and Chief Operating Officer		2008		663,846			725,000		502,695		62,592		7,750		1,961,883
Arnold D. Boswell		2008		254,250			107,490		35,794		8,696		7,113		413,343
		2007		484,375			625,000		253,440		87,815		5,365		1,455,995
Chief Financial Officer (5)		2007		166,667			150,000		13,663		5,298		1,679		337,307
Arnold D. Boswell		2009		265,000			19,875		0		—		6,129		291,004
Chief Financial Officer		2008		254,250			107,490		80,040		—		6,654		448,434
		2007		166,667	(6)		150,000		62,208		26,065		1,211		406,151

(1)		Amounts shown in this column represent cash ~~incentive~~bonus awards paid to our named executive officers in 2008 for services performed in 2007, ~~and~~ in 2009 for services performed in 2008 and in 2010 for services performed in 2009. See “—Compensation Discussion and Analysis—Elements of Executive Compensation—Annual ~~Incentive~~Bonus Compensation.”
(2)		Amounts shown in this column ~~are~~for ~~based on the accounting expense recognized by us in the year ended December 31,~~ 2008 and 2007 ~~respectively,~~include inthe ~~accordance~~grant ~~with~~date ~~SFAS~~fair ~~No.~~value ~~123(R), Share-Based Payment (“FAS 123R”), related to stock awards made in these periods in the form~~ of restricted stock units and LTIP units that ~~may~~could be settled in shares of Morgans’ common stock. ~~See~~which ~~“—Compensation~~were ~~Discussion~~granted ~~and~~during ~~Analysis—Elements~~the ofyear ~~Executive~~ended ~~Compensation—Morgans~~December ~~Equity~~31, ~~Grants.”~~2008 ~~The~~and ~~accounting~~2007 ~~expense~~respectively, ~~recognized~~ in ~~these~~accordance ~~periods~~with isASC Topic 718 based on the fair value of Morgans’ common stock at the close of business on the grant date. For a discussion of the assumptions made in the valuation reflected in this column, see “—Compensation Discussion and Analysis—Elements of Executive Compensation—Morgans Equity Grants.”
		Amounts shown in this column for 2009 include the grant date fair value of Class C Units awarded during the year ended December 31, 2009, in accordance with ASC Topic 718, which was determined to be $0, as the amount of the Company’s liabilities exceeded the fair market value of the Company under any reasonable scenario as of the grant date. See “Critical Accounting Policies—Impairment of Land, Goodwill, Intangible Assets and Other Long-lived Assets.”
		The Class C Units awarded to each of Messrs. Kwasniewski and Boswell on January 14, 2009 consisted of the following three vesting components, which were equally spread and were generally subject to the grantee’s continued employment with the Company: (i) a time-based vesting award that vested over the period commencing on the date of grant and continuing through December 31, 2010; (ii) a performance-based vesting award that vested with respect to 25% of the units on the date of grant and the remaining 75% of the units based on the Company’s attainment of pre-established EBITDA targets for each of the Company’s fiscal years through December 31, 2010; and (iii) a “milestone” vesting award that vested based on the Company’s timely completion of the expansion project at the Hard Rock in accordance with the development budget approved by our board of directors. Messrs. Kwasniewski and Boswell received a total of 300,000 and 60,000 Class C Units, respectively, consisting of 100,000 and 20,000, respectively, each of time-based vesting awards, performance-based vesting awards and milestone-based vesting awards. See “—Compensation Discussion and Analysis—Elements of Executive Compensation—Company Equity Grants.”
		With respect to the performance-based Class C Unit awards and the milestone-based Class C Unit awards, the grant date fair value was determined to be $0 based on either the probable outcome or maximum performance with respect to the Company’s attainment of pre-established EBITDA targets for each of the Company’s fiscal years through December 31, 2010, and the Company’s timely completion of the expansion project at the Hard Rock in accordance with the development budget approved by our board of directors, respectively, for the reasons set forth above.
(3)		Amounts shown in this column represent the grant date fair value of stock options to purchase shares of Morgans’ common stock (disregarding the forfeiture rate described below) which were granted during the year ended December 31, 2008 and 2007 respectively, in accordance with ASC Topic 718. For a discussion of the assumptions made in the valuation reflected in this column, see “—Compensation Discussion and Analysis—Elements of Executive Compensation—Morgans Equity Grants.” The grant date fair value was based on the Black-Scholes valuation model using the following assumptions: for the 2008 stock option grants, risk-free interest rate of approximately 2.93%, expected option lives of approximately six years, 40% volatility, no assumed dividend rate and 10% forfeiture rate; and for the 2007 stock option grants, risk-free interest rate of approximately 4.56%, expected option lives of approximately six years, 35% volatility, no assumed dividend rate and 10% forfeiture rate.
(4)		Amounts shown in this column represent contributions by us to the Hard Rock Hotel, Inc. 401(k) Savings Plan on behalf of Messrs. Kwasniewski and Boswell in the amount of $8,250 and $6,129, respectively, in 2009, $7,750 and $6,654, respectively, in 2008 and $5,365 and $1,211, respectively, in 2007.
(5)		Mr. Kwasniewski passed away on March 9, 2010.
(6)		Mr. Boswell began his employment with HRHI on February 21.

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(3)		Amounts shown in this column are based on the accounting expense recognized by us in the year ended December 31, 2008 and 2007 respectively, in accordance with FAS 123R, related to stock option awards made in these periods to purchase shares of Morgans’ common stock (disregarding the forfeiture rate described below). See “—Compensation Discussion and Analysis—Elements of Executive Compensation—Morgans Equity Grants.” The accounting expense recognized in the year ended 2008 was based on the Black-Scholes valuation model using the following assumptions: risk-free interest rate of approximately 2.93%, expected option lives of approximately six years, 40% volatility, no assumed dividend rate and 10% forfeiture rate. The accounting expense recognized in the year ended 2007 was based on the Black-Scholes valuation model using the following assumptions: risk-free interest rate of approximately 4.6%, expected option lives of approximately six years, 35% volatility, no assumed dividend rate and 10% forfeiture rate.
(4)		Amounts shown in this column represent contributions by us to the Hard Rock Hotel, Inc. 401(k) Savings Plan on behalf of Messrs. Kwasniewski and Boswell in the amount of $7,750 and $6,654, respectively, in 2008 and $5,365 and $1,211, respectively, in 2007. We also paid life insurance premiums of not more than $600 on behalf of each named executive officer. The aggregate value, based upon the incremental cost to us, of perquisites and personal benefits to each named executive officer for 2008 and 2007 was less than $10,000 and, pursuant to the SEC’s disclosure rules, is not included.
(5)		Mr. Boswell began his employment with HRHI on February 21, 2007.

Grants of Plan-Based Awards

The following table ~~sets~~provides ~~forth summary~~ information ~~regarding~~concerning ~~all~~target ~~grants~~payouts ofunder plan-based awards ~~made~~granted during 2009 to each of our named executive officers ~~for the year ended December 31, 2008~~. ~~Each of these awards~~ ~~consists of restricted stock units and LTIP units which may be settled in Morgans’ common stock, or options to purchase Morgans’ common stock.~~

						All Other Option
									All Other
			All Other Stock			Awards:					Grant Date Fair
									Stock
			~~Awards:~~			~~Number~~			~~Exercise or Base~~Awards:		~~Value~~Grant ~~of Stock~~Date
			Number			of Securities			Price of Option		and Option
	Estimated Future								Number		Fair Value
			of Shares of			Underlying			Awards		Awards(1)
	Payouts Under Equity								of Shares		of Stock
Name	Grant Date		Stock or Units			Options			($/Sh)		($)
	Incentive Plan Awards(1)								of Stock		and Option
Andrew A. Kwasniewski		4/03/2008		—			9,527	(3)		15.42		62,497
	Threshold		Target			Maximum			or Units		Awards
		4/03/2008		4,053	(2)		—			—		62,497
Name	(#)		(#)			(#)			(#)(2)		($)(3)
		4/03/2008		4,053	(4)		—			—		62,497
Andrew A. Kwasniewski		—		200,000			200,000			100,000		0
		6/17/2008		15,000	(5)		—			—		188,850
Arnold D. Boswell		—		40,000			40,000			20,000		0
		6/17/2008		15,000	(6)		—			—		188,850
Arnold D. Boswell		5/20/2008		5,800	(4)		—			—		80,040

(1)		~~The~~Represents ~~full~~performance-based ~~grant~~and ~~date~~milestone-based ~~fair~~Class ~~value~~C ~~was~~Units ~~computed~~awarded in ~~accordance~~2009. ~~with~~Indicated ~~FAS~~target ~~123R~~and ~~based~~maximum onamounts correspond to the ~~assumptions~~aggregate ~~described~~number of performance-based and milestone-based Class C Units that would have been earned in ~~footnotes~~the 2event that performance-based target relating to the Company’s attainment of pre-established EBITDA targets for each of the Company’s fiscal years through December 31, 2010, and 3the milestone-based target relating to the ~~Summary~~Company’s timely completion of the expansion project at the Hard Rock in accordance with the development budget approved by our board of directors, respectively, were achieved. For further information, see “—Compensation ~~Table~~Discussion and Analysis—Elements of Executive Compensation—Company Equity Grants.”
(2)		~~Amounts~~Represents ~~represent~~time-based ~~grants~~Class ofC ~~Morgans’~~Units ~~LTIP~~awarded ~~units, which vest ratably~~ in ~~three annual installments beginning on the first anniversary of the grant date~~2009. ~~LTIP~~For ~~units,~~further ~~vested or unvested~~information, ~~are~~see ~~entitled~~“—Compensation toDiscussion ~~receive~~and ~~the~~Analysis—Elements ~~same~~of ~~quarterly~~Executive ~~per~~Compensation—Company ~~unit~~Equity ~~distributions as other membership units in Morgans LLC, Morgans’ operating company, which equal per share dividends on Morgans’ common stock~~Grants.”
(3)		~~Amount~~Reflects ~~represents~~the a grant date fair value of ~~stock~~the ~~options~~Class C Units awarded in 2009 in accordance with ASC Topic 718, which ~~vest~~was ~~ratably~~determined into ~~three~~be ~~annual~~$0, ~~installments~~as ~~beginning~~the onamount of the ~~first~~Company’s ~~anniversary~~liabilities exceeded the fair market value of the Company under any reasonable scenario as of the grant date. See “Critical Accounting Policies—Impairment of Land, Goodwill, Intangible Assets and Other Long-lived Assets.”
(4)		Amount represent grants of Morgans’ restricted stock units. These restricted stock units vest ratably in three annual installments beginning on April 3, 2008.
(5)		Amount represents a grant of Morgans’ restricted stock units. These restricted stock units were granted on June 17, 2008 and vest ratably in three annual installments beginning on October 1, 2008. (These restricted stock units were contemplated by Mr. Kwasniewski’s offer letter, which was signed in September 2006. Although the grant of the restricted stock units was delayed to June 17, 2008, Morgans and Mr. Kwasniewski intended for the grants’ vesting schedule to commence based on the date he commenced employment in October 2006.)
(6)		Amount represents a grant of LTIP units. These LTIP units vest ratably in three annual installments beginning on October 1, 2008. LTIP units, vested or unvested, are entitled to receive the same quarterly per unit distributions as other membership units in Morgans LLC, Morgans’ operating company, which equal per share dividends on Morgans’ common stock. (These LTIP units were contemplated by Mr. Kwasniewski’s offer letter. As discussed above, although the grant of the LTIP units was delayed to June 17, 2008, Morgans and Mr. Kwasniewski intended for the grants’ vesting schedule to commence based on the date he commenced employment in October 2006.)

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

A discussion of salaries, bonuses and equity-linked awards for the year ended December 31, ~~2008~~2009 is included in “—Compensation Discussion and Analysis.”

Outstanding Equity Awards at Year End

The following table sets forth summary information regarding outstanding equity awards held by each of our named executive officers at December 31, ~~2008~~2009:

	Option Awards									Stock Awards
	Number of		Number of
	Securities		Securities										Market Value of
	Underlying		Underlying			Option				Number of			Shares or Units of
	Unexercised		Unexercised			Exercise		Option		Shares or Units			Stock That Have
	Options		Options			Price		Expiration		of Stock That			Not Vested~~(9)~~
Name	Exercisable		Unexercisable			($)		Date		Have Not Vested			($)
Andrew A. Kwasniewski		3866,~~892~~667		~~27,775~~—	~~(1)~~		13.05		10/09/2016		4030,000	(21)		~~186~~137,~~400~~100	(8)
		3,084		6,067	(3)		23.04		5/04/2017		8,250	(4)		38,445
		6,067		3,033	(2)		23.04		5/04/2017		5,500	(3)		25,135	(8)
		—		9,527	(5)		15.42		4/03/2018		8,106	(6)		37,774
		3,176		6,351	(4)		15.42		4/03/2018		5,404	(5)		24,696	(8)
		—		—			—		—		2010,000	(76)		9345,~~200~~700	(8)
Arnold D. Boswell		900		1,800	(3)		23.04		5/04/2017		2,025	(4)		9,437
		—		—			—		—		25,000	(9)		0	(10)
		—		—			—		—		5,800	(8)		27,028
Arnold D. Boswell		1,800		900	(2)		23.04		5/04/2017		1,350	(3)		6,170	(8)
		—		—			—		—		3,867	(7)		17,672	(8)
		—		—			—		—		5,000	(9)		0	(10)

(1)	These stock options vest in equal monthly installments on the last day of each month over the 24 month period after October 9, 2007 if Mr. Kwasniewski continues to serve as an officer of HRHI on such date. However, if Mr. Kwasniewski is terminated without cause (as defined in his offer letter), then the stock options that would have vested prior to December 31 of the year in which he was terminated will immediately vest on his termination date. In addition, in the event that Morgans terminates his employment as a result of a change in control, any unvested stock options will immediately vest on his termination date. See “—Compensation Discussion and Analysis—Employment Agreements.”
	Stock Awards
(2)	Amount represents grants of restricted stock units. 10,000 of these restricted stock units vest on each October 9 of 2009 and 2010 and 20,000 of his restricted stock units vest on October 9, 2010 if he is employed by HRHI on such date. However, if Mr. Kwasniewski is terminated without cause (as defined in his offer letter), then the restricted stock units that would have vested prior to December 31 of the year in which he was terminated will immediately vest on his termination date. See “—Compensation Discussion and Analysis—Employment Agreements.”
	Equity Incentive			Equity Incentive
(3)	One-half of these stock options vest in annual installments on each May 4 of 2009 and 2010 if the officer continues to serve as an officer of HRHI on such date.
	Plan Awards:			Market or
(4)	Amount represents a grant of restricted stock units. These restricted stock units vest in annual installments on each May 4 of 2009 through 2011 if the officer continues to serve as an officer of HRHI on such date.
	Number of			Payout Value of
(5)	One-third of these stock options vest on each April 3 of 2009 through 2011 if the officer continues to serve as an officer of HRHI on such date.
	Unearned Shares,			Unearned Shares,
(6)	Amount represents a grant of 4,053 restricted stock units and 4,053 LTIP units. These restricted stock units and LTIP units vest in annual installments on each April 3 of 2009 through 2011 if the officer continues to serve as an officer of HRHI on such date.
	Units or			Units or
(7)	Amount represents a grant of 10,000 restricted stock units and 10,000 LTIP units. These restricted stock units and LTIP units vest in annual installments on each October 1 of 2009 and 2010 if the officer continues to serve as an officer of HRHI on such date.
	Other Rights That			Other Rights That
(8)	Amount represents a grant of restricted stock units. These restricted stock units vest in annual installments on April 3 of 2009 through 2011 if the officer continues to serve as an officer of HRHI on such date.
	Have Not Vested			Have Not Vested of
(9)	The market value of shares or units of stock that have not vested was determined as the product of the number of shares or units that have not vested multiplied by the market value of those shares on December 31, 2008.
Name	#			($)
Andrew A. Kwasniewski		125,000	(11)		0	(10)
Arnold D. Boswell		25,000	(11)		0	(10)


(1)		Amount represents the unvested portion of a grant of restricted stock units. All of which would have vested on October 9, 2010 if Mr. Kwasniewski remained employed by HRHI on such date. However, if Mr. Kwasniewski would have been terminated without cause (as defined in his offer letter), then the restricted stock units that would have vested prior to December 31 of the year in which he would have been terminated would have immediately vested on his termination date. See “—Compensation Discussion and Analysis—Employment Agreements.”

(2)		Amount represents unvested stock options that would become exercisable on May 4, 2010 if the officer continued to serve as an officer of HRHI on such date.

(3)		Amount represents the unvested portion of a grant of restricted stock units. One half of this amount of restricted stock units would vest on each May 4 of 2010 and 2011 if the officer continued to serve as an officer of HRHI on such dates.

(4)		One-half of these stock options would vest and become exercisable on each April 3 of 2010 and 2011 if the officer continued to serve as an officer of HRHI on such dates.

(5)		Amount represents the unvested portion of an initial grant of restricted stock units and LTIP units which were subject to the same 3-year graded vesting schedule. A total of 2,702 restricted stock units and 2,702 LTIP units would have vested on each April 3 of 2010 and 2011 if the officer continued to serve as an officer of HRHI on such dates.

(6)		Amount represents the unvested portion of a grant of restricted stock units and LTIP units which were subject to the same 3-year graded vesting schedule. This entire amount of restricted stock units and LTIP units would have vested on October 1, 2010 if the officer continued to serve as an officer of HRHI on such date.

(7)		Amount represents the unvested portion of a grant of restricted stock units. One-half of this amount of restricted stock units will vest on April 3 of 2010 and 2011 if the officer continues to serve as an officer of HRHI on such dates.


(8)		The market value of shares or units of stock that have not vested was determined as the product of the number of shares or units that have not vested multiplied by the market value of $4.57, which was the closing price of Morgan’s common stock on December 31, 2009.

(9)		Amount represents a grant of time-based Class C Units which will fully vest on December 31, 2010, subject to the grantee’s continued employment with the Company through such date.

(10)		The market value of the Class C Units that have not vested was calculated as $0, as the amount of the Company’s liabilities exceeded the fair market value of the Company as of December 31, 2009. See “Critical Accounting Policies—Impairment of Land, Goodwill, Intangible Assets and Other Long-lived Assets.”

(11)		Amount represents the aggregate number of performance-based and milestone-based Class C Units that would be earned if (i) the performance-based target relating to the Company’s attainment of pre-established EBITDA targets for the Company’s fiscal year ending December 31, 2010 is achieved, including the Class C Units that failed to initially vest as a result of the Company’s 2009 EBITDA target not being achieved but would vest as of December 31, 2010 if the Company’s 2010 EBITDA target equals or exceeds the Company’s EBITDA target for such year pursuant to the catch-up vesting provision of the Award Agreement, and (ii) the milestone-based target relating to the Company’s timely completion of the expansion project at the Hard Rock in accordance with the development budget approved by our board of directors is achieved, respectively.

Option Exercises and Stock Vested

The following table summarizes the option exercises and vesting of stock awards for each of our named executive officers for the year ended December 31, ~~2008~~2009:

	Option Awards				Stock Awards
	Number of		Value		Number of			Value
	Securities		Realized on		Shares			Realized on
	Acquired on		Exercise		Acquired on			Vesting
Name	Exercise		($)		Vesting			($)~~(1)~~
Andrew A. Kwasniewski		—		—		1719,~~750~~101	(21)		~~148~~99,~~568~~281	(2)
Arnold D. Boswell		—		—		675	(2)		9,970
						100,000	(3)		0	(4)
Arnold D. Boswell		—		—		2,609	(2)		10,281	(1)
						20,000	(3)		0	(4)

(1)		~~Amount~~Represents ~~shown~~vesting ~~calculated by multiplying the closing price~~ of ~~Morgans’~~restricted ~~common~~ stock onunits ~~the~~during ~~vesting~~2009. ~~date~~See by“—Compensation ~~the~~Discussion ~~number~~and ofAnalysis—Employment ~~shares acquired on vesting~~Agreements.”
(2)		~~Represents~~Amount ~~vesting~~shown calculated by multiplying the closing price of ~~restricted~~Morgans’ common stock ~~units~~on ~~throughout~~the ~~2008.~~vesting ~~See~~date ~~“—Compensation~~by ~~Discussion~~the ~~and~~number ~~Analysis—Employment~~of ~~Agreements~~shares acquired on vesting.”
(3)		Amount represents the number of time-based and performance-based Class C Units which vested during 2009.
(4)		The value realized upon the vesting of time-based and performance-based Class C Units during 2009 was calculated as $0, as the amount of the Company’s liabilities exceeded the fair market value of the Company during such period. See “Critical Accounting Policies—Impairment of Land, Goodwill, Intangible Assets and Other Long-lived Assets.”

Pension Benefits

We sponsor a 401(k) plan that is available to all employees, but we do not maintain a pension or defined benefit program. See “—Compensation Discussion and Analysis—Elements of Executive Compensation—Hard Rock Hotel, Inc. 401(k) Savings Plan.”

Potential Payments Upon Termination or Change in Control

The following table presents our reasonable estimate of the benefits that would have been payable to our named executive officers in the event of certain qualifying terminations of employment or upon a change in control, assuming that such termination or change in control occurred on December 31, ~~2008~~2009.

While we have made reasonable assumptions regarding the amounts payable, ~~we are not certain~~ ~~that~~ in the event of a termination or change in control, ~~the~~actual ~~named~~amounts payable ~~executive~~could ~~officers~~differ ~~would~~significantly ~~receive~~ from the amounts reflected below.

		Salary					Value of			Value of
		and			Employee		Option			Unit			Total
		Bonus			Benefits		Acceleration			Acceleration			Value
Name	Trigger	($)			($)		($)			($)			($)
Andrew A. Kwasniewski	Termination Without Cause		1,~~087~~000,~~500~~005	(1)		—		—			—0	(4)		1,~~087~~000,~~500~~005
	Termination upon Change in Control		1,730,000	(2)		—		0	(3)		—0	(5)		1,730,000
	Termination upon Death or Disability		—			—		—			—			—
Arnold D. Boswell	Termination Without Cause		—			—		—			—0	(4)		—0
	Termination upon Change in Control		—			—		—			—0	(5)		—0
	Termination upon Death or Disability		—			—		—			—			—

(1)		Amount shown reflects the amount of severance pay Mr. Kwasniewski would have been be entitled to receive under his offer letter, as amended, if his employment was terminated by Morgans Management without cause (as defined in his offer letter) on December 31, ~~2008~~2009. See “—Compensation Discussion and Analysis—Employment Agreements.”
(2)		Amount shown reflects the amount of severance pay Mr. Kwasniewski would behave been entitled to receive under his offer letter, as amended, if his employment was terminated by Morgans Management as a result of a change in control (as defined in his offer letter) on December 31, ~~2008~~2009. See “—Compensation Discussion and Analysis—Employment Agreements.”
(3)		Under Mr. Kwasniewski’s offer letter, as amended, in the event that Morgans Management terminates his employment as a result of a change in control, any unvested stock options ~~will~~would have immediately ~~vest~~vested on his termination date. As of December 31, ~~2008~~2009, the estimated value of this benefit would have been $0 of stock options as Morgans common stock price at year end was $4.6657 per share (compared to strike prices of $13.05, $23.04 and $15.42 per share). See “—Compensation Discussion and Analysis—Employment Agreements.”
(4)		The accelerated vesting of Class C Units upon a termination of the grantee’s employment by the Company without cause (as defined in the grantee’s Award Agreement) or by the grantee for good reason (as defined in the grantee’s Award Agreement) is summarized below:

69 • With respect to the time-based Class C Units, to the extent that the date of termination occurs on or after April 1 of the calendar year of termination, the number of any unvested Class C Units that could have vested on December 31 of the year of termination will vest on a pro-rata basis with respect to the number of completed calendar quarters for the year of termination.

•

With respect to the performance-based Class C Units, to the extent that the date of termination occurs on or after April 1 of the calendar year of termination, the number of any unvested Class C Units that could have vested on December 31 of the year of termination will vest on a pro-rata basis with respect to the number of completed calendar quarters for the year of termination if the Company’s EBITDA for the year of termination equaled or exceeded the EBITDA target for such year.

•

There is no accelerated vesting with respect to the milestone-based Class C Units (to the extent unvested as of the date of termination, any Class C Units will be forfeited upon a termination of employment for any reason).

The value realized upon the accelerated vesting of Class C Units under such circumstances was calculated as $0, as the amount of the Company’s liabilities exceeded the fair market value of the Company as of December 31, 2009. See “Critical Accounting Policies—Impairment of Land, Goodwill, Intangible Assets and Other Long-lived Assets.”


(5)		If a change in control (specifically, a “Sale of the Company” as defined in the Profits Interest Plan) occurs prior to December 31, 2010 and the grantee remains employed with the Company until the closing of the Sale of the Company, 100% of the remaining outstanding unvested Class C Units covered by the award will vest immediately prior to the closing. The value realized upon the accelerated vesting of Class C Units in such event was calculated as $0. As of December 31, 2009, the amount of the Company’s liabilities exceeded the fair market value of the Company on such date. See “Critical Accounting Policies—Impairment of Land, Goodwill, Intangible Assets and Other Long-lived Assets.”

COMPENSATION RISK MANAGEMENT

By the terms of the Management Agreement, subject to certain limitations, Morgans Management has been granted the authority to determine and implement all labor policies at the Hard Rock, including with respect to wage and salary rates and terms, fringe benefits, pension, retirement, bonus and employee benefit plans and collective bargaining agreements. However, the employment, termination and compensation of the executive staff of the Company (including our named executive officers) is determined by our board of directors. We believe that the compensation programs that Morgans Management and our board have implemented appropriately balance risk and the achievement of long-term and short-term goals, and that they are not reasonably likely to have a material adverse effect on our business.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information with regard to the beneficial ownership of our membership interests as of March 121, ~~2009~~2010 for (i) each person who owned beneficially more ~~than~~ than 5% of our Class A Membership Interests, which comprise our outstanding voting securities, (ii) each member of our board of directors, (iii) each of our “named executive officers” identified in “Item 6 11. Executive Compensation” ~~below~~ and (iv) all of the members of our board of directors and ~~named~~ named executive officers as a group. Except as otherwise indicated, each such person has sole voting and dispositive power with respect to the membership interests shown as beneficially owned by it. The following table also sets forth certain additional information with regard to the ownership of our Class B Membership Interests and Class C Membership Interests, which comprise our outstanding non-voting securities.

	Percentage Ownership of			Percentage Ownership of			Percentage Ownership of
	Class A (Voting)			Class B (Non-Voting)			Class C (Non-Voting)
Name of Beneficial Owner	Membership Interests(7)			Membership Interests(7)			Membership Interests
DLJ MB IV HRH, LLC(1)(2)		—			68.~~117~~53	%		—
Morgans Group LLC(3)		—			1413.1664	%		—
DLJ Merchant Banking Partners IV, L.P.(1)(2)		—			17.~~725~~83	%		—
DLJMB HRH VoteCo, LLC(1)(4)		8586.8436	%		—			—
Morgans Hotel Group Co.		1413.1664	%		—			—
Steven Rattner(1)(2)(4)		—			—			—
Edward A. Johnson (1)(2)(4)		—			—			—
Neal Pomroy(1)(2)(4)		—			—			—
Ryan Sprott(1)(2)(4)		—			—			—
Fred J. Kleisner(3)		—			—			—
Richard Szymanski(3)		—			—			—
Andrew A. Kwasniewski(5)		—			—			30.0	%
Arnold D. Boswell(5)		—			—			6.0	%
Arnold D. Boswell(6)		—			—			6.0	%
All directors and executive officers as a group (6 persons)		—			—			—

(1)		The business address of each of Messrs. Rattner, Pomroy and Sprott and DLJ MB IV HRH, DLJ Merchant Banking Partners IV, L.P. and DLJMB VoteCo is 1 Madison Avenue, New York, New York 10010.
(2)		DLJ Merchant Banking IV, L.P. (“DLJMB IV”) has dispositive power over the Class B Membership Interests held by DLJ MB IV HRH. DLJMB, an indirect wholly owned subsidiary of Credit Suisse, is the general partner of DLJMB IV. DLJMB IV exercises its investment acquisition and disposition powers through the actions of an investment committee, which, for purposes of disposing of the indirect investment in the Class B Membership Interests, includes Messrs. Rattner, Pomroy and Sprott. Credit Suisse may also be deemed to be the beneficial owner of the Class B Membership Interests held by DLJMB IV HRH and DLJMB Partners as a result of its indirect control of DLJMB.
(3)		The business address of each of Messrs. Kleisner and Szymanski and Morgans LLC and Morgans is 475 Tenth Avenue, New York, New York 10018.
(4)		Messrs. Rattner, Pomroy and Sprott have constituted DLJMB VoteCo, which may be deemed to have beneficial ownership of the Class A Membership Interests held by it. As discussed in footnote (2), each of Messrs. Rattner, Pomroy and Sprott is a member of the investment committee of DLJMB IV for purposes of disposing of its indirect investment in the Class B Membership Interests. Credit Suisse may also be deemed to be the beneficial owner of the Class A Membership Interests held by DLJMB VoteCo as a result of its indirect control of DLJMB.
(5)		The business address of each of Messrs. Kwasniewski and Boswell is 4455 Paradise Road, Las Vegas, NV 89169.
(6)		Percentage Ownership of Class A (Voting) Membership Interests and Percentage Ownership of Class B (Non-Voting) Membership Interests above includes both cash contributed and letters of credit posted by the members, as of November 4, 2008. Such percentages have been calculated in accordance with the JV Agreement, which assigns different weightings to the fundings made by the members in accordance with their agreed upon economic terms. Additional upward adjustments of the DLJMB Parties’ voting and non-voting percentage interests as a result of disproportionate cash contributions and letters of credit posted (and corresponding downward adjustments to the Morgans Parties’ voting and non-voting percentage interests) since November 4, 2008 remain subject to the receipt of gaming approval and are not reflected in the voting and non-voting percentage interests described above. For the year ended December 31, 2008 and for the period February 2, 2007 through December 31, 2007, the DLJMB Parties and the Morgans Parties contributed approximately $244.8 million and $61.7 million in cash to the Company, respectively. As of December 31, 2008, based solely on cash contributed (disregarding letters of credit posted), the DLJMB Parties and the Morgans Parties had funded 79.9% and 20.1%, respectively, of the amount of cash contributed to the Company.


(1)		The business address of each of Messrs. Johnson, Pomroy and Sprott and DLJ MB IV HRH, DLJMB Partners and DLJMB VoteCo is One Madison Avenue, New York, New York 10010.

~~Under the JV Agreement, if the DLJMB Parties propose to transfer more than 51% of our~~67 membership interests to a third party, then under certain circumstances the DLJMB Parties will be able to require the Morgans Parties and Class C Members to sell the same ratable share of their membership interests to the third party on the same terms and conditions. If the drag-along right is not exercised, then under certain circumstances the Morgans Parties and Class C Members may exercise a tag-along right to sell their interests to the third-party transferee on the same terms and conditions as under the sale by the DLJMB Parties. See “Business—Agreements Governing the Operation of the Hard Rock—Joint Venture Agreement.”


(2)		DLJ Merchant Banking IV, L.P. (“DLJMB IV”) has dispositive power over the Class B Membership Interests held by DLJ MB IV HRH. DLJ Merchant Bankers, Inc. (“DLJMB”) an indirect wholly owned subsidiary of Credit Suisse, is the general partner of DLJMB IV. DLJMB IV exercises its investment acquisition and disposition powers through the actions of an investment committee, which, for purposes of disposing of the indirect investment in the Class B Membership Interests, includes Messrs. Pomroy and Sprott. Mr. Johnson is expected to be added to the investment committee for such purposes. Credit Suisse may also be deemed to be the beneficial owner of the Class B Membership Interests held by DLJMB IV HRH and DLJMB Partners as a result of its indirect control of DLJMB.

(3)		The business address of each of Messrs. Kleisner and Szymanski and Morgans LLC and Morgans is 475 Tenth Avenue, New York, New York 10018.

(4)		As of March 11, 2010, Messrs. Steven Rattner (a former member of our board of directors), Pomroy and Sprott constituted DLJMB VoteCo, which may be deemed to have beneficial ownership of the Class A Membership Interests held by it. As discussed in footnote (2), each of Messrs. Pomroy and Sprott is a member of the investment committee of DLJMB IV for purposes of disposing of its indirect investment in the Class B Membership Interests. In September 2009, Mr. Rattner resigned from our board of directors. Mr. Rattner is expected to transfer his membership interest in DLJMB VoteCo to Messrs. Pomroy and Sprott. Subject to the receipt of gaming regulatory approval, Mr. Johnson is expected to receive a one-third interest in DLJMB VoteCo. Credit Suisse may also be deemed to be the beneficial owner of the Class A Membership Interests held by DLJMB VoteCo as a result of its indirect control of DLJMB.

(5)		Mr. Kwasniewski passed away on March 9, 2010.

(6)		The business address of Mr. Boswell is 4455 Paradise Road, Las Vegas, NV 89169.

(7)		Percentage Ownership of Class A (Voting) Membership Interests and Percentage Ownership of Class B (Non-Voting) Membership Interests above include both cash contributed to us, and letters of credit posted on our behalf, by our members, as of March 1, 2010. Such percentages have been calculated in accordance with the JV Agreement, which assigns different weightings to the fundings made by our members in accordance with their agreed upon economic terms. Additional upward adjustments of the DLJMB Parties’ voting and non-voting percentage interests as a result of disproportionate cash contributions and letters of credit posted (and corresponding downward adjustments to the Morgans Parties’ voting and non-voting percentage interests) since February 18, 2009, which are being treated as interest-free loans that will convert into new equity in the Company on terms to be agreed upon by the parties or by a written appraisal or fairness opinion, are not reflected in the voting and non-voting percentage interests described above. Any adjustments to our members’ respective voting and non-voting percentage interests resulting therefrom would remain subject to the receipt of gaming approval. As of December 31, 2009, the DLJMB Parties and the Morgans Parties had contributed approximately $424.4 million and $75.8 million in cash to the Company, respectively. As of December 31, 2009, based solely on cash contributed (disregarding letters of credit posted), the DLJMB Parties and the Morgans Parties had funded 84.8% and 15.2%, respectively, of the amount of cash contributed to the Company.

Under the JV Agreement, if the DLJMB Parties propose to transfer more than 51% of our aggregate membership interests to a third party, then under certain circumstances the DLJMB Parties will be able to require the Morgans Parties and Class C Members to sell the same ratable share of our membership interests held by each of them to the third party on the same terms and conditions. If this drag-along right is not exercised, then under certain circumstances the Morgans Parties and the Class C Members may exercise a tag-along right to sell certain of our membership interests held by each of them to the third-party transferee on the same terms and conditions as under the sale by the DLJMB Parties.

Equity Compensation Plan Information

The following table provides information as of December 31, ~~2008~~2009 with respect to our compensation plans, including individual compensation arrangements, under which our equity securities are authorized for issuance.

Number of securities

Number of

to be issued

Weighted-average

securities remaining

upon exercise of

exercise price of

available for future

outstanding options,

issuance under equity

Plan category

warrants and rights

compensation plans

Equity compensation plans approved by security holders

—

1346,~~000,000~~250

Equity compensation plans not approved by security holders

—

Total

—

1346,~~000,000~~250

On September 10, 2008, our board of directors adopted the Profits Interest Plan. The purpose of the Profits Interest Plan is to provide eligible officers and employees with an opportunity to participate in the Company’s future by granting them profits interest awards in the form of Class C Units of the Company. The Class C Units are membership interests in the Company whose terms are governed by the JV Agreement, the Profits Interest Plan and an individual profits interest Award Agreement. The maximum aggregate number of Class C Units available for issuance under the Profits Interest Plan is 1,000,000 units. Each profits interest award will be issued pursuant to an Award ~~Agreement~~ Agreement containing such terms and conditions as are determined by our board of directors. Each ~~Award~~ Award Agreement will generally include the vesting conditions applicable to the Class C Units covered by the award. Vesting may occur over a specified period of time, based upon the Company’s ~~attainment~~ attainment of specified performance criteria, or based upon the Company’s completion of specified ~~milestones~~ milestones (or any combination thereof), subject to the continued employment of the profits interest award holder. If the profits interest award holder forfeits the unvested portion of his or her award, the holder will only be entitled to a share of the Company’s profits to the extent of his or her vested interest. The Profits Interest Plan provides that an Award Agreement may include such other restrictions as are determined by our board of directors, including without limitation, transfer restrictions, repurchase rights, requirements that Class C Units be transferred in the event of certain transactions, rights of first refusal with respect to permitted transfers of Class C Units, voting agreements, tag-along rights, drag-along rights, piggyback registration rights, and non-competition, non-solicitation and confidentiality agreements.

On January 14, 2009, the Company’s named executive officers received aggregate awards totaling 360,000 Class C Units which includes an aggregate award of 300,000 Class C Units to Mr. Kwasniewski and 60,000 Class C Units to Mr. Boswell. See “Item 11. Executive Compensation—Compensation Discussion and Analysis—Elements of Executive Compensation—Company Equity Grants.”

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Management Agreement

Under the Management Agreement, we are required to pay Morgans Management a management fee equal to 4% of defined non-gaming revenues including casino rents and all other rental income, a gaming facilities support fee equal to $828,000 per year and a chain service expense reimbursement, which reimbursement is subject to a cap of 1.5% of defined non-gaming revenues and all other income. Morgans Management is an affiliate of the Morgans Parties which are members of the Company. Morgans Management is also entitled to receive an annual incentive fee of 10.0% of the “Hotel EBITDA” (as defined in the Management Agreement) in excess of certain threshold amounts, ~~which~~ which increase for each subsequent calendar year. Following completion of the expansion and renovation of the Hard Rock, the amount of such annual incentive fee will be equal to 10% of annual “Hotel EBITDA” in excess of 90% of annual projected post-expansion “EBITDA” of the Hard Rock, the ~~property~~ property on which the Hard Rock Cafe restaurant is situated and the property adjacent to the Hard ~~Rock~~ Rock (excluding any portion of the adjacent property not being used for the expansion). For purposes of the Management Agreement, “EBITDA” generally is defined as earnings before interest, taxes, depreciation and amortization in accordance with generally accepted accounting principles applicable to the operation of hotels and the uniform system of accounts used in the lodging industry, but excluding income, gain, expenses or loss that is extraordinary, unusual, non-recurring or non-operating. “Hotel EBITDA” generally is defined as EBITDA of the Hard Rock, ~~the~~ the property on which the Hard Rock Cafe restaurant is situated and the adjacent property (excluding any portion of the adjacent property not being used for the expansion), excluding the annual fee payable to DLJMB VoteCo described below. Hotel EBITDA generally does not include any EBITDA attributable to any facilities operated by third parties at the Hard Rock, unless the Company owns or holds an interest in the earnings or profits of, or any equity interests in, such third party facility.

~~The Company accrued or paid a base management fee of $4.6 million and $5.7 million and a~~69 gaming facilities support fee of $0.7 million and $0.0 million to Morgans Management and accrued or reimbursed it for $1.7 million and $2.1 million of chain services expenses for the year ended December 31, 2008 and the period February 2, 2007 to December 31, 2007, respectively. No gaming facilities support fee was owed in 2007 because the fee was implemented in an amendment to the Management Agreement entered into in May 2008 following the Company’s assumption of the operation of gaming facilities at the Hard Rock in March 2008. Please also see information from “Property Management Agreement” under Item 1 of this report.

The Company accrued or paid a base management fee of $4.7 million, $4.6 million and $5.7 million and a gaming facilities support fee of $0.8 million, $0.7 million and $0 million to Morgans Management and accrued or reimbursed it for $1.7 million, $1.7 million and $2.1 million of chain services expenses for the years ended December 31, 2009, 2008 and 2007, respectively.

Joint Venture Agreement

Consulting Fee. Under the JV Agreement, subject to certain conditions, the Company is required to pay DLJMB VoteCo (or its designee) a consulting fee of $250,000 each quarter in advance. In the event the Company is not permitted to pay the consulting fee when required (pursuant to the terms of any financing or other agreement approved by our board of directors), then the payment of such fee will be deferred until such time as it may be permitted under such agreement. DLJMB VoteCo is a member of the Company.

Capital Contributions. For the year ended December 31, ~~2008 and from the period February 2~~2009, ~~2007~~ ~~through December 31, 2007,~~ the DLJMB Parties and the Morgans Parties funded approximately ~~$226.0 million~~ ~~and~~ $3179.6 million and $~~138~~14.~~2 million and $69.~~1 million, respectively, through ~~issuances~~ ~~of letters of credit or~~ contributions of cash to the Company. ~~Subsequent~~Pursuant to ~~December 31, 2008,~~an ~~the~~agreement between DLJMB ~~Parties~~IV HRH and ~~the~~ Morgans, ~~Parties~~a ~~have~~portion ~~funded~~of the ~~approximately~~amounts ~~$22.8 million~~contributed ~~and~~to ~~$0.0 million,~~the ~~respectively,~~Company ~~through~~by the ~~issuances~~parties ofare ~~letter~~being oftreated ~~credit~~as orinterest-free ~~contributions~~loans, ofwhich will ~~cash~~convert into new equity in the Company on terms to be agreed upon by the parties or by a ~~Company~~written appraisal or fairness opinion.

Distribution of Cash Available for Distribution. To the extent not prohibited by the terms of any financing agreement or applicable law, our board of directors may cause us to distribute cash available for distribution to our members. Under the JV Agreement, the DLJMB Parties receive a preferred return of capital in an amount based on a percentage of the fees paid by us to Morgans Management under the Management Agreement. Cash available for distribution is then distributed among the members pro rata in proportion to their percentage interests (as adjusted to disregard the effect of any prior adjustments to the percentage interests made as a result of the posting of letters of credit). If at such time the DLJMB Parties have received a return of all of their capital contributions, then the cash available for distribution will be distributed to the Morgans Parties until they have received a return of all of their diluted capital contributions (as calculated under the JV Agreement). Then, cash available for distribution is distributed among the members pro rata in proportion to the adjusted percentage interests until the Morgans Parties have received a return of all of their capital contributions. Thereafter, all remaining amounts will be distributed between the Morgans Parties, the DLJMB Parties and Class C Members pro rata in proportion to their profits percentage interests as of the date of such distribution.

Technical Services Agreement

On February 2, 2007, our subsidiary, HRHH Hotel/Casino, LLC, and Morgans Management entered into a Technical Services Agreement pursuant to which we have engaged Morgans Management to provide technical services for our expansion project prior to its opening. Under the Technical Services Agreement, we are required to reimburse Morgans Management for certain expenses it incurs in accordance with the terms and conditions of the agreement. For the years ended December 31, ~~2007~~2008 and ~~2008~~2009, we reimbursed Morgans Management an aggregate amount equal to approximately $0.59 million and $01.95 million under the Technical Services Agreement.

CMBS Facility

~~Prior~~The tochairman ~~November 2007,~~of ~~Column Financial, Inc. (“Column”) was~~ the ~~administrative agent under the Company~~Morgans’s ~~CMBS~~board ~~facility. Column is an indirect subsidiary~~ of ~~Credit~~directors ~~Suisse,~~and ~~which~~a isformer andirector ~~affiliate~~ of ~~DLJ Merchant Banking, Inc. (“DLJMB”). In connection with Morgans’ and DLJMB’s Acquisition of~~ the ~~Hard~~Company ~~Rock and related assets~~is ~~through~~currently the ~~Company~~president, ~~Morgans~~chief ~~paid~~executive ~~Column~~officer ~~commitment~~and ~~fees in~~ an ~~aggregate amount equal to $11.6 million, which were deemed to be an~~ equity ~~contribution~~holder ~~by Morgans to the Company at the closing~~ of ~~the~~ ~~Acquisition.~~NorthStar AtRealty ~~the closing of the acquisition, the Company paid Column an origination fee~~Finance ~~equal to $30~~Corp.~~6 million.~~ ~~Subsequently~~(“NorthStar”), ona ~~November 6,~~subsidiary ~~2007,~~of ~~the~~which ~~Company~~is ~~paid~~a ~~Column~~participant anlender ~~additional origination fee equal to $0.8 million for the $35 million increase~~ in the ~~maximum amount of the~~ CMBS facility ~~that occurred in connection with refinancing of the CMBS facility on such date~~. In ~~November 2007,~~See ~~Column ceased to be the administrative agent under the CMBS facility and TriMont~~“Item ~~Real Estate Advisors, Inc~~7. ~~was~~Management’s ~~appointed~~Discussion asand ~~servicer~~Analysis of ~~the~~Financial ~~loans under~~Condition ~~the~~and ~~CMBS~~Results ~~facility.~~of ~~For the year~~Operations—Liquidity ~~ended December 31, 2008, TriMont Real Estate Advisors, Inc. was paid $200,000, for the administrative agents fee~~ and ~~for~~Capital ~~the~~Resources—Potential ~~year~~Sources ~~ended~~of ~~December 31, 2007, Column was paid $150,000 for the administrative agents fee~~Liquidity.”

In addition, the chairman of the Morgans’ board of directors and a former director of the Company is currently the president, chief executive officer and an equity holder of NorthStar Realty Finance Corp. (“NorthStar”), a subsidiary of which is a participant lender in the CMBS facility.

Land Acquisition Financing

OnNorthstar ~~August 1,~~is ~~2008,~~a welender ~~completed~~under anthe ~~intercompany~~ land ~~purchase~~acquisition financing we have entered into with respect to an approximately 11-acre parcel of land located adjacent to the Hard Rock. InSee ~~connection with the intercompany land purchase, HRHH Transferee, one of our subsidiaries, entered into a $50.0~~“Item ~~million land acquisition financing with Column and a subsidiary of Northstar~~7. ~~Under~~ the financing, interest will accrue at an annual rate equal to the 30-day LIBOR, plus a blended spread of 15.90%. An amendment to the applicable loan agreement increased the blended spread from 15.90% to 17.90%. At any time and from time to time, the lender may increase the blended spread up to a maximum interest rate specified in the related loan documents. The loan agreement governing the land acquisition financing contains customary covenants for financing transactions of this type. HRHH TransfereeManagement’s ~~obligations~~Discussion ~~under the land acquisition loan are secured by a first mortgage lien on the approximately 11 acres as well as certain intellectual property~~ and ~~other~~Analysis ~~personal and real property rights~~ of ~~HRHH~~Financial ~~Transferee.~~Condition The land acquisition loan is also assumable by certain third party purchasers of a portion of the approximately 11 acres from HRHH Transferee, which assumption is conditioned upon the provision by HRHH Transferee of certain additional collateral support for the loan. All outstanding amounts owed under the land acquisition loan become due and ~~payable~~Results ~~no later than the maturity date~~ of ~~August 9,~~ ~~2009,~~Operations—Liquidity ~~subject to two six-month extension options,~~ and ~~are subject to acceleration upon the occurrence of~~ ~~events~~Capital ofResources—Contractual ~~default~~Obligations ~~which we consider usual~~ and customary for an agreement of this type, including failure to make payments under the applicable loan agreement, nonperformance of covenants and obligations or insolvency or bankruptcy (as defined in the such loan agreement)Commitments.”

7270

Directors

Each of our directors is also an officer of either DLJMB or Morgans.

Other

For additional disclosure regarding affiliate transactions see Note 7 to our Financial Statements and Note 7 to the Predecessor’s Financial Statements.

Review, Approval or Ratification of Transactions with Related Persons

Given the ownership and management of the Company, we have not adopted policies and procedures for the review, approval, or ratification of transactions required to be reported pursuant to Item 404(a) of Regulation S-K. However, the JV Agreement provides that if we enter into an agreement with any of our members or their affiliates, or if any member enters into an agreement with a third party that provides it or its affiliates an economic benefit, then all of our members (other than any member that is, or who has an affiliate that is, a party to the transaction) must approve the transaction. Each of the transactions disclosed under this Item 13 were approved by our members.

DIRECTOR INDEPENDENCE

Although we are not subject to the rules promulgated by the Nasdaq Stock Market, we have used the independence requirements set forth in these rules as a benchmark to determine whether our directors are independent. None of our directors meet the independence requirements set forth in the rules promulgated by the Nasdaq Stock Market because each of our directors is also an officer of DLJMB or Morgans. However, given that each of our members has direct control over us, we do not believe it is necessary to elect independent directors at this time. Our board of directors does not currently maintain a separately designated audit, compensation or nominating committee.

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

Audit fees and expenses billed to the Company by BDO Seidman, LLP (“BDO”) for the ~~year~~years ended December 31, ~~2008~~2009 and ~~for~~ ~~the~~2008 ~~period February 2, 2007 to December 31, 2007~~ for the audit of our quarterly and annual financial statements, as ~~well~~ well as audit related accounting consultations (401K plan review and Sarbanes Oxley) totaled ~~approximately $337,404 and~~ $272,655, respectively. Audit fees billed to the Company by Deloitte & Touche LLP (“Deloitte”) for the year ended December 31, 2008 and December 31, 2007 for the audits of the Predecessor’s annual financial statements for the period from January 1, 2007 to February 1, 2007 and year ended December 31, 2006 totaled approximately $~~140~~292,~~780~~002 and $~~127~~337,~~940~~404, respectively. ~~Audit fees billed to the Company by Deloitte only include amounts billed for the audits of the~~ ~~Predecessor’s annual financial statements.~~

Audit-Related Fees

~~Audit-related fees~~The ~~and~~Company ~~expenses~~was ~~associated~~not ~~with~~billed ~~the~~fees ~~assistance~~any ~~and~~audit ~~preparation~~related ~~of our~~fees ~~Registration Statement on Form 10 billed to the Company~~ by BDO during the ~~year~~years ended ~~December 31, 2008 and for the period~~ ~~February 2, 2007 to~~ December 31, ~~2007~~2009 ~~totaled $0~~ and ~~$30,150, respectively. Audit-related fees and expenses associated with the assistance and preparation of the SEC Form 10 billed to the Company by Deloitte during the year ended December 31,~~ 2008 ~~and for the period February 2, 2007 to December 31, 2007 totaled $140,500 and $15,800, respectively~~.

Tax Fees

The Company was not billed fees or expenses for tax compliance, tax advice and tax planning services by BDO during the ~~year~~years ended December 31, ~~2008~~2009 and ~~for the period February 2, 2007 to December 31, 2007, respectively~~2008. Fees billed to the Company or the Predecessor by Deloitte during the ~~year~~years ended December 31, ~~2008~~2009 and ~~December 31,~~2008 ~~2007~~ for tax compliance, tax advice and tax planning services rendered to us totaled $~~89,000~~0 and $~~113~~89,~~555~~000, respectively.

All Other Fees

The Company was not billed by BDO any other fees or expenses during the ~~year~~years ended December 31, ~~2008~~2009 or ~~December 31, 2007~~2008. Neither the Company nor the Predecessor was billed by Deloitte any other fees or expenses during the ~~year~~years ended December 31, ~~2008~~2009 or ~~December 31, 2007~~2008.

Our board of directors has adopted a policy requiring pre-approval by our board of all audit services to be provided to the Company by its independent auditors. In accordance with that policy, our board of directors has given its approval for the provision of audit services by BDO Seidman, LLP for fiscal year ~~2008~~2009. All other services must be ~~specifically~~ specifically pre-approved by our board of directors or by a designated named executive officer who has been delegated the authority to pre-approve the provision of services.

7371

PART IV

ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) and (c) Financial Statements and Schedules.

Reference is made to the “Index to the Financial Statements” on page F-1 of this report.

All other financial statement schedules are not required under the related instructions, or they have been omitted either because they are not significant, the required information has been disclosed in the consolidated / combined financial statements and the notes related thereto.

(b) Exhibits

EXHIBIT
NUMBER		DESCRIPTION
	2.1	Agreement and Plan of Merger, dated as of May 11, 2006, by and among Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc. and Peter A. Morton (incorporated by reference to Exhibit 2.1 to Morgans’ Current Report on Form 8-K filed on May 17, 2006)
	2.2	First Amendment to Agreement and Plan of Merger, dated as of January 31, 2007, by and among Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc., 510 Development Corporation (solely with respect to Section 1.6 and Section 1.8 thereof) and Peter A. Morton (solely with respect to Section 1.7 thereof) (incorporated by reference to Exhibit 2.1 to Morgans’ Current Report on Form 8-K filed on February 6, 2007)
	2.3	Purchase and Sale Agreement and Joint Escrow Instructions, dated as of May 11, 2006, by and between Morgans Group LLC and PM Realty, LLC (incorporated by reference to Exhibit 10.1 to Morgans’ Current Report on Form 8-K filed on May 17, 2006)
	2.4	First Amendment to Purchase Agreement, dated as of February 2, 2007, by and between Morgans Group LLC and PM Realty, LLC (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	2.5	Purchase and Sale Agreement and Joint Escrow Instructions dated as of May 11, 2006, by and between Morgans Group LLC and Red, White and Blue Pictures, Inc. (incorporated by reference to Exhibit 10.2 to Morgans’ Current Report on Form 8-K filed on May 17, 2006)
	2.6	Purchase and Sale Agreement, dated as of May 11, 2006, by and between Morgans Group LLC and HR Condominium Investors (Vegas), L.L.C. (incorporated by reference to Exhibit 10.3 to Morgans’ Current Report on Form 8-K filed on May 17, 2006)
	3.1	Certificate of Formation, dated as of January 16, 2007, for Hard Rock Hotel Holdings, LLC (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	3.2	Second Amended and Restated Limited Liability Company Agreement of Hard Rock Hotel Holdings, LLC dated as of May 30, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 4, 2008)
	3.3	Amendment Agreement dated as of August 1, 2008 by and among DLJ MB IV HRH, LLC, DLJ Merchant Banking Partners IV, L.P., DLJMB HRH VoteCo, LLC, Morgans Hotel Group Co. and Morgans Group LLC (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 7, 2008)
	10.1	Amended and Restated Loan Agreement, dated as of November 6, 2007, by and among Column Financial, Inc., HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, and HRHH Gaming, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)

Reference is made to the “Exhibit Index” beginning on the last page of this report.

7472

EXHIBIT
NUMBER		DESCRIPTION
	10.2	First Mezzanine Loan Agreement, dated as of November 6, 2007, by and among Column Financial, Inc., HRHH JV Senior Mezz, LLC and HRHH Gaming Senior Mezz, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	10.3	Second Mezzanine Loan Agreement, dated as of November 6, 2007, by and among Column Financial, Inc., HRHH JV Junior Mezz, LLC and HRHH Gaming Junior Mezz, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	10.4	Third Mezzanine Loan Agreement, dated as of November 6, 2007, by and among Column Financial, Inc., HRHH JV Junior Mezz Two, LLC and HRHH Gaming Junior Mezz Two, LLC (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	10.5	Casino Sublease, dated as of November 6, 2006, by and among Morgans Hotel Group Co., MHG HR Acquisition Corp. and Golden HRC, LLC (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	10.6	First Amendment to Casino Sublease, dated as of January 9, 2007, by and among Morgans Hotel Group Co., MHG HR Acquisition Corp. and Golden HRC, LLC (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	10.7	Recognition Agreement, dated as of February 2, 2007, by and among Hard Rock Hotel, Inc., HRHH Development, LLC and Golden HRC, LLC (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	10.8	Agreement, dated as of October 31, 2007, by and among Morgans Hotel Group Co., Hard Rock Hotel, Inc. and Navegante HR, LLC (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	10.9	Letter Agreement, dated September 21, 2006, by and between Morgans Hotel Group Management LLC and Andrew A. Kwasniewski (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	10.10	Letter Agreement, dated October 1, 2007, by and between Morgans Hotel Group Management LLC and Andrew A. Kwasniewski (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	10.11	Letter Agreement, dated December 26, 2006, by and between Morgans Hotel Group Management LLC and Arnold D. Boswell (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form 10 filed on December 20, 2007)
	10.12	Morgans Hotel Group Co. 2006 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.22 to Morgans’ Annual Report on Form 10-K for the year ended December 31, 2005)

EXHIBIT
NUMBER		DESCRIPTION
	10.13	Morgans Hotel Group Co. 2007 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Morgans’ Current Report on Form 8-K filed on May 22, 2007)
	10.14	Form of Morgans Hotel Group Co. Director RSU Award Agreement (incorporated by reference to Exhibit 10.29 to Amendment No. 6 to the Morgans’ Registration Statement on Form S-1 (File No. 333-129277) filed on February 9, 2006)
	10.15	Form of Morgans Hotel Group Co. Stock Option Award Agreement (incorporated by reference to Exhibit 10.30 to Amendment No. 6 to the Morgans’ Registration Statement on Form S-1 (File No. 333-129277) filed on February 9, 2006)
	10.16	Form of Morgans Hotel Group Co. LTIP Unit Vesting Agreement (incorporated by reference to Exhibit 10.31 to Amendment No. 6 to the Morgans’ Registration Statement on Form S-1 (File No. 333-129277) filed on February 9, 2006)
	10.17	Indemnity Agreement, dated as of October 31, 2007, by and between Hard Rock Hotel, Inc. and Morgans Hotel Group Co. (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to the Company’s Registration Statement on Form 10 filed on February 4, 2008)
	10.18	Indemnification Agreement, dated as of January 14, 2008, by and among Hard Rock Hotel Holdings, LLC, MHG HR Acquisition Corp., Morgans Hotel Group Co. and Golden HRC, LLC (incorporated by reference to Exhibit 10.21 to Amendment No. 1 to the Company’s Registration Statement on Form 10 filed on February 4, 2008)
	10.19	Indemnity Agreement, dated as of January 16, 2008, by and between Hard Rock Hotel Holdings, LLC and Morgans Hotel Group Co. (incorporated by reference to Exhibit 10.22 to Amendment No. 1 to the Company’s Registration Statement on Form 10 filed on February 4, 2008)
	10.20	Construction Management and General Contractor’s Agreement, dated as of February 22, 2008, by and between HRHH Hotel/Casino, LLC and HRHH Development, LLC, as owners, and M.J. Dean Construction, Inc., as contractor (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 9, 2008)
	10.21	First Amendment to Construction Management and General Contractor’s Agreement, dated as of March 11, 2008, by and between HRHH Hotel/Casino, LLC and HRHH Development, LLC, as owners, and M.J. Dean Construction, Inc., as contractor (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 9, 2008)
	10.22	Second Amendment to Construction Management and General Contractor’s Agreement, dated as of April 23, 2008, by and between HRHH Hotel/Casino, LLC and HRHH Development, LLC, as owners, and M.J. Dean Construction, Inc., as contractor (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2008)
	10.23	Loan Agreement, dated as of August 1, 2008, between HRHH Development Transferee, LLC, as Borrower, and Column Financial, Inc., as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 7, 2008)
	10.24	First Amendment to Loan Agreement, dated as of November 10, 2008, by and between HRHH Development Transferee, LLC and Column Financial, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 17, 2008)

EXHIBIT
NUMBER			DESCRIPTION
	10.25		Hard Rock Hotel Holdings, LLC 2008 Profits Interest Award Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 16, 2008)
	10.26		Hard Rock Hotel Holdings, LLC Class C Profits Interest Agreements (Form for Time-Based Vesting) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 16, 2008)
	10.27		Hard Rock Hotel Holdings, LLC Class C Profits Interest Agreements (Form for Performance Based Vesting) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 16, 2008)
	10.28		Hard Rock Hotel Holdings, LLC Class C Profits Interest Agreements (Form for Milestone Based Vesting) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on September 16, 2008)
	10.29		Hard Rock Hotel Holdings, LLC Class C Profits Interest Agreement between Hard Rock Hotel Holdings, LLC and Randy Kwasniewski (Time-Based Vesting) (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on September 16, 2008)
	10.30		Hard Rock Hotel Holdings, LLC Class C Profits Interest Agreements between Hard Rock Hotel Holdings, LLC and Randy Kwasniewski (Performance Based Vesting) (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on September 16, 2008)
	10.31		Hard Rock Hotel Holdings, LLC Class C Profits Interest Agreements between Hard Rock Hotel Holdings, LLC and Randy Kwasniewski (Milestone Based Vesting) (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on September 16, 2008)
	10.32		Letter, dated October 24, 2008, from Morgans Hotel Group Co. and DLJ Merchant Banking Partners to Andrew A. Kwasniewski (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 28, 2008)
	21.1	*	Subsidiaries of the Registrant
	31.1	*	Certification of Hard Rock Hotel, Inc’s President and Chief Operating Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	*	Certification of Hard Rock Hotel, Inc’s Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	*	Certification of Hard Rock Hotel, Inc’s President and Chief Operating Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Annual Report on Form 10-K and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company.
	32.2	*	Certification of Hard Rock Hotel, Inc’s Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Annual Report on Form 10-K and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company.

* Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 12, ~~2009~~2010.

HARD ROCK HOTEL HOLDINGS, LLC By: /s/ ~~Richard~~RICHARD ~~Szymanski~~SZYMANSKI Name: Richard Szymanski Title: Vice President, Secretary and Treasurer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints ~~Andrew~~Fred AJ. ~~Kwasniewski~~Kleisner and Arnold D. Boswell and each of them severally, his true and ~~lawful~~ lawful attorney-in-fact with power of substitution and resubstitution to sign in his name, place ~~and~~ and stead, in any and all capacities, to do any and all things and execute and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the United States Securities and Exchange Commission in connection with this report and any and all amendments hereto, as fully for all intents and purposes as he might or could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. ~~Pursuant to the requirements of Securities Exchange Act of~~ ~~1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.~~

Signature	Title	Date
/s/ Andrew A. Kwasniewski Andrew A. Kwasniewski	President and Chief Operating Officer of HRHI	March 12, 2009
/s/ Arnold D. Boswell Arnold D. Boswell	Chief Financial Officer of HRHI	March 12, 2009
/s/ Richard Szymanski Richard Szymanski	Director	March 12, 2009
/s/ Fred J. Kleisner Fred J. Kleisner	Director	March 12, 2009
/s/ Steven Rattner Steven Rattner	Director	March 12, 2009
/s/ Neal Pomroy Neal Pomroy	Director	March 12, 2009
/s/ Ryan Sprott Ryan Sprott	Director	March 12, 2009

Pursuant to the requirements of Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ FRED J. KLEISNER Fred J. Kleisner	President and Director	March 12, 2010

/s/ ARNOLD D. BOSWELL Arnold D. Boswell	Chief Financial Officer of HRHI	March 12, 2010

/s/ RICHARD SZYMANSKI Richard Szymanski	Director	March 12, 2010

/s/ EDWARD A. JOHNSON Edward A. Johnson	Director	March 12, 2010

/s/ NEAL POMROY Neal Pomroy	Director	March 12, 2010

/s/ RYAN SPROTT Ryan Sprott	Director	March 12, 2010

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements for the Predecessor
Report of Independent Registered Public Accounting Firm			F-2
Statements of Operations for the period from January 1, 2007 to February 1, 2007 and for the year ended December 31, 2006			F-3
Statements of Operations for the period from January 1, 2007 to February 1, 2007			F-3
Statements of Shareholders’ Deficiency for the period from January 1, 2007 to February 1, 2007 and for the year ended December 31, 2006			F-4
Statements of Shareholders’ Deficiency for the period from January 1, 2007 to February 1, 2007			F-4
Statements of Cash Flows for the period from January 1, 2007 to February 1, 2007 and for the year ended December 31, 2006			F-5
Statements of Cash Flows for the period from January 1, 2007 to February 1, 2007			F-5
Notes to Consolidated Financial Statements			F-6
Consolidated Financial Statements for Hard Rock Hotel Holdings, LLC
Report of Independent Registered Public Accounting Firm			F-1714
Balance Sheet as of December 31, 2008 and as of December 31, 2007			F-1815
Statement of Operations for the year ended December 31, 2008 and for the period from February 2, 2007 to December 31, 2007			F-1916
Statement of Member’s Equity (Deficit) for the year ended December 31, 2008 and for the period from February 2, 2007 to December 31, 2007			F-2017
Statement of Cash Flows for the year ended December 31, 2008 and for the period from February 2, 2007 to December 31, 2007			F-2118
Notes to Consolidated Financial Statements			F-2219

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of
Hard Rock Hotel, Inc.

We have audited the accompanying statements of operations, shareholders’ deficiency, and cash ~~flows~~ flows of Hard Rock Hotel, Inc. (the “Predecessor”) for the period from January 1, 2007 to February 1, ~~2007~~ ~~and for the year ended December 31, 2006~~2007. These financial statements are the responsibility of the Predecessor’s management. Our responsibility is to express an opinion on these financial statements based on our ~~audits~~audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the results of of operations and cash flows of Hard Rock Hotel, Inc. for the period from January 1, 2007 to ~~February~~ February 1, 2007, ~~and for the year ended December 31, 2006,~~ in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP ~~Las Vegas, Nevada December 18, 2007~~

Las Vegas, Nevada
December 18, 2007

F-2

PREDECESSOR

STATEMENTS OF OPERATIONS ~~(in thousands)~~

	Period from
	January 1, 2007 to			Year Ended
	February 1,			December 31,
	2007			2006
Revenues:
Casino	$	3,904		$	59,626
Lodging		3,438			41,513
Food and beverage		5,320			69,838
Retail		399			7,039
Other income		1,073			16,462
Gross revenues		14,134			194,478
Less: promotional allowances		(1,116	)		(12,512	)
Net revenues		13,018			181,966
Costs and expenses:
Casino		3,008			34,966
Lodging		896			10,018
Food and beverage		3,261			37,515
Retail		285			4,075
Other		913			15,569
Marketing		296			5,533
Related-party expenses		1,525			6,404
General and administrative		2,865			27,770
Merger costs		1,723			4,546
Depreciation and amortization		1,184			12,823
Loss on disposal of assets		—			495
Total costs and expenses		15,956			159,714
Income (loss) from operations		(2,938	)		22,252
Other income (expenses):
Interest income		—			359
Interest expense, net		(1,516	)		(18,308	)
Other expenses, net		(1,516	)		(17,949	)
(Loss) income before income tax (benefit) expense		(4,454	)		4,303
Income tax (benefit) expense		(1,521	)		1,665
NET (LOSS) INCOME	$	(2,933	)	$	2,638

(in thousands)


	Period from
	January 1, 2007 to
	February 1,
	2007
Revenues:
Casino	$	3,904
Lodging		3,438
Food and beverage		5,320
Retail		399
Other income		1,073

Gross revenues		14,134
Less: promotional allowances		(1,116	)

Net revenues		13,018

Costs and expenses:
Casino		3,008
Lodging		896
Food and beverage		3,261
Retail		285
Other		913
Marketing		296
Related-party expenses		1,525
General and administrative		2,865
Merger costs		1,723
Depreciation and amortization		1,184

Total costs and expenses		15,956

Loss from operations		(2,938	)

Other income (expenses):
Interest expense, net		(1,516	)

Other expenses, net		(1,516	)

Loss before income tax benefit		(4,454	)
Income tax benefit		(1,521	)

NET LOSS	$	(2,933	)

The accompanying notes are an integral part of these consolidated financial statements.

F-3

PREDECESSOR

STATEMENTS OF SHAREHOLDERS’ DEFICIENCY ~~(in thousands, except share amounts)~~

	Class A Common				Class B Common									Total
	Stock				Stock				Paid-in		Accumulated			Shareholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficiency
Balances at January 1, 2006		12,000	$	—		64,023	$	—	$	7,508	$	(29,861	)	$	(22,353	)
Net income		—		—		—		—		—		2,638			2,638
Balances at December 31, 2006		12,000		—		64,023		—		7,508		(27,223	)		(19,715	)
Net loss		—		—		—		—		—		(2,933	)		(2,933	)
Balances at February 1, 2007		12,000	$	—		64,023	$	—	$	7,508	$	(30,156	)	$	(22,648	)

(in thousands, except share amounts)


	Class A Common				Class B Common									Total
	Stock				Stock				Paid-in		Accumulated			Shareholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficiency
Balances at December 31, 2006		12,000		—		64,023		—	$	7,508	$	(27,223	)	$	(19,715	)
Net loss		—		—		—		—		—		(2,933	)		(2,933	)

Balances at February 1, 2007		12,000	$	—		64,023	$	—	$	7,508	$	(30,156	)	$	(22,648	)

The accompanying notes are an integral part of these consolidated financial statements.

F-4

PREDECESSOR

STATEMENTS OF CASH FLOWS ~~(in thousands, except supplemental information)~~

	Period
	January 1, 2007 to			Year Ended
	February 1,			December 31,
	2007			2006
Cash flows from operating activities:
Net (loss) income	$	(2,933	)	$	2,638
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		1,184			12,823
Provision for bad debt		74			435
Amortization of loan fees		42			512
Deferred income taxes		(1,521	)		1,545
Loss on sale of property and equipment		—			495
Changes in operating assets and liabilities:
Accounts receivable		2,625			(524	)
Inventories		54			(877	)
Prepaid expenses and other current assets		246			(508	)
Related-party receivable		399			190
Accounts payable		(283	)		911
Related-party payable		(193	)		(572	)
Accrued expenses		354			1,502
Long-term deferred compensation		(59	)		3,240
Interest payable		(643	)		1,007
Net cash (used in) provided by operating activities		(654	)		22,817
Cash flow from investing activities:
Purchases of property and equipment		(154	)		(9,060	)
Proceeds from sale of property and equipment		—			4
Change in other assets		13			(62	)
Net cash used in investing activities		(141	)		(9,118	)
Cash flows from financing activities:
Proceeds from borrowings		3,500			—
Principal payments on long-term debt		—			(14,058	)
Net cash provided by (used in) financing activities		3,500			(14,058	)
Net increase (decrease) in cash and cash equivalents		2,705			(359	)
Cash and cash equivalents, beginning of period		8,536			8,895
Cash and cash equivalents, end of period	$	11,241		$	8,536
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	2,112		$	16,789
Cash paid during the period for income taxes	$	—		$	50

(in thousands, except supplemental information)


	Period
	January 1, 2007 to
	February 1,
	2007
Cash flows from operating activities:
Net loss	$	(2,933	)
Adjustments to reconcile net loss to net cash used in activities:
Depreciation and amortization		1,184
Provision for bad debt		74
Amortization of loan fees		42
Deferred income taxes		(1,521	)
Changes in operating assets and liabilities:
Accounts receivable		2,625
Inventories		54
Prepaid expenses and other current assets		246
Related-party receivable		399
Accounts payable		(283	)
Related-party payable		(193	)
Accrued expenses		354
Long-term deferred compensation		(59	)
Interest payable		(643	)

Net cash used in operating activities		(654	)

Cash flow from investing activities:
Purchases of property and equipment		(154	)
Change in other assets		13

Net cash used in investing activities		(141	)

Cash flows from financing activities:
Proceeds from borrowings		3,500

Net cash provided by financing activities		3,500

Net increase in cash and cash equivalents		2,705
Cash and cash equivalents, beginning of period		8,536

Cash and cash equivalents, end of period	$	11,241

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	2,112

Supplemental Information about Non-Cash Investing and Financing Activities:

For the ~~year ended December 31, 2006, the Predecessor recorded interest in kind of $1.1 million. For the~~ period ending February 1, 2007, the Predecessor did not record interest in kind, as as the interest was paid in cash.

The accompanying notes are an integral part of these consolidated financial statements.

F-5

PREDECESSOR AND SUBSIDIARY

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. PREDECESSOR STRUCTURE AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Nature of Business

Hard Rock Hotel, Inc. (the “Predecessor”), a Nevada corporation incorporated on August 30, 1993, operates a hotel-casino in Las Vegas, Nevada. The Predecessor is a wholly owned subsidiary of Hard Rock Hotel Holdings, LLC (the “ Company ”), a Delaware corporation owned by DLJ MB IV HRH, LLC, DLJ Merchant Banking Partners IV, L.P., DLJMB HRH VoteCo, LLC, Morgans Hotel Group Co. and Morgans Group LLC. Peter Morton has granted a sublicense to the Predecessor, pursuant to which the Predecessor holds the exclusive right to use the “Hard Rock Hotel” trademark for the Predecessor’s operations in Las Vegas.

The Predecessor’s operations were conducted in the destination resort segment, which includes casino, lodging, food and beverage, retail and other related operations. Because of the integrated nature of these operations, the Predecessor was considered to have one reportable operating segment.

Merger

On May 11, 2006, the Predecessor entered into an Agreement and Plan of Merger (as amended in January 2007, the “Merger Agreement”) with Morgans Hotel Group Co. (“Morgans”), MHG HR ~~Acquisition~~ Acquisition Corp., a wholly owned subsidiary of Morgans (“Merger Sub” ), and Peter A. Morton (the “Merger ”). The closing of the transactions and completion of the Merger occurred on February 2, 2007. Under the terms of the Merger Agreement, Merger Sub was merged with and into the Predecessor, with the Predecessor continuing as the surviving corporation and becoming a wholly owned subsidiary of the Company. On November 7, 2006, Morgans and an affiliate of DLJ Merchant Banking Partners ~~entered~~ entered into a Contribution Agreement (which was amended and restated in December 2006) under which ~~they~~ they agreed to form a joint venture in connection with the Merger and the further development of ~~the~~ the hotel-casino.

Each share of common stock of the Predecessor issued and outstanding immediately prior to the effective time of the Merger was automatically converted into the right to receive cash based on the total transaction consideration of approximately $421.0 million, which was subject to a number of adjustments, including, among others, outstanding indebtedness and related party payables, working capital, cage cash, retention bonuses, transaction costs and expenses, and certain capital expenditures by the Predecessor. In December 2007, Morgans, the Company, the Predecessor and Lily Pond Investments, Inc., the shareholder representative under the Merger Agreement, agreed upon the final working capital and cage cash adjustments under the Merger Agreement. Pursuant to the final adjustments, the Predecessor has received $2.3 million out of the escrow established under the Merger Agreement for such adjustments. Of the total transaction consideration, $15.0 million is being held in an escrow to cover post-closing indemnification obligations of the Predecessor’s stockholders.

Concurrently with the execution of the Merger Agreement and pursuant to the terms therein, Morgans deposited into escrow $30.0 million, a portion of which, upon the closing of the Merger, was credited towards the total transaction consideration, and a portion of which, upon the closing of the Merger, is held in escrow as described above.

The Predecessor agreed to stay bonuses of approximately $2.3 million in total, which were paid to select employees who were critical to the continued operations of the Predecessor through the completion of the Merger. The stay bonuses became payable at the completion of the Merger provided that the selected employee remained in employment with the Predecessor to the applicable date. The stay bonuses were communicated to select employees in April 2006 and were accrued over the expected service period.

F-6

During the period from January 1, 2007 to February 1, 2007, the Predecessor expensed $1.7 million related to the Merger, which consisted of $1.1 million for bonuses to executives, $0.5 million for stay bonuses and related taxes and $0.1 million in fees to legal advisors. During the year ended December 31, 2006, the Predecessor expensed $4.5 million related to the Merger, which consisted of $2.0 million for stay bonuses, $1.5 million in fees to legal advisors and $1.0 million in fees to financial advisors.

Cash and Cash Equivalents

Cash and cash equivalents consisted of cash on hand and in banks and interest-bearing deposits with maturities at the date of purchase of three months or less. Cash equivalents were carried at cost which approximates market.

Concentrations of Credit Risk

Substantially all of the Predecessor’s accounts receivable were unsecured and were due primarily from the Predecessor’s casino and hotel patrons and convention functions. Non-performance by these parties would have resulted in losses up to the recorded amount of the related receivables. Management did not anticipate significant non-performance and believed that they had adequately provided for uncollectible receivables in the Predecessor’s allowance for doubtful accounts.

Depreciation and Amortization

Land improvements, buildings and improvements, equipment, furniture and fixtures, and memorabilia were recorded at cost. The Predecessor capitalized interest on funds dispersed during construction. Depreciation and amortization were computed using the straight-line method over the estimated useful lives for financial reporting purposes and accelerated methods for income tax purposes. Estimated useful lives for financial reporting purposes were as follows:


Land improvements		15 years
Building improvements		15 years
Buildings		40-45 years
Equipment, furniture and fixtures		5-10 years
Memorabilia		40 years

F-7

Gains or losses arising from dispositions were included in cost and expenses in the accompanying statements of operations. Costs of major improvements were capitalized, while costs of normal repairs and maintenance were charged to expense as incurred.

Substantially all property and equipment were pledged as collateral for long-term debt.

Long-term Assets

The Predecessor had a significant investment in long-lived property and equipment. The Predecessor reviewed the carrying value of property and equipment to be held and used for impairment whenever events and circumstances indicated that the carrying value of an asset was not recoverable from the estimated future undiscounted cash flows of the asset. If the undiscounted cash flows was less than the carrying value, an impairment loss was recognized equal to the amount by which the carrying value exceeded the fair value of the asset. For assets to be disposed of, the Predecessor recognized the asset to be sold at the lower of carrying value or fair value less costs of disposal.

Capitalized Interest

The Predecessor capitalized interest costs associated with major construction projects as part of the cost of the constructed assets. When no debt was incurred specifically for a project, interest was capitalized on amounts expended for the project using a weighted average cost of borrowing. Capitalization of interest ceased when the project or discernible portions of the project are complete. The Predecessor amortized capitalized interest over the estimated useful life of the related asset.

Advertising Costs

The Predecessor expensed the costs of all advertising campaigns and promotions as they were incurred. Total advertising expenses (exclusive of pre-opening) for the period from January 1, 2007 to February 1, 2007 ~~and for the year ended December 31, 2006~~ amounted to approximately $0.2 million ~~and $2~~.~~4 million,~~ ~~respectively.~~ These expenses were included in marketing expenses in the accompanying ~~statements~~statement of operations.

F-7

Amortization

Loan fees and other financing costs were amortized over the life of the respective loans. Base stocks of china, glassware, utensils and linens were amortized using the straight-line method over three years to a base stock level of 25% of original cost, with replacements expensed at the time of purchase.

Income Taxes

The Predecessor accounted for income taxes using the asset and liability approach required by FASB ASC 740-10 (SFAS 109). The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of the Predecessor’s assets and liabilities. Future tax benefits attributable to temporary differences are recognized to the extent that realization of ~~such~~ such benefits is more likely than not. These future tax benefits are measured by applying currently enacted tax rates. Additionally, deferred income tax assets and liabilities are separated into current and non-current amounts based on the classification of the related assets and liabilities for financial reporting purposes.

The Predecessor adopted the provisions of ~~Financial~~FASB ~~Accounting~~ASC ~~Standards~~740-10 ~~Board~~ (~~“FASB”)~~prior authoritative literature: FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48 ”)) on January 1, 2007. There was no effect on the Predecessor’s financial condition or results of operations as a ~~result~~ result of implementing FASB ASC 740-10 (FIN 48). The Predecessor did not accrue interest or penalties associated with any unrecognized tax benefits.

F-8

Revenues and Complimentaries

Casino revenues were derived from patrons wagering on table games, slot machines, sporting events and races. Table games generally included Blackjack or Twenty One, Craps, Baccarat and Roulette. Casino revenue was defined as the win from gaming activities, computed as the difference between gaming wins and losses, not the total amounts wagered. Casino revenue was recognized at the end of each gaming day.

Lodging revenues were derived from rooms and suites rented to guests and included related revenues for telephones, movies, etc. Room revenue was recognized at the time the room or service was provided to the guest.

Food and beverage revenues were derived from food and beverage sales in the food outlets of the Predecessor’s hotel casino, including restaurants, room service, banquets and nightclub. Food and beverage revenue was recognized at the time the food and/or beverage was provided to the guest.

Retail and other revenues included retail sales, spa income, commissions, estimated income for gaming chips and tokens not expected to be redeemed and other miscellaneous income at the Predecessor’s hotel casino. Retail and other revenues were recognized at the point in time the retail sale occurs or when services were provided to the guest.

Revenues in the accompanying statements of operations included the retail value of rooms, food and beverage, and other complimentaries provided to customers without charge which are then subtracted as promotional allowances to arrive at net revenues. The estimated costs of providing such complimentaries have been classified as casino operating expenses through interdepartmental allocations as follows (in thousands):

	Period
	January 1, 2007 to		~~Year Ended~~
	February 1,		~~December 31,~~
	2007		~~2006~~
Food and beverage	$	399	$	~~4,498~~
Lodging		175		~~1,748~~
Other		30		~~496~~
Total costs allocated to casino operating costs	$	604	$	~~6,742~~

~~Revenues were recognized net of certain sales incentives in accordance with the Emerging Issues Task Force (“EITF”) consensus on Issue 01~~F-~~9, Accounting for Consideration Given by a Vendor~~8 to a Customer (Including a Reseller of the Vendor’s Products). EITF 01-9 requires that sales incentives be recorded as a reduction of revenue; consequently, the Predecessor’s casino revenues are reduced by points earned in customer loyalty programs, such as the player’s club loyalty program. Casino revenues are net of cash incentives earned in the Predecessor’s “Backstage Pass” slot club. For the period from January 1, 2007 to February 1, 2007 and for the year ended December 31, 2006, these incentives were $0.1 million and $0.5 million, respectively.

Revenues were recognized net of certain sales incentives in accordance with the FASB ASC 605-50, Revenue Recognition, Customer Payments and Incentives ( prior authoritative literature: Emerging Issues Task Force consensus on Issue 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products )) (“FASB ASC 605-50 (EITF 01-9) ”). FASB ASC 605-50 (EITF 01-9) requires that sales incentives be recorded as a reduction of revenue; consequently, the Predecessor’s casino revenues are reduced by points earned in customer loyalty programs, such as the player’s club loyalty program. Casino revenues are net of cash incentives earned in the Predecessor’s “Backstage Pass” slot club. For the period from January 1, 2007 to February 1, 2007, these incentives were $0.1 million.

Use of Estimates in Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes such as allowances for doubtful accounts, reserves for self-insurance, income taxes, contingencies and litigation. Actual results may have differed from those estimates.

F-9

2. ALLOWANCE FOR DOUBTFUL ACCOUNTS

					Deductions,
			Additions		Write-
	Balance at		Charged to		offs and			Balance at
	Beginning of		Costs and		Net of			End of
	Year		Expenses		Collections			Year
Period from January 1, 2007 to February 1, 2007:
Deducted from assets accounts:
Allowance for doubtful accounts:	$	891	$	74	$	(82	)	$	883
Year ended December 31, 2006:
Deducted from assets accounts:
Allowance for doubtful accounts:	$	1,002	$	435	$	(546	)	$	891

F-10

3. AGREEMENTS WITH RELATED PARTIES

The Predecessor entered into a 25-year Amended and Restated Supervisory Agreement with Peter Morton (the “Supervisory Agreement”), which provided for the supervision of the development, improvement, operation, and maintenance of the Predecessor through 2022. Mr. Morton had the option to renew the agreement for two successive fifteen year terms. Pursuant to the terms of the Supervisory Agreement, Mr. Morton was to provide consulting and supervisory services to the Predecessor. In the event either the Predecessor or Mr. Morton was in Default (as defined in the agreement), the non-defaulting party could terminate the agreement after the other party had received the opportunity to cure such default. As part of this agreement, the Predecessor paid to Mr. Morton a supervisory fee equal to two percent of annual gross revenues (as defined), net of complimentaries for each year. Total supervisory fee expenses for these services for the period from January 1, 2007 to February 1, 2007 ~~and for the year ended December 31, 2006~~ amounted to $283,000 ~~and $3,651,000, respectively~~. These expenses are included in related-party expenses in the accompanying ~~statements~~statement of operations. The ~~unpaid amount at February 1, 2007 was $19,000 and is included in related-party payable in the accompanying balance sheets. The~~ Supervisory Agreement was terminated with the Merger.

Entities controlled by Mr. Morton provided additional technical support services for the development, ongoing improvement and operation of the Predecessor. The Predecessor reimbursed these entities for all costs and expenses incurred in connection with these services, including, without limitation, employee salary and benefits and allocated overhead. On August 15, 2005, the Predecessor entered a Commercial Sublease with 510 Development Corporation (the “510 Development Sublease”). The Predecessor paid $20,000 a month for this sublease, which was scheduled to expire December 31, 2009. In connection with 510 Development Sublease, the Predecessor capitalized $2.5 million in leasehold improvements. The 510 Development Sublease was terminated with the Merger. The expense associated with this sublease was always part of the allocated overhead that was reimbursed by the Predecessor. The expenses for the technical support services and sublease aggregated to approximately $1,242,000 ~~and $2,753,000~~ for the period from January 1, 2007 to February 1, 2007 ~~and for the year ended December 31~~, ~~2006, respectively,~~ and ~~are~~is included in related-party expenses in the accompanying ~~statements~~statement of operations.

During the period from January 1, 2007 to February 1, 2007 ~~and for the year ended December 31~~, ~~2006,~~ the Predecessor paid compensation to Harry Morton, son of Peter Morton, $21,000 ~~and $250~~,~~000, respectively,~~ for his position as Special Projects Director, which he started in the year ended December 31, 2004. The Predecessor also provided housing and other services to Harry Morton at the resort with a total estimated value during the period from January 1, 2007 to February 1, 2007 and for the year ended December 31, 2006, of $0 and $28,000, respectively. These costs are included in food and beverage expense in the ~~statements~~statement of operations for the period from January 1, 2007 to February 1, 2007 ~~and for the year ended December 31, 2006~~.

~~On December 24, 2004, PM Realty LLC (a development entity involved in the condominium project and owned by Mr. Morton) and the Predecessor entered into a lease for a ten~~F-~~year initial term with~~9 Mr. Chow of Las Vegas, LLC (“Mr. Chow”) for commercial space anticipated to be developed on land contiguous to the resort. The lease provided that if ground-breaking work on such development had not been started, in each case on or before June 1, 2006, Mr. Chow may elect to terminate such lease and receive a lease termination fee of $250,000. During 2005 PM Realty suspended the condominium project and the Predecessor recorded an amount to accrue the termination fee. The Predecessor paid Mr. Chow the $250,000 termination fee in July of 2007.

F-11

On December 24, 2004, PM Realty LLC (a development entity involved in the condominium project and owned by Mr. Morton) and the Predecessor entered into a lease for a ten-year initial term with Mr. Chow of Las Vegas, LLC (“Mr. Chow”) for commercial space anticipated to be developed on land contiguous to the resort. The lease provided that if ground-breaking work on such development had not been started, in each case on or before June 1, 2006, Mr. Chow may elect to terminate such lease and receive a lease termination fee of $250,000. During 2005 PM Realty suspended the condominium project and the Predecessor recorded an amount to accrue the termination fee. The Predecessor paid Mr. Chow the $250,000 termination fee in July of 2007.

4. LONG-TERM DEBT

In May 2003, the Predecessor obtained funding of approximately $137.6 million in net proceeds from the offering of $140.0 million aggregate principal amount of its 8.875% Second Lien Notes due 2013 (the “2013 Notes”) and paid additional costs of approximately $0.4 million in conjunction with this issuance in cash. Concurrent with the execution of the 2013 Notes, the Predecessor secured a $40 million Senior Secured Credit Facility (the “Facility”) through a group of banks at a cost of approximately $0.6 million which was withheld from the net proceeds. The Facility consisted of a $20 million, five-year senior secured term loan (the “Term Loan”) and a $20 million senior secured revolving credit facility (the “Revolving Credit Facility”). As of February 1, 2007, the Predecessor had $140.0 million outstanding in 2013 Notes, $6.5 million outstanding on its Senior Secured Credit Facility and had no balance outstanding on the Term Loan. The 2013 Notes were contractually subordinated in right of payment to all indebtedness incurred pursuant to the Facility and the liens and security interests securing the obligations of the Predecessor under the 2013 Notes were contractually subordinated to the liens securing the obligations of the Predecessor under the Facility.

The net proceeds from the issuance of the 2013 Notes together with the borrowings under the Facility and cash on hand, were used to: (i) redeem and repurchase the Predecessor’s $120.0 million 9.25% Senior Subordinated Notes due in 2005; (ii) repay the entire $18.0 million balance outstanding on its $30.0 million senior revolving credit facility; (iii) repay $1.3 million of purchase money indebtedness; (iv) pay $15.0 million of the accrued dividends on the Predecessor’s preferred stock; (v) pay costs and expenses related to the foregoing and (vi) finance working capital and provide liquidity to fund general and corporate purposes.

The 2013 Notes and the Facility were both repaid in connection with the Merger.

Junior Notes

Interest on the Junior Notes was payable on each January 15 and July 15, commencing on January 15, 2004, and could be paid in cash or in kind at the Predecessor’s option, provided that interest was required to be paid in kind if a payment of such interest in cash would cause a default under the 2013 Notes or the Facility. The Junior Notes required that any semi-annual interest payment in cash be equal to the lesser of (x) 50% of the amount of interest accrued on the Junior Notes since the most recent interest payment date and (y) the amount of interest that the Predecessor was permitted to pay in cash without causing a default under the 2013 Notes or the Facility. For interest payments payable in cash interest accrued at a rate per annum equal to 9.875% and for interest payments payable in kind interest accrued at a rate per annum equal to 10.50%. The Junior Notes were contractually subordinated to the 2013 Notes and the Facility and any other senior debt of the Predecessor. The Junior Notes were scheduled to be due on January 15, 2014, but were subject to redemption at the option of the Predecessor, in whole or in part, at any time on or after January 15, 2009, at a premium to the principal amount thereof that decreased on each subsequent anniversary date, plus accrued interest to the date of redemption. The Junior Notes contained covenants restricting the Predecessor’s ability to, among other things, sell or otherwise dispose of its assets, pay dividends, incur additional indebtedness, make acquisitions or merge or consolidate with another entity and enter into transactions with affiliates. In December of 2005, the Predecessor received consent and repurchased $15.0 million of the outstanding Junior Notes. This transaction had a purchase premium of $1.2 million. ~~For the period from January 1, 2007 to February 1, 2007 and for the year ended December 31, 2006, the Predecessor paid interest-in-kind of $0 and $1.1 million, respectively.~~ The Junior Notes were repaid in connection with the Merger.

F-12

2013 Notes

Interest on the 2013 Notes was payable on each June 1 and December 1 beginning December 1, 2003. The 2013 Notes were secured by a security interest in substantially all of the Predecessor’s existing and future assets, other than licenses that could not be pledged under applicable law. The security interest was junior to the security interest in the assets securing the Predecessor’s obligation under the Facility, except for permitted secured purchase money indebtedness. The 2013 Notes were subject to redemption at the option of the Predecessor, in whole or in part, at any time on or after June 1, 2008, at a premium to the face amount of $140 million that decreases on each subsequent anniversary date, plus accrued interest to the date of redemption. The redemption rates were as follows: after June 1, 2008, 104.438%; after June 1, 2009, 102.958%; after June 2010, 101.479% and after June 1, 2011, 100%. The 2013 Notes contained covenants restricting or limiting the ability of the Predecessor to, among other things, pay dividends, create liens or other encumbrances, incur additional indebtedness, issue certain preferred stock, sell or otherwise dispose of a portion of its assets, make acquisitions or merge or consolidate with another entity and enter into transactions with affiliates. The 2013 Notes were repaid in connection with the Merger.

F-10

Senior Secured Credit Facility

Interest on the Facility accrued on all individual borrowings at an interest rate determined at the option of the Predecessor, at either (i) the LIBOR Index plus an applicable LIBOR margin not to exceed 3.5% (the applicable margin was 3.25% at February 1, 2007) and aggregating 8.3% at February 1, 2007, or (ii) the Base Rate, defined as the higher of the Federal Funds Rate plus 0.5%, or the reference rate, as defined, plus an applicable margin not to exceed 2.25%. The Predecessor chose the LIBOR Index for all of its borrowings outstanding at February 1, 2007. These margins were dependent upon the Predecessor’s total debt to EBITDA ratio, as defined in the Facility. Interest accrued on the Base Rate borrowings was due monthly, up to the maturity date, while interest on LIBOR borrowings was due every six months, up to the maturity date. The Facility was secured by substantially all of the Predecessor’s property at the Las Vegas site. The Facility contained certain covenants including, among other things, financial covenants, limitations on the Predecessor from disposing of capital stock, entering into mergers and certain acquisitions, incurring liens or indebtedness, issuing dividends on stock and entering into transactions with affiliates. The borrowings under the Facility were repaid in connection with the Merger.

F-13

5. INCOME TAXES

The following table provides an analysis of the Predecessor’s income tax benefit (in thousands):

	February 1,			December 31,
	January 1 to
	2007			2006
	February 1,
Current	$	0		$	120
	2007
Deferred (federal)		(1,521	)		1,545
Current	$	0
Income tax (benefit) expense	$	(1,521	)	$	1,665
Deferred (federal)		(1,521	)
Income tax benefit	$	(1,521	)

The Predecessor made certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occurred in the calculation of certain tax assets and liabilities, which arose from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

The Predecessor assessed the likelihood that it would be able to recover its deferred tax assets. It considered all available evidence, both positive and negative, including historical levels of income, expectations and risk associated with estimates of future taxable income and ongoing and prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If recovery was not likely, the Predecessor recorded a valuation allowance against the deferred tax assets that it estimated would not ultimately be recoverable.

Income taxes differed from the amount computed at the federal income tax statutory rate as a result of the following:

	December 31,			December 31,
	January 1 to February 1,
	2007			~~2006~~
Income tax expense (benefit) at the statutory rate		(34.0	)%		34.0	%
Income tax benefit at the statutory rate		(34.0	)%
Nondeductible meals and entertainment		0.1			~~0.3~~
Tax credits		(0.3	)		~~(4.5~~	)
Transaction costs		0.1			~~9.9~~
Other, net		—			(0.9	)
Effective tax rate		(34.1	)%
Effective tax rate		(34.1	)%		38.8	%

The Predecessor adopted the provisions of FASB ASC 740-10 (FIN 48 )on January 1, 2007. There was no effect on the Predecessor’s financial condition or results of operations as a result of implementing FASB ASC 740-10 (FIN 48). The Predecessor did not accrue interest or penalties associated with any unrecognized tax benefits.

F-1411

6. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Predecessor leased office space and equipment under operating leases expiring through 2009. These operating leases were terminated with the Merger.

Pursuant to the 510 Development Sublease, the Predecessor paid $20,000 a month for this lease, which was scheduled to expire on December 31, 2009. This sublease was terminated with the Merger.

2007	$	240
2008		240
2009		240
2010		—
2011		—
Thereafter		—
Total future minimum rental payments	$	720

Total rental expense was approximately $38,000 ~~and $426,000~~ during the period from January 1, 2007 to February 1, 2007 ~~and for the year ended December 31~~, ~~2006, respectively,~~ and is included in general and administrative expenses in the accompanying statement ~~statements~~ of operations.

Self-Insurance

The Predecessor was self-insured for workers’ compensation claims for an annual stop-loss of up to $350,000 per claim. Management has established reserves it considers adequate to cover estimated future payments on claims incurred by the Predecessor.

The Predecessor had a partial self-insurance plan for general liability claims for an annual stop-loss of up to $100,000 per claim.

Legal and Regulatory Proceedings

~~Between~~The ~~March 2006~~Company ~~and~~was ~~February 2007,~~named ~~four~~as ~~lawsuits~~a ~~were~~defendant ~~filed~~ in ~~Nevada~~two ~~state~~lawsuits, ~~courts~~Matix, ~~and~~LLC, ~~one in~~et ~~federal~~al. ~~district~~v. ~~court~~Peter inMorton, ~~Nevada~~et al., byCase ~~brokers~~No. A518414, ~~investors~~and Stealth Holdings, ~~and~~LLC ~~prospective~~v. ~~purchasers~~Christopher ~~associated with~~Milam, ~~the~~et ~~formerly~~al., ~~proposed~~Case ~~condominium~~No. A527202, which ~~development~~were onconsolidated in the ~~real~~Eighth ~~property~~Judicial ~~adjacent~~District toCourt of the ~~Hard~~State ~~Rock~~of Nevada. These Oflawsuits ~~these~~stemmed ~~five~~from ~~lawsuits,~~the ~~one~~cancellation ~~names~~of the ~~Company~~formerly asproposed acondominium ~~defendant,~~development ~~and~~on ~~four~~the ~~name~~real property ~~subsidiaries~~adjacent ofto the ~~Company~~ asHard ~~defendants~~Rock. The plaintiffs inasserted ~~the~~that ~~suit~~they ~~brought~~were byinvestors ~~the~~who ~~prospective purchasers decided to~~invested ~~dismiss~~in ~~their~~entities ~~action~~controlled ~~(without~~by ~~prejudice)~~Christopher ~~after~~Milam, ~~the~~which ~~Company~~had ~~successfully~~contracted ~~compelled~~with ~~them~~entities toowned and/or ~~participate~~controlled inby anPeter ~~arbitration,~~Morton ~~and~~for the ~~parties~~construction ~~have~~and ~~reached~~ownership ~~settlements~~of in the ~~two~~proposed ~~suits brought by~~condominium ~~brokers~~development. ~~The~~Following ~~allegations~~cancellation inof ~~these~~the ~~five~~proposed ~~lawsuits~~condominium ~~are primarily~~development, ~~though~~the ~~not~~plaintiffs ~~entirely~~sued, ~~directed~~ ~~towards~~claiming ~~Peter~~that Athey were entitled to recovery of their investments. ~~Morton~~As ~~and~~their ~~entities~~claims ~~under~~related ~~his~~to ~~ownership~~the Company, orthe ~~control~~plaintiffs alleged, ~~rather~~inter ~~than~~alia, that the Company oraided ~~its affiliates.~~and ~~The~~abetted ~~relief~~Mr. Morton’s commission ~~sought~~of infraud, ~~these~~and ~~five~~that ~~proceedings~~the ~~are~~Company ~~monetary~~was ~~damages~~unjustly ~~and~~enriched ~~equitable~~by ~~relief~~plaintiffs’ investments. ~~Peter A~~Mr. Morton ~~has~~ agreed to indemnify the Company and its affiliates against all costs associated ~~with~~ with these lawsuits, including both legal and defense fees and any ultimate judgment against the ~~Company~~ Company or its affiliates, under the terms set forth in the ~~contract~~contracts under which the Company ~~purchased~~ ~~the~~acquired the Hard Rock and related assets. ~~Accordingly~~The trial of these consolidated lawsuits began in September 2009. In October 2009, weat dothe ~~not~~close ~~believe~~of ~~that~~the plaintiffs’ direct case, the ~~course~~judge orgranted ~~outcome~~the ofdefendant’s ~~these~~motion ~~lawsuits~~to ~~will~~dismiss ~~have~~the aCompany ~~material~~and ~~adverse~~its ~~effect~~affiliates onas ~~our~~defendants. ~~business~~Subsequently, orthe ~~results~~jury returned a verdict in favor of ~~operations~~the remaining defendants on all outstanding issues.

The Predecessor was a defendant in various other lawsuits relating to routine matters incidental to the Predecessor’s business.

Management provided an accrual for estimated losses that may occur and did not believe that the outcome of any pending claims or litigation, individually or in the aggregate, would have a material adverse effect on the Predecessor’s financial position, results of operations or liquidity beyond the amounts recorded ~~in the accompanying balance sheet as of February 1, 2007~~.

F-1512

7. EMPLOYEE BENEFIT PLANS

The Predecessor maintained a discretionary cash incentive bonus plan available to eligible employees, based upon individual and company-wide goals that were established by management and the board of directors of the Predecessor on an annual basis.

In addition, the Predecessor established a non-discretionary deferred compensation plan in December 1999 for certain of its executives whereby an amount equal to their base salary at the time they became covered by the plan vested to them as deferred compensation at a rate of 25% annually over a four-year period. Amounts vested were required to be adjusted annually on a compound basis at a rate equal to the change in the Predecessor’s earnings before interest, taxes, depreciation and amortization; however, during the initial four-year period compound adjustments may not have resulted in a net reduction in vested benefits. This plan was terminated with the Merger.

The Predecessor maintained a 401(k) profit sharing plan whereby substantially all employees over the age of 21 who had completed one year of continuous employment and 1,000 hours of service were eligible for the plan. Such employees joining the plan could contribute, through salary deductions, no less than 1% nor greater than 20% of their annual compensation. The Predecessor, at its discretion, was required to match 50% of the first 6% of compensation contributed by employees. During the period from January 1, 2007 to February 1, 2007 ~~and for the year ended December 31~~, ~~2006,~~ the Predecessor recorded approximately $81,000 ~~and $736~~,~~00,~~ ~~respectively,~~ for its portion of plan contributions, which were included in the accompanying ~~statements~~ statement of operations.

The Predecessor’s deferred bonus plan, which started in 2004, was a nonqualified deferred compensation program that provided benefits payable to directors, officers and certain key employees or their designated beneficiaries at specified future dates upon retirement or death (the ” “Deferred Bonus Plan ”). The participants were covered by life insurance policies with the Predecessor designated as the beneficiary. ~~Amounts~~The amount charged to expense relating to this program ~~for~~ for the period from January 1, 2007 to February 1, 2007 ~~and~~was ~~for the year ended December 31, 2006 were~~ $0.2 million ~~and $1~~.~~0 million,~~ ~~respectively.~~This ~~Amounts included in “~~Deferred ~~Compensation” in the accompanying consolidated balance sheets at February 1, 2007 that relate to the Deferred~~ Bonus Plan were $2.0 million. Included in “Other Assets” at February 1, 2007 related to the Deferred Bonus Plan were life insurance policies with cash surrender values of $1.4 million. This Deferred Bonus Plan was terminated with the Merger.

During the period from January 1, 2007 to February 1, 2007 ~~and for the year ended December 31~~, ~~2006,~~ the Predecessor recorded approximately $290,000 ~~and $2~~,~~688,000,~~ ~~respectively,~~ for these bonuses and deferred compensation agreements, in the accompanying statement ~~statements~~ of operations.

F-1613

Report of Independent Registered Public Accounting Firm

~~The~~ Board of Directors and Members of Hard Rock Hotel Holdings, LLC Las Vegas, Nevada

We have audited the accompanying consolidated balance sheets of Hard Rock Hotel Holdings, LLC as of December 31, ~~2008~~2009 and ~~2007~~2008 and the related consolidated statements of operations and comprehensive loss, members’ equity (deficit), and cash flows for each of the ~~year~~two ~~ended~~years in the period ended December 31, ~~2008~~2009 and for the period from February 2, 2007 to December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall ~~financial~~presentation ~~statement~~of ~~presentation~~the financial statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hard Rock Hotel Holdings, LLC at December 31, ~~2008~~2009 and ~~2007~~2008, and the results of its operations and its cash flows for each of the ~~year~~two years in the period ended December 31, ~~2008~~2009 and for the period from February 2, 2007 to December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

~~BDO~~Las ~~Seidman~~Vegas, ~~LLP~~Nevada March 12, 2010

~~Las Vegas, Nevada~~F-14

March 12, 2009

F-17

HARD ROCK HOTEL HOLDINGS, LLC

CONSOLIDATED BALANCE ~~SHEET~~SHEETS

(in thousands)

	December 31,			December 31,
	2008			2007
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	1012,~~148~~277		$	1410,~~157~~148
Accounts receivable, net		1211,~~576~~259			812,~~475~~576
Inventories		23,~~950~~062			2,~~911~~950
Prepaid expenses and other current assets		23,~~986~~631			32,~~641~~986
Asset held for sale		~~95,160~~—			95,160
Related party receivable		~~278~~2			~~562~~278
Restricted cash		~~178~~66,~~739~~349			55178,~~813~~739
Total current assets		~~302~~96,~~8374~~580			~~180~~302,~~719~~837
Property and equipment, net of accumulated depreciation and amortization		~~784~~1,~~127~~151,839			~~515~~784,~~923~~127
Goodwill		—			139,108
Intangible assets, net		49,007			53,847
Other intangible assets, net		53,847			71,300
Deferred financing costs, net		3,656			22,037
Deferred financing costs, net		22,037			35,501
Interest rate caps, at fair value		—			106
Interest rate caps, at fair value		106			11
TOTAL ASSETS	$	1,301,082		$	1,162,954
TOTAL ASSETS	$	1,162,954		$	942,562
LIABILITIES AND MEMBERS’ DEFICIT
LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	69,~~291~~954		$	46,~~203~~291
Construction related payable		5951,~~898~~905			—59,898
Related party payables		36,~~401~~010			~~542~~3,401
Accrued expenses		1027,~~286~~774			1210,~~040~~286
Interest payable		32,~~926~~585			43,~~572~~926
Current portion of long-term debt		50,000			110,000
Short Term Deferred tax liability		1,739			—
Total current liabilities		133,802			131,357
Current portion of long-term debt		—			50,000
Deferred tax liability		56,853			15,266
Total current liabilities		99,967			133,802
Long Term Debt		1,033,813			683,452
Long Term Deferred tax liability		55,114			56,853
Total long-term liabilities		1,090,666			698,718
Long Term Debt		1,210,874			1,033,813
Total liabilities		1,224,468			830,075
Total long-term liabilities		1,265,988			1,090,666
Total liabilities		1,365,955			1,224,468
Commitments and Contingencies (see Note 10)
Members’ equity (deficit):
Members’ deficit:
Paid-in capital		~~306~~500,~~596~~218			~~181~~306,~~127~~596
Accumulated other comprehensive loss		(172,~~194~~311	)		(2617,194	)
Accumulated deficit		(~~350~~562,~~916~~780	)		(68350,~~614~~916	)
Total members’ equity (deficit)		(61,514	)		112,487
Total members’ deficit		(64,873	)		(61,514	)
TOTAL LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)	$	1,162,954		$	942,562
TOTAL LIABILITIES AND MEMBERS’ DEFICIT	$	1,301,082		$	1,162,954

The accompanying notes are an integral part of these audited consolidated financial statements.

F-1815

HARD ROCK HOTEL HOLDINGS, LLC

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands)

				~~Period from~~			Period from
	Year Ended			~~February~~Year ~~2, 2007 to~~Ended			February 2, 2007
	December 31,			December 31,			December 31,
	2008			2007
	2009			2008			2007
Revenues:
Casino	$	5343,~~282~~527		$	5153,~~501~~282		$	51,501
Lodging		3935,~~008~~063			4239,~~220~~008			42,220
Food and beverage		7074,~~119~~555			70,~~202~~119			70,202
Retail		65,~~146~~019			6,~~358~~146			6,358
Other income		1527,~~741~~534			1715,~~896~~741			17,896
Gross revenues		~~184~~185,~~296~~698			~~188~~184,~~177~~296			188,177
Less: promotional allowances		(1924,~~951~~144	)		(1419,~~739~~951	)		(14,739	)
Net revenues		~~164~~161,~~345~~554			~~173~~164,~~438~~345			173,438
Costs and expenses:
Casino		3742,~~694~~421			3337,~~671~~694			33,671
Lodging		7,~~901~~293			87,~~903~~901			8,903
Food and beverage		37,~~809~~818			3537,~~897~~809			35,897
Retail		23,~~896~~014			32,~~092~~896			3,092
Other		1121,~~668~~686			1511,~~236~~668			15,236
Marketing		54,~~044~~830			5,~~032~~044			5,032
Management fee—related party		7,009			7,837
Fees and expense reimbursements — related party		7,046			7,009			7,837
General and administrative		3928,~~170~~305			2639,~~743~~170			26,743
Depreciation and amortization		23,~~454~~062			1723,~~413~~454			17,413
Loss on disposal of assets		2597			~~1,725~~25			1,725
Pre-opening		59,~~933~~886			15,~~167~~933			1,167
Acquisition and transition related costs		—			~~2,358~~—			2,358
Impairment of goodwill and license rights		191,349			—
Impairment of land, goodwill and license rights		108,720			191,349			—
Total costs and expenses		~~369~~294,~~952~~178			~~159~~369,~~074~~952			159,074
Income (loss) from operations		(~~205~~132,~~607~~624	)		14(205,~~364~~607	)		14,364
Other income (expense):
Interest income		~~1,542~~329			~~698~~1,542			698
Interest expense, net		(78,822	)		(85,953	)
Interest expense, net of capitalized interest		(79,570	)		(78,822	)		(85,953	)
Other expenses, net		(7779,~~280~~241	)		(8577,~~255~~280	)		(85,255	)
Loss before income tax benefit		(~~282~~211,~~887~~865	)		(70282,~~891~~887	)		(70,891	)
Income tax benefit		~~(585~~—	)		(~~2,277~~585	)		(2,277	)
Net loss		(~~282~~211,~~302~~865	)		(68282,~~614~~302	)		(68,614	)
Other comprehensive loss:
Other comprehensive gain (loss):
Unrealized (loss) on cash flow hedges, net of tax		(17,168	)		(26	)
Interest rate cap market value adjustment, net of tax		14,883			(17,168	)		(26	)
Comprehensive loss	$	(~~299~~196,~~470~~982	)	$	(68299,~~640~~470	)	$	(68,640	)

The accompanying notes are an integral part of these audited consolidated financial statements.

F-1916

HARD ROCK HOTEL HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY (DEFICIT)

(in thousands)

						Other			Total
	Paid-in		Accumulated			Comprehensive			Members’
	Capital		Deficit			Loss			Equity
Balances at February 2, 2007	$	—	$	—		$	—		$	—
Contributions		181,127		—			—			181,127
Net loss		—		(68,614	)		—			(68,614	)
Unrealized (loss) on cash flow hedges, net of tax		—		—			(26	)		(26	)
Balances at December 31, 2007		181,127		(68,614	)		(26	)		112,487
Contributions		125,469		—			—			125,469
Net loss		—		(282,302	)		—			(282,302	)
Unrealized (loss) on cash flow hedges, net of tax		—		—			(17,168	)		(17,168	)
Balance at December 31, 2008	$	306,596	$	(350,916	)	$	(17,194	)	$	(61,514	)
Contributions		193,622		—			—			193,622
Net loss		—		(211,865	)		—			(211,865	)
Interest rate cap market value adjustment, net of tax		—		—			14,883			14,883
Balances at December 31, 2009	$	500,218	$	(562,780	)	$	(2,311	)	$	(64,873	)

The accompanying notes are an integral part of these consolidated financial statements.

F-2017

HARD ROCK HOTEL HOLDINGS, LLC

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

				~~Period~~			Period
	Year Ended			~~February~~Year ~~2, 2007 to~~Ended			February 2, 2007 to
	December 31,			December 31,			December 31,
	2008			2007
	2009			2008			2007
Cash flows from operating activities:
Net loss	$	(~~282~~211,~~302~~865	)	$	(68282,~~614~~302	)	$	(68,614	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		1618,~~068~~221			1116,~~313~~068			11,313
Provision for losses on accounts receivable		23,~~066~~693			~~(137~~2,066	)		(137	)
Amortization of loan fees and costs		1920,~~270~~563			1419,~~678~~270			14,678
Impairment of goodwill and license rights		191,349			—
Impairment of land, goodwill and license		108,720			191,349			—
Amortization of intangibles		74,~~386~~841			67,~~100~~386			6,100
Change in value of interest rate caps included in net loss		2,545			2,703
Change in value of interest rate caps net of premium amortization included in net loss		14,989			2,545			2,703
Loss on sale of assets		2597			~~1,724~~25			1,724
Increase in deferred income taxes		(585	)		(2,277	)
Deferred income taxes		—			(585	)		(2,277	)
(Increase) decrease in assets:
Accounts receivable		(62,~~167~~376	)		(46,~~443~~167	)		(4,443	)
Inventories		(39112	)		66(39	)		66
Prepaid expenses		~~655~~(645	)		~~(349~~655	)		(349	)
Related party receivable		~~284~~276			~~(562~~284	)		(562	)
(Increase) decrease in liabilities:
Increase (decrease) in liabilities:
Accounts payable		23,~~088~~663			~~(538~~2,088	)		(538	)
Related party payable		2,~~859~~609			~~542~~2,859			542
Accrued interest payable		(~~646~~1,341	)		~~4,572~~(646	)		4,572
Other accrued liabilities		(117,~~754~~488	)		(81,~~459~~754	)		(8,459	)
Net cash used in operating activities		(4621,~~898~~179	)		(4346,~~681~~898	)		(43,681	)
Cash flow from investing activities:
Purchases of property, equipment and construction in progress		(284,297	)		(31,227	)
Purchases of property and equipment		(399,591	)		(284,297	)		(31,227	)
Purchase of the Hard Rock Hotel & Casino, net of cash acquired		—			~~(719,546~~—	)		(719,546	)
Proceeds from sale of operating assets		—			4—			4
Construction payables		59(7,~~896~~993	)		—59,896			—
Restricted cash		~~(122~~112,~~926~~390	)		(55122,~~813~~926	)		(55,813	)
Other assets		—			~~(518~~—	)		(518	)
Net cash used in investing activities		(~~347~~295,~~327~~193	)		(~~807~~347,~~100~~327	)		(807,100	)
Cash flows from financing activities:
Net proceeds from borrowings		~~240~~123,~~361~~211			33240,~~452~~361			33,452
Net proceeds from intercompany land acquisition borrowings		503,~~000~~850			—50,000			—
Proceeds from initial loan on purchase		—			~~760,000~~—			760,000
Capital investment		~~125~~193,~~469~~622			~~122~~125,~~949~~469			122,949
Purchase of interest rate caps		~~(19,808~~—	)		(119,~~283~~808	)		(1,283	)
Financing costs on debt		(52,~~806~~182	)		(505,~~180~~806	)		(50,180	)
Net cash provided by financing activities		~~390~~318,~~216~~501			~~864~~390,~~938~~216			864,938
Net increase (decrease) in cash and cash equivalents		(42,~~009~~129	)		14(4,~~157~~009	)		14,157
Cash and cash equivalents, beginning of period		1410,~~157~~148			—14,157			—
Cash and cash equivalents, end of period	$	1012,~~148~~277		$	1410,~~157~~148		$	14,157
Supplemental cash flow information:
Cash paid during the period for interest, net of amounts capitalized	$	6465,~~103~~752		$	6664,~~945~~103		$	66,945
Cash paid during the period for income taxes	$	—		$	—		$	—
Supplemental schedule of non-cash investing and financing activities:
Fair value of assets acquired	$	—		$	~~832,883~~—		$	832,883
Purchase price contributed by members		—			~~(58,178~~—	)		(58,178	)
Cash paid		—			~~(730,521~~—	)		(730,521	)
Liabilities assumed	$	—		$	~~44,184~~—		$	44,184
Capitalized interest	$	820,~~473~~393		$	~~806~~8,473		$	806
Changes in construction payables	$	59,896		$	—
Change in construction payables	$	7,993		$	59,896		$	—

The accompanying notes are an integral part of these audited consolidated financial statements.

F-2118

HARD ROCK HOTEL HOLDINGS, LLC AND SUBSIDIARY ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. COMPANY STRUCTURE AND SIGNIFICANT ACCOUNTING POLICIES

Basis Of Presentation and Nature of Business

Hard Rock Hotel Holdings, LLC (the “Company”) is a Delaware limited liability company that was formed on January 16, 2007 by DLJ Merchant Banking Partners (“DLJMB ”) and Morgans Hotel Group Co. (“Morgans”) to acquire Hard Rock Hotel, Inc. (“HRHI ” or the “Predecessor”), a Nevada ~~corporation~~ corporation incorporated on August 30, 1993, and certain related assets. The Predecessor owns the Hard Rock Hotel & Casino in Las Vegas (the “Hard Rock”).

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The Company has evaluated all subsequent events through the date these financial statements were issued.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10, Consolidation (prior authoritative literature: FASB Interpretation No. (“FIN”) 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 , as amended) (“FASB ASC 810-10 (FIN 46R)”), requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Pursuant to FASB ASC 810-10 (FIN 46R), the Company consolidates the gaming operations in the Company’s financial statements.

Prior to March 1, 2008, Golden HRC, LLC was the third-party operator of all gaming operations at the Hard Rock. The Company did not own any legal interest in Golden HRC, LLC. The Company determined that Golden HRC, LLC was a variable interest entity and that the Company was the primary beneficiary of the gaming operations because the Company was ultimately responsible for a majority of the operations’ losses and was entitled to a majority of the operations’ residual returns. As a result, the gaming operations are consolidated in the Company’s financial statements. On March 1, 2008, the Company assumed the gaming operations at the Hard Rock as it had satisfied the conditions necessary to obtain its gaming license, and Golden HRC, LLC ceased to be the operator of gaming operations on such date.

The Company’s operations are conducted in the destination resort segment, which includes casino, lodging, food and beverage, retail and other related operations. Because of the integrated nature of these operations, the Company is considered to have one operating segment.

The Acquisition

On May 11, 2006, Morgans, MHG HR Acquisition Corp. (“Merger Sub”), the Predecessor and Peter A. Morton entered into an Agreement and Plan of Merger (as amended in January 2007, the “Merger Agreement ”) pursuant to which Morgans would acquire the Hard Rock through the merger of Merger Sub with and into the Predecessor (the “Merger”). Additionally, Morgans Group LLC, an affiliate of Morgans (“Morgans LLC”), entered into three purchase and sale agreements (the “Purchase and Sale Agreements”) with affiliates of Mr. Morton to acquire an approximately 23-acre parcel of land adjacent to the Hard Rock, the parcel of land on which the Hard Rock Cafe restaurant in Las Vegas is situated and plans, specifications and other documents related to a former proposal for a condominium development on the property adjacent to the Hard Rock. The transactions contemplated by the Merger Agreement and the Purchase and Sale Agreements are collectively referred to as the “ “Acquisition ” and the agreements are collectively referred to as the “Acquisition Agreements.”

The Company accounts for business combinations in accordance with FASB ASC 805-10, Business Combinations (prior authoritative literature: FASB Statement of Financial Accounting Standards (“SFAS ”) No. 141, ~~Accounting for~~ Business Combinations, (“issued December 2007, which replaced SFAS No. 141”) and ~~Statement~~FASB ofASC ~~Financial Accounting Standards No. 142~~350-10, ~~Accounting~~Intangible ~~for~~— Goodwill and Other, ~~Intangible Assets~~ (“ Prior authoritative literature: SFAS No. 142”, Goodwill and Other Intangible Assets ), and related interpretations. ~~SFAS~~FASB ASC 805-10 (SFAS No. 141 ) requires that the Company record the net assets of acquired businesses at fair market value, and the Company must make estimates and assumptions to determine the fair market value of these acquired assets and assumed liabilities.

F-19

The determination of the fair value of acquired assets and assumed liabilities in the Hard Rock acquisition requires the Company to make certain fair value estimates, primarily related to land, property and equipment and intangible assets. These estimates require significant judgments and include a variety of assumptions in determining the fair value of acquired assets and assumed liabilities, including market data, estimated future cash flows, growth rates, current replacement cost for similar capacity for certain fixed assets, market rate assumptions for contractual obligations and settlement plans for contingencies and liabilities.

The aggregate purchase price for the Acquisition was approximately $770 million. In addition, the Company incurred approximately $81 million in costs and expenses associated with the Acquisition.

F-22

On November 7, 2006, Morgans and an affiliate of DLJMB entered into a Contribution Agreement (which was amended and restated in December 2006) under which they agreed to form a joint venture in connection with the Acquisition and the further development of the Hard Rock. Pursuant to the Contribution Agreement, Morgans and the affiliate of DLJMB agreed to invest one-third and two-thirds, respectively, of the equity capital required to finance the Acquisition.

Prior to the closing of the Acquisition, Morgans and its affiliates assigned the Merger Agreement to the Company and the Purchase and Sale Agreements to certain of its subsidiaries. Morgans also contributed the equity of Merger Sub to the Company.

The closing of the Acquisition occurred on February 2, 2007, which the Company refers to as the “Closing Date.” On the Closing Date, pursuant to the terms of the Acquisition Agreements:

• Merger Sub merged with and into the Predecessor, with the Predecessor continuing as the surviving corporation after the Merger. As a result of the Merger, the Predecessor became the Company’s wholly owned subsidiary. Each share of common stock of the Predecessor issued and outstanding immediately prior to the effective time of the Merger was canceled and converted into the right to receive a pro rata amount of approximately $150 million, subject to post-closing working capital and cage cash adjustments. In December 2007, Morgans, the Company, HRHI and Lily Pond Investments, Inc., the shareholder representative under the Merger Agreement, agreed upon the final working capital and cage cash adjustments under the Merger Agreement. Pursuant to the final adjustments, HRHI has received $2.3 million out of the escrow established under the Merger Agreement for such adjustments. On the Closing Date, Morgans also deposited $15 million into an indemnification escrow fund to be disbursed in accordance with the Merger Agreement and the applicable escrow agreement, with the remaining funds from the indemnification escrow fund to be released on the one-year anniversary of the Closing Date. Pursuant to the Merger Agreement, Mr. Morton also sold certain intellectual property rights to one of the Company’s indirect, wholly owned subsidiaries for approximately $69 million, including the exclusive, royalty-free and perpetual right to use and exploit the “Hard Rock Hotel” and the “Hard Rock Casino” registered trademarks in connection with the Company’s operations in Las Vegas, and in connection with hotel/casino operations and casino operations in certain other locations. • One of the Company’s subsidiaries acquired for $259 million the approximately 23-acre parcel of land adjacent to the Hard Rock. At the time of the execution of the Acquisition Agreements, Morgans LLC deposited $18.5 million into an escrow account. On the Closing Date, $3.5 million of the deposit was released and credited towards the purchase price and the remaining $15 million of the deposit was retained as part of an indemnification escrow fund to be disbursed in accordance with the applicable Purchase and Sale Agreement and escrow agreement, with the remaining funds from the indemnification escrow fund to be released on the 18-month anniversary of the Closing Date. • One of the Company’s subsidiaries acquired for $20 million the parcel of land on which the Hard Rock Cafe restaurant in Las Vegas is situated. In connection with the transaction, the Company also acquired the lease with the operator of the Hard Rock Cafe. At the time of the execution of the Acquisition Agreements, Morgans LLC deposited $1.5 million in an escrow account, which was released to the seller on the Closing Date. • One of the Company’s subsidiaries acquired for $1 million plans, specifications and other documents related to the proposal for a condominium development on the real property adjacent to the Hard Rock.

On• One of the ~~Closing~~Company’s ~~Date,~~subsidiaries ~~pursuant~~acquired tofor ~~the~~$259 ~~Contribution~~million ~~Agreement,~~the ~~Morgans~~approximately ~~and~~23-acre ~~Morgans~~parcel ~~LLC~~of ~~were deemed~~land adjacent to ~~have~~the ~~contributed~~Hard toRock. At the ~~Company~~time ~~one-third~~of the execution of the ~~equity~~Acquisition Agreements, orMorgans ~~approximately~~LLC deposited $5718.5 million~~, to~~ ~~fund~~into aan ~~portion~~escrow ofaccount. ~~the~~On ~~purchase price for~~ the ~~Acquisition~~Closing byDate, ~~virtue~~$3.5 ofmillion ~~the application~~ of the ~~escrow~~ ~~deposits~~deposit ~~under~~was ~~the~~released ~~Acquisition~~and ~~Agreements~~credited totowards the purchase price ~~for~~and the ~~Acquisition~~remaining ~~and~~$15 ~~by virtue~~million of the ~~credit~~deposit ~~given~~was ~~for~~retained ~~the~~as ~~expenses~~part ~~Morgans~~of ~~LLC~~an ~~incurred~~indemnification inescrow ~~connection~~fund ~~with~~to ~~the Acquisition.~~be ~~Affiliates~~disbursed ofin ~~DLJMB~~accordance ~~contributed~~with to the ~~Company~~applicable ~~two-thirds of~~Purchase ~~the~~and ~~equity,~~Sale orAgreement ~~approximately~~and ~~$115 million~~escrow agreement, towith ~~fund~~ the remaining ~~amount~~funds offrom the ~~equity contribution~~indemnification ~~for~~escrow ~~the~~fund ~~Acquisition.~~to Inbe ~~consideration~~released ~~for~~on ~~these contributions,~~ the ~~Company~~18-month ~~issued Class A~~anniversary ~~Membership~~of ~~Interests and Class B Membership Interests to~~ the ~~affiliates~~Closing ~~of DLJMB and Morgans and Morgans LLC~~Date.

~~F-23~~ • One of the Company’s subsidiaries acquired for $20 million the parcel of land on which the Hard Rock Cafe restaurant in Las Vegas is situated. In connection with the transaction, the Company also acquired the lease with the operator of the Hard Rock Cafe. At the time of the execution of the Acquisition Agreements, Morgans LLC deposited $1.5 million in an escrow account, which was released to the seller on the Closing Date.

•

One of the Company’s subsidiaries acquired for $1 million plans, specifications and other documents related to the proposal for a condominium development on the real property adjacent to the Hard Rock.

F-20

On the Closing Date, pursuant to the Contribution Agreement, Morgans and Morgans LLC were deemed to have contributed to the Company one-third of the equity, or approximately $57.5 million, to fund a portion of the purchase price for the Acquisition by virtue of the application of the escrow deposits under the Acquisition Agreements to the purchase price for the Acquisition and by virtue of the credit given for the expenses Morgans LLC incurred in connection with the Acquisition. Affiliates of DLJMB contributed to the Company two-thirds of the equity, or approximately $115 million, to fund the remaining amount of the equity contribution for the Acquisition. In consideration for these contributions, the Company issued Class A Membership Interests and Class B Membership Interests to the affiliates of DLJMB and Morgans and Morgans LLC.

The remainder of the approximately $770 million purchase price and $81 million in costs and expenses associated with the Acquisition, was financed with mortgage financing under a real estate financing facility (the “CMBS Facility”) entered into by the Company’s subsidiaries. Subject to the satisfaction of certain conditions, the CMBS facility also provides funds to be used for future project expansion and construction of the Hard Rock, with the total amount available under the CMBS facility not to exceed $1.395 billion (including the $35 million referenced below). In November 2007, certain of the Company’s subsidiaries refinanced $350 million of the amount borrowed under the financing from the proceeds of three mezzanine loans made to the Company’s mezzanine subsidiaries, and the lender increased the maximum amount of the loan that may be funded in the future by $35 million.

Also on the Closing Date, DLJ MB IV HRH, LLC (“DLJMB IV HRH”), DLJ Merchant Banking Partners IV, L.P. (“DLJMB Partners”), DLJMB HRH VoteCo, LLC (“DLJMB VoteCo”), Morgans and Morgans LLC entered into an Amended and Restated Limited Liability Company Agreement (as amended from time to time, the “JV Agreement”), which governs their relationship as members of the Company. DLJMB IV HRH, DLJMB Partners and DLJMB VoteCo are referred to as the “DLJMB Parties” and Morgans and Morgans LLC are referred to as the “Morgans Parties.”

The purchase price consists of the following (in thousands):


Hard Rock Hotel & Casino	$	419,431
Development parcel		258,730
Cafe parcel		19,976
Plans, specifications and other documents related to a proposal for a condominium development project		1,000
Trademark license		69,000
Merger costs		20,562

Total purchase price	$	788,699

The table below lists the estimated fair values of the assets acquired and liabilities assumed recorded on the acquisition date:


	February 2,
	2007
	(in thousands)
Current assets, including $11.0 million of cash	$	23,479
Property, plant and equipment		592,896
Intangible assets		77,400
Goodwill		139,108

Total assets acquired	$	832,883

Total liabilities assumed		(44,184	)

Net assets acquired	$	788,699

The intangible assets that the Company acquired are comprised of Hard Rock licensing rights estimated at approximately $44.9 million, trademarks estimated at approximately $4.5 million, customer lists estimated at approximately $21.1 million and host non-compete agreements estimated at approximately $4.9 million. The licensing rights are not subject to amortization as they have an indefinite useful life. The trademarks, customer lists and host non-compete agreements are being ratably amortized over a two to ten year period. The $140 million estimated goodwill balance arising from the transaction is not subject to amortization. As the acquisition of the Company is treated as a tax-free purchase, the estimated goodwill balance and the other intangible assets described above are not expected to be amortized for tax purposes.

F-2421

During the year ended December 31, 2008 in conjunction with preparing ~~our~~its 2007 income tax returns, wethe Company determined that certain deferred tax liabilities relating to book to tax basis differences in certain assets wethe Company acquired were not reflected on ~~our~~its balance sheet. As a result, we the Company recorded an adjustment during the quarter ended September 30, 2008 to reflect such deferred tax liabilities. The net effect of the adjustment resulted in an increase to both deferred tax liabilities and goodwill of $42.2 million. The adjustment had no material effect on the ~~our~~Company’s income statement for the year ended December 31, 2008. The adjustment was not considered material to ~~our~~ the Company’s historical financial statements and therefore restatement was not considered necessary.

The changes in goodwill are as follows (in thousands):


Goodwill acquired	$	139,108
Adjustment for deferred taxes		42,200

Goodwill acquired, as adjusted		181,308
Impairment during 2008		(181,308	)

Balance as of December 31, 2009	$	0

The pro forma consolidated results of operations, as if the Acquisition had occurred on January 1, 2007, are as follows (in thousands):


	Year Ended
	December 31,
	2007
Pro Forma
Net revenues	$	186,456
Net loss		(71,573	)

The Company reported $2.4 million of indirect, general and incremental expenses related to the Acquisition. These expenses are included in merger, acquisition and transition related expenses on the accompanying consolidated statements of operations for the period from February 2, 2007 to December 31, 2007.

Also on the Closing Date, DLJ MB IV HRH, LLC, DLJ Merchant Banking Partners IV, L.P., DLJMB HRH VoteCo, LLC, Morgans and Morgans LLC entered into an Amended and Restated Limited Liability Company Agreement, which governs their relationship as members of the Company.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and in banks and interest-bearing deposits with maturities at the date of purchase of three months or less. Cash equivalents are carried at cost which approximates market.

Restricted Cash

The Company is obligated to maintain reserve funds for property taxes, insurance and capital expenditures at the Hard Rock as determined pursuant to the CMBS facility. These capital expenditures relate primarily to initial renovations at the Hard Rock and the periodic replacement or refurbishment of furniture, fixtures and equipment. On the Closing Date, the Company deposited $35 million into an initial renovation reserve fund to be held as additional collateral for the CMBS loan for the payment of initial renovations to the Hard Rock. The CMBS lenders will make disbursements from the initial renovation reserve fund for initial renovation costs incurred by usthe Company upon ~~our~~its satisfaction of conditions to disbursement under the CMBS facility. In addition, the CMBS facility requires the Company to deposit funds into a replacements and refurbishments reserve fund at amounts equal to three percent of the Hard Rock’s gross revenues and requires that the funds to be set aside in restricted cash. As of December 31, 2009, 2008 and ~~December 31~~2007, ~~2007~~ an aggregate of $0.0 million, $5.5 million and $137.97 million and $372.74 million, $1.9 million and $1.2 million were available in restricted cash reserves for future capital expenditures in the initial renovation reserve fund and replacements and refurbishments reserve fund, respectively. As of December 31, 2009, the Company completed all of the initial renovations required under the CMBS facility and the initial renovation reserve account was closed. Additionally, $2.3 million, $1.3 million and $0.78 million and $1.6 million, $0.8 7 million and $67,460 were available in the insurance and property tax reserve funds, respectively.

In addition, the Company also is obligated to maintain a reserve fund for interest expense as determined pursuant to the CMBS facility. On the Closing Date, wethe Company deposited $45 million into an interest reserve fund to be held as additional collateral under the CMBS facility for the ~~payment~~ payment of interest expense shortfalls and on the closing date of the 2009 Loan Restructuring described in Note 8 the Company deposited an additional $1.0 million into the interest reserve fund . The CMBS lenders will make disbursements from the interest ~~reserve~~ reserve fund upon the Company’s satisfaction of conditions to disbursement under the CMBS facility. As of December 31, 2009, 2008 and ~~December 31~~2007, ~~2007~~$11.4, $14.5 million and $16.1 million was available in restricted cash reserves in the interest reserve fund, respectively.

F-2522

~~Pursuant~~At to the ~~CMBS~~applicable ~~facility~~lenders option, the unfunded portion of the construction loan asunder of the ~~second~~CMBS ~~anniversary~~facility ~~of the Closing Date~~ may be advanced and deposited with ~~lender~~the lenders in an account ~~which shall be~~ referred to as the “ Construction Loan Reserve Account .” ~~Additionally,~~The portions of the construction loan may be advanced as quarterly deficiency advances from time to time, which quarterly deficiency advances shall be deposited with lender in the Construction Loan Reserve Account. Additionally, on November 9, 2007, the third mezzanine construction funds ~~were deposited with lender~~ in the Construction Loan Reserve Account. ~~The funds in the Construction Loan Reserve Account~~ shall be disbursed aswhen the Company is entitled to a construction loan advance from the construction loan. The Company may elect, at its option, to receive a disbursement from the Construction Loan Reserve Account in lieu ~~thereof~~of a construction loan advance, to the extent funds are available. Asin ofthe ~~December 31,~~Construction ~~2008~~Loan ~~and~~Reserve Account. As of December 31, ~~2007~~2009, $~~143~~35.83 million ~~and $5.9 million~~ was available in restricted cash reserves in the Construction Loan Reserve Account.

In Pursuant ~~addition~~to the 2009 Loan Restructuring described in Note 8, the Company ~~also~~ is also obligated to maintain a ~~reserve~~working capital ~~funds~~account. ~~for~~On ~~interest~~December 24, ~~expense~~2009, the Company deposited $7.0 million into the working capital ~~and~~account. In certain circumstances, excess cash flow generated by the property ~~tax~~and asexcess ~~determined~~interest reserve ~~pursuant~~deposits toare deposited into the ~~land~~working ~~acquisition~~capital ~~loan~~account, until the amounts on deposit therein equal $7.0 million. ~~The~~Upon ~~lenders~~request ~~will~~and ~~make~~provided certain conditions have been satisfied, the Company may use disbursements from the ~~interest~~working ~~and~~capital ~~property~~account ~~tax~~to ~~reserve~~pay ~~funds~~operating ~~upon~~expenses, extraordinary ~~the~~expenses, ~~Company’s~~capital ~~satisfaction~~expenses, ~~of conditions~~project tocosts, ~~disbursement~~debt ~~under~~service (but not any accrued interest on the ~~land~~mezzanine ~~acquisition~~loans ~~loan.~~under Asthe ofCMBS ~~December 31~~facility), ~~2008~~exit fees, ~~$6.9 million~~fees due in connection with any letter ~~and~~of ~~$0.6 million~~credit ~~was~~facilities ~~available~~utilized into ~~restricted~~post ~~cash~~letters ~~reserves~~of incredit ~~the~~to ~~interest~~be ~~and~~provided ~~property~~under ~~tax~~the ~~reserve~~CMBS facility or ~~funds,~~any ~~respectively~~other fees or amounts required to be paid to the lenders under the CMBS facility.

In addition, the Company also is obligated to maintain reserve funds for interest expense and property tax as determined pursuant to the land acquisition loan. The lenders will make disbursements from the interest and property tax reserve funds upon the Company’s satisfaction of conditions to disbursement under the land acquisition loan. As of December 31, 2009 and 2008, $5.0 million and $6.9 million and $1.0 million and $0.6 million was available in restricted cash reserves in the interest and property tax reserve funds, respectively. The lender under the land acquisition financing funded a portion of the interest and property tax reserves for 2009, which amounts were added to the principal balance of the land acquisition financing in connection with the 2009 Land Restructuring described in Note 8.

Concentrations of Credit Risk

Substantially all of the Company’s accounts receivable are unsecured and are due primarily from the Company’s casino and hotel patrons and convention functions. Non-performance by these parties would result in losses up to the recorded amount of the related receivables. Management does not anticipate significant non-performance and believes that they have adequately provided for uncollectible receivables in the Company’s allowance for doubtful accounts.

Accounts Receivable and Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino accounts receivable. The Company issues credit in the form of “markers” to approved casino customers following investigations of creditworthiness. Business or economic conditions or other significant events could affect the collectability of such receivables.

Inventories

Inventories are stated at the lower of cost (determined using the first-in, first-out method), or market.

Assets Held for Sale

The Company ~~intends~~intended to sell approximately 15 acres of the adjacent land not being used for ~~the~~ ~~Expansion,~~the expansion project — 11 acres held by HRHH Transferee, LLC and 4 acres held by HRHH Development, LLC. The Company ~~has~~ reflected that portion of the asset held for sale, which was represented by a letter of intent at a value of $95.2 million, which ~~represented~~was the allocated fair value of $100 million less the estimated sale costs of $4.8 million on the date of acquisition. Management determined that the current fair value for the ~~separate~~entire 15 acres ~~exceeds~~exceeded the carrying value at December 31, 2008; however, the Company was not actively marketing the parcel at December 31, 2009. Management determined that the current fair value of the entire 15 acres was less than the carrying value and during the fourth quarter recorded a write down of $108.7 million. The Company is no longer actively marketing the parcels at December 31, 2009 and therefore, the land was transferred out of assets held for sale.

F-2623

Depreciation and Amortization

Land improvements, buildings and improvements, equipment, furniture and fixtures, and memorabilia are recorded at cost. The Company capitalizes interest on funds dispersed during construction. Depreciation and amortization are computed using the straight-line method over the estimated useful lives for financial reporting purposes and accelerated methods for income tax purposes. Estimated useful lives for financial reporting purposes are as follows:

Land improvements		12-15 years
Building improvements		15 years
Buildings		4039-45 years
Equipment, furniture and fixtures		3-10 years
Memorabilia		40 years

Gains or losses arising from dispositions are included in cost and expenses in the accompanying statements of operations. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred. Substantially all property and equipment is pledged as collateral for long-term debt.

Substantially all property and equipment is pledged as collateral for long-term debt.

Goodwill

We evaluate our goodwill, intangible assets and other long-lived assets in accordance with the applications of SFAS No. 142 related to goodwill and other intangible assets and of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, related to possible impairment of or disposal of long-lived assets. For goodwill and indefinite-life intangible assets, we will review the carrying values on an annual basis and between annual dates in certain circumstances. For assets to be disposed of, we recognize the asset at the lower of carrying value or fair market value less costs of disposal, as estimated based on comparable asset sales, solicited offers, or a discounted cash flow model. For assets to be held and used, we review for impairment whenever indicators of impairment exist.

The Company completed its 2008 annual impairment tests of goodwill and indefinite-lived intangible assets as of October 31, 2008. The Income Approach, Market Approach, and Cost Approach were considered in arriving at a Fair Value estimate of the Company’s intangible assets. As a result of this analysis, the Company recognized a non-cash impairment charge of approximately $181.3 million related to goodwill and $10.0 million related to certain indefinite-lived intangible assets in the fourth quarter of 2008. The impairment charge represents all of the goodwill recognized at the time of the Hard Rock Hotel and Casino acquisition and a portion of the value of the Hard Rock license. The impairment charge resulted from factors impacted by current market conditions including: i) lower market valuation multiples for gaming assets; ii) higher discount rates resulting from turmoil in the credit and equity markets; and iii) current cash flow forecasts for the Company.

F-27

Other Intangible Assets

The Company accounts for its other intangible assets in accordance with ~~SFAS~~FASB ASC 350-10 (SFAS No. 142). In accordance with FASB ASC 350-10 (SFAS No. 142), the Company considers its licensing rights as indefinite-life intangible assets that do not require amortization. Rather, these intangible assets are tested for impairment at least annually by comparing the fair value of the recorded assets to their carrying amount. If the carrying amounts of the licensing rights exceed their fair value, an impairment loss is recognized. Once an impairment of an indefinite-life intangible asset has been recorded, it cannot be reversed.

Intangible assets that have a definite life, such as trade names and certain non-compete agreements, are amortized on a straight-line basis over their estimated useful lives or related contract. “Player” relationships are amortized on an accelerated basis over a nine-year period consistent with the expected timing of the Company’s realization of the economic benefits of such relationships. The Company reviews the carrying value of its intangible assets that have a definite-life for possible impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amount of the intangible assets that have a definite-life exceed their fair value, an impairment loss is recognized.

F-24

Impairment of Long-Lived Assets

The Company has a significant investment in long-lived property and equipment. The Company reviews the carrying value of property and equipment to be held and used for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future undiscounted cash flows of the asset. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model. For assets to be disposed of, the Company recognizes the asset at the lower of carrying value or fair market value less costs of disposal, as estimated based on comparable asset sales, solicited offers, or a discounted cash flow model.

Inherent in reviewing the carrying amounts of the above assets is the use of various estimates. First, the Company’s management must determine the usage of the asset. Impairment of an asset is more likely to be recognized where and to the extent the Company’s management decides that such asset may be disposed of or sold. Assets must be tested at the lowest level for which identifiable cash flows exist. This testing means that some assets must be grouped and the Company’s management exercises some discretion in grouping those assets. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s estimates. If its ongoing estimates of future cash flows are not met, the Company may have to record additional impairment charges in future accounting periods. The Company’s estimates of cash flows are based on the current regulatory, social and economic climates where the Company conducts its operations as well as recent operating information and budgets for its business. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting various forms of travel and access to the Company’s hotel casino.

The Company completed its 2009 annual impairment tests of land intended for sale and indefinite-lived intangible assets as of October 31, 2009. The income approach, market approach, and cost approach were considered in arriving at a fair value estimate of the Company’s intangible assets and land intended for sale. As a result of this analysis, the Company recognized a non-cash impairment charge of approximately $108.7 million related to the land intended for sale and determined indefinite-lived intangible assets were fairly valued in the fourth quarter of 2009. The impairment charge resulted from factors impacted by current market conditions including: (i) lower market valuation multiples for gaming assets; (ii) higher discount rates resulting from turmoil in the credit and equity markets; and (iii) current cash flow forecasts for the Company.

Capitalized Interest

The Company capitalizes interest costs associated with major construction projects as part of the cost of the constructed assets. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using a weighted average cost of borrowing. Capitalization of interest ceases when the project or discernible portions of the project are complete. The Company amortizes capitalized interest over the estimated useful life of the related asset. For the ~~year~~years ended December 31, 2009 and 2008, capitalized interest totaled $20.4 million and $8.5 million, respectively.

Deferred Financing Costs

Deferred financing costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense over the expected terms of the related debt agreements. As of December 31, ~~2008~~2009, total deferred financing costs net of accumulated amortization of $20.6 million were $3.7 million. As of December 31, 2008, total deferred financing costs net of accumulated amortization of $19.3 million were $22.0 million. As of December 31, 2007, total deferred financing costs net of accumulated amortization of $14.7 million were $35.5 million. Amortization of deferred financing costs included in interest expense was $20.6 million, $19.3 million and $14.7 million for the years ended December 31, 2009, 2008 and ~~December 31,~~ 2007, respectively.

Advertising Costs

The Company expenses the costs of all advertising campaigns and promotions as they are incurred. Total advertising expenses (exclusive of pre-opening) for the ~~year~~years ended December 31, 2009, 2008 and for the period February 2, 2007 to December 31, 2007 amounted to approximately $1.9 million, $2.3 million and $2.4 million, respectively. These expenses are included in marketing expenses in the accompanying statement of operations.

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Income Taxes

The Company is a limited liability company and, as such, does not pay taxes on an entity level but passes its earnings and losses through to its members. The Company does, however, own all of the stock of HRHI, a Sub- Chapter C corporation, which is a tax paying entity. Income taxes of the Company’s subsidiaries were computed using the subsidiaries effective tax rate. The Company’s members are responsible for reporting their allocable share of the Company’s income, gains, deductions, losses and credits on their individual income tax returns.

Under FASB ASC 740-10 (FAS 109), a Company is required to record a valuation allowance against some or all the deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. To make such determination, the Company analyzes positive and negative evidence, including history of earnings or losses, loss carryback potential, impact of reversing temporary differences, tax planning strategies, and future taxable income. The Company has reported net operating losses for consecutive years and does not have projected taxable income in the near future. This significant negative evidence causes management to believe a full valuation allowance should be recorded against the deferred tax assets. The deferred tax liability related to the stepped-up basis on land and indefinite-lived intangibles will be the only deferred tax items not offset by the valuation allowance. This treatment is consistent with the valuation ~~allowance~~ allowance calculations in prior periods.

~~The Company accounts for certain tax positions under the provisions of Financial Accounting~~F-25 Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). The Company does not have any unrecognized tax positions, nor does it believe it will have any material changes over the next 12 months. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits.

The Company accounts for certain tax positions under the provisions of FASB ASC 740-10 (FIN 48). The Company does not have any unrecognized tax positions, nor does it believe it will have any material changes over the next 12 months. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits.

Revenues and Complimentaries

Casino revenues are derived from patrons wagering on table games, slot machines, ~~sporting~~poker, sporting events and races. Table games generally include Blackjack or Twenty One, Craps, Baccarat ~~and~~ and Roulette. Casino revenue is defined as the win from gaming activities, computed as the ~~difference~~ difference between gaming wins and losses, not the total amounts wagered. Casino revenue is recognized at the end of each gaming day.

Lodging revenues are derived from rooms and suites rented to guests and include related revenues for telephones, movies, etc. Room revenue is recognized at the time the room or service is provided to the guest.

Food and beverage revenues are derived from food and beverage sales in the food outlets of the Company’s hotel casino, including restaurants, room service, banquets and nightclub. Food and beverage revenue is recognized at the time the food and/or beverage is provided to the guest.

Retail and other revenues include retail sales, spa income, commissions, estimated income for gaming chips and tokens not expected to be redeemed, ~~and~~license ~~other~~income ~~miscellaneous~~for ~~income~~certain atintellectual property, including the ~~Company’s hotel~~“Hard ~~casino~~Rock Hotel” and “Hard Rock Casino” trademarks and other miscellaneous income. Retail and other revenues are recognized at the point in time the retail sale occurs or or when services are provided to the guest.

The Company is party to a lease with the operator of the Hard Rock Cafe, pursuant to which the Company is entitled to (a) minimum ground rent in an amount equal to $15,000 per month and (b) additional rent, if any, equal to the amount by which six percent of the annual Gross Income (as defined in the lease) of the operator exceeds the minimum ground rent for the year. The Company received $0.5 million, $0.7 million and $0.7 million in rent from the Hard Rock Cafe, which consisted of $0.2 million, $0.2 million and $.02 million in base rent and $0.3 million, $0.5 million and $0.5 million in percentage rent for the ~~year~~ years ended December 31, 2009, 2008 and for the period February 2, 2007 to December 31, 2007, respectively. The current term of the lease expires on June 30, 2010. Under the lease, the operator has two five-year options to extend the lease, so long as it is not in default at the time of the extension. On December 7, 2009, the Company received formal notice of renewal from the Hard Rock Café, extending the lease to June 30, 2015.

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Revenues in the accompanying statements of operations include the retail value of rooms, food and beverage, and other complimentaries provided to customers without charge, which are then subtracted as promotio

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Filing Compare · Hard Rock Hotel Holdings, LLC