10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended: March 31, 2011

or

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: 001-33738

Morgans Hotel Group Co.

(Exact name of registrant as specified in its charter)

Delaware	16-1736884
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification no.)
475 Tenth Avenue
New York, New York	10018
(Address of principal executive offices)	(Zip Code)

212-277-4100
(Registrant’s telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

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

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of May 6, 2011 was 30,421,363.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS		3
MORGANS HOTEL GROUP CO. CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2011 (UNAUDITED) AND DECEMBER 31, 2010		3
MORGANS HOTEL GROUP CO. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS		4
MORGANS HOTEL GROUP CO. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS		5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		53
ITEM 4. CONTROLS AND PROCEDURES		54
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		55
ITEM 1A. RISK FACTORS		55
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		56
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		56
ITEM 4. REMOVED AND RESERVED		56
ITEM 5. OTHER INFORMATION		56
ITEM 6. EXHIBITS		56
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

1

FORWARD LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for “forward-looking statements” made by or on behalf of a company. We may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our stockholders. These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ materially from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Important risks and factors that could cause our actual results to differ materially from any forward-looking statements include, but are not limited to, the risks discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and other documents filed by the Company with the Securities and Exchange Commission from time to time; downturns in economic and market conditions, particularly levels of spending in the business, travel and leisure industries; hostilities, including future terrorist attacks, or fear of hostilities that affect travel; risks related to natural disasters, such as earthquakes, volcanoes and hurricanes; risks associated with the acquisition, development and integration of properties; the seasonal nature of the hospitality business; changes in the tastes of our customers; increases in real property tax rates; increases in interest rates and operating costs; the impact of any material litigation; the loss of key members of our senior management; general volatility of the capital markets and our ability to access the capital markets; and changes in the competitive environment in our industry and the markets where we invest.

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.

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Morgans Hotel Group Co.

Consolidated Balance Sheets
(in thousands, except per share data)

	March 31,			December 31,
	2011			2010
	(unaudited)
ASSETS
Property and equipment, net	$	286,351		$	291,078
Goodwill		53,691			53,691
Investments in and advances to unconsolidated joint ventures		20,328			20,450
Assets held for sale, net		190,481			194,964
Investment in property held for non-sale disposition, net		—			9,775
Cash and cash equivalents		5,962			5,250
Restricted cash		29,883			28,783
Accounts receivable, net		5,318			6,018
Related party receivables		3,871			3,830
Prepaid expenses and other assets		5,872			7,007
Deferred tax asset, net		79,793			80,144
Other, net		11,210			13,786
Total assets	$	692,760		$	714,776
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Debt and capital lease obligations	$	571,471		$	558,779
Mortgage debt of property held for non-sale disposition		—			10,500
Accounts payable and accrued liabilities		26,572			23,604
Debt obligation, accounts payable and accrued liabilities of assets held for sale		108,297			107,161
Accounts payable and accrued liabilities of property held for non-sale disposition		—			1,162
Distributions and losses in excess of investment in unconsolidated joint ventures		1,728			1,509
Other liabilities		13,866			13,866
Total liabilities		721,934			716,581
Commitments and contingencies
Preferred securities, $.01 par value; liquidation preference $1,000 per share, 75,000 shares authorized and issued at March 31, 2011 and December 31, 2010, respectively		51,806			51,118
Common stock, $.01 par value; 200,000,000 shares authorized; 36,277,495 shares issued at March 31, 2011 and December 31, 2010, respectively		363			363
Additional paid-in capital		301,541			297,554
Treasury stock, at cost, 5,965,992 and 5,985,045 shares of common stock at March 31, 2011 and December 31, 2010, respectively		(92,688	)		(92,688	)
Accumulated comprehensive loss		(1,434	)		(3,194	)
Accumulated deficit		(298,601	)		(265,874	)
Total Morgans Hotel Group Co. stockholders’ deficit		(39,013	)		(12,721	)
Noncontrolling interest		9,839			10,916
Total deficit		(29,174	)		(1,805	)
Total liabilities and stockholders’ deficit	$	692,760		$	714,776

See accompanying notes to these consolidated financial statements.

3

Morgans Hotel Group Co.

Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(unaudited)

	Three Months Ended March 31,
	2011			2010
Revenues:
Rooms	$	31,034		$	29,250
Food and beverage		18,030			17,496
Other hotel		2,016			2,209
Total hotel revenues		51,080			48,955
Management fee-related parties and other income		3,324			4,429
Total revenues		54,404			53,384
Operating Costs and Expenses:
Rooms		11,174			10,025
Food and beverage		15,102			13,916
Other departmental		1,211			1,252
Hotel selling, general and administrative		12,558			11,437
Property taxes, insurance and other		4,185			4,100
Total hotel operating expenses		44,230			40,730
Corporate expenses, including stock compensation of $4.0 million and $3.8 million, respectively		10,834			10,005
Depreciation and amortization		8,373			7,345
Restructuring, development and disposal costs		4,593			677
Total operating costs and expenses		68,030			58,757
Operating loss		(13,626	)		(5,373	)
Interest expense, net		8,994			12,350
Equity in loss of unconsolidated joint ventures		9,483			263
Other non-operating expenses		1,390			15,029
Loss before income tax (benefit) expense		(33,493	)		(33,015	)
Income tax (benefit) expense		(135	)		294
Net loss from continuing operations		(33,358	)		(33,309	)
Income from discontinued operations, net of tax		490			17,202
Net loss		(32,868	)		(16,107	)
Net loss attributable to noncontrolling interest		825			147
Net loss attributable to Morgans Hotel Group		(32,043	)		(15,960	)
Preferred stock dividends and accretion		(2,187	)		(2,078	)
Net loss attributable to common stockholders		(34,230	)		(18,038	)
Other comprehensive loss:
Unrealized gain on valuation of swap/cap agreements, net of tax		—			4,924
Share of unrealized gain on valuation of swap agreements from unconsolidated joint venture, net of tax		1,866			—
Realized loss on settlement of swap/cap agreements, net of tax		—			(2,553	)
Foreign currency translation (loss) gain, net of tax		(106	)		254
Comprehensive loss	$	(32,470	)	$	(15,413	)
Loss per share:
Basic and diluted continuing operations		(1.12	)		(1.18	)
Basic and diluted discontinued operations		0.02			0.58
Basic and diluted attributable to common stockholders		(1.10	)		(0.60	)
Weighted average number of common shares outstanding:
Basic and diluted		31,103			29,849

See accompanying notes to these consolidated financial statements.

4

Morgans Hotel Group Co.

Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	Three Months Ended Mar 31,
	2011			2010
Cash flows from operating activities:
Net loss	$	(32,868	)	$	(16,107	)
Adjustments to reconcile net loss to net cash used in operating activities (including discontinued operations):
Depreciation		7,687			7,181
Amortization of other costs		686			164
Amortization of deferred financing costs		2,298			1,529
Amortization of discount on convertible notes		569			569
Stock-based compensation		3,987			3,798
Accretion of interest on capital lease obligation		473			943
Equity in losses from unconsolidated joint ventures		9,483			263
Gain on disposal of property held for sale		—			(17,944	)
Change in value of warrants		—			14,353
Changes in assets and liabilities:
Accounts receivable, net		940			33
Related party receivables		(67	)		(825	)
Restricted cash		(1,084	)		(5,011	)
Prepaid expenses and other assets		2,066			2,279
Accounts payable and accrued liabilities		4,106			1,274
Other liabilities		—			(203	)
Discontinued operations		(843	)		665
Net cash used in operating activities		(2,567	)		(7,039	)
Cash flows from investing activities:
Additions to property and equipment		(1,074	)		(4,057	)
Deposits to capital improvement escrows, net		(15	)		(632	)
Distributions from unconsolidated joint ventures		2			2
Investments in and settlement related to unconsolidated joint ventures		(7,032	)		(242	)
Net cash used in investing activities		(8,119	)		(4,929	)
Cash flows from financing activities:
Proceeds from debt		11,650			—
Cash paid in connection with vesting of stock based awards		—			(97	)
Cost of issuance of preferred stock		—			(246	)
Distributions to holders of noncontrolling interests in consolidated subsidiaries		(252	)		(387	)
Net cash provided by (used in) financing activities		11,398			(730	)
Net decrease in cash and cash equivalents		712			(12,698	)
Cash and cash equivalents, beginning of period		5,250			68,956
Cash and cash equivalents, end of period	$	5,962		$	56,258
Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,280		$	9,508
Cash paid for taxes	$	149		$	17

See accompanying notes to these consolidated financial statements.

5

Morgans Hotel Group Co.

Notes to Consolidated Financial Statements
(unaudited)

1. Organization and Formation Transaction

Morgans Hotel Group Co. (the “Company”) was incorporated on October 19, 2005 as a Delaware corporation to complete an initial public offering (“IPO”) that was part of the formation and structuring transactions described below. The Company operates, owns, acquires and redevelops hotel properties.

The Morgans Hotel Group Co. predecessor (the “Predecessor”) comprised the subsidiaries and ownership interests that were contributed as part of the formation and structuring transactions from Morgans Hotel Group LLC, now known as Residual Hotel Interest LLC (“Former Parent”), to Morgans Group LLC (“Morgans Group”), the Company’s operating company. At the time of the formation and structuring transactions, the Former Parent was owned approximately 85% by NorthStar Hospitality, LLC, a subsidiary of NorthStar Capital Investment Corp., and approximately 15% by RSA Associates, L.P.

In connection with the IPO, the Former Parent contributed the subsidiaries and ownership interests in nine operating hotels in the United States and the United Kingdom to Morgans Group in exchange for membership units. Simultaneously, Morgans Group issued additional membership units to the Predecessor in exchange for cash raised by the Company from the IPO. The Former Parent also contributed all the membership interests in its hotel management business to Morgans Group in return for 1,000,000 membership units in Morgans Group exchangeable for shares of the Company’s common stock. The Company is the managing member of Morgans Group, and has full management control. On April 24, 2008, 45,935 outstanding membership units in Morgans Group were exchanged for 45,935 shares of the Company’s common stock. As of March 31, 2011, 954,065 membership units in Morgans Group remain outstanding.

On February 17, 2006, the Company completed its IPO. The Company issued 15,000,000 shares of common stock at $20 per share resulting in net proceeds of approximately $272.5 million, after underwriters’ discounts and offering expenses.

The Company has one reportable operating segment; it operates, owns, acquires and redevelops boutique hotels.

Operating Hotels

The Company’s operating hotels as of March 31, 2011 are as follows:

		Number of
Hotel Name	Location	Rooms		Ownership
Hudson	New York, NY		834		(1	)
Morgans (10)	New York, NY		114		(2	)
Royalton (10)	New York, NY		168		(2	)
Mondrian SoHo	New York, NY		270		(3	)
Delano South Beach	Miami Beach, FL		194		(2	)
Mondrian South Beach	Miami Beach, FL		328		(4	)
Shore Club	Miami Beach, FL		309		(5	)
Mondrian Los Angeles (10)	Los Angeles, CA		237		(2	)
Clift	San Francisco, CA		372		(6	)
Ames	Boston, MA		114		(7	)
Sanderson	London, England		150		(4	)
St Martins Lane	London, England		204		(4	)
Water and Beach Club Hotel	San Juan, PR		78		(8	)
Hotel Las Palapas	Playa del Carmen, Mexico		75		(9	)

(1) The Company owns 100% of Hudson, which is part of a property that is structured as a condominium, in which Hudson constitutes 96% of the square footage of the entire building.

6

(2)	Wholly-owned hotel.
(3)	Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority ownership interest of approximately 20% at March 31, 2011 based on cash contributions. See note 4.
(4)	Owned through a 50/50 unconsolidated joint venture. See note 4.
(5)	Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority ownership interest of approximately 7% as of March 31, 2011.
(6)	The hotel is operated under a long-term lease which is accounted for as a financing. See note 6.
(7)	Operated under a management contract and owned through an unconsolidated joint venture in which the Company held a minority interest ownership of approximately 31% at March 31, 2011 based on cash contributions. See note 4.
(8)	Operated under a management contract, with an unconsolidated minority ownership interest of approximately 25% at March 31, 2011 based on cash contributions. See note 4.
(9)	Operated under a management contract.
(10)	Assets are classified as held for sale as of March 31, 2011. See note 12.

Restaurant Joint Venture

The food and beverage operations of certain of the hotels are operated under 50/50 joint ventures with a third party restaurant operator.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company consolidates all wholly-owned subsidiaries and variable interest entities in which the Company is determined to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Entities which the Company does not control through voting interest and entities which are variable interest entities of which the Company is not the primary beneficiary, are accounted for under the equity method, if the Company can exercise significant influence.

The consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

7

Effective January 1, 2010, the Financial Accounting Standards Board (“FASB”) amended the guidance in ASC 810-10, Consolidation (“ASC 810-10”), for determining whether an entity is a variable interest entity and requiring the performance of a qualitative rather than a quantitative analysis to determine the primary beneficiary of a variable interest entity. Under this guidance, an entity would be required to consolidate a variable interest entity if it has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the variable interest entity or the right to receive benefits from the variable interest entity that could be significant to the variable interest entity. Adoption of this guidance on January 1, 2010 did not have a material impact on the consolidated financial statements.

The Company has reevaluated its interest in three ventures that provide food and beverage services in accordance with ASC 810-10. These services include operating restaurants including room service at three hotels, banquet and catering services at three hotels and a bar at one hotel. No assets of the Company are collateral for the ventures’ obligations and creditors of the venture have no recourse to the Company. Based on the evaluation performed, the Company was determined to be the primary beneficiary of these three ventures.

Management has also reevaluated the applicability of ASC 810-10 to its investments in unconsolidated joint ventures and has concluded that most joint ventures do not meet the requirements of a variable interest entity. As of December 31, 2010, Mondrian South Beach and Mondrian SoHo were determined to be variable interest entities, but the Company is not its primary beneficiary and, therefore, consolidations of these joint ventures are not required. Accordingly, all investments in joint ventures (other than the three food and beverage joint ventures discussed above) are accounted for using the equity method. In February 2011, the Mondrian SoHo hotel opened and as such, the Company determined that the joint venture was an operating business. The Company continues to account for its investment in Mondrian SoHo using the equity method of accounting.

Assets Held for Sale

The Company considers properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or a group of properties for sale and the sale is probable. Upon designation as an asset held for sale, the Company records the carrying value of each property or group of properties at the lower of its carrying value, which includes allocable goodwill, or its estimated fair value, less estimated costs to sell, and the Company stops recording depreciation expense. Any gain realized in connection with the sale of the properties for which the Company has significant continuing involvement, such as through a long-term management agreement, is deferred and recognized over the initial term of the related management agreement. The operations of the properties held for sale prior to the sale date are recorded in discontinued operations unless the Company has continuing involvement, such as through a management agreement, after the sale.

Investments in and Advances to Unconsolidated Joint Ventures

The Company accounts for its investments in unconsolidated joint ventures using the equity method as it does not exercise control over significant asset decisions such as buying, selling or financing nor is it the primary beneficiary under ASC 810-10, as discussed above. Under the equity method, the Company increases its investment for its proportionate share of net income and contributions to the joint venture and decreases its investment balance by recording its proportionate share of net loss and distributions. For investments in which there is recourse or unfunded commitments to provide additional equity, distributions and losses in excess of the investment are recorded as a liability.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carry forwards. Valuation allowances are provided when it is more likely than not that the recovery of deferred tax assets will not be realized.

8

The Company’s deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the Company’s provision for income taxes and increases to the valuation allowance result in additional provision for income taxes. The realization of the Company’s deferred tax assets, net of the valuation allowance, is primarily dependent on estimated future taxable income. A change in the Company’s estimate of future taxable income may require an addition to or reduction from the valuation allowance. The Company has established a reserve on a portion of its deferred tax assets based on anticipated future taxable income and tax strategies which may include the sale of property or an interest therein. The Company anticipates it will be able to use a portion of these deferred tax assets relating to its tax net operating loss carryforwards in connection with completion of the sale of Royalton, Morgans and Mondrian Los Angeles, as discussed in note 12.

All of the Company’s foreign subsidiaries are subject to local jurisdiction corporate income taxes. Income tax expense is reported at the applicable rate for the periods presented.

Income taxes for the three months ended March 31, 2011 and 2010, were computed using the Company’s effective tax rate.

Derivative Instruments and Hedging Activities

In accordance with ASC 815-10, Derivatives and Hedging (“ASC 815-10”) the Company records all derivatives on the balance sheet at fair value and provides qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts relating to interest payments on the Company’s borrowings. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

For derivatives designated as cash flow hedges, and the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive loss (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. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

As of March 31, 2011, the estimated fair market value of the Company’s cash flow hedges is immaterial.

Credit-risk-related Contingent Features

The Company has entered into agreements with each of its derivative counterparties in connection with the interest rate swaps and hedging instruments related to the Convertible Notes, as defined and discussed in note 6, providing that in the event the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

9

The Company has entered into warrant agreements with Yucaipa, as discussed in note 8, providing Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P. (collectively, the “Investors”) with consent rights over certain transactions for so long as they collectively own or have the right to purchase through exercise of the warrants 6,250,000 shares of the Company’s common stock.

Fair Value Measurements

ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820-10 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820-10 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820-10 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Currently, the Company uses interest rate caps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. To comply with the provisions of ASC 820-10, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2011 the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. Accordingly, all derivatives have been classified as Level 2 fair value measurements.

10

In connection with the issuance of 75,000 of the Company’s Series A Preferred Securities to the Investors, as discussed in note 8, the Company also issued warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share to the Investors. Until October 15, 2010, the $6.00 exercise price of the warrants was subject to certain reductions if the Company had issued shares of common stock below $6.00 per share. The exercise price adjustments were not triggered prior to the expiration of such right on October 15, 2010. The fair value for each warrant granted was estimated at the date of grant using the Black-Scholes option pricing model, an allowable valuation method under ASC 718-10, Compensation, Stock Based Compensation (“ASC 718-10”). The estimated fair value per warrant was $1.96 on October 15, 2009.

Although the Company has determined that the majority of the inputs used to value the outstanding warrants fall within Level 1 of the fair value hierarchy, the Black-Scholes model utilizes Level 3 inputs, such as estimates of the Company’s volatility. Accordingly, the warrant liability was classified as a Level 3 fair value measure. On October 15, 2010, this liability was reclassified into equity, per ASC 815-10-15, Derivatives and Hedging, Embedded Derivatives (“ASC 815-10-15”).

Fair Value of Financial Instruments

As mentioned below and in accordance with ASC 825-10, Financial Instruments, and ASC 270-10, Presentation, Interim Reporting, the Company provides quarterly fair value disclosures for financial instruments. Disclosures about fair value of financial instruments are based on pertinent information available to management as of the valuation date. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold, or settled. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued liabilities, and fixed and variable rate debt. Management believes the carrying amount of the aforementioned financial instruments, excluding fixed-rate debt, is a reasonable estimate of fair value as of March 31, 2011 and December 31, 2010 due to the short-term maturity of these items or variable market interest rates.

The fair market value of the Company’s $222.6 million of fixed rate debt, excluding capitalized lease obligations and including the Convertible Notes at face value, as of March 31, 2011 and December 31, 2010 was approximately $231.0 million and $248.6 million, respectively, using market interest rates.

Stock-based Compensation

The Company accounts for stock based employee compensation using the fair value method of accounting described in ASC 718-10. For share grants, total compensation expense is based on the price of the Company’s stock at the grant date. For option grants, the total compensation expense is based on the estimated fair value using the Black-Scholes option-pricing model. Compensation expense is recorded ratably over the vesting period, if any. Stock compensation expense recognized for the three months ended March 31, 2011 and 2010 was $4.0 million and $3.8 million, respectively.

Income (Loss) Per Share

Basic net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less any dividends on unvested restricted common stock, by the weighted-average number of common stock outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) available to common stockholders, less dividends on unvested restricted common stock, by the weighted-average number of common stock outstanding during the period, plus other potentially dilutive securities, such as unvested shares of restricted common stock and warrants.

Noncontrolling Interest

The Company follows ASC 810-10, when accounting and reporting for noncontrolling interests in a consolidated subsidiary and the deconsolidation of a subsidiary. Under ASC 810-10, the Company reports noncontrolling interests in subsidiaries as a separate component of stockholders’ equity in the consolidated financial statements and reflects net income (loss) attributable to the noncontrolling interests and net income (loss) attributable to the common stockholders on the face of the consolidated statements of operations and comprehensive loss.

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The membership units in Morgans Group, the Company’s operating company, owned by the Former Parent are presented as noncontrolling interest in Morgans Group in the consolidated balance sheets and were approximately $9.5 million and $10.6 million as of March 31, 2011 and December 31, 2010, respectively. The noncontrolling interest in Morgans Group is: (i) increased or decreased by the limited members’ pro rata share of Morgans Group’s net income or net loss, respectively; (ii) decreased by distributions; (iii) decreased by exchanges of membership units for the Company’s common stock; and (iv) adjusted to equal the net equity of Morgans Group multiplied by the limited members’ ownership percentage immediately after each issuance of units of Morgans Group and/or shares of the Company’s common stock and after each purchase of treasury stock through an adjustment to additional paid-in capital. Net income or net loss allocated to the noncontrolling interest in Morgans Group is based on the weighted-average percentage ownership throughout the period.

Additionally, $0.3 million and $0.3 million was recorded as noncontrolling interest as of March 31, 2011 and December 31, 2010, respectively, which represents the Company’s food and beverage joint venture partner’s interest in the restaurant ventures at certain of the Company’s hotels.

Reclassifications

Certain prior year financial statement amounts have been reclassified to conform to the current year presentation, including discontinued operations, discussed in note 9, and assets held for sale, discussed in note 12.

 3. Income (Loss) Per Share

The Company applies the two-class method as required by ASC 260-10, Earnings per Share (“ASC 260-10”). ASC 260-10 requires the net income per share for each class of stock (common stock and preferred stock) to be calculated assuming 100% of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights. To the extent the Company has undistributed earnings in any calendar quarter, the Company will follow the two-class method of computing earnings per share.

Basic earnings (loss) per share is calculated based on the weighted average number of common stock outstanding during the period. Diluted earnings (loss) per share include the effect of potential shares outstanding, including dilutive securities. Potential dilutive securities may include shares and options granted under the Company’s stock incentive plan and membership units in Morgans Group, which may be exchanged for shares of the Company’s common stock under certain circumstances. The 954,065 Morgans Group membership units (which may be converted to cash, or at the Company’s option, common stock) held by third parties at March 31, 2011, warrants issued to the Investors, unvested restricted stock units, LTIP Units (as defined in note 7), stock options, and shares issuable upon conversion of outstanding Convertible Notes (as defined in note 6) have been excluded from the diluted net income (loss) per common share calculation, as there would be no effect on reported diluted net income (loss) per common share.

The table below details the components of the basic and diluted loss per share calculations (in thousands, except for per share data):

	Three Months			Three Months
	Ended			Ended
	March 31, 2011			March 31, 2010
Numerator:
Net loss from continuing operations	$	(33,358	)	$	(33,309	)
Net income from discontinued operations		490			17,202
Net loss		(32,868	)		(16,107	)
Net loss attributable to noncontrolling interest		825			147
Net loss attributable to Morgans Hotel Group Co.		(32,043	)		(15,960	)
Less: preferred stock dividends and accretion		2,187			2,078
Net loss attributable to common shareholders	$	(34,230	)	$	(18,038	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		31,103			29,849
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		31,103			29,849
Basic and diluted loss from continuing operations per share	$	(1.12	)	$	(1.18	)
Basic and diluted income from discontinued operations per share	$	0.02		$	0.58
Basic and diluted loss available to common stockholders per common share	$	(1.10	)	$	(0.60	)

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4. Investments in and Advances to Unconsolidated Joint Ventures

The Company’s investments in and advances to unconsolidated joint ventures and its equity in earnings (losses) of unconsolidated joint ventures are summarized as follows (in thousands):

Investments

	As of		As of
	March 31,		December 31,
Entity	2011		2010
Mondrian South Beach	$	5,318	$	5,817
Morgans Hotel Group Europe Ltd.		2,208		1,366
Mondrian SoHo		—		—
Boston Ames		10,244		10,709
Other		2,558		2,558
Total investments in and advances to unconsolidated joint ventures	$	20,328	$	20,450

	As of			As of
	March 31,			December 31,
Entity	2011			2010
Restaurant Venture — SC London	$	(1,728	)	$	(1,509	)
Hard Rock Hotel & Casino (1)		—			—
Total losses from and distributions in excess of investment in unconsolidated joint ventures	$	(1,728	)	$	(1,509	)

(1) Until March 1, 2011, the Company had a partial ownership interest in the Hard Rock and managed the property pursuant to a management agreement that was terminated in connection with the Hard Rock settlement, discussed below.

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Equity in income (loss) from unconsolidated joint ventures

	Three Months			Three Months
	Ended			Ended
	March 31,			March 31,
	2011			2010
Morgans Hotel Group Europe Ltd.	$	7		$	812
Restaurant Venture — SC London		(220	)		(257	)
Mondrian South Beach		(500	)		(423	)
Mondrian SoHo		(1,932	)		—
Hard Rock Hotel & Casino (1)		(6,376	)		—
Ames		(464	)		(397	)
Other		2			2
Total equity in loss from unconsolidated joint ventures	$	(9,483	)	$	(263	)

(1) Until March 1, 2011, the Company had a partial ownership interest in the Hard Rock and managed the property pursuant to a management agreement that was terminated in connection with the Hard Rock settlement, discussed below. Reflects the period operated in 2011.

Morgans Hotel Group Europe Limited

As of March 31, 2011, the Company owned interests in two hotels in London, England, St Martins Lane, a 204-room hotel, and Sanderson, a 150-room hotel, through a 50/50 joint venture known as Morgans Hotel Group Europe Limited (“Morgans Europe”) with Walton MG London Investors V, L.L.C (“Walton”).

Under the joint venture agreement with Walton, the Company owns indirectly a 50% equity interest in Morgans Europe and has an equal representation on the Morgans Europe board of directors. In the event the parties cannot agree on certain specified decisions, such as approving hotel budgets or acquiring a new hotel property, or beginning any time after February 9, 2010, either party has the right to buy all the shares of the other party in the joint venture or, if its offer is rejected, require the other party to buy all of its shares at the same offered price per share in cash.

Under a management agreement with Morgans Europe, the Company earns management fees and a reimbursement for allocable chain service and technical service expenses. The Company is also entitled to an incentive management fee and a capital incentive fee. The Company did not earn any incentive fees during the three months ended March 31, 2011 and 2010.

On July 15, 2010, the joint venture refinanced in full its then outstanding £99.3 million mortgage debt with a new £100 million loan maturing in July 2015 that is non-recourse to the Company and is secured by Sanderson and St Martins Lane. The joint venture also entered into a swap agreement that effectively fixes the interest rate at 5.22% for the term of the loan, a reduction in interest rate of approximately 105 basis points, as compared to the previous mortgage loan. As of March 31, 2011, Morgans Europe had outstanding mortgage debt of £99.6 million, or approximately $160.4 million at the exchange rate of 1.61 US dollars to GBP at March 31, 2011.

Net income or loss and cash distributions or contributions are allocated to the partners in accordance with ownership interests. The Company accounts for this investment under the equity method of accounting.

Mondrian South Beach

On August 8, 2006, the Company entered into a 50/50 joint venture to renovate and convert an apartment building on Biscayne Bay in South Beach Miami into a condominium hotel, Mondrian South Beach, which opened in December 2008. The Company operates Mondrian South Beach under a long-term management contract.

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The joint venture acquired the existing building and land for a gross purchase price of $110.0 million. An initial equity investment of $15.0 million from each of the 50/50 joint venture partners was funded at closing, and subsequently each member also contributed $8.0 million of additional equity. The Company and an affiliate of its joint venture partner provided additional mezzanine financing of approximately $22.5 million in total to the joint venture to fund completion of the construction in 2008. Additionally, the joint venture initially received non-recourse mortgage loan financing of approximately $124.0 million at a rate of LIBOR plus 300 basis points. A portion of this mortgage debt was paid down, prior to the amendments discussed below, with proceeds obtained from condominium sales. In April 2008, the Mondrian South Beach joint venture obtained a mezzanine loan from the mortgage lenders of $28.0 million bearing interest at LIBOR, based on the rate set date, plus 600 basis points. The $28.0 million mezzanine loan provided by the lender and the $22.5 million mezzanine loan provided by the joint venture partners were both amended when the loan matured in April 2010, as discussed below.

In April 2010, the joint venture amended the non-recourse financing secured by the property and extended the maturity date for up to seven years through extension options until April 2017, subject to certain conditions. Among other things, the amendment allows the joint venture to accrue all interest for a period of two years and a portion thereafter and provides the joint venture the ability to provide seller financing to qualified condominium buyers with up to 80% of the condominium purchase price. Each of the joint venture partners provided an additional $2.75 million to the joint venture resulting in total mezzanine financing provided by the partners of $28.0 million. The amendment also provides that this $28.0 million mezzanine financing invested in the property be elevated in the capital structure to become, in effect, on par with the lender’s mezzanine debt so that the joint venture receives at least 50% of all returns in excess of the first mortgage.

Morgans Group and affiliates of its joint venture partner have agreed to provide standard non-recourse carve-out guaranties and provide certain limited indemnifications for the Mondrian South Beach mortgage and mezzanine loans. In the event of a default, the lenders’ recourse is generally limited to the mortgaged property or related equity interests, subject to standard non-recourse carve-out guaranties for “bad boy” type acts. Morgans Group and affiliates of its joint venture partner also agreed to guaranty the joint venture’s obligation to reimburse certain expenses incurred by the lenders and indemnify the lenders in the event such lenders incur liability as a result of any third-party actions brought against Mondrian South Beach. Morgans Group and affiliates of its joint venture partner have also guaranteed the joint venture’s liability for the unpaid principal amount of any seller financing note provided for condominium sales if such financing or related mortgage lien is found unenforceable, provided they shall not have any liability if the seller financed unit becomes subject again to the lien of the lender’s mortgage or title to the seller financed unit is otherwise transferred to the lender or if such seller financing note is repurchased by Morgans Group and/or affiliates of its joint venture at the full amount of unpaid principal balance of such seller financing note. In addition, although construction is complete and Mondrian South Beach opened on December 1, 2008, Morgans Group and affiliates of its joint venture partner may have continuing obligations under construction completion guaranties until all outstanding payables due to construction vendors are paid. As of March 31, 2011, there are remaining payables outstanding to vendors of approximately $1.5 million. The Company believes that payment under these guaranties is not probable and the fair value of the guarantee is not material.

The Company and affiliates of its joint venture partner also have an agreement to purchase approximately $14 million each of condominium units under certain conditions, including an event of default. In the event of a default under the mortgage or mezzanine loan, the joint venture partners are obligated to purchase selected condominium units, at agreed-upon sales prices, having aggregate sales prices equal to 1/2 of the lesser of $28.0 million, which is the face amount outstanding on the mezzanine loan, or the then outstanding principal balance of the mezzanine loan. The joint venture is not currently in an event of default under the mortgage or mezzanine loan. The Company has not recognized a liability related to the construction completion or the condominium purchase guarantees.

The joint venture is in the process of selling units as condominiums, subject to market conditions, and unit buyers will have the opportunity to place their units into the hotel’s rental program. In addition to hotel management fees, the Company could also realize fees from the sale of condominium units.

The Mondrian South Beach joint venture was determined to be a variable interest entity as during the process of refinancing the venture’s mortgage in April 2010, its equity investment at risk was considered insufficient to permit the entity to finance its own activities. Management determined that the Company is not the primary beneficiary of this variable interest entity as the Company does not have a controlling financial interest in the entity. The Company’s maximum exposure to losses as a result of its involvement in the Mondrian South Beach variable interest entity is limited to its current investment, outstanding management fee receivable and advances in the form of mezzanine financing. The Company is not committed to providing financial support to this variable interest entity, other than as contractually required and all future funding is expected to be provided by the joint venture partners in accordance with their respective percentage interests in the form of capital contributions or mezzanine financing, or by third parties.

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Hard Rock Hotel & Casino

Formation and Hard Rock Credit Facility

On February 2, 2007, the Company and Morgans Group (together, the “Morgans Parties”), an affiliate of DLJ Merchant Banking Partners (“DLJMB”), and certain other DLJMB affiliates (such affiliates, together with DLJMB, collectively the “DLJMB Parties”) completed the acquisition of the Hard Rock Hotel & Casino (“Hard Rock”). The acquisition was completed through a joint venture entity, Hard Rock Hotel Holdings, LLC, funded one-third, or approximately $57.5 million, by the Morgans Parties, and two-thirds, or approximately $115.0 million, by the DLJMB Parties. In connection with the joint venture’s acquisition of the Hard Rock, certain subsidiaries of the joint venture entered into a debt financing comprised of a senior mortgage loan and three mezzanine loans, which provided for a $760.0 million acquisition loan that was used to fund the acquisition, of which $110.0 million was subsequently repaid according to the terms of the loan, and a construction loan of up to $620.0 million, which was fully drawn for the expansion project at the Hard Rock. Morgans Group provided a standard non-recourse, carve-out guaranty for each of the mortgage and mezzanine loans. On December 24, 2009, the mortgage and mezzanine loans were amended so that the maturity dates were extendable from February 2011 to February 2014, subject to certain conditions.

Since the formation of Hard Rock Hotel Holdings, LLC, additional disproportionate cash contributions had been made by the DLJMB Parties. Prior to the Hard Rock settlement, discussed below, the DLJMB Parties had contributed an aggregate of $424.8 million in cash and the Morgans Parties had contributed an aggregate of $75.8 million in cash. In 2009, the Company wrote down the Company’s investment in Hard Rock to zero.

Hard Rock Settlement Agreement

On January 28, 2011, subsidiaries of Hard Rock Hotel Holdings, LLC received a notice of acceleration from the NRFC HRH Holdings, LLC (the “Second Mezzanine Lender”) pursuant to the First Amended and Restated Second Mezzanine Loan Agreement, dated as of December 24, 2009 (the “Second Mezzanine Loan Agreement”), between such subsidiaries and the Second Mezzanine Lender, declaring all unpaid principal and accrued interest under the Second Mezzanine Loan Agreement immediately due and payable. The amount due and payable under the Second Mezzanine Loan Agreement as of January 20, 2011 was approximately $96 million. The Second Mezzanine Lender also notified the such subsidiaries that it intended to auction to the public the collateral pledged in connection with the Second Mezzanine Loan Agreement, including all membership interests in certain subsidiaries of Hard Rock Hotel Holding, LLC that indirectly owned the Hard Rock and other related assets.

Subsidiaries of Hard Rock Hotel Holdings, LLC, Vegas HR Private Limited (the “ Mortgage Lender”), Brookfield Financial, LLC-Series B (the “First Mezzanine Lender), the Second Mezzanine Lender, Morgans Group, certain affiliates of DLJMB, and certain other related parties entered into a Standstill and Forbearance Agreement, dated as of February 6, 2011. Pursuant to the Standstill and Forbearance Agreement, among other things, until February 28, 2011, the Mortgage Lender, First Mezzanine Lender and the Second Mezzanine Lender agreed not to take any action or assert any right or remedy arising with respect to any of the applicable loan documents or the collateral pledged under such loan documents, including remedies with respect to the Company’s Hard Rock management agreement. In addition, pursuant to the Standstill and Forbearance Agreement, the Second Mezzanine Lender agreed to withdraw its foreclosure notice, and the parties agreed to jointly request a stay of all action on the pending motions that had been filed by various parties to enjoin such foreclosure proceedings.

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On March 1, 2011, Hard Rock Hotel Holdings, LLC, the Mortgage Lender, the First Mezzanine Lender, the Second Mezzanine Lender, the Morgans Parties and certain affiliates of DLJMB, as well as Hard Rock Mezz Holdings LLC (the “Third Mezzanine Lender”) and other interested parties entered into a comprehensive settlement to resolve the disputes among them and all matters relating to the Hard Rock and related loans and guaranties. The settlement provided, among other things, for the following:

• release of the non-recourse carve-out guaranties provided by the Company with respect to the loans made by the Mortgage Lender, the First Mezzanine Lender, the Second Mezzanine Lender and the Third Mezzanine Lender to the direct and indirect owners of the Hard Rock;

• termination of the management agreement pursuant to which the Company’s subsidiary managed the Hard Rock;

• the transfer by Hard Rock Hotel Holdings, LLC to an affiliate of the First Mezzanine Lender of 100% of the indirect equity interests in the Hard Rock; and

• certain payments to or for the benefit of the Mortgage Lender, the First Mezzanine Lender, the Second Mezzanine Lender, the Third Mezzanine Lender and the Company. The Company’s net payment was approximately $3.7 million.

As a result of the settlement, the Company will no longer be subject to Nevada gaming regulations, after completion of certain gaming de-registration procedures.

Mondrian SoHo

In June 2007, the Company entered into a joint venture with Cape Advisors Inc. to acquire and develop a Mondrian hotel in the SoHo neighborhood of New York City. The Company initially contributed $5.0 million for a 20% equity interest in the joint venture and subsequently loaned an additional $3.3 million to the venture. The joint venture obtained a loan of $195.2 million to acquire and develop the hotel, which matured in June 2010.

Based on the decline in market conditions following the inception of the joint venture and more recently, the need for additional funding to complete the hotel, the Company wrote down its investment in Mondrian SoHo to zero in June 2010 and recorded an impairment charge through equity in loss of unconsolidated joint ventures.

On July 31, 2010, the lender amended the debt financing on the property to provide for, among other things, extensions of the maturity date of the mortgage loan secured by the hotel to November 2011 with extension options through 2015, subject to certain conditions including a minimum debt service coverage test. In addition to new funds being provided by the lender, Cape Advisors Inc. made cash and other contributions to the joint venture, and the Company agreed to provide up to $3.2 million of additional funds to complete the project. The Company’s contribution will be treated as a loan with priority over the equity. The Company has contributed the full amount of this priority loan, as well as additional funds, all of which were considered impaired and recorded as impairment charges through equity in loss of unconsolidated joint ventures during the period funds were contributed. As of March 31, 2011, the Company’s investment balance in the joint venture was zero.

Certain affiliates of the Company’s joint venture partner have agreed to provide a standard non-recourse carve-out guaranty for “bad boy” type acts and a completion guaranty to the lenders for the Mondrian SoHo loan, for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates up to 20% of such entities’ guaranty obligations, provided that each party is fully responsible for any losses incurred as a result of its own gross negligence or willful misconduct.

The Mondrian SoHo opened in February 2011 and has 270 guest rooms, a restaurant, bar and other facilities. The Company has a 10-year management contract with two 10-year extension options to operate the hotel.

As of December 31, 2010, the Mondrian SoHo joint venture was determined to be a variable interest entity, but the Company was not its primary beneficiary and, therefore, consolidations of this joint venture is not required. In February 2011, when Mondrian SoHo opened, the Company determined that the joint venture was an operating business. The Company continues to account for its investment in Mondrian SoHo using the equity method of accounting.

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Ames

On June 17, 2008, the Company, Normandy Real Estate Partners, and Ames Hotel Partners entered into a joint venture agreement as part of the development of the Ames hotel in Boston. Ames opened on November 19, 2009 and has 114 guest rooms, a restaurant, bar and other facilities. The Company manages Ames under a 15-year management contract.

The Company has contributed approximately $11.5 million in equity through March 31, 2011 for an approximately 31% interest in the joint venture. The joint venture obtained a loan for $46.5 million secured by the hotel, which amount was outstanding as of March 31, 2011. The project also qualified for federal and state historic rehabilitation tax credits which were sold for approximately $16.9 million.

In October 2010, the mortgage loan secured by Ames matured, and the joint venture did not satisfy the conditions necessary to exercise the first of two remaining one-year extension options available under the loan, which included funding a debt service reserve account, among other things. As a result, the mortgage lender for Ames served the joint venture with a notice of default and acceleration of debt. In February 2011, the joint venture reached an agreement with the lender whereby the lender waived the default, reinstated the loan and extended the loan maturity date until October 9, 2011 with a one-year extension option, subject to certain conditions. In connection with the amendment, the joint venture was required to deposit $1.0 million into a debt service account.

Shore Club

The Company operates Shore Club under a management contract and owned a minority ownership interest of approximately 7% at March 31, 2011. On September 15, 2009, the joint venture that owns Shore Club received a notice of default on behalf of the special servicer for the lender on the joint venture’s mortgage loan for failure to make its September monthly payment and for failure to maintain its debt service coverage ratio, as required by the loan documents. On October 7, 2009, the joint venture received a second letter on behalf of the special servicer for the lender accelerating the payment of all outstanding principal, accrued interest, and all other amounts due on the mortgage loan. The lender also demanded that the joint venture transfer all rents and revenues directly to the lender to satisfy the joint venture’s debt. In March 2010, the lender for the Shore Club mortgage initiated foreclosure proceedings against the property in U.S. federal district court. In October 2010, the federal court dismissed the case for lack of jurisdiction. In November 2010, the lender initiated foreclosure proceedings in state court. The Company continues to operate the hotel pursuant to the management agreement during these proceedings. However, there can be no assurances the Company will continue to operate the hotel once foreclosure proceedings are complete.

5. Other Liabilities

As of March 31, 2011 and December 31, 2010, the balance of other liabilities consisted of $13.9 million, which is related to a fee payable to a designer. The Former Parent had an exclusive service agreement with a hotel designer, pursuant to which the designer has initiated various claims related to the agreement. Although the Company is not a party to the agreement, it may have certain contractual obligations or liabilities to the Former Parent in connection with the agreement. According to the agreement, the designer was owed a base fee for each designed hotel, plus 1% of Gross Revenues, as defined in the agreement, for a 10-year period from the opening of each hotel. In addition, the agreement also called for the designer to design a minimum number of projects for which the designer would be paid a minimum fee. A liability amount has been estimated and recorded in these consolidated financial statements before considering any defenses and/or counter-claims that may be available to the Company or the Former Parent in connection with any claim brought by the designer. The Company believes the probability of losses associated with this claim in excess of the liability that is accrued of $13.9 million is remote and cannot reasonably estimate of range of such additional losses, if any, at this time. The estimated costs of the design services were capitalized as a component of the applicable hotel and amortized over the five-year estimated life of the related design elements.

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6. Debt and Capital Lease Obligations

Debt and capital lease obligations consists of the following (in thousands):

	As of		As of		Interest rate at
	March 31,		December 31,		March 31,
Description	2011		2010		2011
Notes secured by Hudson (a)	$	201,162	$	201,162	1.29% (LIBOR + 1.03%)
Notes secured by Hudson (a)		26,500		26,500	3.24% (LIBOR + 2.98%)
Clift debt (b)		85,506		85,033		9.60	%
Liability to subsidiary trust (c)		50,100		50,100		8.68	%
Revolving credit (d)		37,658		26,008		(d	)
Convertible Notes, face value of $172.5 million (e)		164,437		163,869		2.38	%
Capital lease obligations (f)		6,107		6,107		(f	)
Debt and capital lease obligation	$	571,471	$	558,779
Mortgage debt secured by assets held for sale — Mondrian Los Angeles (a)		103,496		103,496	1.90% (LIBOR + 1.64%)
Notes secured by property held for non-sale disposition (g)	$	—	$	10,500		11.00	%

(a) Mortgage Agreement — Notes secured by Hudson and Mondrian Los Angeles

On October 6, 2006, subsidiaries of the Company, Henry Hudson Holdings LLC (“Hudson Holdings”) and Mondrian Holdings LLC (“Mondrian Holdings”), entered into non-recourse mortgage financings consisting of two separate first mortgage loans secured by Hudson and Mondrian Los Angeles, respectively (collectively, the “Mortgages”), and a mezzanine loan related to Hudson, secured by a pledge of the equity interests in the Company’s subsidiary owning Hudson.

On October 14, 2009, the Company entered into an agreement with the lender that holds, among other loans, the mezzanine loan on Hudson. Under the agreement, the Company paid an aggregate of $11.2 million to (i) reduce the principal balance of the mezzanine loan from $32.5 million to $26.5 million, (ii) acquire interests in $4.5 million of certain debt securities secured by certain of the Company’s other debt obligations, (iii) pay fees, and (iv) obtain a forbearance from the mezzanine lender until October 12, 2013 from exercising any remedies resulting from a maturity default, subject only to maintaining certain interest rate caps and making an additional aggregate payment of $1.3 million to purchase additional interests in certain of the Company’s other debt obligations prior to October 11, 2011. The mezzanine lender also agreed to cooperate with the Company in its efforts to seek an extension of the Hudson mortgage loan and consent to certain refinancings and other modifications of the Hudson mortgage loan.

Until amended as described below, the Hudson Holdings Mortgage bore interest at 30-day LIBOR plus 0.97% and the Mondrian Holdings Mortgage bore interest at 30-day LIBOR plus 1.23%. The Hudson mezzanine loan bears interest at 30-day LIBOR plus 2.98%. The Company had entered into interest rate swaps on the Mortgages and the mezzanine loan on Hudson which effectively fixed the 30-day LIBOR rate at approximately 5.0%. These interest rate swaps expired on July 15, 2010. The Company subsequently entered into short-term interest rate caps on the Mortgages that expired on September 12, 2010.

On October 1, 2010, Hudson Holdings and Mondrian Holdings each entered into a modification agreement of its respective Mortgage, together with promissory notes and other related security agreements, with Bank of America, N.A., as trustee, for the lenders. These modification agreements and related agreements amended and extended the Mortgages (collectively, the “Amended Mortgages”) until October 15, 2011. In connection with the Amended Mortgages, on October 1, 2010, Hudson Holdings and Mondrian Holdings paid down a total of $15.8 million and $17 million, respectively, on their outstanding mortgage loan balances. As of March 31, 2011, there is $331.1 million outstanding under the Amended Mortgages.

The interest rates were also amended to 30-day LIBOR plus 1.03% on the Hudson Holdings Amended Mortgage and 30-day LIBOR plus 1.64% on the Mondrian Holdings Amended Mortgage. The interest rate on the Hudson mezzanine loan continues to bear interest at 30-day LIBOR plus 2.98%. The Company entered into interest rate caps expiring October 15, 2011 in connection with the Amended Mortgages, which effectively cap the 30-day LIBOR rate at 5.3% and 4.25% on the Hudson Holdings Amended Mortgage and Mondrian Holdings Amended Mortgage, respectively, and effectively cap the 30-day LIBOR rate at 7.0% on the Hudson mezzanine loan.

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The Amended Mortgages require the Company’s subsidiary borrowers (entities owning Hudson and Mondrian Los Angeles) to fund reserve accounts to cover monthly debt service payments. Those subsidiary borrowers are also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of those hotels. Reserves are deposited into restricted cash accounts and are released as certain conditions are met. Starting in 2009, the Mortgages had fallen below the required debt service coverage and as such, all excess cash, once all other reserve accounts were completed, were funded into curtailment reserve accounts. At September 30, 2010, the balance in the curtailment reserve accounts was $20.3 million, of which $16.5 million was used in October 2010 to reduce the amount of mortgage debt outstanding under the Amended Mortgages, as discussed above. Under the Amended Mortgages, all excess cash will continue to be funded into curtailment reserve accounts regardless of the debt service coverage ratio. The subsidiary borrowers are not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations and certain other liabilities.

The Amended Mortgages prohibit the incurrence of additional debt on Hudson and Mondrian Los Angeles. Furthermore, the subsidiary borrowers are not permitted to incur additional mortgage debt or partnership interest debt. In addition, the Amended Mortgages do not permit (1) transfers of more than 49% of the interests in the subsidiary borrowers, Morgans Group or the Company or (2) a change in control of the subsidiary borrowers or in respect of Morgans Group or the Company itself without, in each case, complying with various conditions or obtaining the prior written consent of the lender.

The Amended Mortgages provide for events of default customary in mortgage financings, including, among others, failure to pay principal or interest when due, failure to comply with certain covenants, certain insolvency and receivership events affecting the subsidiary borrowers, Morgans Group or the Company, and breach of the encumbrance and transfer provisions. In the event of a default under the Mortgages, the lender’s recourse is limited to the mortgaged property, unless the event of default results from insolvency, a voluntary bankruptcy filing, a breach of the encumbrance and transfer provisions, or various other “bad boy” type acts, in which event the lender may also pursue remedies against Morgans Group.

As discussed further in note 12, on May 3, 2011, the Company completed the sale of Mondrian Los Angeles for $137.0 million to Wolverines Owner LLC, an affiliate of Pebblebrook Hotel Trust (“Pebblebrook”), pursuant to a purchase and sale agreement entered into on April 22, 2011. The Company applied a portion of the proceeds from the sale, along with approximately $9.2 million of cash in escrow, to retire the $103.5 million Mondrian Holdings Amended Mortgage.

After the repayment of the Mondrian Holdings Amended Mortgage, the Company is pursuing a number of options to finance the Hudson Holdings Amended Mortgage and Hudson mezzanine loan maturities, including using a portion of the proceeds from other asset sales such as Royalton and Morgans, discussed in note 12, debt financing, and other sources. The Company believes the combination of rising hotel cash flows and improving capital markets should provide sufficient capital to refinance the debt and provide capital for growth.

(b) Clift Debt

In October 2004, Clift Holdings LLC (“Clift Holdings”) sold the hotel to an unrelated party for $71.0 million and then leased it back for a 99-year lease term. Under this lease, the Company is required to fund operating shortfalls including the lease payments and to fund all capital expenditures. This transaction did not qualify as a sale due to the Company’s continued involvement and therefore is treated as a financing.

Due to the amount of the payments stated in the lease, which increase periodically, and the economic environment in which the hotel operates, Clift Holdings, the Company’s subsidiary that leases Clift, had not been operating Clift at a profit and Morgans Group had been funding cash shortfalls sustained at Clift in order to enable Clift Holdings to make lease payments from time to time. On March 1, 2010, however, the Company discontinued subsidizing the lease payments and Clift Holdings stopped making the scheduled monthly payments. On May 4, 2010, the owners filed a lawsuit against Clift Holdings, which the court dismissed on June 1, 2010. On June 8, 2010, the owners filed a new lawsuit and on June 17, 2010, the Company and Clift Holdings filed an affirmative lawsuit against the owners.

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On September 17, 2010, the Company, Clift Holdings and another subsidiary of the Company, 495 Geary, LLC, entered into a settlement and release agreement with Hasina, LLC, Tarstone Hotels, LLC, Kalpana, LLC, Rigg Hotel, LLC, and JRIA, LLC (collectively, the “Lessors”), and Tarsadia Hotels (the “Settlement and Release Agreement”). The Settlement and Release Agreement, among other things, effectively provided for the settlement of all outstanding litigation claims and disputes among the parties relating to defaulted lease payments due with respect to the ground lease for the Clift and reduced the lease payments due to Lessors for the period March 1, 2010 through February 29, 2012. Clift Holdings and the Lessors also entered into an amendment to the lease, dated September 17, 2010 (“Lease Amendment”), to memorialize, among other things, the reduced annual lease payments of $4.97 million from March 1, 2010 to February 29, 2012. Effective March 1, 2012, the annual rent will be as stated in the lease agreement, which currently provides for base annual rent of approximately $6.0 million per year through October 2014 increasing thereafter, at 5-year intervals by a formula tied to increases in the Consumer Price Index, with a maximum increase of 40% and a minimum of 20% at October 2014, and at each payment date thereafter, the maximum increase is 20% and the minimum is 10%. The lease is non-recourse to the Company.

Morgans Group also entered into an agreement, dated September 17, 2010 (the “Limited Guaranty,” together with the Settlement and Release Agreement and Lease Amendment, the “Clift Settlement Agreements”), whereby Morgans Group agreed to guarantee losses of up to $6 million suffered by the Lessors in the event of certain “bad boy” type acts.

(c) Liability to Subsidiary Trust Issuing Preferred Securities

On August 4, 2006, a newly established trust formed by the Company, MHG Capital Trust I (the “Trust”), issued $50.0 million in trust preferred securities in a private placement. The Company owns all of the $0.1 million of outstanding common stock of the Trust. The Trust used the proceeds of these transactions to purchase $50.1 million of junior subordinated notes issued by the Company’s operating company and guaranteed by the Company (the “Trust Notes”) which mature on October 30, 2036. The sole assets of the Trust consist of the Trust Notes. The terms of the Trust Notes are substantially the same as preferred securities issued by the Trust. The Trust Notes and the preferred securities have a fixed interest rate of 8.68% per annum during the first 10 years, after which the interest rate will float and reset quarterly at the three-month LIBOR rate plus 3.25% per annum. The Trust Notes are redeemable by the Trust, at the Company’s option, after five years at par. To the extent the Company redeems the Trust Notes, the Trust is required to redeem a corresponding amount of preferred securities.

Prior to the amendment described below, the Trust Notes agreement required that the Company not fall below a fixed charge coverage ratio, defined generally as Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) excluding Clift’s EBITDA over consolidated interest expense, excluding Clift’s interest expense, of 1.4 to 1.0 for four consecutive quarters. On November 2, 2009, the Company amended the Trust Notes agreement to permanently eliminate this financial covenant. The Company paid a one-time fee of $2.0 million in exchange for the permanent removal of the covenant.

The Company has identified that the Trust is a variable interest entity under ASC 810-10. Based on management’s analysis, the Company is not the primary beneficiary under the trust. Accordingly, the Trust is not consolidated into the Company’s financial statements. The Company accounts for the investment in the common stock of the Trust under the equity method of accounting.

(d) Revolving Credit Facility

On October 6, 2006, the Company and certain of its subsidiaries entered into a revolving credit facility with Wachovia Bank, National Association, as Administrative Agent, and the other lenders party thereto, which was amended on August 5, 2009, and which is referred to as the Amended Revolving Credit Facility.

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The Amended Revolving Credit Facility provides for a maximum aggregate amount of the commitments of $125.0 million, divided into two tranches: (i) a revolving credit facility in an amount equal to $90.0 million (the “New York Tranche”), which is secured by a mortgage on Morgans and Royalton (the “New York Properties”) and a mortgage on Delano South Beach (the “Florida Property”); and (ii) a revolving credit facility in an amount equal to $35.0 million (the “Florida Tranche”), which is secured by the mortgage on the Florida Property (but not the New York Properties). The Amended Revolving Credit Facility also provides for a letter of credit facility in the amount of $25.0 million, which is secured by the mortgages on the New York Properties and the Florida Property. At any given time, the amount available for borrowings under the Amended Revolving Credit Facility is contingent upon the borrowing base valuation, which is calculated as the lesser of (i) 60% of appraised value and (ii) the implied debt service coverage value of certain collateral properties securing the Amended Revolving Credit Facility; provided that the portion of the borrowing base attributable to the New York Properties will never be less than 35% of the appraised value of the New York Properties. Following appraisals in March 2010, total availability under the Amended Revolving Credit Facility as of March 31, 2011 was $116.4 million, of which the outstanding principal balance was $37.7 million, and approximately $1.2 million of letters of credit were posted. Of the $37.7 million outstanding, $33.7 million was allocated to the Florida Tranche and $4.0 million was allocated to the New York Tranche.

The Amended Revolving Credit Facility bears interest at a fluctuating rate measured by reference to, at the Company’s election, either LIBOR (subject to a LIBOR floor of 1%) or a base rate, plus a borrowing margin. LIBOR loans have a borrowing margin of 3.75% per annum and base rate loans have a borrowing margin of 2.75% per annum. The Amended Revolving Credit Facility also provides for the payment of a quarterly unused facility fee equal to the average daily unused amount for each quarter multiplied by 0.5%.

In addition, the Amended Revolving Credit Facility includes the following, among other, provisions:

• requirement that the Company maintain a fixed charge coverage ratio (defined generally as the ratio of consolidated EBITDA excluding Mondrian Scottsdale’s EBITDA for the periods ending June 30, 2009 and September 30, 2009 and Clift’s EBITDA for all periods to consolidated interest expense excluding Mondrian Scottsdale’s interest expense for the periods ending June 30, 2009 and September 30, 2009 and Clift’s interest expense for all periods) for each four-quarter period of no less than 0.90 to 1.00. As of March 31, 2011, the Company’s fixed charge coverage ratio under the Amended Revolving Credit Facility was 1.81x;

• prohibition on capital expenditures with respect to any hotels owned by the Company, the borrowers, as defined, or subsidiaries, other than maintenance capital expenditures for any hotel not exceeding 4% of the annual gross revenues of such hotel and certain other exceptions;

• prohibition on repurchases of the Company’s common equity interests by the Company or Morgans Group; and

• certain limits on any secured swap agreements entered into after the effective date of the Amended Revolving Credit Facility.

The commitments under the Amended Revolving Credit Facility terminate on October 5, 2011, at which time all outstanding amounts under the Amended Revolving Credit Facility will be due.

The Amended Revolving Credit Facility provides for customary events of default, including: failure to pay principal or interest when due; failure to comply with covenants; any representation proving to be incorrect; defaults relating to acceleration of, or defaults on, certain other indebtedness of at least $10.0 million in the aggregate; certain insolvency and bankruptcy events affecting the Company, Morgans Group or certain subsidiaries of the Company that are party to the Amended Revolving Credit Facility; judgments in excess of $5.0 million in the aggregate affecting the Company, Morgans Group and certain subsidiaries of the Company that are party to the Amended Revolving Credit Facility; the acquisition by any person of 40% or more of any outstanding class of capital stock having ordinary voting power in the election of directors of the Company; and the incurrence of certain ERISA liabilities in excess of $5.0 million in the aggregate.

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(e) October 2007 Convertible Notes Offering

On October 17, 2007, the Company issued $172.5 million aggregate principal amount of 2.375% Senior Subordinated Convertible Notes (the “Convertible Notes”) in a private offering. Net proceeds from the offering were approximately $166.8 million.

The Convertible Notes are senior subordinated unsecured obligations of the Company and are guaranteed on a senior subordinated basis by the Company’s operating company, Morgans Group. The Convertible Notes are convertible into shares of the Company’s common stock under certain circumstances and upon the occurrence of specified events.

Interest on the Convertible Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2008, and the Convertible Notes mature on October 15, 2014, unless previously repurchased by the Company or converted in accordance with their terms prior to such date. The initial conversion rate for each $1,000 principal amount of Convertible Notes is 37.1903 shares of the Company’s common stock, representing an initial conversion price of approximately $26.89 per share of common stock. The initial conversion rate is subject to adjustment under certain circumstances. The maximum conversion rate for each $1,000 principal amount of Convertible Notes is 45.5580 shares of the Company’s common stock representing a maximum conversion price of approximately $21.95 per share of common stock.

On January 1, 2009, the Company adopted ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”), which clarifies the accounting for convertible notes payable. ASC 470-20 requires the proceeds from the issuance of convertible notes to be allocated between a debt component and an equity component. The debt component is measured based on the fair value of similar debt without an equity conversion feature, and the equity component is determined as the residual of the fair value of the debt deducted from the original proceeds received. The resulting discount on the debt component is amortized over the period the debt is expected to be outstanding as additional interest expense. ASC 470-20 required retroactive application to all periods presented. The equity component, recorded as additional paid-in capital, was determined to be $9.0 million, which represents the difference between the proceeds from issuance of the Convertible Notes and the fair value of the liability, net of deferred taxes of $6.4 million as of the date of issuance of the Convertible Notes.

In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge transactions with respect to the Company’s common stock (the “Call Options”) with Merrill Lynch Financial Markets, Inc. and Citibank, N.A. (collectively, the “Hedge Providers”). The Call Options are exercisable solely in connection with any conversion of the Convertible Notes and pursuant to which the Company will receive shares of the Company’s common stock from the Hedge Providers equal to the number of shares issuable to the holders of the Convertible Notes upon conversion. The Company paid approximately $58.2 million for the Call Options.

In connection with the sale of the Convertible Notes, the Company also entered into separate warrant transactions with Merrill Lynch Financial Markets, Inc. and Citibank, N.A., whereby the Company issued warrants (the “Warrants”) to purchase 6,415,327 shares of common stock, subject to customary anti-dilution adjustments, at an exercise price of approximately $40.00 per share of common stock. The Company received approximately $34.1 million from the issuance of the Warrants.

The Company recorded the purchase of the Call Options, net of the related tax benefit of approximately $20.3 million, as a reduction of additional paid-in capital and the proceeds from the Warrants as an addition to additional paid-in capital in accordance with ASC 815-30, Derivatives and Hedging, Cash Flow Hedges.

In February 2008, the Company filed a registration statement with the Securities and Exchange Commission to cover the resale of shares of the Company’s common stock that may be issued from time to time upon the conversion of the Convertible Notes.

(f) Capital Lease Obligations

The Company has leased two condominium units at Hudson from unrelated third-parties, which are reflected as capital leases. One of the leases requires the Company to make annual payments, currently $582,180 (subject to increases due to increases in the Consumer Price Index) from acquisition through November 2096. This lease also allows the Company to purchase the unit at fair market value after November 2015.

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The second lease requires the Company to make annual payments, currently $328,128 (subject to increases due to increases in the Consumer Price Index) through December 2098. The Company has allocated both of the leases’ payments between the land and building based on their estimated fair values. The portion of the payments allocated to building has been capitalized at the present value of the future minimum lease payments. The portion of the payments allocable to land is treated as operating lease payments. The imputed interest rate on both of these leases is 8%, which is based on the Company’s incremental borrowing rate at the time the lease agreement was executed. The capital lease obligations related to the units amounted to approximately $6.1 million as of March 31, 2011 and December 31, 2010. Substantially all of the principal payments on the capital lease obligations are due at the end of the lease agreements.

The Company has also entered into capital lease obligations related to equipment at certain of the hotels.

(g) Notes secured by property held for non sale disposition

An indirect subsidiary of the Company had issued a $10.0 million interest only non-recourse promissory note to the seller of the property across from the Delano South Beach which was due on January 24, 2011 and secured by the property. Additionally, a separate indirect subsidiary of the Company had issued a $0.5 million interest only non-recourse promissory note to an affiliate of the seller which was also due on January 24, 2011 and secured with a pledge of the equity interests in the Company’s subsidiary that owned the property. In January 2011, the Company’s indirect subsidiary transferred its interests in the property across the street from Delano in South Beach to SU Gale Properties, LLC (the “Gale Transaction”). As a result of the Gale Transaction, the Company was released from the $10.5 million of non-recourse mortgage and mezzanine indebtedness.

7. Omnibus Stock Incentive Plan

On February 9, 2006, the Board of Directors of the Company adopted the Morgans Hotel Group Co. 2006 Omnibus Stock Incentive Plan (the “2006 Stock Incentive Plan”). An aggregate of 3,500,000 shares of common stock of the Company were reserved and authorized for issuance under the 2006 Stock Incentive Plan, subject to equitable adjustment upon the occurrence of certain corporate events. On April 23, 2007, the Board of Directors of the Company adopted, and at the annual meeting of stockholders on May 22, 2007, the stockholders approved, the Company’s 2007 Omnibus Incentive Plan (the “2007 Incentive Plan”), which amended and restated the 2006 Stock Incentive Plan and increased the number of shares reserved for issuance under the plan by up to 3,250,000 shares to a total of 6,750,000 shares. On April 10, 2008, the Board of Directors of the Company adopted, and at the annual meeting of stockholders on May 20, 2008, the stockholders approved, an Amended and Restated 2007 Omnibus Incentive Plan (the “Restated 2007 Incentive Plan”) which, among other things, increased the number of shares reserved for issuance under the plan by up to 1,860,000 shares to a total of 8,610,000 shares. On November 30, 2009, the Board of Directors of the Company adopted, and at a special meeting of stockholders of the Company held on January 28, 2010, the Company’s stockholders approved, an amendment to the Restated 2007 Incentive Plan (the “Amended 2007 Incentive Plan”) to increase the number of shares reserved for issuance under the plan by 3,000,000 shares to 11,610,000 shares.

The Amended 2007 Incentive Plan provides for the issuance of stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of the Company, including restricted stock units (“RSUs”) and other equity-based awards, including membership units in Morgans Group which are structured as profits interests (“LTIP Units”), or any combination of the foregoing. The eligible participants in the Amended 2007 Incentive Plan included directors, officers and employees of the Company. Awards other than options and stock appreciation rights reduce the shares available for grant by 1.7 shares for each share subject to such an award.

In connection with the Company’s senior management changes announced in March 2011, the Compensation Committee of the Board of Directors of the Company issued an aggregate of 200,000 LTIP units to the Company’s newly appointed Chief Executive Officer and Executive Chairman under the Amended 2007 Incentive Plan on March 20, 2011. The 125,000 LTIP units granted to the newly appointed Chief Executive Officer vest one-third of the amount granted on each of the first three anniversaries of the grant date so long as the recipient continues to be an eligible participant. The 75,000 LTIP units granted to the newly appointed Executive Chairman vest pro rata on a monthly basis over the 12 months beginning on the first monthly anniversary of the date of grant, so long as the recipient continues to be an eligible participant. The estimated fair value of each LTIP unit granted was $8.87 at the grant date.

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Also in connection with the Company’s senior management changes announced in March 2011, the Compensation Committee of the Board of Directors of the Company issued an aggregate of 900,000 stock options to the Company’s newly appointed Chief Executive Officer and Executive Chairman under the Amended 2007 Incentive Plan on March 20, 2011. The stock options vest one-third of the amount granted on each of the first three anniversaries of the grant date so long as the recipients continue to be eligible participants and expire 10 years after the grant date. The fair value for each such option granted was estimated at the date of grant using the Black-Scholes option-pricing model, an allowable valuation method under ASC 718-10 with the following assumptions: risk-free interest rate of approximately 2.3%, expected option lives of 5.85 years, 50% volatility, no dividend rate and an approximately 10% forfeiture rate. The fair value of each such option was $4.36 at the date of grant.

Additionally, on March 23, 2011, the Compensation Committee of the Board of Directors of the Company issued an aggregate of 200,000 stock options to the Company’s newly appointed Chief Development Officer under the Amended 2007 Incentive Plan. The stock options vest one-third of the amount granted on each of the first three anniversaries of the grant date so long as the recipient continues to be an eligible participant and expire 10 years after the grant date. The fair value for each such option granted was estimated at the date of grant using the Black-Scholes option-pricing model, an allowable valuation method under ASC 718-10 with the following assumptions: risk-free interest rate of approximately 2.4%, expected option lives of 5.85 years, 50% volatility, no dividend rate and an approximately 10% forfeiture rate. The fair value of each such option was $4.75 at the date of grant.

On April 4, 2011, the Compensation Committee of the Board of Directors of the Company issued an aggregate of 200,000 stock options to the Company’s newly appointed Chief Operations Officer under the Amended 2007 Incentive Plan. The stock options vest one-third of the amount granted on each of the first three anniversaries of the grant date so long as the recipient continues to be an eligible participant and expire 10 years after the grant date. The fair value for each such option granted was estimated at the date of grant using the Black-Scholes option-pricing model, an allowable valuation method under ASC 718-10 with the following assumptions: risk-free interest rate of approximately 2.5%, expected option lives of 5.85 years, 50% volatility, no dividend rate and an approximately 10% forfeiture rate. The fair value of each such option was $4.79 at the date of grant.

In March 2011, the Company also announced changes to its Board of Directors, including the addition of two new directors. As a result, on April 7, 2011 the Company issued an aggregate of 11,000 RSUs to the two newly appointed non-employee directors under the Amended 2007 Incentive Plan, which vested immediately upon grant. The fair value of each such RSU was $9.09 at the grant date.

Pursuant to the separation agreement with the Company’s former president (the “Former President”), the Former President retained his vested and unvested RSUs, LTIP units and stock options. To the extent that these awards were not yet vested, they were fully vested on March 27, 2011. Pursuant to the expiration of the employment agreement with the Company’s former CEO (the “Former CEO”), the Former CEO retained his vested and unvested RSUs, LTIP units and stock options. To the extent that these awards were not yet vested, they were fully vested on March 20, 2011. The accelerated expense for these vested awards was recognized during the three months ended March 31, 2011.

A summary of stock-based incentive awards as of March 31, 2011 is as follows (in units, or shares, as applicable):

	Restricted Stock
	Units			LTIP Units		Stock Options
Outstanding as of January 1, 2011		805,334			2,271,437		1,506,337
Granted during 2011		65,250			200,000		1,100,000
Distributed/exercised during 2011		(37,182	)		—		—
Forfeited during 2011		(28,420	)		—		—
Outstanding as of March 31, 2011		804,982			2,471,437		1,514,872
Vested as of March 31, 2011		166,806			2,184,993		1,267,108

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As of March 31, 2011 and December 31, 2010, there were approximately $9.6 million and $6.8 million, respectively, of total unrecognized compensation costs related to unvested share awards. As of March 31, 2011, the weighted-average period over which the unrecognized compensation expense will be recorded is approximately 1.5 years.

Total stock compensation expense, which is included in corporate expenses on the accompanying consolidated statements of operations, was $4.0 million and $3.8 million for the three months ended March 31, 2011 and 2010, respectively.

8. Preferred Securities and Warrants

On October 15, 2009, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the Investors. Under the Securities Purchase Agreement, the Company issued and sold to the Investors (i) 75,000 shares of the Company’s Series A Preferred Securities, $1,000 liquidation preference per share (the “Series A Preferred Securities”), and (ii) warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share.

The Series A Preferred Securities have an 8% dividend rate for the first five years, a 10% dividend rate for years six and seven, and a 20% dividend rate thereafter. The Company has the option to accrue any and all dividend payments, and as of March 31, 2011, the Company had undeclared and unpaid dividends of $8.8 million. The Company has the option to redeem any or all of the Series A Preferred Securities at par at any time. The Series A Preferred Securities have limited voting rights and only vote on the authorization to issue senior preferred, amendments to their certificate of designations, amendments to the Company’s charter that adversely affect the Series A Preferred Securities and certain change in control transactions.

As discussed in note 2, the warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share have a 7-1/2 year term and are exercisable utilizing a cashless exercise method only, resulting in a net share issuance. Until October 15, 2010, the Investors had certain rights to purchase their pro rata share of any equity or debt securities offered or sold by the Company. In addition, the $6.00 exercise price of the warrants was subject to certain reductions if, any time prior to October 15, 2010, the Company issued shares of common stock below $6.00 per share. Per ASC 815-40-15, as the strike price was adjustable until the first anniversary of issuance, the warrants were not considered indexed to the Company’s stock until that date. Therefore, through October 15, 2010, the Company accounted for the warrants as liabilities at fair value. On October 15, 2010, the Investors rights under this warrant exercise price adjustment expired, at which time the warrants met the scope exception in ASC 815-10-15 and are accounted for as equity instruments indexed to the Company’s stock. At October 15, 2010, the warrants were reclassified to equity and will no longer be adjusted periodically to fair value.

The exercise price and number of shares subject to the warrants are both subject to anti-dilution adjustments.

Under the Securities Purchase Agreement, the Investors have consent rights over certain transactions for so long as they collectively own or have the right to purchase through exercise of the warrants 6,250,000 shares of the Company’s common stock, including (subject to certain exceptions and limitations):

• the sale of substantially all of the Company’s assets to a third party;

• the acquisition by the Company of a third party where the equity investment by the Company is $100 million or greater;

• the acquisition of the Company by a third party; or

• any change in the size of the Company’s Board of Directors to a number below 7 or above 9.

Subject to certain exceptions, the Investors may not transfer any Series A Preferred Securities, warrants or common stock until October 15, 2012. The Investors are also subject to certain standstill arrangements as long as they beneficially own over 15% of the Company’s common stock.

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In connection with the investment by the Investors, the Company paid to the Investors a commitment fee of $2.4 million and reimbursed the Investors for $600,000 of expenses.

The Company calculated the fair value of the Series A Preferred Securities at its net present value by discounting dividend payments expected to be paid on the shares over a 7-year period using a 17.3% rate. The Company determined that the market discount rate of 17.3% was reasonable based on the Company’s best estimate of what similar securities would most likely yield when issued by entities comparable to the Company.

The initial carrying value of the Series A Preferred Securities was recorded at its net present value less costs to issue on the date of issuance. The carrying value will be periodically adjusted for accretion of the discount. As of March 31, 2011, the value of the Series A Preferred Securities was $51.8 million, which includes accretion of $3.7 million.

The Company calculated the estimated fair value of the warrants using the Black-Scholes valuation model, as discussed in note 2.

The Company and Yucaipa American Alliance Fund II, LLC, an affiliate of the Investors (the “Fund Manager”), also entered into a Real Estate Fund Formation Agreement (the “Fund Formation Agreement”) on October 15, 2009 pursuant to which the Company and the Fund Manager agreed to use their good faith efforts to endeavor to raise a private investment fund (the “Fund”). The purpose of the Fund will be to invest in hotel real estate projects located in North America. The Company will be offered the opportunity to manage the hotels owned by the Fund under long-term management agreements. In connection with the Fund Formation Agreement, the Company issued to the Fund Manager 5,000,000 contingent warrants to purchase the Company’s common stock at an exercise price of $6.00 per share with a 7-1/2 year term. These contingent warrants will only become exercisable if the Fund obtains capital commitments in certain amounts over certain time periods and also meets certain further capital commitment and investment thresholds. The exercise price and number of shares subject to these contingent warrants are both subject to anti-dilution adjustments.

The Fund Formation Agreement terminated by its terms on January 30, 2011 due to the failure to close a fund with $100 million of aggregate capital commitments by that date. The 5,000,000 contingent warrants issued to the Fund Manager will be forfeited in their entirety on October 15, 2011 if a fund with $250 million has not closed by that date. As of March 31, 2011, no contingent warrants have been issued or exercised and no value has been assigned to the warrants, as the Company cannot determine the probability that the Fund will be raised. In the event the Fund is raised and contingent warrants are issued, the Company will determine the value of the contingent warrants in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. The Company cannot provide any assurances that the Fund will be raised.

For so long as the Investors collectively own or have the right to purchase through exercise of the warrants 875,000 shares of the Company’s common stock, the Company has agreed to use its reasonable best efforts to cause its Board of Directors to nominate and recommend to the Company’s stockholders the election of a person nominated by the Investors as a director of the Company and to use its reasonable best efforts to ensure that the Investors’ nominee is elected to the Company’s Board of Directors at each such meeting. If that nominee is not elected by the Company’s stockholders, the Investors have certain observer rights and, in certain circumstances, the dividend rate on the Series A Preferred Securities increases by 4% during any time that an Investors’ nominee is not a member of the Company’s Board of Directors. Effective October 15, 2009, the Investors nominated and the Company’s Board of Directors elected Michael Gross as a member of the Company’s Board of Directors. Effective March 20, 2011 when Mr. Gross was appointed Chief Executive Officer of the Company, the Investors’ nominated, and the Company’s Board of Directors elected, Ron Burkle as a member of the Company’s Board of Directors.

On April 21, 2010, the Company entered into a Waiver Agreement (the “Waiver Agreement”) with the Investors. The Waiver Agreement allowed the purchase by the Investors of up to $88 million in aggregate principal amount of the Convertible Notes within six months of April 21, 2010 and subject to the limitations and conditions set forth therein. From April 21, 2010 to July 21, 2010, the Investors purchased $88 million of the Convertible Notes. Pursuant to the Waiver Agreement, in the event an Investor proposes to sell the Convertible Notes at a time when the market price of a share of the Company’s common stock exceeds the then effective conversion price of the Convertible Notes, the Company is granted certain rights of first refusal for the purchase of the same from the Investors. In the event an Investor proposes to sell the Convertible Notes at a time when the market price of a share of the Company’s common stock is equal to or less than the then effective conversion price of the Convertible Notes, the Company is granted certain rights of first offer to purchase the same from the Investors.

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9. Discontinued Operations

In May 2006, the Company obtained a $40.0 million non-recourse mortgage and mezzanine financing on Mondrian Scottsdale, which accrued interest at LIBOR plus 2.3%, and for which Morgans Group had provided a standard non-recourse carve-out guaranty. In June 2009, the non-recourse mortgage and mezzanine loans matured and the Company discontinued subsidizing the debt service. The lender foreclosed on the property and terminated the Company’s management agreement related to the property with an effective termination date of March 16, 2010.

The Company has reclassified the individual assets and liabilities to the appropriate discontinued operations line items on its December 31, 2010 balance sheet. Additionally, the Company reclassified the hotels results of operations and cash flows to discontinued operations on the Company’s statements of operations and cash flows.

Additionally, in January 2011, an indirect subsidiary of the Company transferred its interests in the property across the street from Delano South Beach to SU Gale Properties, LLC. As a result of this transaction, the Company was released from $10.5 million of non-recourse mortgage and mezzanine indebtedness previously consolidated on the Company’s balance sheet. The property across the street from Delano South Beach was a development property.

The following sets forth the discontinued operations of Mondrian Scottsdale and the property across the street from Delano South Beach for the three months ended March 31, 2011 and 2010 (in thousands):

	Three Months			Three Months
	Ended			Ended
	March 31,			March 31,
	2011			2010
Operating revenues	$	—		$	1,594
Operating expenses		(27	)		(1,770	)
Interest expense		—			(433	)
Depreciation and amortization expense		—			(268	)
Income tax (expense) benefit		(326	)		126
Gain on disposal		843			17,953
Income from discontinued operations	$	490		$	17,202

10. Related Party Transactions

The Company earned management fees, chain services fees and fees for certain technical services and has receivables from hotels it owns through investments in unconsolidated joint ventures. These fees totaled approximately $3.3 million and $4.4 million for the three months ended March 31, 2011 and 2010, respectively.

As of March 31, 2011 and December 31, 2010, the Company had receivables from these affiliates of approximately $3.8 million and $3.8 million, respectively, which are included in receivables from related parties on the accompanying consolidated balance sheets.

11. Litigation

Potential Litigation

The Company understands that Mr. Philippe Starck has attempted to initiate arbitration proceedings in the London Court of International Arbitration regarding an exclusive service agreement that he entered into with Residual Hotel Interest LLC (formerly known as Morgans Hotel Group LLC) in February 1998 regarding the design of certain hotels now owned by the Company and its subsidiaries. The Company is not a party to these proceedings at this time. See note 5.

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Petra Litigation Regarding Scottsdale Mezzanine Loan

On April 7, 2010, Petra CRE CDO 2007-1, LTD, a Cayman Islands Exempt Company (“Petra”), filed a complaint against Morgans Group LLC in the Supreme Court of the State of New York County of New York in connection with an approximately $14.0 million non-recourse mezzanine loan made on December 1, 2006 by Greenwich Capital Financial Products Company LLC (the “Original Lender”) to Mondrian Scottsdale Mezz Holding Company LLC, a wholly-owned subsidiary of Morgans Group LLC. The mezzanine loan relates to the Scottsdale, Arizona property previously owned by the Company. In connection with the mezzanine loan, Morgans Group LLC entered into a so-called “bad boy” guaranty providing for recourse liability under the mezzanine loan in certain limited circumstances. Pursuant to an assignment by the Original Lender, Petra is the holder of an interest in the mezzanine loan. The complaint alleges that the foreclosure of the Scottsdale property by a senior lender on March 16, 2010 constitutes an impermissible transfer of the property that triggered recourse liability of Morgans Group LLC pursuant to the guaranty. Petra demands damages of approximately $15.9 million plus costs and expenses.

The Company believes that a foreclosure based on a payment default does not create one of the limited circumstances under which Morgans Group LLC would have recourse liability under the guaranty. On May 27, 2010, the Company answered Petra’s complaint, denying any obligation to make payment under the guaranty. It also requested relevant documents from Petra. On July 9, 2010, Petra moved for summary judgment on the ground that the loan documents unambiguously establish Morgans Group’s obligation under the guaranty. Petra also moved to stay discovery pending resolution of its motion. The Company opposed Petra’s motion for summary judgment, and similarly moved for summary judgment in favor of the Company on grounds that the guaranty was not triggered by a foreclosure resulting from a payment default. On December 20, 2010, the court granted the Company’s motion for summary judgment dismissing the complaint, and denied the plaintiff’s motion for summary judgment. The action has accordingly been dismissed. Petra has appealed the decision, and the appeal was heard on April 28, 2011. The Company will continue to defend this lawsuit vigorously. The Company believes the probability of losses associated with this litigation is remote and cannot reasonably estimate a range of such losses, if any, at this time.

Other Litigation

The Company is involved in various lawsuits and administrative actions in the normal course of business. In management’s opinion, disposition of these lawsuits is not expected to have a material adverse effect on our financial position, results of operations or liquidity.

Environmental

As a holder of real estate, the Company is subject to various environmental laws of federal and local governments. Compliance by the Company with existing laws has not had an adverse effect on the Company and management does not believe that it will have a material adverse impact in the future. However, the Company cannot predict the impact of new or changed laws or regulations on its current investment or on investments that may be made in the future.

12. Assets Held for Sale

On April 2, 2011, Royalton LLC, a subsidiary of the Company, entered into a purchase and sale agreement to sell Royalton for $88.2 million to Royalton 44 Hotel, L.L.C., an affiliate of FelCor Lodging Trust, Incorporated, and Morgans Holdings LLC, a subsidiary of the Company, entered into a purchase and sale agreement to sell Morgans for $51.8 million to Madison 237 Hotel, L.L.C., an affiliate of FelCor Lodging Trust, Incorporated. The parties have agreed that the Company will continue to operate the hotels under a 15-year management agreement with one 10-year extension option. The transaction is expected to close in the second quarter of 2011 and is subject to satisfaction of customary closing conditions.

On April 22, 2011, Mondrian Holdings entered into a purchase and sale agreement to sell Mondrian Los Angeles for $137.0 million to Pebblebrook. The parties have agreed that the Company will continue to operate the hotel under a 20-year management agreement with one 10-year extension option. The transaction closed on May 3, 2011 and the Company applied a portion of the proceeds from the sale, along with approximately $9.2 million of cash in escrow, to retire the $103.5 million Mondrian Holdings Amended Mortgage. Net proceeds, after the repayment of debt and closing costs, are approximately $40 million.

The Company has reclassified the individual assets and liabilities of Royalton, Morgans and Mondrian Los Angeles to the appropriate assets and liabilities of assets held for sale on its March 31, 2011 and December 31, 2010 balance sheets.

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ITEM 2. 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 our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q for the three months ended March 31, 2011. 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Overview

We are a fully integrated hospitality company that operates, owns, acquires, develops and redevelops boutique hotels primarily in gateway cities and select resort markets in the United States, Europe and other international locations. Over our 27-year history, we have gained experience operating in a variety of market conditions.

The historical financial data presented herein is the historical financial data for:

• our wholly-owned hotels, or Owned Hotels, consisting, as of March 31, 2011, of Morgans, Royalton and Hudson in New York, Delano South Beach in Miami Beach, Mondrian Los Angeles in Los Angeles, and Clift in San Francisco;

• our hotels in which we own partial interests, or Joint Venture Hotels, consisting, as of March 31, 2011, of our London hotels (Sanderson and St Martins Lane), Mondrian South Beach and Shore Club in Miami Beach, Ames in Boston, Mondrian SoHo in New York and the San Juan Water and Beach Club in Isla Verde, Puerto Rico;

• our investments in hotels under construction, such as Mondrian SoHo prior to its opening in February 2011, and our investment in other proposed properties;

• our investment in certain joint venture food and beverage operations at our Owned Hotels and Joint Venture Hotels, discussed further below;

• our management company subsidiary, Morgans Hotel Group Management LLC, or MHG Management Company, and certain non-U.S. management company affiliates; and

• the rights and obligations contributed to Morgans Group, our operating company, in the formation and structuring transactions described in note 1 to the consolidated financial statements, included elsewhere in this report.

In April 2011, we entered into definitive agreements to sell Royalton, Morgans and Mondrian Los Angeles. We will continue to operate these hotels under long-term management agreements. The sale of Mondrian Los Angeles was completed on May 3, 2011 and the sale of Royalton and Morgans is expected to close in the second quarter of 2011, subject to satisfaction of customary closing conditions.

As of March 31, 2011, we consolidate the results of operations, including food and beverage operations, for all of our Owned Hotels. Certain food and beverage operations at three of our Owned Hotels, are operated under 50/50 joint ventures with restaurateur Jeffrey Chodorow. We consolidate the food and beverage joint ventures as we believe that we are the primary beneficiary of these entities. Our partner’s share of the results of operations of these food and beverage joint ventures are recorded as noncontrolling interests in the accompanying consolidated financial statements.

We own partial interests in the Joint Venture Hotels and certain food and beverage operations at three of the Joint Venture Hotels, Sanderson, St Martins Lane and Mondrian South Beach. We account for these investments using the equity method as we believe we do not exercise control over significant asset decisions such as buying, selling or financing nor are we the primary beneficiary of the entities. Under the equity method, we increase our investment in unconsolidated joint ventures for our proportionate share of net income and contributions and decrease our investment balance for our proportionate share of net losses and distributions.

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As of March 31, 2011, we operated the following Joint Venture Hotels under management agreements which expire as follows:

• Sanderson — June 2018 (with one 10-year extension at our option);

• St Martins Lane — June 2018 (with one 10-year extension at our option);

• Shore Club — July 2022;

• Mondrian South Beach — August 2026;

• Ames — November 2024;

• Mondrian SoHo — February 2021 (with two 10-year extensions at our option, subject to certain conditions); and

• San Juan Water and Beach Club — October 2019 (subject to certain conditions).

In addition to the Joint Venture Hotels, we also manage Hotel Las Palapas in Playa del Carmen, Mexico under a management agreement which expires in December 2014, with one five-year extension, which is automatic so long as we are not in default under the management agreement. We do not have an ownership interest in Hotel Las Palapas.

In February 2011, we opened Mondrian SoHo which we manage under a 10-year management agreement with two 10-year extension options. We have signed management agreements to manage various other hotels that are in development, including a Mondrian Palm Springs project, a Delano project in Cabo San Lucas, Mexico, a Delano project on the Aegean Sea in Turkey, a hotel project in the Highline area in New York City and a Mondrian project in Doha, Qatar, but we are unsure of the future of the development of some of these hotels as financing has not yet been obtained.

These management agreements may be subject to early termination in specified circumstances. Several of our hotels are also subject to substantial mortgage and mezzanine debt, and in some instances our management fee is subordinated to the debt, and our management agreements may be terminated by the lenders on foreclosure or certain other related events.

In March 2010, the lender for the Shore Club mortgage initiated foreclosure proceedings against the property in U.S. federal district court. In October 2010, the federal court dismissed the case for lack of jurisdiction. In November 2010, the lender initiated foreclosure proceedings in state court. We continue to operate the hotel pursuant to the management agreement during these proceedings. However, there can be no assurances we will continue to operate the hotel once foreclosure proceedings are complete.

Until March 1, 2011, we managed and had a partial ownership interest in the Hard Rock Hotel & Casino in Las Vegas (the “Hard Rock”) pursuant to a management agreement that was terminated in connection with the Hard Rock settlement, discussed below in “—Recent Developments.”

Factors Affecting Our Results of Operations

Revenues. Changes in our revenues are most easily explained by three performance indicators that are commonly used in the hospitality industry:

• Occupancy;

• Average daily room rate (“ADR”); and

• Revenue per available rooms (“RevPAR”), which is the product of ADR and average daily occupancy, but does not include food and beverage revenue, other hotel operating revenue such as telephone, parking and other guest services, or management fee revenue.

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Substantially all of our revenue is derived from the operation of our hotels. Specifically, our revenue consists of:

• Rooms revenue. Occupancy and ADR are the major drivers of rooms revenue.

• Food and beverage revenue. Most of our food and beverage revenue is earned by our 50/50 restaurant joint ventures and is driven by occupancy of our hotels and the popularity of our bars and restaurants with our local customers.

• Other hotel revenue. Other hotel revenue, which consists of ancillary revenue such as telephone, parking, spa, entertainment and other guest services, is principally driven by hotel occupancy.

• Management fee-related parties revenue and other income. We earn fees under our management agreements. These fees may include management fees as well as reimbursement for allocated chain services.

Fluctuations in revenues, which tend to correlate with changes in gross domestic product, are driven largely by general economic and local market conditions but can also be impacted by major events, such as terrorist attacks or natural disasters, which in turn affect levels of business and leisure travel.

The seasonal nature of the hospitality business can also impact revenues. For example, our Miami hotels are generally strongest in the first quarter, whereas our New York hotels are generally strongest in the fourth quarter. However, given the global economic downturn, the impact of seasonality in 2009 and 2010 was not as significant as in prior periods and may remain less pronounced throughout 2011 depending on the timing and strength of the economic recovery.

In addition to economic conditions, supply is another important factor that can affect revenues. Room rates and occupancy tend to fall when supply increases, unless the supply growth is offset by an equal or greater increase in demand. One reason why we focus on boutique hotels in key gateway cities is because these markets have significant barriers to entry for new competitive supply, including scarcity of available land for new development and extensive regulatory requirements resulting in a longer development lead time and additional expense for new competitors.

Finally, competition within the hospitality industry can affect revenues. Competitive factors in the hospitality industry include name recognition, quality of service, convenience of location, quality of the property, pricing, and range and quality of food services and amenities offered. In addition, all of our hotels, restaurants and bars are located in areas where there are numerous competitors, many of whom have substantially greater resources than us. New or existing competitors could offer significantly lower rates or more convenient locations, services or amenities or significantly expand, improve or introduce new service offerings in markets in which our hotels compete, thereby posing a greater competitive threat than at present. If we are unable to compete effectively, we would lose market share, which could adversely affect our revenues.

Operating Costs and Expenses. Our operating costs and expenses consist of the costs to provide hotel services, costs to operate our management company, and costs associated with the ownership of our assets, including:

• Rooms expense. Rooms expense includes the payroll and benefits for the front office, housekeeping, concierge and reservations departments and related expenses, such as laundry, rooms supplies, travel agent commissions and reservation expense. Like rooms revenue, occupancy is a major driver of rooms expense, which has a significant correlation with rooms revenue.

• Food and beverage expense. Similar to food and beverage revenue, occupancy of our hotels and the popularity of our restaurants and bars are the major drivers of food and beverage expense, which has a significant correlation with food and beverage revenue.

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• Other departmental expense. Occupancy is the major driver of other departmental expense, which includes telephone and other expenses related to the generation of other hotel revenue.

• Hotel selling, general and administrative expense. Hotel selling, general and administrative expense consist of administrative and general expenses, such as payroll and related costs, travel expenses and office rent, advertising and promotion expenses, comprising the payroll of the hotel sales teams, the global sales team and advertising, marketing and promotion expenses for our hotel properties, utility expense and repairs and maintenance expenses, comprising the ongoing costs to repair and maintain our hotel properties.

• Property taxes, insurance and other. Property taxes, insurance and other consist primarily of insurance costs and property taxes.

• Corporate expenses, including stock compensation. Corporate expenses consist of the cost of our corporate office, net of any cost recoveries, which consists primarily of payroll and related costs, stock-based compensation expenses, office rent and legal and professional fees and costs associated with being a public company.

• Depreciation and amortization expense. Hotel properties are depreciated using the straight-line method over estimated useful lives of 39.5 years for buildings and five years for furniture, fixtures and equipment.

• Restructuring, development and disposal costs include costs incurred related to losses on asset disposals as part of major renovation projects, the write-off of abandoned development projects resulting primarily from events generally outside management’s control such as the recent tightness of the credit markets, our restructuring initiatives and severance costs related to our restructuring initiatives. These items do not relate to the ongoing operating performance of our assets.

Other Items

• Interest expense, net. Interest expense, net includes interest on our debt and amortization of financing costs and is presented net of interest income and interest capitalized.

• Equity in (income) loss of unconsolidated joint ventures. Equity in (income) loss of unconsolidated joint ventures constitutes our share of the net profits and losses of our Joint Venture Hotels and our investments in hotels under development. Further, we and our joint venture partners review our Joint Venture Hotels for other-than-temporary declines in market value. In this analysis of fair value, we use discounted cash flow analysis to estimate the fair value of our investment taking into account expected cash flow from operations, holding period and net proceeds from the dispositions of the property. Any decline that is not expected to be recovered is considered other-than-temporary and an impairment charge is recorded as a reduction in the carrying value of the investment.

• Other non-operating (income) expenses include costs associated with executive terminations not related to restructuring initiatives, costs of financings, litigation and settlement costs and other items that relate to the financing and investing activities associated with our assets and not to the ongoing operating performance of our assets, both consolidated and unconsolidated, as well as the change in fair market value of our warrants issued in connection with the Yucaipa transaction.

• Income tax expense (benefit). All of our foreign subsidiaries are subject to local jurisdiction corporate income taxes. Income tax expense is reported at the applicable rate for the periods presented. We are subject to Federal and state income taxes. Income taxes for the quarters ended March 31, 2011 and 2010 were computed using our calculated effective tax rate. We also recorded net deferred taxes related to cumulative differences in the basis recorded for certain assets and liabilities. We established a reserve on the deferred tax assets based on the ability to utilize net operating losses going forward.

• Noncontrolling interest. Noncontrolling interest constitutes our third-party food and beverage joint venture partner’s interest in the profits and losses of the restaurant ventures at certain of our hotels as well as the percentage of membership units in Morgans Group, our operating company, owned by Residual Hotel Interest LLC, our former parent, as discussed in note 1 of our consolidated financial statements.

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• Income (loss) from discontinued operations, net of tax. In March 2010, the mortgage lender foreclosed on Mondrian Scottsdale and we were terminated as the property’s manager. As such, we have recorded the income or loss earned from Mondrian Scottsdale in the income (loss) from discontinued operations, net of tax, on the accompanying consolidated financial statements. In January 2011, we recognized income from the transfer of the property across the street from Delano South Beach.

• Preferred stock dividends and accretion. Dividends attributable to our outstanding preferred stock and the accretion of the fair value discount on the issuance of the preferred stock are reflected as adjustments to our net loss to arrive at net loss attributable to common stockholders, as discussed in note 8 of our consolidated financial statements.

Most categories of variable operating expenses, such as operating supplies, and certain labor, such as housekeeping, fluctuate with changes in occupancy. Increases in RevPAR attributable to increases in occupancy are accompanied by increases in most categories of variable operating costs and expenses. Increases in RevPAR attributable to improvements in ADR typically only result in increases in limited categories of operating costs and expenses, primarily credit card and travel agent commissions. Thus, improvements in ADR have a more significant impact on improving our operating margins than occupancy.

Notwithstanding our efforts to reduce variable costs, there are limits to how much we can accomplish because we have significant costs that are relatively fixed costs, such as depreciation and amortization, labor costs and employee benefits, insurance, real estate taxes, interest and other expenses associated with owning hotels that do not necessarily decrease when circumstances such as market factors cause a reduction in our hotel revenues.

Recent Trends and Developments

Recent Trends. Starting in the fourth quarter of 2008 and continuing throughout 2009, the weakened U.S. and global economies resulted in considerable negative pressure on both consumer and business spending. As a result, lodging demand and revenues, which are primarily driven by growth in GDP, business investment and employment growth weakened substantially during this period as compared to the lodging demand and revenues we experienced prior to the fourth quarter of 2008. After this extremely difficult recessionary period, the outlook for the U.S. and global economies improved in 2010 and that improvement is expected to continue into 2011. We are optimistic as we continue into 2011. However, spending by businesses and consumers remains restrained, and there are still several trends which make our lodging performance difficult to forecast, including shorter booking lead times at our hotels.

We experienced positive trends in 2010 as we saw improvement in demand in key gateway markets, particularly in New York and London. These markets experienced increasing occupancy in all quarters, accompanied by increases in average daily rate in the second, third and fourth quarters of 2010.

During the first quarter of 2011, we continued to experience an increase in demand in most of our markets, although we witnessed some softness, particularly in New York and London, where RevPAR decreased slightly compared to the prior year. We believe this softness will prove to be temporary in nature and primarily due to the impact of severe winter storms combined with recent new supply additions during a seasonally slow period. Our overall RevPAR performance showed greater increases beginning in March 2011 and this trend continued through April. Overall, however, our operating results are still below pre-recessionary levels.

As demand continues to strengthen in 2011, we are focusing on revenue enhancement by actively managing rates and availability. With increased demand, the ability to increase pricing will be a critical component in driving profitability. Through these uncertain times, our strategy and focus continues to be to preserve profit margins by maximizing revenue, increasing our market share and managing costs. Our strategy includes re-energizing our food and beverage offerings by taking action to improve key facilities with a focus on driving higher beverage to food ratios and re-igniting the buzz around our nightlife and lobby scenes.

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We are also actively managing costs at each of our properties and our corporate office. Through our multi-phased contingency plan, we reduced hotel operating expenses and corporate expenses during 2008 and 2009. We continue to focus on containing operating costs without affecting the guest experience. We believe that these cost reduction plans have resulted and will continue to result in significant savings, although market conditions may require increases in certain areas.

The pace of new lodging supply has increased over the past two years as many projects initiated before the economic downturn came to fruition. For example, we witnessed new competitive luxury and boutique properties opening in 2008, 2009 and 2010 in some of our markets, particularly in Los Angeles, Miami Beach and New York, which have impacted our performance in these markets and may continue to do so. However, we believe the timing of new development projects may be affected by the severe recession, ongoing uncertain economic conditions and reduced availability of financing compared to pre-recession periods. These factors may dampen the pace of new supply development, including our own, in the next few years.

In 2011, we believe that if various economic forecasts projecting continued modest expansion are accurate, this may lead to a gradual and modest increase in lodging demand for both leisure and business travel, although we expect there to be continued pressure on rates, as leisure and business travelers alike continue to focus on cost containment. As such, there can be no assurances that any increases in hotel revenues or earnings at our properties will occur, or be sustained, or that any losses will not increase for these or any other reasons.

We believe that the global credit market conditions will also gradually improve during 2011, although we believe there will continue to be less credit available and on less favorable terms than were obtainable in prior years. Given the current state of the credit markets, some of our development projects may not be able to obtain adequate project financing in a timely manner or at all. If adequate project financing is not obtained, the joint ventures or developers, as applicable, may seek additional equity investors to raise capital, limit the scope of the project, defer the project or cancel the project altogether.

Recent Developments.

Settlement of Debt on Property Across from Delano in South Beach. In January 2011, our indirect subsidiary transferred its interests in the property across the street from Delano in South Beach to SU Gale Properties, LLC. As a result of this transaction, we were released from $10.5 million of non-recourse mortgage and mezzanine indebtedness previously consolidated on our balance sheet. The property across the street from Delano in South Beach was a development property with no operations and generated no earnings before interest tax, depreciation and amortization during 2010 or the first three months of 2011.

New Management Contracts. In February 2011, we announced a new hotel management agreement for a 114 key Delano on the beach at the tip of the Baja Peninsula in Cabo San Lucas, Mexico, overlooking the Sea of Cortez. The hotel is currently under construction and is expected to open early in 2013. We also announced a management agreement for a 200 key Delano on the Aegean Sea in Turkey, an exclusive, high-end resort destination easily accessible from Istanbul and other key European locations, which is expected to open in 2013. Further, we announced a new management agreement for a 175 key hotel in New York City in the Highline area. The hotel will be branded with one of our existing brands and is expected to open in 2014. Finally, also in February 2011, we announced a new hotel management agreement for a Mondrian hotel in Doha, Qatar that is currently under construction and is expected to open in early 2013. We will operate the hotel pursuant to a 30-year management contract with extension options.

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Hard Rock Settlement Agreement. On March 1, 2011, Hard Rock Hotel Holdings, LLC, a joint venture through which we held a minority interest in the Hard Rock Hotel & Casino in Las Vegas, Vegas HR Private Limited (the “Mortgage Lender”), Brookfield Financial, LLC — Series B (the “First Mezzanine Lender”), NRFC HRH Holdings, LLC (the “Second Mezzanine Lender”), Morgans Group, the Company and certain affiliates of DLJ Merchant Banking Partners (“DLJMB”), as well as Hard Rock Mezz Holdings LLC (the “Third Mezzanine Lender”) and other interested parties, entered into a comprehensive settlement to resolve the disputes among them and all matters relating to the Hard Rock and related loans and guaranties. The Hard Rock settlement agreement provided, among other things, for the following:

• release of the non-recourse carve-out guaranties provided by us with respect to the loans made by the Mortgage Lender, the First Mezzanine Lender, the Second Mezzanine Lender and the Third Mezzanine Lender to the direct and indirect owners of the Hard Rock;

• termination of the management agreement pursuant to which we managed the Hard Rock;

• the transfer by Hard Rock Hotel Holdings, LLC and its subsidiary Hard Rock Hotel Inc. to an affiliate of the First Mezzanine Lender of 100% of the indirect equity interests in the Hard Rock; and

• certain payments to or for the benefit of the Mortgage Lender, the First Mezzanine Lender, the Second Mezzanine Lender, the Third Mezzanine Lender and us. Our net payment was approximately $3.7 million.

As a result of the settlement, we will no longer be subject to Nevada gaming regulations, after completion of certain gaming de-registration procedures. See “Off-Balance Sheet Arrangements” for additional information.

Board of Director and Management Changes. In March 2011, we announced the following Board of Directors (“Board”) and senior management changes:

• David Hamamoto, Chairman of the Board and one of our largest stockholders, was appointed Executive Chairman, effective March 20, 2011;

• Michael Gross, a member of the Board who previously served on the Corporate Governance and Nominating Committee, was appointed Chief Executive Officer, effective March 20, 2011;

• Daniel Flannery, who previously served with Marriott International, Inc., was appointed Chief Operating Officer, effective April 4, 2011;

• Yoav Gery, who previously served with Marriott International, Inc., was appointed Chief Development Officer, effective March 23, 2011;

• Ron Burkle, Managing Partner at The Yucaipa Companies, LLC, joined the Board, effective March 20, 2011, as the nominee appointed by Yucaipa, which is our largest stakeholder; and

• Jason Taubman Kalisman, a founding member of our largest stockholder, OTK Associates, joined the Board, effective March 22, 2011.

Also in March 2011, we announced that Fred Kleisner stepped down as Chief Executive Officer and resigned from the Board effective March 20, 2011 and that the Company’s President, Marc Gordon, was leaving the Company to pursue other interests and resigned from the Board effective March 22, 2011. In connection with Mr. Gordon’s departure, we entered into a separation agreement and release (the “Separation Agreement”) on March 20, 2011. Pursuant to the Separation Agreement, we agreed to pay Mr. Gordon (1) a lump sum severance payment of $2,069,000, (2) monthly consulting payments of $66,666 per month through December 2011, and (3) a lump sum payment of $300,000 in January 2012. We also agreed that all of Mr. Gordon’s equity awards would vest and that he will be eligible to elect continuation coverage under COBRA. In consideration of the monthly consulting payments, Mr. Gordon agreed to make himself available to provide consulting services to us through December 2011. In addition, Mr. Gordon agreed to certain non-competition and standstill provisions that are effective for nine months following the date of the Separation Agreement and certain non-solicitation provisions that are effective through March 31, 2012.

Agreement to sell Royalton and Morgans. On April 2, 2011, we entered into purchase and sale agreements to sell Royalton for $88.2 million and Morgans for $51.8 million to affiliates of FelCor Lodging Trust, Incorporated. The parties have agreed that we will continue to operate the hotels following the sales under 15-year management agreements with one 10-year extension option. The transactions are expected to close in the second quarter of 2011 and are subject to satisfaction of customary closing conditions.

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We intend to use a portion of the proceeds of the sales to retire approximately $37.7 million outstanding debt under our amended revolving credit facility as of March 31, 2011. The hotels, along with Delano, are collateral for our amended revolving credit facility, which terminates upon the sale of any of the properties securing the facility. Upon termination of the facility, Delano will be unencumbered.

We received a $7 million security deposit, which is non-refundable except in the event of a default by us.

Sale of Mondrian Los Angeles. On May 3, 2011, our subsidiary Mondrian Holdings LLC (“Mondrian Holdings”) completed the sale of Mondrian Los Angeles for $137.0 million to Wolverines Owner LLC, an affiliate of Pebblebrook Hotel Trust (“Pebblebrook”), pursuant to a purchase and sale agreement entered into on April 22, 2011. We applied a portion of the proceeds from the sale, along with approximately $9.2 million of cash in escrow, to retire the $103.5 million Mondrian Holdings Amended Mortgage, defined below in “—Debt.” Net proceeds, after the repayment of debt and closing costs, were approximately $40 million. We will continue to operate the hotel under a 20-year management agreement with one 10-year extension option.

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Operating Results

Comparison of Three Months Ended March 31, 2011 to Three Months Ended March 31, 2010

The following table presents our operating results for the three months ended March 31, 2011 and 2010, including the amount and percentage change in these results between the two periods. The consolidated operating results for the three months ended March 31, is comparable to the consolidated operating results for the three months ended March 31, 2010, with the exception of the Hard Rock, which we managed until March 1, 2011 and Mondrian SoHo, which opened in February 2011. The consolidated operating results are as follows:

	Three Months Ended
	March 31,			March 31,
	2011			2010			Changes ($)			Changes (%)
	(Dollars in thousands)
Revenues:
Rooms	$	31,034		$	29,250		$	1,784			6.1	%
Food and beverage		18,030			17,496			534			3.1
Other hotel		2,016			2,209			(193	)		(8.7	)
Total hotel revenues		51,080			48,955			2,125			4.3
Management fee-related parties and other income		3,324			4,429			(1,105	)		(24.9	)
Total revenues		54,404			53,384			1,020			1.9
Operating Costs and Expenses:
Rooms		11,174			10,025			1,149			11.5
Food and beverage		15,102			13,916			1,186			8.5
Other departmental		1,211			1,252			(41	)		(3.3	)
Hotel selling, general and administrative		12,558			11,437			1,121			9.8
Property taxes, insurance and other		4,185			4,100			85			2.1
Total hotel operating expenses		44,230			40,730			3,500			8.6
Corporate expenses, including stock compensation		10,834			10,005			829			8.3
Depreciation and amortization		8,373			7,345			1,028			14.0
Restructuring, development and disposal costs		4,593			677			3,916			(1	)
Total operating costs and expenses		68,030			58,757			9,273			15.8
Operating loss		(13,626	)		(5,373	)		(8,253	)		(1	)
Interest expense, net		8,994			12,350			(3,356	)		(27.2	)
Equity in loss of unconsolidated joint venture		9,483			263			9,220			(1	)
Other non-operating expenses		1,390			15,029			(13,639	)		(90.8	)
Loss before income tax (benefit) expense		(33,493	)		(33,015	)		(478	)		1.4
Income tax (benefit) expense		(135	)		294			(429	)		(1	)
Net loss from continuing operations		(33,358	)		(33,309	)		(49	)		0.1
Income from discontinued operations, net of tax		490			17,202			(16,712	)		(97.2	)
Net loss		(32,868	)		(16,107	)		(16,761	)		(1	)
Net loss attributable to non controlling interest		825			147			678			(1	)
Net loss attributable to Morgans Hotel Group Co.		(32,043	)		(15,960	)		(16,083	)		(1	)
Preferred stock dividends and accretion		(2,187	)		(2,078	)		(109	)		5.2
Net loss attributable to common stockholders	$	(34,230	)	$	(18,038	)	$	(16,192	)		89.8	%

(1) Not meaningful.

Total Hotel Revenues. Total hotel revenues increased 1.9% to $54.4 million for the three months ended March 31, 2011 compared to $53.4 million for the three months ended March 31, 2010. The components of RevPAR from our Owned Hotels for the three months ended March 31, 2011 and 2010 are summarized as follows:

	Three Months Ended
	March 31,			March 31,
	2011			2010			Change ($)		Change (%)
Occupancy		75.4	%		72.0	%		—		4.7	%
ADR	$	238		$	236		$	2		1.2	%
RevPAR	$	180		$	170		$	10		6.0	%

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RevPAR from our Owned Hotels increased 6.0% to $180 for the three months ended March 31, 2011 compared to $170 for the three months ended March 31, 2010.

Rooms revenue increased 6.1% to $31.0 million for the three months ended March 31, 2011 compared to $29.3 million for the three months ended March 31, 2010, which is directly attributable to the increase in occupancy and ADR shown above.

Food and beverage revenue increased 3.1% to $18.0 million for the three months ended March 31, 2011 compared to $17.5 million for the three months ended March 31, 2010. The increase was primarily attributable to Hudson, which was being re-concepted and was under renovation during the three months ended March 31, 2010.

Other hotel revenue decreased 8.7% to $2.0 million for the three months ended March 31, 2011 compared to $2.2 million for the three months ended March 31, 2010. The overall decrease is primarily due to decreased revenues related to ancillary services, such as our spas at Delano, as guests are still spending conservatively in light of the uncertain economic recovery. Slightly offsetting this decrease, newly installed wireless infrastructures at certain of our Owned Hotels have contributed to an increase in internet revenues.

Management Fee — Related Parties and Other Income. Management fee — related parties and other income decreased by 24.9% to $3.3 million for the three months ended March 31, 2011 compared to $4.4 million for the three months ended March 31, 2010. This decrease is primarily attributable to the decrease in management fees earned at Hard Rock as a result of the termination of our management agreement effective March 1, 2011 in connection with the Hard Rock settlement.

Operating Costs and Expenses

Rooms expense increased 11.5% to $11.1 million for the three months ended March 31, 2011 compared to $10.0 million for the three months ended March 31, 2010. This increase is a result of the increase in rooms revenue attributable to increased occupancy along with the timing of operating supply purchases.

Food and beverage expense increased 8.5% to $15.1 million for the three months ended March 31, 2011 compared to $13.9 million for the three months ended March 31, 2010. This increase is primarily due to an increase in food and beverage expenses at Hudson in the first quarter of 2011 compared to the first quarter of 2010 as a result of the primary restaurant being closed from January 2010 to May 2010 during its re-concepting and renovation, and opened in the first quarter of 2011.

Other departmental expense decreased 3.3% to $1.2 million for the three months ended March 31, 2011 compared to $1.3 million for the three months ended March 31, 2010. This slight decrease is a direct result of the decrease in other hotel revenue noted above.

Hotel selling, general and administrative expense increased 9.8% to $12.6 million for the three months ended March 31, 2011 compared to $11.4 million for the three months ended March 31, 2010. This increase was primarily due to increased selling and marketing initiatives implemented across our hotel portfolio including the addition of a global sales team.

Property taxes, insurance and other expense increased 2.1% to $4.2 million for the three months ended March 31, 2011 compared to $4.1 million for the three months ended March 31, 2010. This slight increase was primarily due to tax refunds received during the three months ended March 31, 2010.

Corporate expenses, including stock compensation increased 8.3% to $10.8 million for the three months ended March 31, 2011 compared to $10.0 million for the three months ended March 31, 2010. This increase is primarily due to an increase in stock compensation expense due to the acceleration of vesting of unvested equity awards granted to our former Chief Executive Officer and President in connection with their separation from the Company in March 2011 and incentive compensation that was restored to more normalized levels than in prior years.

Depreciation and amortization increased 14.0% to $8.4 million for the three months ended March 31, 2011 compared to $7.3 million for the three months ended March 31, 2010. This increase is primarily the result of depreciation on capital improvements required to maintain our existing hotels incurred during 2010 and increased depreciation expense related to the recent lower level expansion at Hudson, Good Units, and the restaurant re-concepting, Hudson Hall, both of which occurred during the first half of 2010.

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Restructuring, development and disposal costs increased to $4.6 million for the three months ended March 31, 2011 compared to $0.7 million for the three months ended March 31, 2010. The increase in expense is primarily due to severance costs related to our executive restructurings during March 2011, for which there was no comparable costs incurred during the three months ended March 31, 2010.

Interest expense, net decreased 27.2% to $9.0 million for the three months ended March 31, 2011 compared to $12.4 million for the three months ended March 31, 2010. This decrease is primarily due to decreased interest expense recognized as a result of the expiration in July 2010 of the interest rate swaps related to the loans secured by the Hudson and Mondrian Los Angeles hotels which had fixed our interest expense on those loans at a much higher rate than the current LIBOR rates.

Equity in loss of unconsolidated joint ventures resulted in a loss of $9.5 million for the three months ended March 31, 2011 compared to a loss of $0.3 million for the three months ended March 31, 2010. This change was primarily a result of charges recognized related to the Hard Rock settlement, discussed above, and an impairment loss recognized on Mondrian SoHo, which opened in February 2011.

The components of RevPAR from our comparable Joint Venture Hotels for the three months ended March 31, 2011 and 2010, which includes Sanderson, St Martins Lane, Shore Club, and Mondrian South Beach, but excludes the Hard Rock, which we managed until March 1, 2011, Mondrian SoHo, which opened in February 2011, and San Juan Water and Beach Club in Isla Verde, Puerto Rico, which is a non-Morgans Hotel Group branded hotel, are summarized as follows (in constant dollars):

	Three Months Ended
	March 31,			March 31,
	2011			2010			Change ($)			Change (%)
Occupancy		67.0	%		63.5	%		—			5.5	%
ADR	$	326		$	334		$	(8	)		(2.2	)%
RevPAR	$	219		$	212		$	7			3.1	%

Other non-operating expense was $1.4 million for the three months ended March 31, 2011 as compared to $15.0 million for the three months ended March 31, 2010. The change was primarily the result of the loss on change in fair market value of the warrants issued to the Investors, defined below in “—Derivative Financial Instruments”, in connection with the Series A preferred securities during 2010. For further discussion, see notes 2 and 8 of our consolidated financial statements.

Income tax expense (benefit) resulted in a benefit of $0.1 million for the three months ended March 31, 2011 as compared to an expense of $0.3 million for the three months ended March 31, 2010. The slight change was primarily due to overall operating performance of the quarters.

Income from discontinued operations, net of tax resulted in a gain of $0.5 million for the three months ended March 31, 2011 compared to a gain of $17.2 million for the three months ended March 31, 2010. This change was primarily a result of the gain on disposal of Mondrian Scottsdale in March 2010 as compared to a slight gain on the disposal of the property across the street from Delano South Beach in January 2011.

Liquidity and Capital Resources

As of March 31, 2011, we had approximately $6.0 million in cash and cash equivalents. The maximum amount of borrowings available under our amended revolving credit facility was $116.5 million, of which $37.7 million of borrowings were outstanding and $1.2 million of letters of credit were posted.

We have both short-term and long-term liquidity requirements as described in more detail below.

Liquidity Requirements

Short-Term Liquidity Requirements. We generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred by us or our consolidated subsidiaries within the next 12 months and believe those requirements currently consist primarily of funds necessary to pay operating expenses and other expenditures directly associated with our properties, including the funding of our reserve accounts, capital commitments associated with certain of our development projects, and payment of scheduled debt maturities, unless otherwise extended or refinanced.

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We are obligated to maintain reserve funds for capital expenditures at our Owned Hotels as determined pursuant to our debt or lease agreements related to such hotels, with the exception of Delano South Beach, Royalton and Morgans. Our Joint Venture Hotels and Hotel Las Palapas, which we manage, generally are subject to similar obligations under debt agreements related to such hotels, or under our management agreements. These capital expenditures relate primarily to the periodic replacement or refurbishment of furniture, fixtures and equipment. Such agreements typically require us to reserve funds at amounts equal to 4% of the hotel’s revenues and require the funds to be set aside in restricted cash. In addition, our restaurant joint ventures require the ventures to set aside restricted cash of between 2% to 4% of gross revenues of the restaurant. Our Owned Hotels that were not subject to these reserve funding obligations — Delano South Beach, Royalton, and Morgans — underwent significant room and common area renovations during 2006, 2007 and 2008, and as such, are not expected to require a substantial amount of capital spending during 2011.

In addition to reserve funds for capital expenditures, our debt and lease agreements also require us to deposit cash into escrow accounts for taxes, insurance and debt service payments. As of March 31, 2011, total restricted cash was $29.9 million.

As of March 31, 2011, there was approximately $10.8 million in curtailment reserve accounts related to Hudson and Mondrian Los Angeles loans. These loans previously required that all excess cash be deposited into these accounts until such time as the debt service coverage ratio improved above the required ratio of 1:05 to 1:00 for two consecutive quarters. On October 1, 2010, our subsidiaries Hudson Holdings LLC (“Hudson Holdings”) and Mondrian Holdings LLC (“Mondrian Holdings”) each entered into a modification agreement of its respective mortgage, together with promissory notes and other related security agreements, with Bank of America, N.A., as trustee, for the lenders. These modification agreements and related agreements amended and extended the mortgages (collectively, the “Amended Mortgages”) until October 15, 2011. Under the Amended Mortgages all excess cash will continue to be deposited into curtailment reserve accounts regardless of the debt service coverage ratio.

In May 2011, we completed the sale of Mondrian Los Angeles for $137.0 million. We utilized a portion of the net proceeds along with cash held in escrow accounts to retire the $103.5 million of debt scheduled to mature in October 2011.

In October 2011, both our amended revolving credit facility, with an outstanding balance of $37.7 million as of March 31, 2011, and the Amended Mortgage on Hudson, with an outstanding aggregate balance of $201.2 million as of March 31, 2011, will mature. In addition, the mezzanine debt of $26.5 million at Hudson may not be extended if the underlying mortgage debt is not extended.

As we implement our strategy to shift towards a more “asset light” business model, which includes selling hotel assets, we announced in April 2011 that we entered into purchase and sale agreements to sell Royalton for $88.2 million, Morgans for $51.8 million, and Mondrian Los Angeles for $137.0 million. The sale of Royalton and Morgans is expected to close in the second quarter of 2011 and is subject to satisfaction of customary closing conditions. The sale of Mondrian Los Angeles closed on May 3, 2011.

We intend to use a portion of the proceeds from the sale of Royalton and Morgans to repay the approximately $37.7 million outstanding debt under our amended revolving credit facility secured by Delano, Royalton and Morgans, with the remainder available for the Hudson debt refinancing and for growth. Upon the closing of the sale, the facility will terminate and Delano will be unencumbered.

We have a number of options to finance the outstanding maturity on Hudson, including debt financing opportunities, and sales of additional hotels and other sources. We believe that the combination of rising hotel cash flows and improving capital markets should provide access to sufficient capital to retire or refinance this debt and provide capital for growth.

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Historically, we have satisfied our liquidity requirements through various sources of capital, including borrowings under our revolving credit facility, our existing working capital, cash provided by operations, equity and debt offerings, and long-term mortgages on our properties. Other sources may include cash generated through asset dispositions and joint venture transactions. Additionally, we may secure other financing opportunities. Given the uncertain economic environment and continuing difficult conditions in the credit markets, however, we may not be able to obtain such financings, or succeed in selling any assets, on terms acceptable to us or at all. We may require additional borrowings to satisfy these liquidity requirements. See also “—Other Liquidity Matters” below for additional liquidity that may be required in the short-term, depending on market and other circumstances, including our ability to refinance or extend existing debt.

Long-Term Liquidity Requirements. We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred by us or our consolidated subsidiaries beyond the next 12 months and believe these requirements consist primarily of funds necessary to pay scheduled debt maturities, renovations and other non-recurring capital expenditures that need to be made periodically to our properties and the costs associated with acquisitions and development of properties under contract and new acquisitions and development projects that we may pursue.

Our Series A preferred securities have an 8% dividend rate for the first five years, a 10% dividend rate for years six and seven, and a 20% dividend rate thereafter. We have the option to accrue any and all dividend payments, and as of March 31, 2011, have not declared any dividends. We have the option to redeem any or all of the Series A preferred securities at any time. While we do not anticipate redeeming any or all of the Series A preferred securities in the near-term, we may want to redeem them prior to the escalation in dividend rate to 20% in 2017.

Other long-term liquidity requirements include our obligations under our Hudson mezzanine loan, obligations under our Convertible Notes, defined below, our obligations under our trust preferred securities, and our obligations under the Clift lease, each as described under “—Debt.” Historically, we have satisfied our long-term liquidity requirements through various sources of capital, including our existing working capital, cash provided by operations, equity and debt offerings, and long-term mortgages on our properties. Other sources may include cash generated through asset dispositions and joint venture transactions. Additionally, we may secure other financing opportunities. Given the uncertain economic environment and continuing challenging conditions in the credit markets, however, we may not be able to obtain such financings on terms acceptable to us or at all. We may require additional borrowings to satisfy our long-term liquidity requirements.

Additionally, we anticipate we will need to renovate Hudson, Clift, Sanderson and St Martins Lane in the next few years, which will require capital and will most likely be funded by owner equity contributions, debt financing, possible asset sales, future operating cash flows or a combination of these sources.

Although the credit and equity markets remain challenging, we believe that these sources of capital will become available to us in the future to fund our long-term liquidity requirements. However, our ability to incur additional debt is dependent upon a number of factors, including our degree of leverage, borrowing restrictions imposed by existing lenders and general market conditions. We will continue to analyze which source of capital is most advantageous to us at any particular point in time.

Other Liquidity Matters

In addition to our expected short-term and long-term liquidity requirements, our liquidity could also be affected by potential liquidity matters at our Owned Hotels or Joint Venture Hotels, as discussed below.

Mondrian South Beach Mortgage and Mezzanine Agreements. The non-recourse mortgage loan and mezzanine loan agreements related to Mondrian South Beach matured on August 1, 2009. In April 2010, the Mondrian South Beach joint venture amended the non-recourse financing and mezzanine loan agreements secured by Mondrian South Beach and extended the maturity date for up to seven years through extension options until April 2017, subject to certain conditions.

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Morgans Group and affiliates of our joint venture partner have agreed to provide standard non-recourse carve-out guaranties and provide certain limited indemnifications for the Mondrian South Beach mortgage and mezzanine loans. In the event of a default, the lenders’ recourse is generally limited to the mortgaged property or related equity interests, subject to standard non-recourse carve-out guaranties for “bad boy” type acts. Morgans Group and affiliates of our joint venture partner also agreed to guaranty the joint venture’s obligation to reimburse certain expenses incurred by the lenders and indemnify the lenders in the event such lenders incur liability as a result of any third-party actions brought against Mondrian South Beach. Morgans Group and affiliates of our joint venture partner have also guaranteed the joint venture’s liability for the unpaid principal amount of any seller financing note provided for condominium sales if such financing or related mortgage lien is found unenforceable, provided they shall not have any liability if the seller financed unit becomes subject again to the lien of the lender mortgage or title to the seller financed unit is otherwise transferred to the lender or if such seller financing note is repurchased by Morgans Group and/or affiliates of our joint venture at the full amount of unpaid principal balance of such seller financing note. In addition, although construction is complete and Mondrian South Beach opened on December 1, 2008, Morgans Group and affiliates of our joint venture partner may have continuing obligations under construction completion guaranties until all outstanding payables due to construction vendors are paid. As of March 31, 2011, there are remaining payables outstanding to vendors of approximately $1.5 million. We believe that payment under these guaranties is not probable and the fair value of the guarantee is not material.

We and affiliates of our joint venture partner also have an agreement to purchase approximately $14 million each of condominium units under certain conditions, including an event of default. In the event of a default under the mortgage or mezzanine loan, the joint venture partners are obligated to purchase selected condominium units, at agreed-upon sales prices, having aggregate sales prices equal to 1/2 of the lesser of $28.0 million, which is the face amount outstanding on the mezzanine loan, or the then outstanding principal balance of the mezzanine loan. The joint venture is not currently in an event of default under the mortgage or mezzanine loan. We have not recognized a liability related to the construction completion or the condominium purchase guarantees.

Mondrian SoHo. The mortgage loan on the Mondrian SoHo property matured in June 2010. On July 31, 2010, the lender amended the debt financing on the property to provide for, among other things, extensions of the maturity date of the mortgage loan secured by the hotel to November 2011 with extension options through 2015, subject to certain conditions including a minimum debt service coverage test.

Certain affiliates of our joint venture partner have agreed to provide a standard non-recourse carve-out guaranty for “bad boy” type acts and a completion guaranty to the lenders for the Mondrian SoHo loan, for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates up to 20% of such entities’ guaranty obligations, provided that each party is fully responsible for any losses incurred as a result of its respective gross negligence or willful misconduct.

Mondrian SoHo opened in February 2011, and we are operating the hotel under a 10-year management contract with two 10-year extension options. We anticipate there may be cash shortfalls from the operations of the hotel and there may not be enough operating cash flow to cover debt service payments in all months going forward, which could require additional contributions by the joint venture partners.

Ames in Boston. As of March 31, 2011, the ownership joint venture’s outstanding mortgage debt secured by the hotel was $46.5 million. In October 2010, the mortgage loan matured, and the joint venture did not satisfy the conditions necessary to exercise the first of two remaining one-year extension options available under the loan, which included funding a debt service reserve account, among other things. As a result, the mortgage lender for Ames served the joint venture with a notice of default and acceleration of debt. In February 2011, the joint venture reached an agreement with the lender whereby the lender waived the default, reinstated the loan and extended the loan maturity date until October 9, 2011. The mortgage debt has one remaining extension option, subject to certain conditions, which if exercised would extend the maturity date for one year to October 9, 2012.

Potential Litigation. We may have potential liability in connection with certain claims by a designer for which we have accrued $13.9 million as of March 31, 2011, as discussed in note 5 of our consolidated financial statements. We believe the probability of losses associated with this claim in excess of the liability that is accrued of $13.9 million is remote and we cannot reasonably estimate of range of such additional losses, if any, at this time.

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Other Possible Uses of Capital. We have a number of development projects signed or under consideration, some of which may require equity investments, key money or credit support from us.

Comparison of Cash Flows for the Three Months Ended March 31, 2011 to the Three Months ended March 31, 2010

Operating Activities. Net cash used in operating activities was $2.6 million for the three months ended March 31, 2011 as compared to $7.0 million for the three months ended March 31, 2010. The decrease in cash used in operating activities is primarily due to a reduction in deposits of excess cash flow from Hudson into a curtailment reserve escrow account as a result of the decline in operating results at Hudson during the three months ended March 31, 2011. During the three months ended March 31, 2010, the deposit of funds into the reserve account was greater than during the three months ended March 31, 2011.

Investing Activities. Net cash used in investing activities amounted to $8.1 million for the three months ended March 31, 2011 as compared to $4.9 million for the three months ended March 31, 2010. The increase in cash used in investing activities primarily relates to an increase in contributions made to our investments in unconsolidated joint ventures in 2011 compared to 2010, primarily related to the Hard Rock settlement.

Financing Activities. Net cash provided by financing activities amounted to $11.4 million for the three months ended March 31, 2011 as compared to net cash used by financing activities of $0.7 million for the three months ended March 31, 2010. During the three months ended March 31, 2011, we drew $11.7 million on our amended revolving credit facility for which there were no comparable proceeds in 2010.

Debt

Amended Revolving Credit Facility. On October 6, 2006, we and certain of our subsidiaries entered into a revolving credit facility with Wachovia Bank, National Association, as Administrative Agent, and the lenders thereto, which was amended on August 5, 2009, and which we refer to as our amended revolving credit facility.

The amended revolving credit facility provides for a maximum aggregate amount of commitments of $125.0 million, divided into two tranches: (i) a revolving credit facility in an amount equal to $90.0 million (the “New York Tranche”), which is secured by a mortgage on Morgans and Royalton and a mortgage on Delano South Beach and (ii) a revolving credit facility in an amount equal to $35.0 million (the “Florida Tranche”), which is secured by the mortgage on the Florida Property (but not the Morgans and Royalton). Our amended revolving credit facility also provides for a letter of credit facility in the amount of $25.0 million, which is secured by the mortgages on the Morgans and Royalton and the Delano South Beach. At any given time, the amount available for borrowings under the amended revolving credit facility is contingent upon the borrowing base valuation, which is calculated as the lesser of (i) 60% of appraised value and (ii) the implied debt service coverage value of certain collateral properties securing the amended revolving credit facility; provided that the portion of the borrowing base attributable to the Morgans and Royalton will never be less than 35% of the appraised value of the Morgans and Royalton. Following appraisals in March 2010, total availability under our amended revolving credit facility as of March 31, 2011 was $116.5 million, of which $37.7 million of borrowings were outstanding, and approximately $1.2 million of letters of credit were posted. Of the outstanding $37.7 million, $33.7 million was allocated to the Florida Tranche and $4.0 million was allocated to the New York Tranche.

The amended revolving credit facility bears interest at a fluctuating rate measured by reference to, at our election, either LIBOR (subject to a LIBOR floor of 1%) or a base rate, plus a borrowing margin. LIBOR loans have a borrowing margin of 3.75% per annum and base rate loans have a borrowing margin of 2.75% per annum. The amended revolving credit facility also provides for the payment of a quarterly unused facility fee equal to the average daily unused amount for each quarter multiplied by 0.5%.

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In addition, the amended revolving credit facility includes the following, among other provisions:

• requirement that we maintain a fixed charge coverage ratio (defined generally as the ratio of consolidated EBITDA excluding Mondrian Scottsdale’s EBITDA for the periods ending June 30, 2009 and September 30, 2009 and Clift’s EBITDA for all periods to consolidated interest expense excluding Mondrian Scottsdale’s interest expense for the periods ending June 30, 2009 and September 30, 2009 and Clift’s interest expense for all periods) for each four-quarter period of no less than 0.90 to 1.00. As of March 31, 2011, our fixed charge coverage ratio was 1.81x;

• prohibition on capital expenditures with respect to any hotels owned by us, the borrowers, or our subsidiaries, other than maintenance capital expenditures for any hotel not exceeding 4% of the annual gross revenues of such hotel and certain other exceptions;

• prohibition on repurchase of our common equity interests by us or Morgans Group; and

• certain limits on any secured swap agreements entered into after the effective date of the amended revolving credit facility.

The amended revolving credit facility provides for customary events of default, including: failure to pay principal or interest when due; failure to comply with covenants; any representation proving to be incorrect; defaults relating to acceleration of, or defaults on, certain other indebtedness of at least $10.0 million in the aggregate; certain insolvency and bankruptcy events affecting us, Morgans Group or certain of our other subsidiaries that are party to the amended revolving credit facility; judgments in excess of $5.0 million in the aggregate affecting us, Morgans Group and certain of our other subsidiaries that are party to the amended revolving credit facility; the acquisition by any person of 40% or more of any outstanding class of our capital stock having ordinary voting power in the election of directors; and the incurrence of certain ERISA liabilities in excess of $5.0 million in the aggregate.

As of March 31, 2011, the principal balance of the amended revolving credit facility was $37.7 million, and approximately $1.2 million in letters of credit were outstanding. The commitments under the amended revolving credit facility terminate on October 5, 2011, at which time all outstanding amounts under the amended revolving credit facility will be due.

In connection with our proposed sale of Royalton and Morgans, we intend to use a portion of the proceeds to retire the approximately $37.7 million outstanding debt under the amended revolving credit facility as of March 31, 2011. These hotels, along with Delano, are collateral for the amended revolving credit facility, which terminates upon the sale of any of the properties securing the facility. Upon termination of the facility, Delano will be unencumbered.

Mortgages and Hudson Mezzanine Loan. On October 6, 2006, our subsidiaries, Hudson Holdings and Mondrian Holdings, entered into non-recourse mortgage financings consisting of two separate first mortgage loans secured by Hudson and Mondrian Los Angeles, respectively (collectively, the “Mortgages”), and a mezzanine loan related to Hudson, secured by a pledge of our equity interests in the subsidiary owning Hudson.

On October 14, 2009, we entered into an agreement with the lender that holds, among other loans, the mezzanine loan on Hudson. Under the agreement, we paid an aggregate of $11.2 million to (i) reduce the principal balance of the mezzanine loan from $32.5 million to $26.5 million, (ii) acquire interests in $4.5 million of debt securities secured by certain of our other debt obligations, (iii) pay fees, and (iv) obtain a forbearance from the mezzanine lender until October 12, 2013 from exercising any remedies resulting from a maturity default, subject only to maintaining certain interest rate caps and making an additional aggregate payment of $1.3 million to purchase additional interests in certain of our other debt obligations prior to October 11, 2011. The mezzanine lender also agreed to cooperate with us in our efforts to seek an extension of the Hudson mortgage loan and to consent to certain refinancings and other modifications of the Hudson mortgage loan.

Until amended as described below, the Hudson Holdings Mortgage bore interest at 30-day LIBOR plus 0.97%, and the Mondrian Holdings Mortgage bore interest at 30-day LIBOR plus 1.23%. We had entered into interest rate swaps on the Mortgages and the mezzanine loan on Hudson, which effectively fixed the 30-day LIBOR rate at approximately 5.0%. These interest rate swaps expired on July 15, 2010. We subsequently entered into short-term interest rate caps on the Mortgages that expired on September 12, 2010.

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On October 1, 2010, Hudson Holdings and Mondrian Holdings each entered into a modification agreement of its respective Mortgage, together with promissory notes and other related security agreements, with Bank of America, N.A., as trustee, for the lenders. These modification agreements and related agreements extended the Mortgages until October 15, 2011. In connection with the Amended Mortgages, on October 1, 2010, Hudson Holdings and Mondrian Holdings paid down a total of $16 million and $17 million, respectively, on their outstanding loan balances. The Hudson Holdings Amended Mortgage bears interest at 30-day LIBOR plus 1.03% and the Mondrian Holdings Amended Mortgage bears interest at 30-day LIBOR plus 1.64%.

The interest rate on the Hudson mezzanine loan continues to bear interest at 30-day LIBOR plus 2.98%. We entered into interest rate caps expiring October 15, 2011 in connection with the Amended Mortgages, which effectively cap the 30-day LIBOR rate at 5.3% and 4.25% on the Hudson Holdings Amended Mortgage and Mondrian Holdings Amended Mortgage, respectively, and effectively cap the 30-day LIBOR rate at 7.0% on the Hudson mezzanine loan.

The Amended Mortgages require our subsidiary borrowers to fund reserve accounts to cover monthly debt service payments. Those subsidiary borrowers are also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of those hotels. Reserves are deposited into restricted cash accounts and are released as certain conditions are met. Starting in 2009, the Mortgages had fallen below the required debt service coverage and as such, all excess cash, once all other reserve accounts were completed, were funded into curtailment reserve accounts. At the time the modification agreements were entered into, the balance in the curtailment reserve accounts was $20.3 million, of which $16.5 million was used to reduce the amount of debt outstanding under the Amended Mortgages, as discussed above. Under the Amended Mortgages, all excess cash will continue to be funded into curtailment reserve accounts regardless of our debt service coverage ratio. The subsidiary borrowers are not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations and certain other liabilities.

The Amended Mortgages prohibit the incurrence of additional debt on Hudson and Mondrian Los Angeles. Furthermore, the subsidiary borrowers are not permitted to incur additional mortgage debt or partnership interest debt. In addition, the Amended Mortgages do not permit (1) transfers of more than 49% of the interests in the subsidiary borrowers, Morgans Group or the Company or (2) a change in control of the subsidiary borrowers or in respect of Morgans Group or the Company itself without, in each case, complying with various conditions or obtaining the prior written consent of the lender.

The Amended Mortgages provide for events of default customary in mortgage financings, including, among others, failure to pay principal or interest when due, failure to comply with certain covenants, certain insolvency and receivership events affecting the subsidiary borrowers, Morgans Group or the Company, and breach of the encumbrance and transfer provisions. In the event of a default under the Amended Mortgages, the lender’s recourse is limited to the mortgaged property, unless the event of default results from insolvency, a voluntary bankruptcy filing, a breach of the encumbrance and transfer provisions, or various other “bad boy” type acts, in which event the lender may also pursue remedies against Morgans Group.

As of March 31, 2011 the balance outstanding on the Hudson Holdings Amended Mortgage was $201.2 million and on the Mondrian Holdings Amended Mortgage was $103.5 million. As of March 31, 2011, the balance outstanding on the Hudson mezzanine loan was $26.5 million.

On May 3, 2011, we completed the sale of Mondrian Los Angeles for $137.0 million to an affiliate of Pebblebrook, pursuant to a purchase and sale agreement entered into on April 22, 2011. We applied a portion of the proceeds from the sale, along with approximately $9.2 million of cash in escrow, to retire the $103.5 million Mondrian Holdings Amended Mortgage.

We are pursuing a number of alternatives to finance the Hudson Holdings Amended Mortgage and Hudson mezzanine loan maturities, including using a portion of the proceeds from asset sales such as Royalton and Morgans, debt financing, and other sources. The Company believes the combination of rising hotel cash flows and improving capital markets should provide sufficient capital to refinance the debt and provide capital for growth.

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Notes to a Subsidiary Trust Issuing Preferred Securities. In August 2006, we formed a trust, MHG Capital Trust I (the “Trust”), to issue $50.0 million of trust preferred securities in a private placement. The sole assets of the Trust consist of the trust notes due October 30, 2036 issued by Morgans Group and guaranteed by Morgans Hotel Group Co. The trust notes have a 30-year term, ending October 30, 2036, and bear interest at a fixed rate of 8.68% for the first 10 years, ending October 2016, and thereafter will bear interest at a floating rate based on the three-month LIBOR plus 3.25%. These securities are redeemable by the Trust at par beginning on October 30, 2011.

Clift. We lease Clift under a 99-year non-recourse lease agreement expiring in 2103. The lease is accounted for as a financing with a liability balance of $85.5 million at March 31, 2011.

Due to the amount of the payments stated in the lease, which increase periodically, and the economic environment in which the hotel operates, our subsidiary that leases Clift had not been operating Clift at a profit and Morgans Group had been funding cash shortfalls sustained at Clift in order to enable our subsidiary to make lease payments from time to time. On March 1, 2010, however, we discontinued subsidizing the lease payments and stopped making the scheduled monthly payments. On May 4, 2010, the lessors under the Clift ground lease filed a lawsuit against Clift Holdings LLC, which the court dismissed on June 1, 2010. On June 8, 2010, the lessors filed a new lawsuit and on June 17, 2010, we and our subsidiary filed an affirmative lawsuit against the lessors.

On September 17, 2010, we and our subsidiaries entered into a settlement and release agreement with the lessors under the Clift ground lease, which among other things, effectively provided for the settlement of all outstanding litigation claims and disputes among the parties relating to defaulted lease payments due with respect to the ground lease for the Clift and reduced the lease payments due to the lessors for the period March 1, 2010 through February 29, 2012. Effective March 1, 2012, the annual rent will be as stated in the lease agreement, which currently provides for base annual rent of approximately $6.0 million per year through October 2014 increasing thereafter, at 5-year intervals by a formula tied to increases in the Consumer Price Index, with a maximum increase of 40% and a minimum of 20% at October 2014, and at each payment date thereafter, the maximum increase is 20% and the minimum is 10%. The lease is non-recourse to us. Morgans Group also entered into a limited guaranty, whereby Morgans Group agreed to guarantee losses of up to $6 million suffered by the lessors in the event of certain “bad boy” type acts.

Hudson Capital Leases. We lease two condominium units at Hudson which are reflected as capital leases with balances of $6.1 million at March 31, 2011. Currently annual lease payments total approximately $900,000 and are subject to increases in line with inflation. The leases expire in 2096 and 2098.

Promissory Notes. The purchase of the property across from the Delano South Beach was partially financed with the issuance of a $10.0 million interest only non-recourse promissory note to the seller with a scheduled maturity of January 24, 2009 and an interest rate of 10.0%. In November 2008, we extended the maturity of the note until January 24, 2010 and agreed to pay 11.0% interest for the extension year which we were required to prepay in full at the time of extension. Effective January 24, 2010, we further extended the maturity of the note until January 24, 2011. The note bore interest at 11.0%, but we are permitted to defer half of each monthly interest payment until the maturity date. The obligations under the note were secured by the property. Additionally, in January 2009, an affiliate of the seller financed an additional $0.5 million to pay for costs associated with obtaining necessary permits. This $0.5 million promissory note had a scheduled maturity date on January 24, 2010, which we extended to January 24, 2011, and bore interest at 11%. The obligations under this note were secured with a pledge of the equity interests in our subsidiary that owned the property.

In January 2011, our indirect subsidiary transferred its interest in the property to SU Gales Properties, LLC. As a result of this transaction, we were released from this aggregate $10.5 million non-recourse debt.

Convertible Notes. On October 17, 2007, we completed an offering of $172.5 million aggregate principal amount of 2.375% Senior Subordinated Convertible Notes (“Convertible Notes”), in a private offering, which included an additional issuance of $22.5 million in aggregate principal amount of Convertible Notes as a result of the initial purchasers’ exercise in full of their overallotment option. The Convertible Notes are senior subordinated unsecured obligations of the Company and are guaranteed on a senior subordinated basis by our operating company, Morgans Group. The Convertible Notes are convertible into shares of our common stock under certain circumstances and upon the occurrence of specified events. The Convertible Notes mature on October 15, 2014, unless repurchased by us or converted in accordance with their terms prior to such date.

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In connection with the private offering, we entered into certain Convertible Note hedge and warrant transactions. These transactions are intended to reduce the potential dilution to the holders of our common stock upon conversion of the Convertible Notes and will generally have the effect of increasing the conversion price of the Convertible Notes to approximately $40.00 per share, representing a 82.23% premium based on the closing sale price of our common stock of $21.95 per share on October 11, 2007. The net proceeds to us from the sale of the Convertible Notes were approximately $166.8 million (of which approximately $24.1 million was used to fund the Convertible Note call options and warrant transactions).

On January 1, 2009, we adopted Accounting Standard Codification (“ASC”) 470-20, Debt with Conversion and other Options (“ASC 470-20”). ASC 470-20 requires the proceeds from the sale of the Convertible Notes to be allocated between a liability component and an equity component. The resulting debt discount is amortized over the period the debt is expected to remain outstanding as additional interest expense. ASC 470-20 required retroactive application to all periods presented. The equity component, recorded as additional paid-in capital, was $9.0 million, which represents the difference between the proceeds from issuance of the Convertible Notes and the fair value of the liability, net of deferred taxes of $6.4 million, as of the date of issuance of the Convertible Notes.

Joint Venture Debt. See “—Off-Balance Sheet Arrangements” for descriptions of joint venture debt.

Seasonality

The hospitality business is seasonal in nature. For example, our Miami hotels are generally strongest in the first quarter, whereas our New York hotels are generally strongest in the fourth quarter. Quarterly revenues also may be adversely affected by events beyond our control, such as the current recession, extreme weather conditions, terrorist attacks or alerts, natural disasters, airline strikes, and other considerations affecting travel. Given the recent global economic downturn, the impact of seasonality in 2010 and the first quarter of 2011 was not as significant as in prior periods and may remain less pronounced throughout 2011 depending on the timing and strength of the economic recovery.

To the extent that cash flows from operations are insufficient during any quarter, due to temporary or seasonal fluctuations in revenues, we may have to enter into additional short-term borrowings or increase our borrowings, if available, to meet cash requirements.

Capital Expenditures and Reserve Funds

We are obligated to maintain reserve funds for capital expenditures at our Owned Hotels as determined pursuant to our debt and lease agreements related to such hotels, with the exception of Delano South Beach, Royalton and Morgans. Our Joint Venture Hotels and Hotel Las Palapas, which we manage, generally are subject to similar obligations under debt agreements related to such hotels, or under our management agreements. These capital expenditures relate primarily to the periodic replacement or refurbishment of furniture, fixtures and equipment. Such agreements typically require us to reserve funds at amounts equal to 4% of the hotel’s revenues and require the funds to be set aside in restricted cash. In addition, our restaurant joint ventures require the ventures to set aside restricted cash of between 2% to 4% of gross revenues of the restaurant. As of March 31, 2011, approximately $3.0 million was available in restricted cash reserves for future capital expenditures under these obligations related to our Owned Hotels.

Additionally, we anticipate we will need to renovate Hudson, Clift, Sanderson and St Martins Lane in the next few years which will require capital and will most likely be funded by owner equity contributions, debt financing, possible asset sales, future operating cash flows or a combination of these sources.

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The lenders under the Amended Mortgages require our subsidiary borrowers to fund reserve accounts to cover monthly debt service payments. Those subsidiary borrowers are also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of those hotels. Reserves are deposited into restricted cash accounts and are released as certain conditions are met. In 2009, the Mortgages had fallen below the required debt service coverage and as such, all excess cash, once all other reserve accounts are completed, was funded into curtailment reserve accounts. In October 2010, $16.5 million from these curtailment reserve accounts was used to reduce the amount of mortgage debt outstanding under the Amended Mortgages. Under the Amended Mortgages, all excess cash will continue to be funded into curtailment reserve accounts. As of March 31, 2011, the balance in these curtailment reserve accounts was $10.8 million. Our subsidiary borrowers are not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations, and certain other liabilities. As a result of the sale of Mondrian Los Angeles and repayment of the Mondrian Holdings Amended Mortgage on May 3, 2011, approximately $9.2 million held in escrow related to this debt was applied to the repayment of the Mondrian Holdings Amended Mortgage.

During 2006, 2007 and 2008, our Owned Hotels that were not subject to these reserve funding obligations — Delano South Beach, Royalton, and Morgans — underwent significant room and common area renovations, and as such, are not expected to require a substantial amount of capital during 2011. Management will evaluate the capital spent at these properties on an individual basis and ensure that such decisions do not impact the overall quality of our hotels or our guests’ experience.

Under our amended revolving credit facility, we are generally prohibited from funding capital expenditures with respect to any hotels owned by us other than maintenance capital expenditures for any hotel not exceeding 4% of the annual gross revenues of such hotel and certain other exceptions.

Derivative Financial Instruments

We use derivative financial instruments to manage our exposure to the interest rate risks related to our variable 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. We determine the fair value of our derivative financial instruments using models which 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.

On February 22, 2006, we entered into an interest rate forward starting swap that effectively fixed the interest rate on $285.0 million of mortgage debt at approximately 5.04% on Mondrian Los Angeles and Hudson with an effective date of July 9, 2007 and a maturity date of July 9, 2010. This derivative qualified for hedge accounting treatment per ASC 815-10, Derivatives and Hedging (“ASC 815-10”) and accordingly, the change in fair value of this instrument was recognized in accumulated other comprehensive loss. In connection with the Mortgages, we also entered into an $85.0 million interest rate swap that effectively fixed the LIBOR rate on $85.0 million of the debt at approximately 5.0% with an effective date of July 9, 2007 and a maturity date of July 15, 2010. This derivative qualified for hedge accounting treatment per ASC 815-10 and accordingly, the change in fair value of this instrument was recognized in accumulated other comprehensive loss.

The foregoing swaps expired in July 2010, when the underlying debt was scheduled to mature. In connection with forbearance agreements we entered into in July and September 2010 with the mortgage lenders on Hudson and Mondrian Los Angeles, we entered into short-term interest rate caps. These interest rate caps were entered into in August and matured in September of 2010. In September 2010, in connection with the Amended Mortgages, we entered into interest rate caps which qualify for hedge accounting treatment per ASC 815-10 and accordingly, the change in fair value of this instrument is recognized in accumulated other comprehensive loss. Additionally, in August 2010, we entered into an interest rate cap on the Hudson mezzanine loan which does not qualify for hedge accounting treatment per ASC 815-10 and accordingly, the change in fair value of this instrument is recognized in interest expense. The fair value of all of these interest rate caps was insignificant as of March 31, 2011.

In connection with the sale of the Convertible Notes, we entered into call options which are exercisable solely in connection with any conversion of the Convertible Notes and pursuant to which we will receive shares of our common stock from counterparties equal to the number of shares of our common stock, or other property, deliverable by us to the holders of the Convertible Notes upon conversion of the Convertible Notes, in excess of an amount of shares or other property with a value, at then current prices, equal to the principal amount of the converted Convertible Notes. Simultaneously, we also entered into warrant transactions, whereby we sold warrants to purchase in the aggregate 6,415,327 shares of our common stock, subject to customary anti-dilution adjustments, at an exercise price of approximately $40.00 per share of common stock. The warrants may be exercised over a 90-day trading period commencing January 15, 2015. The call options and the warrants are separate contracts and are not part of the terms of the Convertible Notes and will not affect the holders’ rights under the Convertible Notes. The call options are intended to offset potential dilution upon conversion of the Convertible Notes in the event that the market value per share of the common stock at the time of exercise is greater than the exercise price of the call options, which is equal to the initial conversion price of the Convertible Notes and is subject to certain customary adjustments.

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On October 15, 2009, we entered into a securities purchase agreement with Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P., which we refer to collectively as the Investors. Under the securities purchase agreement, we issued and sold to the Investors (i) 75,000 shares of the our Series A preferred securities, $1,000 liquidation preference per share, and (ii) warrants to purchase 12,500,000 shares of the Company’s common stock at an exercise price of $6.00 per share. The warrants have a 7-1/2 year term and are exercisable utilizing a cashless exercise method only, resulting in a net share issuance. The exercise price and number of shares subject to the warrant are both subject to anti-dilution adjustments.

We and Yucaipa American Alliance Fund II, LLC, an affiliate of the Investors, as the fund manager, also entered into a real estate fund formation agreement on October 15, 2009 pursuant to which we and the fund manager agreed to use good faith efforts to endeavor to raise a private investment fund. In connection with the agreement, we issued to the fund manager 5,000,000 contingent warrants to purchase our common stock at an exercise price of $6.00 per share with a 7-1/2 year term. These contingent warrants will only become exercisable if the Fund obtains capital commitments in certain amounts over certain time periods and also meets certain further capital commitment and investment thresholds. The exercise price and number of shares subject to these contingent warrants are both subject to anti-dilution adjustments.

The fund formation agreement terminated by its terms on January 30, 2011 due to the failure to close a fund with $100 million of aggregate capital commitments by that date. The 5,000,000 contingent warrants issued to the fund manager will be forfeited in their entirety on October 15, 2011 if a fund with $250 million has not closed by that date.

Off-Balance Sheet Arrangements

As of March 31, 2011, we have unconsolidated joint ventures that we account for using the equity method of accounting, most of which have mortgage or related debt, as described below. In some cases, we provide non-recourse carve-out guaranties of joint venture debt, which guaranty is only triggered in the event of certain “bad boy” acts, and other limited liquidity or credit support, as described below.

Morgans Europe. We own interests in two hotels through a 50/50 joint venture known as Morgans Europe. Morgans Europe owns two hotels located in London, England, St Martins Lane, a 204-room hotel, and Sanderson, a 150-room hotel. Under a management agreement with Morgans Europe, we earn management fees and a reimbursement for allocable chain service and technical service expenses.

On July 15, 2010, Morgans Europe venture refinanced in full its then outstanding £99.3 million mortgage debt with a new £100 million loan maturing in July 2015 that is non-recourse to us and is secured by Sanderson and St Martins Lane. As of March 31, 2011, Morgans Europe had outstanding mortgage debt of £99.6 million, or approximately $160.4 million at the exchange rate of 1.61 US dollars to GBP at March 31, 2011.

Morgans Europe’s net income or loss and cash distributions or contributions are allocated to the partners in accordance with ownership interests. At March 31, 2011, we had an investment in Morgans Europe of $2.2 million. We account for this investment under the equity method of accounting. Our equity in income of the joint venture amounted to income of $0.1 million and income of $0.9 million for the three months ended March 31, 2011 and 2010, respectively.

Mondrian South Beach. We own a 50% interest in Mondrian South Beach, a recently renovated apartment building which was converted into a condominium and hotel. Mondrian South Beach opened in December 2008, at which time we began operating the property under a long-term management contract.

In April 2010, the Mondrian South Beach joint venture amended its non-recourse financing secured by the property and extended the maturity date for up to seven years, through extension options until April 2017, subject to certain conditions. In April 2010, in connection with the loan amendment, each of the joint venture partners provided an additional $2.75 million to the joint venture resulting in total mezzanine financing provided by the partners of $28.0 million. As of March 31, 2011, the joint venture’s outstanding mortgage and mezzanine debt was $91.6 million, which does not include the $28.0 million mezzanine loan provided by the joint venture partners, which in effect is on par with the lender’s mezzanine debt.

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Morgans Group and affiliates of our joint venture partner have agreed to provide standard non-recourse carve-out guaranties and provide certain limited indemnifications for the Mondrian South Beach mortgage and mezzanine loans. In the event of a default, the lenders’ recourse is generally limited to the mortgaged property or related equity interests, subject to standard non-recourse carve-out guaranties for “bad boy” type acts. Morgans Group and affiliates of our joint venture partner also agreed to guaranty the joint venture’s obligation to reimburse certain expenses incurred by the lenders and indemnify the lenders in the event such lenders incur liability as a result of any third-party actions brought against Mondrian South Beach. Morgans Group and affiliates of our joint venture partner have also guaranteed the joint venture’s liability for the unpaid principal amount of any seller financing note provided for condominium sales if such financing or related mortgage lien is found unenforceable, provided they shall not have any liability if the seller financed unit becomes subject again to the lien of the lender’s mortgage or title to the seller financed unit is otherwise transferred to the lender or if such seller financing note is repurchased by Morgans Group and/or affiliates of our joint venture at the full amount of unpaid principal balance of such seller financing note. In addition, although construction is complete and Mondrian South Beach opened on December 1, 2008, Morgans Group and affiliates of our joint venture partner may have continuing obligations under construction completion guaranties until all outstanding payables due to construction vendors are paid. As of March 31, 2011, there are remaining payables outstanding to vendors of approximately $1.5 million. We believe that payment under these guaranties is not probable and the fair value of the guarantee is not material. For further discussion, see note 4 of our consolidated financial statements.

The Mondrian South Beach joint venture was determined to be a variable interest entity as during the process of refinancing the venture’s mortgage in April 2010, its equity investment at risk was considered insufficient to permit the entity to finance its own activities. In April 2010, each of the joint venture partners provided an additional $2.75 million of mezzanine financing to the joint venture in order to complete a refinancing of the outstanding mortgage debt of the venture. We determined that we are not the primary beneficiary of this variable interest entity as we do not have a controlling financial interest in the entity. Our maximum exposure to losses as result of our involvement in the Mondrian South Beach variable interest entity is limited to our current investment, outstanding management fee receivable and advances in the form of mezzanine financing. We have not committed to providing financial support to this variable interest entity, other than as contractually required and all future funding is expected to be provided by the joint venture partners in accordance with their respective ownership interests in the form of capital contributions or mezzanine financing, or by third parties.

We account for this investment under the equity method of accounting. At March 31, 2011, our investment in Mondrian South Beach was $5.3 million. Our equity in loss of Mondrian South Beach was $0.5 million and $0.4 million for the three months ended March 31, 2011 and 2010, respectively.

Ames in Boston. On June 17, 2008, we, Normandy Real Estate Partners, and Ames Hotel Partners, entered into a joint venture to develop the Ames hotel in Boston. Upon the hotel’s completion in November 2009, we began operating Ames under a 20-year management contract.

As of March 31, 2011, we had an approximately 31% economic interest in the joint venture and our investment in the Ames joint venture was $10.2 million. Our equity in loss for the three months ended March 31, 2011 and 2010 was $0.5 million and $0.4 million, respectively.

As of March 31, 2011, the joint venture’s outstanding mortgage debt secured by the hotel was $46.5 million. In October 2010, the mortgage loan secured by Ames matured, and the joint venture did not satisfy the conditions necessary to exercise the first of two remaining one-year extension options available under the loan, which included funding a debt service reserve account, among other things. As a result, the mortgage lender for Ames served the joint venture with a notice of default and acceleration of debt. In February 2011, the joint venture reached an agreement with the lender whereby the lender waived the default, reinstated the loan and extended the loan maturity date until October 9, 2011 with a one-year extension option, subject to certain conditions. In connection with the amendment, the joint venture was required to deposit $1 million into a debt service account. The mortgage debt has one remaining extension option, subject to certain conditions, which if exercised would extend the maturity date for one year to October 9, 2012.

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Mondrian SoHo. In June 2007, we contributed approximately $5.0 million for a 20% equity interest in a joint venture with Cape Advisors Inc. to develop a Mondrian hotel in the SoHo neighborhood of New York. The joint venture obtained a loan of $195.2 million to acquire and develop the hotel. We subsequently loaned an additional $3.3 million to the joint venture. As a result of the decline in general market conditions and real estate values since the inception of the joint venture, and more recently, the need for additional funding to complete the hotel, in June 2010, we wrote down our investment in Mondrian SoHo to zero. All of our subsequent fundings in 2010 and 2011, all of which are in the form of loans, have been impaired, and as of March 31, 2011, our investment balance in Mondrian SoHo is zero.

The mortgage loan on the property matured in June 2010. On July 31, 2010, the loan was amended to, among other things, provide for extensions of the maturity date of the mortgage loan secured by the hotel to November 2011 with extension options through 2015, subject to certain conditions including a minimum debt service coverage test.

Certain affiliates of our joint venture partner have agreed to provide a standard non-recourse carve-out guaranty for “bad boy” type acts and a completion guaranty to the lenders for the Mondrian SoHo loan, for which Morgans Group has agreed to indemnify the joint venture partner and its affiliates up to 20% of such entities’ guaranty obligations, provided that each party is fully responsible for any losses incurred as a result of its respective gross negligence or willful misconduct.

In July 2010, the joint venture partners each agreed to provide additional funding to the joint venture in proportionate to their equity interest in order to complete the project. At that time, the Mondrian SoHo joint venture was determined to be a variable interest entity as its equity investment at risk was considered insufficient to permit the entity to finance its own activities. Further, we determined that we were not the primary beneficiary of this variable interest entity as we do not have a controlling financial interest in the entity. In February 2011, the hotel opened and as such, we determined that the joint venture was an operating business. We continue to account for our investment in Mondrian SoHo using the equity method of accounting.

Mondrian SoHo opened in February 2011, and we are operating the hotel under a 10-year management contract with two 10-year extension options.

Shore Club. As of March 31, 2011, we owned approximately 7% of the joint venture that owns Shore Club. On September 15, 2009, the joint venture received a notice of default on behalf of the special servicer for the lender on the joint venture’s mortgage loan for failure to make its September monthly payment and for failure to maintain its debt service coverage ratio, as required by the loan documents. On October 7, 2009, the joint venture received a second letter on behalf of the special servicer for the lender accelerating the payment of all outstanding principal, accrued interest, and all other amounts due on the mortgage loan. The lender also demanded that the joint venture transfer all rents and revenues directly to the lender to satisfy the joint venture’s debt. In March 2010, the lender for the Shore Club mortgage initiated foreclosure proceedings against the property in U.S. federal district court. In October 2010, the federal court dismissed the case for lack of jurisdiction. In November 2010, the lender initiated foreclosure proceedings in state court. We continue to operate the hotel pursuant to the management agreement during these proceedings. However, there can be no assurances we will continue to operate the hotel once foreclosure proceedings are complete.

For further information regarding our off balance sheet arrangements, see note 4 to our consolidated financial statements.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires 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.

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We consider properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or group of properties for sale and the sale is probable. Upon designation as an asset held for sale, we record the carrying value of each property or group of properties at the lower of its carrying value, which includes allocable goodwill, or its estimated fair value, less estimated costs to sell, and we stop recording depreciation expense. Any gain realized in connection with the sale of the properties for which we has significant continuing involvement, such as through a long-term management agreement, is deferred and recognized over the initial term of the related management agreement. The operations of the properties held for sale prior to the sale date are recorded in discontinued operations unless we have continuing involvement, such as through a management agreement, after the sale.

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. No material changes to our critical accounting policies have occurred since December 31, 2010.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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. Some of our outstanding debt has a variable interest rate. As described in “Management’s Discussion and Analysis of Financial Results of Operations — Derivative Financial Instruments” above, we use some derivative financial instruments, primarily interest rate swaps, 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 March 31, 2011, our total outstanding consolidated debt, including capital lease obligations, was approximately $675.0 million, of which approximately $368.8 million, or 54.6%, was variable rate debt. At March 31, 2011, the one month LIBOR rate was 0.24%.

As of March 31, 2011, the $368.8 million of variable rate debt consists of our outstanding balances on the Amended Mortgages and our amended revolving credit facility. In connection with the Amended Mortgages, interest rate caps for 5.3% and 4.25%, in the amounts of approximately $201.2 million and $103.5 million, respectively, were entered into in September 2010, and were outstanding as of March 31, 2011. These interest rate caps mature on October 15, 2011. If market rates of interest on this $368.8 million variable rate debt increase by 1.0%, or 100 basis points, the increase in interest expense would reduce future pre-tax earnings and cash flows by approximately $3.7 million annually and the maximum annual amount the interest expense would increase on this variable rate debt is $16.2 million due to our interest rate cap agreements, which would reduce future pre-tax earnings and cash flows by the same amount annually. If market rates of interest on this $368.8 million variable rate decrease by 1.0%, or 100 basis points, the decrease in interest expense would increase pre-tax earnings and cash flow by approximately $3.7 million annually.

As of March 31, 2011, our fixed rate debt of $306.2 million consisted of the trust notes underlying our trust preferred securities, the Convertible Notes, and the Clift lease. The fair value of some of this debt is greater than the book value. As such, if market rates of interest increase by 1.0%, or approximately 100 basis points, the fair value of our fixed rate debt at March 31, 2011 would decrease by approximately $30.2 million. If market rates of interest decrease by 1.0%, or 100 basis points, the fair value of our fixed rate debt at March 31, 2011 would increase by $36.7 million.

Interest risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments and future cash flows. These analyses do not consider the effect of a reduced level of overall economic activity. If overall economic activity is significantly reduced, we may take actions to further mitigate our exposure. However, because we cannot determine the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

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We have entered into agreements with each of our derivative counterparties in connection with our interest rate swaps and hedging instruments related to the Convertible Notes, providing that in the event we either default or are capable of being declared in default on any of our indebtedness, then we could also be declared in default on our derivative obligations.

Currency Exchange Risk

As we have international operations with our two London hotels and the hotel we manage in Mexico, currency exchange risks between the U.S. dollar and the British pound and the U.S. dollar and Mexican peso, respectively, arise as a normal part of our business. We reduce these risks by transacting these businesses in their local currency. As we have a 50% ownership in Morgans Europe, a change in prevailing rates would have an impact on the value of our equity in Morgans Europe. The U.S. dollar/British pound and U.S. dollar/Mexican peso currency exchanges are currently the only currency exchange rates to which we are directly exposed. Generally, we do not enter into forward or option contracts to manage our exposure applicable to net operating cash flows. We do not foresee any significant changes in either our exposure to fluctuations in foreign exchange rates or how such exposure is managed in the future.

ITEM 4. CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 of the rules promulgated under the Securities and Exchange Act of 1934, as amended. Based on this evaluation, our chief executive officer and the chief financial officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report.

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15) that occurred during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Litigation

Potential Litigation

We understand that Mr. Philippe Starck has attempted to initiate arbitration proceedings in the London Court of International Arbitration regarding an exclusive service agreement that he entered into with Residual Hotel Interest LLC (formerly known as Morgans Hotel Group LLC) in February 1998 regarding the design of certain hotels now owned by us. We are not a party to these proceedings at this time. See note 5 of our consolidated financial statements.

Petra Litigation Regarding Scottsdale Mezzanine Loan

On April 7, 2010, Petra CRE CDO 2007-1, LTD, a Cayman Islands Exempt Company (“Petra”), filed a complaint against Morgans Group in the Supreme Court of the State of New York County of New York in connection with an approximately $14.0 million non-recourse mezzanine loan made on December 1, 2006 by Greenwich Capital Financial Products Company LLC, the original lender, to Mondrian Scottsdale Mezz Holding Company LLC, a wholly-owned subsidiary of Morgans Group LLC. The mezzanine loan relates to the Scottsdale, Arizona property previously owned by us. In connection with the mezzanine loan, Morgans Group entered into a so-called “bad boy” guaranty providing for recourse liability under the mezzanine loan in certain limited circumstances. Pursuant to an assignment by the original lender, Petra is the holder of an interest in the mezzanine loan. The complaint alleges that the foreclosure of the Scottsdale property by a senior lender on March 16, 2010 constitutes an impermissible transfer of the property that triggered recourse liability of Morgans Group pursuant to the guaranty. Petra demands damages of approximately $15.9 million plus costs and expenses.

We believe that a foreclosure based on a payment default does not create one of the limited circumstances under which Morgans Group would have recourse liability under the guaranty. On May 27, 2010, we answered Petra’s complaint, denying any obligation to make payment under the guaranty. On July 9, 2010, Petra moved for summary judgment on the ground that the loan documents unambiguously establish Morgans Group’s obligation under the guaranty. Petra also moved to stay discovery pending resolution of its motion. We opposed Petra’s motion for summary judgment, and similarly moved for summary judgment in favor of us on grounds that the guaranty was not triggered by a foreclosure resulting from a payment default. On December 20, 2010, the court granted our motion for summary judgment dismissing the complaint, and denied the plaintiff’s motion for summary judgment. The action has accordingly been dismissed. Petra has appealed the decision, and the appeal was heard on April 28, 2011. We will continue to defend this lawsuit vigorously. However, it is not possible to predict the outcome of the lawsuit.

Other Litigation

We are involved in various lawsuits and administrative actions in the normal course of business. In management’s opinion, disposition of these lawsuits is not expected to have a material adverse effect on our financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results and future prospects.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. REMOVED AND RESERVED.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The exhibits listed in the accompanying Exhibit Index are filed as part of this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Morgans Hotel Group Co.
 

/s/ Michael J. Gross  

Michael J. Gross 

Chief Executive Officer 

/s/ Richard Szymanski  

Richard Szymanski 

Chief Financial Officer and Secretary 

May 9, 2011

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EXHIBIT INDEX

Exhibit
Number		Description
	2.1	Agreement and Plan of Merger, dated May 11, 2006, by and among Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc. and Peter Morton (incorporated by reference to Exhibit 2.1 to the Company’s 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 between Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc., (solely with respect to Section 1.6 and Section 1.8 thereof) 510 Development Corporation and (solely with respect to Section 1.7 thereof) Peter A. Morton (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 6, 2007)
	3.1	Amended and Restated Certificate of Incorporation of Morgans Hotel Group Co.(incorporated by reference to Exhibit 3.1 to Amendment No. 5 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on February 6, 2006)
	3.2	Amended and Restated By-laws of Morgans Hotel Group Co. (incorporated by reference to Exhibit 3.2 to Amendment No. 5 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on February 6, 2006)
	3.3	Certificate of Designations for Series A Preferred Securities (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 16, 2009)
	4.1	Specimen Certificate of Common Stock of Morgans Hotel Group Co. (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on January 17, 2006)
	4.2	Junior Subordinated Indenture, dated as of August 4, 2006, between Morgans Hotel Group Co., Morgans Group LLC and JPMorgan Chase Bank, National Association (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 11, 2006)
	4.3	Amended and Restated Trust Agreement of MHG Capital Trust I, dated as of August 4, 2006, among Morgans Group LLC, JPMorgan Chase Bank, National Association, Chase Bank USA, National Association, and the Administrative Trustees Named Therein (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on August 11, 2006)
	4.4	Amended and Restated Stockholder Protection Rights Agreement, dated as of October 1, 2009, between Morgans Hotel Group Co. and Mellon Investor Services LLC, as Rights Agent (including Forms of Rights Certificate and Assignment and of Election to Exercise as Exhibit A thereto and Form of Certificate of Designation and Terms of Participating Preferred Stock as Exhibit B thereto) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on October 2, 2009)
	4.5	Amendment No. 1, dated as of October 15, 2009, to Amended and Restated Stockholder Protection Rights Agreement, dated as of October 1, 2009, between Morgans Hotel Group Co. and Mellon Investor Services LLC, as Rights Agent (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on October 16, 2009)
	4.6	Amendment No. 2, dated as of April 21, 2010, to Amended and Restated Stockholder Protection Rights Agreement, dated as of October 1, 2009, between Morgans Hotel Group Co. and Mellon Investor Services LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 22, 2010)
	4.7	Indenture related to the Senior Subordinated Convertible Notes due 2014, dated as of October 17, 2007, by and among Morgans Hotel Group Co., Morgans Group LLC and The Bank of New York, as trustee (including form of 2.375% Senior Subordinated Convertible Note due 2014) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on October 17, 2007)

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Exhibit
Number			Description
	4.8		Supplemental Indenture, dated as of November 2, 2009, by and among Morgans Group LLC, the Company and The Bank of New York Mellon Trust Company, National Association (as successor to JPMorgan Chase Bank, National Association), as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 4, 2009)
	4.9		Registration Rights Agreement, dated as of October 17, 2007, between Morgans Hotel Group Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on October 17, 2007)
	4.10		Form of Warrant for Warrants issued under Securities Purchase Agreement to Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 16, 2009)
	4.11		Warrant, dated October 15, 2009, issued to Yucaipa American Alliance Fund II, LLC (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 16, 2009)
	4.12		Warrant, dated October 15, 2009, issued to Yucaipa American Alliance Fund II, LLC (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on October 16, 2009)
	4.13		Form of Amended Common Stock Purchase Warrants issued under Securities Purchase Agreement to Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 14, 2009)
	4.14		Amendment No. 1 to Common Stock Purchase Warrant issued under the Real Estate Fund Formation Agreement to Yucaipa American Alliance Fund II, LLC, dated as of December 11, 2009 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 14, 2009)
	4.15		Amendment No. 1 to Common Stock Purchase Warrant issued under the Real Estate Fund Formation Agreement to Yucaipa American Alliance Fund II, LLC, dated as of December 11, 2009 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on December 14, 2009)
	10.1	*	Separation Agreement and Release, dated as of March 20, 2011, between Marc Gordon and Morgans Hotel Group, Inc.
	10.2	*	Employment Agreement, effective as of March 20, 2011, between Morgans Hotel Group Co. and David Hamamoto
	10.3	*	Employment Agreement, effective as of March 20, 2011, between Morgans Hotel Group Co. and Michael Gross
	10.4	*	Employment Agreement, effective as of March 23, 2011, between Morgans Hotel Group Co. and Yoav Gery
	10.5	*	Employment Agreement, effective as of April 4, 2011, between Morgans Hotel Group Co. and Daniel Flannery
	10.6	*	Form of Morgans Hotel Group Co. 2011 Outperformance Plan Award Agreement
	10.7	*	Form of Morgans Hotel Group Co. 2011 Executive Promoted Interest Bonus Pool Award Agreement
	31.1	*	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	*	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	*	Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	*	Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

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EX-10.1

Exhibit 10.1

SEPARATION AGREEMENT AND RELEASE

This Agreement (“Agreement”) is entered into as of this 20th day of March 2011, between Marc Gordon (the “Executive”) and Morgans Hotel Group Co. (the “Company”), on its own behalf and on behalf of its parents, subsidiaries and affiliates and their respective predecessors, successors and assigns.

WHEREAS, the Company and the Executive (collectively referred to as the “Parties”) are parties to an Amended and Restated Employment Agreement dated April 2008, that expires on April 1, 2011 (the “Employment Agreement”); and

WHEREAS, the Company and the Executive have agreed upon and wish to confirm the various arrangements relating to Executive’s separation from employment with the Company.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the Parties agree as follows:

Resignation and Benefits

1. The Executive’s employment with the Company will end effective as of April 1, 2011 (the “Separation Date”). The Executive, upon the Company’s execution of this Agreement, will resign from the Board of the Company and of any subsidiaries or affiliates, effective immediately.

2. The Company shall provide the Executive with the consideration described below, subject to the conditions set forth below. The consideration to be provided is in full satisfaction of the Company’s obligations under the Employment Agreement and any policy or practice of the Company.

(a) Severance Payment. The Company shall pay the Executive a lump sum payment of $2,069,600, less required deductions, within 10 business days after the Effective Date of this Agreement, as defined below.

(b) Monthly Consulting Payments. During each of the nine months beginning in April, 2011 and continuing until December, 2011 (the “consulting period”), the Executive shall receive a consulting payment in the gross amount of $66,666, for a total during the nine months of $600,000. Payment will be made on or before the 15th day of each month and will be made to the Executive or such other “doing business as” entity of the Executive’s as he may direct. In consideration of such payments, the Executive agrees to make himself available to the Company during the consulting period to provide consulting services to the Company, including responding to requests by the Company for information concerning matters involving facts or events relating to the Company that may be within his knowledge. All such payments will be less required deductions.

(c) Lump Sum Payment. Within 10 business days after January 1, 2012, the Company will pay the Executive $300,000, less required deductions. Payment will be made to the Executive or such other “doing business as” entity of the Executive’s as he may direct.

(d) Stock. All Company equity awards granted to the Executive prior to the date of this Agreement shall immediately vest upon the Effective Date, and all vested stock options and stock appreciation rights held by Executive as of the date of this Agreement shall remain exercisable for the lesser of the remainder of their term or 12 months after April 1, 2011.

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(e) Continuing Medical and Life Insurance. The Executive will be eligible to elect continuation coverage under COBRA. If the Executive elects COBRA continuation coverage, the Company shall, for up to a maximum of 24 months, pay for that portion of Executive’s cost of continuing COBRA coverage such that Executive’s monthly cost of coverage is no more than $558 per month. The Company will make arrangements to extend until March 31, 2012 the $10,000 coverage under Guardian Life Insurance that is currently provided to the Executive or, in the alternative, comparable coverage.

(f) Other Payments. The Executive will be paid at his current salary rate through April 1, 2011. The Company will pay the Executive for one accrued unused vacation day. The Company will also reimburse the Executive for his attorneys’ fees incurred in connection with the matters relating to this Agreement in an amount not to exceed $35,000. The Executive may submit within 20 days of the Effective Date requests for reimbursement of business expenses incurred by him prior to the date of this Agreement, which will be processed and reimbursed to the extent eligible for reimbursement under the Company’s expense reimbursement policy and practice.

3. The Executive expressly understands and agrees that the consideration received by him pursuant to this Agreement shall be in lieu of any and all other amounts to which the Executive might be, is now or may become entitled from the Company and, without limiting the generality of the foregoing, the Executive hereby expressly waives any right or claim that he may have or assert to payment for back pay, equity grants, front pay, interest, bonuses, severance, damages, accrued vacation, accrued sick leave, medical, dental, optical or hospitalization benefits, pension plan contributions, 401(k) plan contributions, education benefits, life insurance benefits, compensatory time, outplacement, severance pay and/or attorneys’ fees.

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4. By entering into this Agreement, the Company does not admit and specifically denies, any liability, wrongdoing or violation of any law, statute, regulation or policy, and it is expressly understood and agreed that this Agreement is being entered into solely for the purpose of amicably resolving all matters of any kind whatsoever between the Executive and the Company.

5. The Executive hereby represents that he has not filed any action, complaint, charge, grievance or arbitration against the Company.

Waivers and Releases

6. The Executive acknowledges and agrees that, in consideration of the Company entering into this Agreement and for other good and valuable consideration, the Executive, on behalf of himself and his heirs, executors, administrators, successors and assigns, hereby knowingly and voluntarily waives, releases, and discharges Morgans Hotel Group Co., its subsidiaries and affiliates and their respective predecessors, successors, assigns, representatives, officers, directors, agents and employees (the “Releasees”), from whatever claims, charges, actions, and causes of action he may have against the Releasees, whether known or unknown, from the beginning of time through the date of this Agreement based upon any matter, cause or thing whatsoever.

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7. This Waiver and Release includes but is not limited to any rights or claims under United States federal, state or local law and the national or local law of any foreign country (statutory or decisional), for wrongful or abusive discharge, for breach of any contract, for impairment of economic opportunity, for defamation, for intentional infliction of emotional distress, or for discrimination based upon race, color, ethnicity, sex, age, national origin, religion, disability, sexual orientation, or any other unlawful criterion or circumstance. Such released claims include, but are not limited to, rights or claims under the Age Discrimination in Employment Act of 1967 (“ADEA”), the Older Workers Benefit Protection Act of 1990, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1871, the Civil Rights Act of 1991, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, the New York State Labor Law, the New York State Human Rights Law, and the New York City Human Rights Law.

The Executive has been given up to twenty-one (21) days to consider signing this Agreement, he has seven (7) days following his signing of this Agreement to revoke and cancel the terms and conditions contained herein, and the terms and conditions of this Agreement shall not become effective or enforceable until the revocation period has expired (the “Effective Date”). The Executive further acknowledges that he has been advised prior to signing this Agreement to consult with, and has consulted with, an attorney of his choice concerning the terms and conditions of this Agreement.

8. The Company hereby releases Marc Gordon from all liability to the Company and its affiliates that any members of the Board of the Company have actual knowledge of as of the date of the Company’s execution of this Agreement.

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Other Continuing Obligations

9. Unless the Executive has prior written authorization from the Company, he may not discuss any information (whether or not Confidential Information and Materials) about the Company or any of its or their present or former employees, agents or clients or any aspects of his tenure as an employee of the Company or of the termination of his relationship with the Company, with any reporter, author, producer, or similar person or entity, or take any other action seeking to publicize or disclose any such information in any way likely to result in such information being made available to the general public in any form, including books, articles, electronic communications or writings of any kind, as well as film, videotape, audiotape or any other medium. Nothing in this Agreement would prevent the Executive from disclosing information relating personally to his duties, position and work history of the sort that would be contained on a personal resume.

10. Nothing in this Agreement shall prevent or prohibit the Parties from responding to an order, subpoena, other legal process or regulatory inquiry directed to them or from providing truthful information to or making a filing with a governmental or regulatory body or with the arbitration forum in accordance with the provisions of Section 18 of this Agreement. The Executive agrees that upon learning of any order, subpoena or other legal process seeking information that would otherwise be prohibited from disclosure under this Agreement, he will promptly notify the Company, in writing, directed to the Company’s chief legal officer.

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11. The Executive agrees to make himself reasonably available to respond to reasonable requests for information concerning matters involving facts or events relating to the Company that may be within his knowledge. The Executive will cooperate with the Company in connection with any or all future litigation or regulatory proceedings brought by or against the Company to the extent the Company reasonably deems the Executive’s cooperation necessary, and the Executive will be entitled to reimbursement of reasonable out-of-pocket expenses incurred in connection with fulfilling such cooperation obligations under this Section.

12. As a material inducement to the Company to enter into this Agreement, the Executive agrees that he will, at no expense to the Company, for 9 months following the Effective Date, (i) not take any action, or fail to take any action, that would reasonably be expected to have a material adverse impact on the Company, its parents, subsidiaries, affiliates, partners, joint venture partners, directors, officers, agents and employees, (ii) not, without the consent of the Chief Executive Officer, engage in any material discussion of the Company’s business, affairs, operations, assets, strategy or prospects with any of the Company’s employees, officers, agents, or existing or prospective joint venture or owner partners (including, without limitation, not have any discussions regarding the projects described in the Company’s development pipeline, as set forth on the most recent listing of the Company’s development pipeline furnished to the Executive prior to the execution of this Agreement), (iii) together with the Executive’s affiliates, not (A) initiate or otherwise participate in any actual or threatened solicitation of proxies or written consents to vote, seek to advise or influence any person with respect to the voting of any securities of the Company or otherwise act or seek to control or influence management or (B) nominate any individual for election as a director or (iv) not, directly or indirectly, acquire voting securities of the Company (other than by way of conversion of existing RSUs, LTIP awards and options). Nothing in this Agreement would prevent the Executive from obtaining employment or providing consulting services, subject to the Executive’s compliance with his obligations under this Agreement.

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13. The Executive agrees that for the period through March 31, 2012, he will not solicit anyone who is then an employee of the Company (or who was an employee of the Company within the 12 months prior to this Agreement) to resign from the Company or to apply for or accept employment with any other business or enterprise (other than general advertising not specifically directed at such current or former employees of the Company and other than Executive’s administrative assistant).

Breach of Agreement

14. The Executive agrees that, without limiting the Company’s remedies, should he commence, continue, join in, or in any other manner attempt to assert any claim released in connection herewith, or otherwise violate in a material fashion any of the terms of this Agreement, the Company shall not be required to make any further payments to the Executive pursuant to this Agreement.

Entire Agreement

15. This Agreement contains the entire agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations, and undertakings, whether written or oral, between the Parties with respect thereto, including the terms of the Employment Agreement, except that the provisions of subparagraph (c) (ii) of Section 2, titled “Indemnification” and of subparagraphs (c) and (h) of Section 7 of the Employment Agreement, titled “Confidential Information” and “Non-disparagement” remain in full force and effect and are incorporated herein. This Agreement may not be modified or amended except by a writing signed by the Parties.

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Severability

16. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law; provided, however, that if any court were to find that the waiver and release of claims set forth herein is unlawful or unenforceable, or was not entered into knowingly and voluntarily, the Executive agrees to execute a waiver and release in a form satisfactory to the Employer that is lawful and enforceable.

Survivorship

17. The respective rights and obligations of the Parties hereunder shall survive any termination of this Agreement to the extent necessary for the intended preservation of such rights and obligations.

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Disputes

18. (a) Mandatory Arbitration. Subject to the provisions of this Section 18, any controversy or claim between the Executive and the Company arising out of or relating to or concerning this Agreement (including the covenants contained in Sections 7(c) and (h) of the Employment Agreement that are incorporated herein) or any aspect of the Executive’s employment with the Company or the termination of that employment (together, an “Employment Matter”) will be finally settled by arbitration in the County of New York administered by the American Arbitration Association (the “AAA”) under its Commercial Arbitration Rules then in effect. However, the AAA’s Commercial Arbitration Rules will be modified in the following ways: (i) notwithstanding any provision of the AAA rules to the contrary, the arbitration shall be heard by a panel of three neutral arbitrators, with each party appointing one arbitrator, who shall jointly appoint a third, (ii) each arbitrator will agree to treat as confidential evidence and other information presented to them, (iii) there will be no authority to award punitive damages (and the Executive and the Company agree not to request any such award), (iv) the optional Rules for Emergency Measures of Protection will apply, (v) there will be no authority to amend or modify the terms of this Agreement (and the Executive and the Company agree not to request any such amendment or modification) and (vi) a decision must be rendered within ten business days of the parties’ closing statements or submission of post-hearing briefs.

(b) Injunctions and Enforcement of Arbitration Awards. The Executive or the Company may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the County of New York to enforce any arbitration award under Section 18(a). Also, the Company may bring such an action or proceeding, in addition to its rights under Section 18(a) and whether or not an arbitration proceeding has been or is ever initiated, to temporarily, preliminarily or permanently enforce any part of the provisions of Sections 7(c) and (h) of the Employment Agreement. The Executive agrees that (i) violating any part of the provisions of Sections 7(c) and (h) would cause damage to the Company that cannot be measured or repaired, (ii) the Company therefore is entitled to seek an injunction, restraining order or other equitable relief restraining any actual or threatened violation of the provisions of Sections 7(c) and (h), (iii) no bond will need to be posted for the Company to receive such an injunction, order or other relief and (iv) no proof will be required that monetary damages for violations of the provisions of Sections 7(c) and (h) would be difficult to calculate and that remedies at law would be inadequate.

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(c) Jurisdiction and Choice of Forum. The Executive and the Company irrevocably submit to the exclusive jurisdiction of any state or federal court located in the County of New York over any Employment Matter that is not otherwise arbitrated or resolved according to Section 18(a). This includes any action or proceeding to compel arbitration or to enforce an arbitration award. Both the Executive and the Company (i) acknowledge that the forum stated in this Section 18(c) has a reasonable relation to this Agreement and to the relationship between the Executive and the Company and that the submission to the forum will apply even if the forum chooses to apply non-forum law, (ii) waive, to the extent permitted by law, any objection to personal jurisdiction or to the laying of venue of any action or proceeding covered by this Section 18(c) in the forum stated in this Section 18(c), (iii) agree not to commence any such action or proceeding in any forum other than the forum stated in this Section 18(c) and (iv) agree that, to the extent permitted by law, a final and non-appealable judgment in any such action or proceeding in any such court will be conclusive and binding on the Executive and the Company. However, nothing in this Agreement precludes the Executive or the Company from bringing any action or proceeding in any court for the purpose of enforcing the provisions of Section 18(a) and this Section 18(c).

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(d) Waiver of Jury Trial. To the extent permitted by law, the Executive and the Company waive any and all rights to a jury trial with respect to any Employment Matter.

(e) Governing Law. This Agreement will be governed by and construed in accordance with the law of the State of New York applicable to contracts made and to be performed entirely within that State.

19. If any compensation or benefits provided by this Agreement may result in the application of Section 409A of the Code, the Company shall, in consultation with the Executive, modify the Agreement in the least restrictive manner necessary in order to, where applicable, (a) exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A or (b) comply with the provisions of Section 409A, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and to make such modifications, in each case, without any diminution in the value of the payments to the Executive. To the extent required in order to comply with Section 409A of the Code, amounts and benefits to be paid or provided to the Executive under Section 2 of this Agreement shall be paid or provided to the Executive on the first business day after the date that is six months following the Date of Separation.

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Headings

20. The headings of Sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.

Counterparts

21. This Agreement may be executed in one or more counterparts.

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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first written above.

/s/ Marc Gordon
Marc Gordon
Morgans Hotel Group Co.
By:	/s/ Jeffrey M. Gault

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT
(DAVID HAMAMOTO)

This EMPLOYMENT AGREEMENT (this “Agreement”), dated on March 20, 2011 between Morgans Hotel Group Co., a Delaware corporation (the “Company”), and David Hamamoto (the “Executive”) shall become effective as of March 20, 2011 (the “Effective Date”).

1. Employment Period

The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, on the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the “Employment Period”), subject to the provisions for early termination or extension as hereinafter provided. The Company (but not the Executive) will have the right to offer (the “Extension Offer”) to extend the Employment Period by six (6) months (the “Extension Period”) by giving notice to Executive of such offer no less than seventy-five (75) days prior to the end of the initial Employment Period. During any Extension Period, the Executive shall receive compensation on substantially the same terms as being provided at the end of the initial Employment Period and, if eligible for a cash bonus, will receive a cash bonus, payable on the last day of the Extension Period, in an amount equal to one-half of the Annual Bonus paid to the Executive with respect to the 2013 fiscal year. In the event that the parties hereafter agree to extend Executive’s employment beyond the end of the Extension Period the amount of the pro-rated cash bonuses paid by the Company with respect to the Extension Period and the period from January 1, 2014 to the third anniversary of the Effective Date will be taken into account and be credited against any cash bonus that may become payable to Executive for fiscal 2014. The Executive shall have the right to accept or reject the Extension Offer; if the Executive rejects the Extension Offer and terminates employment, such termination will be deemed to be a termination due to non-renewal of the Agreement by the Company for purposes of Section 4(d) below and shall not be considered a termination under Section 4(c) below.

2. Terms of Employment

(a) Position and Duties

(i) During the Employment Period, the Executive shall, subject to Section 2(a)(ii), serve as Executive Chairman of the Company with the customary and usual duties and responsibilities attendant to a position of such nature in a company that also has a Chief Executive Officer and Chief Operating Officer and in which the Executive Chairman is not a full-time employee, and any other duties that may reasonably be assigned by the Company’s Board of Directors (the “Board”) consistent with his position as Executive Chairman and the part-time nature of his employment (taking into consideration that the Company has a Chief Executive Officer and Chief Operating Officer), and subject to such policies and procedures for coordinating and consulting with the Chief Executive Officer consistent with the foregoing as the Board, after consultation with the Executive, may adopt, from time to time. It is understood that a portion of the Executive’s duties and responsibilities contemplated above shall be provided to Morgans Group LLC (the “Operating Company”). The Executive shall report to the Board.

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote a sufficient portion of the Executive’s business time, attention and energies to the performance of the duties contemplated by Section 2(a)(i) so that Executive can fulfill those duties, and to perform such duties faithfully, diligently and to the best of the Executive’s abilities and subject to such laws, rules, regulations and policies from time to time applicable to the Company’s executives. The Company acknowledges that the Executive is committed to devote at least a majority of his business time, attention, and energies to performance of his duties under his employment agreement with NorthStar Realty Finance Corp. (together with its subsidiaries, as the context may require, “NorthStar”) and as a director of NorthStar, and agrees that Executive’s doing so shall not constitute “Cause” or a violation of this Agreement.

(iii) During the Employment Period, (i) the Executive agrees to continue to serve as a director of the Company; and (ii) the Company agrees that the Executive shall be nominated for election as a director of the Company at each annual meeting of the Company’s stockholders or other meeting of the Company’s stockholders at which directors are elected. Any failure by the Board to nominate the Executive for election as a director of the Company in accordance with clause (ii) above, failure to be elected to the Board, failure to be elected Chairman of the Board or failure to be appointed to serve as Chairman of the Investment Committee of the Company shall constitute Good Reason for the Executive to terminate his employment in accordance with Section 3(c) of this Agreement.

(b) Compensation

(i) Annual Base Salary. If the Company so elects under Section 2(b)(iv), with respect to any year during the Employment Period after the first year of the Employment Period, the Executive shall receive an annual base salary for such year (“Annual Base Salary”) equal to $375,000 (payable semi-monthly), which shall be subject to annual performance reviews and may be increased at the good faith discretion of the Board or the Compensation Committee of the Board (the “Compensation Committee”). The term “Annual Base Salary” as utilized in this Agreement shall refer to Annual Base Salary as so increased. Annual Base Salary shall not be less than $375,000 without the prior written consent of the Executive.

(ii) Annual Bonus. If the Company so elects under Section 2(b)(iv), with respect to any year during the Employment Period after the first year of the Employment Period, the Executive will be eligible for an annual cash bonus for each of such year (“Annual Bonus”) with a target payout of 100% of Annual Base Salary. The target payout for the Annual Bonus for any applicable year will be prorated, based on the number of days in such year during which the Executive is entitled to receive an Annual Base Salary. By way of example, if the Company elects to pay an Annual Base Salary and Annual Bonus in lieu of granting LTIP Units for the second year of the Employment

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Period (and the second year only), the Executive shall be eligible for an Annual Bonus for a portion of each of 2012, 2013 and 2014, with a prorated target payout during each such year based on the number of days in such year during which the Executive is entitled to receive an Annual Base Salary. The Annual Bonus will range from 50% up to 150% of target. The actual Annual Bonus for any applicable year shall be determined after consultation with the Executive in good faith by the Compensation Committee based upon actual corporate and individual performance for such year and shall be payable in accordance with the procedures specified by the Compensation Committee. The Executive’s Annual Bonus will be paid no later than seventy-five (75) days after the end of the applicable bonus period (or, if earlier, as provided in Section 4 below). Except as provided in Section 4 of this Agreement, Employee must be employed by the Company on the date bonuses are paid to Company employees in order to be entitled to receive a bonus. To the extent the Annual Bonus exceeds 100 % of Annual Base Salary, the Compensation Committee may in its discretion, and subject to applicable law, cause the Company to pay such excess in the form of fully vested equity compensation awards under one of Company’s equity compensation plans (which award may be subject to other conditions that the Compensation Committee may determine).

(iii) Stock Option Award. On the Effective Date, the Company shall grant to the Executive a non-qualified option to purchase 600,000 shares of the Company’s common stock (the “Stock Option”) under the Morgans Hotel Group Co. Amended and Restated 2007 Omnibus Incentive Plan (the “Incentive Plan”). Except as otherwise provided in Section 4 upon certain events of termination, subject to the Executive’s continued employment with the Company, the Stock Option shall vest and become exercisable with respect to 33-1/3% of the shares subject thereto on each of the first, second, and third anniversaries of the Effective Date. Consistent with the foregoing, the terms and conditions of the Stock Option shall be set forth in an award agreement (the “Stock Option Agreement”) in the form attached as Exhibit A, to be entered into by the Company and the Executive concurrently herewith and which shall evidence the grant of the Stock Option. The Company shall determine whether future awards will be awarded to the Executive in its good faith discretion.

(iv) Equity Award. On the Effective Date, the Company shall grant to the Executive 75,000 long term incentive units (the “LTIP Units”) under the Incentive Plan. Except as otherwise provided in Section 4 upon certain events of termination, subject to the Executive’s continued employment with the Company, the LTIP Units shall vest pro-rata on a monthly basis beginning on the first monthly anniversary of the Effective Date so that they will be 100% vested on the first anniversary of the Effective Date. Consistent with the foregoing, the terms and conditions of such award shall be set forth in an award agreement (the “LTIP Agreement”) in the form attached as Exhibit B, to be entered into by the Company and the Executive and which shall evidence the grant of such award. As of each anniversary of the Effective Date, the Executive shall receive an additional grant of LTIP Units valued at $675,000 (subject to increase at the good faith discretion of the Board or the Compensation Committee) on the same terms and conditions pursuant to which the LTIP Units granted on the Effective Date were granted; provided, that the Company may, in lieu of making any such grant of LTIP Units on an anniversary of the Effective Date, elect, in its sole discretion, to pay an Annual Base Salary and an Annual Bonus for the year of the Employment Period following such anniversary pursuant to Sections 2(b)(i) and (ii) above.

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(v) Outperformance Award. On the Effective Date, the Company shall grant to the Executive a performance incentive award entitling the Executive to 35% of the “Total Outperformance Pool,” as such term is defined in the Outperformance Award Agreement attached as Exhibit C hereto, subject to the terms and conditions of such award agreement.

(vi) Additional Performance Incentive Award. On the Effective Date, the Company shall grant to the Executive an additional performance incentive award entitling the Executive to 35% of the “Promoted Interest Pool,” as such term is defined in the Promoted Interest Pool Award Agreement attached as Exhibit D hereto, subject to the terms and conditions of such award agreement.

(c) Benefits

(i) Employee Benefits. During the Employment Period, the Executive shall be entitled to participate in all employee benefit and other plans, practices, policies and programs and fringe benefits and perquisites on a basis no less favorable than that provided to other senior executives of the Company.

(ii) Vacations. The Executive shall be eligible for up to five weeks of annual vacation to be accrued in accordance with the Company’s policy for its other senior executives.

3. Termination of Employment

(a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Executive becomes Disabled during the Employment Period, the Company upon such event shall give to the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to performance of the Executive’s duties in accordance with this Agreement. For purposes of this Agreement, “Disability” or becoming “Disabled” shall mean the inability of the Executive to perform the Executive’s duties in accordance with this Agreement with the Company for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Executive or the Executive’s legal representative.

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(b) Cause. The Company may terminate the Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean the occurrence of any one or more of the following events unless the Executive has commenced and is diligently pursuing steps to correct the circumstances constituting Cause (in those instances where such circumstances can be corrected) within fifteen (15) business days after receipt of the Notice of Termination and cures in all material respects such circumstances within forty-five (45) business days after receipt of the Notice of Termination (as defined below):

(i) the Executive’s willful and continued failure to substantially perform his duties with the Company as contemplated by Section 2(a)(i) (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such failure after his issuance of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed his duties;

(ii) a material breach by the Executive of his obligations under this Agreement resulting in substantial economic or financial injury to the Company;

(iii) the Executive’s willful commission of an act of fraud, theft or dishonesty resulting in substantial economic or financial injury to the Company;

(iv) the Executive’s conviction of, or entry by the Executive of a guilty or no contest plea to, the commission of a felony; or

(v) the Executive willfully engages in misconduct that is materially injurious to the Company.

For purposes of this provision, no act or omission on the part of the Executive shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission that was directed or authorized by the Board, or approved, consented to, or acquiesced to by the Board, or based on advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by at least 66 2/3% of the Board (excluding the Executive and the Chief Executive Officer, to the extent either of them are members of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

(c) Good Reason. The Executive’s employment may be terminated by the Executive with or without Good Reason. For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following events without the written consent of the Executive:

(i) any change in the Executive’s title or the assignment to the Executive of duties materially inconsistent with the Executive’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated by Section 2(a)(i), or any other action by the Company which results in a material diminution or material adverse change in the Executive’s title, position, status, reporting relationships, authority, duties or responsibilities, other than (x) insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Executive, or (y) other than allocations of or changes in duties and responsibilities between the Executive and the Chief Executive Officer;

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(ii) any material failure by the Company to comply with any of the provisions of this Agreement or any Related Agreement (as defined below), other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Executive;

(iii) any failure by the Company to comply with and satisfy Section 10(c);

(iv) any failure by the Board to nominate the Executive for election as a director of the Company in accordance with Section 2(a)(iii), or any failure of the Executive to be elected by the Company’s shareholders to be a member of the Board, to be elected by the Board to be Chairman or to be appointed chairman of the investment committee of the Company; or

(v) any requirement that the Executive’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Executive’s residence to his new place of employment;

provided that the Executive’s resignation shall only constitute a resignation for Good Reason hereunder if (x) the Executive provides the Company with a Notice of Termination (as defined below) within 90 days after the initial existence of the facts or circumstances constituting Good Reason, (y) the Company has failed to cure such facts or circumstances within 30 days after receipt of the Notice of Termination, and (z) subject to the last sentence of Section 4(e), the Date of Termination (as defined below) occurs no later than 120 days after the initial occurrence of the facts or circumstances constituting Good Reason.

(d) Notice of Termination. Any termination by the Company or by the Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

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(e) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company other than for Disability, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, (ii) if the Executive’s employment is terminated by the Executive, 30 days after receipt of the Notice of Termination (provided, that, the Company may accelerate the Date of Termination to an earlier date by providing the Executive with notice of such action, or, alternatively, the Company may place the Executive on paid leave during such period), (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iv) if the Executive’s employment is terminated due to the non-renewal of the Agreement at the end of the Employment Period, the Date of Termination shall be the last day of the Employment Period. Notwithstanding the foregoing, if within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected).

(f) Termination of Services; No Resignation from Board upon Termination. Upon the termination of the Executive’s employment for any reason (other than for Cause), the Executive shall have no obligation whatsoever to resign from the Board. A termination of the Executive’s employment shall mean a termination of services of both the Company and the Operating Company.

4. Obligations of the Company upon Termination

(a) Other Than for Cause or For Good Reason. If, during the Employment Period, the Company terminates the Executive’s employment other than for Cause or Disability or the Executive terminates his employment for Good Reason (each, a “Qualifying Termination”):

(i) The Company shall pay to the Executive an amount in a single lump sum within 10 days after the end of the revocation period for the Release Agreement provided in Section 4(e) below, equal to the sum of:

(A) an amount equal to the Executive’s Annual Base Salary (at the rate then being paid to Executive) accruing through the Date of Termination to the extent theretofore unpaid (the “Accrued Base Salary”) plus

(B) the amount of any Annual Bonus that, had he remained employed, would otherwise have been paid to the Executive pursuant to Section 2(b)(ii) to the extent not previously paid (the “Prior Year Bonus”), plus

(C)

(without duplication of the amount in clause (B)) a pro rata portion of the Annual Bonus (if any) for the partial year in which the Date of Termination occurs in an amount equal to the product of (1) the Annual Bonus calculated as of the Date of Termination based on the extent to which the financial performance targets applicable to such Annual Bonus (prorated based on the number of days in such partial year through the Date of Termination and as if the entire Annual Bonus was based solely on such financial performance targets for such partial year) are actually achieved as of the Date of Termination, and (2) the Pro Rated Bonus Factor (as defined below) (the “Pro Rated Annual Bonus”), plus

(D)

an amount equal to $1,500,000.

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“Pro Rated Bonus Factor” shall mean (x) in the event of a termination during a calendar year prior to March 20 (the “Anniversary Date”), a fraction, the numerator of which is the number of days in the year of termination through the Date of Termination and the denominator of which is the number of days in the year of termination through the Anniversary Date, and (y) in the event of a termination during a calendar year after the Anniversary Date, a fraction, the numerator of which is the number of days in the year of termination from the Anniversary Date through the Date of Termination and the denominator of which is the number of days in the year of termination from the Anniversary Date through December 31.

(ii) During the period commencing on the Date of Termination and ending on the date 18 months after the Date of Termination (the “COBRA Period”), provided that the Executive properly elects to receive group health insurance continuation coverage under Section 4980B of the Code and the regulations thereunder (“COBRA”), the Company shall pay directly or reimburse the Executive for premiums for such coverage; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(a)(ii) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the COBRA Period (or the remaining portion thereof).

All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(v) and (vi) (which shall vest as set forth in the applicable award agreement), shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted. Notwithstanding this Section 4(a), in the event that the Executive is terminated other than for Cause or the Executive terminates employment for Good Reason following a Transactional Change in Control (as defined in the Outperformance Award Agreement) and where the Common Share Price (as defined in the Outperformance Award Agreement) does not represent at least 4.5% compound annual growth rate since the Effective Date, the amount payable by the Company pursuant to Section 4(a)(i)(D) shall equal $750,000.

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(b) Death; Disability. If, during the Employment Period, the Executive’s employment shall terminate on account of death (other than via death after delivery of a valid Notice of Termination for Good Reason or without Cause) or Executive becoming Disabled, the Company shall pay to or provide the Executive (or his estate) the following:

(i) The Company shall pay to or provide the Executive (or his estate) the following within 10 business days after the Executive’s death or the date on which the Executive becomes Disabled: (A) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid, (B) the Prior Year Bonus to the extent theretofore unpaid, and (C) the Pro Rated Annual Bonus (if any), and (D) an amount equal to $375,000; and

(ii) During the 12 month period following the Date of Termination, provided that the Executive’s estate or beneficiaries or the Executive, as applicable, properly elects to receive group health insurance continuation coverage under COBRA, the Company shall pay directly or reimburse the Executive’s estate or beneficiaries or the Executive, as applicable, for premiums for such coverage; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(b)(ii) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the 12 month period following the Date of Termination (or the remaining portion thereof).

All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(v) and (vi) (which shall vest as set forth in the applicable award agreement), shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted.

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(c) For Cause; Other than For Good Reason. If, during the Employment Period, the Company shall terminate the Executive’s employment for Cause or the Executive terminates his employment without Good Reason (including the failure by the Executive to renew the Agreement at the end of the Employment Period after the Company offers to do so no less than seventy-five (75) days prior to the end of the Employment Period, as it may be extended, pursuant to an employment agreement with at least a three year term, aggregate cash and equity- and performance-based compensation at least as favorable as the same provided for hereunder and otherwise on terms no less favorable to Executive as those set forth herein (any such non-renewal, an “Executive Non-Renewal”) the Company shall pay to or provide the Executive (or his estate) the following within 10 business days after the Date of Termination: (A) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid and (B) in the event of an Executive Non-Renewal, the Prior Year Bonus to the extent theretofore unpaid. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable (i) in the event of an Executive Non-Renewal, until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted, or (ii) in the event of the termination of Executive’s employment for Cause or without Good Reason (other than an Executive Non-Renewal), within ninety (90) days after the Date of Termination.

(d) Expiration of Employment Period due to the Company’s Non-renewal of the Agreement. If the Executive’s employment with the Company terminates by reason of the expiration of the Employment Period other than due to an Executive Non-Renewal, the Company shall pay to or provide the Executive the following within 10 business days after the Date of Termination:

(i) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid;

(ii) the Prior Year Bonus to the extent theretofore unpaid;

(iii) Subject to execution of the Release Agreement provided in Section 4(e) below, the Company shall pay to the Executive an amount equal to $750,000 in a single lump sum within 10 days after the end of the revocation period for the Release Agreement; and

(iv) During the 12 month period following the Date of Termination, provided that the Executive’s estate or beneficiaries or the Executive, as applicable, properly elects to receive group health insurance continuation coverage under COBRA, the Company shall pay directly or reimburse the Executive’s estate or beneficiaries or the Executive, as applicable, for premiums for such coverage; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(d)(iv) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the 12 month period following the Date of Termination (or the remaining portion thereof).

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All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(v) and (vi) (which shall vest as set forth in the applicable award agreement), shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted.

(e) Release Agreement. The Company shall not be required to make the payments and provide the benefits specified in this Section 4 (other than the payment of any Accrued Base Salary) unless the Executive (or his estate, as applicable) executes and delivers to the Company an agreement releasing the Company, its affiliates and its officers, directors and employees from all liability (other than the payments and benefits under this Agreement) in the form attached hereto as Exhibit E (the “Release Agreement”) within thirty (30) days after the Date of Termination and the period for revocation of such Release Agreement shall have lapsed, which Release Agreement shall also provide that the Company shall release the Executive from all liability; provided, that in all events, subject to Executive’s execution and delivery of the Release Agreement, the payments and benefits specified in this Section 4 will be made or provided before March 15 following the end of Executive’s first taxable year in which his right to such payment is no longer subject to a substantial risk of forfeiture.

5. Application of Section 409A

(a) If any compensation or benefits provided by this Agreement may result in the application of Section 409A of the Code, the Company shall, in consultation with the Executive, modify the Agreement in the least restrictive manner necessary in order to, where applicable, (i) exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A or (ii) comply with the provisions of Section 409A, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and to make such modifications, in each case, without any diminution in the value of the payments to the Executive.

(b) Anything in this Agreement to the contrary notwithstanding, if (A) on the date of termination of Executive’s employment with the Company or a subsidiary, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as amended (the “Code”)), (B) Executive is determined to be a “specified employee” within the meaning of Section 409A(a)(2)(B), (C) the payments exceed the amounts permitted to be paid pursuant to Treasury Regulations section 1.409A-1(b)(9)(iii), and (D) such delay is required to avoid the imposition of the tax set forth in Section 409A(a)(1), as a result of such termination, the Executive would receive any payment that, absent the application of this Section 5(b), would be subject to interest and additional tax imposed pursuant to Section 409A(a) as a result of the application of Section 409A(2)(B)(i), then no such payment shall be payable prior to the date that is the earliest of (1) six (6) months and one day after the Executive’s termination date, (2) the Executive’s death or (3) such other date (the “Delay Period”) as will cause such payment not to be subject to such interest and additional tax (with a catch-up payment equal to the sum of all amounts that have been delayed to be made as of the date of the initial payment). In particular, with respect to any lump sum payment otherwise required hereunder, in the event of any delay in the payment date as a result of Section 409A(a)(2)(A)(i) and (B)(i), the Company will adjust the payments to reflect the deferred payment date by crediting interest thereon at the prime rate in effect at the time such amount first becomes payable, as quoted by the Company’s principal bank.

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(c) To the extent that the provision of health insurance following the Date of Termination is so delayed, the Executive shall be entitled to COBRA continuation coverage under Section 4980B of the Code (“COBRA Coverage”) during such period of delay, and the Company shall reimburse the Executive for any Company portions of such COBRA Coverage in the seventh month following the Date of Termination.

(d) To the extent that any benefits to be provided during the Delay Period are considered deferred compensation under Code Section 409A provided on account of a “separation from service,” and such benefits are not otherwise exempt from Section 409A, the Executive shall pay the cost of such benefits during the Delay Period, and the Company shall reimburse the Executive, to the extent that such costs would otherwise have been paid by the Company or to the extent that such benefits would otherwise have been provided by the Company at no cost to the Executive, the Company’s share of the cost of such benefits upon expiration of the Delay Period, and any remaining benefits shall be reimbursed or provided by the Company in accordance with the procedures specified herein.

(e) Any provisions of this Agreement or any other compensation plan notwithstanding, the Company shall have no right to accelerate any such payment hereunder or thereunder except to the extent permitted under Section 409A.

(f) For purposes of Section 409A, each payment made after termination of employment, including COBRA continuation reimbursement payments, will be considered one of a series of separate payments.

(g) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.”

(h) Any amount that Executive is entitled to be reimbursed under this Agreement that may be treated as taxable compensation will be reimbursed to Executive as promptly as practical and in any event not later than sixty (60) days after the end of the calendar year in which the expenses are incurred; provided that Executive shall have provided a reimbursement request to the Company no later than thirty (30) days prior to the date the reimbursement is due. The amount of the expenses eligible for reimbursement during any calendar year will not affect the amount of expenses for reimbursement in any other calendar year, except as may be required pursuant to an arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code.

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(i) The Company shall not be obligated to reimburse Executive for any tax penalty or interest or provide a gross-up in connection with any tax liability of Executive under Section 409A.

6. Parachute Payment Limitations

Notwithstanding any other provision of this Agreement or of any other agreement, contract, or understanding heretofore or hereafter entered into by the Executive and the Company or any of the Company’s affiliates, except an agreement, contract, or understanding hereafter entered into that expressly modifies or excludes application of this Section 6 (the “Other Agreements”), and notwithstanding any formal or informal plan or other arrangement heretofore or hereafter adopted by the Company or any of the Company’s affiliates for the direct or indirect compensation of the Executive (including groups or classes of participants or beneficiaries of which the Executive is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Executive (a “Benefit Arrangement”), if the Executive is a “disqualified individual,” as defined in Section 280G(c) of the Code, any right to receive any payment or other benefit under this Agreement shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for Executive under the Agreement, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Executive under this Agreement to be considered a “parachute payment” within the meaning of Section 280G(b)(2) of the Code as then in effect (a “Parachute Payment”) and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Executive from the Company or any of the Company’s affiliates under this Agreement, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by Executive without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Agreement, in conjunction with all other rights, payments, or benefits to or for the Executive under the Agreement, any Other Agreement or any Benefit Arrangement would cause the Executive to be considered to have received a Parachute Payment under this Agreement that would have the effect of decreasing the after-tax amount received by the Executive as described in clause (ii) of the preceding sentence, then the Executive shall have the right, in the Executive’s sole discretion, to designate those rights, payments, or benefits under this Agreement, any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Executive under this Agreement be deemed to be a Parachute Payment; provided, however, that, to the extent any payment or benefit constitutes deferred compensation under Section 409A, in order to comply with Section 409A, the reduction or elimination will be performed in the following order: (A) reduction of cash payments; (B) reduction of COBRA benefits; (C) cancellation of acceleration of vesting on any equity awards for which the exercise price exceeds the then fair market value of the underlying equity; and (D) cancellation of acceleration of vesting of equity awards not covered under (C) above; provided, however that in the event that acceleration of vesting of equity awards is to be cancelled, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of such equity awards, that is, later granted equity awards shall be canceled before earlier granted equity awards.

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7. Non-Competition; Non-Solicitation; Confidential Information; Standstill

(a) Non-Competition. Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character. In consideration of his employment hereunder, Executive agrees that, during the term of Executive’s employment with the Company and for a six-month period after the date the Executive’s employment is terminated for any reason, provided in connection with a termination of employment pursuant to Sections 4(a) or (d), the Company is not in material breach in the performance of its obligations to the Executive pursuant to those Sections, the Executive shall not directly or indirectly (without the prior written consent of the Company) engage, directly or indirectly, whether as principal, agent, representative, consultant, employee, partner, stockholder, limited partner, other investor or otherwise (other than a passive investment of not more than two and one-half percent (2.5%) of the stock, equity or other ownership interest of any corporation, partnership or other entity) in any business entity primarily engaged, directly or indirectly through subsidiaries, and the Executive shall not be personally engaged, directly or indirectly, in the business of hotel management within the United States of America or Western Europe. The Executive shall not pursue any prospects listed on a deal pipeline list prepared by the Company and the Executive for a one-year period following the Date of Termination. Notwithstanding the foregoing, neither Executive’s performance of his duties under his employment agreement with NorthStar, nor his ownership of any equity interest therein or in any other business or entity in which he holds an equity interest as of the date hereof, shall be considered a violation of this Section 7(a).

(b) Non-Solicitation. During the term of his employment with the Company pursuant to this Agreement and for a one-year period after the Executive’s employment is terminated pursuant to this Agreement for any reason, provided the Company is not in material breach in the performance of its obligations to the Executive as of the Date of Termination and is performing all of its obligations under Section 4 of this Agreement upon and following the Date of Termination, the Executive shall not, in any manner, directly or indirectly (without the prior written consent of the Company), solicit, induce, or encourage any employee, consultant or agent of the Company or any of its subsidiaries to terminate their employment, agency, or other such business relationship with the Company and its subsidiaries or to cease to render services to the Company and its subsidiaries and the Executive shall not initiate discussions with any such person for any such purpose or authorize or knowingly cooperate with or encourage the taking of any such actions by any other individual or entity; provided, however, that this paragraph shall not preclude the hiring or retention of any such person by any other individual or entity who (i) responds to a general employment advertisement by newspaper or similar advertisement, or (ii) is referred to another individual or entity by an employment agency or other similar entity, provided that Executive did not identify the person or the Company as a potential source of employees to such agency or similar entity. During the term of Executive’s employment pursuant to this Agreement and for a six (6) month period after the Executive’s employment is terminated pursuant to this Agreement for any reason, provided the Company is not in material breach in the performance of its obligations to the Executive as of the Date of Termination and is performing all of its obligations under Section 4 of this Agreement upon and following the Date of Termination, the Executive shall not, in any manner (without the prior written consent of the Company), solicit, induce or encourage any customer, vendor, or other party doing business with the Company to terminate their business relationship with the Company and its subsidiaries or to transfer their business from the Company or any of its subsidiaries, and the Executive shall not initiate discussions with any such person for any such purpose or authorize or knowingly cooperate with or encourage the taking of any such actions by any other individual or entity.

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(c) Treatment of Confidential Information. As a Company executive, Executive will acquire Confidential Information (as defined below) in the course of Executive’s employment. Executive agrees that, in consideration of employment with the Company, Executive will treat such Confidential Information as strictly confidential. Executive will not, directly or indirectly, at any time during employment with the Company or any time thereafter, and without regard to when or for what reason, if any, such employment shall terminate, use or cause to be used any such Confidential Information, in connection with any activity or business except in the normal course of performing his designated duties for the Company. Executive shall not disclose or cause to be disclosed any such Confidential Information to any third parties unless such disclosure is in accordance with the disclosure policies adopted by the Board or has been authorized in writing by the Board or except as may be required by law or legal process after providing the Company with prior written notice and an opportunity to respond to such disclosure (unless such notice is prohibited by law). For purposes of this Agreement, “Confidential Information” shall mean confidential or proprietary information, knowledge or data concerning the Company and its subsidiary companies’ businesses, strategies, operations, financial affairs, organizational matters, personnel matters, budgets, business plans, marketing plans, studies, policies, procedures, products, ideas, processes, software systems, trade secrets and technical know-how. Notwithstanding the foregoing, Confidential Information shall not include information which (i) is or becomes generally available to the public or is, at the time in question, in the public domain other than as a result of a disclosure by Executive not permitted hereunder, (ii) was available to Executive on a non-confidential basis prior to the date of this Agreement, or (iii) becomes available to Executive from a source other than the Company, its agents or representatives (or former agents or representatives).

(d) Standstill. During the term of his employment and for a period of six months after the date the Executive’s employment is terminated, Executive shall not, directly or indirectly or in concert with any other person, engage in any of the following:

(i) purchase, offer to purchase, or agree to purchase or otherwise acquire, by means of a purchase, tender or exchange offer, business combination or in any other manner (including rights or options to acquire such ownership), (x) beneficial ownership of any common stock of the Company (“Common Stock”), or securities convertible into or exchangeable for Common Stock of the Company, that would result in the Executive, the Executive’s affiliates, and the members of any “group” of persons with which the Executive or his affiliates are acting in concert beneficially owning, in the aggregate (taking into account shares of Common Stock issuable upon conversion or exchange of any securities held by such the Executive and such other persons), more than 14.9% of the voting power of the outstanding Common Stock, or (y) material beneficial ownership of any debt obligations on hotel properties owned by the Company or any of its consolidated subsidiaries or any material assets owned by the Company or any of its consolidated subsidiaries;

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(ii) other than in his capacity as an officer or director of the Company, seek or propose to influence, advise, change or control the management, Board, governing instruments or policies or affairs of the Company or any of its affiliates, including, without limitation, by means of a solicitation of proxies or seeking to influence, advise or direct the vote of any holder of voting securities of the Company; or

(iii) be employed by any person (other than NorthStar) that, directly or through its affiliates, engages in any of the foregoing.

Notwithstanding anything in this Section 7(d) to the contrary, no action described above taken by NorthStar (whether directly or indirectly, voluntarily or involuntarily) shall be considered to be a violation of this Section 7(d) by Executive. Exercise of options, conversion of LTIP Units, vesting and delivery of shares of Common Stock pursuant to equity or other awards, plans and arrangements and any other Common Stock received or otherwise acquired by the Executive in connection with or as a result of the Executive’s employment with the Company or service on its Board are not prohibited by this Section 7(d). In addition, if persons with whom the Executive has in no way participated, assisted or cooperated with have taken actions that would be prohibited by Sections 7(d) above such that the Company would be considered to be in “play” through no act of the Executive, the Executive will no longer be subject to the limitations of Sections 7(d).

(e) Survival. Any termination of the Executive’s employment or of this Agreement (or breach of this Agreement by the Executive or the Company) shall have no effect on the continuing effectiveness of this Section 7, Sections 4, 5, 6 and 8 or any other provision hereof that by the nature of its terms is contemplated to survive any such termination.

(f) Validity. The terms and provisions of this Section 7 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive’s future employment imposed by this Section 7 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 7 unreasonable in duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction.

(g) Consideration. The parties acknowledge that this Agreement would not have been entered into and the benefits described in Section 2, 4 or 6 would not have been promised in the absence of the Executive’s promises under this Section 7.

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8. Indemnification

(a) If the Executive is made a party, is threatened to be made a party, or reasonably anticipates being made a party, to any Proceeding (as defined below) by reason of the fact that he is or was a director, officer, executive, agent, manager, trustee, consultant or representative of the Company or any of its affiliates or is or was serving at the request of the Company or any of its affiliates, or in connection with his service hereunder, as a director, officer, member, executive, agent, manager, trustee, consultant or representative of another person or entity, or if any Claim (as defined below) is made, is threatened to be made, or is reasonably anticipated to be made, that arises out of or relates to the Executive’s service in any of the foregoing capacities, then the Executive shall promptly be indemnified and held harmless to the fullest extent permitted or authorized by the Certificate of Incorporation or Bylaws of the Company, or if greater, by applicable law, against any and all costs, expenses, liabilities and losses (including, without limitation, attorneys’ and other professional fees, judgments, interest, expenses of investigation, penalties, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by the Executive in connection therewith or in connection with seeking to enforce his rights under this Section 8, and such indemnification shall continue as to the Executive even if he has ceased to be a director, officer, member, executive, agent, manager, trustee, consultant or representative of the Company or other person or entity and shall inure to the benefit of the Executive’s heirs, executors and administrators. The Executive shall be entitled to prompt advancement of any and all costs and expenses (including, without limitation, attorneys’ and other professional fees and other charges) incurred by him in connection with any such Proceeding or Claim, or in connection with seeking to enforce his rights under this Section 8, any such advancement to be made within 15 days after he gives written notice, supported by reasonable documentation, requesting such advancement. Such notice shall include, to the extent required by applicable law, an undertaking by the Executive to repay the amount advanced if he is ultimately determined not to be entitled to indemnification against such costs and expenses. Nothing in this Agreement shall operate to limit or extinguish any right to indemnification, advancement of expenses, or contribution that the Executive would otherwise have (including, without limitation, by agreement or under applicable law). For purposes of this Agreement, “Claim” shall include, without limitation, any claim, demand, request, investigation, dispute, controversy, threat, discovery request, or request for testimony or information and “Proceeding” shall include, without limitation, any actual, threatened, or reasonably anticipated, action, suit or proceeding, whether civil, criminal, administrative, investigative, appellate, formal, informal or other.

(b) A directors’ and officers’ liability insurance policy (or policies) shall be kept in place, during the Employment Period and thereafter until the later of (x) the sixth anniversary of the date on which the Executive’s employment with the Company terminates and (y) the date on which all claims against the Executive that would otherwise be covered by the policy (or policies) would become fully time barred, providing coverage to the Executive that is no less favorable to him in any respect (including, without limitation, with respect to scope, exclusions, amounts, and deductibles) than the coverage then being provided to any other present or former senior executive or director of the Company.

9. Other Matters

(a) The Executive represents and warrants that the execution and delivery of this Agreement and the performance of his duties and responsibilities as contemplated by Section 2(a)(i) will not result in a breach of, or conflict with his obligations under, his employment agreement with NorthStar.

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(b) The Company acknowledges that Executive has and will continue to acquire knowledge of confidential information regarding the business and affairs of NorthStar, some of which confidential information may relate to dealings or potential dealings between NorthStar, on the one hand, and the Company and its subsidiaries, on the other hand. The Company hereby instructs and authorizes Executive not to disclose any such confidential information to any officer, director, employee, adviser, or other representative of the Company and not to make any use of such confidential information in the performance of Executive’s duties on behalf of the Company and such non-disclosure shall not constitute “Cause” or otherwise constitute a violation of this Agreement.

10. Successors

(a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns, provided that the Company may not assign this Agreement other than as described in Section 10(c) below.

(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid.

11. Disputes

(a) Mandatory Arbitration. Subject to the provisions of this Section 11, any controversy or claim between the Executive and the Company arising out of or relating to or concerning this Agreement (including the covenants contained in Section 7) or any aspect of the Executive’s employment with the Company or the termination of that employment (together, an “Employment Matter”) will be finally settled by arbitration in the County of New York administered by the American Arbitration Association (the “AAA”) under its Commercial Arbitration Rules then in effect. However, the AAA’s Commercial Arbitration Rules will be modified in the following ways: (i) notwithstanding any provision of the AAA rules to the contrary, the arbitration shall be heard by a panel of three neutral arbitrators, with each party appointing one arbitrator, who shall jointly appoint a third, (ii) each arbitrator will agree to treat as confidential evidence and other information presented to them, (iii) there will be no authority to award punitive damages (and the Executive and the Company agree not to request any such award), (iv) the optional Rules for Emergency Measures of Protections will apply, (v) there will be no authority to amend or modify the terms of this Agreement except as provided in Section 12(a) (and the Executive and the Company agree not to request any such amendment or modification) and (vi) a decision must be rendered within ten business days of the parties’ closing statements or submission of post-hearing briefs. The Executive and the Company agree that, to the extent permitted by law, a decision made by the arbitration panel with respect to any Employment Matter will be conclusive and binding on the Executive and the Company.

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(b) Injunctions and Enforcement of Arbitration Awards. The Executive or the Company may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the County of New York to enforce any arbitration award under Section 11(a). Also, the Company may bring such an action or proceeding, in addition to its rights under Section 11(a) and whether or not an arbitration proceeding has been or is ever initiated, to temporarily, preliminarily or permanently enforce any part of Section 7. The Executive agrees that (i) violating any part of Section 7 would cause damage to the Company that cannot be measured or repaired, (ii) the Company therefore is entitled to seek an injunction, restraining order or other equitable relief restraining any actual or threatened violation of Section 7, (iii) no bond will need to be posted for the Company to receive such an injunction, order or other relief and (iv) no proof will be required that monetary damages for violations of Section 7 would be difficult to calculate and that remedies at law would be inadequate.

(c) Jurisdiction and Choice of Forum. The Executive and the Company irrevocably submit to the exclusive jurisdiction of any state or federal court located in the County of New York over any Employment Matter that is not otherwise arbitrated or resolved according to Section 11(a). This includes any action or proceeding to compel arbitration or to enforce an arbitration award. Both the Executive and the Company (i) acknowledge that the forum stated in this Section 11(c) has a reasonable relation to this Agreement and to the relationship between the Executive and the Company and that the submission to the forum will apply even if the forum chooses to apply non-forum law, (ii) waive, to the extent permitted by law, any objection to personal jurisdiction or to the laying of venue of any action or proceeding covered by this Section 11(c) in the forum stated in this Section 11(c), (iii) agree not to commence any such action or proceeding in any forum other than the forum stated in this Section 11(c) and (iv) agree that, to the extent permitted by law, a final and non-appealable judgment in any such action or proceeding in any such court will be conclusive and binding on the Executive and the Company. However, nothing in this Agreement precludes the Executive or the Company from bringing any action or proceeding in any court for the purpose of enforcing the provisions of Section 11(a) and this Section 11(c).

(d) Waiver of Jury Trial. To the extent permitted by law, the Executive and the Company waive any and all rights to a jury trial with respect to any Employment Matter.

(e) Costs. The Company will reimburse as incurred any reasonable expenses, including reasonable attorney’s fees, the Executive incurs as a result of any Employment Matter, provided that if the Executive is not the prevailing party on at least one material issue in the Employment Matter, the Executive shall promptly return any such reimbursements. In addition, if the Executive is not the prevailing party on at least one material issue in the Employment Matter, the Executive shall promptly reimburse the Company any reasonable expenses, including reasonable attorney’s fees, the Company has incurred as a result of the Employment Matter, provided that such reimbursement shall not exceed fifty percent (50%) of the expenses, including attorney’s fees, incurred by the Executive.

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12. Miscellaneous

(a) Amendment; Waiver. This Agreement may not be amended or modified, or any provision hereof waived, other than by a written agreement executed by the parties hereto or any of their respective successors and assigns.

(b) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by overnight courier or registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:

at the Executive’s primary residential address
as shown on the records of the Company

If to the Company:

Morgans Hotel Group Co.
475 Tenth Avenue
New York, NY 10018
Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee; provided that any notice made by hand delivery shall be deemed to have been received on the date it is actually delivered, any notice made by overnight courier shall be deemed to have been received on the date after such notice was so sent and any notice made by registered or certified mail, return receipt shall be deemed to have been received on the date that is five (5) business days after such notice was so sent.

(c) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. The Executive shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment.

(f) Governing Law. This Agreement will be governed by and construed in accordance with the law of the State of New York applicable to contracts made and to be performed entirely within that State.

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(g) No Waiver. The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason (subject to the proviso at the end of Section 3(c)) or the Company’s right to terminate the Executive for Cause (subject to the limitation in the last sentence of Section 3(b)), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(h) Entire Agreement; Conflict. This Agreement, together with the Stock Option Agreement, LTIP Agreement, Outperformance Award Agreement, and Promoted Interest Pool Award Agreement (collectively, the “Related Agreements”), constitutes the final, complete and exclusive agreement between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, between the parties concerning the subject matter hereof. In the event of any conflict or inconsistency between the provisions of, or definitions contained in, this Agreement, on the one hand, and any Related Agreement or any other agreement or instrument related to the Executive’s employment to which he is subject, on the other hand, the provisions or definitions, as the case may be, the terms of the Related Agreements shall govern (notwithstanding the termination hereof) but this Agreement shall govern if in conflict with any plan document or other document or instrument related thereto (other than a Related Agreement).

(i) Section References. Any reference to a Section herein is a reference to a section of this Agreement unless otherwise stated.

(j) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.
SIGNATURES APPEAR ON THE NEXT PAGE.

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

EMPLOYER:		EXECUTIVE:
MORGANS HOTEL GROUP CO.
By:	/s/ Jeffrey M. Gault	/s/ David Hamamoto
	Name: Jeffrey M. Gault	David Hamamoto

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Exhibit A

Stock Option Agreement

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Option No.:                     

MORGANS HOTEL GROUP CO.
AMENDED AND RESTATED 2007 OMNIBUS INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT

Morgans Hotel Group Co., a Delaware corporation (the “Company”), hereby grants an option to purchase shares of its common stock, $.01 par value, (the “Stock”) to the optionee named below. Additional terms and conditions of the grant are set forth in this cover sheet and in the attachment (collectively the “Agreement”), and in the Company’s Amended and Restated 2007 Omnibus Incentive Plan (the “Plan”).

Grant Date: March 20, 2011

Name of Optionee: David Hamamoto

Optionee’s Employee Identification Number:                     -                    -                    

Number of Shares Covered by Option: 600,000

Option Price per Share: $8.87 (At least 100% of Fair Market Value)

Vesting Start Date: March 20, 2011

By signing this cover sheet, you agree to all of the terms and conditions described in the attached Agreement and in the Plan, a copy of which is also attached. You acknowledge that you have carefully reviewed the Plan, and agree that this Agreement will control in the event any provision of this Agreement should appear to be inconsistent with the Plan. Certain capitalized terms used in this Agreement are defined in the Plan, and have the meaning set forth in the Plan.

Optionee:	/s/ David Hamamoto
	(Signature)
Company:	/s/ Richard Szymanski
	(Signature)
	Title: Chief Financial Officer, Morgans Hotel Group

This is not a stock certificate or a negotiable instrument.

MORGANS HOTEL GROUP CO.
AMENDED AND RESTATED 2007 OMNIBUS INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT

Non-Qualified Stock Option	This option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code and will be interpreted accordingly.
Vesting	This option is only exercisable before it expires and then only with respect to the vested portion of the option. Subject to the preceding sentence, you may exercise this option, in whole or in part, to purchase a whole number of vested shares not less than 100 shares, unless the number of shares purchased is the total number available for purchase under the option, by following the procedures set forth in the Plan and below in this Agreement.
	Your right to the Stock under this Agreement vests as to one-third (1/3rd) of the total number of shares of Stock covered by this grant, as shown on the cover sheet, each year on each of the first three one-year anniversaries of the Vesting Start Date. The resulting aggregate number of vested shares will be rounded down to the nearest whole number, and you cannot vest in more than the number of shares covered by this option.
	Except as otherwise provided in the employment agreement between you and the Company, no additional shares of Stock will vest after your Service has terminated for any reason.
Term	Your option will expire in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the cover sheet. Your option will expire earlier if your Service terminates, as described below.
Termination	Except as otherwise provided in the employment agreement between you and the Company, if your Service terminates for any reason, your option will expire at the close of business at Company headquarters on the 90th day after your termination date.
Notice of Exercise	When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form. Your notice must specify how many shares you wish to purchase (in a parcel of at least 100 shares generally). Your notice must also specify how your shares of Stock should be registered (e.g. in your name only or in your and your spouse’s names as joint tenants with right of survivorship). The notice will be effective when it is received by the Company.
	If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.

Form of Payment	When you submit your notice of exercise, you must include payment of the option price for the shares you are purchasing. Payment may be made in one (or a combination) of the following forms:
	• Cash, your personal check, a cashier’s check, a money order or another cash equivalent acceptable to the Company.
	• Shares of Stock which have already been owned by you and which are surrendered to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price.
	• By delivery (on a form prescribed by the Company) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate option price and any withholding taxes.
Withholding Taxes	You will not be allowed to exercise this option unless you make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the option exercise or sale of Stock acquired under this option. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the exercise or sale of shares arising from this grant, the Company shall have the right to require such payments from you, or withhold such amounts from other payments due to you from the Company or any Affiliate. Subject to the prior approval of the Company, which may be withheld by the Company, in its sole discretion, you may elect to satisfy this withholding obligation, in whole or in part, by causing the Company to withhold shares of Stock otherwise issuable to you or by delivering to the Company shares of Stock already owned by you. The shares of Stock so delivered or withheld must have an aggregate Fair Market Value equal to the withholding obligation and may not be subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
Corporate Transaction	Notwithstanding the vesting schedule set forth above, upon the consummation of a Corporate Transaction, this option will become 100% vested if it is not assumed, or equivalent options are not substituted for the options, by the Company or its successor. Notwithstanding any other provision in this Agreement but subject to the employment agreement between you and the Company, if assumed or substituted for, the option will expire one year after the date of termination of Service.

Transfer of Option	During your lifetime, only you (or, in the event of your legal incapacity or incompetency, your guardian or legal representative) may exercise the option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or it may be transferred upon your death by the laws of descent and distribution.
	Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your spouse, nor is the Company obligated to recognize your spouse’s interest in your option in any other way.
Retention Rights	Neither your option nor this Agreement give you the right to be retained by the Company (or any Subsidiary or Affiliate) in any capacity. The Company (and any Subsidiary or Affiliate) reserve the right to terminate your Service at any time and for any reason, subject to the employment agreement between you and the Company.
Shareholder Rights	You, or your estate or heirs, have no rights as a shareholder of the Company until a certificate for your option’s shares has been issued (or an appropriate book entry has been made). No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued (or an appropriate book entry has been made), except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in the Stock, the number of shares covered by this option and the option price per share shall be adjusted (and rounded down to the nearest whole number) pursuant to the Plan. Your option shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to such corporate activity in accordance with the terms of the Plan.
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of New York, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
The Plan	The text of the Plan is incorporated in this Agreement by reference.
	This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded.

Data Privacy	In order to administer the Plan, the Company may process personal data about you. Such data includes but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan.
	By accepting this option, you give explicit consent to the Company to process any such personal data. You also give explicit consent to the Company to transfer any such personal data outside the country in which you work or are employed, including, with respect to non-U.S. resident Optionees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to administer the Plan.
Consent to Electronic Delivery	The Company may choose to deliver certain statutory materials relating to the Plan in electronic form. By accepting this option grant you agree that the Company may deliver the Plan prospectus and the Company’s annual report to you in an electronic format. If at any time you would prefer to receive paper copies of these documents, as you are entitled to, the Company would be pleased to provide copies. Please contact David Smail at (212) 277-4100 to request paper copies of these documents.
Electronic Signature	All references to signatures and delivery of documents in this Agreement can be satisfied by procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents, including this Agreement. Your electronic signature is the same as, and shall have the same force and effect as, your manual signature. Any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the Plan.

By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.

Exhibit B

LTIP Agreement

LTIP UNIT VESTING AGREEMENT

UNDER THE MORGANS HOTEL GROUP CO.
AMENDED AND RESTATED 2007 OMNIBUS INCENTIVE PLAN

Name of Grantee: David Hamamoto	(“Grantee”)
No. of LTIP Units: 75,000
Grant Date: March 20, 2011	(the “Grant Date”)
Final Acceptance Date: March 20, 2011	(the “Final Acceptance Date”)

Pursuant to the Morgans Hotel Group Co. Amended and Restated 2007 Omnibus Incentive Plan (the “Plan”) of Morgans Hotel Group Co. (the “Company”) a Delaware corporation, and the Limited Liability Company Agreement (the “LLC Agreement”) of Morgans Group LLC (the “LLC”), a Delaware limited liability company, the LLC hereby grants to the Grantee named above an Other Stock-Based Award (as defined in the Plan, referred to herein as an “Award”) in the form of, and by causing the LLC to issue to the Grantee, the number of LTIP Units (as defined in the LLC Agreement) set forth above (the “Award LTIP Units”) having the rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption and conversion set forth herein and in the LLC Agreement. Upon the close of business on the Final Acceptance Date, if this LTIP Unit Vesting Agreement (this “Agreement”) is accepted, the Grantee shall receive the number of LTIP Units specified above, subject to the restrictions and conditions set forth herein, in the Plan and in the LLC Agreement. Unless otherwise indicated, capitalized terms used herein but not defined shall have the meanings given to those terms in the Plan.

1. Acceptance of Agreement.

(a) Unless the Grantee is already a Member (as defined in the LLC Agreement), Grantee must sign, as a Member, and deliver to the LLC a counterpart signature page to the LLC Agreement (attached hereto as Exhibit A). Upon signing and delivery of the signature page, to the extent required, the Grantee shall be admitted as a Member of the LLC, as of the Grant Date, with beneficial ownership of the number of LTIP Units specified above, the LLC Agreement shall be amended to reflect the issuance to the Grantee of the Award LTIP Units and the LLC shall deliver to the Grantee a certificate of the Company certifying the number of LTIP Units then issued to the Grantee. Thereupon, the Grantee shall have all the rights of a Member of the LLC with respect to the number of LTIP Units specified above, as set forth in the LLC Agreement, subject, however, to the restrictions and conditions specified herein and in the LLC Agreement.

(b) In order to confirm receipt of this Agreement, Grantee must sign and deliver to the Company a copy of this Agreement.

2. Vesting of LTIP Units.

(a) Except as provided in Sections 2(b) and 2(c) below, one twelfth (1/12) of the Award LTIP Units shall vest monthly on each of the first twelve monthly anniversaries of the Grant Date, (each such date on which Award LTIP Units vest is referred to herein as a “Vesting Date”); provided that upon termination of Grantee’s employment with, cessation of consulting relationship with or cessation of service to the Company and its Subsidiaries for any reason, the LTIP Units that have not yet vested shall, without payment of any consideration by the LLC, automatically and without notice terminate, be forfeited and be and become null and void, and neither the Grantee nor any of his successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such LTIP Units. In the event Grantee becomes a consultant, advisor or Non-Employee Director, such change in status shall not be deemed a termination of employment or service with the Company at the time of such change in status or thereafter so long as the Grantee continues in one of such positions.

(b) Notwithstanding any other term or provision of this Agreement, if a Corporate Transaction occurs and the LTIP Units subject to this Agreement are not assumed or substituted for any restrictions and conditions on all LTIP Units subject to this Agreement shall be deemed waived by the Company and all LTIP Units granted hereby that have not previously been forfeited shall automatically become fully vested. Notwithstanding any other provision in this Agreement, if assumed or substituted for, but subject to Section 2(c), the award will expire one year after the date of termination.

(c) Other Vesting Terms. Notwithstanding anything to the contrary in this Section 2, to the extent the Grantee is a party to another agreement or arrangement with the Company that provides accelerated vesting of the Award LTIP Units in the event of certain types of employment terminations or any other applicable vesting-related events or provides more favorable vesting provisions than provided for in this Agreement, the more favorable vesting terms of such other agreement or arrangement shall control.

3. Distributions. Distributions on the LTIP Units shall be paid currently to the Grantee in accordance with the terms of the LLC Agreement.

4. Rights with Respect to LTIP Units. If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or a transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization, significant repurchases of stock or other similar change in the capital structure of the Company, or any distribution to holders of Common Stock other than regular cash dividends, shall occur or (iii) any other event shall occur which in the judgment of the Administrator necessitates action by way of adjusting the terms of the Agreement, then and in that event, the Administrator shall take any such action as in its discretion shall be necessary to maintain the Grantee’s rights hereunder so that they are substantially proportionate to the rights existing under this Agreement prior to such event, including but not limited to, adjustments in the number of LTIP Units then subject to this Agreement.

5. Legend. The records of the LLC evidencing the Award LTIP Units shall bear an appropriate legend, as determined by the LLC in its sole discretion, to the effect that such LTIP Units are subject to restrictions as set forth herein, in the Plan and in the LLC Agreement.

6. Restrictions on Transfer. None of the Award LTIP Units shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”), or converted into Membership Units in accordance with the LLC Agreement (a) prior to vesting, or (b) unless such Transfer is in compliance with all applicable securities laws (including, without limitation, the Securities Act of 1933, as amended (the “Securities Act”)), and such Transfer is in accordance with the applicable terms and conditions of the LLC Agreement; provided that, upon the approval of, and subject to the terms and conditions specified by, the Administrator, unvested Award LTIP Units may be Transferred to members of the Grantee’s Immediate Family, which for purposes of this Agreement shall include family limited partnerships and similar entities which are primarily for the benefit of the Grantee and his or her Immediate Family, provided that the transferee agrees in writing with the Company and the LLC to be bound by all of the terms and conditions of this Agreement. In connection with any Transfer of Award LTIP Units, the LLC may require the Grantee to provide an opinion of counsel, satisfactory to the LLC, that such Transfer is in compliance with all federal and state securities laws (including, without limitation, the Securities Act). Any attempted Transfer of Award LTIP Units not in accordance with the terms and conditions of this Section 6 shall be null and void, and the LLC shall not reflect on its records any change in record ownership of any LTIP Units as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer and shall not in any way give effect to any such Transfer of any LTIP Units. This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will, the laws of descent and distribution or the transfer provisions specified above in this Section 6.

7. Incorporation of Plan. The provisions of the Plan are hereby incorporated by reference as if set forth herein. If and to the extent that any provision contained in this Agreement is inconsistent with the Plan, this Agreement shall govern.

8. Investment Representation; Registration. The Grantee hereby makes the covenants, representations and warranties set forth on Exhibit B attached hereto as of the date of acceptance of this Agreement and each Vesting Date. All of such covenants, warranties and representations shall survive the execution and delivery of this Agreement by the Grantee. The Grantee shall immediately notify the LLC upon discovering that any of the representations or warranties set forth on Exhibit B were false when made or have, as a result of changes in circumstances, become false. The LLC will have no obligation to register under the Securities Act any LTIP Units or any other securities issued pursuant to this Agreement or upon conversion or exchange of the LTIP Units.

9. Section 83(b) Election. The Grantee hereby agrees to make an election to include in gross income in the year of transfer the Award LTIP Units pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”), substantially in the form attached hereto as Exhibit C and to supply the necessary information in accordance with the regulations promulgated thereunder.

10. Amendment. The Grantee acknowledges that the Plan may be amended or discontinued in accordance with Section 12 thereof and that this Agreement may be amended or canceled by the Administrator of the Plan, on behalf of the LLC, for the purpose of satisfying changes in law or for any other lawful purpose, provided that no such action shall impair the Grantee’s rights under this Agreement without the Grantee’s written consent.

11. Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to the Award LTIP Units, the Grantee will pay to the Company or, if appropriate, any of its affiliates, or make arrangements satisfactory to the Administrator regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount.

The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

12. No Obligation to Continue Employment. Neither the Company, the LLC nor any subsidiary of any of them is obligated by or as a result of the Plan or this Agreement to continue to have the Grantee provide services to it or to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company, the LLC or any subsidiary of any of them to terminate its relationship with the Grantee or the employment of the Grantee at any time, subject to the employment agreement between you and the Company.

13. Notices. Notices hereunder shall be mailed or delivered to the LLC at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the LLC or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

14. Section 409A. Subject to any agreement or arrangement to which the Grantee and the Company are parties to, if any compensation provided by this Agreement may result in the application of Section 409A of the Code (“Section 409A”), the Company shall, in consultation with and at the request of the Grantee, modify the Agreement in the least restrictive manner necessary in order to, where applicable, (a) exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A or (b) comply with the provisions of Section 409A, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and to make such modifications, in each case, without any diminution in the value of the payments to the Grantee.

15. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, applied without regard to conflict of law principles. The parties hereto agree that any action or proceeding arising directly, indirectly or otherwise in connection with, out of, related to or from this Agreement, any breach hereof or any action covered hereby, shall be resolved within the State of New York and the parties hereto consent and submit to the jurisdiction of the federal and state courts located within the City of New York, New York. The parties hereto further agree that any such action or proceeding brought by either party to enforce any right, assert any claim, obtain any relief whatsoever in connection with this Agreement shall be brought by such party exclusively in federal or state courts located within the State of New York.

16. Electronic Signature. All references to signatures and delivery of documents in this Agreement can be satisfied by procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents, including this Agreement. The Grantee’s electronic signature is the same as, and shall have the same force and effect as, Grantee’s manual signature. Any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the Plan.

(Signature Page Follows)

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the 20^th day of March, 2011.

MORGANS HOTEL GROUP CO.
By:	/s/ Jeffrey M. Gault
	Name:	Jeffrey M. Gault
MORGANS GROUP LLC
By:	Morgans Hotel Group Co., its
	managing member

By:	/s/ Jeffrey M. Gault
	Name:	Jeffrey M. Gault

GRANTEE
/s/ David Hamamoto
Name:	David Hamamoto
Address:

EXHIBIT A

FORM OF MEMBER SIGNATURE PAGE

The Grantee, desiring to become one of the within named Members of Morgans Group LLC, hereby accepts all of the terms and conditions of, and becomes a party to, the Limited Liability Company Agreement of Morgans Group LLC (the “LLC Agreement”). The Grantee agrees that this signature page may be attached to any counterpart of the LLC Agreement.

Signature Line for Member:

Name:  

Date: 

Address of Member:

EXHIBIT B

GRANTEE’S COVENANTS, REPRESENTATIONS AND WARRANTIES

The Grantee hereby represents, warrants and covenants as follows:

(a) The Grantee has received and had an opportunity to review the following documents (the “Background Documents”):

(i) The Company’s latest Annual Report to Stockholders that has been provided to stockholders after the Company’s initial public offering, if available;

(ii) The Company’s Proxy Statement for its most recent Annual Meeting of Stockholders following the Company’s initial public offering, if available;

(iii) The Company’s Report on Form 10-K for the fiscal year most recently ended following the Company’s initial public offering, if available;

(iv) If any of the documents described in clauses (i) — (iii) above or (v) or (vi) below is not available, the Company’s Registration Statement on Form S-1 registering the Company’s initial public offering of its common stock;

(v) The Company’s Form 10-Q for the most recently ended quarter if one has been filed by the Company with the Securities and Exchange Commission since the filing of the Form 10-K described in clause (iii) above or, if a Form 10-K has not been filed by the Company, since the filing of the Form S-1 described in clause (iv) above;

(vi) Each of the Company’s Current Report(s) on Form 8-K, if any, filed since the later of the end of the fiscal year most recently ended for which a Form 10-K has been filed by the Company or the filing of the Form S-1 described in clause (iv) above;

(vii) The LLC Agreement;

(viii) The Plan; and

(ix) The Company’s Certificate of Incorporation, as amended.

The Grantee also acknowledges that any delivery of the Background Documents and other information relating to the Company and the LLC prior to the determination by the LLC of the suitability of the Grantee as a holder of LTIP Units shall not constitute an offer of LTIP Units until such determination of suitability shall be made.

(b) The Grantee hereby represents and warrants that

(i) The Grantee either (A) is an “accredited investor” as defined in Rule 501(a) under the Securities Act of 1933, as amended (the “Securities Act”), or (B) by reason of the business and financial experience of the Grantee, together with the business and financial experience of those persons, if any, retained by the Grantee to represent or advise him, her or it with respect to the grant to him, her or it of LTIP Units, the potential conversion of LTIP Units into common units of the LLC (“Common Units”) and the potential redemption of such Common Units for shares of common stock (“Shares”), has such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that the Grantee (I) is capable of evaluating the merits and risks of an investment in the LLC and potential investment in the Company and of making an informed investment decision, (II) is capable of protecting his, her or its own interest or has engaged representatives or advisors to assist him, her or it in protecting his, her or its interests, and (III) is capable of bearing the economic risk of such investment.

(ii) The Grantee understands that (A) the Grantee is responsible for consulting his, her or its own tax advisors with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of the award of LTIP Units may become subject, to his, her or its particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the LLC or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides or will provide services to the LLC on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the LLC, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award of LTIP Units; and (D) an investment in the LLC and/or the Company involves substantial risks. The Grantee has been given the opportunity to make a thorough investigation of matters relevant to the LTIP Units and has been furnished with, and has reviewed and understands, materials relating to the LLC and the Company and their respective activities (including, but not limited to, the Background Documents). The Grantee has been afforded the opportunity to obtain any additional information (including any exhibits to the Background Documents) deemed necessary by the Grantee to verify the accuracy of information conveyed to the Grantee. The Grantee confirms that all documents, records, and books pertaining to his, her or its receipt of LTIP Units which were requested by the Grantee have been made available or delivered to the Grantee. The Grantee has had an opportunity to ask questions of and receive answers from the LLC and the Company, or from a person or persons acting on their behalf, concerning the terms and conditions of the LTIP Units. The Grantee has relied upon, and is making its decision solely upon, the Background Documents and other written information provided to the Grantee by the LLC or the Company. The Grantee did not receive any tax, legal or financial advice from the LLC or the Company and, to the extent it deemed necessary, has consulted with its own advisors in connection with its evaluation of the Background Documents and this Agreement and the Grantee’s receipt of LTIP Units.

(iii) The LTIP Units to be issued, the Common Units issuable upon conversion of the LTIP Units and any Shares issued in connection with the redemption of any such Common Units will be acquired for the account of the Grantee for investment only and not with a current view to, or with any intention of, a distribution or resale thereof, in whole or in part, or the grant of any participation therein, without prejudice, however, to the Grantee’s right (subject to the terms of the LTIP Units, the Plan and this Agreement) at all times to sell or otherwise dispose of all or any part of his or her LTIP Units, Common Units or Shares in compliance with the Securities Act, and applicable state securities laws, and subject, nevertheless, to the disposition of his or her assets being at all times within his or her control.

(iv) The Grantee acknowledges that (A) neither the LTIP Units to be issued, nor the Common Units issuable upon conversion of the LTIP Units, have been registered under the Securities Act or state securities laws by reason of a specific exemption or exemptions from registration under the Securities Act and applicable state securities laws and, if such LTIP Units or Common Units are represented by certificates, such certificates will bear a legend to such effect, (B) the reliance by the LLC and the Company on such exemptions is predicated in part on the accuracy and completeness of the representations and warranties of the Grantee contained herein, (C) such LTIP Units, or Common Units, therefore, cannot be resold unless registered under the Securities Act and applicable state securities laws, or unless an exemption from registration is available, (D) there is no public market for such LTIP Units and Common Units and (E) neither the LLC nor the Company has any obligation or intention to register such LTIP Units or the Common Units issuable upon conversion of the LTIP Units under the Securities Act or any state securities laws or to take any action that would make available any exemption from the registration requirements of such laws, except, that, upon the redemption of the Common Units for Shares, the Company currently intends to issue such Shares under the Plan and pursuant to a Registration Statement on Form S-8 under the Securities Act, to the extent that (I) the Grantee is eligible to receive such Shares under the Plan at the time of such issuance, (II) the Company has filed an effective Form S-8 Registration Statement with the Securities and Exchange Commission registering the issuance of such Shares. The Grantee hereby acknowledges that because of the restrictions on transfer or assignment of such LTIP Units acquired hereby and the Common Units issuable upon conversion of the LTIP Units which are set forth in the LLC Agreement or this Agreement, the Grantee may have to bear the economic risk of his, her or its ownership of the LTIP Units acquired hereby and the Common Units issuable upon conversion of the LTIP Units for an indefinite period of time.

(v) The Grantee has determined that the LTIP Units are a suitable investment for the Grantee.

(vi) No representations or warranties have been made to the Grantee by the LLC or the Company, or any officer, director, shareholder, agent, or affiliate of any of them, and the Grantee has received no information relating to an investment in the LLC or the LTIP Units except the information specified in Paragraph (b) above.

(c) So long as the Grantee holds any LTIP Units, the Grantee shall disclose to the LLC in writing such information as may be reasonably requested with respect to ownership of LTIP Units as the LLC may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code, applicable to the LLC or to comply with requirements of any other appropriate taxing authority.

(d) The Grantee hereby agrees to make an election under Section 83(b) of the Code with respect to the LTIP Units awarded hereunder, and has delivered with this Agreement a completed, executed copy of the election form attached hereto as Exhibit C. The Grantee agrees to file the election (or to permit the LLC to file such election on the Grantee’s behalf) within thirty (30) days after the Award of the LTIP Units hereunder with the IRS Service Center at which such Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the LTIP Units are awarded to the Grantee.

(e) The address set forth on the signature page of this Agreement is the address of the Grantee’s principal residence, and the Grantee has no present intention of becoming a resident of any country, state or jurisdiction other than the country and state in which such residence is sited.

(f) The representations of the Grantee as set forth above are true and complete to the best of the information and belief of the Grantee, and the LLC shall be notified promptly of any changes in the foregoing representations.

EXHIBIT C

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1.	The name, address and taxpayer identification number of the undersigned are:
	Name:                      (the “Taxpayer”)
	Address:
	Social Security No./Taxpayer Identification No.:
2.	Description of property with respect to which the election is being made:
	The election is being made with respect to                      LTIP Units in Morgans Group LLC (the “LLC”).
3.	The date on which the LTIP Units were transferred is                     , 20_____. The taxable year to which this election relates is calendar year 20_.
4.	Nature of restrictions to which the LTIP Units are subject:

(a)	With limited exceptions, until the LTIP Units vest, the Taxpayer may not transfer in any manner any portion of the LTIP Units without the consent of the LLC.
(b)	The Taxpayer’s LTIP Units vest in accordance with the vesting provisions described in the Schedule attached hereto. Unvested LTIP Units are forfeited in accordance with the vesting provisions described in the Schedule attached hereto.

5.	The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the LTIP Units with respect to which this election is being made was $0 per LTIP Unit.
6.	The amount paid by the Taxpayer for the LTIP Units was $0 per LTIP Unit.

7. A copy of this statement has been furnished to the LLC and to its managing member, Morgans Hotel Group Co.

Dated: ___________, 20__

Name:

Schedule to Section 83(b) Election -Vesting Provisions of LTIP Units

LTIP Units are subject to time-based vesting with one-twelfth (1/12) vesting each month on the first twelve monthly anniversaries of the date of grant, provided that the Taxpayer remains an employee of Morgans Hotel Group Co. (the “Company”) or its subsidiaries through such dates, subject to acceleration in the event of certain extraordinary transactions. Unvested LTIP Units are subject to forfeiture in the event of failure to vest based on the passage of time and continued employment with the Company or its subsidiaries.

Exhibit C

Outperformance Award Agreement

MORGANS HOTEL GROUP CO.
2011 OUTPERFORMANCE PLAN AWARD AGREEMENT

2011 OUTPERFORMANCE PLAN AWARD AGREEMENT made as of the date set forth on Schedule A hereto by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “Company”), MORGANS GROUP LLC, a Delaware limited liability company (the “Operating Company”), and the party listed on Schedule A (the “Grantee”).

RECITALS

A. The Grantee is a senior management employee of the Company and provides services to the Operating Company.

B. The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) approved this and other 2011 outperformance plan (“2011 OPP”) awards pursuant to the Company’s Amended and Restated 2007 Omnibus Incentive Plan (the “Incentive Plan”) to provide certain senior management employees of the Company, including the Grantee, in connection with their employment with the incentive compensation described in this Award Agreement (this “Agreement”) and thereby provide additional incentive for them to promote the progress and success of the business of the Company and its Affiliates. 2011 OPP awards were approved by the Committee pursuant to authority delegated to it by the Board, including authority to make grants of stock-based performance incentive awards. This Agreement evidences one award (this “Award”) in a series of 2011 OPP awards and is subject to the terms and conditions set forth herein.

C. The Committee, effective as of the grant date specified in Schedule A hereto, awarded to the Grantee the 2011 OPP participation percentage in the Total Outperformance Pool (as defined herein), as set forth in Schedule A.

NOW, THEREFORE, the Company, the Operating Company, and the Grantee agree as follows:

1. Administration.

This Award and all other 2011 OPP awards shall be administered by the Committee, which in the administration of the 2011 OPP awards and this Award shall have all the powers and authority it has in the administration of the Incentive Plan as set forth in the Incentive Plan, but subject to this Agreement ; provided that all powers of the Committee hereunder can be exercised by the full Board if the Board so elects. The Committee, in its sole and absolute discretion, may provide for lapse of forfeiture restrictions and/or accelerated vesting under this Agreement of some or all of the Grantee’s unvested Award Participation that has not previously been forfeited.

2. Definitions.

Capitalized terms used herein shall have the meanings set forth below:

“Accelerated Payment Change of Control” means a Transactional Change of Control or a Change of Control within the meaning of subparagraph (iv) or (v) thereof.

“Additional Share Baseline Value” means, with respect to each Additional Share, the gross proceeds received by the Company or the Operating Company upon the issuance of such Additional Share, which amount shall be deemed to equal, as applicable:

(A) if such Additional Share is issued for cash in a public offering or private placement, the gross price to the public or to the purchaser(s);

(B) if such Additional Share is issued in exchange for assets or securities of another Person or upon the acquisition of another Person, the cash value imputed to such Additional Share for purposes of such transaction by the parties thereto, as determined in good faith by the Committee, or, if no such value was imputed, the mean between the high and low sale prices of a Common Share on the national securities exchange or established securities market on which the Common Shares are listed on the date of issuance of such Additional Share, or, if no sale of Common Shares is reported on such date, on the next preceding day on which any sale shall have been reported; and

(C) if such Additional Share is issued upon conversion or exchange of equity or debt securities of the Company, the Operating Company or any other Subsidiary of the Company, which securities were not previously counted as either Initial Shares or Additional Shares, the conversion or exchange price in effect as of the date of conversion or exchange pursuant to the terms of the security being exchanged or converted.

“Additional Shares” means, as of a particular date of determination, the number of Common Shares, other than those held by the Company, to the extent such Common Shares are issued after the Effective Date and on or before such date of determination in a capital raising transaction, in exchange for assets or securities or upon the acquisition of another Person, upon conversion or exchange of equity or debt securities of the Company or any Subsidiary of the Company, which securities were not previously counted as either Initial Shares or Additional Shares, or through the reinvestment of dividends or other distributions.

For the avoidance of doubt, “Additional Shares” shall exclude, without limitation:

(i) Common Shares issued after the Effective Date upon exercise of stock options or upon the exchange (directly or indirectly) of LTIP Units or other Units issued to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation,

(ii) Common Shares awarded after the Effective Date to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation for services provided or to be provided to the Company or any of its Affiliates,

(iii) LTIP Units or other Units awarded after the Effective Date to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation, and

(iv) any securities included in “Initial Shares.”

“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

“Award Common Units” means the units of membership interests in the Operating Company referred to as “Membership Units” in the LLC Agreement into which the Award LTIP Units may be converted in accordance with the terms of the LLC Agreement.

“Award LTIP Units” means a series of LTIP Units established by the Operating Company, with the rights, privileges, and preferences set forth in the designations thereof included in an amendment to the LLC Agreement that may be adopted hereafter by the Managing Member of the Operating Company in accordance with Section 8(a), which designations shall be in the form set forth on Exhibit A attached hereto.

“Award Participation” has the meaning set forth in Section 3.

“Baseline Value” means $8.87.

“Buyback Shares” means (without double-counting), as of a particular date of determination, (A) Common Shares or (B) the Shares Amount for Units (assuming that such Units were converted, exercised, exchanged or redeemed for Membership Units as of such date at the applicable conversion, exercise, exchange or redemption rate (or rate deemed applicable by the Committee if there is no such stated rate) and such Common Units were then tendered to the Operating Company for redemption pursuant to Section 4.2(e)(1) of the LLC Agreement as of such date), other than Units held by the Company, in the case of each (A) and (B), to the extent repurchased by the Company after the Effective Date and on or before such date of determination in a stock buyback transaction or in a redemption of Units for cash pursuant to Section 4.2(e)(1) of the LLC Agreement.

“Cause” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination and “Cause” is defined therein, then “Cause” shall have the meaning set forth in such definition, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Cause” or a substantially equivalent term, then “Cause” shall mean:

(vi) the Grantee’s willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Grantee’s incapacity due to physical or mental illness or any such failure after his issuance of a notice of termination for Good Reason), after a written demand for substantial performance is delivered to the Grantee by the Board, which demand specifically identifies the manner in which the Board believes that the Grantee has not substantially performed his duties;

(vii) a material breach by Grantee of his Service Agreement;

(viii) the Grantee’s willful commission of an act of fraud, theft or dishonesty resulting in economic, financial or material reputational injury to the Company;

(ix) the Grantee’s conviction of, or entry by the Grantee of a guilty or no contest plea to, the commission of a felony; or

(x) the Grantee willfully engages in other misconduct materially injurious to the Company.

For purposes of this provision, no act or omission on the part of the Grantee shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission based upon a resolution duly adopted by the Board or advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Grantee shall not be deemed to be for Cause unless and until there shall have been delivered to the Grantee a copy of a resolution duly adopted by the majority of the Board (excluding the Grantee, if the Grantee is then a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Grantee and the Grantee is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Grantee is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

“Change of Control” means:

(i) individuals who, on the Effective Date, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director; or

(ii) any “person” (as such term is defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Effective Date, a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that an event described in this paragraph (ii) shall not be deemed to be a Change of Control if any of following becomes such a beneficial owner: (A) the Company or any majority-owned subsidiary of the Company (provided that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any such majority-owned subsidiary, or (C) any underwriter temporarily holding securities pursuant to an offering of such securities; or

(iii) the consummation of a merger, consolidation, share exchange or similar form of transaction involving the Company or any of its subsidiaries, or the sale of all or substantially all of the Company’s assets (a “Business Transaction”), unless immediately following such Business Transaction (A) more than 50% of the total voting power of the entity resulting from such Business Transaction or the entity acquiring the Company’s assets in such Business Transaction (the “Surviving Corporation”) is beneficially owned, directly or indirectly, by the Company’s shareholders immediately prior to any such Business Transaction, and (B) no person (other than the persons set forth in clauses (A), (B), or (C) of paragraph (ii) above or any tax-qualified, broad-based employee benefit plan of the Surviving Corporation or its affiliates) beneficially owns, directly or indirectly, 30% or more of the total voting power of the Surviving Corporation; or

(iv) Board approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company’s shareholders in substantially the same proportions as such shareholders owned the Company’s outstanding voting common equity interests immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company to the Grantee under this Agreement; or

(v) Approval by the shareholders of the Company or the Managing Member and/or Non-Managing Members of the Operating Company of a dissolution or liquidation of the Operating Company and satisfaction or effective waiver of all material contingencies to such liquidation or dissolution.

“CoC Fraction” means, for application pursuant to the proviso clause in the definition of “Final Baseline,” the number of calendar days that have elapsed since the Effective Date to and including the date as of which a Change of Control is consummated (or, with respect to a Transactional Change of Control, the date of the Public Announcement of such Transactional Change of Control), divided by 1,096.

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

“Common Shares” means shares of the Company’s common stock, par value $0.01 per share.

“Common Share Price” means, as of a particular date, the average of the Fair Market Value of one Common Share over the thirty (30) consecutive trading days ending on, and including, such date (or, if such date is not a trading day, the most recent trading day immediately preceding such date); provided, however, that if such date is the date of the Public Announcement of a Transactional Change of Control, the Common Share Price as of such date shall be equal to the fair market value, as determined by the Committee, of the total consideration payable in the transaction that ultimately results in the Transactional Change of Control for one Common Share.

“Continuous Service” means the continuous service, without interruption or termination, as a an employee or director of Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of (among other things) —

(A) any approved leave of absence,

(B) transfers among the Company and any Affiliate, or any successor, in any capacity of director or employee, or

(C) any change in status as long as the individual remains in the service of the Company or any Affiliate of the Company in the capacity of employee or director.

An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

“Disability” means:

(A) if the Grantee is or was a party to a Service Agreement prior to the applicable event, and “Disability” is defined therein, then “Disability” shall have the meaning set forth in such definition, or

(B) if the Grantee is not and was not a party to a Service Agreement prior to such event or the Grantee’s Service Agreement does not define “Disability” or a substantially equivalent term, then “Disability” shall mean a disability which renders the Grantee incapable of performing all of his or her material duties for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Grantee or the Grantee’s legal representative or by the insurance company which insures the Company’s long-term disability plan in which the Grantee is eligible to participate.

“Effective Date” means March 20, 2011.

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

“Fair Market Value” means, as of any given date, the fair market value of a security determined by the Committee using any reasonable method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1) of the Code); provided that, with respect to a Common Share, “Fair Market Value” means the value of such Common Share determined as follows: (A) if on the determination date the Common Shares are listed on the New York Stock Exchange, The NASDAQ Stock Market, Inc. or another national securities exchange or is publicly traded on an established securities market, the Fair Market Value of a Common Share shall be the closing price of the Common Shares on such exchange or in such market (if there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the high and low sale prices on such trading day) or, if no sale of Common Shares is reported for such trading day, on the next preceding day on which any sale shall have been reported; or (B) if the Common Shares are not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the Common Share shall be the value of the Common Shares as determined by the Committee in good faith in a manner consistent with Section 409A of the Code.

“Family Member” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Grantee, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than fifty percent of the beneficial interest, a foundation in which any one or more of these persons (or the Grantee) control the management of assets, and any other entity in which one or more of these persons (or the Grantee) own more than fifty percent of the voting interests.

“Final Baseline” means, as of the Final Valuation Date, an amount representing (without double-counting) the sum of:

(A) the Baseline Value multiplied by:

(i) the difference between (x) the Initial Shares and (y) all Buyback Shares repurchased or redeemed between the Effective Date and the Final Valuation Date, and then multiplied by

(ii) the sum of one hundred percent (100%) plus the Target Return Percentage; plus

(B) with respect to each Additional Share issued after the Effective Date, the Additional Share Baseline Value of such Additional Share, multiplied by the sum of (i) one hundred percent (100%) plus (ii) the product of the Target Return Percentage multiplied by a fraction (x) the numerator of which is the number of days from the issuance of such Additional Share to and including the Final Valuation Date and (y) the denominator of which is the number of days from and including the Effective Date to and including the Final Valuation Date; plus

(C) with respect to each Buyback Share repurchased or redeemed after the Effective Date, the Baseline Value, multiplied by the sum of (i) one hundred percent (100%) plus (ii) the product of the Target Return Percentage multiplied by a fraction (x) the numerator of which is the number of days from the Effective Date to and including the date such Buyback Share was repurchased or redeemed and (y) the denominator of which is the number of days from and including the Effective Date to and including the Final Valuation Date;

provided that if the Final Valuation Date occurs prior to the third anniversary of the Effective Date as a result of an Accelerated Payment Change of Control, then for purposes of this definition in connection with the calculation of the Total Outperformance Pool as of the Final Valuation Date, then the Target Return Percentage to be used in such calculation shall be reduced to a percentage equal to thirty percent (30%) multiplied by the CoC Fraction. If the Company consummates multiple issuances of Additional Shares and/or repurchases of Buyback Shares during any one monthly or quarterly period, such that it would be impractical to track the precise issuance date and issuance price of each individual Additional Share and/or repurchase or redemption date of each individual Buyback Share, the Committee may in its good faith discretion approve timing and calculation conventions (such as net-at-end-of-period or average-during-the-period) reasonably designed to simplify the administration of this Award.

“Final Valuation Date” means the earliest of: (A) the third anniversary of the Effective Date; or (B) in the event of an Accelerated Payment Change of Control that is not a Transactional Change of Control, the date on which such Change of Control shall occur; or (C) in the event of a Transactional Change of Control and subject to the consummation of such Transactional Change of Control, the date of the Public Announcement of such Transactional Change of Control; provided that if the Public Announcement occurs after 4pm New York City time or otherwise so late in the trading day that the market cannot meaningfully react on such day, then the Final Valuation Date shall mean the following trading day.

“Good Reason” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Good Reason” is defined therein, then “Good Reason” shall have the meaning set forth in such Service Agreement, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Good Reason” or a substantially equivalent term, so long as the Grantee terminates his or her employment within thirty (30) days after the Grantee has actual knowledge of the occurrence, without the written consent of the Grantee, of one of the following events that has not been cured within thirty (30) days after written notice thereof has been given by Grantee to the Company, then “Good Reason” shall mean:

(i) the assignment to the Grantee of duties materially inconsistent with the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated in his Service Agreement, or any other action by the Company which results in a material diminution in the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Grantee;

(ii) any material failure by the Company to comply with any of the provisions of the Service Agreement, other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Grantee;

(iii) any failure by the Company to obtain the assumption of his Service Agreement by a successor to all or substantially all of the business or assets of the Company; or

(iv) if his Service Agreement provides that the Executive will be nominated for election as a director of the Company, any failure by the Board to nominate the Executive for election as a director of the Company in accordance with the Service Agreement, or any failure of the Executive to be elected to be a member of the Board; or

(v) any requirement that the Grantee’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Grantee’s residence to his new place of employment;

“Initial Shares” means 32,642,795 Common Shares, which includes: (A) 30,311,503 Common Shares outstanding as of the Effective Date (other than currently unvested restricted Common Shares previously granted to employees or other persons or entities in exchange for services provided to the Company); plus (B) 954,065 Common Shares representing the Shares Amount for all of the Membership Units (other than LTIP Units and excluding Membership Units held by the Company) outstanding as of the Effective Date assuming that all of such Membership Units were tendered to the Operating Company for redemption pursuant to Section 4.2(e) of the LLC Agreement as of such date; plus (C) 1,377,227 Common Shares representing the Shares Amount for all of the Membership Units into which all LTIP Units outstanding as of the Effective Date could be converted without regard to the book capital account associated with them (but only to the extent such LTIP Units are currently vested), assuming that all of such Membership Units were tendered to the Operating Company for redemption pursuant to Section 4.2(e) of the LLC Agreement as of such date.

For the avoidance of doubt, Initial Shares (i) includes (x) currently vested Common Shares and (y) currently vested LTIP Units previously granted to employees or other persons or entities in exchange for services provided to the Company, and (ii) excludes (x) all Common Shares issuable upon exercise of stock options or upon the exchange (directly or indirectly) of unvested LTIP Units or other unvested Units issued to employees, non-employee directors, consultants, advisors or other persons or entities as incentive compensation, and (y) currently unvested restricted Common Shares previously granted to employees, non-employee directors, consultants, advisors or other persons or entities in exchange for services provided to the Company.

“LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of the Operating Company, dated as of February 17, 2006, among the Company, as managing member, and the non-managing members who are parties thereto, as amended from time to time.

“LTIP Units” means LTIP Units, as such term is defined in the LLC Agreement.

“Membership Units” has the meaning set forth in the LLC Agreement.

“Partial Service Factor” means a factor carried out to the sixth decimal to be used in calculating the Grantee’s adjusted Participation Amount pursuant to Section 4(b)(ii) hereof in the event of a Qualified Termination of the Grantee’s Continuous Service prior to the Final Valuation Date or pursuant to Section 4(e) in the event of a termination of the Grantee’s Continuous Service by reason of death or Disability prior to the Final Valuation Date, determined as follows:

the number of calendar days that have elapsed since the Effective Date to and including the effective date of such Qualified Termination or the date of death or Disability, divided by 1,096; provided, however, that if, after the effective date of such Qualified Termination or the date of death or Disability and before the third anniversary of the Effective Date, an Accelerated Payment Change of Control occurs, then there shall be subtracted from the foregoing denominator (1,096) a number of days equal to the days that would elapse between the date as of which the Accelerated Payment Change of Control is consummated (or, with respect to a Transactional Change of Control, the date of the Public Announcement of the Transactional Change of Control) and the third anniversary of the Effective Date.

“Participation Amount” has the meaning set forth in Section 3.

“Participation Percentage” means the percentage (of the Total Outperformance Pool) set forth opposite such term on Schedule A hereto

“Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, other entity or “group” (as defined in the Exchange Act).

“Public Announcement” means, with respect to a Transactional Change of Control, the earliest press release, filing with the SEC or other publicly available or widely disseminated communication issued by the Company or another Person who is a party to such transaction which discloses the consideration payable in and other material terms of the transaction that ultimately results in the Transactional Change of Control; provided, however, that if such consideration is subsequently increased or decreased, then the term “Public Announcement” shall be deemed to refer to the most recent such press release, filing or communication disclosing a change in consideration whereby the final consideration and material terms of the transaction that ultimately results in the Transactional Change of Control are announced. For the avoidance of doubt, the foregoing definition is intended to provide the Committee in the application of the proviso clause in the definition of “Common Share Price” with the information required to determine the fair market value of the consideration payable in the transaction that ultimately results in the Transactional Change of Control as of the earliest time when such information is publicly disseminated, particularly if the transaction consists of an unsolicited tender offer or a contested business combination where the terms of the transaction change over time.

“Qualified Termination” has the meaning set forth in Section 4.

“SEC” means the U.S. Securities and Exchange Commission.

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

“Service Agreement” means, as of a particular date, any employment, consulting or similar service agreement then in effect between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand, as amended or supplemented through such date, provided that, if no such agreement is then in effect, “Service Agreement” shall mean any employment, consulting or similar service agreement most recently in effect (on or after the Effective Date) prior to such date, as amended or supplemented, between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand.

“Shares Amount” has the meaning set forth in the LLC Agreement.

“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

“Target Return Percentage” means thirty percent (30%), representing a compound annual growth rate of approximately nine percent (9%) per annum over a three-year period, using annual compounding, except as otherwise defined for purposes of the definition of Final Baseline in certain circumstances, as described in the proviso clause of such definition.

“Total Outperformance Pool” means, as of the Final Valuation Date, a dollar amount calculated as follows: (A) subtract the Final Baseline from the Total Return, in each case as of the Final Valuation Date and (B) multiply the resulting amount by ten percent (10%); provided that if the resulting amount is a negative number, then the Total Outperformance Pool shall be zero.

“Total Return” means (without double-counting), as of the Final Valuation Date, an amount equal to the sum of (A) the Total Shares as of such date of determination multiplied by the Common Share Price as of such date, plus (B) an amount equal to the sum of the total dividends and other distributions actually declared between the Effective Date and the Final Valuation Date (excluding dividends and distributions paid in the form of additional Common Shares) so long as the “ex-dividend” date with respect thereto falls prior to the Final Valuation Date, in respect of Common Shares (it being understood, for the avoidance of doubt, that such total dividends and distributions shall be calculated by multiplying the amount of each per share dividend or distribution declared by the actual number of securities outstanding as of each record date with respect to the applicable dividend or distribution payment date).

“Total Shares” means (without double-counting), as of the Final Valuation Date, the sum of: (A) the Initial Shares, minus (B) all Buyback Shares repurchased or redeemed between the Effective Date and the Final Valuation Date, plus (C) all Additional Shares issued between the Effective Date and the Final Valuation Date.

“Transactional Change of Control” means (A) a Change of Control described in clause (ii) of the definition thereof where the “person” or “group” makes a tender offer for Common Shares, or (B) a Change of Control described in clause (iii) of the definition thereof; provided that if the applicable definition of “Change of Control” (or similar term) in the applicable Service Agreement does not track such clauses (ii) or (iii), then the term “Transactional Change of Control” shall mean a Change of Control meeting the substantive criteria set forth in such clauses, as reasonably determined in good faith by the Committee.

“Transfer” has the meaning set forth in Section 6.

“Units” means all Membership Units that are eligible for the Redemption Right (as defined in the LLC Agreement) and any other Membership Units, including LTIP Units, with economic attributes substantially similar to such Membership Units as determined by the Committee that are outstanding or are issuable upon the conversion, exercise, exchange or redemption of any securities of any kind convertible, exercisable, exchangeable or redeemable for Membership Units.

3. Outperformance Award; Vesting; Change of Control.

(a) The Operating Company hereby grants to the Grantee this Award consisting of the Participation Percentage set forth on Schedule A hereto (the “Award Participation”), which (A) will be subject to forfeiture to the extent provided in this Section 3 and (B) will be subject to vesting as provided below in this Section 3(a) and in Section 3(d) and Section 4. The Award will be made in the form of Award LTIP Units as provided in Section 8, subject to the Company having received confirmation that it is permitted under applicable stock exchange listing rules to issue Award LTIP Units, on the terms contemplated herein, under the Incentive Plan. The Company will use commercially reasonable efforts to obtain such confirmation within 90 days following the Effective Date. If the Company does not receive such confirmation within 90 days following the Effective Date, the Company and the Operating Company shall amend this Award Agreement to provide for an Award that is settled by a cash payment by the Operating Company to Grantee equal to his Participation Amount within 45 days following the Final Valuation Date. In the event Grantee receives Award LTIP Units pursuant hereto, references herein to Grantee’s Award Participation shall refer to Grantee’s Award LTIP Units and the provisions of Section 8 shall apply in lieu of specified provisions of this Award Agreement. At any time prior to the Final Valuation Date, the Committee may grant additional 2011 OPP awards with such Participation Percentages (up to a total of 100% for all 2011 Participation Percentages granted or reserved) set forth therein as the Committee may determine, in its sole discretion, The Award Participation shall vest (i) on the Final Valuation Date if the Continuous Service of the Grantee continues to that date or (ii) in accordance with Section 3(d), 4(b) and 4(d) hereof.

(b) As soon as practicable following the Final Valuation Date, but as of the Final Valuation Date, the Committee will:

(i) determine the Total Outperformance Pool (if any);

(ii) multiply (x) the Total Outperformance Pool calculated as of the Final Valuation Date by (y) the Grantee’s Participation Percentage as of the Final Valuation Date; and

(iii) if applicable (without double-counting), multiply the amount determined in clause (ii) by the Partial Service Factor or the CoC Fraction.

The resulting amount is hereafter referred to as the “Participation Amount.” The Committee will notify Grantee of his Participation Amount (if any) promptly following the determination thereof. If Grantee has received his Award in the form of Award LTIP Units, Section 8(b) will apply in lieu of the remainder of this Section 3(b). If this Award Agreement has been amended, as provided in Section 3(a), to provide for a payment in cash such notice will state whether the Committee has elected to cause the Company to pay the Participation Amount in cash or through the issuance of fully vested shares under one of the Company’s equity incentive compensation plans, subject to compliance with applicable laws and stock exchange listing requirements, or through a combination of cash and shares. If the Participation Amount is to be paid using shares, the shares will be valued at the Common Share Price as of the Final Valuation Date and will be issued under the Incentive Plan and be registered on a Form S-8. The Company shall pay Grantee’s Participation Amount within 45days following the Final Valuation Date.

(c) Any Award Participation that does not become vested pursuant to Section 3(a), Section 3(d), or Section 4 hereof shall, without payment of any consideration by the Company, automatically and without notice be forfeited and be and become null and void upon the termination of the Continuous Service of Grantee prior to the Final Valuation Date (other than by reason of a Qualified Termination, death or Disability), and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Award Participation.

(d) If there is a Change of Control, Grantee’s Award Participation shall vest immediately and automatically upon the occurrence of such Change of Control.

(e) In the event of a Change of Control, the Committee will make any determinations and certifications required by this Agreement and any provisions necessary with respect to the lapse of forfeiture restrictions and/or acceleration of vesting of this Award within a period of time that enables the Company to take any action or make any deliveries or payments it is obligated to make hereunder not later than the date of consummation of the Change of Control. For avoidance of doubt, in the event of a Change of Control, the performance of all calculations and actions pursuant to Section 3(b) hereof shall be conditioned upon the final consummation of such Change of Control.

4. Termination of Grantee’s Continuous Service; Death and Disability.

(a) If the Grantee is or was a party to a Service Agreement and his or her Continuous Service terminates, the provisions of Sections 4(b), 4(c), 4(d), and 4(e), hereof shall govern the treatment of the Grantee’s Award Participation exclusively, unless the Service Agreement contains provisions that expressly refer to this Section 4(a) and provides that those provisions of the Service Agreement shall instead govern the treatment of the Grantee’s Award Participation upon such termination. The foregoing sentence will be deemed an amendment to any applicable Service Agreement to the extent required to apply its terms consistently with this Section 4, such that, by way of illustration, any provisions of the Service Agreement with respect to accelerated vesting or payout or the lapse of forfeiture restrictions relating to the Grantee’s incentive or other compensation awards in the event of certain types of termination of the Grantee’s Continuous Service with the Company (such as, for example, termination at the end of the term, termination without Cause by the employer or termination for Good Reason by the employee) shall not be interpreted as requiring that any calculations set forth in Section 3 hereof be performed, or vesting occur with respect to this Award other than as specifically provided in this Section 4.

(b) In the event of termination of the Grantee’s Continuous Service by (A) the Company without Cause or (B) the Grantee for Good Reason (each a “Qualified Termination”) prior to the Final Valuation Date, then the Grantee will not forfeit the Award Participation upon such termination, but the following provisions of this Section 4(b) shall modify the calculations required to determine the Participation Amount and/or the vesting of the Award Participation, as applicable, with respect to the Grantee only:

(i) the calculations provided in Section 3(b) hereof shall be performed as of the Final Valuation Date, as if the Qualified Termination had not occurred;

(ii) the Participation Amount calculated pursuant to Section 3(b) shall be multiplied by the applicable Partial Service Factor; and

(iii) the Grantee’s Participation Amount as adjusted pursuant to Section 4(b)(ii) above shall no longer be subject to forfeiture pursuant to Section 3(c) hereof; provided that, notwithstanding that no Continuous Service requirement pursuant to Section 3(c) hereof will apply to the Grantee after the effective date of a Qualified Termination, the Grantee will not have the right to Transfer (as defined in Section 6 hereof) his or her Award Participation or request the redemption of any Award Common Units until such dates as of which his or her Participation Amount, as adjusted pursuant to Section 4(b)(ii) above, would have become vested pursuant to Section 3(a) hereof absent a Qualified Termination. For the avoidance of doubt, the purpose of this Section 4 (b)(iii) is to prevent a situation where grantees of 2011 OPP awards who have had a Qualified Termination would be able to realize the value of their Award Participation or any Award Common Units (through Transfer) before other grantees of 2011 OPP awards whose Continuous Service continues through the Final Valuation Date and the date for payment of the Participation Amount.

(c) Notwithstanding the foregoing, in the event any payment to be made hereunder after giving effect to this Section 4 is determined to constitute “nonqualified deferred compensation” subject to Section 409A of the Code, then, to the extent the Grantee is a “specified employee” under Section 409A of the Code subject to the six-month delay thereunder, any such payments to be made during the six-month period commencing on the Grantee’s “separation from service” (as defined in Section 409A of the Code) shall be delayed until the expiration of such six-month period.

(d) In the event of a termination of the Grantee’s Continuous Service as a result of his or her death or Disability prior to the Final Valuation Date, the Grantee will not forfeit the Award Participation, but the following provisions of this Section 4(d) shall apply:

(i) the calculations provided in Section 3(b) hereof shall be performed as of the Final Valuation Date, as if the Grantee’s death or Disability had not occurred; and

(ii) the Participation Amount calculated pursuant to Section 3(b) shall be multiplied by the applicable Partial Service Factor, and such adjusted amount shall be deemed the Grantee’s Participation Amount for all purposes under this Agreement; and

(iii) 100% of the Grantee’s Participation Amount as adjusted pursuant to Section 4(d)(ii) above shall no longer be subject to forfeiture pursuant to Section 3(c) hereof and shall automatically and immediately vest as of the Final Valuation Date.

(e) In the event of a termination of the Grantee’s Continuous Service prior to the Final Valuation Date (other than (1) a Qualified Termination or (2) by reason of death or Disability or (3) following a Change of Control), the Award Participation, unless it shall, as of the date of such termination, both (i) have ceased to be subject to forfeiture pursuant to Section 3(c) hereof, and (ii) have vested pursuant to Section 3(a) hereof, shall, without payment of any consideration by the Company, automatically and without notice terminate, be forfeited and be and become null and void, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such Award Participation.

5. No Payments by Award Recipients.

No amount shall be payable to the Company by the Grantee at any time in respect of this Agreement. The Grantee shall have no rights with respect to this Agreement (and the Award evidenced hereby) unless he or she shall have accepted this Agreement by signing and delivering to the Company a copy of this Agreement. Upon acceptance of this Agreement by the Grantee, the Grantee’s Award Participation shall constitute and shall be treated for all purposes as the property of the Grantee, subject to the terms of this Agreement.

6. Restrictions on Transfer.

Except as otherwise permitted by the Committee, no portion of the Award Participation or Award LTIP Units granted hereunder shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”), provided that vested Award Participation or vested Award LTIP Units may be Transferred to (i) the Grantee’s Family Members by gift or pursuant to domestic relations order in settlement of marital property rights or (ii) to an entity in which fifty percent (50%) or more of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in such entity, provided that the transferee agrees in writing with the Company to be bound by all the terms and conditions of this Agreement and that subsequent Transfers shall be prohibited except those in accordance with this Section 6. All Transfers of the Award Participation or any interest therein or Award LTIP Units must be in compliance with all applicable securities laws (including, without limitation, the Securities Act) and, in the case of the Award LTIP Units, the LLC Agreement. Any attempted Transfer of an Award Participation or Award LTIP Unit not in accordance with the terms and conditions of this Section 6 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Award Participation or Award LTIP Units as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer and shall not in any way give effect to any such Transfer of any Award Participation or Award LTIP Units. Except as provided expressly in this Section 6, this Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Changes in Capital Structure.

If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or other transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization, significant repurchases of stock, or other similar change in the capital stock of the Company shall occur, (iii) any extraordinary dividend or other distribution to holders of Common Shares shall be declared and paid other than in the ordinary course, or (iv) any other event shall occur that in each case in the good faith judgment of the Committee necessitates action by way of appropriate equitable or proportionate adjustment in the terms of this Award or this Agreement to avoid distortion in the value of this Award, then the Committee shall take such action as it deems necessary to maintain the Grantee’s rights hereunder so that they are substantially proportionate to the rights existing under this Award prior to such event, including, without limitation: (A) interpretations of or modifications to any defined term in this Agreement; (B) adjustments in any calculations provided for in this Agreement, and (C) substitution of other awards or otherwise.

8. Award LTIP Units

(a) Issuance of Award LTIP Units. In the event that, following the Effective Date, the Company determines, in its sole discretion, that the applicable stock exchange listing rules permit the Company to issue Award LTIP Units, the Company shall promptly notify Grantee of such determination and shall issue to Grantee the number of Award LTIP Units set forth on Schedule A hereto. The issuance of such Award LTIP Units shall be conditioned upon the Grantee, unless the Grantee is already a Non-Managing Member (as defined in the LLC Agreement), signing, as a Non-Managing Member, and delivering to the Operating Company a counterpart signature page to the LLC Agreement in the form provided by the Company. Upon execution and delivery of such counterpart signature page by the Grantee, the LLC Agreement shall be amended, at such time as set forth in the notice from the Company, to establish the designations of the Award LTIP Units and to make other necessary and appropriate amendments related to the creation of the series of Award LTIP Units, and to reflect the issuance to the Grantee of the Award LTIP Units and admission of Grantee as a Non-Managing Member of the Operating Company. Thereupon, the Grantee shall have all the rights of a Non-Managing Member of the Operating Company with respect to the number of Award LTIP Units specified on Schedule A hereto, as set forth in the LLC Agreement (as so amended), subject, however, to the restrictions, obligations and conditions specified herein. Award LTIP Units constitute and shall be treated for all purposes as the property of the Grantee, subject to the terms of this Agreement and the LLC Agreement.

(b) Post-Final Valuation Date Adjustments. If Grantee’s Award is made in the form of Award LTIP Units, then following determination of Grantee’s Participation Amount pursuant to Section 3(b), the Committee shall divide the resulting dollar amount by the Common Share Price calculated as of the Final Valuation Date (appropriately adjusted to the extent that the “Unit Adjustment Factor” (as defined in the LLC Agreement) is greater or less than 1.0). The resulting number is hereafter referred to as the “Total OPP Unit Equivalent.” If the Total OPP Unit Equivalent is smaller than the number of Award LTIP Units previously issued to the Grantee, then the Grantee, as of the Final Valuation Date, shall forfeit a number of Award LTIP Units equal to the difference without payment of any consideration by the Operating Company. Thereafter, the term Award LTIP Units will refer only to the Award LTIP Units that were not so forfeited and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in the Award LTIP Units that were so forfeited. If the Total OPP Unit Equivalent is greater than the number of Award LTIP Units previously issued to the Grantee, then, upon the performance of the calculations set forth in this Section 8(b): (A) the Company shall cause the Operating Company to issue to the Grantee, as of the Final Valuation Date, a number of additional Award LTIP Units equal to the difference; (B) such additional Award LTIP Units shall be added to the Award LTIP Units previously issued, if any, and thereby become part of this Award; (C) the Company and the Operating Company shall take such corporate and limited liability company action as is necessary to accomplish the grant of such additional Award LTIP Units; and (D) thereafter the term Award LTIP Units will refer collectively to the Award LTIP Units, if any, issued prior to such additional grant plus such additional Award LTIP Units; provided that such issuance will be subject to the Grantee executing and delivering such documents, comparable to the documents executed and delivered in connection with the original issuance of Award LTIP Units, as the Company or the Operating Company reasonably request in order to comply with all applicable legal requirements, including, without limitation, federal and state securities laws. If the Total OPP Unit Equivalent is the same as the number of Award LTIP Units previously issued to the Grantee, then there will be no change to the number of Award LTIP Units under this Award pursuant to this Section 8(b).

(c) Vesting and Forfeiture. The Award LTIP Units shall vest and be subject to forfeiture on the same terms and conditions as the Award Participation, as set forth in Sections 3(a), 3(c), 3(d) and 4.

(d) Distributions. The holder of the Award LTIP Units shall be entitled to receive distributions with respect to such Award LTIP Units to the extent provided for in the LLC Agreement (as amended in accordance with Section 8(a)). The 2011 Award LTIP Unit Distribution Participation Date (as defined in the designation of rights and preferences of such Award LTIP Units, attached hereto as Exhibit A) with respect to Award LTIP Units in an aggregate number equal to the Total OPP Unit Equivalent will be the Valuation Date.

9. Miscellaneous.

(a) Amendments. This Agreement may be amended or modified only with the consent of the Company acting through the Committee; provided that any such amendment or modification materially or adversely affecting the rights of the Grantee hereunder must be consented to by the Grantee to be effective as against him. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company to correct any errors or ambiguities in this Agreement and/or to make such changes that do not materially or adversely affect the Grantee’s rights hereunder. This grant shall in no way affect the Grantee’s participation or benefits under any other plan or benefit program maintained or provided by the Company.

(b) Committee Determinations. The Committee will in good faith make the determinations and certifications required by this Award as promptly as reasonably practicable following the occurrence of the event or events necessitating such determinations or certifications.

(c) Status of the Award and Award LTIP Units; Incentive Plan Matters. This Award and the other 2011 OPP awards constitute other stock-based incentive compensation awards by the Company under the Incentive Plan and incentive compensation awards by the Operating Company. The Award LTIP Units are equity interests in the Operating Company. Any Award LTIP Units issued pursuant to Section 8 may, but need not, be issued as equity securities under the Incentive Plan insofar as the 2011 OPP has been established as an incentive program of the Operating Company. The Company may, under certain circumstances, have the right, as set forth in the LLC Agreement, to issue shares of Common Stock in exchange for Award Common Units into which Award LTIP Units may have been converted pursuant to the LLC Agreement, subject to certain limitations set forth in the LLC Agreement, and such shares of Common Stock may be issued under the Incentive Plan if the Committee so determines, to the extent such issuance is permitted under applicable stock exchange listing rules, as determined by the Committee in its sole and absolute discretion. The Committee may, in its sole and absolute discretion, determine whether and when Award LTIP Units issued pursuant to Section 3 become part of the Incentive Plan, and upon and to the extent of such determination this Award will be considered an award under the Incentive Plan. The Grantee acknowledges that the Grantee will have no right to approve or disapprove such determination by the Committee.

(d) Grantee Representations; Registration.

(i) The Grantee hereby represents and warrants that (A) he or she understands that he or she is responsible for consulting his or her own tax advisor with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of this Award may become subject, to his or her particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the Operating Company or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides services to the Operating Company on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Operating Company, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award; (D) Award LTIP Units are subject to substantial risks; (E) the Grantee has been furnished with, and has reviewed and understands, information relating to this Award; (F) the Grantee has been afforded the opportunity to obtain such additional information as he or she deemed necessary before accepting this Award; and (G) the Grantee has had an opportunity to ask questions of representatives of the Operating Company and the Company, or persons acting on their behalf, concerning this Award.

(ii) The Grantee hereby acknowledges that: (A) there is no public market for Award LTIP Units or Award Common Units and neither the Operating Company nor the Company has any obligation or intention to create such a market; (B) sales of Award LTIP Units and Award Common Units are subject to restrictions under the Securities Act and applicable state securities laws; (C) because of the restrictions on transfer or assignment of Award LTIP Units and Award Common Units set forth in the LLC Agreement and in this Agreement, the Grantee may have to bear the economic risk of his or her ownership of the LTIP Units covered by this Award for an indefinite period of time; (D) shares of Common Stock issued under the Incentive Plan in exchange for Award Common Units, if any, will be covered by a Registration Statement on Form S-8 (or a successor form under applicable rules and regulations of the Securities and Exchange Commission) under the Securities Act, to the extent that the Grantee is eligible to receive such shares under the Incentive Plan at the time of such issuance and such Registration Statement is then effective under the Securities Act; (E) resales of shares of Common Stock issued under the Incentive Plan in exchange for Award Common Units, if any, shall only be made in compliance with all applicable restrictions (including in certain cases “blackout periods” forbidding sales of Company securities) set forth in the then applicable Company employee manual or insider trading policy and in compliance with the registration requirements of the Securities Act or pursuant to an applicable exemption therefrom.

(e) Section 83(b) Election. In connection with each separate issuance of Award LTIP Units under this Award pursuant to Section 8, the Grantee hereby agrees to make an election to include in gross income in the year of transfer the applicable Award LTIP Units pursuant to Section 83(b) of the Code substantially in the form attached hereto as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder. The Grantee agrees to file such election (or to permit the Operating Company to file such election on the Grantee’s behalf) within thirty (30) days after the issuance of the Award LTIP Units with the IRS Service Center where the Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the Award LTIP Units are awarded to the Grantee. So long as the Grantee holds any Award LTIP Units, the Grantee shall disclose to the Operating Company in writing such information as may be reasonably requested with respect to ownership of Award LTIP Units as the Operating Company may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code applicable to the Operating Company or to comply with requirements of any other appropriate taxing authority.

(f) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(g) Governing Law. This Agreement is made under, and will be construed in accordance with, the laws of State of New York, without giving effect to the principles of conflict of laws of such State.

(h) No Obligation to Continue Position as an Employee. Neither the Company nor any Affiliate is obligated by or as a result of this Agreement to continue to have the Grantee as an employee, consultant or advisor and this Agreement shall not interfere in any way with the right of the Company or any Affiliate to terminate the Grantee’s Continuous Service at any time.

(i) Notices. Any notice to be given to the Company shall be addressed to the Secretary of the Company at 475 Tenth Avenue, New York, New York 10018 and any notice to be given the Grantee shall be addressed to the Grantee at the Grantee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Grantee may hereafter designate in writing to the other.

(j) Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to this Award, the Grantee will pay to the Company or, if appropriate, any of its Affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

(k) Headings. The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

(l) Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

(m) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company and the Operating Company, on the one hand, and any successors to the Grantee, on the other hand, by will or the laws of descent and distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Grantee.

(n) Section 409A. This Agreement shall be construed, administered and interpreted in accordance with a good faith interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Grantee, the Company and the Operating Company, to the extent necessary to exempt it from, or bring it into compliance with Section 409A of the Code.

(o) Entire Agreement; Conflict. This Agreement (including the Incentive Plan and the LLC Agreement to which it relates) constitutes the final, complete and exclusive agreement between the Grantee and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, between the parties concerning the subject matter hereof. Except as expressly provided otherwise herein, in the event of any conflict or inconsistency between the provisions of, or definitions contained in, this Agreement (including the LLC Agreement to which it relates), on the one hand, and Grantee’s Service Agreement, on the other hand, the terms of the this Agreement ((including the LLC Agreement to which it relates) shall govern.

[signature page follows]

IN WITNESS WHEREOF, the undersigned have caused this Award Agreement to be executed as of the date first above written.

MORGANS HOTEL GROUP CO.
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	CFO

MORGANS GROUP LLC
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:

GRANTEE

/s/ David Hamamoto

Name: David Hamamoto

SCHEDULE A TO 2011 OUTPERFORMANCE PLAN AWARD AGREEMENT

Date of Award Agreement:	March 20, 2011
Name of Grantee:	David Hamamoto
Participation Percentage:	35%
Grant Date:	March 20, 2011
Initial Grant of Award LTIP Units (if applicable)	551,250

Initials of Company representative: /s/RS Initials of Grantee: /s/DH

EXHIBIT A

MORGANS GROUP LLC

MEMBERSHIP UNIT DESIGNATION — 2011 OPP UNITS

The following are the terms of the 2011 OPP Units. Section references in this Exhibit A refer to sections of the LLC Agreement and capitalized terms are used as defined therein, unless stated otherwise.

1. LTIP Equivalence. Except as otherwise expressly provided in this Membership Unit Designation, 2011 OPP Units shall be treated as LTIP Units, and shall have the rights, privileges, restrictions, powers and duties applicable to LTIP Units under the LLC Agreement, including without limitation the provisions of Section 4.5.

2. Distributions.

(a) 2011 OPP Unit Distributions. Commencing from the Distribution Participation Date (as defined below) established for any 2011 OPP Units in the applicable award agreement, Holders of 2011 OPP Units shall be entitled to receive, if, when and as authorized by the Managing Member, any distributions otherwise payable with respect to LTIP Units and shall be treated as outstanding LTIP Units for purposes of the distribution provisions of the LLC Agreement. For the avoidance of doubt, for purposes of the first distribution to occur after the Distribution Participation Date, 2011 OPP Units that become fully earned and vested in accordance with the applicable Award Agreement on or before the first day of the relevant quarterly period shall be treated as having been outstanding for the full period. Prior to the Distribution Participation Date, 2011 OPP Units shall be entitled to any distributions by the Operating Company (i) in connection with an Adjustment Event as provided in Section 4.5(b), treating the 2011 OPP Units as outstanding LTIP Units, and (ii) if, when and as authorized by the Managing Member out of funds or other property legally available for the payment of distributions, distributions representing proceeds of a sale or other disposition of all or substantially all of the assets of the Operating Company in an amount per unit equal to the amount of any such distributions payable on the Membership Units, provided that the amount of distributions to any Holder of 2011 OPP Units under this clause (ii) shall not exceed the positive balances of the Capital Account of the Holder of such 2011 OPP Units to the extent attributable to the ownership of such 2011 OPP Units.

(b) Distribution Participation Date. The “Distribution Participation Date” for each 2011 OPP Unit will be either (i) with respect to 2011 OPP Units granted pursuant to the Managing Member’s 2011 Outperformance Plan, as it may be amended or supplemented from time to time or any successor plan under which additional 2011 OPP Units may be issued (the “Plan”), the applicable Final Valuation Date (as defined in the Award Agreement of each Person granted 2011 OPP Units under the Plan) or (ii) with respect to other 2011 OPP Units, such date as may be specified in the Award Agreement or other documentation pursuant to which such 2011 OPP Units are issued.

3. Allocations.

(a) Allocations of Net Income and Net Loss. Commencing with the portion of the taxable year of the Operating Company that begins on the Distribution Participation Date established for any 2011 OPP Units, such 2011 OPP Units shall be allocated Net Income and Net Loss under Sections 6.1 and 6.2 in amounts per 2011 OPP Unit equal to the amounts allocated per Membership Unit (adjusted to the extent required by Sections 6.3(b) through 6.3(g)). The Managing Member is authorized in its discretion to delay or accelerate the participation of the 2011 OPP Units in allocations of Net Income and Net Loss, or to adjust the allocations made after the Distribution Participation Date, so that the ratio of (i) the total amount of Net Income or Net Loss allocated under Sections 6.1 and 6.2 with respect to each 2011 OPP Unit in the taxable year in which that 2011 OPP Unit’s Distribution Participation Date falls, to (ii) the total amount distributed to that 2011 OPP Unit with respect to such period, is more nearly equal to such ratio as computed for the Membership Units held by the Managing Member.

(b) Special Allocations. 2011 OPP Units shall be treated as outstanding LTIP Units (and the Holders thereof treated as Holders of LTIP Units) for all purposes of Section 6.3(a).

4. Redemption.

(a) The Redemption Right provided to Non-Managing Members under Section 4.2(e)(1) shall not apply with respect to 2011 OPP Units or Membership Units into which they may be converted pursuant to the LLC Agreement until the date that is one year and six months after the Final Valuation Date, after which date the Redemption Right shall be available on the terms and conditions set forth in the LLC Agreement.

(b) During the period beginning on the Final Valuation Date (as defined in the applicable Award Agreement) and ending on the Business Day immediately preceding the six month anniversary of the Final Valuation Date, the Operating Company shall be entitled to redeem some or all of the 2011 OPP Units (or Membership Units into which they were converted by the Holder) at a redemption price per 2011 OPP Unit or Membership Unit, payable in cash, equal to the Common Share Price (as defined in the Applicable Award Agreement) as of the Final Valuation Date (as defined in the applicable Award Agreement). From and after the one year anniversary of the Final Valuation Date, for a period of six months, a Holder of 2011 OPP Units (or Membership Units into which they were converted by the Holder) shall have the right to cause the Operating Company to redeem, some or all of the 2011 OPP Units (or Membership Units into which they were converted by the Holder), at a redemption price per 2011 OPP Unit or Membership Unit, payable in cash, equal to the greater of (x) the Common Share Price (as defined in the Applicable Award Agreement) as of the Final Valuation Date (as defined in the applicable Award Agreement) and (y) the Cash Amount determined as of the date of the notice of redemption. The Operating Company may exercise its redemption right under this Section 4(b) by sending a notice to each Holder of 2011 OPP Units (or Membership Units into which they were converted by the Holder) setting forth the redemption date, which shall be no less than five (5) Business Days after the date of such notice, and the number of 2011 OPP Units (or Membership Units into which they were converted by the Holder) being redeemed and the procedure to be followed by Holders of 2011 OPP Units or Membership Units that are being redeemed. The Holder may exercise its redemption right under this Section 4(b) by sending a notice to the Operating Company setting forth the redemption date, which shall be no less than ten (10) Business Days after receipt of such notice by the Managing Member, and the number of 2011 OPP Units (or Membership Units into which they were converted by the Holder to be redeemed). The Managing Member shall be entitled to acquire 2011 OPP Units (or Membership Units into which they were converted by the Holder) pursuant to any exercise by the Operating Company or the Holder of the foregoing redemption rights (under this Section 4.2(b) or under Section 4.2(a)) in exchange for issuance of a number of Common Shares, which will be issued under the Incentive Plan and be registered on a Form S-8, with an aggregate value, based on the Value of the Common Shares as of the date of the redemption notice, equal to the applicable redemption price, provided that the Managing Member has determined, in its sole discretion, that it is permitted to do so under applicable stock exchange listing rules.

5. Voting Rights.

(a) Voting with LTIP Units. Except as otherwise provided herein, 2011 OPP Units and Non-Managing Members who hold 2011 OPP Units shall be treated as LTIP Units and LTIP Unitholders, respectively, for all purposes of Section 14.3.

(b) Special Approval Rights. So long as any 2011 OPP Units remain outstanding, the Operating Company shall not, without the affirmative vote of the Non-Managing Members who hold at least two-thirds of the 2011 OPP Units outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), amend, alter or repeal, whether by merger, consolidation or otherwise, the provisions of the LLC Agreement applicable to 2011 OPP Units so as to materially and adversely affect any right, privilege or voting power of the 2011 OPP Units or the Non-Managing Members who hold 2011 OPP Units as such, unless such amendment, alteration or repeal affects equally, ratably and proportionately the rights, privileges and powers of the holders of LTIP Units; but subject, in any case, to the following provisions:

(i)	Any difference in effect between the LTIP Units and the 2011 OPP Units that is required or reasonably desirable to implement the difference in the distribution or redemption rights with respect to LTIP Units and 2011 OPP Units shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the holders of LTIP Units;
(ii)	Any creation or issuance of any Membership Units or of any class or series of Membership Interest, whether ranking senior to, junior to, or on a parity with the 2011 OPP Units with respect to distributions and the distribution of assets upon liquidation, dissolution or winding up shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the holders of LTIP Units; and
(iii)	any waiver by the Operating Company of restrictions or limitations applicable to any outstanding LTIP Units or 2011 OPP Units with respect to any LTIP Unitholder or Unitholders or Holders of 2011 OPP Unit shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units or 2011 OPP Units with respect to other Unitholders or Holders.

EXHIBIT B

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1. The name, address and taxpayer identification number of the undersigned are:

Name:                                                              (the “Taxpayer”)

Address:                                                             

Social Security No./Taxpayer Identification No.:                     

2. Description of property with respect to which the election is being made:

The election is being made with respect to                      Award LTIP Units in Morgans Group LLC (the “Operating Company”).

3. The date on which the Award LTIP Units were transferred is  _____, 2011. The taxable year to which this election relates is calendar year 2011.

4. Nature of restrictions to which the Award LTIP Units are subject:

(a)	With limited exceptions, until the Award LTIP Units vest, the Taxpayer may not transfer in any manner any portion of the Award LTIP Units without the consent of the Operating Company.
(b)	The Taxpayer’s Award LTIP Units vest in accordance with the vesting provisions described in Annex 1 attached hereto. Unvested Award LTIP Units are forfeited in accordance with the vesting provisions described in Annex 1 attached hereto.

5. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the Award LTIP Units with respect to which this election is being made was $  per Award LTIP Unit.

6. The amount paid by the Taxpayer for the Award LTIP Units was $0 per Award LTIP Unit.

7. A copy of this statement has been furnished to the Operating Company and Morgans Hotel Group Co.

Dated:                     , 2011                Signature                                          

ANNEX 1

Vesting Provisions of Award LTIP Units

The Award LTIP Units are subject to time-based and performance-based vesting with the final vesting percentage equaling the product of the time-based vesting percentage and the performance-based vesting percentage. Performance-based vesting will be from 0% to 100% based on Morgan Hotel Group Co.’s (the “Company’s”) per-share total return to shareholders for the period from [                    ], 2011 to [                    ], 2014 (or earlier in certain circumstances). Under the time-based vesting provisions, one hundred percent (100%) of the Award LTIP Units will vest on the last day of the performance period, provided that the Taxpayer remains an employee of the Company or any of its affiliates through such date, subject to acceleration in the event of certain extraordinary transactions or termination of the Taxpayer’s service relationship with the Company under specified circumstances. Unvested Award LTIP Units are subject to forfeiture in the event of failure to vest based on the passage of time (subject to above-mentioned acceleration) or the determination of the performance-based percentage.

Exhibit D

Promoted Interest Pool Award Agreement

MORGANS HOTEL GROUP CO.
2011 EXECUTIVE PROMOTED INTEREST BONUS POOL AWARD AGREEMENT

2011 EXECUTIVE PROMOTED INTEREST BONUS POOL AWARD AGREEMENT made as of the date set forth on Schedule A hereto by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “Company”), MORGANS GROUP LLC, a Delaware limited liability company (the “Operating Company”), and the party listed on Schedule A (the “Grantee”).

RECITALS

A. The Grantee is a senior management employee of the Company and provides services to the Operating Company.

B. The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) approved this and other 2011 long-term bonus pool awards (“2011 Bonus Pool Awards”) to provide certain senior management employees of the Company, including the Grantee, in connection with their employment with the incentive compensation described in this Award Agreement (this “Agreement” or this “Award Agreement”) and thereby provide additional incentive for them to promote the progress and success of the business of the Company and its Affiliates. 2011 Bonus Pool Awards were approved by the Committee pursuant to authority delegated to it by the Board. This Agreement evidences one award (this “Award”) in a series of substantially identical 2011 Bonus Pool Awards and is subject to the terms and conditions set forth herein.

C. The Committee, effective as of the grant date specified in Schedule A hereto, awarded to the Grantee the participation percentage in the promoted interest bonus pool provided herein, as set forth in Schedule A.

NOW, THEREFORE, the Company, the Operating Company, and the Grantee agree as follows:

1. Administration

This Award and all other 2011 Bonus Pool Awards shall be administered by the Committee; provided that all powers of the Committee hereunder can be exercised by the full Board if the Board so elects. The Committee, in its sole and absolute discretion, may make at any time any provision for lapse of forfeiture restrictions and/or accelerated vesting under this Agreement of some or all of the Grantee’s unvested Award Participation that has not previously been forfeited.

2. Definitions

Capitalized terms used herein shall have the meanings set forth below:

“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

“Award Participation” has the meaning set forth in Section 3.

“Award Period” means the period from and after the date of Grantee’s admission as an Employee Member and to and including the earlier to occur of (i) the third anniversary of the Effective Date and (ii) the termination of Grantee’s Continuing Service.

“Baseline Value” means $8.87.

“Bonus Pool Unit” means a unit of membership interest in Promote Pool LLC. The Bonus Pool Units shall be issued in different series, with each series corresponding to a separate Eligible Promoted Interest held by Promote Pool LLC or a wholly-owned subsidiary thereof.

“Cause” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Cause” is defined therein, then “Cause” shall have the meaning set forth in such definition, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Cause” or a substantially equivalent term, then “Cause” shall mean:

(i) the Grantee’s willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Grantee’s incapacity due to physical or mental illness or any such failure after his issuance of a notice of termination for Good Reason), after a written demand for substantial performance is delivered to the Grantee by the Board, which demand specifically identifies the manner in which the Board believes that the Grantee has not substantially performed his duties;

(ii) a material breach by Grantee of his Service Agreement;

(iii) the Grantee’s willful commission of an act of fraud, theft or dishonesty resulting in economic, financial or material reputational injury to the Company;

(iv) the Grantee’s conviction of, or entry by the Grantee of a guilty or no contest plea to, the commission of a felony; or

(v) the Grantee willfully engages in other misconduct materially injurious to the Company.

For purposes of this provision, no act or omission on the part of the Grantee shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission based upon a resolution duly adopted by the Board or advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Grantee shall not be deemed to be for Cause unless and until there shall have been delivered to the Grantee a copy of a resolution duly adopted by the majority of the Board (excluding the Grantee, if the Grantee is then a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Grantee and the Grantee is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Grantee is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

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

“Common Share” means a share of the Company’s common stock, par value $0.01 per share.

“Common Share Price” means, as of a particular date, the average of the Fair Market Value of one Common Share over the thirty (30) consecutive trading days ending on, and including, such date (or, if such date is not a trading day, the most recent trading day immediately preceding such date).

“Common Share Return Condition” shall be deemed to be satisfied as of any date of determination if the Common Share Price, as of such date, shall be at least equal to (x) the Baseline Value multiplied by (y) an amount equal to (i) the sum of one plus the Target Return raised to (ii) the n/365th power, where “n” equals the number of days that has elapsed from and including the Effective Date to but excluding the date of determination.

“Continuous Service” means the continuous service, without interruption or termination, as a an employee or director of Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of (among other things)—

(A) any approved leave of absence,

(B) transfers among the Company and any Affiliate, or any successor, in any capacity of director or employee, or

(C) any change in status as long as the individual remains in the service of the Company or any Affiliate of the Company in the capacity of employee or director.

An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

“Designated Participation Percentage” means, with respect to any series of Employee Units, the lesser of 50% or the percentage determined by the Independent Committee at the time it approves the contribution of the applicable Eligible Promoted Interest in Promote Pool LLC, if such Eligible Promoted Interest did not satisfy the Safe Harbor Requirements as of the applicable Initial Closing.

“Disability” means:

(A) if the Grantee is or was a party to a Service Agreement prior to the applicable event, and “Disability” is defined therein, then “Disability” shall have the meaning set forth in such definition, or

(B) if the Grantee is not and was not a party to a Service Agreement prior to such event or the Grantee’s Service Agreement does not define “Disability” or a substantially equivalent term, then “Disability” shall mean a disability which renders the Grantee incapable of performing all of his or her material duties for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Grantee or the Grantee’s legal representative or by the insurance company which insures the Company’s long-term disability plan in which the Grantee is eligible to participate.

“Effective Date” means March 20, 2011.

“Eligible Promoted Interest” means a Promoted Interest that the Company or any entity through which the Company directly or indirectly acquires or has the right to acquire, or is created, in a transaction as to which the Initial Closing occurs during the Award Period and that satisfies either of the following requirements as of the Initial Closing:

(i) The Investment Committee (with the affirmative vote of its independent member) shall have determined in good faith that the applicable Promoted Interest satisfies the Safe Harbor Requirements; or

(ii) The terms of the hotel acquisition or development transaction, including the contribution of the applicable Promoted Interest to Promote Pool LLC, shall have been approved in good faith by the Independent Committee.

The determination as to whether a Promoted Interest that does not satisfy the Safe Harbor Requirements shall be deemed to be an Eligible Promoted Interest, and the Designated Participation Percentage with respect to such Eligible Promoted Interest, shall be made in good faith by the Independent Committee and shall be conclusive.

In the case of an Eligible Promoted Interest that the Company, the Operating Company, Promote Pool LLC, or a wholly owned subsidiary of the Company acquires or has the right to acquire, the Eligible Promoted Interest will consist of the entire applicable Promoted Interest. In the case of an Eligible Promoted Interest that any other entity in which the Company or the Operating Company has a direct or indirect equity interest acquires, or has the right to acquire, the “Eligible Promoted Interest” will, at the election of the Managing Member, consist of either (x) an assignment of the proceeds received by the Company, the Operating Company, or a wholly owned subsidiary of the Company with respect to the applicable Promoted Interest, or (y) a special allocation of the portion of such direct or indirect interest in the Eligible Promoted Interest that is owned by the Company, the Operating Company, or a wholly owned subsidiary that represents their respective direct or indirect interest in the Promoted Interest owned by such other entity.

An Eligible Promoted Interest can consist of either an equity interest in a Hotel Investment Entity or a contractual right to share in some or all of the profits, losses, or gains of a Hotel Investment Entity (a “Contractual Right”) or one or more hotel properties owned by a Hotel Investment Entity.

For the avoidance of doubt, an incentive management fee or other amount measured by a percentage of gross revenues, gross operating profit, net house profit, or similar performance measure and payable to the Company, or any entity through which the Company, directly or indirectly, holds an equity interest or a Contractual Right, as compensation for the performance of management services shall not be an Eligible Promoted Interest.

For the further avoidance of doubt, no Promoted Interest as to which the Initial Closing occurs after the Award Period shall be deemed to be an “Eligible Promoted Interest.”

“Employee Member” means a member of Promote Pool LLC other than the Managing Member or any other subsidiary of the Company.

“Employee Unit” means any Bonus Pool Unit that is held by an Employee Member or a permitted transferee thereof (other than Managing Member or any other subsidiary of the Company).

“Fair Market Value” means, as of any given date, the fair market value of a security, an Eligible Promoted Interest, or other property determined by the Committee using any reasonable method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1) of the Code); provided that, with respect to a Common Share, “Fair Market Value” means the value of such Common Share determined as follows: (A) if on the determination date the Common Shares are listed on the New York Stock Exchange, The NASDAQ Stock Market, Inc. or another national securities exchange or is publicly traded on an established securities market, the Fair Market Value of a Common Share shall be the closing price of the Common Shares on such exchange or in such market (if there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the high and low sale prices on such trading day) or, if no sale of Common Shares is reported for such trading day, on the next preceding day on which any sale shall have been reported; or (B) if the Common Shares are not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the Common Share shall be the value of the Common Shares as determined by the Committee in good faith in a manner consistent with Section 409A of the Code.

“Good Reason” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Good Reason” is defined therein, then “Good Reason” shall have the meaning set forth in such Service Agreement, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Good Reason” or a substantially equivalent term, so long as the Grantee terminates his or her employment within thirty (30) days after the Grantee has actual knowledge of the occurrence, without the written consent of the Grantee, of one of the following events that has not been cured within thirty (30) days after written notice thereof has been given by Grantee to the Company, then “Good Reason” shall mean:

(iii) the assignment to the Grantee of duties materially inconsistent with the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated in his Service Agreement, or any other action by the Company which results in a material diminution in the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Grantee;

(iv) any material failure by the Company to comply with any of the provisions of the Service Agreement, other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Grantee;

(v) any failure by the Company to obtain the assumption of his Service Agreement by a successor to all or substantially all of the business or assets of the Company; or

(vi) if his Service Agreement provides that the Executive will be nominated for election as a director of the Company, any failure by the Board to nominate the Executive for election as a director of the Company in accordance with the Service Agreement, or any failure of the Executive to be elected to be a member of the Board; or

(vii) any requirement that the Grantee’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Grantee’s residence to his new place of employment;

“Hotel Investment Entity” means a limited liability company, limited partnership, corporation, or other form of business entity that owns, directly or indirectly, or proposes to acquire or develop, one or more hotels or other hospitality-related properties. Neither the Company nor any consolidated subsidiary of the Company shall be deemed to be a Hotel Investment Entity.

“Independent Committee” means a committee (either standing or ad hoc) of the Board that has the responsibility and authority for determining whether a Promoted Interest that does not satisfy the Safe Harbor Requirements will nonetheless be contributed to Promote Pool LLC and, if so, what the Designated Participation Percentage with respect to such Promoted Interest will be.

“Initial Closing” means, with respect to any Eligible Promoted Interest, the date of the closing of the transaction as the result of which the Company, a consolidated subsidiary thereof, Promote Pool LLC, or any entity through which such Eligible Promoted Interest is held, and one or more unaffiliated persons become equity owners of the Hotel Investment Entity (or obtains a Contractual Right) related to such Eligible Promoted Interest. The independent member of the Investment Committee shall determine, in good faith, when the Initial Closing occurs with respect to any Eligible Promoted Interest.

“Investment Committee” means a management committee, established by the Board that includes at least one independent director that is delegated authority, among other things, to approve the terms of investments in Hotel Investment Entities and determine whether Promoted Interests in Hotel Investment Entities satisfy the Safe Harbor Requirements.

“LLC Agreement” means the limited liability company agreement of Promote Pool LLC, as it may be amended from time to time in accordance with its terms, that the Managing Member will enter in accordance with Section 7(a). The LLC Agreement will contain the provisions set forth on Exhibit A attached hereto and such other terms and conditions as the Committee shall in good faith determine are necessary or appropriate for implementing the provisions and accomplishing the objectives of this Award Agreement and the Award Agreements of other recipients of 2011 Bonus Pool Awards.

“Managing Member” means the Operating Company, or a wholly-owned subsidiary thereof, in its capacity as managing member of Promote Pool LLC.

“Member” means a member of Promote Pool LLC, which shall be either the Managing Member or an Employee Member.

“Opening” means, with respect to any Eligible Promoted Interest, the date on or after the Initial Closing on which all construction, development, and major renovation work is completed and substantially all of the rooms and other facilities in the applicable hotel are open for business. If the applicable hotel is operating as of the Initial Closing and the business plan relating to the hotel does not contemplate a substantial renovation or redevelopment of the hotel that will result in material disruption of the operations of the hotel for an extended period, the Opening shall be deemed to occur at the same time as the Initial Closing. If the business plan for such hotel contemplates such renovation or redevelopment, the Opening shall be deemed to occur following the completion of such renovation or redevelopment and substantially all of the rooms and other facilities in the applicable hotel are open for business. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, an Opening shall be deemed to occur with respect to any such hotel property when such hotel property meets the foregoing requirements. The independent member of the Investment Committee shall in good faith determine when an Opening occurs with respect to any Eligible Promoted Interest.

“Partial Sale Event” means, with respect to any Eligible Promoted Interest, the date on which (x) the applicable Hotel Investment Entity’s direct or indirect ownership interest in the applicable hotel property is reduced by reason of a disposition of an interest in such property to a third party; or (y) Promote Pool LLC’s direct or indirect ownership interest in such Eligible Promoted Interest is reduced by reason of a disposition of an interest in such Eligible Promoted Interest to a third party. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a Partial Sale Event described in clause (x) above with respect to any such hotel property shall be deemed to occur when the Hotel Investment Entity’s direct or indirect ownership interest in such hotel property is reduced. The independent member of the Investment Committee shall in good faith determine when a Partial Sales Event occurs with respect to any Eligible Promoted Interest.

“Participation Amount” has the meaning set forth in Section 3.

“Participation Percentage” means, as of any date of determination, the percentage set forth opposite such term on Schedule A hereto.

“Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, other entity or “group” (as defined in the Exchange Act).

“Promoted Interest” means an interest in a Hotel Investment Entity, or other Contractual Right, that represents a right to participate in profits, losses, and gains of the Hotel Investment Entity in excess of amounts attributable to the percentage of capital contributions made by the Company and its subsidiaries in the Hotel Investment Entity. For the avoidance of doubt, an incentive management fee or other amount measured by a percentage of gross revenues, gross operating profit, net house profit, or similar performance measure and payable to the Company or any entity holding such Interests as compensation for the performance of management services shall not be a Promoted Interest .

“Promoted Interest Proceeds” means, with respect to any Eligible Promoted Interest, the amount of any cash (or cash equivalent) distributions or dividends received by Promote Pool LLC with respect to such Eligible Promoted Interest or, if Promote Pool LLC receives any other property in exchange for or as a distribution with respect to an Eligible Promoted Interest, any cash (or cash equivalents) received as a distribution or dividend with respect to or upon the sale or disposition of such other property. In the case of the removal by the Company of the designation of an Eligible Promoted Interest as part of the Promoted Interest Bonus Pool, such removal shall be treated as a disposition of the Eligible Promoted Interest for an amount of cash equal to its Fair Market Value and an amount equal to such Fair Market Value shall be deemed to be Promoted Interest Proceeds hereunder.

“Promote Pool LLC” means MHG Employee Promoted Interest LLC, a to-be-formed Delaware limited liability company, or its successor.

“Qualified Management Agreement” means a hotel management agreement under which the Company or a consolidated subsidiary of the Company is the manager that contains terms that satisfy the requirements set forth in that certain letter delivered by the Company to Grantee concurrently with the execution of this Award, as determined by the Investment Committee in good faith.

“Qualified Termination” has the meaning set forth in Section 4.

“Safe Harbor Requirements” means, with respect to any Eligible Promoted Interest, the following requirements:

(i) The Company or one of its consolidated subsidiaries is manager of the hotel properties owned, directly or indirectly, by the Hotel Investment Entity pursuant to a Qualified Management Agreement;

(ii) The percentage interest acquired by the Company or any of its consolidated subsidiaries in the applicable Hotel Investment Entity does not exceed twenty percent (20%), without taking into account the applicable Promoted Interest;

(iii) The value of the aggregate capital contribution or capital commitment of the Company and its consolidated subsidiaries does not exceed $20 million; and

(iv) The equity investment by the Company and its consolidated subsidiaries must be on no less favorable terms, in any material respect, than the equity investment to the other investors in the Hotel Investment Entity (without taking into account the applicable Promoted Interest) or, if the equity investment by the other investors was made more than one year before the Initial Closing with respect to such Eligible Promoted Interest is anticipated to occur, the equity investment by the Company and its consolidated subsidiaries must be made based on the Fair Market Value of the interests acquired in the Hotel Investment Entity.

The determination by the Investment Committee as to whether a Promoted Interest satisfies the Safe Harbor Requirements shall be made in good faith and shall be conclusive.

“Sale Event” means, with respect to any Eligible Promoted Interest, the earlier of the date on which (x) the applicable Hotel Investment Entity no longer holds a direct or indirect ownership interest in the applicable hotel property or (ii) Promote Pool LLC no longer holds, directly or indirectly, such Eligible Promoted Interest. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a Sale Event described in clause (x) above with respect to any such hotel property shall be deemed to occur when the Hotel Investment Entity no longer owns a direct or indirect ownership interest in such hotel property. The independent member of the Investment Committee shall in good faith determine when a Sales Event occurs with respect to any Eligible Promoted Interest.

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

“Service Agreement” means, as of a particular date, any employment, consulting or similar service agreement then in effect between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand, as amended or supplemented through such date; provided that, if no such agreement is then in effect, “Service Agreement” shall mean any employment, consulting or similar service agreement most recently in effect (on or after the Effective Date) prior to such date, as amended or supplemented, between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand.

“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

“Target Return” shall be equal to nine percent (9%) per annum, compounded annually.

“Transfer” has the meaning set forth in Section 6.

3. Promoted Interest Bonus Pool Award; Vesting

(a) The Operating Company hereby grants to Grantee this Award consisting of the right, subject to the terms and conditions of this Award Agreement, to be admitted as an Employee Member of Promote Pool LLC and to receive the Participation Percentage of each series of the Employee Units issued by Promote Pool LLC during the Award Period (the “Award Participation”). The Award Participation (A) will be subject to forfeiture as provided in Section 3(c) and in Section 4 and (B) will be subject to vesting as provided below in Section 3(b) and in Section 4. At any time, the Committee may grant additional 2011 Bonus Pool Awards with such Participation Percentages set forth therein as the Committee may determine, in its sole discretion, provided that the total Participation Percentages of all 2011 Bonus Pool Awards (including this Award) outstanding at any time shall not exceed 100%.

(b) The interest of Grantee in each series of Employee Units issued to Grantee during the Award Period shall be eligible for vesting based on a combination of (i) the satisfaction of the vesting conditions relating to the hotel properties applicable to the Eligible Promoted Interest related to such series of Employee Units, as set forth below in this Section 3(b) and (ii) the passage of time (three years or a shorter period in certain circumstances as provided in Section 4) as provided in this Section 3(b). The Grantee’s interest in a series of Employee Units shall become vested in the following amounts, at the following times, and upon the following conditions, provided that the Continuous Service of the Grantee continues through and on the applicable vesting date described below or the accelerated vesting date provided in Section 4 hereof, as applicable:

(i) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later to occur of —

(A) the third anniversary of the Effective Date (or any accelerated vesting date provided in Section 4 hereof, if applicable ) and

(B) the Initial Closing with respect to the applicable Eligible Promoted Interest; and

(ii) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later of to occur of —

(A) the third anniversary of the Effective Date (or any accelerated vesting date provided in Section 4 hereof, if applicable ) and

(B) the Opening with respect to the applicable Eligible Promoted Interest;

provided that, in the case of an Eligible Promoted Interest in Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third divided by (II) the number of such hotel properties shall become vested on the later of to occur of (x) the date specified in paragraph (A) above and (y) the Opening of any such hotel property; and

(iii) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later of to occur of —

(A) the third anniversary of the Effective Date and

(B) the Sale Event with respect to the applicable Eligible Promoted Interest.

provided that, in the case of an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third divided by (II) the number of such hotel properties, shall become vested on the later to occur of (x) the date specified in paragraph (A) above and (y) the Sale Event with respect to any such hotel property; and

provided further that, in the event a Partial Sale Event occurs with respect to an Eligible Promoted Interest, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third multiplied by (II) the percentage of the Fair Market Value of the direct or indirect interest in the applicable Hotel Investment Entity or hotel property that was disposed of in such Partial Sale Event, as determined in good faith by the Investment Committee, shall become vested on the later to occur of (x) the date specified in paragraph (A) above and (y) the Partial Sale Event with respect to any such hotel property; and

provided further that, in the event a Partial Sale Event occurs with respect to a particular hotel property in the case of a Hotel Investment Entity that holds more than one property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third multiplied by (II) the percentage of the Fair Market Value of the direct or indirect interest in the applicable hotel property that was disposed of in such Partial Sale Event, as determined in good faith by the Investment Committee, divided by (III) the number of such hotel properties owned by such Hotel Investment Entity, shall become vested on the later of to occur of (x) the date specified in paragraph (A) above and (y) the Partial Sale Event with respect to any such hotel property; and

provided further that, in the event a Sale Event occurs with respect to an Eligible Promoted Interest (or with respect to a particular hotel property in the case of a Hotel Investment Entity that holds more than one property) without an Opening having occurred with respect thereto, then such Sale Event shall also be deemed to constitute the Opening with respect to such Eligible Promoted Interest for purpose of Section 3(b)(ii).

(c) Any portion of Grantee’s interest in any series of Employee Units that has not become vested pursuant to Section 3(b) and Grantee’s Award Participation shall, without payment of any consideration by the Company or Promote Pool LLC, automatically and without notice be forfeited and be and become null and void upon the termination of the Continuous Service of Grantee (other than by reason of a Qualified Termination, death or Disability), and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested portion of the Grantee’s Employee Units and in future issuances of Employee Units by Promote Pool LLC.

(d) In the event that a Hotel Investment Entity with respect to which Promote Pool LLC holds an Eligible Promoted Interest receives a new hotel property in exchange for another hotel property, with the result that Promote Pool LLC thereafter holds an Eligible Promoted Interest in such new hotel property, the vesting percentage that applied to the applicable series of Employee Units immediately prior to such exchange shall remain in effect with respect to such series following the exchange.

4. Termination of Grantee’s Continuous Service; Death and Disability

(a) If the Grantee is or was a party to a Service Agreement and his or her Continuous Service terminates, the applicable provisions of this Section 4 shall govern the treatment of the Grantee’s Award Participation, unless the Service Agreement contains provisions that expressly refer to this Section 4(a) and provides that those provisions of the Service Agreement shall instead govern the treatment of the Grantee’s Award Participation upon such termination. The foregoing sentence will be deemed an amendment to any applicable Service Agreement to the extent required to apply its terms consistently with this Section 4, such that, by way of illustration, any provisions of the Service Agreement with respect to accelerated vesting or payout or the lapse of forfeiture restrictions relating to the Grantee’s incentive or other compensation awards in the event of certain types of termination of the Grantee’s Continuous Service with the Company (such as, for example, termination at the end of the term, termination without Cause by the employer or termination for Good Reason by the employee) shall not be interpreted as requiring that vesting occur with respect to this Award other than as specifically provided in Section 3(b) and this Section 4.

(b) In the event of termination of the Grantee’s Continuous Service by (A) the Company without Cause, (B) the Grantee for Good Reason, or (C) by reason of the death or Disability of Grantee (each of the events described in (A), (B) and (C), a “Qualified Termination”), then the Award Participation shall terminate with respect to any future issuances of Employee Units and the Award Period shall terminate, each effective upon termination of Grantee’s Continuing Service, but the following provisions of this Section 4(b) shall modify the vesting of each series of Employee Units then held by Grantee:

(iv) the vesting conditions set forth in Sections 3(b)(i)(A) and 3(b)(ii)(A) (but not under Section 3(b)(iii)(A)) shall be deemed to have been satisfied with respect to each series of Employee Units held by Grantee as of the effective date of such Qualified Termination; and

(v) the Grantee’s interest in each series of Employee Units then held by Grantee shall vest under Sections 3(b)(i) and 3(b)(ii), to the extent provided in such sections, upon the satisfaction of the vesting conditions set forth in Sections 3(b)(i)(B) and 3(b)(ii)(B), as applicable (to the extent that any such condition shall not previously have been satisfied), as if such Qualified Termination had not occurred.

Upon the occurrence of a Qualified Termination, the unvested portion of Grantee’s interest in each series of Employee Units then held by Grantee that is subject to vesting upon the conditions set forth in Section 3(b)(iii) shall be forfeited, with the consequences set forth in the LLC Agreement.

(c) In the event of a termination of the Grantee’s Continuous Service other than a Qualified Termination, the Award Participation shall terminate with respect to any future issuances of Employee Units and the Award Period shall terminate, each effective upon termination of Grantee’s Continuing Service, and Grantee’s unvested interest in each series of Employee Units then held by Grantee shall be forfeited, with the consequences set forth in the LLC Agreement as described in Exhibit A, and shall no longer be subject to future vesting pursuant to Section 3(b)(i), 3(b)(ii), or 3(b)(iii), without payment of any consideration by the Company or Promote Pool LLC, automatically and without notice, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such Award Participation or such unvested interest in any series of Employee Units, other than with respect to any interest in any series of Employee Units that may have vested pursuant to Section 3(b)(i), 3(b)(ii), or 3(b)(iii) prior to such termination of Grantee’s Continuous Service.

5. Promote Pool LLC Units

(a) Formation of Promote Pool LLC. Prior to the Initial Closing of the first transaction in which the Company or any entity will receive an Eligible Promoted Interest after the Effective Date, the Company will organize Promote Pool LLC and enter into the LLC Agreement.

(b) Contribution of Eligible Promoted Interests. At the Initial Closing with respect to any Eligible Promoted Interest, Promote Pool LLC (or a wholly owned subsidiary thereof) will become a member or partner in, or acquire a Contractual Right with respect to, the applicable Hotel Investment Entity and, in that capacity, will acquire the Eligible Promoted Interest, or the Operating Company (or a subsidiary thereof) shall contribute the Eligible Promoted Interest to Promote Pool LLC.

(c) Issuance of Employee Units. Concurrently with the Initial Closing with respect to any Eligible Promoted Interest, the Managing Member shall amend the LLC Agreement to create a new series of Bonus Pool Units relating to the Eligible Promoted Interest. The portion of the Bonus Pool Units issued to Employee Members concurrently with the Initial Closing shall, as of such date, represent an aggregate interest in the applicable Eligible Promoted Interest equal to the Designated Participation Percentage with respect to such series of Bonus Pool Units. If the Initial Closing with respect to such Eligible Promoted Interest occurs during the Award Period, Promote Pool LLC shall issue to Grantee, concurrently with such Initial Closing, a percentage of the applicable series of Employee Units equal to the product of (i) his or her Participation Percentage as of such date times (ii) the Designated Participation Percentage with respect to such series of Bonus Pool Units.

(d) Distributions. Following the receipt by Promote Pool LLC or any of its wholly-owned subsidiaries of any Promoted Interest Proceeds, Promote Pool LLC shall distribute such Promoted Interest Proceeds to the Members in accordance with the terms and conditions of the LLC Agreement. The LLC Agreement will include provisions relating to distributions in substantially the form set forth on Exhibit A attached hereto.

6. Restrictions on Transfer

Subject to the next sentence, no portion of the Award Participation granted hereunder shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”). This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. Notwithstanding the foregoing, in the event Managing Member elects to sell or otherwise dispose of all or any portion of its interest in any series of interests in Promote Pool LLC to an unaffiliated third party, Managing Member shall ensure that such third party offers to acquire all or the comparable percentage (as the case may be) of the Employee Units in such Series held by each holder of such series of Employee Units, on the same terms and conditions as such unaffiliated third-party is acquiring the interests of the Managing Member, in accordance with such procedures for such offer and purchase as the Managing Member shall reasonably establish for such purpose.

7. Miscellaneous

(a) Amendments. This Agreement may be amended or modified only with the consent of the Company acting through the Committee; provided that any such amendment or modification materially and adversely affecting the rights or obligations of the Grantee hereunder must be consented to by the Grantee to be effective as against him. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company to correct any errors or ambiguities in this Agreement and/or to make such changes that do not materially adversely affect the Grantee’s rights or obligations hereunder. This grant shall in no way affect the Grantee’s participation or benefits under any other plan or benefit program maintained or provided by the Company.

(b) Committee Determinations. The Committee will make the determinations and certifications required by this Award as promptly as reasonably practicable following the occurrence of the event or events necessitating such determinations or certifications.

(c) Grantee Representations; Registration.

(i) The Grantee hereby represents and warrants that (A) he or she understands that he or she is responsible for consulting his or her own tax advisor with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of this Award may become subject, to his or her particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the Operating Company or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides services to the Operating Company on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Operating Company, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award; (D) Bonus Pool Units are subject to substantial risks; (E) the Grantee has been furnished with, and has reviewed and understands, information relating to this Award; (F) the Grantee has been afforded the opportunity to obtain such additional information as he or she deemed necessary before accepting this Award; (G) the Grantee has had an opportunity to ask questions of representatives of the Operating Company and the Company, or persons acting on their behalf, concerning this Award; and (H) the Grantee will provide services to Promote Pool LLC.

(ii) The Grantee hereby acknowledges that: (A) there will be no public market for Bonus Pool Units and neither the Operating Company nor the Company has any obligation or intention to create such a market; (B) transfers sales of Bonus Pool Units are subject to restrictions under the Securities Act and applicable state securities laws, in addition to the restrictions set forth herein and in the LLC Agreement; and (C) because of the restrictions on transfer or assignment of Bonus Pool Units set forth in the LLC Agreement and in this Agreement, the Grantee may have to bear the economic risk of his or her ownership of any Bonus Pool Units issued as a result of this Award for an indefinite period of time.

(d) Section 83(b) Election. In connection with each separate issuance of Bonus Pool Units under this Award, the Grantee hereby agrees to make an election to include in gross income in the year of transfer the applicable Bonus Pool Units pursuant to Section 83(b) of the Code substantially in the form attached hereto as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder. The Grantee agrees to file such election (or to permit Promote Pool LLC to file such election on the Grantee’s behalf) within thirty (30) days after the issuance of the Bonus Pool Units with the IRS Service Center where the Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the Bonus Pool Units are awarded to the Grantee. So long as the Grantee holds any Bonus Pool Units, the Grantee shall disclose to Promote Pool LLC in writing such information as may be reasonably requested with respect to ownership of Bonus Pool Units as Promote Pool LLC may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code applicable to Promote Pool LLC or to comply with requirements of any other appropriate taxing authority.

(e) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(f) Governing Law. This Agreement is made under, and will be construed in accordance with, the laws of State of New York, without giving effect to the principles of conflict of laws of such State.

(g) No Obligation to Continue Position as an Employee. Neither the Company nor any Affiliate is obligated by or as a result of this Agreement to continue to have the Grantee as an employee, consultant or advisor and this Agreement shall not interfere in any way with the right of the Company or any Affiliate to terminate the Grantee’s Continuous Service at any time.

(h) Notices. Any notice to be given to the Company shall be addressed to the Secretary of the Company at 475 Tenth Avenue, New York, New York 10018 and any notice to be given the Grantee shall be addressed to the Grantee at the Grantee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Grantee may hereafter designate in writing to the other.

(i) Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to this Award, the Grantee will pay to the Company or, if appropriate, any of its Affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

(j) Headings. The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

(k) Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

(l) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company, on the one hand, and any successors to the Grantee, on the other hand, by will or the laws of descent and distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Grantee.

(m) Section 409A. This Agreement shall be construed, administered and interpreted in accordance with a good faith interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Grantee the Company, to the extent necessary to exempt it from, or bring it into compliance with Section 409A of the Code.

[signature page follows]

IN WITNESS WHEREOF, the undersigned have caused this Award Agreement to be executed as of the date first above written.

MORGANS HOTEL GROUP CO.
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	CFO

GRANTEE

/s/ David Hamamoto Name: David Hamamoto

IN WITNESS WHEREOF, the undersigned has caused this Award Agreement to be executed as of the date first above written.

MORGANS GROUP LLC
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:

SCHEDULE A TO 2011 PROMOTED INTEREST BONUS POOL
AWARD AGREEMENT

Date of Award Agreement:	March 20, 2011
Name of Grantee:	David Hamamoto
Participation Percentage:	35%
Grant Date:	March 20, 2011

Initials of Company representative: /s/RS Initials of Grantee: /s/DH

EXHIBIT A

CERTAIN PROVISIONS OF THE LLC AGREEMENT

The LLC Agreement will include the following provisions in substantially the form set forth below (capitalized terms shall have the meanings set forth in the Award Agreement to which this Exhibit A is attached, if defined therein, or in Section 8 hereof, and Section numbers shall refer to sections of this Exhibit A, unless otherwise stated ):

1. Distributions.

(a) Promptly following the receipt by Promote Pool LLC or any of its wholly owned subsidiaries of any Promoted Interest Proceeds, including the receipt of any proceeds assigned to Grantee in respect of any Eligible Promoted Interest, Promote Pool LLC shall distribute such Promoted Interest Proceeds (with respect to any distribution, the “Aggregate Proceeds”) to the Members on the following terms and conditions:

(i) If the Employee Unit Distribution Conditions are satisfied as of the date of receipt of such Promoted Interest Proceeds by Promote Pool LLC or any of its wholly owned subsidiaries, an amount equal to the product of (x) the Aggregate Employee Participation Percentage then outstanding in the series of Bonus Pool Units related to the Eligible Promoted Interest with respect to which the Promoted Interest Proceeds were received times (y) the Aggregate Proceeds shall be paid, or set aside for future payment, in accordance with Section 1(b) or 1(c); and

(ii) The remainder of such Aggregate Proceeds shall be paid to the Managing Member.

(b) All amounts referred to in Section 1(a)(i) (with respect to any distribution, the “Employee Member Share”) shall be applied as follows:

(i) An amount equal to the product of (x) each Employee Member’s Vested Participation Percentage at such time in such series of Bonus Pool Units times (y) the Aggregate Proceeds shall be paid to such Employee Member ;and

(ii) The remainder of the Employee Member Share shall be set aside and held by Promote Pool LLC for future payment in accordance with Section 1(c).

(c) All amounts referred to in Section 1(b)(ii) shall be applied as follows:

(i) At such time as any Employee Member’s Vested Participation Percentage in the applicable series of Bonus Pool Units increases after the initial distribution of the applicable Aggregate Proceeds under Section 1(b), an amount equal to (x) the product of (I) such Employee Member’s Vested Participation Percentage (after such increase) in such series of Bonus Pool Units times (II) the Aggregate Proceeds minus (y) the aggregate amount of such Aggregate Proceeds that previously paid to such Employee Member under Section 1(b)(i) or this Section 1(c)(i).

(ii) At such time as any Employee Member’s unvested Bonus Pool Units in the applicable series are forfeited pursuant to Section 4 of such Employee’s Award Agreement, an amount equal to the product of (x) a fraction, the numerator of which is the number of unvested Bonus Pool Units in the applicable series so forfeited and the denominator of which is the aggregate number of outstanding Bonus Pool Units in such series times (y) the applicable Aggregate Proceeds.

2. Management of the LLC. Except as otherwise provided in the LLC Agreement or by law, management of Promote Pool LLC is reserved to and shall be vested solely and exclusively in the Managing Member. The rights and authority of the Managing Member shall include, without limitation, the right and authority, in its sole discretion, to —

(a) exercise all consent and voting rights with respect to the Eligible Promoted Interests,

(b) sell, transfer, or otherwise dispose of the interest of Promote Pool LLC in any Eligible Promoted Interest, subject to compliance with the provisions of Section 7 below, and

(c) issue additional Employee Units to persons granted 2011 Bonus Pool Awards, subject to the proviso at the end of Section 3(a) of the Award Agreements.

3. Amendments. The LLC Agreement, or any term or provision thereof, may be amended, waived, modified or supplemented from time to time by the Managing Member in its sole discretion; provided that any amendment to the provisions relating to the distribution of Promoted Interest Proceeds or the defined terms used therein that would materially adversely affect the rights or obligations of the holders of Employee Units granted hereunder shall require the consent of each Employee Member adversely affected thereby.

4. Transfer of Employee Units. No Employee Member may Transfer all or any part of his or her Employee Units, or any interest therein, directly or indirectly, without the consent of the Managing Member, which consent may be withheld in the Managing Member’s sole discretion. No Transfer of Employee Units, or any interest therein, in violation of this Agreement shall be made or recorded on the books of Promote Pool LLC and any such Transfer shall be null and void, ab initio. An Employee Member shall have no right to grant an assignee of his or her Employee Units, or any interest therein, the right to become a substituted member in Promote Pool LLC. As used herein, “Transfer” means the sale, encumbrance, mortgage, hypothecation, assignment, pledge, exchange or other disposition or transfer (including by operation of law), directly or indirectly, of all or any portion of an Interest. For the avoidance of doubt, any indirect Transfer by an Employee Member or the Company through the transfer or issuance of any equity interest in any entity formed for the purpose of holding Employee Units or Managing Member Units, respectively, or any interest therein, shall constitute a Transfer.

5. Effect of Forfeiture of Unvested Units. At such time as any unvested Employee Units of any Employee Member in any series are forfeited pursuant to Section 4 of the such Employee Member’s award agreement, such unvested Employee Units shall be cancelled and the Manager Percentage Interest shall be increased by a percentage equal to the product of (x) the Unit Percentage Interest with respect to such series in effect immediately prior to such forfeiture times (y) the number of Employee Units in such series that were then forfeited.

6. Issuance of Additional Employee Units. The Managing Member, in its sole discretion, shall be entitled to issue additional Employee Units in any series at any time, which additional Employee Units may be accompanied by a reduction in the Manager Percentage Interest with respect to such series and a corresponding increase in the Aggregate Employee Participation Percentage for such series, or may represent the issuance of additional Employee Units without a change in the Aggregate Employee Participation Percentage, subject to the proviso at the end of [Section 3(a)] of the Award Agreements.

7. Ownership and Control of Eligible Promoted Interests. If the Managing Member elects to Transfer an Eligible Promoted Interest prior to the occurrence of the Sale Event with respect to such Eligible Promoted Interest (or the Sale Events with respect to all hotel properties related to such Eligible Promoted Interest), the vesting conditions set forth in Sections 3(b)(i)(B), 3(b)(ii)(B) and 3(b)(iii)(B) of the Award Agreements with respect to such Eligible Promoted Interest will be deemed to have been satisfied (to the extent that any such condition shall not previously have been satisfied) and the net proceeds received by Promote Pool LLC in connection with such Transfer shall be deemed to constitute Promoted Interest Proceeds, and shall be distributable in accordance with Section 1, subject to satisfaction of the Payment Conditions and subject to satisfaction of the vesting conditions set forth in Sections 3(b)(i)(A), 3(b)(ii)(A) and 3(b)(iii)(A) of the Award Agreements with respect to individual Employee Members (to the extent that such condition shall not previously have been satisfied). Any Transfer of an Eligible Promoted Interest to the Company or a subsidiary of the Company shall be made for an amount of cash equal to its Fair Market Value.

8. Certain Defined Terms. Capitalized terms defined in the Award Agreement to which this Exhibit A is attached shall have the meanings ascribed therein to such terms. The following capitalized terms used in this Exhibit A shall have the meanings set forth below:

(a) “Aggregate Employee Participation Percentage” means, with respect to any series of Bonus Pool Units and as of any date of determination, a percentage equal to (i) one hundred percent (100%) minus (ii) the Manager Percentage Interest with respect to such series then in effect.

(b) “Award Agreement” means, with respect to any Employee Member, the award agreement pursuant to which such Employee Member was granted a 2011 Bonus Pool Award.

(c) “Employee Unit Distribution Conditions” means, as of the date of any receipt by Promote Pool LLC or any of its wholly-owned subsidiaries of any Promoted Interest Proceeds, the following:

(i) the Common Share Return Condition shall be satisfied; and

(ii) the Company or a consolidated subsidiary of the Company continues to manage the applicable hotel property immediately following the applicable event giving rise to the Promoted Interest Proceeds.

(d) “Manager Percentage Interest” means, with respect to any series of Bonus Pool Units and as of any date of determination, a percentage equal to (i) one hundred percent (100%) minus (ii) the Designated Participation Percentage with respect to such series plus (iii) the aggregate increases in the Manager Percentage Interest with respect to such series pursuant to Section 5 minus (iv) the aggregate decreases in the Manager Percentage Interest with respect to such series pursuant to Section 6 in connection with the issuances of additional Employee Units with respect to such series.

(e) “Unit Percentage Interest” means, with respect to a single Employee Unit of any series as of the date of determination, a fraction (expressed as a percentage) equal to (i) the Aggregate Employee Participation Percentage with respect to such series as of such date divided by (ii) the aggregate number of Employee Units in such series then outstanding.

(f) “Vested Participation Percentage” means, with respect to any Employee Member and any series of Bonus Pool Units and as of any date of determination, a fraction, (x) the numerator of which is the aggregate number of Employee Units in such series held by such Employee Member that have vested in accordance with Section 3(b) of such Employee’s Award Agreement and (y) the denominator of which is the aggregate number of Employee Units in such series then outstanding.

EXHIBIT B

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1. The name, address and taxpayer identification number of the undersigned are:

Name:                                                              (the “Taxpayer”)

Address:                                                             

Social Security No./Taxpayer Identification No.:                                         

2. Description of property with respect to which the election is being made:

The election is being made with respect to                      Bonus Pool Units (Series [_____]) (the “Bonus Pool Units”) in MHG Employee Promoted Interest LLC (the “Company”).

3. The date on which the Bonus Pool Units were transferred is                        _____, 20_. The taxable year to which this election relates is calendar year 20_.

4. Nature of restrictions to which the Bonus Pool Units are subject:

(a) With limited exceptions, until the Bonus Pool Units vest, the Taxpayer may not transfer in any manner any portion of the Bonus Pool Units without the consent of the Company.

(b) The Taxpayer’s Bonus Pool Units (vest in accordance with the vesting provisions described in Annex 1 attached hereto. Unvested Bonus Pool Units are forfeited in accordance with the vesting provisions described in Annex 1 attached hereto.

5. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the Bonus Pool Units with respect to which this election is being made was $  per Bonus Pool Unit .

6. The amount paid by the Taxpayer for the Award LTIP Units was $0 per Bonus Pool Unit.

7. A copy of this statement has been furnished to the Company and Morgans Group LLC.

Dated:                     , 20_____            Signature                                                             

ANNEX 1

Vesting Provisions of Bonus Pool Units

The Bonus Pool Units are subject to time-based and performance-based vesting with the final vesting percentage equaling the product of the time-based vesting percentage and the performance-based vesting percentage. Performance-based vesting will be from 0% to 100% based on the achievement of certain goals relating to hotel properties in which Morgans Group LLC or a subsidiary acquires an equity interest and becomes the hotel manager. Under the time-based vesting provisions, one hundred percent (100%) of the Bonus Pool Units will vest on the last day of the performance period, provided that the Taxpayer remains an employee of the Company or any of its affiliates through such date, subject to acceleration in the event of certain extraordinary transactions or termination of the Taxpayer’s service relationship with the Company under specified circumstances. Unvested Bonus Pool Units are subject to forfeiture in the event of failure to vest based on the passage of time or the determination of the performance-based percentage. The right to receive any payments with respect to vested Bonus Pool Units depends on a specified Morgan Hotel Group Co.’s (the “Company’s”) per-share total return to shareholders of Morgans Hotel Group Co. for the period from [_____], 2011, to the proposed payment date.

Exhibit E

Release Agreement

RELEASE AGREEMENT

THIS RELEASE AGREEMENT (this “Release”) is entered into as of [                    ] (the “Effective Date”), by                                          (“Executive”) in consideration of severance pay and other benefits (the “Severance Payment”) provided to Executive by Morgans Hotel Group Co., a Delaware corporation (the “Company”), pursuant to Section 4 of the Employment Agreement by and between the Company and Executive (the “Employment Agreement”).

1. Release. Subject to the last sentence of the first paragraph of this Section 1, Executive, on his own behalf and on behalf of his heirs, executors, administrators, attorneys and assigns, hereby unconditionally and irrevocably releases, waives and forever discharges the Company and each of its affiliates, parents, successors, predecessors, and the subsidiaries, directors, owners, members, shareholders, officers, agents, and employees of the Company and its affiliates, parents, successors, predecessors, and subsidiaries (collectively, all of the foregoing are referred to as the “Employer”), from any and all causes of action, claims and damages, including attorneys’ fees, whether known or unknown, foreseen or unforeseen, presently asserted or otherwise arising through the date of his signing of this Release, concerning his employment or separation from employment. Subject to the last sentence of the first paragraph of this Section 1, this Release includes, but is not limited to, any payments, benefits or damages arising under any federal law (including, but not limited to, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act of 1974, the Americans with Disabilities Act, Executive Order 11246, the Family and Medical Leave Act, and the Worker Adjustment and Retraining Notification Act, each as amended); any claim arising under any state or local laws, ordinances or regulations (including, but not limited to, any state or local laws, ordinances or regulations requiring that advance notice be given of certain workforce reductions); and any claim arising under any common law principle or public policy, including, but not limited to, all suits in tort or contract, such as wrongful termination, defamation, emotional distress, invasion of privacy or loss of consortium. Notwithstanding any other provision of this Release to the contrary, this Release does not encompass, and Executive does not release, waive or discharge, the obligations of the Company (a) to make the payments and provide the other benefits contemplated by the Employment Agreement or any other Agreement with Executive, or (b) under any restricted stock unit agreement, option agreement or other agreement pertaining to Executive’s equity ownership or other awards, or (c) under any indemnification or similar agreement with Executive, or (d) under this Release.

Executive understands that by signing this Release, he is not waiving any claims or administrative charges which cannot be waived by law. He is waiving, however, any right to monetary recovery or individual relief should any federal, state or local agency (including the Equal Employment Opportunity Commission) pursue any claim on his behalf arising out of or related to his employment with and/or separation from employment with the Company (other than with respect to those matters described in clauses (a), (b), (c) and (d) above.

Executive further agrees without any reservation whatsoever, never to sue the Employer or become a party to a lawsuit on the basis of any and all claims of any type lawfully and validly released in this Release.

2. Acknowledgments. Executive is signing this Release knowingly and voluntarily. He acknowledges that:

(a) He is hereby advised in writing to consult an attorney before signing this Release;

(b) He has relied solely on his own judgment and/or that of his attorney regarding the consideration for and the terms of this Release and is signing this Release knowingly and voluntarily of his own free will;

(c) He is not entitled to the Severance Payment unless he agrees to and honors the terms of this Release;

(d) He has been given at least twenty-one (21) calendar days to consider this Release, or he expressly waives his right to have at least twenty-one (21) days to consider this Release;

(e) He may revoke this Release within seven (7) calendar days after signing it by submitting a written notice of revocation to the Employer. He further understands that this Release is not effective or enforceable until after the seven (7) day period of revocation has expired without revocation, and that if he revokes this Release within the seven (7) day revocation period, he will not receive the Severance Payment;

(f) He has read and understands the Release and further understands that, subject to the limitations contained herein, it includes a general release of any and all known and unknown, foreseen or unforeseen claims presently asserted or otherwise arising through the date of his signing of this Release that he may have against the Employer; and

(g) No statements made or conduct by the Employer has in any way coerced or unduly influenced him or her to execute this Release.

3. No Admission of Liability. This Release does not constitute an admission of liability or wrongdoing on the part of the Employer, the Employer does not admit there has been any wrongdoing whatsoever against the Executive, and the Employer expressly denies that any wrongdoing has occurred.

4. Entire Agreement. There are no other agreements of any nature between the Employer and Executive with respect to the matters discussed in this Release, except as expressly stated herein, and in signing this Release, Executive is not relying on any agreements or representations, except those expressly contained in this Release.

5. Execution. It is not necessary that the Employer sign this Release following Executive’s full and complete execution of it for it to become fully effective and enforceable.

6. Severability. If any provision of this Release is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or controlling law, the remainder of this Release shall continue in full force and effect.

7. Governing Law. This Release shall be governed by the laws of the State of New York, excluding the choice of law rules thereof.

8. Headings. Section and subsection headings contained in this Release are inserted for the convenience of reference only. Section and subsection headings shall not be deemed to be a part of this Release for any purpose, and they shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof.

IN WITNESS WHEREOF, the undersigned has duly executed this Release as of the day and year first herein above written.

EXECUTIVE:

EX-10.3

Exhibit 10.3

EMPLOYMENT AGREEMENT
(MICHAEL GROSS)

This EMPLOYMENT AGREEMENT (this “Agreement”), dated on March 20, 2011, between Morgans Hotel Group Co., a Delaware corporation (the “Company”), and Michael Gross (the “Executive”) shall become effective as of March 20, 2011 (the “Effective Date”).

1. Employment Period

The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, on the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the “Employment Period”), subject to the provisions for early termination or extension as hereinafter provided. The Company (but not the Executive) will have the right to offer (the “Extension Offer”) to extend the Employment Period by six (6) months (the “Extension Period”) by giving notice to Executive of such offer no less than seventy-five (75) days prior to the end of the initial Employment Period. During any Extension Period, the Executive shall receive compensation on substantially the same terms as being provided at the end of the initial Employment Period and will receive a cash bonus, payable on the last day of the Extension Period, in an amount equal to one-half of the Annual Bonus paid to the Executive with respect to the 2013 fiscal year. In the event that the parties hereafter agree to extend Executive’s employment beyond the end of the Extension Period the amount of the pro-rated cash bonuses paid by the Company with respect to the Extension Period and the period from January 1, 2014 to the third anniversary of the Effective Date will be taken into account and be credited against any cash bonus that may become payable to Executive for fiscal 2014. The Executive shall have the right to accept or reject the Extension Offer; if the Executive rejects the Extension Offer and terminates employment, such termination will be deemed to be a termination due to non-renewal of the Agreement by the Company for purposes of Section 4(d) below and shall not be considered a termination under Section 4(c) below.

2. Terms of Employment

(a) Position and Duties

(i) During the Employment Period, the Executive shall serve as Chief Executive Officer of the Company with the customary and usual authority, duties and responsibilities attendant to such position and any other duties that may reasonably be assigned by the Company’s Board of Directors (the “Board”) (taking into consideration that the Company has an Executive Chairman and Chief Operating Officer), and subject to such policies and procedures for coordinating and consulting with the Executive Chairman consistent with the foregoing as the Board, after consultation with the Executive, may adopt, from time to time. It is understood that a portion of the Executive’s duties and responsibilities contemplated above shall be provided to Morgans Group LLC (the “Operating Company”). The Executive shall report to the Board.

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of the Executive’s business time, attention and energies to the performance of the duties so that Executive can perform the duties contemplated by Section 2(a)(i), and to perform such duties faithfully, diligently and to the best of the Executive’s abilities and subject to such laws, rules, regulations and policies from time to time applicable to the Company’s executives. Notwithstanding the above, Executive shall be entitled to attend to personal and family affairs and investments, be involved in not for profit, charitable and professional activities and, with the Board’s prior consent, serve on boards of other organizations, provided that all of the foregoing does not, in the aggregate, materially interfere with Executive’s responsibilities hereunder.

(iii) During the Employment Period, (i) the Executive agrees to continue to serve as a director of the Company; and (ii) the Company agrees that the Executive shall be nominated for election as a director of the Company at each annual meeting of the Company’s stockholders or other meeting of the Company’s stockholders at which directors are elected and be nominated as a member of the investment committee of the Board of Directors. Any failure by the Board to nominate the Executive for election as a director of the Company in accordance with clause (ii) above or failure to be elected to the Board or to the investment committee shall constitute Good Reason for the Executive to terminate his employment in accordance with Section 3(c) of this Agreement.

(b) Compensation

(i) Annual Base Salary. During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”) equal to $750,000 (payable semi-monthly), which shall be subject to annual performance reviews and may be increased at the good faith discretion of the Board or the Compensation Committee of the Board (the “Compensation Committee”) in accordance with standard practices of the Company. The term “Annual Base Salary” as utilized in this Agreement shall refer to Annual Base Salary as so increased. Annual Base Salary shall not be less than $750,000 without the prior written consent of the Executive.

(ii) Annual Bonus. The Executive will be eligible for an annual cash bonus for each of the Company’s 2011, 2012, and 2013 fiscal years (“Annual Bonus”) with a target payout of 100% of Annual Base Salary. The target payout for the 2011 Annual Bonus shall be pro rated, based on the number of days in the fiscal year from and including the Effective Date to and including December 31, 2011, 50% of which shall be guaranteed. The remaining 50% of the 2011 Annual Bonus shall depend on the following performance metrics: 40% on EBITDA and 10% on the RevPAR Index, both as established by the Compensation Committee of the Board of Directors. For 2012 and 2013, the Annual Bonus will range from 50% up to 150% of target. The actual Annual Bonus for each fiscal year shall be determined in good faith after consultation with the Executive by the Compensation Committee based upon actual corporate and individual performance for such year and shall be payable in accordance with the procedures specified by the Compensation Committee. The Executive’s Annual Bonus will be paid no later than seventy-five (75) days after the end of the applicable bonus period (or, if earlier, as provided in Section 4 below). Except as provided in Section 4 of this Agreement, Employee must be employed by the Company on the date bonuses are paid to Company employees in order to be entitled to receive a bonus. To the extent the Annual Bonus exceeds 100% of Annual Base Salary, the Compensation Committee may in its discretion, and subject to applicable law, cause the Company to pay such excess in the form of fully vested equity compensation awards under one of Company’s equity compensation plans (which award may be subject to other conditions that the Compensation Committee may determine).

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(iii) Stock Option Award. On the Effective Date, the Company shall grant to the Executive a non-qualified option to purchase 300,000 shares of the Company’s common stock (the “Stock Option”) under the Morgans Hotel Group Co. Amended and Restated 2007 Omnibus Incentive Plan (the “Incentive Plan”). Except as otherwise provided in Section 4 upon certain events of termination, subject to the Executive’s continued employment with the Company, the Stock Option shall vest and become exercisable with respect to 33-1/3% of the shares subject thereto on each of the first, second, and third anniversaries of the Effective Date. Consistent with the foregoing, the terms and conditions of the Stock Option shall be set forth in an award agreement (the “Stock Option Agreement”) in the form attached as Exhibit A hereto, to be entered into by the Company and the Executive concurrently herewith and which shall evidence the grant of the Stock Option. The Company shall determine whether future awards will be awarded to the Executive in its sole good faith discretion.

(iv) Equity Award. On the Effective Date, the Company shall grant to the Executive 125,000 long term incentive units (the “LTIP Units”) under the Incentive Plan. Except as otherwise provided in Section 4 upon certain events of termination, subject to the Executive’s continued employment with the Company, the LTIP Units shall vest with respect to 33-1/3% of the LTIP Units subject thereto on each of the first, second, and third anniversaries of the Effective Date. Consistent with the foregoing, the terms and conditions of such award shall be set forth in an award agreement (the “LTIP Agreement”) in the form attached as Exhibit B hereto, to be entered into by the Company and the Executive and which shall evidence the grant of such award.

(v) Outperformance Award. On the Effective Date, the Company shall grant to the Executive a performance incentive award entitling the Executive to 35% of the “Total Outperformance Pool,” as such term is defined in the Outperformance Award Agreement attached as Exhibit C hereto, subject to the terms and conditions of such award agreement.

(vi) Additional Performance Incentive Award. On the Effective Date, the Company shall grant to the Executive an additional performance incentive award entitling the Executive to 35% of the “Promoted Interest Pool,” as such term is defined in the Promoted Interest Pool Award Agreement attached as Exhibit D hereto, subject to the terms and conditions of such award agreement.

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(c) Benefits

(i) Employee Benefits. During the Employment Period, the Executive shall be entitled to participate in all employee benefit and other plans, practices, policies and programs and fringe benefits and perquisites on a basis no less favorable than that provided to other senior executives of the Company.

(ii) Vacations. The Executive shall be eligible for up to five weeks of annual vacation to be accrued in accordance with the Company’s policy for its other senior executives.

3. Termination of Employment

(a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Executive becomes Disabled during the Employment Period, the Company upon such event shall give to the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” or becoming “Disabled” shall mean the inability of the Executive to perform the Executive’s duties with the Company on a full-time basis for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Executive or the Executive’s legal representative.

(b) Cause. The Company may terminate the Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean the occurrence of any one or more of the following events unless the Executive has commenced and is diligently pursuing steps to correct the circumstances constituting Cause (in those instances where such circumstances can be corrected) within fifteen (15) business days after receipt of the Notice of Termination and cures such circumstances in all material respects within forty-five (45) business days after receipt of the Notice of Termination (as defined below):

(i) the Executive’s willful and continued failure to substantially perform his duties with the Company as contemplated by Section 2(a)(i) (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such failure after his issuance of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed his duties;

(ii) a material breach by the Executive of his obligations under this Agreement resulting in substantial economic or financial injury to the Company;

(iii) the Executive’s willful commission of an act of fraud, theft or dishonesty resulting in substantial economic or financial injury to the Company;

(iv) the Executive’s conviction of, or entry by the Executive of a guilty or no contest plea to, the commission of a felony; or

(v) the Executive willfully engages in misconduct that is materially injurious to the Company.

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For purposes of this provision, no act or omission on the part of the Executive shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission that was directed or authorized by the Board, or approved, consented to, or acquiesced to by the Board, or based on advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by at least 66 2/3% of the Board (excluding the Executive and the Executive Chairman, to the extent either of them are members of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

(c) Good Reason. The Executive’s employment may be terminated by the Executive with or without Good Reason. For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following events without the written consent of the Executive:

(i) any change in the Executive’s title or the assignment to the Executive of duties materially inconsistent with the Executive’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated by Section 2(a)(i), or any other action by the Company which results in a material diminution or material adverse change in the Executive’s title, position, status, reporting relationships, authority, duties or responsibilities, other than (x) insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Executive, or (y) other than allocations of or changes in duties and responsibilities between the Executive and the Executive Chairman;

(ii) any material failure by the Company to comply with any of the provisions of this Agreement or any Related Agreement (as defined below), other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Executive;

(iii) any failure by the Company to comply with and satisfy Section 10(c);

(iv) any failure by the Board to nominate the Executive for election as a director of the Company in accordance with Section 2(a)(iii), or any failure of the Executive to be elected by the Company’s shareholders to be a member of the Board or to be elected by the Board as a member of investment committee of the Company; or

(v) any requirement that the Executive’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Executive’s residence to his new place of employment;

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provided that the Executive’s resignation shall only constitute a resignation for Good Reason hereunder if (x) the Executive provides the Company with a Notice of Termination (as defined below) within 90 days after the initial existence of the facts or circumstances constituting Good Reason, (y) the Company has failed to cure such facts or circumstances within 30 days after receipt of the Notice of Termination, and (z) subject to the last sentence of Section 4(e), the Date of Termination (as defined below) occurs no later than 120 days after the initial occurrence of the facts or circumstances constituting Good Reason.

(d) Notice of Termination. Any termination by the Company or by the Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(e) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company other than for Disability, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, (ii) if the Executive’s employment is terminated by the Executive, 30 days after receipt of the Notice of Termination (provided, that, the Company may accelerate the Date of Termination to an earlier date by providing the Executive with notice of such action, or, alternatively, the Company may place the Executive on paid leave during such period), (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be and (iv) if the Executive’s employment is terminated due to the non-renewal of the Agreement at the end of the Employment Period, the Date of Termination shall be the last day of the Employment Period. Notwithstanding the foregoing, if within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected).

(f) No Resignation from Board upon Termination. Upon the termination of the Executive’s employment for any reason (other than for Cause), the Executive shall have no obligation whatsoever to resign from the Board. A termination of the Executive’s employment shall mean a termination of services of both the Company and the Operating Company.

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4. Obligations of the Company upon Termination

(a) Other Than for Cause or For Good Reason. If, during the Employment Period, the Company terminates the Executive’s employment other than for Cause or Disability or the Executive terminates his employment for Good Reason (each, a “Qualifying Termination”):

(i) The Company shall pay to the Executive an amount in a single lump sum within 10 days after the end of the revocation period for the Release Agreement provided in Section 4(e) below (provided, however, that the amounts payable pursuant to subparagraph (C) below, if any, will be paid at the same time the bonuses for the year in which the Date of Termination occurs are paid), equal to the sum of —

(A) an amount equal to the Executive’s Annual Base Salary (at the rate then being paid to Executive) accruing through the Date of Termination to the extent theretofore unpaid (the “Accrued Base Salary”) plus

(B) the amount of any Annual Bonus that, had he remained employed, would otherwise have been paid to the Executive pursuant to Section 2 (b)(ii) above for any fiscal year of the Company that ends on or before the Date of Termination to the extent not previously paid (the “Prior Year Bonus”), plus

(C) (without duplication of the amount in clause (B)) a pro rata portion of the Annual Bonus for the partial fiscal year in which the Date of Termination occurs in an amount equal to the product of (A) the Annual Bonus calculated as of the Date of Termination based on the extent to which the financial performance targets applicable to such Annual Bonus (pro rated based on the number of days in such fiscal year through the Date of Termination) are actually achieved for the year, and (B) a fraction, the numerator of which is the number of days in the year of termination through the Date of Termination and the denominator of which is 365 (the “Pro-Rated Annual Bonus”) plus

(D) an amount equal to two (2) times Annual Base Salary.

(ii) During the period commencing on the Date of Termination and ending on the date 18 months after the Date of Termination (the “COBRA Period”), provided that the Executive properly elects to receive group health insurance continuation coverage under Section 4980B of the Code and the regulations thereunder (“COBRA”), the Company shall pay directly or reimburse the Executive for premiums for such coverage ; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(a)(ii) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the COBRA Period (or the remaining portion thereof).

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All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(v) and (vi), (which shall vest as set forth in the applicable award agreement), shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted. Notwithstanding this Section 4(a), in the event that the Executive is terminated other than for Cause or the Executive terminates employment for Good Reason following a Transactional Change in Control (as defined in the Outperformance Award Agreement) and where the Common Share Price (as defined in the Outperformance Award Agreement) does not represent at least 4.5% compound annual growth rate since the Effective Date, the amount payable by the Company pursuant to Section 4(a)(i)(D) shall equal one (1) times the Annual Base Salary.

(b) Death; Disability. If, during the Employment Period, the Executive’s employment shall terminate on account of death (other than via death after delivery of a valid Notice of Termination for Good Reason or without Cause) or Disability, the Company shall have no further obligations to the Executive other than to pay to or provide the Executive (or his estate) the following:

(i) The Company shall pay to or provide the Executive (or his estate) the following within 10 business days after the Executive’s death or the date on which the Executive becomes Disabled: (A) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid, (B) the Prior Year Bonus to the extent theretofore unpaid, (C) the Pro Rated Annual Bonus (if any), and (D) an amount equal to one times Annual Base Salary;

(ii) During the 12 month period following the Date of Termination, provided that the Executive’s estate or beneficiaries or the Executive, as applicable, properly elects to receive group health insurance continuation coverage under COBRA, the Company shall pay directly or reimburse the Executive’s estate or beneficiaries or the Executive, as applicable, for premiums for such coverage; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(b)(ii) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the 12 month period following the Date of Termination (or the remaining portion thereof);

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All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(v) and (vi) (which shall vest as set forth in the applicable award agreement) shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted.

(c) For Cause; Other than For Good Reason. If, during the Employment Period, the Company shall terminate the Executive’s employment for Cause or the Executive terminates his employment without Good Reason (including the failure by the Executive to renew the Agreement at the end of the Employment Period after the Company offers to do so no less than seventy-five (75) days prior to the end of the Employment Period, as it may be extended pursuant to an employment agreement with at least a three year term, aggregate cash and equity- and performance-based compensation at least as favorable as the same provided for hereunder and otherwise on terms no less favorable to Executive as those set forth herein (any such non-renewal, an “Executive Non-Renewal”) the Company shall pay to or provide the Executive (or his estate) the following within 10 business days after the Date of Termination: (A) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid and (B) in the event of an Executive Non-Renewal, the Prior Year Bonus to the extent theretofore unpaid. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable (i) in the event of an Executive Non-Renewal, until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted, or (ii) in the event of the termination of Executive’s employment for Cause or without Good Reason (other than an Executive Non-Renewal), within ninety (90) days after the Date of Termination.

(d) Expiration of Employment Period due to the Company’s Non-renewal of the Agreement. If the Executive’s employment with the Company terminates by reason of the expiration of the Employment Period other than due to an Executive Non-Renewal, the Company shall pay to or provide the Executive the following within 10 business days after the Date of Termination:

(i) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid;

(ii) the Prior Year Bonus to the extent theretofore unpaid;

(iii) Subject to execution of the Release Agreement provided in Section 4(e) below, the Company shall pay to the Executive an amount equal to one (1) times the Annual Base Salary in a single lump sum within 10 days after the end of the revocation period for the Release Agreement; and

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(iv) During the 12 month period following the Date of Termination, provided that the Executive’s estate or beneficiaries or the Executive, as applicable, properly elects to receive group health insurance continuation coverage under COBRA, the Company shall pay directly or reimburse the Executive’s estate or beneficiaries or the Executive, as applicable, for premiums for such coverage; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(d)(iv) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the 12 month period following the Date of Termination (or the remaining portion thereof).

All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(v) and (vi) (which shall vest as set forth in the applicable award agreement) shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted.

(e) Release Agreement. The Company shall not be required to make the payments and provide the benefits specified in this Section 4 (other than the payment of any Accrued Base Salary) unless the Executive (or his estate, as applicable) executes and delivers to the Company an agreement releasing the Company, its affiliates and its officers, directors and employees from all liability (other than the payments and benefits under this Agreement) in the form attached hereto as Exhibit E (the “Release Agreement”) within thirty (30) days after the Date of Termination and the period for revocation of such Release Agreement shall have lapsed, which Release Agreement shall also provide that the Company shall release the Executive from all liability; provided, that in all events, subject to Executive’s execution and delivery of the Release Agreement, the payments and benefits specified in this Section 4 will be made or provided before March 15 following the end of Executive’s first taxable year in which his right to such payment is no longer subject to a substantial risk of forfeiture.

5. Application of Section 409A

(a) If any compensation or benefits provided by this Agreement may result in the application of Section 409A of the Code, the Company shall, in consultation with the Executive, modify the Agreement in the least restrictive manner necessary in order to, where applicable, (i) exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A or (ii) comply with the provisions of Section 409A, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and to make such modifications, in each case, without any diminution in the value of the payments to the Executive.

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(b) Anything in this Agreement to the contrary notwithstanding, if (A) on the date of termination of Executive’s employment with the Company or a subsidiary, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as amended (the “Code”)), (B) Executive is determined to be a “specified employee” within the meaning of Section 409A(a)(2)(B), (C) the payments exceed the amounts permitted to be paid pursuant to Treasury Regulations section 1.409A-1(b)(9)(iii), and (D) such delay is required to avoid the imposition of the tax set forth in Section 409A(a)(1), as a result of such termination, the Executive would receive any payment that, absent the application of this Section 5(b), would be subject to interest and additional tax imposed pursuant to Section 409A(a) as a result of the application of Section 409A(2)(B)(i), then no such payment shall be payable prior to the date that is the earliest of (1) six (6) months and one day after the Executive’s termination date, (2) the Executive’s death or (3) such other date (the “Delay Period”) as will cause such payment not to be subject to such interest and additional tax (with a catch-up payment equal to the sum of all amounts that have been delayed to be made as of the date of the initial payment). In particular, with respect to any lump sum payment otherwise required hereunder, in the event of any delay in the payment date as a result of Section 409A(a)(2)(A)(i) and (B)(i), the Company will adjust the payments to reflect the deferred payment date by crediting interest thereon at the prime rate in effect at the time such amount first becomes payable, as quoted by the Company’s principal bank.

(c) To the extent that the provision of health insurance following the Date of Termination is so delayed, the Executive shall be entitled to COBRA continuation coverage under Section 4980B of the Code (“COBRA Coverage”) during such period of delay, and the Company shall reimburse the Executive for any Company portions of such COBRA Coverage in the seventh month following the Date of Termination.

(d) To the extent that any benefits to be provided during the Delay Period are considered deferred compensation under Code Section 409A provided on account of a “separation from service,” and such benefits are not otherwise exempt from Section 409A, the Executive shall pay the cost of such benefits during the Delay Period, and the Company shall reimburse the Executive, to the extent that such costs would otherwise have been paid by the Company or to the extent that such benefits would otherwise have been provided by the Company at no cost to the Executive, the Company’s share of the cost of such benefits upon expiration of the Delay Period, and any remaining benefits shall be reimbursed or provided by the Company in accordance with the procedures specified herein.

(e) Any provisions of this Agreement or any other compensation plan notwithstanding, the Company shall have no right to accelerate any such payment hereunder or thereunder except to the extent permitted under Section 409A.

(f) For purposes of Section 409A, each payment made after termination of employment, including COBRA continuation reimbursement payments, will be considered one of a series of separate payments.

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(g) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.”

(h) Any amount that Executive is entitled to be reimbursed under this Agreement that may be treated as taxable compensation will be reimbursed to Executive as promptly as practical and in any event not later than sixty (60) days after the end of the calendar year in which the expenses are incurred; provided that Executive shall have provided a reimbursement request to the Company no later than thirty (30) days prior to the date the reimbursement is due. The amount of the expenses eligible for reimbursement during any calendar year will not affect the amount of expenses for reimbursement in any other calendar year, except as may be required pursuant to an arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code.

(i) The Company shall not be obligated to reimburse Executive for any tax penalty or interest or provide a gross-up in connection with any tax liability of Executive under Section 409A.

6. Parachute Payment Limitations

Notwithstanding any other provision of this Agreement or of any other agreement, contract, or understanding heretofore or hereafter entered into by the Executive and the Company or any of the Company’s affiliates, except an agreement, contract, or understanding hereafter entered into that expressly modifies or excludes application of this Section 6 (the “Other Agreements”), and notwithstanding any formal or informal plan or other arrangement heretofore or hereafter adopted by the Company or any of the Company’s affiliates for the direct or indirect compensation of the Executive (including groups or classes of participants or beneficiaries of which the Executive is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Executive (a “Benefit Arrangement”), if the Executive is a “disqualified individual,” as defined in Section 280G(c) of the Code, any right to receive any payment or other benefit under this Agreement shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for Executive under the Agreement, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Executive under this Agreement to be considered a “parachute payment” within the meaning of Section 280G(b)(2) of the Code as then in effect (a “Parachute Payment”) and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Executive from the Company or any of the Company’s affiliates under this Agreement, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by Executive without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Agreement, in conjunction with all other rights, payments, or benefits to or for the Executive under the Agreement, any Other Agreement or any Benefit Arrangement would cause the Executive to be considered to have received a Parachute Payment under this Agreement that

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would have the effect of decreasing the after-tax amount received by the Executive as described in clause (ii) of the preceding sentence, then the Executive shall have the right, in the Executive’s sole discretion, to designate those rights, payments, or benefits under this Agreement, any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Executive under this Agreement be deemed to be a Parachute Payment; provided, however, that, to the extent any payment or benefit constitutes deferred compensation under Section 409A, in order to comply with Section 409A, the reduction or elimination will be performed in the following order: (A) reduction of cash payments; (B) reduction of COBRA benefits; (C) cancellation of acceleration of vesting on any equity awards for which the exercise price exceeds the then fair market value of the underlying equity; and (D) cancellation of acceleration of vesting of equity awards not covered under (C) above; provided, however that in the event that acceleration of vesting of equity awards is to be cancelled, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of such equity awards, that is, later granted equity awards shall be canceled before earlier granted equity awards.

7. Non-Competition; Non-Solicitation; Confidential Information; Standstill

(a) Non-Competition. Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character. In consideration of his employment hereunder, Executive agrees that, during the term of Executive’s employment with the Company and for a six-month period after the date the Executive’s employment is terminated for any reason, provided in connection with a termination of employment pursuant to Sections 4(a) or (d), the Company is not in material breach in the performance of its obligations to the Executive pursuant to those Sections, the Executive shall not directly or indirectly (without the prior written consent of the Company) engage, directly or indirectly, whether as principal, agent, representative, consultant, employee, partner, stockholder, limited partner, other investor or otherwise (other than a passive investment of not more than two and one-half percent (2.5%) of the stock, equity or other ownership interest of any corporation, partnership or other entity) in any business entity primarily engaged, directly or indirectly through subsidiaries, and the Executive shall not be personally engaged, directly or indirectly, in the business of hotel management within the United States of America or Western Europe. The Executive shall not pursue any prospects listed on a deal pipeline list prepared by the Company and the Executive for a one-year period following the Date of Termination. Notwithstanding the foregoing, the Executive’s ownership of any equity interest in any business or entity in which he holds an equity interest as of the date hereof, shall be considered a violation of this Section 7(a).

(b) Non-Solicitation. During the term of his employment with the Company pursuant to this Agreement and for a one-year period after the Executive’s employment is terminated pursuant to this Agreement for any reason, provided the Company is not in material breach in the performance of its obligations to the Executive as of the Date of Termination and is performing all of its obligations under Section 4 of this Agreement upon and following the Date of Termination, the Executive shall not, in any manner, directly or indirectly (without the prior written consent of the Company), solicit, induce, or encourage any employee, consultant or agent of the Company or any of its subsidiaries to terminate their employment, agency, or other such business relationship with the Company and its subsidiaries or to cease to render services to the Company and its subsidiaries and the Executive shall not initiate discussions with any such

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person for any such purpose or authorize or knowingly cooperate with or encourage the taking of any such actions by any other individual or entity; provided, however, that this paragraph shall not preclude the hiring or retention of any such person by any other individual or entity who (i) responds to a general employment advertisement by newspaper or similar advertisement, or (ii) is referred to another individual or entity by an employment agency or other similar entity, provided that Executive did not identify the person or the Company as a potential source of employees to such agency or similar entity. During the term of Executive’s employment pursuant to this Agreement and for a six (6) month period after the Executive’s employment is terminated pursuant to this Agreement for any reason, provided the Company is not in material breach in the performance of its obligations to the Executive as of the Date of Termination and is performing all of its obligations under Section 4 of this Agreement upon and following the Date of Termination, the Executive shall not, in any manner (without the prior written consent of the Company), solicit, induce or encourage any customer, vendor, or other party doing business with the Company to terminate their business relationship with the Company and its subsidiaries or to transfer their business from the Company or any of its subsidiaries, and the Executive shall not initiate discussions with any such person for any such purpose or authorize or knowingly cooperate with or encourage the taking of any such actions by any other individual or entity.

(c) Treatment of Confidential Information. As a Company executive, Executive will acquire Confidential Information (as defined below) in the course of Executive’s employment. Executive agrees that, in consideration of employment with the Company, Executive will treat such Confidential Information as strictly confidential. Executive will not, directly or indirectly, at any time during employment with the Company or any time thereafter, and without regard to when or for what reason, if any, such employment shall terminate, use or cause to be used any such Confidential Information, in connection with any activity or business except in the normal course of performing his designated duties for the Company. Executive shall not disclose or cause to be disclosed any such Confidential Information to any third parties unless such disclosure is in accordance with the disclosure policies adopted by the Board or has been authorized in writing by the Board or except as may be required by law or legal process after providing the Company with prior written notice and an opportunity to respond to such disclosure (unless such notice is prohibited by law). For purposes of this Agreement, “Confidential Information” shall mean confidential or proprietary information, knowledge or data concerning the Company and its subsidiary companies’ businesses, strategies, operations, financial affairs, organizational matters, personnel matters, budgets, business plans, marketing plans, studies, policies, procedures, products, ideas, processes, software systems, trade secrets and technical know-how. Notwithstanding the foregoing, Confidential Information shall not include information which (i) is or becomes generally available to the public or is, at the time in question, in the public domain other than as a result of a disclosure by Executive not permitted hereunder, (ii) was available to Executive on a non-confidential basis prior to the date of this Agreement, or (iii) becomes available to Executive from a source other than the Company, its agents or representatives (or former agents or representatives).

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(d) Standstill. During the term of his employment and for a period of six months after the date the Executive’s employment is terminated, Executive shall not, directly or indirectly or in concert with any other person, engage in any of the following:

(i) purchase, offer to purchase, or agree to purchase or otherwise acquire, by means of a purchase, tender or exchange offer, business combination or in any other manner (including rights or options to acquire such ownership), (x) beneficial ownership of any common stock of the Company (“Common Stock”), or securities convertible into or exchangeable for Common Stock of the Company, that would result in the Executive, the Executive’s affiliates, and the members of any “group” of persons with which the Executive or his affiliates are acting in concert beneficially owning, in the aggregate (taking into account shares of Common Stock issuable upon conversion or exchange of any securities held by such the Executive and such other persons), more than 14.9% of the voting power of the outstanding Common Stock, or (y) material beneficial ownership of any debt obligations on hotel properties owned by the Company or any of its consolidated subsidiaries or any material assets owned by the Company or any of its consolidated subsidiaries;

(ii) seek or propose to influence, advise, change or control the management, Board, governing instruments or policies or affairs of the Company or any of its affiliates, including, without limitation, by means of a solicitation of proxies or seeking to influence, advise or direct the vote of any holder of voting securities of the Company; or

(iii) be employed by any person that, directly or through its affiliates, engages in any of the foregoing.

Exercise of options, conversion of LTIP Units, vesting and delivery of shares of Common Stock pursuant to equity or other awards, plans and arrangements and any other Common Stock received or otherwise acquired by the Executive in connection with or as a result of the Executive’s employment with the Company or service on its Board are not prohibited by this Section 7(d). In addition, if persons with whom the Executive has in no way participated, assisted or cooperated with have taken actions that would be prohibited by Sections 7(d) above such that the Company would be considered to be in “play” through no act of the Executive, the Executive will no longer be subject to the limitations of Sections 7(d).

(e) Survival. Any termination of the Executive’s employment or of this Agreement (or breach of this Agreement by the Executive or the Company) shall have no effect on the continuing effectiveness of this Section 7, Section 4, 5, 6 and Section 8 or any other provision hereof that by the nature of its terms is contemplated to survive any such termination.

(f) Validity. The terms and provisions of this Section 7 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive’s future employment imposed by this Section 7 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 7 unreasonable in duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction.

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(g) Consideration. The parties acknowledge that this Agreement would not have been entered into and the benefits described in Section 2, 4 or 6 would not have been promised in the absence of the Executive’s promises under this Section 7.

8. Indemnification

(a) If the Executive is made a party, is threatened to be made a party, or reasonably anticipates being made a party, to any Proceeding (as defined below) by reason of the fact that he is or was a director, officer, executive, agent, manager, trustee, consultant or representative of the Company or any of its affiliates or is or was serving at the request of the Company or any of its affiliates, or in connection with his service hereunder, as a director, officer, member, executive, agent, manager, trustee, consultant or representative of another person or entity, or if any Claim (as defined below) is made, is threatened to be made, or is reasonably anticipated to be made, that arises out of or relates to the Executive’s service in any of the foregoing capacities, then the Executive shall promptly be indemnified and held harmless to the fullest extent permitted or authorized by the Certificate of Incorporation or Bylaws of the Company, or if greater, by applicable law, against any and all costs, expenses, liabilities and losses (including, without limitation, attorneys’ and other professional fees, judgments, interest, expenses of investigation, penalties, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by the Executive in connection therewith or in connection with seeking to enforce his rights under this Section 8, and such indemnification shall continue as to the Executive even if he has ceased to be a director, officer, member, executive, agent, manager, trustee, consultant or representative of the Company or other person or entity and shall inure to the benefit of the Executive’s heirs, executors and administrators. The Executive shall be entitled to prompt advancement of any and all costs and expenses (including, without limitation, attorneys’ and other professional fees and other charges) incurred by him in connection with any such Proceeding or Claim, or in connection with seeking to enforce his rights under this Section 8, any such advancement to be made within 15 days after he gives written notice, supported by reasonable documentation, requesting such advancement. Such notice shall include, to the extent required by applicable law, an undertaking by the Executive to repay the amount advanced if he is ultimately determined not to be entitled to indemnification against such costs and expenses. Nothing in this Agreement shall operate to limit or extinguish any right to indemnification, advancement of expenses, or contribution that the Executive would otherwise have (including, without limitation, by agreement or under applicable law). For purposes of this Agreement, “Claim” shall include, without limitation, any claim, demand, request, investigation, dispute, controversy, threat, discovery request, or request for testimony or information and “Proceeding” shall include, without limitation, any actual, threatened, or reasonably anticipated, action, suit or proceeding, whether civil, criminal, administrative, investigative, appellate, formal, informal or other.

(b) A directors’ and officers’ liability insurance policy (or policies) shall be kept in place, during the Employment Period and thereafter until the later of (x) the sixth anniversary of the date on which the Executive’s employment with the Company terminates and (y) the date on which all claims against the Executive that would otherwise be covered by the policy (or policies) would become fully time barred, providing coverage to the Executive that is no less favorable to him in any respect (including, without limitation, with respect to scope, exclusions, amounts, and deductibles) than the coverage then being provided to any other present or former senior executive or director of the Company.

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9. Other Matters

(a) The Executive represents and warrants that, as of the Effective Date, the only direct or indirect investment or other economic relationships between Executive, on the one hand, and Ronald W. Burkle, Yucaipa American Alliance Fund II. L.P., or any of their respective affiliates, on the other hand regarding the Company and its subsidiaries consists of a passive investment in a fund over which Executive has no direct or indirect control or authority. During the Employment Period, Executive shall not, directly or indirectly, make or own any investment in or engage in any economic relationship with any of Ronald W. Burkle, Yucaipa American Alliance Fund II. L.P., or any of their respective affiliates other than the investments, including the investment referred to in the preceding sentence, owned by Executive as of the Effective Date.

(b) During the Employment Period, the Executive shall recuse himself from all matters, involving the Company or any of its subsidiaries, on the one hand, and any of Ronald W. Burkle, Yucaipa American Alliance Fund II. L.P., or any of their respective affiliates, on the other hand, including any consideration or voting with respect to such matters by the Board.

10. Successors

(a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns, provided that the Company may not assign this Agreement other than as described in Section 10(c) below.

(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid.

11. Disputes

(a) Mandatory Arbitration. Subject to the provisions of this Section 11, any controversy or claim between the Executive and the Company arising out of or relating to or concerning this Agreement (including the covenants contained in Section 7) or any aspect of the Executive’s employment with the Company or the termination of that employment (together, an “Employment Matter”) will be finally settled by arbitration in the County of New York administered by the American Arbitration Association (the “AAA”) under its Commercial

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Arbitration Rules then in effect. However, the AAA’s Commercial Arbitration Rules will be modified in the following ways: (i) notwithstanding any provision of the AAA rules to the contrary, the arbitration shall be heard by a panel of three neutral arbitrators, with each party appointing one arbitrator, who shall jointly appoint a third, (ii) each arbitrator will agree to treat as confidential evidence and other information presented to them, (iii) there will be no authority to award punitive damages (and the Executive and the Company agree not to request any such award), (iv) the optional Rules for Emergency Measures of Protections will apply, (v) there will be no authority to amend or modify the terms of this Agreement except as provided in Section 12(a) (and the Executive and the Company agree not to request any such amendment or modification) and (vi) a decision must be rendered within ten business days of the parties’ closing statements or submission of post-hearing briefs. The Executive and the Company agree that, to the extent permitted by law, a decision made by the arbitration panel with respect to any Employment Matter will be conclusive and binding on the Executive and the Company.

(b) Injunctions and Enforcement of Arbitration Awards. The Executive or the Company may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the County of New York to enforce any arbitration award under Section 11(a). Also, the Company may bring such an action or proceeding, in addition to its rights under Section 11(a) and whether or not an arbitration proceeding has been or is ever initiated, to temporarily, preliminarily or permanently enforce any part of Section 7. The Executive agrees that (i) violating any part of Section 7 would cause damage to the Company that cannot be measured or repaired, (ii) the Company therefore is entitled to seek an injunction, restraining order or other equitable relief restraining any actual or threatened violation of Section 7, (iii) no bond will need to be posted for the Company to receive such an injunction, order or other relief and (iv) no proof will be required that monetary damages for violations of Section 7 would be difficult to calculate and that remedies at law would be inadequate.

(c) Jurisdiction and Choice of Forum. The Executive and the Company irrevocably submit to the exclusive jurisdiction of any state or federal court located in the County of New York over any Employment Matter that is not otherwise arbitrated or resolved according to Section 11(a). This includes any action or proceeding to compel arbitration or to enforce an arbitration award. Both the Executive and the Company (i) acknowledge that the forum stated in this Section 11(c) has a reasonable relation to this Agreement and to the relationship between the Executive and the Company and that the submission to the forum will apply even if the forum chooses to apply non-forum law, (ii) waive, to the extent permitted by law, any objection to personal jurisdiction or to the laying of venue of any action or proceeding covered by this Section 11(c) in the forum stated in this Section 11(c), (iii) agree not to commence any such action or proceeding in any forum other than the forum stated in this Section 11(c) and (iv) agree that, to the extent permitted by law, a final and non-appealable judgment in any such action or proceeding in any such court will be conclusive and binding on the Executive and the Company. However, nothing in this Agreement precludes the Executive or the Company from bringing any action or proceeding in any court for the purpose of enforcing the provisions of Section 11(a) and this Section 11(c).

(d) Waiver of Jury Trial. To the extent permitted by law, the Executive and the Company waive any and all rights to a jury trial with respect to any Employment Matter.

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(e) Costs. The Company will reimburse as incurred any reasonable expenses, including reasonable attorney’s fees, the Executive incurs as a result of any Employment Matter, provided that if the Executive is not the prevailing party on at least one material issue in the Employment Matter, the Executive shall promptly return any such reimbursements. In addition, if the Executive is not the prevailing party on at least one material issue in the Employment Matter, the Executive shall promptly reimburse the Company any reasonable expenses, including reasonable attorney’s fees, the Company has incurred as a result of the Employment Matter, provided that such reimbursement shall not exceed fifty percent (50%) of the expenses, including attorney’s fees, incurred by the Executive.

12. Miscellaneous

(a) Amendment; Waiver. This Agreement may not be amended or modified, or any provision hereof waived, other than by a written agreement executed by the parties hereto or any of their respective successors and assigns.

(b) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by overnight courier or registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:

at the Executive’s primary residential address
as shown on the records of the Company

If to the Company:

Morgans Hotel Group Co.
475 Tenth Avenue
New York, NY 10018
Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee provided that any notice made by hand delivery shall be deemed to have been received on the date it is actually delivered, any notice made by overnight courier shall be deemed to have been received on the date after such notice was so sent and any notice made by registered or certified mail, return receipt shall be deemed to have been received on the date that is five (5) business days after such notice was so sent.

(c) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

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(e) Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. The Executive shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment.

(f) Governing Law. This Agreement will be governed by and construed in accordance with the law of the State of New York applicable to contracts made and to be performed entirely within that State.

(g) No Waiver. The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason (subject to the proviso at the end of Section 3(c)) or the Company’s right to terminate the Executive for Cause (subject to the limitation in the last sentence of Section 3(b)), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(h) Entire Agreement; Conflict. This Agreement, together with the Stock Option Agreement, LTIP Agreement, Outperformance Award Agreement, and Promoted Interest Pool Award Agreement (collectively, the “Related Agreements”), constitutes the final, complete and exclusive agreement between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, between the parties concerning the subject matter hereof. In the event of any conflict or inconsistency between the provisions of, or definitions contained in, this Agreement, on the one hand, and any Related Agreement or any other agreement or instrument related to the Executive’s employment to which he is subject, on the other hand, the provisions or definitions, as the case may be, the terms of the Related Agreements shall govern (notwithstanding the termination hereof) but this Agreement shall govern if in conflict with any plan document or other document or instrument related thereto (other than a Related Agreement).

(i) Section References. Any reference to a Section herein is a reference to a section of this Agreement unless otherwise stated.

(j) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.
SIGNATURES APPEAR ON THE NEXT PAGE.

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

EMPLOYER:		EXECUTIVE:
MORGANS HOTEL GROUP CO.
By:	/s/ Jeffrey M. Gault Name: Jeffrey M. Gault	/s/ Michael Gross Michael Gross

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Exhibit A

Stock Option Agreement

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Option No.: _______

MORGANS HOTEL GROUP CO.
AMENDED AND RESTATED 2007 OMNIBUS INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT

Morgans Hotel Group Co., a Delaware corporation (the “Company”), hereby grants an option to purchase shares of its common stock, $.01 par value, (the “Stock”) to the optionee named below. Additional terms and conditions of the grant are set forth in this cover sheet and in the attachment (collectively the “Agreement”), and in the Company’s Amended and Restated 2007 Omnibus Incentive Plan (the “Plan”).

Grant Date: March 20, 2011

Name of Optionee: Michael Gross

Optionee’s Employee Identification Number: ____-___-_____

Number of Shares Covered by Option: 300,000

Option Price per Share: $8.87 (At least 100% of Fair Market Value)

Vesting Start Date: March 20, 2011

By signing this cover sheet, you agree to all of the terms and conditions described in the attached Agreement and in the Plan, a copy of which is also attached. You acknowledge that you have carefully reviewed the Plan, and agree that this Agreement will control in the event any provision of this Agreement should appear to be inconsistent with the Plan. Certain capitalized terms used in this Agreement are defined in the Plan, and have the meaning set forth in the Plan.

Optionee:	/s/ Michael Gross
	(Signature)
Company:	/s/ Richard Szymanski
	(Signature)

This is not a stock certificate or a negotiable instrument.

MORGANS HOTEL GROUP CO.
AMENDED AND RESTATED 2007 OMNIBUS INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT

Non-Qualified Stock Option	This option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code and will be interpreted accordingly.
Vesting	This option is only exercisable before it expires and then only with respect to the vested portion of the option. Subject to the preceding sentence, you may exercise this option, in whole or in part, to purchase a whole number of vested shares not less than 100 shares, unless the number of shares purchased is the total number available for purchase under the option, by following the procedures set forth in the Plan and below in this Agreement.
	Your right to the Stock under this Agreement vests as to one-third (1/3rd) of the total number of shares of Stock covered by this grant, as shown on the cover sheet, each year on each of the first three one-year anniversaries of the Vesting Start Date. The resulting aggregate number of vested shares will be rounded down to the nearest whole number, and you cannot vest in more than the number of shares covered by this option.
	Except as otherwise provided in the employment agreement between you and the Company, no additional shares of Stock will vest after your Service has terminated for any reason.
Term	Your option will expire in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the cover sheet. Your option will expire earlier if your Service terminates, as described below.
Termination	Except as otherwise provided in the employment agreement between you and the Company, if your Service terminates for any reason, your option will expire at the close of business at Company headquarters on the 90th day after your termination date.
Notice of Exercise	When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form. Your notice must specify how many shares you wish to purchase (in a parcel of at least 100 shares generally). Your notice must also specify how your shares of Stock should be registered (e.g. in your name only or in your and your spouse’s names as joint tenants with right of survivorship). The notice will be effective when it is received by the Company.

	If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
Form of Payment	When you submit your notice of exercise, you must include payment of the option price for the shares you are purchasing. Payment may be made in one (or a combination) of the following forms:
	• Cash, your personal check, a cashier’s check, a money order or another cash equivalent acceptable to the Company.
	• Shares of Stock which have already been owned by you and which are surrendered to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price.
	• By delivery (on a form prescribed by the Company) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate option price and any withholding taxes.
Withholding Taxes	You will not be allowed to exercise this option unless you make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the option exercise or sale of Stock acquired under this option. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the exercise or sale of shares arising from this grant, the Company shall have the right to require such payments from you, or withhold such amounts from other payments due to you from the Company or any Affiliate. Subject to the prior approval of the Company, which may be withheld by the Company, in its sole discretion, you may elect to satisfy this withholding obligation, in whole or in part, by causing the Company to withhold shares of Stock otherwise issuable to you or by delivering to the Company shares of Stock already owned by you. The shares of Stock so delivered or withheld must have an aggregate Fair Market Value equal to the withholding obligation and may not be subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.

Corporate Transaction	Notwithstanding the vesting schedule set forth above, upon the consummation of a Corporate Transaction, this option will become 100% vested if it is not assumed, or equivalent options are not substituted for the options, by the Company or its successor. Notwithstanding any other provision in this Agreement but subject to the employment agreement between you and the Company, if assumed or substituted for, the option will expire one year after the date of termination of Service.
Transfer of Option	During your lifetime, only you (or, in the event of your legal incapacity or incompetency, your guardian or legal representative) may exercise the option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or it may be transferred upon your death by the laws of descent and distribution.
	Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your spouse, nor is the Company obligated to recognize your spouse’s interest in your option in any other way.
Retention Rights	Neither your option nor this Agreement give you the right to be retained by the Company (or any Subsidiary or Affiliate) in any capacity. The Company (and any Subsidiary or Affiliate) reserve the right to terminate your Service at any time and for any reason, subject to the employment agreement between you and the Company.
Shareholder Rights	You, or your estate or heirs, have no rights as a shareholder of the Company until a certificate for your option’s shares has been issued (or an appropriate book entry has been made). No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued (or an appropriate book entry has been made), except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in the Stock, the number of shares covered by this option and the option price per share shall be adjusted (and rounded down to the nearest whole number) pursuant to the Plan. Your option shall be subject to the terms of the agreement of merger, liquidation or reorganization in the event the Company is subject to such corporate activity in accordance with the terms of the Plan.
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of New York, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.

The Plan	The text of the Plan is incorporated in this Agreement by reference.
	This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded.
Data Privacy	In order to administer the Plan, the Company may process personal data about you. Such data includes but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan.
	By accepting this option, you give explicit consent to the Company to process any such personal data. You also give explicit consent to the Company to transfer any such personal data outside the country in which you work or are employed, including, with respect to non-U.S. resident Optionees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to administer the Plan.
Consent to Electronic Delivery	The Company may choose to deliver certain statutory materials relating to the Plan in electronic form. By accepting this option grant you agree that the Company may deliver the Plan prospectus and the Company’s annual report to you in an electronic format. If at any time you would prefer to receive paper copies of these documents, as you are entitled to, the Company would be pleased to provide copies. Please contact David Smail at (212) 277-4100 to request paper copies of these documents.
Electronic Signature	All references to signatures and delivery of documents in this Agreement can be satisfied by procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents, including this Agreement. Your electronic signature is the same as, and shall have the same force and effect as, your manual signature. Any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the Plan.

By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.

Exhibit B

LTIP Agreement

LTIP UNIT VESTING AGREEMENT

UNDER THE MORGANS HOTEL GROUP CO.
AMENDED AND RESTATED 2007 OMNIBUS INCENTIVE PLAN

Name of Grantee: Michael Gross	(“Grantee”)
No. of LTIP Units: 125,000
Grant Date: March 20, 2011	(the “Grant Date”)
Final Acceptance Date: March 20, 2011	(the “Final Acceptance Date”)

Pursuant to the Morgans Hotel Group Co. Amended and Restated 2007 Omnibus Incentive Plan (the “Plan”) of Morgans Hotel Group Co. (the “Company”) a Delaware corporation, and the Limited Liability Company Agreement (the “LLC Agreement”) of Morgans Group LLC (the “LLC”), a Delaware limited liability company, the LLC hereby grants to the Grantee named above an Other Stock-Based Award (as defined in the Plan, referred to herein as an “Award”) in the form of, and by causing the LLC to issue to the Grantee, the number of LTIP Units (as defined in the LLC Agreement) set forth above (the “Award LTIP Units”) having the rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption and conversion set forth herein and in the LLC Agreement. Upon the close of business on the Final Acceptance Date, if this LTIP Unit Vesting Agreement (this “Agreement”) is accepted, the Grantee shall receive the number of LTIP Units specified above, subject to the restrictions and conditions set forth herein, in the Plan and in the LLC Agreement. Unless otherwise indicated, capitalized terms used herein but not defined shall have the meanings given to those terms in the Plan.

1. Acceptance of Agreement.

(a) Unless the Grantee is already a Member (as defined in the LLC Agreement), Grantee must sign, as a Member, and deliver to the LLC a counterpart signature page to the LLC Agreement (attached hereto as Exhibit A). Upon signing and delivery of the signature page, to the extent required, the Grantee shall be admitted as a Member of the LLC, as of the Grant Date, with beneficial ownership of the number of LTIP Units specified above, the LLC Agreement shall be amended to reflect the issuance to the Grantee of the Award LTIP Units and the LLC shall deliver to the Grantee a certificate of the Company certifying the number of LTIP Units then issued to the Grantee. Thereupon, the Grantee shall have all the rights of a Member of the LLC with respect to the number of LTIP Units specified above, as set forth in the LLC Agreement, subject, however, to the restrictions and conditions specified herein and in the LLC Agreement.

(b) In order to confirm receipt of this Agreement, Grantee must sign and deliver to the Company a copy of this Agreement.

2. Vesting of LTIP Units.

(a) Except as provided in Sections 2(b) and 2(c) below, the Award LTIP Units shall vest one-third (1/3) each year on each of the first three one-year anniversaries of the Grant Date, (each such date on which Award LTIP Units vest is referred to herein as a “Vesting Date”); provided that upon termination of Grantee’s employment with, cessation of consulting relationship with or cessation of service to the Company and its Subsidiaries for any reason, the LTIP Units that have not yet vested shall, without payment of any consideration by the LLC, automatically and without notice terminate, be forfeited and be and become null and void, and neither the Grantee nor any of his successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such LTIP Units. In the event Grantee becomes a consultant, advisor or Non-Employee Director, such change in status shall not be deemed a termination of employment or service with the Company at the time of such change in status or thereafter so long as the Grantee continues in one of such positions.

(b) Notwithstanding any other term or provision of this Agreement, if a Corporate Transaction occurs and the LTIP Units subject to this Agreement are not assumed or substituted for any restrictions and conditions on all LTIP Units subject to this Agreement shall be deemed waived by the Company and all LTIP Units granted hereby that have not previously been forfeited shall automatically become fully vested. Notwithstanding any other provision in this Agreement, if assumed or substituted for, but subject to Section 2(c), the award will expire one year after the date of termination.

(c) Other Vesting Terms. Notwithstanding anything to the contrary in this Section 2, to the extent the Grantee is a party to another agreement or arrangement with the Company that provides accelerated vesting of the Award LTIP Units in the event of certain types of employment terminations or any other applicable vesting-related events or provides more favorable vesting provisions than provided for in this Agreement, the more favorable vesting terms of such other agreement or arrangement shall control.

3. Distributions. Distributions on the LTIP Units shall be paid currently to the Grantee in accordance with the terms of the LLC Agreement.

4. Rights with Respect to LTIP Units. If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or a transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization, significant repurchases of stock or other similar change in the capital structure of the Company, or any distribution to holders of Common Stock other than regular cash dividends, shall occur or (iii) any other event shall occur which in the judgment of the Administrator necessitates action by way of adjusting the terms of the Agreement, then and in that event, the Administrator shall take any such action as in its discretion shall be necessary to maintain the Grantee’s rights hereunder so that they are substantially proportionate to the rights existing under this Agreement prior to such event, including but not limited to, adjustments in the number of LTIP Units then subject to this Agreement.

5. Legend. The records of the LLC evidencing the Award LTIP Units shall bear an appropriate legend, as determined by the LLC in its sole discretion, to the effect that such LTIP Units are subject to restrictions as set forth herein, in the Plan and in the LLC Agreement.

6. Restrictions on Transfer. None of the Award LTIP Units shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”), or converted into Membership Units in accordance with the LLC Agreement (a) prior to vesting, or (b) unless such Transfer is in compliance with all applicable securities laws (including, without limitation, the Securities Act of 1933, as amended (the “Securities Act”)), and such Transfer is in accordance with the applicable terms and conditions of the LLC Agreement; provided that, upon the approval of, and subject to the terms and conditions specified by, the Administrator, unvested Award LTIP Units may be Transferred to members of the Grantee’s Immediate Family, which for purposes of this Agreement shall include family limited partnerships and similar entities which are primarily for the benefit of the Grantee and his or her Immediate Family, provided that the transferee agrees in writing with the Company and the LLC to be bound by all of the terms and conditions of this Agreement. In connection with any Transfer of Award LTIP Units, the LLC may require the Grantee to provide an opinion of counsel, satisfactory to the LLC, that such Transfer is in compliance with all federal and state securities laws (including, without limitation, the Securities Act). Any attempted Transfer of Award LTIP Units not in accordance with the terms and conditions of this Section 6 shall be null and void, and the LLC shall not reflect on its records any change in record ownership of any LTIP Units as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer and shall not in any way give effect to any such Transfer of any LTIP Units. This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will, the laws of descent and distribution or the transfer provisions specified above in this Section 6.

7. Incorporation of Plan. The provisions of the Plan are hereby incorporated by reference as if set forth herein. If and to the extent that any provision contained in this Agreement is inconsistent with the Plan, this Agreement shall govern.

8. Investment Representation; Registration. The Grantee hereby makes the covenants, representations and warranties set forth on Exhibit B attached hereto as of the date of acceptance of this Agreement and each Vesting Date. All of such covenants, warranties and representations shall survive the execution and delivery of this Agreement by the Grantee. The Grantee shall immediately notify the LLC upon discovering that any of the representations or warranties set forth on Exhibit B were false when made or have, as a result of changes in circumstances, become false. The LLC will have no obligation to register under the Securities Act any LTIP Units or any other securities issued pursuant to this Agreement or upon conversion or exchange of the LTIP Units.

9. Section 83(b) Election. The Grantee hereby agrees to make an election to include in gross income in the year of transfer the Award LTIP Units pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”), substantially in the form attached hereto as Exhibit C and to supply the necessary information in accordance with the regulations promulgated thereunder.

10. Amendment. The Grantee acknowledges that the Plan may be amended or discontinued in accordance with Section 12 thereof and that this Agreement may be amended or canceled by the Administrator of the Plan, on behalf of the LLC, for the purpose of satisfying changes in law or for any other lawful purpose, provided that no such action shall impair the Grantee’s rights under this Agreement without the Grantee’s written consent.

11. Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to the Award LTIP Units, the Grantee will pay to the Company or, if appropriate, any of its affiliates, or make arrangements satisfactory to the Administrator regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

12. No Obligation to Continue Employment. Neither the Company, the LLC nor any subsidiary of any of them is obligated by or as a result of the Plan or this Agreement to continue to have the Grantee provide services to it or to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company, the LLC or any subsidiary of any of them to terminate its relationship with the Grantee or the employment of the Grantee at any time, subject to the employment agreement between you and the Company.

13. Notices. Notices hereunder shall be mailed or delivered to the LLC at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the LLC or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

14. Section 409A. Subject to any agreement or arrangement to which the Grantee and the Company are parties to, if any compensation provided by this Agreement may result in the application of Section 409A of the Code (“Section 409A”), the Company shall, in consultation with and at the request of the Grantee, modify the Agreement in the least restrictive manner necessary in order to, where applicable, (a) exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A or (b) comply with the provisions of Section 409A, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and to make such modifications, in each case, without any diminution in the value of the payments to the Grantee.

15. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, applied without regard to conflict of law principles. The parties hereto agree that any action or proceeding arising directly, indirectly or otherwise in connection with, out of, related to or from this Agreement, any breach hereof or any action covered hereby, shall be resolved within the State of New York and the parties hereto consent and submit to the jurisdiction of the federal and state courts located within the City of New York, New York. The parties hereto further agree that any such action or proceeding brought by either party to enforce any right, assert any claim, obtain any relief whatsoever in connection with this Agreement shall be brought by such party exclusively in federal or state courts located within the State of New York.

16. Electronic Signature. All references to signatures and delivery of documents in this Agreement can be satisfied by procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents, including this Agreement. The Grantee’s electronic signature is the same as, and shall have the same force and effect as, Grantee’s manual signature. Any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the Plan.

(Signature Page Follows)

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the 20^th day of March, 2011.

MORGANS HOTEL GROUP CO.
By:	/s/ Jeffrey M. Gault
	Name: Jeffrey M. Gault
MORGANS GROUP LLC
By:	Morgans Hotel Group Co., its managing member
	By:	/s/ Jeffrey M. Gault Name: Jeffrey M. Gault
GRANTEE
/s/ Michael Gross
Name: Michael Gross
Address:

EXHIBIT A

FORM OF MEMBER SIGNATURE PAGE

The Grantee, desiring to become one of the within named Members of Morgans Group LLC, hereby accepts all of the terms and conditions of, and becomes a party to, the Limited Liability Company Agreement of Morgans Group LLC (the “LLC Agreement”). The Grantee agrees that this signature page may be attached to any counterpart of the LLC Agreement.

Signature Line for Member:

/s/ Michael Gross Name: Michael Gross

Date: 3/20/2011

Address of Member:

EXHIBIT B

GRANTEE’S COVENANTS, REPRESENTATIONS AND WARRANTIES

The Grantee hereby represents, warrants and covenants as follows:

(a) The Grantee has received and had an opportunity to review the following documents (the “Background Documents”):

(i) The Company’s latest Annual Report to Stockholders that has been provided to stockholders after the Company’s initial public offering, if available;

(ii) The Company’s Proxy Statement for its most recent Annual Meeting of Stockholders following the Company’s initial public offering, if available;

(iii) The Company’s Report on Form 10-K for the fiscal year most recently ended following the Company’s initial public offering, if available;

(iv) If any of the documents described in clauses (i) — (iii) above or (v) or (vi) below is not available, the Company’s Registration Statement on Form S-1 registering the Company’s initial public offering of its common stock;

(v) The Company’s Form 10-Q for the most recently ended quarter if one has been filed by the Company with the Securities and Exchange Commission since the filing of the Form 10-K described in clause (iii) above or, if a Form 10-K has not been filed by the Company, since the filing of the Form S-1 described in clause (iv) above;

(vi) Each of the Company’s Current Report(s) on Form 8-K, if any, filed since the later of the end of the fiscal year most recently ended for which a Form 10-K has been filed by the Company or the filing of the Form S-1 described in clause (iv) above;

(vii) The LLC Agreement;

(viii) The Plan; and

(ix) The Company’s Certificate of Incorporation, as amended.

The Grantee also acknowledges that any delivery of the Background Documents and other information relating to the Company and the LLC prior to the determination by the LLC of the suitability of the Grantee as a holder of LTIP Units shall not constitute an offer of LTIP Units until such determination of suitability shall be made.

(b) The Grantee hereby represents and warrants that

(i) The Grantee either (A) is an “accredited investor” as defined in Rule 501(a) under the Securities Act of 1933, as amended (the “Securities Act”), or (B) by reason of the business and financial experience of the Grantee, together with the business and financial experience of those persons, if any, retained by the Grantee to represent or advise him, her or it with respect to the grant to him, her or it of LTIP Units, the potential conversion of LTIP Units into common units of the LLC (“Common Units”) and the potential redemption of such Common Units for shares of common stock (“Shares”), has such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that the Grantee (I) is capable of evaluating the merits and risks of an investment in the LLC and potential investment in the Company and of making an informed investment decision, (II) is capable of protecting his, her or its own interest or has engaged representatives or advisors to assist him, her or it in protecting his, her or its interests, and (III) is capable of bearing the economic risk of such investment.

(ii) The Grantee understands that (A) the Grantee is responsible for consulting his, her or its own tax advisors with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of the award of LTIP Units may become subject, to his, her or its particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the LLC or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides or will provide services to the LLC on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the LLC, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award of LTIP Units; and (D) an investment in the LLC and/or the Company involves substantial risks. The Grantee has been given the opportunity to make a thorough investigation of matters relevant to the LTIP Units and has been furnished with, and has reviewed and understands, materials relating to the LLC and the Company and their respective activities (including, but not limited to, the Background Documents). The Grantee has been afforded the opportunity to obtain any additional information (including any exhibits to the Background Documents) deemed necessary by the Grantee to verify the accuracy of information conveyed to the Grantee. The Grantee confirms that all documents, records, and books pertaining to his, her or its receipt of LTIP Units which were requested by the Grantee have been made available or delivered to the Grantee. The Grantee has had an opportunity to ask questions of and receive answers from the LLC and the Company, or from a person or persons acting on their behalf, concerning the terms and conditions of the LTIP Units. The Grantee has relied upon, and is making its decision solely upon, the Background Documents and other written information provided to the Grantee by the LLC or the Company. The Grantee did not receive any tax, legal or financial advice from the LLC or the Company and, to the extent it deemed necessary, has consulted with its own advisors in connection with its evaluation of the Background Documents and this Agreement and the Grantee’s receipt of LTIP Units.

(iii) The LTIP Units to be issued, the Common Units issuable upon conversion of the LTIP Units and any Shares issued in connection with the redemption of any such Common Units will be acquired for the account of the Grantee for investment only and not with a current view to, or with any intention of, a distribution or resale thereof, in whole or in part, or the grant of any participation therein, without prejudice, however, to the Grantee’s right (subject to the terms of the LTIP Units, the Plan and this Agreement) at all times to sell or otherwise dispose of all or any part of his or her LTIP Units, Common Units or Shares in compliance with the Securities Act, and applicable state securities laws, and subject, nevertheless, to the disposition of his or her assets being at all times within his or her control.

(iv) The Grantee acknowledges that (A) neither the LTIP Units to be issued, nor the Common Units issuable upon conversion of the LTIP Units, have been registered under the Securities Act or state securities laws by reason of a specific exemption or exemptions from registration under the Securities Act and applicable state securities laws and, if such LTIP Units or Common Units are represented by certificates, such certificates will bear a legend to such effect, (B) the reliance by the LLC and the Company on such exemptions is predicated in part on the accuracy and completeness of the representations and warranties of the Grantee contained herein, (C) such LTIP Units, or Common Units, therefore, cannot be resold unless registered under the Securities Act and applicable state securities laws, or unless an exemption from registration is available, (D) there is no public market for such LTIP Units and Common Units and (E) neither the LLC nor the Company has any obligation or intention to register such LTIP Units or the Common Units issuable upon conversion of the LTIP Units under the Securities Act or any state securities laws or to take any action that would make available any exemption from the registration requirements of such laws, except, that, upon the redemption of the Common Units for Shares, the Company currently intends to issue such Shares under the Plan and pursuant to a Registration Statement on Form S-8 under the Securities Act, to the extent that (I) the Grantee is eligible to receive such Shares under the Plan at the time of such issuance, (II) the Company has filed an effective Form S-8 Registration Statement with the Securities and Exchange Commission registering the issuance of such Shares. The Grantee hereby acknowledges that because of the restrictions on transfer or assignment of such LTIP Units acquired hereby and the Common Units issuable upon conversion of the LTIP Units which are set forth in the LLC Agreement or this Agreement, the Grantee may have to bear the economic risk of his, her or its ownership of the LTIP Units acquired hereby and the Common Units issuable upon conversion of the LTIP Units for an indefinite period of time.

(v) The Grantee has determined that the LTIP Units are a suitable investment for the Grantee.

(vi) No representations or warranties have been made to the Grantee by the LLC or the Company, or any officer, director, shareholder, agent, or affiliate of any of them, and the Grantee has received no information relating to an investment in the LLC or the LTIP Units except the information specified in Paragraph (b) above.

(c) So long as the Grantee holds any LTIP Units, the Grantee shall disclose to the LLC in writing such information as may be reasonably requested with respect to ownership of LTIP Units as the LLC may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code, applicable to the LLC or to comply with requirements of any other appropriate taxing authority.

(d) The Grantee hereby agrees to make an election under Section 83(b) of the Code with respect to the LTIP Units awarded hereunder, and has delivered with this Agreement a completed, executed copy of the election form attached hereto as Exhibit C. The Grantee agrees to file the election (or to permit the LLC to file such election on the Grantee’s behalf) within thirty (30) days after the Award of the LTIP Units hereunder with the IRS Service Center at which such Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the LTIP Units are awarded to the Grantee.

(e) The address set forth on the signature page of this Agreement is the address of the Grantee’s principal residence, and the Grantee has no present intention of becoming a resident of any country, state or jurisdiction other than the country and state in which such residence is sited.

(f) The representations of the Grantee as set forth above are true and complete to the best of the information and belief of the Grantee, and the LLC shall be notified promptly of any changes in the foregoing representations.

EXHIBIT C

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1.	The name, address and taxpayer identification number of the undersigned are:
	Name:                     (the “Taxpayer”)
	Address:
	Social Security No./Taxpayer Identification No.:
2.	Description of property with respect to which the election is being made:
	The election is being made with respect to  _____  LTIP Units in Morgans Group LLC (the “LLC”).

3.	The date on which the LTIP Units were transferred is  _____  , 20_. The taxable year to which this election relates is calendar year 20_.
4.	Nature of restrictions to which the LTIP Units are subject:

(a) With limited exceptions, until the LTIP Units vest, the Taxpayer may not transfer in any manner any portion of the LTIP Units without the consent of the LLC.

(b) The Taxpayer’s LTIP Units vest in accordance with the vesting provisions described in the Schedule attached hereto. Unvested LTIP Units are forfeited in accordance with the vesting provisions described in the Schedule attached hereto.

5.	The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the LTIP Units with respect to which this election is being made was $0 per LTIP Unit.
6.	The amount paid by the Taxpayer for the LTIP Units was $0 per LTIP Unit.

7. A copy of this statement has been furnished to the LLC and to its managing member, Morgans Hotel Group Co.

Dated: March 20, 2011

/s/ Michael Gross
Name:	Michael Gross

Schedule to Section 83(b) Election -Vesting Provisions of LTIP Units

LTIP Units are subject to time-based vesting with one-third (1/3) vesting each year on the first three one-year anniversaries of the date of grant, provided that the Taxpayer remains an employee of Morgans Hotel Group Co. (the “Company”) or its subsidiaries through such dates, subject to acceleration in the event of certain extraordinary transactions. Unvested LTIP Units are subject to forfeiture in the event of failure to vest based on the passage of time and continued employment with the Company or its subsidiaries.

Exhibit C

Outperformance Award Agreement

MORGANS HOTEL GROUP CO.
2011 OUTPERFORMANCE PLAN AWARD AGREEMENT

2011 OUTPERFORMANCE PLAN AWARD AGREEMENT made as of the date set forth on Schedule A hereto by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “Company”), MORGANS GROUP LLC, a Delaware limited liability company (the “Operating Company”), and the party listed on Schedule A (the “Grantee”).

RECITALS

A. The Grantee is a senior management employee of the Company and provides services to the Operating Company.

B. The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) approved this and other 2011 outperformance plan (“2011 OPP”) awards pursuant to the Company’s Amended and Restated 2007 Omnibus Incentive Plan (the “Incentive Plan”) to provide certain senior management employees of the Company, including the Grantee, in connection with their employment with the incentive compensation described in this Award Agreement (this “Agreement”) and thereby provide additional incentive for them to promote the progress and success of the business of the Company and its Affiliates. 2011 OPP awards were approved by the Committee pursuant to authority delegated to it by the Board, including authority to make grants of stock-based performance incentive awards. This Agreement evidences one award (this “Award”) in a series of 2011 OPP awards and is subject to the terms and conditions set forth herein.

C. The Committee, effective as of the grant date specified in Schedule A hereto, awarded to the Grantee the 2011 OPP participation percentage in the Total Outperformance Pool (as defined herein), as set forth in Schedule A.

NOW, THEREFORE, the Company, the Operating Company, and the Grantee agree as follows:

1. Administration.

This Award and all other 2011 OPP awards shall be administered by the Committee, which in the administration of the 2011 OPP awards and this Award shall have all the powers and authority it has in the administration of the Incentive Plan as set forth in the Incentive Plan, but subject to this Agreement ; provided that all powers of the Committee hereunder can be exercised by the full Board if the Board so elects. The Committee, in its sole and absolute discretion, may provide for lapse of forfeiture restrictions and/or accelerated vesting under this Agreement of some or all of the Grantee’s unvested Award Participation that has not previously been forfeited.

2. Definitions.

Capitalized terms used herein shall have the meanings set forth below:

“Accelerated Payment Change of Control” means a Transactional Change of Control or a Change of Control within the meaning of subparagraph (iv) or (v) thereof.

“Additional Share Baseline Value” means, with respect to each Additional Share, the gross proceeds received by the Company or the Operating Company upon the issuance of such Additional Share, which amount shall be deemed to equal, as applicable:

(A) if such Additional Share is issued for cash in a public offering or private placement, the gross price to the public or to the purchaser(s);

(B) if such Additional Share is issued in exchange for assets or securities of another Person or upon the acquisition of another Person, the cash value imputed to such Additional Share for purposes of such transaction by the parties thereto, as determined in good faith by the Committee, or, if no such value was imputed, the mean between the high and low sale prices of a Common Share on the national securities exchange or established securities market on which the Common Shares are listed on the date of issuance of such Additional Share, or, if no sale of Common Shares is reported on such date, on the next preceding day on which any sale shall have been reported; and

(C) if such Additional Share is issued upon conversion or exchange of equity or debt securities of the Company, the Operating Company or any other Subsidiary of the Company, which securities were not previously counted as either Initial Shares or Additional Shares, the conversion or exchange price in effect as of the date of conversion or exchange pursuant to the terms of the security being exchanged or converted.

“Additional Shares” means, as of a particular date of determination, the number of Common Shares, other than those held by the Company, to the extent such Common Shares are issued after the Effective Date and on or before such date of determination in a capital raising transaction, in exchange for assets or securities or upon the acquisition of another Person, upon conversion or exchange of equity or debt securities of the Company or any Subsidiary of the Company, which securities were not previously counted as either Initial Shares or Additional Shares, or through the reinvestment of dividends or other distributions.

For the avoidance of doubt, “Additional Shares” shall exclude, without limitation:

(i) Common Shares issued after the Effective Date upon exercise of stock options or upon the exchange (directly or indirectly) of LTIP Units or other Units issued to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation,

(ii) Common Shares awarded after the Effective Date to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation for services provided or to be provided to the Company or any of its Affiliates,

(iii) LTIP Units or other Units awarded after the Effective Date to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation, and

(iv) any securities included in “Initial Shares.”

“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

“Award Common Units” means the units of membership interests in the Operating Company referred to as “Membership Units” in the LLC Agreement into which the Award LTIP Units may be converted in accordance with the terms of the LLC Agreement.

“Award LTIP Units” means a series of LTIP Units established by the Operating Company, with the rights, privileges, and preferences set forth in the designations thereof included in an amendment to the LLC Agreement that may be adopted hereafter by the Managing Member of the Operating Company in accordance with Section 8(a), which designations shall be in the form set forth on Exhibit A attached hereto.

“Award Participation” has the meaning set forth in Section 3.

“Baseline Value” means $8.87.

“Buyback Shares” means (without double-counting), as of a particular date of determination, (A) Common Shares or (B) the Shares Amount for Units (assuming that such Units were converted, exercised, exchanged or redeemed for Membership Units as of such date at the applicable conversion, exercise, exchange or redemption rate (or rate deemed applicable by the Committee if there is no such stated rate) and such Common Units were then tendered to the Operating Company for redemption pursuant to Section 4.2(e)(1) of the LLC Agreement as of such date), other than Units held by the Company, in the case of each (A) and (B), to the extent repurchased by the Company after the Effective Date and on or before such date of determination in a stock buyback transaction or in a redemption of Units for cash pursuant to Section 4.2(e)(1) of the LLC Agreement.

“Cause” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination and “Cause” is defined therein, then “Cause” shall have the meaning set forth in such definition, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Cause” or a substantially equivalent term, then “Cause” shall mean:

(i) the Grantee’s willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Grantee’s incapacity due to physical or mental illness or any such failure after his issuance of a notice of termination for Good Reason), after a written demand for substantial performance is delivered to the Grantee by the Board, which demand specifically identifies the manner in which the Board believes that the Grantee has not substantially performed his duties;

(ii) a material breach by Grantee of his Service Agreement;

(iii) the Grantee’s willful commission of an act of fraud, theft or dishonesty resulting in economic, financial or material reputational injury to the Company;

(iv) the Grantee’s conviction of, or entry by the Grantee of a guilty or no contest plea to, the commission of a felony; or

(v) the Grantee willfully engages in other misconduct materially injurious to the Company.

For purposes of this provision, no act or omission on the part of the Grantee shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission based upon a resolution duly adopted by the Board or advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Grantee shall not be deemed to be for Cause unless and until there shall have been delivered to the Grantee a copy of a resolution duly adopted by the majority of the Board (excluding the Grantee, if the Grantee is then a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Grantee and the Grantee is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Grantee is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

“Change of Control” means:

(i) individuals who, on the Effective Date, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director; or

(ii) any “person” (as such term is defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Effective Date, a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that an event described in this paragraph (ii) shall not be deemed to be a Change of Control if any of following becomes such a beneficial owner: (A) the Company or any majority-owned subsidiary of the Company (provided that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any such majority-owned subsidiary, or (C) any underwriter temporarily holding securities pursuant to an offering of such securities; or

(iii) the consummation of a merger, consolidation, share exchange or similar form of transaction involving the Company or any of its subsidiaries, or the sale of all or substantially all of the Company’s assets (a “Business Transaction”), unless immediately following such Business Transaction (A) more than 50% of the total voting power of the entity resulting from such Business Transaction or the entity acquiring the Company’s assets in such Business Transaction (the “Surviving Corporation”) is beneficially owned, directly or indirectly, by the Company’s shareholders immediately prior to any such Business Transaction, and (B) no person (other than the persons set forth in clauses (A), (B), or (C) of paragraph (ii) above or any tax-qualified, broad-based employee benefit plan of the Surviving Corporation or its affiliates) beneficially owns, directly or indirectly, 30% or more of the total voting power of the Surviving Corporation; or

(iv) Board approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company’s shareholders in substantially the same proportions as such shareholders owned the Company’s outstanding voting common equity interests immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company to the Grantee under this Agreement; or

(v) Approval by the shareholders of the Company or the Managing Member and/or Non-Managing Members of the Operating Company of a dissolution or liquidation of the Operating Company and satisfaction or effective waiver of all material contingencies to such liquidation or dissolution.

“CoC Fraction” means, for application pursuant to the proviso clause in the definition of “Final Baseline,” the number of calendar days that have elapsed since the Effective Date to and including the date as of which a Change of Control is consummated (or, with respect to a Transactional Change of Control, the date of the Public Announcement of such Transactional Change of Control), divided by 1,096.

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

“Common Shares” means shares of the Company’s common stock, par value $0.01 per share.

“Common Share Price” means, as of a particular date, the average of the Fair Market Value of one Common Share over the thirty (30) consecutive trading days ending on, and including, such date (or, if such date is not a trading day, the most recent trading day immediately preceding such date); provided, however, that if such date is the date of the Public Announcement of a Transactional Change of Control, the Common Share Price as of such date shall be equal to the fair market value, as determined by the Committee, of the total consideration payable in the transaction that ultimately results in the Transactional Change of Control for one Common Share.

“Continuous Service” means the continuous service, without interruption or termination, as a an employee or director of Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of (among other things) —

(A) any approved leave of absence,

(B) transfers among the Company and any Affiliate, or any successor, in any capacity of director or employee, or

(C) any change in status as long as the individual remains in the service of the Company or any Affiliate of the Company in the capacity of employee or director.

An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

“Disability” means:

(A) if the Grantee is or was a party to a Service Agreement prior to the applicable event, and “Disability” is defined therein, then “Disability” shall have the meaning set forth in such definition, or

(B) if the Grantee is not and was not a party to a Service Agreement prior to such event or the Grantee’s Service Agreement does not define “Disability” or a substantially equivalent term, then “Disability” shall mean a disability which renders the Grantee incapable of performing all of his or her material duties for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Grantee or the Grantee’s legal representative or by the insurance company which insures the Company’s long-term disability plan in which the Grantee is eligible to participate.

“Effective Date” means March 20, 2011.

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

“Fair Market Value” means, as of any given date, the fair market value of a security determined by the Committee using any reasonable method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1) of the Code); provided that, with respect to a Common Share, “Fair Market Value” means the value of such Common Share determined as follows: (A) if on the determination date the Common Shares are listed on the New York Stock Exchange, The NASDAQ Stock Market, Inc. or another national securities exchange or is publicly traded on an established securities market, the Fair Market Value of a Common Share shall be the closing price of the Common Shares on such exchange or in such market (if there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the high and low sale prices on such trading day) or, if no sale of Common Shares is reported for such trading day, on the next preceding day on which any sale shall have been reported; or (B) if the Common Shares are not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the Common Share shall be the value of the Common Shares as determined by the Committee in good faith in a manner consistent with Section 409A of the Code.

“Family Member” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Grantee, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than fifty percent of the beneficial interest, a foundation in which any one or more of these persons (or the Grantee) control the management of assets, and any other entity in which one or more of these persons (or the Grantee) own more than fifty percent of the voting interests.

“Final Baseline” means, as of the Final Valuation Date, an amount representing (without double-counting) the sum of:

(A) the Baseline Value multiplied by:

(i) the difference between (x) the Initial Shares and (y) all Buyback Shares

repurchased or redeemed between the Effective Date and the Final Valuation Date, and then multiplied by

(ii) the sum of one hundred percent (100%) plus the Target Return Percentage; plus

(B) with respect to each Additional Share issued after the Effective Date, the Additional Share Baseline Value of such Additional Share, multiplied by the sum of (i) one hundred percent (100%) plus (ii) the product of the Target Return Percentage multiplied by a fraction (x) the numerator of which is the number of days from the issuance of such Additional Share to and including the Final Valuation Date and (y) the denominator of which is the number of days from and including the Effective Date to and including the Final Valuation Date; plus

(C) with respect to each Buyback Share repurchased or redeemed after the Effective Date, the Baseline Value, multiplied by the sum of (i) one hundred percent (100%) plus (ii) the product of the Target Return Percentage multiplied by a fraction (x) the numerator of which is the number of days from the Effective Date to and including the date such Buyback Share was repurchased or redeemed and (y) the denominator of which is the number of days from and including the Effective Date to and including the Final Valuation Date;

provided that if the Final Valuation Date occurs prior to the third anniversary of the Effective Date as a result of an Accelerated Payment Change of Control, then for purposes of this definition in connection with the calculation of the Total Outperformance Pool as of the Final Valuation Date, then the Target Return Percentage to be used in such calculation shall be reduced to a percentage equal to thirty percent (30%) multiplied by the CoC Fraction. If the Company consummates multiple issuances of Additional Shares and/or repurchases of Buyback Shares during any one monthly or quarterly period, such that it would be impractical to track the precise issuance date and issuance price of each individual Additional Share and/or repurchase or redemption date of each individual Buyback Share, the Committee may in its good faith discretion approve timing and calculation conventions (such as net-at-end-of-period or average-during-the-period) reasonably designed to simplify the administration of this Award.

“Final Valuation Date” means the earliest of: (A) the third anniversary of the Effective Date; or (B) in the event of an Accelerated Payment Change of Control that is not a Transactional Change of Control, the date on which such Change of Control shall occur; or (C) in the event of a Transactional Change of Control and subject to the consummation of such Transactional Change of Control, the date of the Public Announcement of such Transactional Change of Control; provided that if the Public Announcement occurs after 4pm New York City time or otherwise so late in the trading day that the market cannot meaningfully react on such day, then the Final Valuation Date shall mean the following trading day.

“Good Reason” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Good Reason” is defined therein, then “Good Reason” shall have the meaning set forth in such Service Agreement, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Good Reason” or a substantially equivalent term, so long as the Grantee terminates his or her employment within thirty (30) days after the Grantee has actual knowledge of the occurrence, without the written consent of the Grantee, of one of the following events that has not been cured within thirty (30) days after written notice thereof has been given by Grantee to the Company, then “Good Reason” shall mean:

(i) the assignment to the Grantee of duties materially inconsistent with the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated in his Service Agreement, or any other action by the Company which results in a material diminution in the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Grantee;

(ii) any material failure by the Company to comply with any of the provisions of the Service Agreement, other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Grantee;

(iii) any failure by the Company to obtain the assumption of his Service Agreement by a successor to all or substantially all of the business or assets of the Company; or

(iv) if his Service Agreement provides that the Executive will be nominated for election as a director of the Company, any failure by the Board to nominate the Executive for election as a director of the Company in accordance with the Service Agreement, or any failure of the Executive to be elected to be a member of the Board; or

(v) any requirement that the Grantee’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Grantee’s residence to his new place of employment;

“Initial Shares” means 32,642,795 Common Shares, which includes: (A) 30,311,503 Common Shares outstanding as of the Effective Date (other than currently unvested restricted Common Shares previously granted to employees or other persons or entities in exchange for services provided to the Company); plus (B) 954,065 Common Shares representing the Shares Amount for all of the Membership Units (other than LTIP Units and excluding Membership Units held by the Company) outstanding as of the Effective Date assuming that all of such Membership Units were tendered to the Operating Company for redemption pursuant to Section 4.2(e) of the LLC Agreement as of such date; plus (C) 1,377,227 Common Shares representing the Shares Amount for all of the Membership Units into which all LTIP Units outstanding as of the Effective Date could be converted without regard to the book capital account associated with them (but only to the extent such LTIP Units are currently vested), assuming that all of such Membership Units were tendered to the Operating Company for redemption pursuant to Section 4.2(e) of the LLC Agreement as of such date.

For the avoidance of doubt, Initial Shares (i) includes (x) currently vested Common Shares and (y) currently vested LTIP Units previously granted to employees or other persons or entities in exchange for services provided to the Company, and (ii) excludes (x) all Common Shares issuable upon exercise of stock options or upon the exchange (directly or indirectly) of unvested LTIP Units or other unvested Units issued to employees, non-employee directors, consultants, advisors or other persons or entities as incentive compensation, and (y) currently unvested restricted Common Shares previously granted to employees, non-employee directors, consultants, advisors or other persons or entities in exchange for services provided to the Company.

“LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of the Operating Company, dated as of February 17, 2006, among the Company, as managing member, and the non-managing members who are parties thereto, as amended from time to time.

“LTIP Units” means LTIP Units, as such term is defined in the LLC Agreement.

“Membership Units” has the meaning set forth in the LLC Agreement.

“Partial Service Factor” means a factor carried out to the sixth decimal to be used in calculating the Grantee’s adjusted Participation Amount pursuant to Section 4(b)(ii) hereof in the event of a Qualified Termination of the Grantee’s Continuous Service prior to the Final Valuation Date or pursuant to Section 4(e) in the event of a termination of the Grantee’s Continuous Service by reason of death or Disability prior to the Final Valuation Date, determined as follows:

the number of calendar days that have elapsed since the Effective Date to and including the effective date of such Qualified Termination or the date of death or Disability, divided by 1,096; provided, however, that if, after the effective date of such Qualified Termination or the date of death or Disability and before the third anniversary of the Effective Date, an Accelerated Payment Change of Control occurs, then there shall be subtracted from the foregoing denominator (1,096) a number of days equal to the days that would elapse between the date as of which the Accelerated Payment Change of Control is consummated (or, with respect to a Transactional Change of Control, the date of the Public Announcement of the Transactional Change of Control) and the third anniversary of the Effective Date.

“Participation Amount” has the meaning set forth in Section 3.

“Participation Percentage” means the percentage (of the Total Outperformance Pool) set forth opposite such term on Schedule A hereto

“Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, other entity or “group” (as defined in the Exchange Act).

“Public Announcement” means, with respect to a Transactional Change of Control, the earliest press release, filing with the SEC or other publicly available or widely disseminated communication issued by the Company or another Person who is a party to such transaction which discloses the consideration payable in and other material terms of the transaction that ultimately results in the Transactional Change of Control; provided, however, that if such consideration is subsequently increased or decreased, then the term “Public Announcement” shall be deemed to refer to the most recent such press release, filing or communication disclosing a change in consideration whereby the final consideration and material terms of the transaction that ultimately results in the Transactional Change of Control are announced. For the avoidance of doubt, the foregoing definition is intended to provide the Committee in the application of the proviso clause in the definition of “Common Share Price” with the information required to determine the fair market value of the consideration payable in the transaction that ultimately results in the Transactional Change of Control as of the earliest time when such information is publicly disseminated, particularly if the transaction consists of an unsolicited tender offer or a contested business combination where the terms of the transaction change over time.

“Qualified Termination” has the meaning set forth in Section 4.

“SEC” means the U.S. Securities and Exchange Commission.

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

“Service Agreement” means, as of a particular date, any employment, consulting or similar service agreement then in effect between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand, as amended or supplemented through such date, provided that, if no such agreement is then in effect, “Service Agreement” shall mean any employment, consulting or similar service agreement most recently in effect (on or after the Effective Date) prior to such date, as amended or supplemented, between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand.

“Shares Amount” has the meaning set forth in the LLC Agreement.

“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

“Target Return Percentage” means thirty percent (30%), representing a compound annual growth rate of approximately nine percent (9%) per annum over a three-year period, using annual compounding, except as otherwise defined for purposes of the definition of Final Baseline in certain circumstances, as described in the proviso clause of such definition.

“Total Outperformance Pool” means, as of the Final Valuation Date, a dollar amount calculated as follows: (A) subtract the Final Baseline from the Total Return, in each case as of the Final Valuation Date and (B) multiply the resulting amount by ten percent (10%); provided that if the resulting amount is a negative number, then the Total Outperformance Pool shall be zero.

“Total Return” means (without double-counting), as of the Final Valuation Date, an amount equal to the sum of (A) the Total Shares as of such date of determination multiplied by the Common Share Price as of such date, plus (B) an amount equal to the sum of the total dividends and other distributions actually declared between the Effective Date and the Final Valuation Date (excluding dividends and distributions paid in the form of additional Common Shares) so long as the “ex-dividend” date with respect thereto falls prior to the Final Valuation Date, in respect of Common Shares (it being understood, for the avoidance of doubt, that such total dividends and distributions shall be calculated by multiplying the amount of each per share dividend or distribution declared by the actual number of securities outstanding as of each record date with respect to the applicable dividend or distribution payment date).

“Total Shares” means (without double-counting), as of the Final Valuation Date, the sum of: (A) the Initial Shares, minus (B) all Buyback Shares repurchased or redeemed between the Effective Date and the Final Valuation Date, plus (C) all Additional Shares issued between the Effective Date and the Final Valuation Date.

“Transactional Change of Control” means (A) a Change of Control described in clause (ii) of the definition thereof where the “person” or “group” makes a tender offer for Common Shares, or (B) a Change of Control described in clause (iii) of the definition thereof; provided that if the applicable definition of “Change of Control” (or similar term) in the applicable Service Agreement does not track such clauses (ii) or (iii), then the term “Transactional Change of Control” shall mean a Change of Control meeting the substantive criteria set forth in such clauses, as reasonably determined in good faith by the Committee.

“Transfer” has the meaning set forth in Section 6.

“Units” means all Membership Units that are eligible for the Redemption Right (as defined in the LLC Agreement) and any other Membership Units, including LTIP Units, with economic attributes substantially similar to such Membership Units as determined by the Committee that are outstanding or are issuable upon the conversion, exercise, exchange or redemption of any securities of any kind convertible, exercisable, exchangeable or redeemable for Membership Units.

3. Outperformance Award; Vesting; Change of Control.

(a) The Operating Company hereby grants to the Grantee this Award consisting of the Participation Percentage set forth on Schedule A hereto (the “Award Participation”), which (A) will be subject to forfeiture to the extent provided in this Section 3 and (B) will be subject to vesting as provided below in this Section 3(a) and in Section 3(d) and Section 4. The Award will be made in the form of Award LTIP Units as provided in Section 8, subject to the Company having received confirmation that it is permitted under applicable stock exchange listing rules to issue Award LTIP Units, on the terms contemplated herein, under the Incentive Plan. The Company will use commercially reasonable efforts to obtain such confirmation within 90 days following the Effective Date. If the Company does not receive such confirmation within 90 days following the Effective Date, the Company and the Operating Company shall amend this Award Agreement to provide for an Award that is settled by a cash payment by the Operating Company to Grantee equal to his Participation Amount within 45 days following the Final Valuation Date. In the event Grantee receives Award LTIP Units pursuant hereto, references herein to Grantee’s Award Participation shall refer to Grantee’s Award LTIP Units and the provisions of Section 8 shall apply in lieu of specified provisions of this Award Agreement. At any time prior to the Final Valuation Date, the Committee may grant additional 2011 OPP awards with such Participation Percentages (up to a total of 100% for all 2011 Participation Percentages granted or reserved) set forth therein as the Committee may determine, in its sole discretion, The Award Participation shall vest (i) on the Final Valuation Date if the Continuous Service of the Grantee continues to that date or (ii) in accordance with Section 3(d), 4(b) and 4(d) hereof.

(b) As soon as practicable following the Final Valuation Date, but as of the Final Valuation Date, the Committee will:

(i) determine the Total Outperformance Pool (if any);

(ii) multiply (x) the Total Outperformance Pool calculated as of the Final Valuation Date by (y) the Grantee’s Participation Percentage as of the Final Valuation Date; and

(iii) if applicable (without double-counting), multiply the amount determined in clause (ii) by the Partial Service Factor or the CoC Fraction.

The resulting amount is hereafter referred to as the “Participation Amount.” The Committee will notify Grantee of his Participation Amount (if any) promptly following the determination thereof. If Grantee has received his Award in the form of Award LTIP Units, Section 8(b) will apply in lieu of the remainder of this Section 3(b). If this Award Agreement has been amended, as provided in Section 3(a), to provide for a payment in cash such notice will state whether the Committee has elected to cause the Company to pay the Participation Amount in cash or through the issuance of fully vested shares under one of the Company’s equity incentive compensation plans, subject to compliance with applicable laws and stock exchange listing requirements, or through a combination of cash and shares. If the Participation Amount is to be paid using shares, the shares will be valued at the Common Share Price as of the Final Valuation Date and will be issued under the Incentive Plan and be registered on a Form S-8. The Company shall pay Grantee’s Participation Amount within 45days following the Final Valuation Date.

(c) Any Award Participation that does not become vested pursuant to Section 3(a), Section 3(d), or Section 4 hereof shall, without payment of any consideration by the Company, automatically and without notice be forfeited and be and become null and void upon the termination of the Continuous Service of Grantee prior to the Final Valuation Date (other than by reason of a Qualified Termination, death or Disability), and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Award Participation.

(d) If there is a Change of Control, Grantee’s Award Participation shall vest immediately and automatically upon the occurrence of such Change of Control.

(e) In the event of a Change of Control, the Committee will make any determinations and certifications required by this Agreement and any provisions necessary with respect to the lapse of forfeiture restrictions and/or acceleration of vesting of this Award within a period of time that enables the Company to take any action or make any deliveries or payments it is obligated to make hereunder not later than the date of consummation of the Change of Control. For avoidance of doubt, in the event of a Change of Control, the performance of all calculations and actions pursuant to Section 3(b) hereof shall be conditioned upon the final consummation of such Change of Control.

4. Termination of Grantee’s Continuous Service; Death and Disability.

(a) If the Grantee is or was a party to a Service Agreement and his or her Continuous Service terminates, the provisions of Sections 4(b), 4(c), 4(d), and 4(e), hereof shall govern the treatment of the Grantee’s Award Participation exclusively, unless the Service Agreement contains provisions that expressly refer to this Section 4(a) and provides that those provisions of the Service Agreement shall instead govern the treatment of the Grantee’s Award Participation upon such termination. The foregoing sentence will be deemed an amendment to any applicable Service Agreement to the extent required to apply its terms consistently with this Section 4, such that, by way of illustration, any provisions of the Service Agreement with respect to accelerated vesting or payout or the lapse of forfeiture restrictions relating to the Grantee’s incentive or other compensation awards in the event of certain types of termination of the Grantee’s Continuous Service with the Company (such as, for example, termination at the end of the term, termination without Cause by the employer or termination for Good Reason by the employee) shall not be interpreted as requiring that any calculations set forth in Section 3 hereof be performed, or vesting occur with respect to this Award other than as specifically provided in this Section 4.

(b) In the event of termination of the Grantee’s Continuous Service by (A) the Company without Cause or (B) the Grantee for Good Reason (each a “Qualified Termination”) prior to the Final Valuation Date, then the Grantee will not forfeit the Award Participation upon such termination, but the following provisions of this Section 4(b) shall modify the calculations required to determine the Participation Amount and/or the vesting of the Award Participation, as applicable, with respect to the Grantee only:

(i) the calculations provided in Section 3(b) hereof shall be performed as of the Final Valuation Date, as if the Qualified Termination had not occurred;

(ii) the Participation Amount calculated pursuant to Section 3(b) shall be multiplied by the applicable Partial Service Factor; and

(iii) the Grantee’s Participation Amount as adjusted pursuant to Section 4(b)(ii) above shall no longer be subject to forfeiture pursuant to Section 3(c) hereof; provided that, notwithstanding that no Continuous Service requirement pursuant to Section 3(c) hereof will apply to the Grantee after the effective date of a Qualified Termination, the Grantee will not have the right to Transfer (as defined in Section 6 hereof) his or her Award Participation or request the redemption of any Award Common Units until such dates as of which his or her Participation Amount, as adjusted pursuant to Section 4(b)(ii) above, would have become vested pursuant to Section 3(a) hereof absent a Qualified Termination. For the avoidance of doubt, the purpose of this Section 4 (b)(iii) is to prevent a situation where grantees of 2011 OPP awards who have had a Qualified Termination would be able to realize the value of their Award Participation or any Award Common Units (through Transfer) before other grantees of 2011 OPP awards whose Continuous Service continues through the Final Valuation Date and the date for payment of the Participation Amount.

(c) Notwithstanding the foregoing, in the event any payment to be made hereunder after giving effect to this Section 4 is determined to constitute “nonqualified deferred compensation” subject to Section 409A of the Code, then, to the extent the Grantee is a “specified employee” under Section 409A of the Code subject to the six-month delay thereunder, any such payments to be made during the six-month period commencing on the Grantee’s “separation from service” (as defined in Section 409A of the Code) shall be delayed until the expiration of such six-month period.

(d) In the event of a termination of the Grantee’s Continuous Service as a result of his or her death or Disability prior to the Final Valuation Date, the Grantee will not forfeit the Award Participation, but the following provisions of this Section 4(d) shall apply:

(i) the calculations provided in Section 3(b) hereof shall be performed as of the Final Valuation Date, as if the Grantee’s death or Disability had not occurred; and

(ii) the Participation Amount calculated pursuant to Section 3(b) shall be multiplied by the applicable Partial Service Factor, and such adjusted amount shall be deemed the Grantee’s Participation Amount for all purposes under this Agreement; and

(iii) 100% of the Grantee’s Participation Amount as adjusted pursuant to Section 4(d)(ii) above shall no longer be subject to forfeiture pursuant to Section 3(c) hereof and shall automatically and immediately vest as of the Final Valuation Date.

(e) In the event of a termination of the Grantee’s Continuous Service prior to the Final Valuation Date (other than (1) a Qualified Termination or (2) by reason of death or Disability or (3) following a Change of Control), the Award Participation, unless it shall, as of the date of such termination, both (i) have ceased to be subject to forfeiture pursuant to Section 3(c) hereof, and (ii) have vested pursuant to Section 3(a) hereof, shall, without payment of any consideration by the Company, automatically and without notice terminate, be forfeited and be and become null and void, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such Award Participation.

5. No Payments by Award Recipients.

No amount shall be payable to the Company by the Grantee at any time in respect of this Agreement. The Grantee shall have no rights with respect to this Agreement (and the Award evidenced hereby) unless he or she shall have accepted this Agreement by signing and delivering to the Company a copy of this Agreement. Upon acceptance of this Agreement by the Grantee, the Grantee’s Award Participation shall constitute and shall be treated for all purposes as the property of the Grantee, subject to the terms of this Agreement.

6. Restrictions on Transfer.

Except as otherwise permitted by the Committee, no portion of the Award Participation or Award LTIP Units granted hereunder shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”), provided that vested Award Participation or vested Award LTIP Units may be Transferred to (i) the Grantee’s Family Members by gift or pursuant to domestic relations order in settlement of marital property rights or (ii) to an entity in which fifty percent (50%) or more of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in such entity, provided that the transferee agrees in writing with the Company to be bound by all the terms and conditions of this Agreement and that subsequent Transfers shall be prohibited except those in accordance with this Section 6. All Transfers of the Award Participation or any interest therein or Award LTIP Units must be in compliance with all applicable securities laws (including, without limitation, the Securities Act) and, in the case of the Award LTIP Units, the LLC Agreement. Any attempted Transfer of an Award Participation or Award LTIP Unit not in accordance with the terms and conditions of this Section 6 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Award Participation or Award LTIP Units as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer and shall not in any way give effect to any such Transfer of any Award Participation or Award LTIP Units. Except as provided expressly in this Section 6, this Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Changes in Capital Structure.

If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or other transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization, significant repurchases of stock, or other similar change in the capital stock of the Company shall occur, (iii) any extraordinary dividend or other distribution to holders of Common Shares shall be declared and paid other than in the ordinary course, or (iv) any other event shall occur that in each case in the good faith judgment of the Committee necessitates action by way of appropriate equitable or proportionate adjustment in the terms of this Award or this Agreement to avoid distortion in the value of this Award, then the Committee shall take such action as it deems necessary to maintain the Grantee’s rights hereunder so that they are substantially proportionate to the rights existing under this Award prior to such event, including, without limitation: (A) interpretations of or modifications to any defined term in this Agreement; (B) adjustments in any calculations provided for in this Agreement, and (C) substitution of other awards or otherwise.

8. Award LTIP Units

(a) Issuance of Award LTIP Units. In the event that, following the Effective Date, the Company determines, in its sole discretion, that the applicable stock exchange listing rules permit the Company to issue Award LTIP Units, the Company shall promptly notify Grantee of such determination and shall issue to Grantee the number of Award LTIP Units set forth on Schedule A hereto. The issuance of such Award LTIP Units shall be conditioned upon the Grantee, unless the Grantee is already a Non-Managing Member (as defined in the LLC Agreement), signing, as a Non-Managing Member, and delivering to the Operating Company a counterpart signature page to the LLC Agreement in the form provided by the Company. Upon execution and delivery of such counterpart signature page by the Grantee, the LLC Agreement shall be amended, at such time as set forth in the notice from the Company, to establish the designations of the Award LTIP Units and to make other necessary and appropriate amendments related to the creation of the series of Award LTIP Units, and to reflect the issuance to the Grantee of the Award LTIP Units and admission of Grantee as a Non-Managing Member of the Operating Company. Thereupon, the Grantee shall have all the rights of a Non-Managing Member of the Operating Company with respect to the number of Award LTIP Units specified on Schedule A hereto, as set forth in the LLC Agreement (as so amended), subject, however, to the restrictions, obligations and conditions specified herein. Award LTIP Units constitute and shall be treated for all purposes as the property of the Grantee, subject to the terms of this Agreement and the LLC Agreement.

(b) Post-Final Valuation Date Adjustments. If Grantee’s Award is made in the form of Award LTIP Units, then following determination of Grantee’s Participation Amount pursuant to Section 3(b), the Committee shall divide the resulting dollar amount by the Common Share Price calculated as of the Final Valuation Date (appropriately adjusted to the extent that the “Unit Adjustment Factor” (as defined in the LLC Agreement) is greater or less than 1.0). The resulting number is hereafter referred to as the “Total OPP Unit Equivalent.” If the Total OPP Unit Equivalent is smaller than the number of Award LTIP Units previously issued to the Grantee, then the Grantee, as of the Final Valuation Date, shall forfeit a number of Award LTIP Units equal to the difference without payment of any consideration by the Operating Company. Thereafter, the term Award LTIP Units will refer only to the Award LTIP Units that were not so forfeited and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in the Award LTIP Units that were so forfeited. If the Total OPP Unit Equivalent is greater than the number of Award LTIP Units previously issued to the Grantee, then, upon the performance of the calculations set forth in this Section 8(b): (A) the Company shall cause the Operating Company to issue to the Grantee, as of the Final Valuation Date, a number of additional

Award LTIP Units equal to the difference; (B) such additional Award LTIP Units shall be added to the Award LTIP Units previously issued, if any, and thereby become part of this Award; (C) the Company and the Operating Company shall take such corporate and limited liability company action as is necessary to accomplish the grant of such additional Award LTIP Units; and (D) thereafter the term Award LTIP Units will refer collectively to the Award LTIP Units, if any, issued prior to such additional grant plus such additional Award LTIP Units; provided that such issuance will be subject to the Grantee executing and delivering such documents, comparable to the documents executed and delivered in connection with the original issuance of Award LTIP Units, as the Company or the Operating Company reasonably request in order to comply with all applicable legal requirements, including, without limitation, federal and state securities laws. If the Total OPP Unit Equivalent is the same as the number of Award LTIP Units previously issued to the Grantee, then there will be no change to the number of Award LTIP Units under this Award pursuant to this Section 8(b).

(c) Vesting and Forfeiture. The Award LTIP Units shall vest and be subject to forfeiture on the same terms and conditions as the Award Participation, as set forth in Sections 3(a), 3(c), 3(d) and 4.

(d) Distributions. The holder of the Award LTIP Units shall be entitled to receive distributions with respect to such Award LTIP Units to the extent provided for in the LLC Agreement (as amended in accordance with Section 8(a)). The 2011 Award LTIP Unit Distribution Participation Date (as defined in the designation of rights and preferences of such Award LTIP Units, attached hereto as Exhibit A) with respect to Award LTIP Units in an aggregate number equal to the Total OPP Unit Equivalent will be the Valuation Date.

9. Miscellaneous.

(a) Amendments. This Agreement may be amended or modified only with the consent of the Company acting through the Committee; provided that any such amendment or modification materially or adversely affecting the rights of the Grantee hereunder must be consented to by the Grantee to be effective as against him. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company to correct any errors or ambiguities in this Agreement and/or to make such changes that do not materially or adversely affect the Grantee’s rights hereunder. This grant shall in no way affect the Grantee’s participation or benefits under any other plan or benefit program maintained or provided by the Company.

(b) Committee Determinations. The Committee will in good faith make the determinations and certifications required by this Award as promptly as reasonably practicable following the occurrence of the event or events necessitating such determinations or certifications.

(c) Status of the Award and Award LTIP Units; Incentive Plan Matters. This Award and the other 2011 OPP awards constitute other stock-based incentive compensation awards by the Company under the Incentive Plan and incentive compensation awards by the Operating Company. The Award LTIP Units are equity interests in the Operating Company. Any Award LTIP Units issued pursuant to Section 8 may, but need not, be issued as equity securities under the Incentive Plan insofar as the 2011 OPP has been established as an incentive program of the Operating Company. The Company may, under certain circumstances, have the right, as set forth in the LLC Agreement, to issue shares of Common Stock in exchange for Award Common Units into which Award LTIP Units may have been converted pursuant to the LLC Agreement, subject to certain limitations set forth in the LLC Agreement, and such shares of Common Stock may be issued under the Incentive Plan if the Committee so determines, to the extent such issuance is permitted under applicable stock exchange listing rules, as determined by the Committee in its sole and absolute discretion. The Committee may, in its sole and absolute discretion, determine whether and when Award LTIP Units issued pursuant to Section 3 become part of the Incentive Plan, and upon and to the extent of such determination this Award will be considered an award under the Incentive Plan. The Grantee acknowledges that the Grantee will have no right to approve or disapprove such determination by the Committee.

(d) Grantee Representations; Registration.

(i) The Grantee hereby represents and warrants that (A) he or she understands that he or she is responsible for consulting his or her own tax advisor with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of this Award may become subject, to his or her particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the Operating Company or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides services to the Operating Company on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Operating Company, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award; (D) Award LTIP Units are subject to substantial risks; (E) the Grantee has been furnished with, and has reviewed and understands, information relating to this Award; (F) the Grantee has been afforded the opportunity to obtain such additional information as he or she deemed necessary before accepting this Award; and (G) the Grantee has had an opportunity to ask questions of representatives of the Operating Company and the Company, or persons acting on their behalf, concerning this Award.

(ii) The Grantee hereby acknowledges that: (A) there is no public market for Award LTIP Units or Award Common Units and neither the Operating Company nor the Company has any obligation or intention to create such a market; (B) sales of Award LTIP Units and Award Common Units are subject to restrictions under the Securities Act and applicable state securities laws; (C) because of the restrictions on transfer or assignment of Award LTIP Units and Award Common Units set forth in the LLC Agreement and in this Agreement, the Grantee may have to bear the economic risk of his or her ownership of the LTIP Units covered by this Award for an indefinite period of time; (D) shares of Common Stock issued under the Incentive Plan in exchange for Award Common Units, if any, will be covered by a Registration Statement on Form S-8 (or a successor form under applicable rules and regulations of the Securities and Exchange Commission) under the Securities Act, to the extent that the Grantee is eligible to receive such shares under the Incentive Plan at the time of such issuance and such Registration Statement is then effective under the Securities Act; (E) resales of shares of Common Stock issued under the Incentive Plan in exchange for Award Common Units, if any, shall only be made in compliance with all applicable restrictions (including in certain cases “blackout periods” forbidding sales of Company securities) set forth in the then applicable Company employee manual or insider trading policy and in compliance with the registration requirements of the Securities Act or pursuant to an applicable exemption therefrom.

(e) Section 83(b) Election. In connection with each separate issuance of Award LTIP Units under this Award pursuant to Section 8, the Grantee hereby agrees to make an election to include in gross income in the year of transfer the applicable Award LTIP Units pursuant to Section 83(b) of the Code substantially in the form attached hereto as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder. The Grantee agrees to file such election (or to permit the Operating Company to file such election on the Grantee’s behalf) within thirty (30) days after the issuance of the Award LTIP Units with the IRS Service Center where the Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the Award LTIP Units are awarded to the Grantee. So long as the Grantee holds any Award LTIP Units, the Grantee shall disclose to the Operating Company in writing such information as may be reasonably requested with respect to ownership of Award LTIP Units as the Operating Company may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code applicable to the Operating Company or to comply with requirements of any other appropriate taxing authority.

(f) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(g) Governing Law. This Agreement is made under, and will be construed in accordance with, the laws of State of New York, without giving effect to the principles of conflict of laws of such State.

(h) No Obligation to Continue Position as an Employee. Neither the Company nor any Affiliate is obligated by or as a result of this Agreement to continue to have the Grantee as an employee, consultant or advisor and this Agreement shall not interfere in any way with the right of the Company or any Affiliate to terminate the Grantee’s Continuous Service at any time.

(i) Notices. Any notice to be given to the Company shall be addressed to the Secretary of the Company at 475 Tenth Avenue, New York, New York 10018 and any notice to be given the Grantee shall be addressed to the Grantee at the Grantee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Grantee may hereafter designate in writing to the other.

(j) Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to this Award, the Grantee will pay to the Company or, if appropriate, any of its Affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

(k) Headings. The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

(l) Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

(m) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company and the Operating Company, on the one hand, and any successors to the Grantee, on the other hand, by will or the laws of descent and distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Grantee.

(n) Section 409A. This Agreement shall be construed, administered and interpreted in accordance with a good faith interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Grantee, the Company and the Operating Company, to the extent necessary to exempt it from, or bring it into compliance with Section 409A of the Code.

(o) Entire Agreement; Conflict. This Agreement (including the Incentive Plan and the LLC Agreement to which it relates) constitutes the final, complete and exclusive agreement between the Grantee and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, between the parties concerning the subject matter hereof. Except as expressly provided otherwise herein, in the event of any conflict or inconsistency between the provisions of, or definitions contained in, this Agreement (including the LLC Agreement to which it relates), on the one hand, and Grantee’s Service Agreement, on the other hand, the terms of the this Agreement ((including the LLC Agreement to which it relates) shall govern.

[signature page follows]

IN WITNESS WHEREOF, the undersigned have caused this Award Agreement to be executed as of the date first above written.

MORGANS HOTEL GROUP CO.
By:	/s/ Richard Szymanski Name: Richard Szymanski
	Title: CFO
MORGANS GROUP LLC
By:	/s/ Richard Szymanski Name: Richard Szymanski
	Title:

GRANTEE

/s/ Michael Gross Name: Michael Gross

SCHEDULE A TO 2011 OUTPERFORMANCE PLAN AWARD AGREEMENT

Date of Award Agreement:	March 20, 2011
Name of Grantee:	Michael Gross
Participation Percentage:	35%
Grant Date:	March 20, 2011
Initial Grant of Award LTIP Units (if applicable)	551,250

Initials of Company representative: /s/RS Initials of Grantee: /s/MG

EXHIBIT A

MORGANS GROUP LLC

MEMBERSHIP UNIT DESIGNATION — 2011 OPP UNITS

The following are the terms of the 2011 OPP Units. Section references in this Exhibit A refer to sections of the LLC Agreement and capitalized terms are used as defined therein, unless stated otherwise.

1. LTIP Equivalence. Except as otherwise expressly provided in this Membership Unit Designation, 2011 OPP Units shall be treated as LTIP Units, and shall have the rights, privileges, restrictions, powers and duties applicable to LTIP Units under the LLC Agreement, including without limitation the provisions of Section 4.5.

2. Distributions.

(a) 2011 OPP Unit Distributions. Commencing from the Distribution Participation Date (as defined below) established for any 2011 OPP Units in the applicable award agreement, Holders of 2011 OPP Units shall be entitled to receive, if, when and as authorized by the Managing Member, any distributions otherwise payable with respect to LTIP Units and shall be treated as outstanding LTIP Units for purposes of the distribution provisions of the LLC Agreement. For the avoidance of doubt, for purposes of the first distribution to occur after the Distribution Participation Date, 2011 OPP Units that become fully earned and vested in accordance with the applicable Award Agreement on or before the first day of the relevant quarterly period shall be treated as having been outstanding for the full period. Prior to the Distribution Participation Date, 2011 OPP Units shall be entitled to any distributions by the Operating Company (i) in connection with an Adjustment Event as provided in Section 4.5(b), treating the 2011 OPP Units as outstanding LTIP Units, and (ii) if, when and as authorized by the Managing Member out of funds or other property legally available for the payment of distributions, distributions representing proceeds of a sale or other disposition of all or substantially all of the assets of the Operating Company in an amount per unit equal to the amount of any such distributions payable on the Membership Units, provided that the amount of distributions to any Holder of 2011 OPP Units under this clause (ii) shall not exceed the positive balances of the Capital Account of the Holder of such 2011 OPP Units to the extent attributable to the ownership of such 2011 OPP Units.

(b) Distribution Participation Date. The “Distribution Participation Date” for each 2011 OPP Unit will be either (i) with respect to 2011 OPP Units granted pursuant to the Managing Member’s 2011 Outperformance Plan, as it may be amended or supplemented from time to time or any successor plan under which additional 2011 OPP Units may be issued (the “Plan”), the applicable Final Valuation Date (as defined in the Award Agreement of each Person granted 2011 OPP Units under the Plan) or (ii) with respect to other 2011 OPP Units, such date as may be specified in the Award Agreement or other documentation pursuant to which such 2011 OPP Units are issued.

3. Allocations.

(a) Allocations of Net Income and Net Loss. Commencing with the portion of the taxable year of the Operating Company that begins on the Distribution Participation Date established for any 2011 OPP Units, such 2011 OPP Units shall be allocated Net Income and Net Loss under Sections 6.1 and 6.2 in amounts per 2011 OPP Unit equal to the amounts allocated per Membership Unit (adjusted to the extent required by Sections 6.3(b) through 6.3(g)). The Managing Member is authorized in its discretion to delay or accelerate the participation of the 2011 OPP Units in allocations of Net Income and Net Loss, or to adjust the allocations made after the Distribution Participation Date, so that the ratio of (i) the total amount of Net Income or Net Loss allocated under Sections 6.1 and 6.2 with respect to each 2011 OPP Unit in the taxable year in which that 2011 OPP Unit’s Distribution Participation Date falls, to (ii) the total amount distributed to that 2011 OPP Unit with respect to such period, is more nearly equal to such ratio as computed for the Membership Units held by the Managing Member.

(b) Special Allocations. 2011 OPP Units shall be treated as outstanding LTIP Units (and the Holders thereof treated as Holders of LTIP Units) for all purposes of Section 6.3(a).

4. Redemption.

(a) The Redemption Right provided to Non-Managing Members under Section 4.2(e)(1) shall not apply with respect to 2011 OPP Units or Membership Units into which they may be converted pursuant to the LLC Agreement until the date that is one year and six months after the Final Valuation Date, after which date the Redemption Right shall be available on the terms and conditions set forth in the LLC Agreement.

(b) During the period beginning on the Final Valuation Date (as defined in the applicable Award Agreement) and ending on the Business Day immediately preceding the six month anniversary of the Final Valuation Date, the Operating Company shall be entitled to redeem some or all of the 2011 OPP Units (or Membership Units into which they were converted by the Holder) at a redemption price per 2011 OPP Unit or Membership Unit, payable in cash, equal to the Common Share Price (as defined in the Applicable Award Agreement) as of the Final Valuation Date (as defined in the applicable Award Agreement). From and after the one year anniversary of the Final Valuation Date, for a period of six months, a Holder of 2011 OPP Units (or Membership Units into which they were converted by the Holder) shall have the right to cause the Operating Company to redeem, some or all of the 2011 OPP Units (or Membership Units into which they were converted by the Holder), at a redemption price per 2011 OPP Unit or Membership Unit, payable in cash, equal to the greater of (x) the Common Share Price (as defined in the Applicable Award Agreement) as of the Final Valuation Date (as defined in the applicable Award Agreement) and (y) the Cash Amount determined as of the date of the notice of redemption. The Operating Company may exercise its redemption right under this Section 4(b) by sending a notice to each Holder of 2011 OPP Units (or Membership Units into which they were converted by the Holder) setting forth the redemption date, which shall be no less than five (5) Business Days after the date of such notice, and the number of 2011 OPP Units (or Membership Units into which they were converted by the Holder) being redeemed and the procedure to be followed by Holders of 2011 OPP Units or Membership Units that are being redeemed. The Holder may exercise its

redemption right under this Section 4(b) by sending a notice to the Operating Company setting forth the redemption date, which shall be no less than ten (10) Business Days after receipt of such notice by the Managing Member, and the number of 2011 OPP Units (or Membership Units into which they were converted by the Holder to be redeemed). The Managing Member shall be entitled to acquire 2011 OPP Units (or Membership Units into which they were converted by the Holder) pursuant to any exercise by the Operating Company or the Holder of the foregoing redemption rights (under this Section 4.2(b) or under Section 4.2(a)) in exchange for issuance of a number of Common Shares, which will be issued under the Incentive Plan and be registered on a Form S-8, with an aggregate value, based on the Value of the Common Shares as of the date of the redemption notice, equal to the applicable redemption price, provided that the Managing Member has determined, in its sole discretion, that it is permitted to do so under applicable stock exchange listing rules.

5. Voting Rights.

(a) Voting with LTIP Units. Except as otherwise provided herein, 2011 OPP Units and Non-Managing Members who hold 2011 OPP Units shall be treated as LTIP Units and LTIP Unitholders, respectively, for all purposes of Section 14.3.

(b) Special Approval Rights. So long as any 2011 OPP Units remain outstanding, the Operating Company shall not, without the affirmative vote of the Non-Managing Members who hold at least two-thirds of the 2011 OPP Units outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), amend, alter or repeal, whether by merger, consolidation or otherwise, the provisions of the LLC Agreement applicable to 2011 OPP Units so as to materially and adversely affect any right, privilege or voting power of the 2011 OPP Units or the Non-Managing Members who hold 2011 OPP Units as such, unless such amendment, alteration or repeal affects equally, ratably and proportionately the rights, privileges and powers of the holders of LTIP Units; but subject, in any case, to the following provisions:

(i) Any difference in effect between the LTIP Units and the 2011 OPP Units that is required or reasonably desirable to implement the difference in the distribution or redemption rights with respect to LTIP Units and 2011 OPP Units shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the holders of LTIP Units;

(ii) Any creation or issuance of any Membership Units or of any class or series of Membership Interest, whether ranking senior to, junior to, or on a parity with the 2011 OPP Units with respect to distributions and the distribution of assets upon liquidation, dissolution or winding up shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the holders of LTIP Units; and

(iii) any waiver by the Operating Company of restrictions or limitations applicable to any outstanding LTIP Units or 2011 OPP Units with respect to any LTIP Unitholder or Unitholders or Holders of 2011 OPP Unit shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units or 2011 OPP Units with respect to other Unitholders or Holders.

EXHIBIT B

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1. The name, address and taxpayer identification number of the undersigned are:

Name:  _____  (the “Taxpayer”)

Address:  _____ 

Social Security No./Taxpayer Identification No.:  _____ 

2. Description of property with respect to which the election is being made:

The election is being made with respect to  _____  Award LTIP Units in Morgans Group LLC (the “Operating Company”).

3. The date on which the Award LTIP Units were transferred is  _____  , 2011. The taxable year to which this election relates is calendar year 2011.

4. Nature of restrictions to which the Award LTIP Units are subject:

(a) With limited exceptions, until the Award LTIP Units vest, the Taxpayer may not transfer in any manner any portion of the Award LTIP Units without the consent of the Operating Company.

(b) The Taxpayer’s Award LTIP Units vest in accordance with the vesting provisions described in Annex 1 attached hereto. Unvested Award LTIP Units are forfeited in accordance with the vesting provisions described in Annex 1 attached hereto.

5. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the Award LTIP Units with respect to which this election is being made was $  per Award LTIP Unit.

6. The amount paid by the Taxpayer for the Award LTIP Units was $0 per Award LTIP Unit.

7. A copy of this statement has been furnished to the Operating Company and Morgans Hotel Group Co.

Dated:                                         , 2011 Signature                                         

ANNEX 1

Vesting Provisions of Award LTIP Units

The Award LTIP Units are subject to time-based and performance-based vesting with the final vesting percentage equaling the product of the time-based vesting percentage and the performance-based vesting percentage. Performance-based vesting will be from 0% to 100% based on Morgan Hotel Group Co.’s (the “Company’s”) per-share total return to shareholders for the period from [_____], 2011 to [_____], 2014 (or earlier in certain circumstances). Under the time-based vesting provisions, one hundred percent (100%) of the Award LTIP Units will vest on the last day of the performance period, provided that the Taxpayer remains an employee of the Company or any of its affiliates through such date, subject to acceleration in the event of certain extraordinary transactions or termination of the Taxpayer’s service relationship with the Company under specified circumstances. Unvested Award LTIP Units are subject to forfeiture in the event of failure to vest based on the passage of time (subject to above-mentioned acceleration) or the determination of the performance-based percentage.

Exhibit d

Promoted Interest Pool Award Agreement

MORGANS HOTEL GROUP CO.
2011 EXECUTIVE PROMOTED INTEREST BONUS POOL AWARD AGREEMENT

2011 EXECUTIVE PROMOTED INTEREST BONUS POOL AWARD AGREEMENT made as of the date set forth on Schedule A hereto by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “Company”), MORGANS GROUP LLC, a Delaware limited liability company (the “Operating Company”), and the party listed on Schedule A (the “Grantee”).

RECITALS

A. The Grantee is a senior management employee of the Company and provides services to the Operating Company.

B. The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) approved this and other 2011 long-term bonus pool awards (“2011 Bonus Pool Awards”) to provide certain senior management employees of the Company, including the Grantee, in connection with their employment with the incentive compensation described in this Award Agreement (this “Agreement” or this “Award Agreement”) and thereby provide additional incentive for them to promote the progress and success of the business of the Company and its Affiliates. 2011 Bonus Pool Awards were approved by the Committee pursuant to authority delegated to it by the Board. This Agreement evidences one award (this “Award”) in a series of substantially identical 2011 Bonus Pool Awards and is subject to the terms and conditions set forth herein.

C. The Committee, effective as of the grant date specified in Schedule A hereto, awarded to the Grantee the participation percentage in the promoted interest bonus pool provided herein, as set forth in Schedule A.

NOW, THEREFORE, the Company, the Operating Company, and the Grantee agree as follows:

1. Administration

This Award and all other 2011 Bonus Pool Awards shall be administered by the Committee; provided that all powers of the Committee hereunder can be exercised by the full Board if the Board so elects. The Committee, in its sole and absolute discretion, may make at any time any provision for lapse of forfeiture restrictions and/or accelerated vesting under this Agreement of some or all of the Grantee’s unvested Award Participation that has not previously been forfeited.

2. Definitions

Capitalized terms used herein shall have the meanings set forth below:

“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

“Award Participation” has the meaning set forth in Section 3.

“Award Period” means the period from and after the date of Grantee’s admission as an Employee Member and to and including the earlier to occur of (i) the third anniversary of the Effective Date and (ii) the termination of Grantee’s Continuing Service.

“Baseline Value” means $8.87.

“Bonus Pool Unit” means a unit of membership interest in Promote Pool LLC. The Bonus Pool Units shall be issued in different series, with each series corresponding to a separate Eligible Promoted Interest held by Promote Pool LLC or a wholly-owned subsidiary thereof.

“Cause” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Cause” is defined therein, then “Cause” shall have the meaning set forth in such definition, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Cause” or a substantially equivalent term, then “Cause” shall mean:

(i) the Grantee’s willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Grantee’s incapacity due to physical or mental illness or any such failure after his issuance of a notice of termination for Good Reason), after a written demand for substantial performance is delivered to the Grantee by the Board, which demand specifically identifies the manner in which the Board believes that the Grantee has not substantially performed his duties;

(ii) a material breach by Grantee of his Service Agreement;

(iii) the Grantee’s willful commission of an act of fraud, theft or dishonesty resulting in economic, financial or material reputational injury to the Company;

(iv) the Grantee’s conviction of, or entry by the Grantee of a guilty or no contest plea to, the commission of a felony; or

(v) the Grantee willfully engages in other misconduct materially injurious to the Company.

For purposes of this provision, no act or omission on the part of the Grantee shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission based upon a resolution duly adopted by the Board or advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Grantee shall not be deemed to be for Cause unless and until there shall have been delivered to the Grantee a copy of a resolution duly adopted by the majority of the Board (excluding the Grantee, if the Grantee is then a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Grantee and the Grantee is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Grantee is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

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

“Common Share” means a share of the Company’s common stock, par value $0.01 per share.

“Common Share Price” means, as of a particular date, the average of the Fair Market Value of one Common Share over the thirty (30) consecutive trading days ending on, and including, such date (or, if such date is not a trading day, the most recent trading day immediately preceding such date).

“Common Share Return Condition” shall be deemed to be satisfied as of any date of determination if the Common Share Price, as of such date, shall be at least equal to (x) the Baseline Value multiplied by (y) an amount equal to (i) the sum of one plus the Target Return raised to (ii) the n/365th power, where “n” equals the number of days that has elapsed from and including the Effective Date to but excluding the date of determination.

“Continuous Service” means the continuous service, without interruption or termination, as a an employee or director of Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of (among other things)—

(A) any approved leave of absence,

(B) transfers among the Company and any Affiliate, or any successor, in any capacity of director or employee, or

(C) any change in status as long as the individual remains in the service of the Company or any Affiliate of the Company in the capacity of employee or director.

An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

“Designated Participation Percentage” means, with respect to any series of Employee Units, the lesser of 50% or the percentage determined by the Independent Committee at the time it approves the contribution of the applicable Eligible Promoted Interest in Promote Pool LLC, if such Eligible Promoted Interest did not satisfy the Safe Harbor Requirements as of the applicable Initial Closing.

“Disability” means:

(A) if the Grantee is or was a party to a Service Agreement prior to the applicable event, and “Disability” is defined therein, then “Disability” shall have the meaning set forth in such definition, or

(B) if the Grantee is not and was not a party to a Service Agreement prior to such event or the Grantee’s Service Agreement does not define “Disability” or a substantially equivalent term, then “Disability” shall mean a disability which renders the Grantee incapable of performing all of his or her material duties for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Grantee or the Grantee’s legal representative or by the insurance company which insures the Company’s long-term disability plan in which the Grantee is eligible to participate.

“Effective Date” means March 20, 2011.

“Eligible Promoted Interest” means a Promoted Interest that the Company or any entity through which the Company directly or indirectly acquires or has the right to acquire, or is created, in a transaction as to which the Initial Closing occurs during the Award Period and that satisfies either of the following requirements as of the Initial Closing:

(i) The Investment Committee (with the affirmative vote of its independent member) shall have determined in good faith that the applicable Promoted Interest satisfies the Safe Harbor Requirements; or

(ii) The terms of the hotel acquisition or development transaction, including the contribution of the applicable Promoted Interest to Promote Pool LLC, shall have been approved in good faith by the Independent Committee.

The determination as to whether a Promoted Interest that does not satisfy the Safe Harbor Requirements shall be deemed to be an Eligible Promoted Interest, and the Designated Participation Percentage with respect to such Eligible Promoted Interest, shall be made in good faith by the Independent Committee and shall be conclusive.

In the case of an Eligible Promoted Interest that the Company, the Operating Company, Promote Pool LLC, or a wholly owned subsidiary of the Company acquires or has the right to acquire, the Eligible Promoted Interest will consist of the entire applicable Promoted Interest. In the case of an Eligible Promoted Interest that any other entity in which the Company or the Operating Company has a direct or indirect equity interest acquires, or has the right to acquire, the “Eligible Promoted Interest” will, at the election of the Managing Member, consist of either (x) an assignment of the proceeds received by the Company, the Operating Company, or a wholly owned subsidiary of the Company with respect to the applicable Promoted Interest, or (y) a special allocation of the portion of such direct or indirect interest in the Eligible Promoted Interest that is owned by the Company, the Operating Company, or a wholly owned subsidiary that represents their respective direct or indirect interest in the Promoted Interest owned by such other entity.

An Eligible Promoted Interest can consist of either an equity interest in a Hotel Investment Entity or a contractual right to share in some or all of the profits, losses, or gains of a Hotel Investment Entity (a “Contractual Right”) or one or more hotel properties owned by a Hotel Investment Entity.

For the avoidance of doubt, an incentive management fee or other amount measured by a percentage of gross revenues, gross operating profit, net house profit, or similar performance measure and payable to the Company, or any entity through which the Company, directly or indirectly, holds an equity interest or a Contractual Right, as compensation for the performance of management services shall not be an Eligible Promoted Interest.

For the further avoidance of doubt, no Promoted Interest as to which the Initial Closing occurs after the Award Period shall be deemed to be an “Eligible Promoted Interest.”

“Employee Member” means a member of Promote Pool LLC other than the Managing Member or any other subsidiary of the Company.

“Employee Unit” means any Bonus Pool Unit that is held by an Employee Member or a permitted transferee thereof (other than Managing Member or any other subsidiary of the Company).

“Fair Market Value” means, as of any given date, the fair market value of a security, an Eligible Promoted Interest, or other property determined by the Committee using any reasonable method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1) of the Code); provided that, with respect to a Common Share, “Fair Market Value” means the value of such Common Share determined as follows: (A) if on the determination date the Common Shares are listed on the New York Stock Exchange, The NASDAQ Stock Market, Inc. or another national securities exchange or is publicly traded on an established securities market, the Fair Market Value of a Common Share shall be the closing price of the Common Shares on such exchange or in such market (if there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the high and low sale prices on such trading day) or, if no sale of Common Shares is reported for such trading day, on the next preceding day on which any sale shall have been reported; or (B) if the Common Shares are not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the Common Share shall be the value of the Common Shares as determined by the Committee in good faith in a manner consistent with Section 409A of the Code.

“Good Reason” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Good Reason” is defined therein, then “Good Reason” shall have the meaning set forth in such Service Agreement, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Good Reason” or a substantially equivalent term, so long as the Grantee terminates his or her employment within thirty (30) days after the Grantee has actual knowledge of the occurrence, without the written consent of the Grantee, of one of the following events that has not been cured within thirty (30) days after written notice thereof has been given by Grantee to the Company, then “Good Reason” shall mean:

(iii) the assignment to the Grantee of duties materially inconsistent with the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated in his Service Agreement, or any other action by the Company which results in a material diminution in the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Grantee;

(iv) any material failure by the Company to comply with any of the provisions of the Service Agreement, other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Grantee;

(v) any failure by the Company to obtain the assumption of his Service Agreement by a successor to all or substantially all of the business or assets of the Company; or

(vi) if his Service Agreement provides that the Executive will be nominated for election as a director of the Company, any failure by the Board to nominate the Executive for election as a director of the Company in accordance with the Service Agreement, or any failure of the Executive to be elected to be a member of the Board; or

(vii) any requirement that the Grantee’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Grantee’s residence to his new place of employment;

“Hotel Investment Entity” means a limited liability company, limited partnership, corporation, or other form of business entity that owns, directly or indirectly, or proposes to acquire or develop, one or more hotels or other hospitality-related properties. Neither the Company nor any consolidated subsidiary of the Company shall be deemed to be a Hotel Investment Entity.

“Independent Committee” means a committee (either standing or ad hoc) of the Board that has the responsibility and authority for determining whether a Promoted Interest that does not satisfy the Safe Harbor Requirements will nonetheless be contributed to Promote Pool LLC and, if so, what the Designated Participation Percentage with respect to such Promoted Interest will be.

“Initial Closing” means, with respect to any Eligible Promoted Interest, the date of the closing of the transaction as the result of which the Company, a consolidated subsidiary thereof, Promote Pool LLC, or any entity through which such Eligible Promoted Interest is held, and one or more unaffiliated persons become equity owners of the Hotel Investment Entity (or obtains a Contractual Right) related to such Eligible Promoted Interest. The independent member of the Investment Committee shall determine, in good faith, when the Initial Closing occurs with respect to any Eligible Promoted Interest.

“Investment Committee” means a management committee, established by the Board that includes at least one independent director that is delegated authority, among other things, to approve the terms of investments in Hotel Investment Entities and determine whether Promoted Interests in Hotel Investment Entities satisfy the Safe Harbor Requirements.

“LLC Agreement” means the limited liability company agreement of Promote Pool LLC, as it may be amended from time to time in accordance with its terms, that the Managing Member will enter in accordance with Section 7(a). The LLC Agreement will contain the provisions set forth on Exhibit A attached hereto and such other terms and conditions as the Committee shall in good faith determine are necessary or appropriate for implementing the provisions and accomplishing the objectives of this Award Agreement and the Award Agreements of other recipients of 2011 Bonus Pool Awards.

“Managing Member” means the Operating Company, or a wholly-owned subsidiary thereof, in its capacity as managing member of Promote Pool LLC.

“Member” means a member of Promote Pool LLC, which shall be either the Managing Member or an Employee Member.

“Opening” means, with respect to any Eligible Promoted Interest, the date on or after the Initial Closing on which all construction, development, and major renovation work is completed and substantially all of the rooms and other facilities in the applicable hotel are open for business. If the applicable hotel is operating as of the Initial Closing and the business plan relating to the hotel does not contemplate a substantial renovation or redevelopment of the hotel that will result in material disruption of the operations of the hotel for an extended period, the Opening shall be deemed to occur at the same time as the Initial Closing. If the business plan for such hotel contemplates such renovation or redevelopment, the Opening shall be deemed to occur following the completion of such renovation or redevelopment and substantially all of the rooms and other facilities in the applicable hotel are open for business. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, an Opening shall be deemed to occur with respect to any such hotel property when such hotel property meets the foregoing requirements. The independent member of the Investment Committee shall in good faith determine when an Opening occurs with respect to any Eligible Promoted Interest.

“Partial Sale Event” means, with respect to any Eligible Promoted Interest, the date on which (x) the applicable Hotel Investment Entity’s direct or indirect ownership interest in the applicable hotel property is reduced by reason of a disposition of an interest in such property to a third party; or (y) Promote Pool LLC’s direct or indirect ownership interest in such Eligible Promoted Interest is reduced by reason of a disposition of an interest in such Eligible Promoted Interest to a third party. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a Partial Sale Event described in clause (x) above with respect to any such hotel property shall be deemed to occur when the Hotel Investment Entity’s direct or indirect ownership interest in such hotel property is reduced. The independent member of the Investment Committee shall in good faith determine when a Partial Sales Event occurs with respect to any Eligible Promoted Interest.

“Participation Amount” has the meaning set forth in Section 3.

“Participation Percentage” means, as of any date of determination, the percentage set forth opposite such term on Schedule A hereto.

“Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, other entity or “group” (as defined in the Exchange Act).

“Promoted Interest” means an interest in a Hotel Investment Entity, or other Contractual Right, that represents a right to participate in profits, losses, and gains of the Hotel Investment Entity in excess of amounts attributable to the percentage of capital contributions made by the Company and its subsidiaries in the Hotel Investment Entity. For the avoidance of doubt, an incentive management fee or other amount measured by a percentage of gross revenues, gross operating profit, net house profit, or similar performance measure and payable to the Company or any entity holding such Interests as compensation for the performance of management services shall not be a Promoted Interest .

“Promoted Interest Proceeds” means, with respect to any Eligible Promoted Interest, the amount of any cash (or cash equivalent) distributions or dividends received by Promote Pool LLC with respect to such Eligible Promoted Interest or, if Promote Pool LLC receives any other property in exchange for or as a distribution with respect to an Eligible Promoted Interest, any cash (or cash equivalents) received as a distribution or dividend with respect to or upon the sale or disposition of such other property. In the case of the removal by the Company of the designation of an Eligible Promoted Interest as part of the Promoted Interest Bonus Pool, such removal shall be treated as a disposition of the Eligible Promoted Interest for an amount of cash equal to its Fair Market Value and an amount equal to such Fair Market Value shall be deemed to be Promoted Interest Proceeds hereunder.

“Promote Pool LLC” means MHG Employee Promoted Interest LLC, a to-be-formed Delaware limited liability company, or its successor.

“Qualified Management Agreement” means a hotel management agreement under which the Company or a consolidated subsidiary of the Company is the manager that contains terms that satisfy the requirements set forth in that certain letter delivered by the Company to Grantee concurrently with the execution of this Award, as determined by the Investment Committee in good faith.

“Qualified Termination” has the meaning set forth in Section 4.

“Safe Harbor Requirements” means, with respect to any Eligible Promoted Interest, the following requirements:

(i) The Company or one of its consolidated subsidiaries is manager of the hotel properties owned, directly or indirectly, by the Hotel Investment Entity pursuant to a Qualified Management Agreement;

(ii) The percentage interest acquired by the Company or any of its consolidated subsidiaries in the applicable Hotel Investment Entity does not exceed twenty percent (20%), without taking into account the applicable Promoted Interest;

(iii) The value of the aggregate capital contribution or capital commitment of the Company and its consolidated subsidiaries does not exceed $20 million; and

(iv) The equity investment by the Company and its consolidated subsidiaries must be on no less favorable terms, in any material respect, than the equity investment to the other investors in the Hotel Investment Entity (without taking into account the applicable Promoted Interest) or, if the equity investment by the other investors was made more than one year before the Initial Closing with respect to such Eligible Promoted Interest is anticipated to occur, the equity investment by the Company and its consolidated subsidiaries must be made based on the Fair Market Value of the interests acquired in the Hotel Investment Entity.

The determination by the Investment Committee as to whether a Promoted Interest satisfies the Safe Harbor Requirements shall be made in good faith and shall be conclusive.

“Sale Event” means, with respect to any Eligible Promoted Interest, the earlier of the date on which (x) the applicable Hotel Investment Entity no longer holds a direct or indirect ownership interest in the applicable hotel property or (ii) Promote Pool LLC no longer holds, directly or indirectly, such Eligible Promoted Interest. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a Sale Event described in clause (x) above with respect to any such hotel property shall be deemed to occur when the Hotel Investment Entity no longer owns a direct or indirect ownership interest in such hotel property. The independent member of the Investment Committee shall in good faith determine when a Sales Event occurs with respect to any Eligible Promoted Interest.

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

“Service Agreement” means, as of a particular date, any employment, consulting or similar service agreement then in effect between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand, as amended or supplemented through such date; provided that, if no such agreement is then in effect, “Service Agreement” shall mean any employment, consulting or similar service agreement most recently in effect (on or after the Effective Date) prior to such date, as amended or supplemented, between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand.

“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

“Target Return” shall be equal to nine percent (9%) per annum, compounded annually.

“Transfer” has the meaning set forth in Section 6.

3. Promoted Interest Bonus Pool Award; Vesting

(a) The Operating Company hereby grants to Grantee this Award consisting of the right, subject to the terms and conditions of this Award Agreement, to be admitted as an Employee Member of Promote Pool LLC and to receive the Participation Percentage of each series of the Employee Units issued by Promote Pool LLC during the Award Period (the “Award Participation”). The Award Participation (A) will be subject to forfeiture as provided in Section 3(c) and in Section 4 and (B) will be subject to vesting as provided below in Section 3(b) and in Section 4. At any time, the Committee may grant additional 2011 Bonus Pool Awards with such Participation Percentages set forth therein as the Committee may determine, in its sole discretion, provided that the total Participation Percentages of all 2011 Bonus Pool Awards (including this Award) outstanding at any time shall not exceed 100%.

(b) The interest of Grantee in each series of Employee Units issued to Grantee during the Award Period shall be eligible for vesting based on a combination of (i) the satisfaction of the vesting conditions relating to the hotel properties applicable to the Eligible Promoted Interest related to such series of Employee Units, as set forth below in this Section 3(b) and (ii) the passage of time (three years or a shorter period in certain circumstances as provided in Section 4) as provided in this Section 3(b). The Grantee’s interest in a series of Employee Units shall become vested in the following amounts, at the following times, and upon the following conditions, provided that the Continuous Service of the Grantee continues through and on the applicable vesting date described below or the accelerated vesting date provided in Section 4 hereof, as applicable:

(i) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later to occur of —

(A) the third anniversary of the Effective Date (or any accelerated vesting date provided in Section 4 hereof, if applicable ) and

(B) the Initial Closing with respect to the applicable Eligible Promoted Interest; and

(ii) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later of to occur of —

(A)	the third anniversary of the Effective Date (or any accelerated vesting date provided in Section 4 hereof, if applicable ) and
(B)	the Opening with respect to the applicable Eligible Promoted Interest;

provided that, in the case of an Eligible Promoted Interest in Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third divided by (II) the number of such hotel properties shall become vested on the later of to occur of (x) the date specified in paragraph (A) above and (y) the Opening of any such hotel property; and

(iii) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later of to occur of —

(A)	the third anniversary of the Effective Date and
(B)	the Sale Event with respect to the applicable Eligible Promoted Interest.

provided that, in the case of an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third divided by (II) the number of such hotel properties, shall become vested on the later to occur of (x) the date specified in paragraph (A) above and (y) the Sale Event with respect to any such hotel property; and

provided further that, in the event a Partial Sale Event occurs with respect to an Eligible Promoted Interest, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third multiplied by (II) the percentage of the Fair Market Value of the direct or indirect interest in the applicable Hotel Investment Entity or hotel property that was disposed of in such Partial Sale Event, as determined in good faith by the Investment Committee, shall become vested on the later to occur of (x) the date specified in paragraph (A) above and (y) the Partial Sale Event with respect to any such hotel property; and

provided further that, in the event a Partial Sale Event occurs with respect to a particular hotel property in the case of a Hotel Investment Entity that holds more than one property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third multiplied by (II) the percentage of the Fair Market Value of the direct or indirect interest in the applicable hotel property that was disposed of in such Partial Sale Event, as determined in good faith by the Investment Committee, divided by (III) the number of such hotel properties owned by such Hotel Investment Entity, shall become vested on the later of to occur of (x) the date specified in paragraph (A) above and (y) the Partial Sale Event with respect to any such hotel property; and

provided further that, in the event a Sale Event occurs with respect to an Eligible Promoted Interest (or with respect to a particular hotel property in the case of a Hotel Investment Entity that holds more than one property) without an Opening having occurred with respect thereto, then such Sale Event shall also be deemed to constitute the Opening with respect to such Eligible Promoted Interest for purpose of Section 3(b)(ii).

(c) Any portion of Grantee’s interest in any series of Employee Units that has not become vested pursuant to Section 3(b) and Grantee’s Award Participation shall, without payment of any consideration by the Company or Promote Pool LLC, automatically and without notice be forfeited and be and become null and void upon the termination of the Continuous Service of Grantee (other than by reason of a Qualified Termination, death or Disability), and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested portion of the Grantee’s Employee Units and in future issuances of Employee Units by Promote Pool LLC.

(d) In the event that a Hotel Investment Entity with respect to which Promote Pool LLC holds an Eligible Promoted Interest receives a new hotel property in exchange for another hotel property, with the result that Promote Pool LLC thereafter holds an Eligible Promoted Interest in such new hotel property, the vesting percentage that applied to the applicable series of Employee Units immediately prior to such exchange shall remain in effect with respect to such series following the exchange.

4. Termination of Grantee’s Continuous Service; Death and Disability

(a) If the Grantee is or was a party to a Service Agreement and his or her Continuous Service terminates, the applicable provisions of this Section 4 shall govern the treatment of the Grantee’s Award Participation, unless the Service Agreement contains provisions that expressly refer to this Section 4(a) and provides that those provisions of the Service Agreement shall instead govern the treatment of the Grantee’s Award Participation upon such termination. The foregoing sentence will be deemed an amendment to any applicable Service Agreement to the extent required to apply its terms consistently with this Section 4, such that, by way of illustration, any provisions of the Service Agreement with respect to accelerated vesting or payout or the lapse of forfeiture restrictions relating to the Grantee’s incentive or other compensation awards in the event of certain types of termination of the Grantee’s Continuous Service with the Company (such as, for example, termination at the end of the term, termination without Cause by the employer or termination for Good Reason by the employee) shall not be interpreted as requiring that vesting occur with respect to this Award other than as specifically provided in Section 3(b) and this Section 4.

(b) In the event of termination of the Grantee’s Continuous Service by (A) the Company without Cause, (B) the Grantee for Good Reason, or (C) by reason of the death or Disability of Grantee (each of the events described in (A), (B) and (C), a “Qualified Termination”), then the Award Participation shall terminate with respect to any future issuances of Employee Units and the Award Period shall terminate, each effective upon termination of Grantee’s Continuing Service, but the following provisions of this Section 4(b) shall modify the vesting of each series of Employee Units then held by Grantee:

(i)

the vesting conditions set forth in Sections 3(b)(i)(A) and 3(b)(ii)(A) (but not under Section 3(b)(iii)(A)) shall be deemed to have been satisfied with respect to each series of Employee Units held by Grantee as of the effective date of such Qualified Termination; and

(ii)

the Grantee’s interest in each series of Employee Units then held by Grantee shall vest under Sections 3(b)(i) and 3(b)(ii), to the extent provided in such sections, upon the satisfaction of the vesting conditions set forth in Sections 3(b)(i)(B) and 3(b)(ii)(B), as applicable (to the extent that any such condition shall not previously have been satisfied), as if such Qualified Termination had not occurred.

Upon the occurrence of a Qualified Termination, the unvested portion of Grantee’s interest in each series of Employee Units then held by Grantee that is subject to vesting upon the conditions set forth in Section 3(b)(iii) shall be forfeited, with the consequences set forth in the LLC Agreement.

(c) In the event of a termination of the Grantee’s Continuous Service other than a Qualified Termination, the Award Participation shall terminate with respect to any future issuances of Employee Units and the Award Period shall terminate, each effective upon termination of Grantee’s Continuing Service, and Grantee’s unvested interest in each series of Employee Units then held by Grantee shall be forfeited, with the consequences set forth in the LLC Agreement as described in Exhibit A, and shall no longer be subject to future vesting pursuant to Section 3(b)(i), 3(b)(ii), or 3(b)(iii), without payment of any consideration by the Company or Promote Pool LLC, automatically and without notice, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such Award Participation or such unvested interest in any series of Employee Units, other than with respect to any interest in any series of Employee Units that may have vested pursuant to Section 3(b)(i), 3(b)(ii), or 3(b)(iii) prior to such termination of Grantee’s Continuous Service.

5. Promote Pool LLC Units

(a) Formation of Promote Pool LLC. Prior to the Initial Closing of the first transaction in which the Company or any entity will receive an Eligible Promoted Interest after the Effective Date, the Company will organize Promote Pool LLC and enter into the LLC Agreement.

(b) Contribution of Eligible Promoted Interests. At the Initial Closing with respect to any Eligible Promoted Interest, Promote Pool LLC (or a wholly owned subsidiary thereof) will become a member or partner in, or acquire a Contractual Right with respect to, the applicable Hotel Investment Entity and, in that capacity, will acquire the Eligible Promoted Interest, or the Operating Company (or a subsidiary thereof) shall contribute the Eligible Promoted Interest to Promote Pool LLC.

(c) Issuance of Employee Units. Concurrently with the Initial Closing with respect to any Eligible Promoted Interest, the Managing Member shall amend the LLC Agreement to create a new series of Bonus Pool Units relating to the Eligible Promoted Interest. The portion of the Bonus Pool Units issued to Employee Members concurrently with the Initial Closing shall, as of such date, represent an aggregate interest in the applicable Eligible Promoted Interest equal to the Designated Participation Percentage with respect to such series of Bonus Pool Units. If the Initial Closing with respect to such Eligible Promoted Interest occurs during the Award Period, Promote Pool LLC shall issue to Grantee, concurrently with such Initial Closing, a percentage of the applicable series of Employee Units equal to the product of (i) his or her Participation Percentage as of such date times (ii) the Designated Participation Percentage with respect to such series of Bonus Pool Units.

(d) Distributions. Following the receipt by Promote Pool LLC or any of its wholly-owned subsidiaries of any Promoted Interest Proceeds, Promote Pool LLC shall distribute such Promoted Interest Proceeds to the Members in accordance with the terms and conditions of the LLC Agreement. The LLC Agreement will include provisions relating to distributions in substantially the form set forth on Exhibit A attached hereto.

6. Restrictions on Transfer

Subject to the next sentence, no portion of the Award Participation granted hereunder shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”). This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. Notwithstanding the foregoing, in the event Managing Member elects to sell or otherwise dispose of all or any portion of its interest in any series of interests in Promote Pool LLC to an unaffiliated third party, Managing Member shall ensure that such third party offers to acquire all or the comparable percentage (as the case may be) of the Employee Units in such Series held by each holder of such series of Employee Units, on the same terms and conditions as such unaffiliated third-party is acquiring the interests of the Managing Member, in accordance with such procedures for such offer and purchase as the Managing Member shall reasonably establish for such purpose.

7. Miscellaneous

(a) Amendments. This Agreement may be amended or modified only with the consent of the Company acting through the Committee; provided that any such amendment or modification materially and adversely affecting the rights or obligations of the Grantee hereunder must be consented to by the Grantee to be effective as against him. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company to correct any errors or ambiguities in this Agreement and/or to make such changes that do not materially adversely affect the Grantee’s rights or obligations hereunder. This grant shall in no way affect the Grantee’s participation or benefits under any other plan or benefit program maintained or provided by the Company.

(b) Committee Determinations. The Committee will make the determinations and certifications required by this Award as promptly as reasonably practicable following the occurrence of the event or events necessitating such determinations or certifications.

(c) Grantee Representations; Registration.

(i) The Grantee hereby represents and warrants that (A) he or she understands that he or she is responsible for consulting his or her own tax advisor with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of this Award may become subject, to his or her particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the Operating Company or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides services to the Operating Company on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Operating Company, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award; (D) Bonus Pool Units are subject to substantial risks; (E) the Grantee has been furnished with, and has reviewed and understands, information relating to this Award; (F) the Grantee has been afforded the opportunity to obtain such additional information as he or she deemed necessary before accepting this Award; (G) the Grantee has had an opportunity to ask questions of representatives of the Operating Company and the Company, or persons acting on their behalf, concerning this Award; and (H) the Grantee will provide services to Promote Pool LLC.

(ii) The Grantee hereby acknowledges that: (A) there will be no public market for Bonus Pool Units and neither the Operating Company nor the Company has any obligation or intention to create such a market; (B) transfers sales of Bonus Pool Units are subject to restrictions under the Securities Act and applicable state securities laws, in addition to the restrictions set forth herein and in the LLC Agreement; and (C) because of the restrictions on transfer or assignment of Bonus Pool Units set forth in the LLC Agreement and in this Agreement, the Grantee may have to bear the economic risk of his or her ownership of any Bonus Pool Units issued as a result of this Award for an indefinite period of time.

(d) Section 83(b) Election. In connection with each separate issuance of Bonus Pool Units under this Award, the Grantee hereby agrees to make an election to include in gross income in the year of transfer the applicable Bonus Pool Units pursuant to Section 83(b) of the Code substantially in the form attached hereto as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder. The Grantee agrees to file such election (or to permit Promote Pool LLC to file such election on the Grantee’s behalf) within thirty (30) days after the issuance of the Bonus Pool Units with the IRS Service Center where the Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the Bonus Pool Units are awarded to the Grantee. So long as the Grantee holds any Bonus Pool Units, the Grantee shall disclose to Promote Pool LLC in writing such information as may be reasonably requested with respect to ownership of Bonus Pool Units as Promote Pool LLC may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code applicable to Promote Pool LLC or to comply with requirements of any other appropriate taxing authority.

(e) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(f) Governing Law. This Agreement is made under, and will be construed in accordance with, the laws of State of New York, without giving effect to the principles of conflict of laws of such State.

(g) No Obligation to Continue Position as an Employee. Neither the Company nor any Affiliate is obligated by or as a result of this Agreement to continue to have the Grantee as an employee, consultant or advisor and this Agreement shall not interfere in any way with the right of the Company or any Affiliate to terminate the Grantee’s Continuous Service at any time.

(h) Notices. Any notice to be given to the Company shall be addressed to the Secretary of the Company at 475 Tenth Avenue, New York, New York 10018 and any notice to be given the Grantee shall be addressed to the Grantee at the Grantee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Grantee may hereafter designate in writing to the other.

(i) Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to this Award, the Grantee will pay to the Company or, if appropriate, any of its Affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

(j) Headings. The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

(k) Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

(l) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company, on the one hand, and any successors to the Grantee, on the other hand, by will or the laws of descent and distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Grantee.

(m) Section 409A. This Agreement shall be construed, administered and interpreted in accordance with a good faith interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Grantee the Company, to the extent necessary to exempt it from, or bring it into compliance with Section 409A of the Code.

[signature page follows]

IN WITNESS WHEREOF, the undersigned have caused this Award Agreement to be executed as of the date first above written.

MORGANS HOTEL GROUP CO.
By:	/s/ Richard Szymanski Name: Richard Szymanski
	Title: CFO

GRANTEE

/s/ Michael Gross Name: Michael Gross

IN WITNESS WHEREOF, the undersigned has caused this Award Agreement to be executed as of the date first above written.

MORGANS GROUP LLC
By:	/s/ Richard Szymanski Name: Richard Szymanski
	Title:

SCHEDULE A TO 2011 PROMOTED INTEREST BONUS POOL
AWARD AGREEMENT

Date of Award Agreement:	March 20, 2011
Name of Grantee:	Michael Gross
Participation Percentage:		35	%
Grant Date:	March 20, 2011

Initials of Company representative: /s/RS Initials of Grantee: /s/MG

EXHIBIT A

CERTAIN PROVISIONS OF THE LLC AGREEMENT

The LLC Agreement will include the following provisions in substantially the form set forth below (capitalized terms shall have the meanings set forth in the Award Agreement to which this Exhibit A is attached, if defined therein, or in Section 8 hereof, and Section numbers shall refer to sections of this Exhibit A, unless otherwise stated ):

1. Distributions.

(a) Promptly following the receipt by Promote Pool LLC or any of its wholly owned subsidiaries of any Promoted Interest Proceeds, including the receipt of any proceeds assigned to Grantee in respect of any Eligible Promoted Interest, Promote Pool LLC shall distribute such Promoted Interest Proceeds (with respect to any distribution, the “Aggregate Proceeds”) to the Members on the following terms and conditions:

(i) If the Employee Unit Distribution Conditions are satisfied as of the date of receipt of such Promoted Interest Proceeds by Promote Pool LLC or any of its wholly owned subsidiaries, an amount equal to the product of (x) the Aggregate Employee Participation Percentage then outstanding in the series of Bonus Pool Units related to the Eligible Promoted Interest with respect to which the Promoted Interest Proceeds were received times (y) the Aggregate Proceeds shall be paid, or set aside for future payment, in accordance with Section 1(b) or 1(c); and

(ii) The remainder of such Aggregate Proceeds shall be paid to the Managing Member.

(b) All amounts referred to in Section 1(a)(i) (with respect to any distribution, the “Employee Member Share”) shall be applied as follows:

(i) An amount equal to the product of (x) each Employee Member’s Vested Participation Percentage at such time in such series of Bonus Pool Units times (y) the Aggregate Proceeds shall be paid to such Employee Member ;and

(ii) The remainder of the Employee Member Share shall be set aside and held by Promote Pool LLC for future payment in accordance with Section 1(c).

(c) All amounts referred to in Section 1(b)(ii) shall be applied as follows:

(i) At such time as any Employee Member’s Vested Participation Percentage in the applicable series of Bonus Pool Units increases after the initial distribution of the applicable Aggregate Proceeds under Section 1(b), an amount equal to (x) the product of (I) such Employee Member’s Vested Participation Percentage (after such increase) in such series of Bonus Pool Units times (II) the Aggregate Proceeds minus (y) the aggregate amount of such Aggregate Proceeds that previously paid to such Employee Member under Section 1(b)(i) or this Section 1(c)(i).

(ii) At such time as any Employee Member’s unvested Bonus Pool Units in the applicable series are forfeited pursuant to Section 4 of such Employee’s Award Agreement, an amount equal to the product of (x) a fraction, the numerator of which is the number of unvested Bonus Pool Units in the applicable series so forfeited and the denominator of which is the aggregate number of outstanding Bonus Pool Units in such series times (y) the applicable Aggregate Proceeds.

2. Management of the LLC. Except as otherwise provided in the LLC Agreement or by law, management of Promote Pool LLC is reserved to and shall be vested solely and exclusively in the Managing Member. The rights and authority of the Managing Member shall include, without limitation, the right and authority, in its sole discretion, to —

(a)	exercise all consent and voting rights with respect to the Eligible Promoted Interests,
(b)	sell, transfer, or otherwise dispose of the interest of Promote Pool LLC in any Eligible Promoted Interest, subject to compliance with the provisions of Section 7 below, and
(c)	issue additional Employee Units to persons granted 2011 Bonus Pool Awards, subject to the proviso at the end of Section 3(a) of the Award Agreements.

3. Amendments. The LLC Agreement, or any term or provision thereof, may be amended, waived, modified or supplemented from time to time by the Managing Member in its sole discretion; provided that any amendment to the provisions relating to the distribution of Promoted Interest Proceeds or the defined terms used therein that would materially adversely affect the rights or obligations of the holders of Employee Units granted hereunder shall require the consent of each Employee Member adversely affected thereby.

4. Transfer of Employee Units. No Employee Member may Transfer all or any part of his or her Employee Units, or any interest therein, directly or indirectly, without the consent of the Managing Member, which consent may be withheld in the Managing Member’s sole discretion. No Transfer of Employee Units, or any interest therein, in violation of this Agreement shall be made or recorded on the books of Promote Pool LLC and any such Transfer shall be null and void, ab initio. An Employee Member shall have no right to grant an assignee of his or her Employee Units, or any interest therein, the right to become a substituted member in Promote Pool LLC. As used herein, “Transfer” means the sale, encumbrance, mortgage, hypothecation, assignment, pledge, exchange or other disposition or transfer (including by operation of law), directly or indirectly, of all or any portion of an Interest. For the avoidance of doubt, any indirect Transfer by an Employee Member or the Company through the transfer or issuance of any equity interest in any entity formed for the purpose of holding Employee Units or Managing Member Units, respectively, or any interest therein, shall constitute a Transfer.

5. Effect of Forfeiture of Unvested Units. At such time as any unvested Employee Units of any Employee Member in any series are forfeited pursuant to Section 4 of the such Employee Member’s award agreement, such unvested Employee Units shall be cancelled and the Manager Percentage Interest shall be increased by a percentage equal to the product of (x) the Unit Percentage Interest with respect to such series in effect immediately prior to such forfeiture times (y) the number of Employee Units in such series that were then forfeited.

6. Issuance of Additional Employee Units. The Managing Member, in its sole discretion, shall be entitled to issue additional Employee Units in any series at any time, which additional Employee Units may be accompanied by a reduction in the Manager Percentage Interest with respect to such series and a corresponding increase in the Aggregate Employee Participation Percentage for such series, or may represent the issuance of additional Employee Units without a change in the Aggregate Employee Participation Percentage, subject to the proviso at the end of [Section 3(a)] of the Award Agreements.

7. Ownership and Control of Eligible Promoted Interests. If the Managing Member elects to Transfer an Eligible Promoted Interest prior to the occurrence of the Sale Event with respect to such Eligible Promoted Interest (or the Sale Events with respect to all hotel properties related to such Eligible Promoted Interest), the vesting conditions set forth in Sections 3(b)(i)(B), 3(b)(ii)(B) and 3(b)(iii)(B) of the Award Agreements with respect to such Eligible Promoted Interest will be deemed to have been satisfied (to the extent that any such condition shall not previously have been satisfied) and the net proceeds received by Promote Pool LLC in connection with such Transfer shall be deemed to constitute Promoted Interest Proceeds, and shall be distributable in accordance with Section 1, subject to satisfaction of the Payment Conditions and subject to satisfaction of the vesting conditions set forth in Sections 3(b)(i)(A), 3(b)(ii)(A) and 3(b)(iii)(A) of the Award Agreements with respect to individual Employee Members (to the extent that such condition shall not previously have been satisfied). Any Transfer of an Eligible Promoted Interest to the Company or a subsidiary of the Company shall be made for an amount of cash equal to its Fair Market Value.

8. Certain Defined Terms. Capitalized terms defined in the Award Agreement to which this Exhibit A is attached shall have the meanings ascribed therein to such terms. The following capitalized terms used in this Exhibit A shall have the meanings set forth below:

(a) “Aggregate Employee Participation Percentage” means, with respect to any series of Bonus Pool Units and as of any date of determination, a percentage equal to (i) one hundred percent (100%) minus (ii) the Manager Percentage Interest with respect to such series then in effect.

(b) “Award Agreement” means, with respect to any Employee Member, the award agreement pursuant to which such Employee Member was granted a 2011 Bonus Pool Award.

(c) “Employee Unit Distribution Conditions” means, as of the date of any receipt by Promote Pool LLC or any of its wholly-owned subsidiaries of any Promoted Interest Proceeds, the following:

(i) the Common Share Return Condition shall be satisfied; and

(ii) the Company or a consolidated subsidiary of the Company continues to manage the applicable hotel property immediately following the applicable event giving rise to the Promoted Interest Proceeds.

(d) “Manager Percentage Interest” means, with respect to any series of Bonus Pool Units and as of any date of determination, a percentage equal to (i) one hundred percent (100%) minus (ii) the Designated Participation Percentage with respect to such series plus (iii) the aggregate increases in the Manager Percentage Interest with respect to such series pursuant to Section 5 minus (iv) the aggregate decreases in the Manager Percentage Interest with respect to such series pursuant to Section 6 in connection with the issuances of additional Employee Units with respect to such series.

(e) “Unit Percentage Interest” means, with respect to a single Employee Unit of any series as of the date of determination, a fraction (expressed as a percentage) equal to (i) the Aggregate Employee Participation Percentage with respect to such series as of such date divided by (ii) the aggregate number of Employee Units in such series then outstanding.

(f) “Vested Participation Percentage” means, with respect to any Employee Member and any series of Bonus Pool Units and as of any date of determination, a fraction, (x) the numerator of which is the aggregate number of Employee Units in such series held by such Employee Member that have vested in accordance with Section 3(b) of such Employee’s Award Agreement and (y) the denominator of which is the aggregate number of Employee Units in such series then outstanding.

EXHIBIT B

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1. The name, address and taxpayer identification number of the undersigned are:

Name:  _____  (the “Taxpayer”)

Address:  _____ 

Social Security No./Taxpayer Identification No.:  _____ 

2. Description of property with respect to which the election is being made:

The election is being made with respect to  _____  Bonus Pool Units (Series [_____]) (the “Bonus Pool Units”) in MHG Employee Promoted Interest LLC (the “Company”).

3. The date on which the Bonus Pool Units were transferred is  _____  , 20_. The taxable year to which this election relates is calendar year 20_.

4. Nature of restrictions to which the Bonus Pool Units are subject:

(a) With limited exceptions, until the Bonus Pool Units vest, the Taxpayer may not transfer in any manner any portion of the Bonus Pool Units without the consent of the Company.

(b) The Taxpayer’s Bonus Pool Units (vest in accordance with the vesting provisions described in Annex 1 attached hereto. Unvested Bonus Pool Units are forfeited in accordance with the vesting provisions described in Annex 1 attached hereto.

5. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the Bonus Pool Units with respect to which this election is being made was $  per Bonus Pool Unit .

6. The amount paid by the Taxpayer for the Award LTIP Units was $0 per Bonus Pool Unit.

7. A copy of this statement has been furnished to the Company and Morgans Group LLC.

Dated:                                         , 20_____                    Signature                                                            

ANNEX 1

Vesting Provisions of Bonus Pool Units

The Bonus Pool Units are subject to time-based and performance-based vesting with the final vesting percentage equaling the product of the time-based vesting percentage and the performance-based vesting percentage. Performance-based vesting will be from 0% to 100% based on the achievement of certain goals relating to hotel properties in which Morgans Group LLC or a subsidiary acquires an equity interest and becomes the hotel manager. Under the time-based vesting provisions, one hundred percent (100%) of the Bonus Pool Units will vest on the last day of the performance period, provided that the Taxpayer remains an employee of the Company or any of its affiliates through such date, subject to acceleration in the event of certain extraordinary transactions or termination of the Taxpayer’s service relationship with the Company under specified circumstances. Unvested Bonus Pool Units are subject to forfeiture in the event of failure to vest based on the passage of time or the determination of the performance-based percentage. The right to receive any payments with respect to vested Bonus Pool Units depends on a specified Morgan Hotel Group Co.’s (the “Company’s”) per-share total return to shareholders of Morgans Hotel Group Co. for the period from [_____], 2011, to the proposed payment date.

Exhibit e

Release Agreement

RELEASE AGREEMENT

THIS RELEASE AGREEMENT (this “Release”) is entered into as of [_____] (the “Effective Date”), by  _____  (“Executive”) in consideration of severance pay and other benefits (the “Severance Payment”) provided to Executive by Morgans Hotel Group Co., a Delaware corporation (the “Company”), pursuant to Section 4 of the Employment Agreement by and between the Company and Executive (the “Employment Agreement”).

1. Release. Subject to the last sentence of the first paragraph of this Section 1, Executive, on his own behalf and on behalf of his heirs, executors, administrators, attorneys and assigns, hereby unconditionally and irrevocably releases, waives and forever discharges the Company and each of its affiliates, parents, successors, predecessors, and the subsidiaries, directors, owners, members, shareholders, officers, agents, and employees of the Company and its affiliates, parents, successors, predecessors, and subsidiaries (collectively, all of the foregoing are referred to as the “Employer”), from any and all causes of action, claims and damages, including attorneys’ fees, whether known or unknown, foreseen or unforeseen, presently asserted or otherwise arising through the date of his signing of this Release, concerning his employment or separation from employment. Subject to the last sentence of the first paragraph of this Section 1, this Release includes, but is not limited to, any payments, benefits or damages arising under any federal law (including, but not limited to, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act of 1974, the Americans with Disabilities Act, Executive Order 11246, the Family and Medical Leave Act, and the Worker Adjustment and Retraining Notification Act, each as amended); any claim arising under any state or local laws, ordinances or regulations (including, but not limited to, any state or local laws, ordinances or regulations requiring that advance notice be given of certain workforce reductions); and any claim arising under any common law principle or public policy, including, but not limited to, all suits in tort or contract, such as wrongful termination, defamation, emotional distress, invasion of privacy or loss of consortium. Notwithstanding any other provision of this Release to the contrary, this Release does not encompass, and Executive does not release, waive or discharge, the obligations of the Company (a) to make the payments and provide the other benefits contemplated by the Employment Agreement or any other Agreement with Executive, or (b) under any restricted stock unit agreement, option agreement or other agreement pertaining to Executive’s equity ownership or other awards, or (c) under any indemnification or similar agreement with Executive, or (d) under this Release.

Executive understands that by signing this Release, he is not waiving any claims or administrative charges which cannot be waived by law. He is waiving, however, any right to monetary recovery or individual relief should any federal, state or local agency (including the Equal Employment Opportunity Commission) pursue any claim on his behalf arising out of or related to his employment with and/or separation from employment with the Company (other than with respect to those matters described in clauses (a), (b), (c) and (d) above.

Executive further agrees without any reservation whatsoever, never to sue the Employer or become a party to a lawsuit on the basis of any and all claims of any type lawfully and validly released in this Release.

2. Acknowledgments. Executive is signing this Release knowingly and voluntarily. He acknowledges that:

(a) He is hereby advised in writing to consult an attorney before signing this Release;

(b) He has relied solely on his own judgment and/or that of his attorney regarding the consideration for and the terms of this Release and is signing this Release knowingly and voluntarily of his own free will;

(c) He is not entitled to the Severance Payment unless he agrees to and honors the terms of this Release;

(d) He has been given at least twenty-one (21) calendar days to consider this Release, or he expressly waives his right to have at least twenty-one (21) days to consider this Release;

(e) He may revoke this Release within seven (7) calendar days after signing it by submitting a written notice of revocation to the Employer. He further understands that this Release is not effective or enforceable until after the seven (7) day period of revocation has expired without revocation, and that if he revokes this Release within the seven (7) day revocation period, he will not receive the Severance Payment;

(f) He has read and understands the Release and further understands that, subject to the limitations contained herein, it includes a general release of any and all known and unknown, foreseen or unforeseen claims presently asserted or otherwise arising through the date of his signing of this Release that he may have against the Employer; and

(g) No statements made or conduct by the Employer has in any way coerced or unduly influenced him or her to execute this Release.

3. No Admission of Liability. This Release does not constitute an admission of liability or wrongdoing on the part of the Employer, the Employer does not admit there has been any wrongdoing whatsoever against the Executive, and the Employer expressly denies that any wrongdoing has occurred.

4. Entire Agreement. There are no other agreements of any nature between the Employer and Executive with respect to the matters discussed in this Release, except as expressly stated herein, and in signing this Release, Executive is not relying on any agreements or representations, except those expressly contained in this Release.

5. Execution. It is not necessary that the Employer sign this Release following Executive’s full and complete execution of it for it to become fully effective and enforceable.

6. Severability. If any provision of this Release is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or controlling law, the remainder of this Release shall continue in full force and effect.

7. Governing Law. This Release shall be governed by the laws of the State of New York, excluding the choice of law rules thereof.

8. Headings. Section and subsection headings contained in this Release are inserted for the convenience of reference only. Section and subsection headings shall not be deemed to be a part of this Release for any purpose, and they shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof.

IN WITNESS WHEREOF, the undersigned has duly executed this Release as of the day and year first herein above written.

EXECUTIVE:

EX-10.4

Exhibit 10.4

EMPLOYMENT AGREEMENT
(YOAV GERY)

This EMPLOYMENT AGREEMENT (this “Agreement”), dated on March 20, 2011, between Morgans Hotel Group Co., a Delaware corporation (the “Company”), and Yoav Gery (the “Executive”) shall become effective as of March 23, 2011 (the “Effective Date”).

1. Employment Period

The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, on the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the “Employment Period”), subject to the provisions for early termination or extension as hereinafter provided. The Company (but not the Executive) will have the right to offer (the “Extension Offer”) to extend the Employment Period by six (6) months (the “Extension Period”) by giving notice to Executive of such offer no less than seventy-five (75) days prior to the end of the initial Employment Period. During any Extension Period, the Executive shall receive compensation on substantially the same terms as being provided at the end of the initial Employment Period and will receive a cash bonus, payable on the last day of the Extension Period, in an amount equal to one-half of the Annual Bonus paid to the Executive with respect to the 2013 fiscal year. In the event that the parties hereafter agree to extend Executive’s employment beyond the end of the Extension Period the amount of the pro-rated cash bonuses paid by the Company with respect to the Extension Period and the period from January 1, 2014 to the third anniversary of the Effective Date will be taken into account and be credited against any cash bonus that may become payable to Executive for fiscal 2014. The Executive shall have the right to accept or reject the Extension Offer; if the Executive rejects the Extension Offer and terminates employment, such termination will be deemed to be a termination due to non-renewal of the Agreement by the Company for purposes of Section 4(d) below and shall not be considered a termination under Section 4(c) below.

2. Terms of Employment

(a) Position and Duties

(i) During the Employment Period, the Executive shall serve as Chief Development Officer of the Company with the customary and usual authority, duties and responsibilities attendant to such position and any other duties that may reasonably be assigned by the Chief Executive Officer and the Company’s Board of Directors (the “Board”) consistent with his position as Chief Development Officer. In such capacity, it is understood that the Executive shall perform services for Morgans Group LLC (the “Operating Company”) as well the Company. The Executive shall report to the Chief Executive Officer. A termination of the Executive’s employment shall mean a termination of services of both the Company and the Operating Company.

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of the Executive’s business time, attention and energies to the performance of the duties assigned to the Executive so that Executive can fulfill those duties, and to perform such duties faithfully, diligently and to the best of the Executive’s abilities and subject to such laws, rules, regulations and policies from time to time applicable to the Company’s executives. Notwithstanding the above, Executive shall be entitled to attend to personal and family affairs and investments, be involved in not for profit, charitable and professional activities and, with the Board’s prior consent, serve on boards of other organizations, provided that all of the foregoing does not, in the aggregate, materially interfere with Executive’s responsibilities hereunder.

(b) Compensation

(i) Annual Base Salary. During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”) equal to $600,000 (payable semi-monthly), which shall be subject to annual performance reviews and may be increased at the discretion of the Board or the Compensation Committee of the Board (the “Compensation Committee”), in accordance with the standard practice of the Company. The term “Annual Base Salary” as utilized in this Agreement shall refer to Annual Base Salary as so increased. Annual Base Salary shall not be less than $600,000 without the prior written consent of the Executive.

(ii) Annual Bonus. The Executive will be eligible for an annual cash bonus for each of the Company’s 2011, 2012, and 2013 fiscal years (“Annual Bonus”) with a target payout of 100% of Annual Base Salary. The target payout for the 2011 Annual Bonus shall be pro rated, based on the number of days in the fiscal year from and including the Effective Date to and including December 31, 2011, 50% of which shall be guaranteed. The remaining 50% of the 2011 Annual Bonus shall depend on following performance metrics: 40% on EBITDA and 10% on the RevPAR Index, both as established by the Compensation Committee of the Board of Directors. For 2012 and 2013, the Annual Bonus will range from 50% up to 150% of target. The actual Annual Bonus for each fiscal year shall be determined after consultation with the Executive in good faith by the Compensation Committee based upon actual corporate and individual performance for such year and shall be payable in accordance with the procedures specified by the Compensation Committee. The Executive’s Annual Bonus will be paid no later than seventy-five (75) days after the end of the applicable bonus period (or, if earlier, as provided in Section 4 below). Except as provided in Section 3 of this Agreement, Employee must be employed by the Company on the date bonuses are paid to Company employees in order to be entitled to receive a bonus. To the extent the Annual Bonus exceeds 100% of Annual Base Salary, the Compensation Committee may in its discretion, and subject to applicable law, cause the Company to pay such excess in the form of fully vested equity compensation awards under one of Company’s equity compensation plans (which award may be subject to other conditions that the Compensation Committee may determine).

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(iii) Stock Option Award. On the Effective Date, the Company shall grant to the Executive a non-qualified option to purchase 200,000 shares of the Company’s common stock (the “Stock Option”) under the Morgans Hotel Group Co. Amended and Restated 2007 Omnibus Incentive Plan (the “Incentive Plan”). Except as otherwise provided in Section 4 upon certain events of termination, subject to the Executive’s continued employment with the Company, the Stock Option shall vest and become exercisable with respect to 33-1/3% of the shares subject thereto on each of the first, second, and third anniversaries of the Effective Date. Consistent with the foregoing, the terms and conditions of the Stock Option shall be set forth in an award agreement (the “Stock Option Agreement”) in the form attached as Exhibit A hereto, to be entered into by the Company and the Executive concurrently herewith and which shall evidence the grant of the Stock Option. The Company shall determine whether future awards will be awarded to the Executive in its good faith discretion.

(iv) Outperformance Award. On the Effective Date, the Company shall grant to the Executive a performance incentive award entitling the Executive to 10% of the “Total Outperformance Pool,” as such term is defined in the Outperformance Award Agreement attached as Exhibit B hereto, subject to the terms and conditions of such award agreement.

(v) Additional Performance Incentive Award. On the Effective Date, the Company shall grant to the Executive an additional performance incentive award entitling the Executive to 10% of the “Promoted Interest Pool,” as such term is defined in the Promoted Interest Pool Award Agreement attached as Exhibit C hereto, subject to the terms and conditions of such award agreement.

(vi) Signing Bonus. The Executive shall receive a signing bonus equal to $100,000 within 10 days of the Effective Date of this Agreement.

(vii) Equity Award. On the Effective Date, the Company shall grant to the Executive 65,250 restricted stock units (the “RSUs”) as an inducement award. Subject to the Executive’s continued employment with the Company, the RSUs shall vest and become exercisable with respect to 33-1/3% of the shares subject thereto on each of the first, second, and third anniversaries of the Effective Date. Consistent with the foregoing, the terms and conditions of such award shall be set forth in an award agreement (the “RSU Agreement”) in the form attached as Exhibit D hereto, to be entered into by the Company and the Executive concurrently herewith and which shall evidence the grant of the RSUs.

(c) Benefits

(i) Employee Benefits. During the Employment Period, the Executive shall be entitled to participate in all employee benefit and other plans, practices, policies and programs and fringe benefits and perquisites on a basis no less favorable than that provided to other senior executives of the Company.

(ii) Vacations. The Executive shall be eligible for up to five weeks of annual vacation to be accrued in accordance with the Company’s policy for its other senior executives.

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3. Termination of Employment

(a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Executive becomes Disabled during the Employment Period, the Company upon such event shall give to the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” or becoming “Disabled” shall mean the inability of the Executive to perform the Executive’s duties with the Company on a full-time basis for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Executive or the Executive’s legal representative.

(b) Cause. The Company may terminate the Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean the occurrence of any one or more of the following events unless the Executive has commenced and is diligently pursuing steps to correct the circumstances constituting Cause (in those instances where such circumstances can be corrected) within fifteen (15) business days after receipt of the Notice of Termination and cures in all material respects such circumstances within forty-five (45) business days after receipt of the Notice of Termination (as defined below):

(i) the Executive’s willful and continued failure to substantially perform his duties with the Company as contemplated by Section 2(a)(i) (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such failure after his issuance of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed his duties;

(ii) a material breach by Executive of his obligations under this Agreement resulting in substantial economic or financial injury to the Company;

(iii) the Executive’s willful commission of an act of fraud, theft or dishonesty resulting in substantial economic or financial injury to the Company;

(iv) the Executive’s conviction of, or entry by the Executive of a guilty or no contest plea to, the commission of a felony; or

(v) the Executive willfully engages in misconduct that is materially injurious to the Company.

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For purposes of this provision, no act or omission on the part of the Executive shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission that was directed or authorized by the Board, or approved, consented to, or acquiesced to by the Board, or based on advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by at least 66 2/3% of the Board (excluding the Executive and the Executive Chairman, to the extent either of them are members of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

(c) Good Reason. The Executive’s employment may be terminated by the Executive with or without Good Reason. For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following events without the written consent of the Executive:

(i) any change in the Executive’s title or the assignment to the Executive of duties materially inconsistent with the Executive’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated by Section 2(a)(i), or any other action by the Company which results in a material diminution or material adverse change in the Executive’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Executive;

(ii) any material failure by the Company to comply with any of the provisions of this Agreement or any Related Agreement (as defined below), other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Executive;

(iii) any failure by the Company to comply with and satisfy Section 10(c); or

(iv) any requirement that the Executive’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Executive’s residence to his new place of employment

provided that the Executive’s resignation shall only constitute a resignation for Good Reason hereunder if (x) the Executive provides the Company with a Notice of Termination (as defined below) within 90 days after the initial existence of the facts or circumstances constituting Good Reason, (y) the Company has failed to cure such facts or circumstances within 30 days after receipt of the Notice of Termination, and (z) subject to the last sentence of Section 4(e), the Date of Termination (as defined below) occurs no later than 120 days after the initial occurrence of the facts or circumstances constituting Good Reason.

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(d) Notice of Termination. Any termination by the Company or by the Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(e) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company other than for Disability, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, (ii) if the Executive’s employment is terminated by the Executive, 30 days after receipt of the Notice of Termination (provided, that, the Company may accelerate the Date of Termination to an earlier date by providing the Executive with notice of such action, or, alternatively, the Company may place the Executive on paid leave during such period), (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iv) if the Executive’s employment is terminated due to the non-renewal of the Agreement at the end of the Employment Period, the Date of Termination shall be the last day of the Employment Period. Notwithstanding the foregoing, if within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected).

(f) Resignation from Certain Offices and Directorships. Unless the Company agrees in writing to waive this requirement, upon the termination of the Executive’s employment for Cause, the Executive shall be deemed to have resigned from (i) office as a director of the Company, any subsidiary or affiliate of the Company or any other entity to which the Company appoints the Executive to serve as a director, (ii) from all offices held by the Executive in any or all of such entities in clause (i) above, and (iii) all fiduciary positions (including as trustee) held by the Executive with respect to any pension plans or trusts established by any such entities in clause (i) above. The Executive shall take all actions reasonably requested by the Company to effectuate the foregoing.

4. Obligations of the Company upon Termination

(a) Other Than for Cause or For Good Reason. If, during the Employment Period, the Company terminates the Executive’s employment other than for Cause or Disability or the Executive terminates his employment for Good Reason (each, a “Qualifying Termination”):

(i) The Company shall pay to the Executive an amount in a single lump sum within 10 days after the end of the revocation period for the Release Agreement provided in Section 4(e) below, (provided, however, that the amounts payable pursuant to subparagraph (C) below, if any, will be paid at the same time the bonuses for the year in which the Date of Termination occurs are paid), equal to the sum of —

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(A) an amount equal to the Executive’s Annual Base Salary (at the rate then being paid to Executive) accruing through the Date of Termination to the extent theretofore unpaid (the “Accrued Base Salary”) plus

(B) the amount of any Annual Bonus that, had he remained employed, would otherwise have been paid to the Executive pursuant to Section 2 (b)(ii) above for any fiscal year of the Company that ends on or before the Date of Termination to the extent not previously paid (the “Prior Year Bonus”), plus

(C) (without duplication of the amount in clause (B)) a pro rata portion of the Annual Bonus for the partial fiscal year in which the Date of Termination occurs in an amount equal to the product of (A) the Annual Bonus calculated as of the Date of Termination based on the extent to which the financial performance targets applicable to such Annual Bonus (pro rated based on the number of days in such fiscal year through the Date of Termination) are actually achieved for the year, and (B) a fraction, the numerator of which is the number of days in the year of termination through the Date of Termination and the denominator of which is 365 (the “Pro-Rated Annual Bonus”) plus

(D) an amount equal to two (2) times the Annual Base Salary.

(ii) During the period commencing on the Date of Termination and ending on the date 12 months after the Date of Termination (the “COBRA Period”), provided that the Executive properly elects to receive group health insurance continuation coverage under Section 4980B of the Code and the regulations thereunder (“COBRA”), the Company shall pay directly or reimburse the Executive for premiums for such coverage ; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(a)(ii) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the COBRA Period (or the remaining portion thereof).

All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(iv) and (v), (which shall vest as set forth in the applicable award agreement), shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company.

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Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted. Notwithstanding this Section 4(a), in the event that the Executive is terminated other than for Cause or the Executive terminates employment for Good Reason following a Transactional Change in Control (as defined in the Outperformance Award Agreement) and where the Common Share Price (as defined in the Outperformance Award Agreement) does not represent at least 4.5% compound annual growth rate since the Effective Date, the amount payable by the Company pursuant to Section 4(a)(i)(D) shall equal one (1) times the Annual Base Salary.

(b) Death; Disability. If, during the Employment Period, the Executive’s employment shall terminate on account of death (other than via death after delivery of a valid Notice of Termination for Good Reason or without Cause) or Disability, the Company shall have no further obligations to the Executive other than to pay to or provide the Executive (or his estate) the following:

(i) The Company shall pay to or provide the Executive (or his estate) the following within 10 business days after the Executive’s death or the date on which the Executive becomes Disabled: (A) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid, (B) the Prior Year Bonus to the extent theretofore unpaid, (C) the Pro Rated Annual Bonus (if any), and (D) an amount equal to one (1) times the Annual Base Salary within 10 days after the Date of Termination.

(ii) During the COBRA Period, provided that the Executive’s estate or beneficiaries or the Executive, as applicable, properly elects to receive group health insurance continuation coverage under COBRA, the Company shall pay directly or reimburse the Executive’s estate or beneficiaries or the Executive, as applicable, for premiums for such coverage; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(b)(ii) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the COBRA Period (or the remaining portion thereof).

All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(iv) and (v), (which shall vest as set forth in the applicable award agreement) shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted.

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(c) For Cause; Other than For Good Reason. If, during the Employment Period, the Company shall terminate the Executive’s employment for Cause or the Executive terminates his employment without Good Reason (including the failure by the Executive to renew the Agreement at the end of the Employment Period after the Company offers to do so no less than seventy-five (75) days prior to the end of the Employment Period, as it may be extended pursuant to an employment agreement with at least a three year term, aggregate cash and equity-and performance-based compensation at least as favorable as the same provided for hereunder and otherwise on terms no less favorable to the Executive as those set forth herein) (any such non-renewal, an “Executive Non-Renewal”) the Company shall pay to or provide the Executive (or his estate) the following within 10 business days after the Date of Termination: (A) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid, and (B) in the event of an Executive Non-Renewal, the Prior Year Bonus, to the extent theretofore unpaid. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable (i) in the event of an Executive Non-Renewal, until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted, or (ii) in the event of the termination of Executive’s employment for Cause or without Good Reason other than an Executive Non-Renewal), within ninety (90) days after the Date of Termination.

(d) Expiration of Employment Period due to the Company’s Non-renewal of the Agreement. If the Executive’s employment with the Company terminates by reason of the expiration of the Employment Period other than due to an Executive Non-Renewal, the Company shall pay to or provide the Executive (or his estate) the following within 10 business days after the Date of Termination:

(i) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid;

(ii) the Prior Year Bonus to the extent theretofore unpaid;

(iii) Subject to execution of the Release Agreement provided in Section 4(e) below, the Company shall pay to the Executive an amount equal to one (1) times the Annual Base Salary in a single lump sum within 10 days after the end of the revocation period for the Release Agreement;

(iv) During the COBRA Period, provided that the Executive’s estate or beneficiaries or the Executive, as applicable, properly elects to receive group health insurance continuation coverage under COBRA, the Company shall pay directly or reimburse the Executive’s estate or beneficiaries or the Executive, as applicable, for premiums for such coverage; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(d)(iv) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the COBRA Period (or the remaining portion thereof).

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All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(iv) and (v), (which shall vest as set forth in the applicable award agreement) shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted.

(e) Release Agreement. The Company shall not be required to make the payments and provide the benefits specified in this Section 4 (other than the payment of any Accrued Base Salary) unless the Executive (or his estate, as applicable) executes and delivers to the Company an agreement releasing the Company, its affiliates and its officers, directors and employees from all liability (other than the payments and benefits under this Agreement) in the form attached hereto as Exhibit E (the “Release Agreement”) within thirty (30) days after the Date of Termination and the period for revocation of such Release Agreement shall have lapsed, which Release Agreement shall also provide that the Company shall release the Executive from all liability; provided, that in all events, subject to Executive’s execution and delivery of the Release Agreement, the payments and benefits specified in this Section 4 will be made or provided before March 15 following the end of Executive’s first taxable year in which his right to such payment is no longer subject to a substantial risk of forfeiture.

5. Application of Section 409A

(a) If any compensation or benefits provided by this Agreement may result in the application of Section 409A of the Code, the Company shall, in consultation with the Executive, modify the Agreement in the least restrictive manner necessary in order to, where applicable, (i) exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A or (ii) comply with the provisions of Section 409A, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and to make such modifications, in each case, without any diminution in the value of the payments to the Executive.

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(b) Anything in this Agreement to the contrary notwithstanding, if (A) on the date of termination of Executive’s employment with the Company or a subsidiary, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as amended (the “Code”)), (B) Executive is determined to be a “specified employee” within the meaning of Section 409A(a)(2)(B), (C) the payments exceed the amounts permitted to be paid pursuant to Treasury Regulations section 1.409A-1(b)(9)(iii), and (D) such delay is required to avoid the imposition of the tax set forth in Section 409A(a)(1), as a result of such termination, the Executive would receive any payment that, absent the application of this Section 5(b), would be subject to interest and additional tax imposed pursuant to Section 409A(a) as a result of the application of Section 409A(2)(B)(i), then no such payment shall be payable prior to the date that is the earliest of (1) six (6) months and one day after the Executive’s termination date, (2) the Executive’s death or (3) such other date (the “Delay Period”) as will cause such payment not to be subject to such interest and additional tax (with a catch-up payment equal to the sum of all amounts that have been delayed to be made as of the date of the initial payment). In particular, with respect to any lump sum payment otherwise required hereunder, in the event of any delay in the payment date as a result of Section 409A(a)(2)(A)(i) and (B)(i), the Company will adjust the payments to reflect the deferred payment date by crediting interest thereon at the prime rate in effect at the time such amount first becomes payable, as quoted by the Company’s principal bank.

(c) To the extent that the provision of health insurance following the Date of Termination is so delayed, the Executive shall be entitled to COBRA continuation coverage under Section 4980B of the Code (“COBRA Coverage”) during such period of delay, and the Company shall reimburse the Executive for any Company portions of such COBRA Coverage in the seventh month following the Date of Termination.

(d) To the extent that any benefits to be provided during the Delay Period are considered deferred compensation under Code Section 409A provided on account of a “separation from service,” and such benefits are not otherwise exempt from Section 409A, the Executive shall pay the cost of such benefits during the Delay Period, and the Company shall reimburse the Executive, to the extent that such costs would otherwise have been paid by the Company or to the extent that such benefits would otherwise have been provided by the Company at no cost to the Executive, the Company’s share of the cost of such benefits upon expiration of the Delay Period, and any remaining benefits shall be reimbursed or provided by the Company in accordance with the procedures specified herein.

(e) Any provisions of this Agreement or any other compensation plan notwithstanding, the Company shall have no right to accelerate any such payment hereunder or thereunder except to the extent permitted under Section 409A.

(f) For purposes of Section 409A, each payment made after termination of employment, including COBRA continuation reimbursement payments, will be considered one of a series of separate payments.

(g) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.”

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(h) Any amount that Executive is entitled to be reimbursed under this Agreement that may be treated as taxable compensation, will be reimbursed to Executive as promptly as practical and in any event not later than sixty (60) days after the end of the calendar year in which the expenses are incurred; provided that Executive shall have provided a reimbursement request to the Company no later than thirty (30) days prior to the date the reimbursement is due. The amount of the expenses eligible for reimbursement during any calendar year will not affect the amount of expenses for reimbursement in any other calendar year, except as may be required pursuant to an arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code.

(i) The Company shall not be obligated to reimburse Executive for any tax penalty or interest or provide a gross-up in connection with any tax liability of Executive under Section 409A.

6. Parachute Payment Limitations

Notwithstanding any other provision of this Agreement or of any other agreement, contract, or understanding heretofore or hereafter entered into by the Executive and the Company or any of the Company’s affiliates, except an agreement, contract, or understanding hereafter entered into that expressly modifies or excludes application of this Section 6 (the “Other Agreements”), and notwithstanding any formal or informal plan or other arrangement heretofore or hereafter adopted by the Company or any of the Company’s affiliates for the direct or indirect compensation of the Executive (including groups or classes of participants or beneficiaries of which the Executive is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Executive (a “Benefit Arrangement”), if the Executive is a “disqualified individual,” as defined in Section 280G(c) of the Code, any right to receive any payment or other benefit under this Agreement shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for Executive under the Agreement, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Executive under this Agreement to be considered a “parachute payment” within the meaning of Section 280G(b)(2) of the Code as then in effect (a “Parachute Payment”) and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Executive from the Company or any of the Company’s affiliates under this Agreement, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by Executive without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Agreement, in conjunction with all other rights, payments, or benefits to or for the Executive under the Agreement, any Other Agreement or any Benefit Arrangement would cause the Executive to be considered to have received a Parachute Payment under this Agreement that would have the effect of decreasing the after-tax amount received by the Executive as described in clause (ii) of the preceding sentence, then the Executive shall have the right, in the Executive’s sole discretion, to designate those rights, payments, or benefits under this Agreement, any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Executive under this Agreement be deemed to be a Parachute Payment; provided, however, that, to the extent any payment or benefit constitutes deferred compensation under Section 409A, in order to comply with Section 409A, the reduction or elimination will be performed in the following order: (A) reduction of cash payments; (B) reduction of COBRA benefits; (C) cancellation of acceleration of vesting on any equity awards for which the exercise price exceeds the then fair market value of the underlying equity; and (D) cancellation of acceleration of vesting of equity awards not covered under (C) above; provided, however that in the event that acceleration of vesting of equity awards is to be cancelled, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of such equity awards, that is, later granted equity awards shall be canceled before earlier granted equity awards.

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7. Non-Competition; Non-Solicitation; Confidential Information; Standstill

(a) Non-Competition. Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character. In consideration of his employment hereunder, Executive agrees that, during the term of Executive’s employment with the Company and for a six-month period after the date the Executive’s employment is terminated for any reason, provided in connection with a termination of employment pursuant to Sections 4(a) or (d), the Company is not in material breach in the performance of its obligations to the Executive pursuant to those Sections, the Executive shall not directly or indirectly (without the prior written consent of the Company) engage, directly or indirectly, whether as principal, agent, representative, consultant, employee, partner, stockholder, limited partner, other investor or otherwise (other than a passive investment of not more than two and one-half percent (2.5%) of the stock, equity or other ownership interest of any corporation, partnership or other entity) in any business entity primarily engaged, directly or indirectly through subsidiaries, and the Executive shall not be personally engaged, directly or indirectly, in the business of hotel management within the United States of America or Western Europe. The Executive shall not pursue any prospects listed on a deal pipeline list prepared by the Company and the Executive for a one-year period following the Date of Termination.

(b) Non-Solicitation. During the term of his employment with the Company pursuant to this Agreement and for a one-year period after the Executive’s employment is terminated pursuant to this Agreement for any reason, provided the Company is not in material breach in the performance of its obligations to the Executive as of the Date of Termination and is performing all of its obligations under Section 4 of this Agreement upon and following the Date of Termination, the Executive shall not, in any manner, directly or indirectly (without the prior written consent of the Company), solicit, induce, or encourage any employee, consultant or agent of the Company or any of its subsidiaries to terminate their employment, agency, or other such business relationship with the Company and its subsidiaries or to cease to render services to the Company and its subsidiaries and the Executive shall not initiate discussions with any such person for any such purpose or authorize or knowingly cooperate with or encourage the taking of any such actions by any other individual or entity; provided, however, that this paragraph shall not preclude the hiring or retention of any such person by any other individual or entity who (i) responds to a general employment advertisement by newspaper or similar advertisement, or (ii) is referred to another individual or entity by an employment agency or other similar entity, provided that Executive did not identify the person or the Company as a potential source of employees to such agency or similar entity. During the term of Executive’s employment pursuant to this Agreement and for a six (6) month period after the Executive’s employment is terminated pursuant to this Agreement for any reason, provided the Company is not in material breach in the performance of its obligations to the Executive as of the Date of Termination and is performing all of its obligations under Section 4 of this Agreement upon and following the Date of Termination, the Executive shall not, in any manner (without the prior written consent of the Company), solicit, induce or encourage any customer, vendor, or other party doing business with the Company to terminate their business relationship with the Company and its subsidiaries or to transfer their business from the Company or any of its subsidiaries, and the Executive shall not initiate discussions with any such person for any such purpose or authorize or knowingly cooperate with or encourage the taking of any such actions by any other individual or entity.

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(c) Treatment of Confidential Information. As a Company executive, Executive will acquire Confidential Information (as defined below) in the course of Executive’s employment. Executive agrees that, in consideration of employment with the Company, Executive will treat such Confidential Information as strictly confidential. Executive will not, directly or indirectly, at any time during employment with the Company or any time thereafter, and without regard to when or for what reason, if any, such employment shall terminate, use or cause to be used any such Confidential Information, in connection with any activity or business except in the normal course of performing his designated duties for the Company. Executive shall not disclose or cause to be disclosed any such Confidential Information to any third parties unless such disclosure is in accordance with the disclosure policies adopted by the Board or has been authorized in writing by the Board or except as may be required by law or legal process after providing the Company with prior written notice and an opportunity to respond to such disclosure (unless such notice is prohibited by law). For purposes of this Agreement, “Confidential Information” shall mean confidential or proprietary information, knowledge or data concerning the Company and its subsidiary companies’ businesses, strategies, operations, financial affairs, organizational matters, personnel matters, budgets, business plans, marketing plans, studies, policies, procedures, products, ideas, processes, software systems, trade secrets and technical know-how. Notwithstanding the foregoing, Confidential Information shall not include information which (i) is or becomes generally available to the public or is, at the time in question, in the public domain other than as a result of a disclosure by Executive not permitted hereunder, (ii) was available to Executive on a non-confidential basis prior to the date of this Agreement, or (iii) becomes available to Executive from a source other than the Company, its agents or representatives (or former agents or representatives).

(d) Standstill. During the term of his employment and for a period of six months after the date the Executive’s employment is terminated, Executive shall not, directly or indirectly or in concert with any other person, engage in any of the following:

(i) purchase, offer to purchase, or agree to purchase or otherwise acquire, by means of a purchase, tender or exchange offer, business combination or in any other manner (including rights or options to acquire such ownership), (x) beneficial ownership of any common stock of the Company (“Common Stock”), or securities convertible into or exchangeable for Common Stock of the Company, that would result in the Executive, the Executive’s affiliates, and the members of any “group” of persons with which the Executive or his affiliates are acting in concert beneficially owning, in the aggregate (taking into account shares of Common Stock issuable upon conversion or exchange of any securities held by such the Executive and such other persons), more than 14.9% of the voting power of the outstanding Common Stock, or (y) material beneficial ownership of any debt obligations on hotel properties owned by the Company or any of its consolidated subsidiaries or any material assets owned by the Company or any of its consolidated subsidiaries;

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(ii) seek or propose to influence, advise, change or control the management, Board, governing instruments or policies or affairs of the Company or any of its affiliates, including, without limitation, by means of a solicitation of proxies or seeking to influence, advise or direct the vote of any holder of voting securities of the Company; or

(iii) be employed by any person that, directly or through its affiliates, engages in any of the foregoing.

Exercise of options, conversion of LTIP Units, vesting and delivery of shares of Common Stock pursuant to equity or other awards, plans and arrangements and any other Common Stock received or otherwise acquired by the Executive in connection with or as a result of the Executive’s employment with the Company or service on its Board are not prohibited by this Section 7(d). In addition, if persons with whom the Executive has in no way participated, assisted or cooperated with have taken actions that would be prohibited by Sections 7(d) above such that the Company would be considered to be in “play” through no act of the Executive, the Executive will no longer be subject to the limitations of Sections 7(d).

(e) Survival. Any termination of the Executive’s employment or of this Agreement (or breach of this Agreement by the Executive or the Company) shall have no effect on the continuing effectiveness of this Section 7, Sections 4, 5, 6 and 8 or any other provision hereof that by the nature of its terms is contemplated to survive any such termination.

(f) Validity. The terms and provisions of this Section 7 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive’s future employment imposed by this Section 7 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 7 unreasonable in duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction.

(g) Consideration. The parties acknowledge that this Agreement would not have been entered into and the benefits described in Section 2, 4 or 6 would not have been promised in the absence of the Executive’s promises under this Section 7.

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8. Indemnification

(a) If the Executive is made a party, is threatened to be made a party, or reasonably anticipates being made a party, to any Proceeding (as defined below) by reason of the fact that he is or was a director, officer, executive, agent, manager, trustee, consultant or representative of the Company or any of its affiliates or is or was serving at the request of the Company or any of its affiliates, or in connection with his service hereunder, as a director, officer, member, executive, agent, manager, trustee, consultant or representative of another person or entity, or if any Claim (as defined below) is made, is threatened to be made, or is reasonably anticipated to be made, that arises out of or relates to the Executive’s service in any of the foregoing capacities, then the Executive shall promptly be indemnified and held harmless to the fullest extent permitted or authorized by the Certificate of Incorporation or Bylaws of the Company, or if greater, by applicable law, against any and all costs, expenses, liabilities and losses (including, without limitation, attorneys’ and other professional fees, judgments, interest, expenses of investigation, penalties, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by the Executive in connection therewith or in connection with seeking to enforce his rights under this Section 8, and such indemnification shall continue as to the Executive even if he has ceased to be a director, officer, member, executive, agent, manager, trustee, consultant or representative of the Company or other person or entity and shall inure to the benefit of the Executive’s heirs, executors and administrators. The Executive shall be entitled to prompt advancement of any and all costs and expenses (including, without limitation, attorneys’ and other professional fees and other charges) incurred by him in connection with any such Proceeding or Claim, or in connection with seeking to enforce his rights under this Section 8, any such advancement to be made within 15 days after he gives written notice, supported by reasonable documentation, requesting such advancement. Such notice shall include, to the extent required by applicable law, an undertaking by the Executive to repay the amount advanced if he is ultimately determined not to be entitled to indemnification against such costs and expenses. Nothing in this Agreement shall operate to limit or extinguish any right to indemnification, advancement of expenses, or contribution that the Executive would otherwise have (including, without limitation, by agreement or under applicable law). For purposes of this Agreement, “Claim” shall include, without limitation, any claim, demand, request, investigation, dispute, controversy, threat, discovery request, or request for testimony or information and “Proceeding” shall include, without limitation, any actual, threatened, or reasonably anticipated, action, suit or proceeding, whether civil, criminal, administrative, investigative, appellate, formal, informal or other.

(b) A directors’ and officers’ liability insurance policy (or policies) shall be kept in place, during the Employment Period and thereafter until the later of (x) the sixth anniversary of the date on which the Executive’s employment with the Company terminates and (y) the date on which all claims against the Executive that would otherwise be covered by the policy (or policies) would become fully time barred, providing coverage to the Executive that is no less favorable to him in any respect (including, without limitation, with respect to scope, exclusions, amounts, and deductibles) than the coverage then being provided to any other present or former senior executive or director of the Company.

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9. Other Matters

(a) The Executive represents and warrants that the execution and delivery of this Agreement and the performance of his duties and responsibilities in Section 2(a)(i) will not result in a breach of or conflict with any obligations owed by Executive to his former employer.

(b) The Company acknowledges that Executive has knowledge of confidential information regarding the business and affairs of his former employer. The Company hereby instructs and authorizes Executive not to disclose any such confidential information to any officer, director, employee, adviser, or other representative of the Company and not to make any use of such confidential information in the performance of Executive’s duties on behalf of the Company and such non-disclosure shall not constitute “Cause” or otherwise constitute a violation of this Agreement.

10. Successors

(a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns, provided that the Company may not assign this Agreement other than as described in Section 10(c) below.

(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid.

11. Disputes

(a) Mandatory Arbitration. Subject to the provisions of this Section 11, any controversy or claim between the Executive and the Company arising out of or relating to or concerning this Agreement (including the covenants contained in Section 7) or any aspect of the Executive’s employment with the Company or the termination of that employment (together, an “Employment Matter”) will be finally settled by arbitration in the County of New York administered by the American Arbitration Association (the “AAA”) under its Commercial Arbitration Rules then in effect. However, the AAA’s Commercial Arbitration Rules will be modified in the following ways: (i) notwithstanding any provision of the AAA rules to the contrary, the arbitration shall be heard by a panel of three neutral arbitrators, with each party appointing one arbitrator, who shall jointly appoint a third, (ii) each arbitrator will agree to treat as confidential evidence and other information presented to them, (iii) there will be no authority to award punitive damages (and the Executive and the Company agree not to request any such award), (iv) the optional Rules for Emergency Measures of Protections will apply, (v) there will be no authority to amend or modify the terms of this Agreement except as provided in Section 12(a) (and the Executive and the Company agree not to request any such amendment or modification) and (vi) a decision must be rendered within ten business days of the parties’ closing statements or submission of post-hearing briefs. The Executive and the Company agree that, to the extent permitted by law, a decision made by the arbitration panel with respect to any Employment Matter will be conclusive and binding on the Executive and the Company.

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(b) Injunctions and Enforcement of Arbitration Awards. The Executive or the Company may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the County of New York to enforce any arbitration award under Section 11(a). Also, the Company may bring such an action or proceeding, in addition to its rights under Section 11(a) and whether or not an arbitration proceeding has been or is ever initiated, to temporarily, preliminarily or permanently enforce any part of Section 7. The Executive agrees that (i) violating any part of Section 7 would cause damage to the Company that cannot be measured or repaired, (ii) the Company therefore is entitled to seek an injunction, restraining order or other equitable relief restraining any actual or threatened violation of Section 7, (iii) no bond will need to be posted for the Company to receive such an injunction, order or other relief and (iv) no proof will be required that monetary damages for violations of Section 7 would be difficult to calculate and that remedies at law would be inadequate.

(c) Jurisdiction and Choice of Forum. The Executive and the Company irrevocably submit to the exclusive jurisdiction of any state or federal court located in the County of New York over any Employment Matter that is not otherwise arbitrated or resolved according to Section 11(a). This includes any action or proceeding to compel arbitration or to enforce an arbitration award. Both the Executive and the Company (i) acknowledge that the forum stated in this Section 11(c) has a reasonable relation to this Agreement and to the relationship between the Executive and the Company and that the submission to the forum will apply even if the forum chooses to apply non-forum law, (ii) waive, to the extent permitted by law, any objection to personal jurisdiction or to the laying of venue of any action or proceeding covered by this Section 11(c) in the forum stated in this Section 11(c), (iii) agree not to commence any such action or proceeding in any forum other than the forum stated in this Section 11(c) and (iv) agree that, to the extent permitted by law, a final and non-appealable judgment in any such action or proceeding in any such court will be conclusive and binding on the Executive and the Company. However, nothing in this Agreement precludes the Executive or the Company from bringing any action or proceeding in any court for the purpose of enforcing the provisions of Section 11(a) and this Section 11(c).

(d) Waiver of Jury Trial. To the extent permitted by law, the Executive and the Company waive any and all rights to a jury trial with respect to any Employment Matter.

(e) Costs. The Company will reimburse as incurred any reasonable expenses, including reasonable attorney’s fees, the Executive incurs as a result of any Employment Matter, provided that if the Executive is not the prevailing party on at least one material issue in the Employment Matter, the Executive shall promptly return any such reimbursements. In addition, if the Executive is not the prevailing party on at least one material issue in the Employment Matter, the Executive shall promptly reimburse the Company any reasonable expenses, including reasonable attorney’s fees, the Company has incurred as a result of the Employment Matter, provided that such reimbursement shall not exceed fifty percent (50%) of the expenses, including attorney’s fees, incurred by the Executive.

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12. Miscellaneous

(a) Amendment; Waiver. This Agreement may not be amended or modified, or any provision hereof waived, other than by a written agreement executed by the parties hereto or any of their respective successors and assigns.

(b) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by overnight courier or registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:

at the Executive’s primary residential address
as shown on the records of the Company

If to the Company:

Morgans Hotel Group Co.
475 Tenth Avenue
New York, NY 10018
Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee provided that any notice made by hand delivery shall be deemed to have been received on the date it is actually delivered, any notice made by overnight courier shall be deemed to have been received on the date after such notice was so sent and any notice made by registered or certified mail, return receipt shall be deemed to have been received on the date that is five (5) business days after such notice was so sent.

(c) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. The Executive shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment.

(f) Governing Law. This Agreement will be governed by and construed in accordance with the law of the State of New York applicable to contracts made and to be performed entirely within that State.

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(g) No Waiver. The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason (subject to the proviso at the end of Section 3(c)) or the Company’s right to terminate the Executive for Cause (subject to the limitation in the last sentence of Section 3(b)), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(h) Entire Agreement; Conflict. This Agreement, together with the Stock Option Agreement, RSU Agreement, Outperformance Award Agreement, and Promoted Interest Pool Award Agreement (collectively, the “Related Agreements”), constitutes the final, complete and exclusive agreement between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, between the parties concerning the subject matter hereof. In the event of any conflict or inconsistency between the provisions of, or definitions contained in, this Agreement, on the one hand, and any Related Agreement or any other agreement or instrument related to the Executive’s employment to which he is subject, on the other hand, the provisions or definitions, as the case may be, the terms of the Related Agreements shall govern (notwithstanding the termination hereof) but this Agreement shall govern if in conflict with any plan document or other document or instrument related thereto (other than a Related Agreement).

(i) Section References. Any reference to a Section herein is a reference to a section of this Agreement unless otherwise stated.

(j) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.
SIGNATURES APPEAR ON THE NEXT PAGE.

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

EMPLOYER:			EXECUTIVE:
MORGANS HOTEL GROUP CO.
By:	/s/ David Smail		/s/ Yoav Gery
	Name:	David Smail	Yoav Gery
	Title:	Executive Vice President
		and General Counsel

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Exhibit A

Stock Option Agreement

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Option No.: _______

MORGAN HOTELS GROUP CO.
NON-QUALIFIED STOCK OPTION AGREEMENT

Morgan Hotels Group Co. (the “Company”), hereby grants an option to purchase shares of its common stock (the “Stock”) to the individual named below as the optionee, subject to the vesting conditions set forth in the attachment.

Grant Date: March 23, 2011

Name of Optionee: Yoav Gery

Optionee’s Employee Identification Number: ____-___-_____

Number of Shares Covered by Option: 200,000

Option Price per Share: $______ (At least 100% of Fair Market Value)

Vesting Start Date: March 23, 2011

By signing this cover sheet, you agree to all of the terms and conditions described in this Agreement.

Optionee:	/s/ Yoav Gery
	(Signature)
Company:	/s/ David Smail
	(Signature)
	Title:	Executive Vice President and General Counsel

This is not a stock certificate or a negotiable instrument.

MORGAN HOTELS GROUP CO.
NON-QUALIFIED STOCK OPTION AGREEMENT

Non-Qualified Stock Option	This option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code and will be interpreted accordingly.
Vesting	This option is only exercisable before it expires and then only with respect to the vested portion of the option. Subject to the preceding sentence, you may exercise this option, in whole or in part, to purchase a whole number of vested shares not less than 100 shares, unless the number of shares purchased is the total number available for purchase under the option, by following the procedures set forth below in this Agreement.
	Your right to the Stock under this Agreement vests as to thirty three and one-third percent (331/3%) of the total number of shares of Stock covered by this grant, as shown on the cover sheet, each year on each of the first three one-year anniversaries of the Vesting Start Date. The resulting aggregate number of vested shares will be rounded down to the nearest whole number, and you cannot vest in more than the number of shares covered by this option.
	Except as otherwise provided in the employment agreement between you and the Company, no additional shares of Stock will vest after your Service has terminated for any reason.
	“Service” means service as a Service Provider to the Company or an Affiliate. Your change in position or duties shall not result in interrupted or terminated Service, so long as you continue to be a Service Provider to the Company or an Affiliate. Subject to the preceding sentence, whether a termination of Service shall have occurred shall be determined by the Compensation Committee of the Board of Directors (the “Board”), which determination shall be final, binding and conclusive.
	“Service Provider” means an employee, officer or director of the Company or an Affiliate, or a consultant or adviser currently providing services to the Company or an Affiliate.
	“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act of 1933, as now in effect or hereafter amended, including, without limitation, any Subsidiary. For purposes of granting stock options or stock appreciation rights, an entity may not be considered an Affiliate unless the Company holds a “controlling interest” in such entity, where the term “controlling interest” has the same meaning as provided in Treasury Regulation 1.414(c)-2(b)(2)(i), provided that the language “at least 50 percent” is used instead of “at least 80 percent” and, provided further, that where granting of stock options or stock appreciation rights is based upon a legitimate business criteria, the language “at least 20 percent” is used instead of “at least 80 percent” each place it appears in Treasury Regulation 1.414(c)-2(b)(2)(i)
	“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of Internal Revenue Code of 1986, as amended (the “Code”).

Term	Your option will expire in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the cover sheet. Your option will expire earlier if your Service terminates, as described below.
Termination of Service	Except as otherwise provided in the employment agreement between you and the Company, if your Service terminates for any reason, your option will expire at the close of business at Company headquarters on the 90th day after your termination date.
Notice of Exercise	When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form. Your notice must specify how many shares you wish to purchase (in a parcel of at least 100 shares generally). Your notice must also specify how your shares of Stock should be registered (e.g. in your name only or in your and your spouse’s names as joint tenants with right of survivorship). The notice will be effective when it is received by the Company.
	If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
Form of Payment	When you submit your notice of exercise, you must include payment of the option price for the shares you are purchasing. Payment may be made in one (or a combination) of the following forms:
	• Cash, your personal check, a cashier’s check, a money order or another cash equivalent acceptable to the Company.
	• Shares of Stock which have already been owned by you and which are surrendered to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price.

	• By delivery (on a form prescribed by the Company) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate option price and any withholding taxes.
Withholding Taxes	You will not be allowed to exercise this option unless you make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the option exercise or sale of Stock acquired under this option. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the exercise or sale of shares arising from this grant, the Company shall have the right to require such payments from you, or withhold such amounts from other payments due to you from the Company or any Affiliate. Subject to the prior approval of the Company, which may be withheld by the Company, in its sole discretion, you may elect to satisfy this withholding obligation, in whole or in part, by causing the Company to withhold shares of Stock otherwise issuable to you or by delivering to the Company shares of Stock already owned by you. The shares of Stock so delivered or withheld must have an aggregate Fair Market Value equal to the withholding obligation and may not be subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
	“Fair Market Value” with respect to a share of Stock means the value of a share of such Stock determined as follows: if on the determination date the Stock is listed on an established national or regional stock exchange, is admitted to quotation on The NASDAQ Stock Market, Inc. or is publicly traded on an established securities market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or in such market (if there is more than one such exchange or market the Compensation Committee of the Board shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the highest bid and lowest asked prices or between the high and low sale prices on such trading day) or, if no sale of Stock is reported for such trading day, on the next preceding day on which any sale shall have been reported. If the Stock is not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the share of Stock shall be the value of the Stock as determined by the Compensation Committee of the Board by the reasonable valuation method, in a manner consistent with Section 409A of the Code. “Fair Market Value” with respect to an award means the value of the award as determined by the Compensation Committee in good faith, taking into consideration applicable tax and accounting rules and regulations.

Corporate Transaction	Notwithstanding the vesting schedule set forth above, upon the consummation of a Corporate Transaction, this option will become 100% vested if it is not assumed, or equivalent options are not substituted for the options, by the Company or its successor. Notwithstanding any other provision in this Agreement but subject to the employment agreement between you and the Company, if assumed or substituted for, the option will expire one year after the date of termination of Service.
	“Corporate Transaction” shall be deemed to have occurred if (i) any person or group of persons (as defined in Section 13(d) and 14(d) of the Exchange Act of 1934, as now in effect or hereafter amended (the “Exchange Act”)) together with its affiliates, excluding employee benefit plans of the Company, is or becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act) of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities; or (ii) individuals who at the beginning of any two-year period constitute the Board, plus new directors of the Company whose election or nomination for election by the Company’s shareholders is approved by a vote of at least two-thirds of the directors of the Company still in office who were directors of the Company at the beginning of such two-year period, cease for any reason during such two-year period to constitute at least two-thirds of the members of the Board; or (iii) a merger or consolidation of the Company with any other corporation or entity is consummated regardless of which entity is the survivor, other than a merger of consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the Company is completely liquidated or all or substantially all of the Company’s assets are sold.
Transfer of Option	During your lifetime, only you (or, in the event of your legal incapacity or incompetency, your guardian or legal representative) may exercise the option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or it may be transferred upon your death by the laws of descent and distribution.

	Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your spouse, nor is the Company obligated to recognize your spouse’s interest in your option in any other way.
Retention Rights	This Agreement does not give you the right to be retained or employed by the Company (or any Affiliates) in any capacity. The Company (and any Affiliate) reserve the right to terminate your Service at any time and for any reason, subject to the employment agreement between you and the Company.
Shareholder Rights	You, or your estate or heirs, have no rights as a shareholder of the Company until a certificate for your option’s shares has been issued (or an appropriate book entry has been made). No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued (or an appropriate book entry has been made).
Adjustments	In the event of a stock split, a stock dividend or a similar change in the Stock, the number of shares covered by this option and the option price per share shall be adjusted (and rounded down to the nearest whole number).
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of New York, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
Data Privacy	The Company may process personal data about you. Such data includes but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of this Agreement.
	By accepting this option, you give explicit consent to the Company to process any such personal data. You also give explicit consent to the Company to transfer any such personal data outside the country in which you work or are employed, including, with respect to non-U.S. resident Optionees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to facilitate the administration of this Agreement.

Consent to Electronic Delivery	The Company may choose to deliver certain statutory materials relating to this Agreement in electronic form. If at any time you would prefer to receive paper copies of any documents, as you are entitled to receive, the Company would be pleased to provide copies.
Electronic Signature	All references to signatures and delivery of documents in this Agreement can be satisfied by procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents, including this Agreement. Your electronic signature is the same as, and shall have the same force and effect as, your manual signature. Any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to this Agreement.
Scope of Agreement	This Agreement constitutes the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this grant are superseded.

By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above.

Exhibit B

Outperformance Award Agreement

MORGANS HOTEL GROUP CO.
2011 OUTPERFORMANCE PLAN AWARD AGREEMENT

2011 OUTPERFORMANCE PLAN AWARD AGREEMENT made as of the date set forth on Schedule A hereto by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “Company”), MORGANS GROUP LLC, a Delaware limited liability company (the “Operating Company”), and the party listed on Schedule A (the “Grantee”).

RECITALS

A. The Grantee is a senior management employee of the Company and provides services to the Operating Company.

B. The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) approved this and other 2011 outperformance plan (“2011 OPP”) awards pursuant to the Company’s Amended and Restated 2007 Omnibus Incentive Plan (the “Incentive Plan”) to provide certain senior management employees of the Company, including the Grantee, in connection with their employment with the incentive compensation described in this Award Agreement (this “Agreement”) and thereby provide additional incentive for them to promote the progress and success of the business of the Company and its Affiliates. 2011 OPP awards were approved by the Committee pursuant to authority delegated to it by the Board, including authority to make grants of stock-based performance incentive awards. This Agreement evidences one award (this “Award”) in a series of 2011 OPP awards and is subject to the terms and conditions set forth herein.

C. The Committee, effective as of the grant date specified in Schedule A hereto, awarded to the Grantee the 2011 OPP participation percentage in the Total Outperformance Pool (as defined herein), as set forth in Schedule A.

NOW, THEREFORE, the Company, the Operating Company, and the Grantee agree as follows:

1. Administration.

This Award and all other 2011 OPP awards shall be administered by the Committee, which in the administration of the 2011 OPP awards and this Award shall have all the powers and authority it has in the administration of the Incentive Plan as set forth in the Incentive Plan, but subject to this Agreement ; provided that all powers of the Committee hereunder can be exercised by the full Board if the Board so elects. The Committee, in its sole and absolute discretion, may provide for lapse of forfeiture restrictions and/or accelerated vesting under this Agreement of some or all of the Grantee’s unvested Award Participation that has not previously been forfeited.

2. Definitions.

Capitalized terms used herein shall have the meanings set forth below:

“Accelerated Payment Change of Control” means a Transactional Change of Control or a Change of Control within the meaning of subparagraph (iv) or (v) thereof.

“Additional Share Baseline Value” means, with respect to each Additional Share, the gross proceeds received by the Company or the Operating Company upon the issuance of such Additional Share, which amount shall be deemed to equal, as applicable:

(A) if such Additional Share is issued for cash in a public offering or private placement, the gross price to the public or to the purchaser(s);

(B) if such Additional Share is issued in exchange for assets or securities of another Person or upon the acquisition of another Person, the cash value imputed to such Additional Share for purposes of such transaction by the parties thereto, as determined in good faith by the Committee, or, if no such value was imputed, the mean between the high and low sale prices of a Common Share on the national securities exchange or established securities market on which the Common Shares are listed on the date of issuance of such Additional Share, or, if no sale of Common Shares is reported on such date, on the next preceding day on which any sale shall have been reported; and

(C) if such Additional Share is issued upon conversion or exchange of equity or debt securities of the Company, the Operating Company or any other Subsidiary of the Company, which securities were not previously counted as either Initial Shares or Additional Shares, the conversion or exchange price in effect as of the date of conversion or exchange pursuant to the terms of the security being exchanged or converted.

“Additional Shares” means, as of a particular date of determination, the number of Common Shares, other than those held by the Company, to the extent such Common Shares are issued after the Effective Date and on or before such date of determination in a capital raising transaction, in exchange for assets or securities or upon the acquisition of another Person, upon conversion or exchange of equity or debt securities of the Company or any Subsidiary of the Company, which securities were not previously counted as either Initial Shares or Additional Shares, or through the reinvestment of dividends or other distributions.

For the avoidance of doubt, “Additional Shares” shall exclude, without limitation:

(i) Common Shares issued after the Effective Date upon exercise of stock options or upon the exchange (directly or indirectly) of LTIP Units or other Units issued to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation,

(ii) Common Shares awarded after the Effective Date to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation for services provided or to be provided to the Company or any of its Affiliates,

(iii) LTIP Units or other Units awarded after the Effective Date to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation, and

(iv) any securities included in “Initial Shares.”

“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

“Award Common Units” means the units of membership interests in the Operating Company referred to as “Membership Units” in the LLC Agreement into which the Award LTIP Units may be converted in accordance with the terms of the LLC Agreement.

“Award LTIP Units” means a series of LTIP Units established by the Operating Company, with the rights, privileges, and preferences set forth in the designations thereof included in an amendment to the LLC Agreement that may be adopted hereafter by the Managing Member of the Operating Company in accordance with Section 8(a), which designations shall be in the form set forth on Exhibit A attached hereto.

“Award Participation” has the meaning set forth in Section 3.

“Baseline Value” means $8.87.

“Buyback Shares” means (without double-counting), as of a particular date of determination, (A) Common Shares or (B) the Shares Amount for Units (assuming that such Units were converted, exercised, exchanged or redeemed for Membership Units as of such date at the applicable conversion, exercise, exchange or redemption rate (or rate deemed applicable by the Committee if there is no such stated rate) and such Common Units were then tendered to the Operating Company for redemption pursuant to Section 4.2(e)(1) of the LLC Agreement as of such date), other than Units held by the Company, in the case of each (A) and (B), to the extent repurchased by the Company after the Effective Date and on or before such date of determination in a stock buyback transaction or in a redemption of Units for cash pursuant to Section 4.2(e)(1) of the LLC Agreement.

“Cause” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination and “Cause” is defined therein, then “Cause” shall have the meaning set forth in such definition, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Cause” or a substantially equivalent term, then “Cause” shall mean:

(i) the Grantee’s willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Grantee’s incapacity due to physical or mental illness or any such failure after his issuance of a notice of termination for Good Reason), after a written demand for substantial performance is delivered to the Grantee by the Board, which demand specifically identifies the manner in which the Board believes that the Grantee has not substantially performed his duties;

(ii) a material breach by Grantee of his Service Agreement;

(iii) the Grantee’s willful commission of an act of fraud, theft or dishonesty resulting in economic, financial or material reputational injury to the Company;

(iv) the Grantee’s conviction of, or entry by the Grantee of a guilty or no contest plea to, the commission of a felony; or

(v) the Grantee willfully engages in other misconduct materially injurious to the Company.

For purposes of this provision, no act or omission on the part of the Grantee shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission based upon a resolution duly adopted by the Board or advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Grantee shall not be deemed to be for Cause unless and until there shall have been delivered to the Grantee a copy of a resolution duly adopted by the majority of the Board (excluding the Grantee, if the Grantee is then a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Grantee and the Grantee is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Grantee is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

“Change of Control” means:

(i) individuals who, on the Effective Date, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director; or

(ii) any “person” (as such term is defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Effective Date, a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that an event described in this paragraph (ii) shall not be deemed to be a Change of Control if any of following becomes such a beneficial owner: (A) the Company or any majority-owned subsidiary of the Company (provided that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any such majority-owned subsidiary, or (C) any underwriter temporarily holding securities pursuant to an offering of such securities; or

(iii) the consummation of a merger, consolidation, share exchange or similar form of transaction involving the Company or any of its subsidiaries, or the sale of all or substantially all of the Company’s assets (a “Business Transaction”), unless immediately following such Business Transaction (A) more than 50% of the total voting power of the entity resulting from such Business Transaction or the entity acquiring the Company’s assets in such Business Transaction (the “Surviving Corporation”) is beneficially owned, directly or indirectly, by the Company’s shareholders immediately prior to any such Business Transaction, and (B) no person (other than the persons set forth in clauses (A), (B), or (C) of paragraph (ii) above or any tax-qualified, broad-based employee benefit plan of the Surviving Corporation or its affiliates) beneficially owns, directly or indirectly, 30% or more of the total voting power of the Surviving Corporation; or

(iv) Board approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company’s shareholders in substantially the same proportions as such shareholders owned the Company’s outstanding voting common equity interests immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company to the Grantee under this Agreement; or

(v) Approval by the shareholders of the Company or the Managing Member and/or Non-Managing Members of the Operating Company of a dissolution or liquidation of the Operating Company and satisfaction or effective waiver of all material contingencies to such liquidation or dissolution.

“CoC Fraction” means, for application pursuant to the proviso clause in the definition of “Final Baseline,” the number of calendar days that have elapsed since the Effective Date to and including the date as of which a Change of Control is consummated (or, with respect to a Transactional Change of Control, the date of the Public Announcement of such Transactional Change of Control), divided by 1,096.

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

“Common Shares” means shares of the Company’s common stock, par value $0.01 per share.

“Common Share Price” means, as of a particular date, the average of the Fair Market Value of one Common Share over the thirty (30) consecutive trading days ending on, and including, such date (or, if such date is not a trading day, the most recent trading day immediately preceding such date); provided, however, that if such date is the date of the Public Announcement of a Transactional Change of Control, the Common Share Price as of such date shall be equal to the fair market value, as determined by the Committee, of the total consideration payable in the transaction that ultimately results in the Transactional Change of Control for one Common Share.

“Continuous Service” means the continuous service, without interruption or termination, as a an employee or director of Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of (among other things) —

(A) any approved leave of absence,

(B) transfers among the Company and any Affiliate, or any successor, in any capacity of director or employee, or

(C) any change in status as long as the individual remains in the service of the Company or any Affiliate of the Company in the capacity of employee or director.

An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

“Disability” means:

(A) if the Grantee is or was a party to a Service Agreement prior to the applicable event, and “Disability” is defined therein, then “Disability” shall have the meaning set forth in such definition, or

(B) if the Grantee is not and was not a party to a Service Agreement prior to such event or the Grantee’s Service Agreement does not define “Disability” or a substantially equivalent term, then “Disability” shall mean a disability which renders the Grantee incapable of performing all of his or her material duties for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Grantee or the Grantee’s legal representative or by the insurance company which insures the Company’s long-term disability plan in which the Grantee is eligible to participate.

“Effective Date” means March 20, 2011.

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

“Fair Market Value” means, as of any given date, the fair market value of a security determined by the Committee using any reasonable method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1) of the Code); provided that, with respect to a Common Share, “Fair Market Value” means the value of such Common Share determined as follows: (A) if on the determination date the Common Shares are listed on the New York Stock Exchange, The NASDAQ Stock Market, Inc. or another national securities exchange or is publicly traded on an established securities market, the Fair Market Value of a Common Share shall be the closing price of the Common Shares on such exchange or in such market (if there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the high and low sale prices on such trading day) or, if no sale of Common Shares is reported for such trading day, on the next preceding day on which any sale shall have been reported; or (B) if the Common Shares are not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the Common Share shall be the value of the Common Shares as determined by the Committee in good faith in a manner consistent with Section 409A of the Code.

“Family Member” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Grantee, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than fifty percent of the beneficial interest, a foundation in which any one or more of these persons (or the Grantee) control the management of assets, and any other entity in which one or more of these persons (or the Grantee) own more than fifty percent of the voting interests.

“Final Baseline” means, as of the Final Valuation Date, an amount representing (without double-counting) the sum of:

(A) the Baseline Value multiplied by:

(i) the difference between (x) the Initial Shares and (y) all Buyback Shares repurchased or redeemed between the Effective Date and the Final Valuation Date, and then multiplied by

(ii) the sum of one hundred percent (100%) plus the Target Return Percentage; plus

(B) with respect to each Additional Share issued after the Effective Date, the Additional Share Baseline Value of such Additional Share, multiplied by the sum of (i) one hundred percent (100%) plus (ii) the product of the Target Return Percentage multiplied by a fraction (x) the numerator of which is the number of days from the issuance of such Additional Share to and including the Final Valuation Date and (y) the denominator of which is the number of days from and including the Effective Date to and including the Final Valuation Date; plus

(C) with respect to each Buyback Share repurchased or redeemed after the Effective Date, the Baseline Value, multiplied by the sum of (i) one hundred percent (100%) plus (ii) the product of the Target Return Percentage multiplied by a fraction (x) the numerator of which is the number of days from the Effective Date to and including the date such Buyback Share was repurchased or redeemed and (y) the denominator of which is the number of days from and including the Effective Date to and including the Final Valuation Date;

provided that if the Final Valuation Date occurs prior to the third anniversary of the Effective Date as a result of an Accelerated Payment Change of Control, then for purposes of this definition in connection with the calculation of the Total Outperformance Pool as of the Final Valuation Date, then the Target Return Percentage to be used in such calculation shall be reduced to a percentage equal to thirty percent (30%) multiplied by the CoC Fraction. If the Company consummates multiple issuances of Additional Shares and/or repurchases of Buyback Shares during any one monthly or quarterly period, such that it would be impractical to track the precise issuance date and issuance price of each individual Additional Share and/or repurchase or redemption date of each individual Buyback Share, the Committee may in its good faith discretion approve timing and calculation conventions (such as net-at-end-of-period or average-during-the-period) reasonably designed to simplify the administration of this Award.

“Final Valuation Date” means the earliest of: (A) the third anniversary of the Effective Date; or (B) in the event of an Accelerated Payment Change of Control that is not a Transactional Change of Control, the date on which such Change of Control shall occur; or (C) in the event of a Transactional Change of Control and subject to the consummation of such Transactional Change of Control, the date of the Public Announcement of such Transactional Change of Control; provided that if the Public Announcement occurs after 4pm New York City time or otherwise so late in the trading day that the market cannot meaningfully react on such day, then the Final Valuation Date shall mean the following trading day.

“Good Reason” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Good Reason” is defined therein, then “Good Reason” shall have the meaning set forth in such Service Agreement, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Good Reason” or a substantially equivalent term, so long as the Grantee terminates his or her employment within thirty (30) days after the Grantee has actual knowledge of the occurrence, without the written consent of the Grantee, of one of the following events that has not been cured within thirty (30) days after written notice thereof has been given by Grantee to the Company, then “Good Reason” shall mean:

(i) the assignment to the Grantee of duties materially inconsistent with the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated in his Service Agreement, or any other action by the Company which results in a material diminution in the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Grantee;

(ii) any material failure by the Company to comply with any of the provisions of the Service Agreement, other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Grantee;

(iii) any failure by the Company to obtain the assumption of his Service Agreement by a successor to all or substantially all of the business or assets of the Company; or

(iv) if his Service Agreement provides that the Executive will be nominated for election as a director of the Company, any failure by the Board to nominate the Executive for election as a director of the Company in accordance with the Service Agreement, or any failure of the Executive to be elected to be a member of the Board; or

(v) any requirement that the Grantee’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Grantee’s residence to his new place of employment;

“Initial Shares” means 32,642,795 Common Shares, which includes: (A) 30,311,503 Common Shares outstanding as of the Effective Date (other than currently unvested restricted Common Shares previously granted to employees or other persons or entities in exchange for services provided to the Company); plus (B) 954,065 Common Shares representing the Shares Amount for all of the Membership Units (other than LTIP Units and excluding Membership Units held by the Company) outstanding as of the Effective Date assuming that all of such Membership Units were tendered to the Operating Company for redemption pursuant to Section 4.2(e) of the LLC Agreement as of such date; plus (C) 1,377,227 Common Shares representing the Shares Amount for all of the Membership Units into which all LTIP Units outstanding as of the Effective Date could be converted without regard to the book capital account associated with them (but only to the extent such LTIP Units are currently vested), assuming that all of such Membership Units were tendered to the Operating Company for redemption pursuant to Section 4.2(e) of the LLC Agreement as of such date.

For the avoidance of doubt, Initial Shares (i) includes (x) currently vested Common Shares and (y) currently vested LTIP Units previously granted to employees or other persons or entities in exchange for services provided to the Company, and (ii) excludes (x) all Common Shares issuable upon exercise of stock options or upon the exchange (directly or indirectly) of unvested LTIP Units or other unvested Units issued to employees, non-employee directors, consultants, advisors or other persons or entities as incentive compensation, and (y) currently unvested restricted Common Shares previously granted to employees, non-employee directors, consultants, advisors or other persons or entities in exchange for services provided to the Company.

“LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of the Operating Company, dated as of February 17, 2006, among the Company, as managing member, and the non-managing members who are parties thereto, as amended from time to time.

“LTIP Units” means LTIP Units, as such term is defined in the LLC Agreement.

“Membership Units” has the meaning set forth in the LLC Agreement.

“Partial Service Factor” means a factor carried out to the sixth decimal to be used in calculating the Grantee’s adjusted Participation Amount pursuant to Section 4(b)(ii) hereof in the event of a Qualified Termination of the Grantee’s Continuous Service prior to the Final Valuation Date or pursuant to Section 4(e) in the event of a termination of the Grantee’s Continuous Service by reason of death or Disability prior to the Final Valuation Date, determined as follows:

the number of calendar days that have elapsed since the Effective Date to and including the effective date of such Qualified Termination or the date of death or Disability, divided by 1,096; provided, however, that if, after the effective date of such Qualified Termination or the date of death or Disability and before the third anniversary of the Effective Date, an Accelerated Payment Change of Control occurs, then there shall be subtracted from the foregoing denominator (1,096) a number of days equal to the days that would elapse between the date as of which the Accelerated Payment Change of Control is consummated (or, with respect to a Transactional Change of Control, the date of the Public Announcement of the Transactional Change of Control) and the third anniversary of the Effective Date.

“Participation Amount” has the meaning set forth in Section 3.

“Participation Percentage” means the percentage (of the Total Outperformance Pool) set forth opposite such term on Schedule A hereto

“Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, other entity or “group” (as defined in the Exchange Act).

“Public Announcement” means, with respect to a Transactional Change of Control, the earliest press release, filing with the SEC or other publicly available or widely disseminated communication issued by the Company or another Person who is a party to such transaction which discloses the consideration payable in and other material terms of the transaction that ultimately results in the Transactional Change of Control; provided, however, that if such consideration is subsequently increased or decreased, then the term “Public Announcement” shall be deemed to refer to the most recent such press release, filing or communication disclosing a change in consideration whereby the final consideration and material terms of the transaction that ultimately results in the Transactional Change of Control are announced. For the avoidance of doubt, the foregoing definition is intended to provide the Committee in the application of the proviso clause in the definition of “Common Share Price” with the information required to determine the fair market value of the consideration payable in the transaction that ultimately results in the Transactional Change of Control as of the earliest time when such information is publicly disseminated, particularly if the transaction consists of an unsolicited tender offer or a contested business combination where the terms of the transaction change over time.

“Qualified Termination” has the meaning set forth in Section 4.

“SEC” means the U.S. Securities and Exchange Commission.

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

“Service Agreement” means, as of a particular date, any employment, consulting or similar service agreement then in effect between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand, as amended or supplemented through such date, provided that, if no such agreement is then in effect, “Service Agreement” shall mean any employment, consulting or similar service agreement most recently in effect (on or after the Effective Date) prior to such date, as amended or supplemented, between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand.

“Shares Amount” has the meaning set forth in the LLC Agreement.

“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

“Target Return Percentage” means thirty percent (30%), representing a compound annual growth rate of approximately nine percent (9%) per annum over a three-year period, using annual compounding, except as otherwise defined for purposes of the definition of Final Baseline in certain circumstances, as described in the proviso clause of such definition.

“Total Outperformance Pool” means, as of the Final Valuation Date, a dollar amount calculated as follows: (A) subtract the Final Baseline from the Total Return, in each case as of the Final Valuation Date and (B) multiply the resulting amount by ten percent (10%); provided that if the resulting amount is a negative number, then the Total Outperformance Pool shall be zero.

“Total Return” means (without double-counting), as of the Final Valuation Date, an amount equal to the sum of (A) the Total Shares as of such date of determination multiplied by the Common Share Price as of such date, plus (B) an amount equal to the sum of the total dividends and other distributions actually declared between the Effective Date and the Final Valuation Date (excluding dividends and distributions paid in the form of additional Common Shares) so long as the “ex-dividend” date with respect thereto falls prior to the Final Valuation Date, in respect of Common Shares (it being understood, for the avoidance of doubt, that such total dividends and distributions shall be calculated by multiplying the amount of each per share dividend or distribution declared by the actual number of securities outstanding as of each record date with respect to the applicable dividend or distribution payment date).

“Total Shares” means (without double-counting), as of the Final Valuation Date, the sum of: (A) the Initial Shares, minus (B) all Buyback Shares repurchased or redeemed between the Effective Date and the Final Valuation Date, plus (C) all Additional Shares issued between the Effective Date and the Final Valuation Date.

“Transactional Change of Control” means (A) a Change of Control described in clause (ii) of the definition thereof where the “person” or “group” makes a tender offer for Common Shares, or (B) a Change of Control described in clause (iii) of the definition thereof; provided that if the applicable definition of “Change of Control” (or similar term) in the applicable Service Agreement does not track such clauses (ii) or (iii), then the term “Transactional Change of Control” shall mean a Change of Control meeting the substantive criteria set forth in such clauses, as reasonably determined in good faith by the Committee.

“Transfer” has the meaning set forth in Section 6.

“Units” means all Membership Units that are eligible for the Redemption Right (as defined in the LLC Agreement) and any other Membership Units, including LTIP Units, with economic attributes substantially similar to such Membership Units as determined by the Committee that are outstanding or are issuable upon the conversion, exercise, exchange or redemption of any securities of any kind convertible, exercisable, exchangeable or redeemable for Membership Units.

3. Outperformance Award; Vesting; Change of Control.

(a) The Operating Company hereby grants to the Grantee this Award consisting of the Participation Percentage set forth on Schedule A hereto (the “Award Participation”), which (A) will be subject to forfeiture to the extent provided in this Section 3 and (B) will be subject to vesting as provided below in this Section 3(a) and in Section 3(d) and Section 4. The Award will be made in the form of Award LTIP Units as provided in Section 8, subject to the Company having received confirmation that it is permitted under applicable stock exchange listing rules to issue Award LTIP Units, on the terms contemplated herein, under the Incentive Plan. The Company will use commercially reasonable efforts to obtain such confirmation within 90 days following the Effective Date. If the Company does not receive such confirmation within 90 days following the Effective Date, the Company and the Operating Company shall amend this Award Agreement to provide for an Award that is settled by a cash payment by the Operating Company to Grantee equal to his Participation Amount within 45 days following the Final Valuation Date. In the event Grantee receives Award LTIP Units pursuant hereto, references herein to Grantee’s Award Participation shall refer to Grantee’s Award LTIP Units and the provisions of Section 8 shall apply in lieu of specified provisions of this Award Agreement. At any time prior to the Final Valuation Date, the Committee may grant additional 2011 OPP awards with such Participation Percentages (up to a total of 100% for all 2011 Participation Percentages granted or reserved) set forth therein as the Committee may determine, in its sole discretion, The Award Participation shall vest (i) on the Final Valuation Date if the Continuous Service of the Grantee continues to that date or (ii) in accordance with Section 3(d), 4(b) and 4(d) hereof.

(b) As soon as practicable following the Final Valuation Date, but as of the Final Valuation Date, the Committee will:

(i) determine the Total Outperformance Pool (if any);

(ii) multiply (x) the Total Outperformance Pool calculated as of the Final Valuation Date by (y) the Grantee’s Participation Percentage as of the Final Valuation Date; and

(iii) if applicable (without double-counting), multiply the amount determined in clause (ii) by the Partial Service Factor or the CoC Fraction.

The resulting amount is hereafter referred to as the “Participation Amount.” The Committee will notify Grantee of his Participation Amount (if any) promptly following the determination thereof. If Grantee has received his Award in the form of Award LTIP Units, Section 8(b) will apply in lieu of the remainder of this Section 3(b). If this Award Agreement has been amended, as provided in Section 3(a), to provide for a payment in cash such notice will state whether the Committee has elected to cause the Company to pay the Participation Amount in cash or through the issuance of fully vested shares under one of the Company’s equity incentive compensation plans, subject to compliance with applicable laws and stock exchange listing requirements, or through a combination of cash and shares. If the Participation Amount is to be paid using shares, the shares will be valued at the Common Share Price as of the Final Valuation Date and will be issued under the Incentive Plan and be registered on a Form S-8. The Company shall pay Grantee’s Participation Amount within 45days following the Final Valuation Date.

(c) Any Award Participation that does not become vested pursuant to Section 3(a), Section 3(d), or Section 4 hereof shall, without payment of any consideration by the Company, automatically and without notice be forfeited and be and become null and void upon the termination of the Continuous Service of Grantee prior to the Final Valuation Date (other than by reason of a Qualified Termination, death or Disability), and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Award Participation.

(d) If there is a Change of Control, Grantee’s Award Participation shall vest immediately and automatically upon the occurrence of such Change of Control.

(e) In the event of a Change of Control, the Committee will make any determinations and certifications required by this Agreement and any provisions necessary with respect to the lapse of forfeiture restrictions and/or acceleration of vesting of this Award within a period of time that enables the Company to take any action or make any deliveries or payments it is obligated to make hereunder not later than the date of consummation of the Change of Control. For avoidance of doubt, in the event of a Change of Control, the performance of all calculations and actions pursuant to Section 3(b) hereof shall be conditioned upon the final consummation of such Change of Control.

4. Termination of Grantee’s Continuous Service; Death and Disability.

(a) If the Grantee is or was a party to a Service Agreement and his or her Continuous Service terminates, the provisions of Sections 4(b), 4(c), 4(d), and 4(e), hereof shall govern the treatment of the Grantee’s Award Participation exclusively, unless the Service Agreement contains provisions that expressly refer to this Section 4(a) and provides that those provisions of the Service Agreement shall instead govern the treatment of the Grantee’s Award Participation upon such termination. The foregoing sentence will be deemed an amendment to any applicable Service Agreement to the extent required to apply its terms consistently with this Section 4, such that, by way of illustration, any provisions of the Service Agreement with respect to accelerated vesting or payout or the lapse of forfeiture restrictions relating to the Grantee’s incentive or other compensation awards in the event of certain types of termination of the Grantee’s Continuous Service with the Company (such as, for example, termination at the end of the term, termination without Cause by the employer or termination for Good Reason by the employee) shall not be interpreted as requiring that any calculations set forth in Section 3 hereof be performed, or vesting occur with respect to this Award other than as specifically provided in this Section 4.

(b) In the event of termination of the Grantee’s Continuous Service by (A) the Company without Cause or (B) the Grantee for Good Reason (each a “Qualified Termination”) prior to the Final Valuation Date, then the Grantee will not forfeit the Award Participation upon such termination, but the following provisions of this Section 4(b) shall modify the calculations required to determine the Participation Amount and/or the vesting of the Award Participation, as applicable, with respect to the Grantee only:

(i) the calculations provided in Section 3(b) hereof shall be performed as of the Final Valuation Date, as if the Qualified Termination had not occurred;

(ii) the Participation Amount calculated pursuant to Section 3(b) shall be multiplied by the applicable Partial Service Factor; and

(iii) the Grantee’s Participation Amount as adjusted pursuant to Section 4(b)(ii) above shall no longer be subject to forfeiture pursuant to Section 3(c) hereof; provided that, notwithstanding that no Continuous Service requirement pursuant to Section 3(c) hereof will apply to the Grantee after the effective date of a Qualified Termination, the Grantee will not have the right to Transfer (as defined in Section 6 hereof) his or her Award Participation or request the redemption of any Award Common Units until such dates as of which his or her Participation Amount, as adjusted pursuant to Section 4(b)(ii) above, would have become vested pursuant to Section 3(a) hereof absent a Qualified Termination. For the avoidance of doubt, the purpose of this Section 4 (b)(iii) is to prevent a situation where grantees of 2011 OPP awards who have had a Qualified Termination would be able to realize the value of their Award Participation or any Award Common Units (through Transfer) before other grantees of 2011 OPP awards whose Continuous Service continues through the Final Valuation Date and the date for payment of the Participation Amount.

(c) Notwithstanding the foregoing, in the event any payment to be made hereunder after giving effect to this Section 4 is determined to constitute “nonqualified deferred compensation” subject to Section 409A of the Code, then, to the extent the Grantee is a “specified employee” under Section 409A of the Code subject to the six-month delay thereunder, any such payments to be made during the six-month period commencing on the Grantee’s “separation from service” (as defined in Section 409A of the Code) shall be delayed until the expiration of such six-month period.

(d) In the event of a termination of the Grantee’s Continuous Service as a result of his or her death or Disability prior to the Final Valuation Date, the Grantee will not forfeit the Award Participation, but the following provisions of this Section 4(d) shall apply:

(i) the calculations provided in Section 3(b) hereof shall be performed as of the Final Valuation Date, as if the Grantee’s death or Disability had not occurred; and

(ii) the Participation Amount calculated pursuant to Section 3(b) shall be multiplied by the applicable Partial Service Factor, and such adjusted amount shall be deemed the Grantee’s Participation Amount for all purposes under this Agreement; and

(iii) 100% of the Grantee’s Participation Amount as adjusted pursuant to Section 4(d)(ii) above shall no longer be subject to forfeiture pursuant to Section 3(c) hereof and shall automatically and immediately vest as of the Final Valuation Date.

(e)n the event of a termination of the Grantee’s Continuous Service prior to the Final Valuation Date (other than (1) a Qualified Termination or (2) by reason of death or Disability or (3) following a Change of Control), the Award Participation, unless it shall, as of the date of such termination, both (i) have ceased to be subject to forfeiture pursuant to Section 3(c) hereof, and (ii) have vested pursuant to Section 3(a) hereof, shall, without payment of any consideration by the Company, automatically and without notice terminate, be forfeited and be and become null and void, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such Award Participation.

5. No Payments by Award Recipients.

No amount shall be payable to the Company by the Grantee at any time in respect of this Agreement. The Grantee shall have no rights with respect to this Agreement (and the Award evidenced hereby) unless he or she shall have accepted this Agreement by signing and delivering to the Company a copy of this Agreement. Upon acceptance of this Agreement by the Grantee, the Grantee’s Award Participation shall constitute and shall be treated for all purposes as the property of the Grantee, subject to the terms of this Agreement.

6. Restrictions on Transfer.

Except as otherwise permitted by the Committee, no portion of the Award Participation or Award LTIP Units granted hereunder shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”), provided that vested Award Participation or vested Award LTIP Units may be Transferred to (i) the Grantee’s Family Members by gift or pursuant to domestic relations order in settlement of marital property rights or (ii) to an entity in which fifty percent (50%) or more of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in such entity, provided that the transferee agrees in writing with the Company to be bound by all the terms and conditions of this Agreement and that subsequent Transfers shall be prohibited except those in accordance with this Section 6. All Transfers of the Award Participation or any interest therein or Award LTIP Units must be in compliance with all applicable securities laws (including, without limitation, the Securities Act) and, in the case of the Award LTIP Units, the LLC Agreement. Any attempted Transfer of an Award Participation or Award LTIP Unit not in accordance with the terms and conditions of this Section 6 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Award Participation or Award LTIP Units as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer and shall not in any way give effect to any such Transfer of any Award Participation or Award LTIP Units. Except as provided expressly in this Section 6, this Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Changes in Capital Structure.

If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or other transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization, significant repurchases of stock, or other similar change in the capital stock of the Company shall occur, (iii) any extraordinary dividend or other distribution to holders of Common Shares shall be declared and paid other than in the ordinary course, or (iv) any other event shall occur that in each case in the good faith judgment of the Committee necessitates action by way of appropriate equitable or proportionate adjustment in the terms of this Award or this Agreement to avoid distortion in the value of this Award, then the Committee shall take such action as it deems necessary to maintain the Grantee’s rights hereunder so that they are substantially proportionate to the rights existing under this Award prior to such event, including, without limitation: (A) interpretations of or modifications to any defined term in this Agreement; (B) adjustments in any calculations provided for in this Agreement, and (C) substitution of other awards or otherwise.

8. Award LTIP Units

(a) Issuance of Award LTIP Units. In the event that, following the Effective Date, the Company determines, in its sole discretion, that the applicable stock exchange listing rules permit the Company to issue Award LTIP Units, the Company shall promptly notify Grantee of such determination and shall issue to Grantee the number of Award LTIP Units set forth on Schedule A hereto. The issuance of such Award LTIP Units shall be conditioned upon the Grantee, unless the Grantee is already a Non-Managing Member (as defined in the LLC Agreement), signing, as a Non-Managing Member, and delivering to the Operating Company a counterpart signature page to the LLC Agreement in the form provided by the Company. Upon execution and delivery of such counterpart signature page by the Grantee, the LLC Agreement shall be amended, at such time as set forth in the notice from the Company, to establish the designations of the Award LTIP Units and to make other necessary and appropriate amendments related to the creation of the series of Award LTIP Units, and to reflect the issuance to the Grantee of the Award LTIP Units and admission of Grantee as a Non-Managing Member of the Operating Company. Thereupon, the Grantee shall have all the rights of a Non-Managing Member of the Operating Company with respect to the number of Award LTIP Units specified on Schedule A hereto, as set forth in the LLC Agreement (as so amended), subject, however, to the restrictions, obligations and conditions specified herein. Award LTIP Units constitute and shall be treated for all purposes as the property of the Grantee, subject to the terms of this Agreement and the LLC Agreement.

(b) Post-Final Valuation Date Adjustments. If Grantee’s Award is made in the form of Award LTIP Units, then following determination of Grantee’s Participation Amount pursuant to Section 3(b), the Committee shall divide the resulting dollar amount by the Common Share Price calculated as of the Final Valuation Date (appropriately adjusted to the extent that the “Unit Adjustment Factor” (as defined in the LLC Agreement) is greater or less than 1.0). The resulting number is hereafter referred to as the “Total OPP Unit Equivalent.” If the Total OPP Unit Equivalent is smaller than the number of Award LTIP Units previously issued to the Grantee, then the Grantee, as of the Final Valuation Date, shall forfeit a number of Award LTIP Units equal to the difference without payment of any consideration by the Operating Company. Thereafter, the term Award LTIP Units will refer only to the Award LTIP Units that were not so forfeited and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in the Award LTIP Units that were so forfeited. If the Total OPP Unit Equivalent is greater than the number of Award LTIP Units previously issued to the Grantee, then, upon the performance of the calculations set forth in this Section 8(b): (A) the Company shall cause the Operating Company to issue to the Grantee, as of the Final Valuation Date, a number of additional Award LTIP Units equal to the difference; (B) such additional Award LTIP Units shall be added to the Award LTIP Units previously issued, if any, and thereby become part of this Award; (C) the Company and the Operating Company shall take such corporate and limited liability company action as is necessary to accomplish the grant of such additional Award LTIP Units; and (D) thereafter the term Award LTIP Units will refer collectively to the Award LTIP Units, if any, issued prior to such additional grant plus such additional Award LTIP Units; provided that such issuance will be subject to the Grantee executing and delivering such documents, comparable to the documents executed and delivered in connection with the original issuance of Award LTIP Units, as the Company or the Operating Company reasonably request in order to comply with all applicable legal requirements, including, without limitation, federal and state securities laws. If the Total OPP Unit Equivalent is the same as the number of Award LTIP Units previously issued to the Grantee, then there will be no change to the number of Award LTIP Units under this Award pursuant to this Section 8(b).

(c) Vesting and Forfeiture. The Award LTIP Units shall vest and be subject to forfeiture on the same terms and conditions as the Award Participation, as set forth in Sections 3(a), 3(c), 3(d) and 4.

(d) Distributions. The holder of the Award LTIP Units shall be entitled to receive distributions with respect to such Award LTIP Units to the extent provided for in the LLC Agreement (as amended in accordance with Section 8(a)). The 2011 Award LTIP Unit Distribution Participation Date (as defined in the designation of rights and preferences of such Award LTIP Units, attached hereto as Exhibit A) with respect to Award LTIP Units in an aggregate number equal to the Total OPP Unit Equivalent will be the Valuation Date.

9. Miscellaneous.

(a) Amendments. This Agreement may be amended or modified only with the consent of the Company acting through the Committee; provided that any such amendment or modification materially or adversely affecting the rights of the Grantee hereunder must be consented to by the Grantee to be effective as against him. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company to correct any errors or ambiguities in this Agreement and/or to make such changes that do not materially or adversely affect the Grantee’s rights hereunder. This grant shall in no way affect the Grantee’s participation or benefits under any other plan or benefit program maintained or provided by the Company.

(b) Committee Determinations. The Committee will in good faith make the determinations and certifications required by this Award as promptly as reasonably practicable following the occurrence of the event or events necessitating such determinations or certifications.

(c) Status of the Award and Award LTIP Units; Incentive Plan Matters. This Award and the other 2011 OPP awards constitute other stock-based incentive compensation awards by the Company under the Incentive Plan and incentive compensation awards by the Operating Company. The Award LTIP Units are equity interests in the Operating Company. Any Award LTIP Units issued pursuant to Section 8 may, but need not, be issued as equity securities under the Incentive Plan insofar as the 2011 OPP has been established as an incentive program of the Operating Company. The Company may, under certain circumstances, have the right, as set forth in the LLC Agreement, to issue shares of Common Stock in exchange for Award Common Units into which Award LTIP Units may have been converted pursuant to the LLC Agreement, subject to certain limitations set forth in the LLC Agreement, and such shares of Common Stock may be issued under the Incentive Plan if the Committee so determines, to the extent such issuance is permitted under applicable stock exchange listing rules, as determined by the Committee in its sole and absolute discretion. The Committee may, in its sole and absolute discretion, determine whether and when Award LTIP Units issued pursuant to Section 3 become part of the Incentive Plan, and upon and to the extent of such determination this Award will be considered an award under the Incentive Plan. The Grantee acknowledges that the Grantee will have no right to approve or disapprove such determination by the Committee.

(d) Grantee Representations; Registration.

(i) The Grantee hereby represents and warrants that (A) he or she understands that he or she is responsible for consulting his or her own tax advisor with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of this Award may become subject, to his or her particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the Operating Company or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides services to the Operating Company on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Operating Company, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award; (D) Award LTIP Units are subject to substantial risks; (E) the Grantee has been furnished with, and has reviewed and understands, information relating to this Award; (F) the Grantee has been afforded the opportunity to obtain such additional information as he or she deemed necessary before accepting this Award; and (G) the Grantee has had an opportunity to ask questions of representatives of the Operating Company and the Company, or persons acting on their behalf, concerning this Award.

(ii) The Grantee hereby acknowledges that: (A) there is no public market for Award LTIP Units or Award Common Units and neither the Operating Company nor the Company has any obligation or intention to create such a market; (B) sales of Award LTIP Units and Award Common Units are subject to restrictions under the Securities Act and applicable state securities laws; (C) because of the restrictions on transfer or assignment of Award LTIP Units and Award Common Units set forth in the LLC Agreement and in this Agreement, the Grantee may have to bear the economic risk of his or her ownership of the LTIP Units covered by this Award for an indefinite period of time; (D) shares of Common Stock issued under the Incentive Plan in exchange for Award Common Units, if any, will be covered by a Registration Statement on Form S-8 (or a successor form under applicable rules and regulations of the Securities and Exchange Commission) under the Securities Act, to the extent that the Grantee is eligible to receive such shares under the Incentive Plan at the time of such issuance and such Registration Statement is then effective under the Securities Act; (E) resales of shares of Common Stock issued under the Incentive Plan in exchange for Award Common Units, if any, shall only be made in compliance with all applicable restrictions (including in certain cases “blackout periods” forbidding sales of Company securities) set forth in the then applicable Company employee manual or insider trading policy and in compliance with the registration requirements of the Securities Act or pursuant to an applicable exemption therefrom.

(e) Section 83(b) Election. In connection with each separate issuance of Award LTIP Units under this Award pursuant to Section 8, the Grantee hereby agrees to make an election to include in gross income in the year of transfer the applicable Award LTIP Units pursuant to Section 83(b) of the Code substantially in the form attached hereto as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder. The Grantee agrees to file such election (or to permit the Operating Company to file such election on the Grantee’s behalf) within thirty (30) days after the issuance of the Award LTIP Units with the IRS Service Center where the Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the Award LTIP Units are awarded to the Grantee. So long as the Grantee holds any Award LTIP Units, the Grantee shall disclose to the Operating Company in writing such information as may be reasonably requested with respect to ownership of Award LTIP Units as the Operating Company may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code applicable to the Operating Company or to comply with requirements of any other appropriate taxing authority.

(f) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(g) Governing Law. This Agreement is made under, and will be construed in accordance with, the laws of State of New York, without giving effect to the principles of conflict of laws of such State.

(h) No Obligation to Continue Position as an Employee. Neither the Company nor any Affiliate is obligated by or as a result of this Agreement to continue to have the Grantee as an employee, consultant or advisor and this Agreement shall not interfere in any way with the right of the Company or any Affiliate to terminate the Grantee’s Continuous Service at any time.

(i) Notices. Any notice to be given to the Company shall be addressed to the Secretary of the Company at 475 Tenth Avenue, New York, New York 10018 and any notice to be given the Grantee shall be addressed to the Grantee at the Grantee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Grantee may hereafter designate in writing to the other.

(j) Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to this Award, the Grantee will pay to the Company or, if appropriate, any of its Affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

(k) Headings. The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

(l) Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

(m) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company and the Operating Company, on the one hand, and any successors to the Grantee, on the other hand, by will or the laws of descent and distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Grantee.

(n) Section 409A. This Agreement shall be construed, administered and interpreted in accordance with a good faith interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Grantee, the Company and the Operating Company, to the extent necessary to exempt it from, or bring it into compliance with Section 409A of the Code.

(o) Entire Agreement; Conflict. This Agreement (including the Incentive Plan and the LLC Agreement to which it relates) constitutes the final, complete and exclusive agreement between the Grantee and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, between the parties concerning the subject matter hereof. Except as expressly provided otherwise herein, in the event of any conflict or inconsistency between the provisions of, or definitions contained in, this Agreement (including the LLC Agreement to which it relates), on the one hand, and Grantee’s Service Agreement, on the other hand, the terms of the this Agreement ((including the LLC Agreement to which it relates) shall govern.

[signature page follows]

IN WITNESS WHEREOF, the undersigned have caused this Award Agreement to be executed as of the date first above written.

MORGANS HOTEL GROUP CO.
By:	/s/ David Smail
	Name:	David Smail
	Title:	Executive Vice President and General Counsel
MORGANS GROUP LLC
By:	/s/ David Smail
	Name:	David Smail
	Title:

GRANTEE

/s/ Yoav Gery

Name: Yoav Gery

SCHEDULE A TO 2011 OUTPERFORMANCE PLAN AWARD AGREEMENT

Date of Award Agreement:	March 23, 2011
Name of Grantee:	Yoav Gery
Participation Percentage:		10%
Grant Date:	March 23, 2011
Initial Grant of Award LTIP Units (if applicable)	157,500

Initials of Company representative: /s/DS Initials of Grantee: /s/YG

EXHIBIT A

MORGANS GROUP LLC

MEMBERSHIP UNIT DESIGNATION — 2011 OPP UNITS

The following are the terms of the 2011 OPP Units. Section references in this Exhibit A refer to sections of the LLC Agreement and capitalized terms are used as defined therein, unless stated otherwise.

1. LTIP Equivalence. Except as otherwise expressly provided in this Membership Unit Designation, 2011 OPP Units shall be treated as LTIP Units, and shall have the rights, privileges, restrictions, powers and duties applicable to LTIP Units under the LLC Agreement, including without limitation the provisions of Section 4.5.

2. Distributions.

(a) 2011 OPP Unit Distributions. Commencing from the Distribution Participation Date (as defined below) established for any 2011 OPP Units in the applicable award agreement, Holders of 2011 OPP Units shall be entitled to receive, if, when and as authorized by the Managing Member, any distributions otherwise payable with respect to LTIP Units and shall be treated as outstanding LTIP Units for purposes of the distribution provisions of the LLC Agreement. For the avoidance of doubt, for purposes of the first distribution to occur after the Distribution Participation Date, 2011 OPP Units that become fully earned and vested in accordance with the applicable Award Agreement on or before the first day of the relevant quarterly period shall be treated as having been outstanding for the full period. Prior to the Distribution Participation Date, 2011 OPP Units shall be entitled to any distributions by the Operating Company (i) in connection with an Adjustment Event as provided in Section 4.5(b), treating the 2011 OPP Units as outstanding LTIP Units, and (ii) if, when and as authorized by the Managing Member out of funds or other property legally available for the payment of distributions, distributions representing proceeds of a sale or other disposition of all or substantially all of the assets of the Operating Company in an amount per unit equal to the amount of any such distributions payable on the Membership Units, provided that the amount of distributions to any Holder of 2011 OPP Units under this clause (ii) shall not exceed the positive balances of the Capital Account of the Holder of such 2011 OPP Units to the extent attributable to the ownership of such 2011 OPP Units.

(b) Distribution Participation Date. The “Distribution Participation Date” for each 2011 OPP Unit will be either (i) with respect to 2011 OPP Units granted pursuant to the Managing Member’s 2011 Outperformance Plan, as it may be amended or supplemented from time to time or any successor plan under which additional 2011 OPP Units may be issued (the “Plan”), the applicable Final Valuation Date (as defined in the Award Agreement of each Person granted 2011 OPP Units under the Plan) or (ii) with respect to other 2011 OPP Units, such date as may be specified in the Award Agreement or other documentation pursuant to which such 2011 OPP Units are issued.

3. Allocations.

(a) Allocations of Net Income and Net Loss. Commencing with the portion of the taxable year of the Operating Company that begins on the Distribution Participation Date established for any 2011 OPP Units, such 2011 OPP Units shall be allocated Net Income and Net Loss under Sections 6.1 and 6.2 in amounts per 2011 OPP Unit equal to the amounts allocated per Membership Unit (adjusted to the extent required by Sections 6.3(b) through 6.3(g)). The Managing Member is authorized in its discretion to delay or accelerate the participation of the 2011 OPP Units in allocations of Net Income and Net Loss, or to adjust the allocations made after the Distribution Participation Date, so that the ratio of (i) the total amount of Net Income or Net Loss allocated under Sections 6.1 and 6.2 with respect to each 2011 OPP Unit in the taxable year in which that 2011 OPP Unit’s Distribution Participation Date falls, to (ii) the total amount distributed to that 2011 OPP Unit with respect to such period, is more nearly equal to such ratio as computed for the Membership Units held by the Managing Member.

(b) Special Allocations. 2011 OPP Units shall be treated as outstanding LTIP Units (and the Holders thereof treated as Holders of LTIP Units) for all purposes of Section 6.3(a).

4. Redemption.

(a) The Redemption Right provided to Non-Managing Members under Section 4.2(e)(1) shall not apply with respect to 2011 OPP Units or Membership Units into which they may be converted pursuant to the LLC Agreement until the date that is one year and six months after the Final Valuation Date, after which date the Redemption Right shall be available on the terms and conditions set forth in the LLC Agreement.

(b) During the period beginning on the Final Valuation Date (as defined in the applicable Award Agreement) and ending on the Business Day immediately preceding the six month anniversary of the Final Valuation Date, the Operating Company shall be entitled to redeem some or all of the 2011 OPP Units (or Membership Units into which they were converted by the Holder) at a redemption price per 2011 OPP Unit or Membership Unit, payable in cash, equal to the Common Share Price (as defined in the Applicable Award Agreement) as of the Final Valuation Date (as defined in the applicable Award Agreement). From and after the one year anniversary of the Final Valuation Date, for a period of six months, a Holder of 2011 OPP Units (or Membership Units into which they were converted by the Holder) shall have the right to cause the Operating Company to redeem, some or all of the 2011 OPP Units (or Membership Units into which they were converted by the Holder), at a redemption price per 2011 OPP Unit or Membership Unit, payable in cash, equal to the greater of (x) the Common Share Price (as defined in the Applicable Award Agreement) as of the Final Valuation Date (as defined in the applicable Award Agreement) and (y) the Cash Amount determined as of the date of the notice of redemption. The Operating Company may exercise its redemption right under this Section 4(b) by sending a notice to each Holder of 2011 OPP Units (or Membership Units into which they were converted by the Holder) setting forth the redemption date, which shall be no less than five (5) Business Days after the date of such notice, and the number of 2011 OPP Units (or Membership Units into which they were converted by the Holder) being redeemed and the procedure to be followed by Holders of 2011 OPP Units or Membership Units that are being redeemed. The Holder may exercise its

redemption right under this Section 4(b) by sending a notice to the Operating Company setting forth the redemption date, which shall be no less than ten (10) Business Days after receipt of such notice by the Managing Member, and the number of 2011 OPP Units (or Membership Units into which they were converted by the Holder to be redeemed). The Managing Member shall be entitled to acquire 2011 OPP Units (or Membership Units into which they were converted by the Holder) pursuant to any exercise by the Operating Company or the Holder of the foregoing redemption rights (under this Section 4.2(b) or under Section 4.2(a)) in exchange for issuance of a number of Common Shares, which will be issued under the Incentive Plan and be registered on a Form S-8, with an aggregate value, based on the Value of the Common Shares as of the date of the redemption notice, equal to the applicable redemption price, provided that the Managing Member has determined, in its sole discretion, that it is permitted to do so under applicable stock exchange listing rules.

5. Voting Rights.

(a) Voting with LTIP Units. Except as otherwise provided herein, 2011 OPP Units and Non-Managing Members who hold 2011 OPP Units shall be treated as LTIP Units and LTIP Unitholders, respectively, for all purposes of Section 14.3.

(b) Special Approval Rights. So long as any 2011 OPP Units remain outstanding, the Operating Company shall not, without the affirmative vote of the Non-Managing Members who hold at least two-thirds of the 2011 OPP Units outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), amend, alter or repeal, whether by merger, consolidation or otherwise, the provisions of the LLC Agreement applicable to 2011 OPP Units so as to materially and adversely affect any right, privilege or voting power of the 2011 OPP Units or the Non-Managing Members who hold 2011 OPP Units as such, unless such amendment, alteration or repeal affects equally, ratably and proportionately the rights, privileges and powers of the holders of LTIP Units; but subject, in any case, to the following provisions:

(i) Any difference in effect between the LTIP Units and the 2011 OPP Units that is required or reasonably desirable to implement the difference in the distribution or redemption rights with respect to LTIP Units and 2011 OPP Units shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the holders of LTIP Units;

(ii) Any creation or issuance of any Membership Units or of any class or series of Membership Interest, whether ranking senior to, junior to, or on a parity with the 2011 OPP Units with respect to distributions and the distribution of assets upon liquidation, dissolution or winding up shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the holders of LTIP Units; and

(iii) any waiver by the Operating Company of restrictions or limitations applicable to any outstanding LTIP Units or 2011 OPP Units with respect to any LTIP Unitholder or Unitholders or Holders of 2011 OPP Unit shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units or 2011 OPP Units with respect to other Unitholders or Holders.

EXHIBIT B

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1. The name, address and taxpayer identification number of the undersigned are:

Name:                                          (the “Taxpayer”)

Address:                                                                                  

Social Security No./Taxpayer Identification No.:                                         

2. Description of property with respect to which the election is being made:

The election is being made with respect to  _____  Award LTIP Units in Morgans Group LLC (the “Operating Company”).

3. The date on which the Award LTIP Units were transferred is _______ _____, 2011. The taxable year to which this election relates is calendar year 2011.

4. Nature of restrictions to which the Award LTIP Units are subject:

(a) With limited exceptions, until the Award LTIP Units vest, the Taxpayer may not transfer in any manner any portion of the Award LTIP Units without the consent of the Operating Company.

(b) The Taxpayer’s Award LTIP Units vest in accordance with the vesting provisions described in Annex 1 attached hereto. Unvested Award LTIP Units are forfeited in accordance with the vesting provisions described in Annex 1 attached hereto.

5. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the Award LTIP Units with respect to which this election is being made was $________ per Award LTIP Unit.

6. The amount paid by the Taxpayer for the Award LTIP Units was $0 per Award LTIP Unit.

7. A copy of this statement has been furnished to the Operating Company and Morgans Hotel Group Co.

Dated:                     , 2011 Signature                                        

ANNEX 1

Vesting Provisions of Award LTIP Units

The Award LTIP Units are subject to time-based and performance-based vesting with the final vesting percentage equaling the product of the time-based vesting percentage and the performance-based vesting percentage. Performance-based vesting will be from 0% to 100% based on Morgan Hotel Group Co.’s (the “Company’s”) per-share total return to shareholders for the period from [_____], 2011 to [_____], 2014 (or earlier in certain circumstances). Under the time-based vesting provisions, one hundred percent (100%) of the Award LTIP Units will vest on the last day of the performance period, provided that the Taxpayer remains an employee of the Company or any of its affiliates through such date, subject to acceleration in the event of certain extraordinary transactions or termination of the Taxpayer’s service relationship with the Company under specified circumstances. Unvested Award LTIP Units are subject to forfeiture in the event of failure to vest based on the passage of time (subject to above-mentioned acceleration) or the determination of the performance-based percentage.

Exhibit C

Promoted Interest Pool Award Agreement

MORGANS HOTEL GROUP CO.
2011 EXECUTIVE PROMOTED INTEREST BONUS POOL AWARD AGREEMENT

2011 EXECUTIVE PROMOTED INTEREST BONUS POOL AWARD AGREEMENT made as of the date set forth on Schedule A hereto by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “Company”), MORGANS GROUP LLC, a Delaware limited liability company (the “Operating Company”), and the party listed on Schedule A (the “Grantee”).

RECITALS

A. The Grantee is a senior management employee of the Company and provides services to the Operating Company.

B. The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) approved this and other 2011 long-term bonus pool awards (“2011 Bonus Pool Awards”) to provide certain senior management employees of the Company, including the Grantee, in connection with their employment with the incentive compensation described in this Award Agreement (this “Agreement” or this “Award Agreement”) and thereby provide additional incentive for them to promote the progress and success of the business of the Company and its Affiliates. 2011 Bonus Pool Awards were approved by the Committee pursuant to authority delegated to it by the Board. This Agreement evidences one award (this “Award”) in a series of substantially identical 2011 Bonus Pool Awards and is subject to the terms and conditions set forth herein.

C. The Committee, effective as of the grant date specified in Schedule A hereto, awarded to the Grantee the participation percentage in the promoted interest bonus pool provided herein, as set forth in Schedule A.

NOW, THEREFORE, the Company, the Operating Company, and the Grantee agree as follows:

1. Administration

This Award and all other 2011 Bonus Pool Awards shall be administered by the Committee; provided that all powers of the Committee hereunder can be exercised by the full Board if the Board so elects. The Committee, in its sole and absolute discretion, may make at any time any provision for lapse of forfeiture restrictions and/or accelerated vesting under this Agreement of some or all of the Grantee’s unvested Award Participation that has not previously been forfeited.

2. Definitions

Capitalized terms used herein shall have the meanings set forth below:

“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

“Award Participation” has the meaning set forth in Section 3.

“Award Period” means the period from and after the date of Grantee’s admission as an Employee Member and to and including the earlier to occur of (i) the third anniversary of the Effective Date and (ii) the termination of Grantee’s Continuing Service.

“Baseline Value” means $8.87.

“Bonus Pool Unit” means a unit of membership interest in Promote Pool LLC. The Bonus Pool Units shall be issued in different series, with each series corresponding to a separate Eligible Promoted Interest held by Promote Pool LLC or a wholly-owned subsidiary thereof.

“Cause” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Cause” is defined therein, then “Cause” shall have the meaning set forth in such definition, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Cause” or a substantially equivalent term, then “Cause” shall mean:

(i)

the Grantee’s willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Grantee’s incapacity due to physical or mental illness or any such failure after his issuance of a notice of termination for Good Reason), after a written demand for substantial performance is delivered to the Grantee by the Board, which demand specifically identifies the manner in which the Board believes that the Grantee has not substantially performed his duties;

(ii)

a material breach by Grantee of his Service Agreement;

(iii) the Grantee’s willful commission of an act of fraud, theft or dishonesty resulting in economic, financial or material reputational injury to the Company;

(iv) the Grantee’s conviction of, or entry by the Grantee of a guilty or no contest plea to, the commission of a felony; or

(v) the Grantee willfully engages in other misconduct materially injurious to the Company.

For purposes of this provision, no act or omission on the part of the Grantee shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission based upon a resolution duly adopted by the Board or advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Grantee shall not be deemed to be for Cause unless and until there shall have been delivered to the Grantee a copy of a resolution duly adopted by the majority of the Board (excluding the Grantee, if the Grantee is then a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Grantee and the Grantee is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Grantee is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

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

“Common Share” means a share of the Company’s common stock, par value $0.01 per share.

“Common Share Price” means, as of a particular date, the average of the Fair Market Value of one Common Share over the thirty (30) consecutive trading days ending on, and including, such date (or, if such date is not a trading day, the most recent trading day immediately preceding such date).

“Common Share Return Condition” shall be deemed to be satisfied as of any date of determination if the Common Share Price, as of such date, shall be at least equal to (x) the Baseline Value multiplied by (y) an amount equal to (i) the sum of one plus the Target Return raised to (ii) the n/365th power, where “n” equals the number of days that has elapsed from and including the Effective Date to but excluding the date of determination.

“Continuous Service” means the continuous service, without interruption or termination, as a an employee or director of Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of (among other things)—

(A) any approved leave of absence,

(B) transfers among the Company and any Affiliate, or any successor, in any capacity of director or employee, or

(C) any change in status as long as the individual remains in the service of the Company or any Affiliate of the Company in the capacity of employee or director.

An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

“Designated Participation Percentage” means, with respect to any series of Employee Units, the lesser of 50% or the percentage determined by the Independent Committee at the time it approves the contribution of the applicable Eligible Promoted Interest in Promote Pool LLC, if such Eligible Promoted Interest did not satisfy the Safe Harbor Requirements as of the applicable Initial Closing.

“Disability” means:

(A) if the Grantee is or was a party to a Service Agreement prior to the applicable event, and “Disability” is defined therein, then “Disability” shall have the meaning set forth in such definition, or

(B) if the Grantee is not and was not a party to a Service Agreement prior to such event or the Grantee’s Service Agreement does not define “Disability” or a substantially equivalent term, then “Disability” shall mean a disability which renders the Grantee incapable of performing all of his or her material duties for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Grantee or the Grantee’s legal representative or by the insurance company which insures the Company’s long-term disability plan in which the Grantee is eligible to participate.

“Effective Date” means March 20, 2011.

“Eligible Promoted Interest” means a Promoted Interest that the Company or any entity through which the Company directly or indirectly acquires or has the right to acquire, or is created, in a transaction as to which the Initial Closing occurs during the Award Period and that satisfies either of the following requirements as of the Initial Closing:

(i) The Investment Committee (with the affirmative vote of its independent member) shall have determined in good faith that the applicable Promoted Interest satisfies the Safe Harbor Requirements; or

(ii) The terms of the hotel acquisition or development transaction, including the contribution of the applicable Promoted Interest to Promote Pool LLC, shall have been approved in good faith by the Independent Committee.

The determination as to whether a Promoted Interest that does not satisfy the Safe Harbor Requirements shall be deemed to be an Eligible Promoted Interest, and the Designated Participation Percentage with respect to such Eligible Promoted Interest, shall be made in good faith by the Independent Committee and shall be conclusive.

In the case of an Eligible Promoted Interest that the Company, the Operating Company, Promote Pool LLC, or a wholly owned subsidiary of the Company acquires or has the right to acquire, the Eligible Promoted Interest will consist of the entire applicable Promoted Interest. In the case of an Eligible Promoted Interest that any other entity in which the Company or the Operating Company has a direct or indirect equity interest acquires, or has the right to acquire, the “Eligible Promoted Interest” will, at the election of the Managing Member, consist of either (x) an assignment of the proceeds received by the Company, the Operating Company, or a wholly owned subsidiary of the Company with respect to the applicable Promoted Interest, or (y) a special allocation of the portion of such direct or indirect interest in the Eligible Promoted Interest that is owned by the Company, the Operating Company, or a wholly owned subsidiary that represents their respective direct or indirect interest in the Promoted Interest owned by such other entity.

An Eligible Promoted Interest can consist of either an equity interest in a Hotel Investment Entity or a contractual right to share in some or all of the profits, losses, or gains of a Hotel Investment Entity (a “Contractual Right”) or one or more hotel properties owned by a Hotel Investment Entity.

For the avoidance of doubt, an incentive management fee or other amount measured by a percentage of gross revenues, gross operating profit, net house profit, or similar performance measure and payable to the Company, or any entity through which the Company, directly or indirectly, holds an equity interest or a Contractual Right, as compensation for the performance of management services shall not be an Eligible Promoted Interest.

For the further avoidance of doubt, no Promoted Interest as to which the Initial Closing occurs after the Award Period shall be deemed to be an “Eligible Promoted Interest.”

“Employee Member” means a member of Promote Pool LLC other than the Managing Member or any other subsidiary of the Company.

“Employee Unit” means any Bonus Pool Unit that is held by an Employee Member or a permitted transferee thereof (other than Managing Member or any other subsidiary of the Company).

“Fair Market Value” means, as of any given date, the fair market value of a security, an Eligible Promoted Interest, or other property determined by the Committee using any reasonable method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1) of the Code); provided that, with respect to a Common Share, “Fair Market Value” means the value of such Common Share determined as follows: (A) if on the determination date the Common Shares are listed on the New York Stock Exchange, The NASDAQ Stock Market, Inc. or another national securities exchange or is publicly traded on an established securities market, the Fair Market Value of a Common Share shall be the closing price of the Common Shares on such exchange or in such market (if there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the high and low sale prices on such trading day) or, if no sale of Common Shares is reported for such trading day, on the next preceding day on which any sale shall have been reported; or (B) if the Common Shares are not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the Common Share shall be the value of the Common Shares as determined by the Committee in good faith in a manner consistent with Section 409A of the Code.

“Good Reason” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Good Reason” is defined therein, then “Good Reason” shall have the meaning set forth in such Service Agreement, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Good Reason” or a substantially equivalent term, so long as the Grantee terminates his or her employment within thirty (30) days after the Grantee has actual knowledge of the occurrence, without the written consent of the Grantee, of one of the following events that has not been cured within thirty (30) days after written notice thereof has been given by Grantee to the Company, then “Good Reason” shall mean:

(iii) the assignment to the Grantee of duties materially inconsistent with the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated in his Service Agreement, or any other action by the Company which results in a material diminution in the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Grantee;

(iv) any material failure by the Company to comply with any of the provisions of the Service Agreement, other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Grantee;

(v) any failure by the Company to obtain the assumption of his Service Agreement by a successor to all or substantially all of the business or assets of the Company; or

(vi) if his Service Agreement provides that the Executive will be nominated for election as a director of the Company, any failure by the Board to nominate the Executive for election as a director of the Company in accordance with the Service Agreement, or any failure of the Executive to be elected to be a member of the Board; or

(vii) any requirement that the Grantee’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Grantee’s residence to his new place of employment;

“Hotel Investment Entity” means a limited liability company, limited partnership, corporation, or other form of business entity that owns, directly or indirectly, or proposes to acquire or develop, one or more hotels or other hospitality-related properties. Neither the Company nor any consolidated subsidiary of the Company shall be deemed to be a Hotel Investment Entity.

“Independent Committee” means a committee (either standing or ad hoc) of the Board that has the responsibility and authority for determining whether a Promoted Interest that does not satisfy the Safe Harbor Requirements will nonetheless be contributed to Promote Pool LLC and, if so, what the Designated Participation Percentage with respect to such Promoted Interest will be.

“Initial Closing” means, with respect to any Eligible Promoted Interest, the date of the closing of the transaction as the result of which the Company, a consolidated subsidiary thereof, Promote Pool LLC, or any entity through which such Eligible Promoted Interest is held, and one or more unaffiliated persons become equity owners of the Hotel Investment Entity (or obtains a Contractual Right) related to such Eligible Promoted Interest. The independent member of the Investment Committee shall determine, in good faith, when the Initial Closing occurs with respect to any Eligible Promoted Interest.

“Investment Committee” means a management committee, established by the Board that includes at least one independent director that is delegated authority, among other things, to approve the terms of investments in Hotel Investment Entities and determine whether Promoted Interests in Hotel Investment Entities satisfy the Safe Harbor Requirements.

“LLC Agreement” means the limited liability company agreement of Promote Pool LLC, as it may be amended from time to time in accordance with its terms, that the Managing Member will enter in accordance with Section 7(a). The LLC Agreement will contain the provisions set forth on Exhibit A attached hereto and such other terms and conditions as the Committee shall in good faith determine are necessary or appropriate for implementing the provisions and accomplishing the objectives of this Award Agreement and the Award Agreements of other recipients of 2011 Bonus Pool Awards.

“Managing Member” means the Operating Company, or a wholly-owned subsidiary thereof, in its capacity as managing member of Promote Pool LLC.

“Member” means a member of Promote Pool LLC, which shall be either the Managing Member or an Employee Member.

“Opening” means, with respect to any Eligible Promoted Interest, the date on or after the Initial Closing on which all construction, development, and major renovation work is completed and substantially all of the rooms and other facilities in the applicable hotel are open for business. If the applicable hotel is operating as of the Initial Closing and the business plan relating to the hotel does not contemplate a substantial renovation or redevelopment of the hotel that will result in material disruption of the operations of the hotel for an extended period, the Opening shall be deemed to occur at the same time as the Initial Closing. If the business plan for such hotel contemplates such renovation or redevelopment, the Opening shall be deemed to occur following the completion of such renovation or redevelopment and substantially all of the rooms and other facilities in the applicable hotel are open for business. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, an Opening shall be deemed to occur with respect to any such hotel property when such hotel property meets the foregoing requirements. The independent member of the Investment Committee shall in good faith determine when an Opening occurs with respect to any Eligible Promoted Interest.

“Partial Sale Event” means, with respect to any Eligible Promoted Interest, the date on which (x) the applicable Hotel Investment Entity’s direct or indirect ownership interest in the applicable hotel property is reduced by reason of a disposition of an interest in such property to a third party; or (y) Promote Pool LLC’s direct or indirect ownership interest in such Eligible Promoted Interest is reduced by reason of a disposition of an interest in such Eligible Promoted Interest to a third party. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a Partial Sale Event described in clause (x) above with respect to any such hotel property shall be deemed to occur when the Hotel Investment Entity’s direct or indirect ownership interest in such hotel property is reduced. The independent member of the Investment Committee shall in good faith determine when a Partial Sales Event occurs with respect to any Eligible Promoted Interest.

“Participation Amount” has the meaning set forth in Section 3.

“Participation Percentage” means, as of any date of determination, the percentage set forth opposite such term on Schedule A hereto.

“Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, other entity or “group” (as defined in the Exchange Act).

“Promoted Interest” means an interest in a Hotel Investment Entity, or other Contractual Right, that represents a right to participate in profits, losses, and gains of the Hotel Investment Entity in excess of amounts attributable to the percentage of capital contributions made by the Company and its subsidiaries in the Hotel Investment Entity. For the avoidance of doubt, an incentive management fee or other amount measured by a percentage of gross revenues, gross operating profit, net house profit, or similar performance measure and payable to the Company or any entity holding such Interests as compensation for the performance of management services shall not be a Promoted Interest .

“Promoted Interest Proceeds” means, with respect to any Eligible Promoted Interest, the amount of any cash (or cash equivalent) distributions or dividends received by Promote Pool LLC with respect to such Eligible Promoted Interest or, if Promote Pool LLC receives any other property in exchange for or as a distribution with respect to an Eligible Promoted Interest, any cash (or cash equivalents) received as a distribution or dividend with respect to or upon the sale or disposition of such other property. In the case of the removal by the Company of the designation of an Eligible Promoted Interest as part of the Promoted Interest Bonus Pool, such removal shall be treated as a disposition of the Eligible Promoted Interest for an amount of cash equal to its Fair Market Value and an amount equal to such Fair Market Value shall be deemed to be Promoted Interest Proceeds hereunder.

“Promote Pool LLC” means MHG Employee Promoted Interest LLC, a to-be-formed Delaware limited liability company, or its successor.

“Qualified Management Agreement” means a hotel management agreement under which the Company or a consolidated subsidiary of the Company is the manager that contains terms that satisfy the requirements set forth in that certain letter delivered by the Company to Grantee concurrently with the execution of this Award, as determined by the Investment Committee in good faith.

“Qualified Termination” has the meaning set forth in Section 4.

“Safe Harbor Requirements” means, with respect to any Eligible Promoted Interest, the following requirements:

(i) The Company or one of its consolidated subsidiaries is manager of the hotel properties owned, directly or indirectly, by the Hotel Investment Entity pursuant to a Qualified Management Agreement;

(ii) The percentage interest acquired by the Company or any of its consolidated subsidiaries in the applicable Hotel Investment Entity does not exceed twenty percent (20%), without taking into account the applicable Promoted Interest;

(iii) The value of the aggregate capital contribution or capital commitment of the Company and its consolidated subsidiaries does not exceed $20 million; and

(iv) The equity investment by the Company and its consolidated subsidiaries must be on no less favorable terms, in any material respect, than the equity investment to the other investors in the Hotel Investment Entity (without taking into account the applicable Promoted Interest) or, if the equity investment by the other investors was made more than one year before the Initial Closing with respect to such Eligible Promoted Interest is anticipated to occur, the equity investment by the Company and its consolidated subsidiaries must be made based on the Fair Market Value of the interests acquired in the Hotel Investment Entity.

The determination by the Investment Committee as to whether a Promoted Interest satisfies the Safe Harbor Requirements shall be made in good faith and shall be conclusive.

“Sale Event” means, with respect to any Eligible Promoted Interest, the earlier of the date on which (x) the applicable Hotel Investment Entity no longer holds a direct or indirect ownership interest in the applicable hotel property or (ii) Promote Pool LLC no longer holds, directly or indirectly, such Eligible Promoted Interest. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a Sale Event described in clause (x) above with respect to any such hotel property shall be deemed to occur when the Hotel Investment Entity no longer owns a direct or indirect ownership interest in such hotel property. The independent member of the Investment Committee shall in good faith determine when a Sales Event occurs with respect to any Eligible Promoted Interest.

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

“Service Agreement” means, as of a particular date, any employment, consulting or similar service agreement then in effect between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand, as amended or supplemented through such date; provided that, if no such agreement is then in effect, “Service Agreement” shall mean any employment, consulting or similar service agreement most recently in effect (on or after the Effective Date) prior to such date, as amended or supplemented, between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand.

“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

“Target Return” shall be equal to nine percent (9%) per annum, compounded annually.

“Transfer” has the meaning set forth in Section 6.

3. Promoted Interest Bonus Pool Award; Vesting

(a) The Operating Company hereby grants to Grantee this Award consisting of the right, subject to the terms and conditions of this Award Agreement, to be admitted as an Employee Member of Promote Pool LLC and to receive the Participation Percentage of each series of the Employee Units issued by Promote Pool LLC during the Award Period (the “Award Participation”). The Award Participation (A) will be subject to forfeiture as provided in Section 3(c) and in Section 4 and (B) will be subject to vesting as provided below in Section 3(b) and in Section 4. At any time, the Committee may grant additional 2011 Bonus Pool Awards with such Participation Percentages set forth therein as the Committee may determine, in its sole discretion, provided that the total Participation Percentages of all 2011 Bonus Pool Awards (including this Award) outstanding at any time shall not exceed 100%.

(b) The interest of Grantee in each series of Employee Units issued to Grantee during the Award Period shall be eligible for vesting based on a combination of (i) the satisfaction of the vesting conditions relating to the hotel properties applicable to the Eligible Promoted Interest related to such series of Employee Units, as set forth below in this Section 3(b) and (ii) the passage of time (three years or a shorter period in certain circumstances as provided in Section 4) as provided in this Section 3(b). The Grantee’s interest in a series of Employee Units shall become vested in the following amounts, at the following times, and upon the following conditions, provided that the Continuous Service of the Grantee continues through and on the applicable vesting date described below or the accelerated vesting date provided in Section 4 hereof, as applicable:

(i) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later to occur of —

(A) the third anniversary of the Effective Date (or any accelerated vesting date provided in Section 4 hereof, if applicable ) and

(B) the Initial Closing with respect to the applicable Eligible Promoted Interest; and

(ii) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later of to occur of —

(A) the third anniversary of the Effective Date (or any accelerated vesting date provided in Section 4 hereof, if applicable ) and

(B) the Opening with respect to the applicable Eligible Promoted Interest;

provided that, in the case of an Eligible Promoted Interest in Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third divided by (II) the number of such hotel properties shall become vested on the later of to occur of (x) the date specified in paragraph (A) above and (y) the Opening of any such hotel property; and

(iii) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later of to occur of —

(A) the third anniversary of the Effective Date and

(B) the Sale Event with respect to the applicable Eligible Promoted Interest.

provided that, in the case of an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third divided by (II) the number of such hotel properties, shall become vested on the later to occur of (x) the date specified in paragraph (A) above and (y) the Sale Event with respect to any such hotel property; and

provided further that, in the event a Partial Sale Event occurs with respect to an Eligible Promoted Interest, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third multiplied by (II) the percentage of the Fair Market Value of the direct or indirect interest in the applicable Hotel Investment Entity or hotel property that was disposed of in such Partial Sale Event, as determined in good faith by the Investment Committee, shall become vested on the later to occur of (x) the date specified in paragraph (A) above and (y) the Partial Sale Event with respect to any such hotel property; and

provided further that, in the event a Partial Sale Event occurs with respect to a particular hotel property in the case of a Hotel Investment Entity that holds more than one property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third multiplied by (II) the percentage of the Fair Market Value of the direct or indirect interest in the applicable hotel property that was disposed of in such Partial Sale Event, as determined in good faith by the Investment Committee, divided by (III) the number of such hotel properties owned by such Hotel Investment Entity, shall become vested on the later of to occur of (x) the date specified in paragraph (A) above and (y) the Partial Sale Event with respect to any such hotel property; and

provided further that, in the event a Sale Event occurs with respect to an Eligible Promoted Interest (or with respect to a particular hotel property in the case of a Hotel Investment Entity that holds more than one property) without an Opening having occurred with respect thereto, then such Sale Event shall also be deemed to constitute the Opening with respect to such Eligible Promoted Interest for purpose of Section 3(b)(ii).

(c) Any portion of Grantee’s interest in any series of Employee Units that has not become vested pursuant to Section 3(b) and Grantee’s Award Participation shall, without payment of any consideration by the Company or Promote Pool LLC, automatically and without notice be forfeited and be and become null and void upon the termination of the Continuous Service of Grantee (other than by reason of a Qualified Termination, death or Disability), and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested portion of the Grantee’s Employee Units and in future issuances of Employee Units by Promote Pool LLC.

(d) In the event that a Hotel Investment Entity with respect to which Promote Pool LLC holds an Eligible Promoted Interest receives a new hotel property in exchange for another hotel property, with the result that Promote Pool LLC thereafter holds an Eligible Promoted Interest in such new hotel property, the vesting percentage that applied to the applicable series of Employee Units immediately prior to such exchange shall remain in effect with respect to such series following the exchange.

4. Termination of Grantee’s Continuous Service; Death and Disability

(a) If the Grantee is or was a party to a Service Agreement and his or her Continuous Service terminates, the applicable provisions of this Section 4 shall govern the treatment of the Grantee’s Award Participation, unless the Service Agreement contains provisions that expressly refer to this Section 4(a) and provides that those provisions of the Service Agreement shall instead govern the treatment of the Grantee’s Award Participation upon such termination. The foregoing sentence will be deemed an amendment to any applicable Service Agreement to the extent required to apply its terms consistently with this Section 4, such that, by way of illustration, any provisions of the Service Agreement with respect to accelerated vesting or payout or the lapse of forfeiture restrictions relating to the Grantee’s incentive or other compensation awards in the event of certain types of termination of the Grantee’s Continuous Service with the Company (such as, for example, termination at the end of the term, termination without Cause by the employer or termination for Good Reason by the employee) shall not be interpreted as requiring that vesting occur with respect to this Award other than as specifically provided in Section 3(b) and this Section 4.

(b) In the event of termination of the Grantee’s Continuous Service by (A) the Company without Cause, (B) the Grantee for Good Reason, or (C) by reason of the death or Disability of Grantee (each of the events described in (A), (B) and (C), a “Qualified Termination”), then the Award Participation shall terminate with respect to any future issuances of Employee Units and the Award Period shall terminate, each effective upon termination of Grantee’s Continuing Service, but the following provisions of this Section 4(b) shall modify the vesting of each series of Employee Units then held by Grantee:

(iv) the vesting conditions set forth in Sections 3(b)(i)(A) and 3(b)(ii)(A) (but not under Section 3(b)(iii)(A)) shall be deemed to have been satisfied with respect to each series of Employee Units held by Grantee as of the effective date of such Qualified Termination; and

(v) the Grantee’s interest in each series of Employee Units then held by Grantee shall vest under Sections 3(b)(i) and 3(b)(ii), to the extent provided in such sections, upon the satisfaction of the vesting conditions set forth in Sections 3(b)(i)(B) and 3(b)(ii)(B), as applicable (to the extent that any such condition shall not previously have been satisfied), as if such Qualified Termination had not occurred.

Upon the occurrence of a Qualified Termination, the unvested portion of Grantee’s interest in each series of Employee Units then held by Grantee that is subject to vesting upon the conditions set forth in Section 3(b)(iii) shall be forfeited, with the consequences set forth in the LLC Agreement.

(c) In the event of a termination of the Grantee’s Continuous Service other than a Qualified Termination, the Award Participation shall terminate with respect to any future issuances of Employee Units and the Award Period shall terminate, each effective upon termination of Grantee’s Continuing Service, and Grantee’s unvested interest in each series of Employee Units then held by Grantee shall be forfeited, with the consequences set forth in the LLC Agreement as described in Exhibit A, and shall no longer be subject to future vesting pursuant to Section 3(b)(i), 3(b)(ii), or 3(b)(iii), without payment of any consideration by the Company or Promote Pool LLC, automatically and without notice, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such Award Participation or such unvested interest in any series of Employee Units, other than with respect to any interest in any series of Employee Units that may have vested pursuant to Section 3(b)(i), 3(b)(ii), or 3(b)(iii) prior to such termination of Grantee’s Continuous Service.

5. Promote Pool LLC Units

(a) Formation of Promote Pool LLC. Prior to the Initial Closing of the first transaction in which the Company or any entity will receive an Eligible Promoted Interest after the Effective Date, the Company will organize Promote Pool LLC and enter into the LLC Agreement.

(b) Contribution of Eligible Promoted Interests. At the Initial Closing with respect to any Eligible Promoted Interest, Promote Pool LLC (or a wholly owned subsidiary thereof) will become a member or partner in, or acquire a Contractual Right with respect to, the applicable Hotel Investment Entity and, in that capacity, will acquire the Eligible Promoted Interest, or the Operating Company (or a subsidiary thereof) shall contribute the Eligible Promoted Interest to Promote Pool LLC.

(c) Issuance of Employee Units. Concurrently with the Initial Closing with respect to any Eligible Promoted Interest, the Managing Member shall amend the LLC Agreement to create a new series of Bonus Pool Units relating to the Eligible Promoted Interest. The portion of the Bonus Pool Units issued to Employee Members concurrently with the Initial Closing shall, as of such date, represent an aggregate interest in the applicable Eligible Promoted Interest equal to the Designated Participation Percentage with respect to such series of Bonus Pool Units. If the Initial Closing with respect to such Eligible Promoted Interest occurs during the Award Period, Promote Pool LLC shall issue to Grantee, concurrently with such Initial Closing, a percentage of the applicable series of Employee Units equal to the product of (i) his or her Participation Percentage as of such date times (ii) the Designated Participation Percentage with respect to such series of Bonus Pool Units.

(d) Distributions. Following the receipt by Promote Pool LLC or any of its wholly-owned subsidiaries of any Promoted Interest Proceeds, Promote Pool LLC shall distribute such Promoted Interest Proceeds to the Members in accordance with the terms and conditions of the LLC Agreement. The LLC Agreement will include provisions relating to distributions in substantially the form set forth on Exhibit A attached hereto.

5. Restrictions on Transfer

Subject to the next sentence, no portion of the Award Participation granted hereunder shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”). This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. Notwithstanding the foregoing, in the event Managing Member elects to sell or otherwise dispose of all or any portion of its interest in any series of interests in Promote Pool LLC to an unaffiliated third party, Managing Member shall ensure that such third party offers to acquire all or the comparable percentage (as the case may be) of the Employee Units in such Series held by each holder of such series of Employee Units, on the same terms and conditions as such unaffiliated third-party is acquiring the interests of the Managing Member, in accordance with such procedures for such offer and purchase as the Managing Member shall reasonably establish for such purpose.

6. Miscellaneous

(a) Amendments. This Agreement may be amended or modified only with the consent of the Company acting through the Committee; provided that any such amendment or modification materially and adversely affecting the rights or obligations of the Grantee hereunder must be consented to by the Grantee to be effective as against him. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company to correct any errors or ambiguities in this Agreement and/or to make such changes that do not materially adversely affect the Grantee’s rights or obligations hereunder. This grant shall in no way affect the Grantee’s participation or benefits under any other plan or benefit program maintained or provided by the Company.

(b) Committee Determinations. The Committee will make the determinations and certifications required by this Award as promptly as reasonably practicable following the occurrence of the event or events necessitating such determinations or certifications.

(c) Grantee Representations; Registration.

(i) The Grantee hereby represents and warrants that (A) he or she understands that he or she is responsible for consulting his or her own tax advisor with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of this Award may become subject, to his or her particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the Operating Company or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides services to the Operating Company on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Operating Company, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award; (D) Bonus Pool Units are subject to substantial risks; (E) the Grantee has been furnished with, and has reviewed and understands, information relating to this Award; (F) the Grantee has been afforded the opportunity to obtain such additional information as he or she deemed necessary before accepting this Award; (G) the Grantee has had an opportunity to ask questions of representatives of the Operating Company and the Company, or persons acting on their behalf, concerning this Award; and (H) the Grantee will provide services to Promote Pool LLC.

(ii) The Grantee hereby acknowledges that: (A) there will be no public market for Bonus Pool Units and neither the Operating Company nor the Company has any obligation or intention to create such a market; (B) transfers sales of Bonus Pool Units are subject to restrictions under the Securities Act and applicable state securities laws, in addition to the restrictions set forth herein and in the LLC Agreement; and (C) because of the restrictions on transfer or assignment of Bonus Pool Units set forth in the LLC Agreement and in this Agreement, the Grantee may have to bear the economic risk of his or her ownership of any Bonus Pool Units issued as a result of this Award for an indefinite period of time.

(d) Section 83(b) Election. In connection with each separate issuance of Bonus Pool Units under this Award, the Grantee hereby agrees to make an election to include in gross income in the year of transfer the applicable Bonus Pool Units pursuant to Section 83(b) of the Code substantially in the form attached hereto as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder. The Grantee agrees to file such election (or to permit Promote Pool LLC to file such election on the Grantee’s behalf) within thirty (30) days after the issuance of the Bonus Pool Units with the IRS Service Center where the Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the Bonus Pool Units are awarded to the Grantee. So long as the Grantee holds any Bonus Pool Units, the Grantee shall disclose to Promote Pool LLC in writing such information as may be reasonably requested with respect to ownership of Bonus Pool Units as Promote Pool LLC may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code applicable to Promote Pool LLC or to comply with requirements of any other appropriate taxing authority.

(e) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(f) Governing Law. This Agreement is made under, and will be construed in accordance with, the laws of State of New York, without giving effect to the principles of conflict of laws of such State.

(g) No Obligation to Continue Position as an Employee. Neither the Company nor any Affiliate is obligated by or as a result of this Agreement to continue to have the Grantee as an employee, consultant or advisor and this Agreement shall not interfere in any way with the right of the Company or any Affiliate to terminate the Grantee’s Continuous Service at any time.

(h) Notices. Any notice to be given to the Company shall be addressed to the Secretary of the Company at 475 Tenth Avenue, New York, New York 10018 and any notice to be given the Grantee shall be addressed to the Grantee at the Grantee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Grantee may hereafter designate in writing to the other.

(i) Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to this Award, the Grantee will pay to the Company or, if appropriate, any of its Affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

(j) Headings. The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

(k) Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

(l) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company, on the one hand, and any successors to the Grantee, on the other hand, by will or the laws of descent and distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Grantee.

(m) Section 409A. This Agreement shall be construed, administered and interpreted in accordance with a good faith interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Grantee the Company, to the extent necessary to exempt it from, or bring it into compliance with Section 409A of the Code.

[signature page follows]

IN WITNESS WHEREOF, the undersigned have caused this Award Agreement to be executed as of the date first above written.

MORGANS HOTEL GROUP CO.
By:	/s/ David Smail
	Name:	David Smail
	Title:	Executive Vice President and General Counsel

GRANTEE

/s/ Yoav Gery

Name: Yoav Gery

IN WITNESS WHEREOF, the undersigned has caused this Award Agreement to be executed as of the date first above written.

MORGANS GROUP LLC
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:

SCHEDULE A TO 2011 PROMOTED INTEREST BONUS POOL
AWARD AGREEMENT

Date of Award Agreement:	March 23, 2011
Name of Grantee:	Yoav Gery
Participation Percentage:		10%
Grant Date:	March 23, 2011

Initials of Company representative: /s/DS Initials of Grantee: /s/YG

EXHIBIT A

CERTAIN PROVISIONS OF THE LLC AGREEMENT

The LLC Agreement will include the following provisions in substantially the form set forth below (capitalized terms shall have the meanings set forth in the Award Agreement to which this Exhibit A is attached, if defined therein, or in Section 8 hereof, and Section numbers shall refer to sections of this Exhibit A, unless otherwise stated ):

1. Distributions.

(a) Promptly following the receipt by Promote Pool LLC or any of its wholly owned subsidiaries of any Promoted Interest Proceeds, including the receipt of any proceeds assigned to Grantee in respect of any Eligible Promoted Interest, Promote Pool LLC shall distribute such Promoted Interest Proceeds (with respect to any distribution, the “Aggregate Proceeds”) to the Members on the following terms and conditions:

(i) If the Employee Unit Distribution Conditions are satisfied as of the date of receipt of such Promoted Interest Proceeds by Promote Pool LLC or any of its wholly owned subsidiaries, an amount equal to the product of (x) the Aggregate Employee Participation Percentage then outstanding in the series of Bonus Pool Units related to the Eligible Promoted Interest with respect to which the Promoted Interest Proceeds were received times (y) the Aggregate Proceeds shall be paid, or set aside for future payment, in accordance with Section 1(b) or 1(c); and

(ii) The remainder of such Aggregate Proceeds shall be paid to the Managing Member.

(b) All amounts referred to in Section 1(a)(i) (with respect to any distribution, the “Employee Member Share”) shall be applied as follows:

(i) An amount equal to the product of (x) each Employee Member’s Vested Participation Percentage at such time in such series of Bonus Pool Units times (y) the Aggregate Proceeds shall be paid to such Employee Member ;and

(ii) The remainder of the Employee Member Share shall be set aside and held by Promote Pool LLC for future payment in accordance with Section 1(c).

(c) All amounts referred to in Section 1(b)(ii) shall be applied as follows:

(i) At such time as any Employee Member’s Vested Participation Percentage in the applicable series of Bonus Pool Units increases after the initial distribution of the applicable Aggregate Proceeds under Section 1(b), an amount equal to (x) the product of (I) such Employee Member’s Vested Participation Percentage (after such increase) in such series of Bonus Pool Units times (II) the Aggregate Proceeds minus (y) the aggregate amount of such Aggregate Proceeds that previously paid to such Employee Member under Section 1(b)(i) or this Section 1(c)(i).

(ii) At such time as any Employee Member’s unvested Bonus Pool Units in the applicable series are forfeited pursuant to Section 4 of such Employee’s Award Agreement, an amount equal to the product of (x) a fraction, the numerator of which is the number of unvested Bonus Pool Units in the applicable series so forfeited and the denominator of which is the aggregate number of outstanding Bonus Pool Units in such series times (y) the applicable Aggregate Proceeds.

2. Management of the LLC. Except as otherwise provided in the LLC Agreement or by law, management of Promote Pool LLC is reserved to and shall be vested solely and exclusively in the Managing Member. The rights and authority of the Managing Member shall include, without limitation, the right and authority, in its sole discretion, to —

(a) exercise all consent and voting rights with respect to the Eligible Promoted Interests,

(b) sell, transfer, or otherwise dispose of the interest of Promote Pool LLC in any Eligible Promoted Interest, subject to compliance with the provisions of Section 7 below, and

(c) issue additional Employee Units to persons granted 2011 Bonus Pool Awards, subject to the proviso at the end of Section 3(a) of the Award Agreements.

3. Amendments. The LLC Agreement, or any term or provision thereof, may be amended, waived, modified or supplemented from time to time by the Managing Member in its sole discretion; provided that any amendment to the provisions relating to the distribution of Promoted Interest Proceeds or the defined terms used therein that would materially adversely affect the rights or obligations of the holders of Employee Units granted hereunder shall require the consent of each Employee Member adversely affected thereby.

4. Transfer of Employee Units. No Employee Member may Transfer all or any part of his or her Employee Units, or any interest therein, directly or indirectly, without the consent of the Managing Member, which consent may be withheld in the Managing Member’s sole discretion. No Transfer of Employee Units, or any interest therein, in violation of this Agreement shall be made or recorded on the books of Promote Pool LLC and any such Transfer shall be null and void, ab initio. An Employee Member shall have no right to grant an assignee of his or her Employee Units, or any interest therein, the right to become a substituted member in Promote Pool LLC. As used herein, “Transfer” means the sale, encumbrance, mortgage, hypothecation, assignment, pledge, exchange or other disposition or transfer (including by operation of law), directly or indirectly, of all or any portion of an Interest. For the avoidance of doubt, any indirect Transfer by an Employee Member or the Company through the transfer or issuance of any equity interest in any entity formed for the purpose of holding Employee Units or Managing Member Units, respectively, or any interest therein, shall constitute a Transfer.

5. Effect of Forfeiture of Unvested Units. At such time as any unvested Employee Units of any Employee Member in any series are forfeited pursuant to Section 4 of the such Employee Member’s award agreement, such unvested Employee Units shall be cancelled and the Manager Percentage Interest shall be increased by a percentage equal to the product of (x) the Unit Percentage Interest with respect to such series in effect immediately prior to such forfeiture times (y) the number of Employee Units in such series that were then forfeited.

6. Issuance of Additional Employee Units. The Managing Member, in its sole discretion, shall be entitled to issue additional Employee Units in any series at any time, which additional Employee Units may be accompanied by a reduction in the Manager Percentage Interest with respect to such series and a corresponding increase in the Aggregate Employee Participation Percentage for such series, or may represent the issuance of additional Employee Units without a change in the Aggregate Employee Participation Percentage, subject to the proviso at the end of [Section 3(a)] of the Award Agreements.

7. Ownership and Control of Eligible Promoted Interests. If the Managing Member elects to Transfer an Eligible Promoted Interest prior to the occurrence of the Sale Event with respect to such Eligible Promoted Interest (or the Sale Events with respect to all hotel properties related to such Eligible Promoted Interest), the vesting conditions set forth in Sections 3(b)(i)(B), 3(b)(ii)(B) and 3(b)(iii)(B) of the Award Agreements with respect to such Eligible Promoted Interest will be deemed to have been satisfied (to the extent that any such condition shall not previously have been satisfied) and the net proceeds received by Promote Pool LLC in connection with such Transfer shall be deemed to constitute Promoted Interest Proceeds, and shall be distributable in accordance with Section 1, subject to satisfaction of the Payment Conditions and subject to satisfaction of the vesting conditions set forth in Sections 3(b)(i)(A), 3(b)(ii)(A) and 3(b)(iii)(A) of the Award Agreements with respect to individual Employee Members (to the extent that such condition shall not previously have been satisfied). Any Transfer of an Eligible Promoted Interest to the Company or a subsidiary of the Company shall be made for an amount of cash equal to its Fair Market Value.

8. Certain Defined Terms. Capitalized terms defined in the Award Agreement to which this Exhibit A is attached shall have the meanings ascribed therein to such terms. The following capitalized terms used in this Exhibit A shall have the meanings set forth below:

(a) “Aggregate Employee Participation Percentage” means, with respect to any series of Bonus Pool Units and as of any date of determination, a percentage equal to (i) one hundred percent (100%) minus (ii) the Manager Percentage Interest with respect to such series then in effect.

(b) “Award Agreement” means, with respect to any Employee Member, the award agreement pursuant to which such Employee Member was granted a 2011 Bonus Pool Award.

(c) “Employee Unit Distribution Conditions” means, as of the date of any receipt by Promote Pool LLC or any of its wholly-owned subsidiaries of any Promoted Interest Proceeds, the following:

(i) the Common Share Return Condition shall be satisfied; and

(ii) the Company or a consolidated subsidiary of the Company continues to manage the applicable hotel property immediately following the applicable event giving rise to the Promoted Interest Proceeds.

(d) “Manager Percentage Interest” means, with respect to any series of Bonus Pool Units and as of any date of determination, a percentage equal to (i) one hundred percent (100%) minus (ii) the Designated Participation Percentage with respect to such series plus (iii) the aggregate increases in the Manager Percentage Interest with respect to such series pursuant to Section 5 minus (iv) the aggregate decreases in the Manager Percentage Interest with respect to such series pursuant to Section 6 in connection with the issuances of additional Employee Units with respect to such series.

(e) “Unit Percentage Interest” means, with respect to a single Employee Unit of any series as of the date of determination, a fraction (expressed as a percentage) equal to (i) the Aggregate Employee Participation Percentage with respect to such series as of such date divided by (ii) the aggregate number of Employee Units in such series then outstanding.

(f) “Vested Participation Percentage” means, with respect to any Employee Member and any series of Bonus Pool Units and as of any date of determination, a fraction, (x) the numerator of which is the aggregate number of Employee Units in such series held by such Employee Member that have vested in accordance with Section 3(b) of such Employee’s Award Agreement and (y) the denominator of which is the aggregate number of Employee Units in such series then outstanding.

EXHIBIT B

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1. The name, address and taxpayer identification number of the undersigned are:

Name:                                          (the “Taxpayer”)

Address:                                                                                  

Social Security No./Taxpayer Identification No.:                                         

2. Description of property with respect to which the election is being made:

The election is being made with respect to                      Bonus Pool Units (Series [_____]) (the “Bonus Pool Units”) in MHG Employee Promoted Interest LLC (the “Company”).

3. The date on which the Bonus Pool Units were transferred is  _____, 20_. The taxable year to which this election relates is calendar year 20_.

4. Nature of restrictions to which the Bonus Pool Units are subject:

(a) With limited exceptions, until the Bonus Pool Units vest, the Taxpayer may not transfer in any manner any portion of the Bonus Pool Units without the consent of the Company.

(b) The Taxpayer’s Bonus Pool Units (vest in accordance with the vesting provisions described in Annex 1 attached hereto. Unvested Bonus Pool Units are forfeited in accordance with the vesting provisions described in Annex 1 attached hereto.

5. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the Bonus Pool Units with respect to which this election is being made was $  per Bonus Pool Unit .

6. The amount paid by the Taxpayer for the Award LTIP Units was $0 per Bonus Pool Unit.

7. A copy of this statement has been furnished to the Company and Morgans Group LLC.

Dated:                     , 20_____  Signature                                        

ANNEX 1

Vesting Provisions of Bonus Pool Units

The Bonus Pool Units are subject to time-based and performance-based vesting with the final vesting percentage equaling the product of the time-based vesting percentage and the performance-based vesting percentage. Performance-based vesting will be from 0% to 100% based on the achievement of certain goals relating to hotel properties in which Morgans Group LLC or a subsidiary acquires an equity interest and becomes the hotel manager. Under the time-based vesting provisions, one hundred percent (100%) of the Bonus Pool Units will vest on the last day of the performance period, provided that the Taxpayer remains an employee of the Company or any of its affiliates through such date, subject to acceleration in the event of certain extraordinary transactions or termination of the Taxpayer’s service relationship with the Company under specified circumstances. Unvested Bonus Pool Units are subject to forfeiture in the event of failure to vest based on the passage of time or the determination of the performance-based percentage. The right to receive any payments with respect to vested Bonus Pool Units depends on a specified Morgan Hotel Group Co.’s (the “Company’s”) per-share total return to shareholders of Morgans Hotel Group Co. for the period from [_____], 2011, to the proposed payment date.

Exhibit D

RSU Agreement

MORGANS HOTEL GROUP CO.
RESTRICTED STOCK UNIT AGREEMENT

Morgans Hotel Group Co. (the “Company”), hereby grants restricted stock units relating to shares of its common stock (the “Stock”), to the individual named below as the Grantee, subject to the vesting conditions set forth in the attachment.

Grant Date: March 23, 2011
Name of Grantee: Yoav Gery	State of Residence:

Grantee’s Social Security Number: ____-___-_____

Number of Restricted Stock Units (RSUs) Covered by Grant: 65,250

Vesting Start Date: March 23, 2011

Vesting Schedule:

	Number of RSUs that vest, as
	a percentage of the number of
Vesting Date	RSUs granted
The 1 year anniversary of the Vesting Start Date		33	1/3
The 2 year anniversary of the Vesting Start Date		33	1/3
The 3 year anniversary of the Vesting Start Date		33	1/3

By signing this cover sheet, you agree to all of the terms and conditions described in this Agreement.

Grantee:	/s/ Yoav Gery
	(Signature)
Company:	/s/ David Smail
	(Signature)
	Title:	Executive Vice President and General Counsel

This is not a stock certificate or a negotiable instrument.

MORGANS HOTEL GROUP CO.
RESTRICTED STOCK UNIT AGREEMENT

Restricted Stock Unit Transferability	This grant is an award of stock units in the number of units set forth on the cover sheet, subject to the vesting conditions described below (“Restricted Stock Units”). Your Restricted Stock Units may not be transferred in any manner other than by will or by laws of descent and distribution. These terms shall be binding upon your executors, administrators, successors and assigns.
Vesting	Your Restricted Stock Unit grant vests as to the number of Stock Units indicated in the vesting schedule on the cover sheet, on the Vesting Dates shown on the cover sheet, provided you are in Service on the Vesting Date and meet the applicable vesting requirements set forth on the cover sheet. Except as otherwise provided in the employment agreement between you and the Company, no additional Stock Units will vest after your Service has terminated for any reason.
	“Stock Units” means a bookkeeping entry representing the equivalent of one share of Stock awarded to you pursuant to this Agreement.
	“Service” means service as a Service Provider to the Company or an Affiliate. Your change in position or duties shall not result in interrupted or terminated Service, so long as you continue to be a Service Provider to the Company or an Affiliate. Subject to the preceding sentence, whether a termination of Service shall have occurred shall be determined by the Compensation Committee of the Board of Directors (the “Board”), which determination shall be final, binding and conclusive.
	“Service Provider” means an employee, officer or director of the Company or an Affiliate, or a consultant or adviser currently providing services to the Company or an Affiliate

	“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act of 1933, as now in effect or hereafter amended, including, without limitation, any Subsidiary. For purposes of granting stock options or stock appreciation rights, an entity may not be considered an Affiliate unless the Company holds a “controlling interest” in such entity, where the term “controlling interest” has the same meaning as provided in Treasury Regulation 1.414(c)-2(b)(2)(i), provided that the language “at least 50 percent” is used instead of “at least 80 percent” and, provided further, that where granting of stock options or stock appreciation rights is based upon a legitimate business criteria, the language “at least 20 percent” is used instead of “at least 80 percent” each place it appears in Treasury Regulation 1.414(c)-2(b)(2)(i)
	“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of Internal Revenue Code of 1986, as amended (the “Code”).
Book Entry of Stock Pursuant to Vested Units	A book entry for the vested shares of Stock represented by the Restricted Stock Units will be made for you and the shares will be credited to your account by the Company within three (3) days of the applicable anniversary of the Vesting Date; provided, that, if such Vesting Date occurs during a period in which you are (i) subject to a lock-up agreement restricting your ability to sell Stock in the open market or (ii) are restricted from selling Stock in the open market because a trading window is not available, transfer of such vested shares will be delayed until the date immediately following the expiration of the lock-up agreement or the opening of a trading window but in no event beyond 21/2 months after the end of the calendar year in which the shares would have been otherwise transferred.
Forfeiture of Unvested Units	Except as otherwise provided in the employment agreement between you and the Company, in the event that your Service terminates for any reason, you will forfeit to the Company all of the Restricted Stock Units that have not yet vested or with respect to which all applicable restrictions and conditions have not lapsed.

Withholding Taxes	You agree, as a condition of this grant, that you will make acceptable arrangements, which must be consistent with and permitted by the rules and regulations established by the Company, to pay any withholding or other taxes that may be due as a result of vesting in Restricted Stock Units or your acquisition of Stock under this grant. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to this grant, the Company will have the right to: (i) require that you arrange such payments to the Company, or (ii) cause an immediate forfeiture of shares of Stock subject to the Restricted Stock Units granted pursuant to this Agreement in an amount equal to the withholding or other taxes due. In addition, in the Company’s sole discretion and consistent with the Company’s rules and regulations, the Company may permit you to pay the withholding or other taxes due as a result of the vesting of your Restricted Stock Units by delivery (on a form acceptable to the Board) of an irrevocable direction to a licensed securities broker selected by the Company to sell shares of Stock and to deliver all or part of the sales proceeds to the Company in payment of the withholding taxes.
Corporate Transaction	Notwithstanding the vesting schedule set forth above, upon the consummation of a Corporate Transaction, this award will become 100% vested if it is not assumed, or equivalent awards are not substituted for the award, by the Company or its successor.
	“Corporate Transaction” shall be deemed to have occurred if (i) any person or group of persons (as defined in Section 13(d) and 14(d) of the Exchange Act of 1934, as now in effect or hereafter amended (the “Exchange Act”)) together with its affiliates, excluding employee benefit plans of the Company, is or becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act) of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities; or (ii) individuals who at the beginning of any two-year period constitute the Board, plus new directors of the Company whose election or nomination for election by the Company’s shareholders is approved by a vote of at least two-thirds of the directors of the Company still in office who were directors of the Company at the beginning of such two-year period, cease for any reason during such two-year period to constitute at least two-thirds of the members of the Board; or (iii) a merger or consolidation of the Company with any other corporation or entity is consummated regardless of which entity is the survivor, other than a merger of consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the Company is completely liquidated or all or substantially all of the Company’s assets are sold.

Retention Rights	This Agreement does not give you the right to be retained or employed by the Company (or any Affiliates) in any capacity. The Company (and any Affiliate) reserve the right to terminate your Service at any time and for any reason, subject to the employment agreement between you and the Company.
Shareholder Rights	You do not have any of the rights of a shareholder with respect to the Restricted Stock Units unless and until the Stock relating to the Restricted Stock Units has been transferred to you. In the event of a cash dividend on outstanding Stock, you will be entitled to receive a cash payment for each Restricted Stock Unit. The Company may in its sole discretion require that dividends will be reinvested in additional stock units at Fair Market Value on the dividend payment date, subject to vesting and delivered at the same time as the Restricted Stock Unit.
	“Fair Market Value” with respect to a share of Stock means the value of a share of such Stock determined as follows: if on the determination date the Stock is listed on an established national or regional stock exchange, is admitted to quotation on The NASDAQ Stock Market, Inc. or is publicly traded on an established securities market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or in such market (if there is more than one such exchange or market the Compensation Committee of the Board shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the highest bid and lowest asked prices or between the high and low sale prices on such trading day) or, if no sale of Stock is reported for such trading day, on the next preceding day on which any sale shall have been reported. If the Stock is not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the share of Stock shall be the value of the Stock as determined by the Compensation Committee of the Board by the reasonable valuation method, in a manner consistent with Section 409A of the Code. “Fair Market Value” with respect to an award means the value of the award as determined by the Compensation Committee in good faith, taking into consideration applicable tax and accounting rules and regulations.

Adjustments	In the event of a stock split, a stock dividend or a similar change in the Company stock, the number of Restricted Stock Units covered by this grant will be adjusted (and rounded down to the nearest whole number).
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of New York, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
Data Privacy	The Company may process personal data about you. Such data includes, but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of this Agreement.
	By accepting these Restricted Stock Units, you give explicit consent to the Company to process any such personal data. You also give explicit consent to the Company to transfer any such personal data outside the country in which you are employed, including, with respect to non-U.S. resident grantees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to administer this Agreement.
Consent to Electronic Delivery	The Company may choose to deliver certain statutory materials relating to this Agreement in electronic form. If at any time you would prefer to receive paper copies of any documents, as you are entitled to receive, the Company would be pleased to provide copies.
Electronic Signature	All references to signatures and delivery of documents in this Agreement can be satisfied by procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents, including this Agreement. Your electronic signature is the same as, and shall have the same force and effect as, your manual signature. Any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to this Agreement.
Scope of Agreement	This Agreement constitutes the entire understanding between you and the Company regarding this grant of Restricted Stock Units. Any prior agreements, commitments or negotiations concerning this grant are superseded.

Exhibit E

Release Agreement

RELEASE AGREEMENT

THIS RELEASE AGREEMENT (this “Release”) is entered into as of [                    ] (the “Effective Date”), by                                          (“Executive”) in consideration of severance pay and other benefits (the “Severance Payment”) provided to Executive by Morgans Hotel Group Co., a Delaware corporation (the “Company”), pursuant to Section 4 of the Employment Agreement by and between the Company and Executive (the “Employment Agreement”).

1. Release. Subject to the last sentence of the first paragraph of this Section 1, Executive, on his own behalf and on behalf of his heirs, executors, administrators, attorneys and assigns, hereby unconditionally and irrevocably releases, waives and forever discharges the Company and each of its affiliates, parents, successors, predecessors, and the subsidiaries, directors, owners, members, shareholders, officers, agents, and employees of the Company and its affiliates, parents, successors, predecessors, and subsidiaries (collectively, all of the foregoing are referred to as the “Employer”), from any and all causes of action, claims and damages, including attorneys’ fees, whether known or unknown, foreseen or unforeseen, presently asserted or otherwise arising through the date of his signing of this Release, concerning his employment or separation from employment. Subject to the last sentence of the first paragraph of this Section 1, this Release includes, but is not limited to, any payments, benefits or damages arising under any federal law (including, but not limited to, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act of 1974, the Americans with Disabilities Act, Executive Order 11246, the Family and Medical Leave Act, and the Worker Adjustment and Retraining Notification Act, each as amended); any claim arising under any state or local laws, ordinances or regulations (including, but not limited to, any state or local laws, ordinances or regulations requiring that advance notice be given of certain workforce reductions); and any claim arising under any common law principle or public policy, including, but not limited to, all suits in tort or contract, such as wrongful termination, defamation, emotional distress, invasion of privacy or loss of consortium. Notwithstanding any other provision of this Release to the contrary, this Release does not encompass, and Executive does not release, waive or discharge, the obligations of the Company (a) to make the payments and provide the other benefits contemplated by the Employment Agreement or any other Agreement with Executive, or (b) under any restricted stock unit agreement, option agreement or other agreement pertaining to Executive’s equity ownership or other awards, or (c) under any indemnification or similar agreement with Executive, or (d) under this Release.

Executive understands that by signing this Release, he is not waiving any claims or administrative charges which cannot be waived by law. He is waiving, however, any right to monetary recovery or individual relief should any federal, state or local agency (including the Equal Employment Opportunity Commission) pursue any claim on his behalf arising out of or related to his employment with and/or separation from employment with the Company (other than with respect to those matters described in clauses (a), (b), (c) and (d) above.

Executive further agrees without any reservation whatsoever, never to sue the Employer or become a party to a lawsuit on the basis of any and all claims of any type lawfully and validly released in this Release.

2. Acknowledgments. Executive is signing this Release knowingly and voluntarily. He acknowledges that:

(a) He is hereby advised in writing to consult an attorney before signing this Release;

(b) He has relied solely on his own judgment and/or that of his attorney regarding the consideration for and the terms of this Release and is signing this Release knowingly and voluntarily of his own free will;

(c) He is not entitled to the Severance Payment unless he agrees to and honors the terms of this Release;

(d) He has been given at least twenty-one (21) calendar days to consider this Release, or he expressly waives his right to have at least twenty-one (21) days to consider this Release;

(e) He may revoke this Release within seven (7) calendar days after signing it by submitting a written notice of revocation to the Employer. He further understands that this Release is not effective or enforceable until after the seven (7) day period of revocation has expired without revocation, and that if he revokes this Release within the seven (7) day revocation period, he will not receive the Severance Payment;

(f) He has read and understands the Release and further understands that, subject to the limitations contained herein, it includes a general release of any and all known and unknown, foreseen or unforeseen claims presently asserted or otherwise arising through the date of his signing of this Release that he may have against the Employer; and

(g) No statements made or conduct by the Employer has in any way coerced or unduly influenced him or her to execute this Release.

3. No Admission of Liability. This Release does not constitute an admission of liability or wrongdoing on the part of the Employer, the Employer does not admit there has been any wrongdoing whatsoever against the Executive, and the Employer expressly denies that any wrongdoing has occurred.

4. Entire Agreement. There are no other agreements of any nature between the Employer and Executive with respect to the matters discussed in this Release, except as expressly stated herein, and in signing this Release, Executive is not relying on any agreements or representations, except those expressly contained in this Release.

5. Execution. It is not necessary that the Employer sign this Release following Executive’s full and complete execution of it for it to become fully effective and enforceable.

6. Severability. If any provision of this Release is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or controlling law, the remainder of this Release shall continue in full force and effect.

7. Governing Law. This Release shall be governed by the laws of the State of New York, excluding the choice of law rules thereof.

8. Headings. Section and subsection headings contained in this Release are inserted for the convenience of reference only. Section and subsection headings shall not be deemed to be a part of this Release for any purpose, and they shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof.

IN WITNESS WHEREOF, the undersigned has duly executed this Release as of the day and year first herein above written.

EXECUTIVE:

EX-10.5

Exhibit 10.5

EMPLOYMENT AGREEMENT
(DANIEL FLANNERY)

This EMPLOYMENT AGREEMENT (this “Agreement”), dated on March 20, 2011, between Morgans Hotel Group Co., a Delaware corporation (the “Company”), and Daniel Flannery (the “Executive”) shall become effective as of April 4, 2011 (the “Effective Date”).

1. Employment Period

The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, on the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the “Employment Period”), subject to the provisions for early termination or extension as hereinafter provided. The Company (but not the Executive) will have the right to offer (the “Extension Offer”) to extend the Employment Period by six (6) months (the “Extension Period”) by giving notice to Executive of such offer no less than seventy-five (75) days prior to the end of the initial Employment Period. During any Extension Period, the Executive shall receive compensation on substantially the same terms as being provided at the end of the initial Employment Period and will receive a cash bonus, payable on the last day of the Extension Period, in an amount equal to one-half of the Annual Bonus paid to the Executive with respect to the 2013 fiscal year. In the event that the parties hereafter agree to extend Executive’s employment beyond the end of the Extension Period the amount of the pro-rated cash bonuses paid by the Company with respect to the Extension Period and the period from January 1, 2014 to the third anniversary of the Effective Date will be taken into account and be credited against any cash bonus that may become payable to Executive for fiscal 2014. The Executive shall have the right to accept or reject the Extension Offer; if the Executive rejects the Extension Offer and terminates employment, such termination will be deemed to be a termination due to non-renewal of the Agreement by the Company for purposes of Section 4(d) below and shall not be considered a termination under Section 4(c) below.

2. Terms of Employment

(a) Position and Duties

(i) During the Employment Period, the Executive shall serve as Chief Operating Officer of the Company with the customary and usual authority, duties and responsibilities attendant to such position and any other duties that may reasonably be assigned by the Chief Executive Officer and the Company’s Board of Directors (the “Board”) consistent with his position as Chief Operating Officer. In such capacity, it is understood that the Executive shall perform services for Morgans Group LLC (the “Operating Company”) as well the Company. The Executive shall report to the Chief Executive Officer. A termination of the Executive’s employment shall mean a termination of services of both the Company and the Operating Company.

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of the Executive’s business time, attention and energies to the performance of the duties assigned to the Executive so that Executive can fulfill those duties, and to perform such duties faithfully, diligently and to the best of the Executive’s abilities and subject to such laws, rules, regulations and policies from time to time applicable to the Company’s executives. Notwithstanding the above, Executive shall be entitled to attend to personal and family affairs and investments, be involved in not for profit, charitable and professional activities and, with the Board’s prior consent, serve on boards of other organizations, provided that all of the foregoing does not, in the aggregate, materially interfere with Executive’s responsibilities hereunder.

(b) Compensation

(i) Annual Base Salary. During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”) equal to $600,000 (payable semi-monthly), which shall be subject to annual performance reviews and may be increased at the discretion of the Board or the Compensation Committee of the Board (the “Compensation Committee”), in accordance with the standard practice of the Company. The term “Annual Base Salary” as utilized in this Agreement shall refer to Annual Base Salary as so increased. Annual Base Salary shall not be less than $600,000 without the prior written consent of the Executive.

(ii) Annual Bonus. The Executive will be eligible for an annual cash bonus for each of the Company’s 2011, 2012, and 2013 fiscal years (“Annual Bonus”) with a target payout of 100% of Annual Base Salary. The target payout for the 2011 Annual Bonus shall be pro rated, based on the number of days in the fiscal year from and including the Effective Date to and including December 31, 2011, 50% of which shall be guaranteed. The remaining 50% of the 2011 Annual Bonus shall depend on following performance metrics: 40% on EBITDA and 10% on the RevPAR Index, both as established by the Compensation Committee of the Board of Directors. For 2012 and 2013, the Annual Bonus will range from 50% up to 150% of target. The actual Annual Bonus for each fiscal year shall be determined after consultation with the Executive in good faith by the Compensation Committee based upon actual corporate and individual performance for such year and shall be payable in accordance with the procedures specified by the Compensation Committee. The Executive’s Annual Bonus will be paid no later than seventy-five (75) days after the end of the applicable bonus period (or, if earlier, as provided in Section 4 below). Except as provided in Section 3 of this Agreement, Employee must be employed by the Company on the date bonuses are paid to Company employees in order to be entitled to receive a bonus. To the extent the Annual Bonus exceeds 100% of Annual Base Salary, the Compensation Committee may in its discretion, and subject to applicable law, cause the Company to pay such excess in the form of fully vested equity compensation awards under one of Company’s equity compensation plans (which award may be subject to other conditions that the Compensation Committee may determine).

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(iii) Stock Option Award. On the Effective Date, the Company shall grant to the Executive a non-qualified option to purchase 200,000 shares of the Company’s common stock (the “Stock Option”) under the Morgans Hotel Group Co. Amended and Restated 2007 Omnibus Incentive Plan (the “Incentive Plan”). Except as otherwise provided in Section 4 upon certain events of termination, subject to the Executive’s continued employment with the Company, the Stock Option shall vest and become exercisable with respect to 33-1/3% of the shares subject thereto on each of the first, second, and third anniversaries of the Effective Date. Consistent with the foregoing, the terms and conditions of the Stock Option shall be set forth in an award agreement (the “Stock Option Agreement”) in the form attached as Exhibit A hereto, to be entered into by the Company and the Executive concurrently herewith and which shall evidence the grant of the Stock Option. The Company shall determine whether future awards will be awarded to the Executive in its good faith discretion.

(iv) Outperformance Award. On the Effective Date, the Company shall grant to the Executive a performance incentive award entitling the Executive to 10% of the “Total Outperformance Pool,” as such term is defined in the Outperformance Award Agreement attached as Exhibit B hereto, subject to the terms and conditions of such award agreement.

(v) Additional Performance Incentive Award. On the Effective Date, the Company shall grant to the Executive an additional performance incentive award entitling the Executive to 10% of the “Promoted Interest Pool,” as such term is defined in the Promoted Interest Pool Award Agreement attached as Exhibit C hereto, subject to the terms and conditions of such award agreement.

(vi) Signing Bonus. The Executive shall receive a signing bonus equal to $100,000 within 10 days of the Effective Date of this Agreement.

(vii) Equity Award. On the Effective Date, the Company shall grant to the Executive 43,000 restricted stock units (the “RSUs”) as an inducement award. Subject to the Executive’s continued employment with the Company, the RSUs shall vest and become exercisable with respect to 33-1/3% of the shares subject thereto on each of the first, second, and third anniversaries of the Effective Date. Consistent with the foregoing, the terms and conditions of such award shall be set forth in an award agreement (the “RSU Agreement”) in the form attached as Exhibit D hereto, to be entered into by the Company and the Executive concurrently herewith and which shall evidence the grant of the RSUs.

(c) Benefits

(i) Employee Benefits. During the Employment Period, the Executive shall be entitled to participate in all employee benefit and other plans, practices, policies and programs and fringe benefits and perquisites on a basis no less favorable than that provided to other senior executives of the Company.

(ii) Vacations. The Executive shall be eligible for up to five weeks of annual vacation to be accrued in accordance with the Company’s policy for its other senior executives.

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3. Termination of Employment

(a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Executive becomes Disabled during the Employment Period, the Company upon such event shall give to the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” or becoming “Disabled” shall mean the inability of the Executive to perform the Executive’s duties with the Company on a full-time basis for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Executive or the Executive’s legal representative.

(b) Cause. The Company may terminate the Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean the occurrence of any one or more of the following events unless the Executive has commenced and is diligently pursuing steps to correct the circumstances constituting Cause (in those instances where such circumstances can be corrected) within fifteen (15) business days after receipt of the Notice of Termination and cures in all material respects such circumstances within forty-five (45) business days after receipt of the Notice of Termination (as defined below):

(i) the Executive’s willful and continued failure to substantially perform his duties with the Company as contemplated by Section 2(a)(i) (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such failure after his issuance of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed his duties;

(ii) a material breach by Executive of his obligations under this Agreement resulting in substantial economic or financial injury to the Company;

(iii) the Executive’s willful commission of an act of fraud, theft or dishonesty resulting in substantial economic or financial injury to the Company;

(iv) the Executive’s conviction of, or entry by the Executive of a guilty or no contest plea to, the commission of a felony; or

(v) the Executive willfully engages in misconduct that is materially injurious to the Company.

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For purposes of this provision, no act or omission on the part of the Executive shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission that was directed or authorized by the Board, or approved, consented to, or acquiesced to by the Board, or based on advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by at least 66 2/3% of the Board (excluding the Executive and the Executive Chairman, to the extent either of them are members of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

(c) Good Reason. The Executive’s employment may be terminated by the Executive with or without Good Reason. For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following events without the written consent of the Executive:

(i) any change in the Executive’s title or the assignment to the Executive of duties materially inconsistent with the Executive’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated by Section 2(a)(i), or any other action by the Company which results in a material diminution or material adverse change in the Executive’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Executive;

(ii) any material failure by the Company to comply with any of the provisions of this Agreement or any Related Agreement (as defined below), other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Executive;

(iii) any failure by the Company to comply with and satisfy Section 10(c); or

(iv) any requirement that the Executive’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Executive’s residence to his new place of employment

provided that the Executive’s resignation shall only constitute a resignation for Good Reason hereunder if (x) the Executive provides the Company with a Notice of Termination (as defined below) within 90 days after the initial existence of the facts or circumstances constituting Good Reason, (y) the Company has failed to cure such facts or circumstances within 30 days after receipt of the Notice of Termination, and (z) subject to the last sentence of Section 4(e), the Date of Termination (as defined below) occurs no later than 120 days after the initial occurrence of the facts or circumstances constituting Good Reason.

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(d) Notice of Termination. Any termination by the Company or by the Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the Date of Termination. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

(e) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company other than for Disability, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, (ii) if the Executive’s employment is terminated by the Executive, 30 days after receipt of the Notice of Termination (provided, that, the Company may accelerate the Date of Termination to an earlier date by providing the Executive with notice of such action, or, alternatively, the Company may place the Executive on paid leave during such period), (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iv) if the Executive’s employment is terminated due to the non-renewal of the Agreement at the end of the Employment Period, the Date of Termination shall be the last day of the Employment Period. Notwithstanding the foregoing, if within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected).

(f) Resignation from Certain Offices and Directorships. Unless the Company agrees in writing to waive this requirement, upon the termination of the Executive’s employment for Cause, the Executive shall be deemed to have resigned from (i) office as a director of the Company, any subsidiary or affiliate of the Company or any other entity to which the Company appoints the Executive to serve as a director, (ii) from all offices held by the Executive in any or all of such entities in clause (i) above, and (iii) all fiduciary positions (including as trustee) held by the Executive with respect to any pension plans or trusts established by any such entities in clause (i) above. The Executive shall take all actions reasonably requested by the Company to effectuate the foregoing.

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4. Obligations of the Company upon Termination

(a) Other Than for Cause or For Good Reason. If, during the Employment Period, the Company terminates the Executive’s employment other than for Cause or Disability or the Executive terminates his employment for Good Reason (each, a “Qualifying Termination”):

(i) The Company shall pay to the Executive an amount in a single lump sum within 10 days after the end of the revocation period for the Release Agreement provided in Section 4(e) below, (provided, however, that the amounts payable pursuant to subparagraph (C) below, if any, will be paid at the same time the bonuses for the year in which the Date of Termination occurs are paid), equal to the sum of —

(A) an amount equal to the Executive’s Annual Base Salary (at the rate then being paid to Executive) accruing through the Date of Termination to the extent theretofore unpaid (the “Accrued Base Salary”) plus

(B) the amount of any Annual Bonus that, had he remained employed, would otherwise have been paid to the Executive pursuant to Section 2 (b)(ii) above for any fiscal year of the Company that ends on or before the Date of Termination to the extent not previously paid (the “Prior Year Bonus”), plus

(C) (without duplication of the amount in clause (B)) a pro rata portion of the Annual Bonus for the partial fiscal year in which the Date of Termination occurs in an amount equal to the product of (A) the Annual Bonus calculated as of the Date of Termination based on the extent to which the financial performance targets applicable to such Annual Bonus (pro rated based on the number of days in such fiscal year through the Date of Termination) are actually achieved for the year, and (B) a fraction, the numerator of which is the number of days in the year of termination through the Date of Termination and the denominator of which is 365 (the “Pro-Rated Annual Bonus”) plus

(D) an amount equal to two (2) times the Annual Base Salary.

(ii) During the period commencing on the Date of Termination and ending on the date 12 months after the Date of Termination (the “COBRA Period”), provided that the Executive properly elects to receive group health insurance continuation coverage under Section 4980B of the Code and the regulations thereunder (“COBRA”), the Company shall pay directly or reimburse the Executive for premiums for such coverage ; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(a)(ii) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the COBRA Period (or the remaining portion thereof).

All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(iv) and (v), (which shall vest as set forth in the applicable award agreement), shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company.

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Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted. Notwithstanding this Section 4(a), in the event that the Executive is terminated other than for Cause or the Executive terminates employment for Good Reason following a Transactional Change in Control (as defined in the Outperformance Award Agreement) and where the Common Share Price (as defined in the Outperformance Award Agreement) does not represent at least 4.5% compound annual growth rate since the Effective Date, the amount payable by the Company pursuant to Section 4(a)(i)(D) shall equal one (1) times the Annual Base Salary.

(b) Death; Disability. If, during the Employment Period, the Executive’s employment shall terminate on account of death (other than via death after delivery of a valid Notice of Termination for Good Reason or without Cause) or Disability, the Company shall have no further obligations to the Executive other than to pay to or provide the Executive (or his estate) the following:

(i) The Company shall pay to or provide the Executive (or his estate) the following within 10 business days after the Executive’s death or the date on which the Executive becomes Disabled: (A) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid, (B) the Prior Year Bonus to the extent theretofore unpaid, (C) the Pro Rated Annual Bonus (if any), and (D) an amount equal to one (1) times the Annual Base Salary within 10 days after the Date of Termination.

(ii) During the COBRA Period, provided that the Executive’s estate or beneficiaries or the Executive, as applicable, properly elects to receive group health insurance continuation coverage under COBRA, the Company shall pay directly or reimburse the Executive’s estate or beneficiaries or the Executive, as applicable, for premiums for such coverage; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(b)(ii) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the COBRA Period (or the remaining portion thereof).

All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(iv) and (v), (which shall vest as set forth in the applicable award agreement), shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted.

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(c) For Cause; Other than For Good Reason. If, during the Employment Period, the Company shall terminate the Executive’s employment for Cause or the Executive terminates his employment without Good Reason (including the failure by the Executive to renew the Agreement at the end of the Employment Period after the Company offers to do so no less than seventy-five (75) days prior to the end of the Employment Period, as it may be extended pursuant to an employment agreement with at least a three year term, aggregate cash and equity-and performance-based compensation at least as favorable as the same provided for hereunder and otherwise on terms no less favorable to the Executive as those set forth herein) (any such non-renewal, an “Executive Non-Renewal”) the Company shall pay to or provide the Executive (or his estate) the following within 10 business days after the Date of Termination: (A) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid, and (B) in the event of an Executive Non-Renewal, the Prior Year Bonus, to the extent theretofore unpaid. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable (i) in the event of an Executive Non-Renewal, until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted, or (ii) in the event of the termination of Executive’s employment for Cause or without Good Reason other than an Executive Non-Renewal), within ninety (90) days after the Date of Termination.

(d) Expiration of Employment Period due to the Company’s Non-renewal of the Agreement. If the Executive’s employment with the Company terminates by reason of the expiration of the Employment Period other than due to an Executive Non-Renewal, the Company shall pay to or provide the Executive (or his estate) the following within 10 business days after the Date of Termination:

(i) the Accrued Base Salary through the Date of Termination to the extent theretofore unpaid;

(ii) the Prior Year Bonus to the extent theretofore unpaid;

(iii) Subject to execution of the Release Agreement provided in Section 4(e) below, the Company shall pay to the Executive an amount equal to one (1) times the Annual Base Salary in a single lump sum within 10 days after the end of the revocation period for the Release Agreement;

(iv) During the COBRA Period, provided that the Executive’s estate or beneficiaries or the Executive, as applicable, properly elects to receive group health insurance continuation coverage under COBRA, the Company shall pay directly or reimburse the Executive’s estate or beneficiaries or the Executive, as applicable, for premiums for such coverage; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive group health insurance coverage under another employer’s plans, the Company’s obligations under this Section 4(d)(iv) shall be reduced to the extent comparable coverage is actually provided to the Executive and the Executive’s eligible family members, and any such coverage shall be

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reported by the Executive to the Company. Notwithstanding the foregoing, (A) if any plan pursuant to which the Company is providing such coverage is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), or (B) the Company is otherwise unable to continue to cover the Executive under its group health plans, then, in either case, an amount equal to the monthly plan premium payment shall thereafter be paid to the Executive as currently taxable compensation in substantially equal monthly installments over the COBRA Period (or the remaining portion thereof).

All Company equity awards and other performance incentive awards, other than awards provided pursuant to Sections 2(b)(iv) and (v), (which shall vest as set forth in the applicable award agreement), shall fully vest on the Date of Termination to the extent not vested. The Executive shall retain any vested equity awards, which may not be revoked or annulled by the Company. Each vested award (to the extent subject to exercise) shall be exercisable until the later of (A) the twelve month anniversary of the Date of Termination and (B) the four year anniversary of the date such award was granted.

(e) Release Agreement. The Company shall not be required to make the payments and provide the benefits specified in this Section 4 (other than the payment of any Accrued Base Salary) unless the Executive (or his estate, as applicable) executes and delivers to the Company an agreement releasing the Company, its affiliates and its officers, directors and employees from all liability (other than the payments and benefits under this Agreement) in the form attached hereto as Exhibit E (the “Release Agreement”) within thirty (30) days after the Date of Termination and the period for revocation of such Release Agreement shall have lapsed, which Release Agreement shall also provide that the Company shall release the Executive from all liability; provided, that in all events, subject to Executive’s execution and delivery of the Release Agreement, the payments and benefits specified in this Section 4 will be made or provided before March 15 following the end of Executive’s first taxable year in which his right to such payment is no longer subject to a substantial risk of forfeiture.

5. Application of Section 409A

(a) If any compensation or benefits provided by this Agreement may result in the application of Section 409A of the Code, the Company shall, in consultation with the Executive, modify the Agreement in the least restrictive manner necessary in order to, where applicable, (i) exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A or (ii) comply with the provisions of Section 409A, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and to make such modifications, in each case, without any diminution in the value of the payments to the Executive.

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(b) Anything in this Agreement to the contrary notwithstanding, if (A) on the date of termination of Executive’s employment with the Company or a subsidiary, any of the Company’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as amended (the “Code”)), (B) Executive is determined to be a “specified employee” within the meaning of Section 409A(a)(2)(B), (C) the payments exceed the amounts permitted to be paid pursuant to Treasury Regulations section 1.409A-1(b)(9)(iii), and (D) such delay is required to avoid the imposition of the tax set forth in Section 409A(a)(1), as a result of such termination, the Executive would receive any payment that, absent the application of this Section 5(b), would be subject to interest and additional tax imposed pursuant to Section 409A(a) as a result of the application of Section 409A(2)(B)(i), then no such payment shall be payable prior to the date that is the earliest of (1) six (6) months and one day after the Executive’s termination date, (2) the Executive’s death or (3) such other date (the “Delay Period”) as will cause such payment not to be subject to such interest and additional tax (with a catch-up payment equal to the sum of all amounts that have been delayed to be made as of the date of the initial payment). In particular, with respect to any lump sum payment otherwise required hereunder, in the event of any delay in the payment date as a result of Section 409A(a)(2)(A)(i) and (B)(i), the Company will adjust the payments to reflect the deferred payment date by crediting interest thereon at the prime rate in effect at the time such amount first becomes payable, as quoted by the Company’s principal bank.

(c) To the extent that the provision of health insurance following the Date of Termination is so delayed, the Executive shall be entitled to COBRA continuation coverage under Section 4980B of the Code (“COBRA Coverage”) during such period of delay, and the Company shall reimburse the Executive for any Company portions of such COBRA Coverage in the seventh month following the Date of Termination.

(d) To the extent that any benefits to be provided during the Delay Period are considered deferred compensation under Code Section 409A provided on account of a “separation from service,” and such benefits are not otherwise exempt from Section 409A, the Executive shall pay the cost of such benefits during the Delay Period, and the Company shall reimburse the Executive, to the extent that such costs would otherwise have been paid by the Company or to the extent that such benefits would otherwise have been provided by the Company at no cost to the Executive, the Company’s share of the cost of such benefits upon expiration of the Delay Period, and any remaining benefits shall be reimbursed or provided by the Company in accordance with the procedures specified herein.

(e) Any provisions of this Agreement or any other compensation plan notwithstanding, the Company shall have no right to accelerate any such payment hereunder or thereunder except to the extent permitted under Section 409A.

(f) For purposes of Section 409A, each payment made after termination of employment, including COBRA continuation reimbursement payments, will be considered one of a series of separate payments.

(g) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.”

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(h) Any amount that Executive is entitled to be reimbursed under this Agreement that may be treated as taxable compensation, will be reimbursed to Executive as promptly as practical and in any event not later than sixty (60) days after the end of the calendar year in which the expenses are incurred; provided that Executive shall have provided a reimbursement request to the Company no later than thirty (30) days prior to the date the reimbursement is due. The amount of the expenses eligible for reimbursement during any calendar year will not affect the amount of expenses for reimbursement in any other calendar year, except as may be required pursuant to an arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code.

(i) The Company shall not be obligated to reimburse Executive for any tax penalty or interest or provide a gross-up in connection with any tax liability of Executive under Section 409A.

6. Parachute Payment Limitations

Notwithstanding any other provision of this Agreement or of any other agreement, contract, or understanding heretofore or hereafter entered into by the Executive and the Company or any of the Company’s affiliates, except an agreement, contract, or understanding hereafter entered into that expressly modifies or excludes application of this Section 6 (the “Other Agreements”), and notwithstanding any formal or informal plan or other arrangement heretofore or hereafter adopted by the Company or any of the Company’s affiliates for the direct or indirect compensation of the Executive (including groups or classes of participants or beneficiaries of which the Executive is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Executive (a “Benefit Arrangement”), if the Executive is a “disqualified individual,” as defined in Section 280G(c) of the Code, any right to receive any payment or other benefit under this Agreement shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for Executive under the Agreement, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Executive under this Agreement to be considered a “parachute payment” within the meaning of Section 280G(b)(2) of the Code as then in effect (a “Parachute Payment”) and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Executive from the Company or any of the Company’s affiliates under this Agreement, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by Executive without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Agreement, in conjunction with all other rights, payments, or benefits to or for the Executive under the Agreement, any Other Agreement or any Benefit Arrangement would cause the Executive to be considered to have received a Parachute Payment under this Agreement that would have the effect of decreasing the after-tax amount received by the Executive as described in clause (ii) of the preceding sentence, then the Executive shall have the right, in the Executive’s sole discretion, to designate those rights, payments, or benefits under this Agreement, any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Executive under this Agreement be deemed to be a Parachute Payment; provided, however, that, to the extent any payment or benefit constitutes deferred compensation under Section 409A, in order to comply with Section 409A, the reduction or elimination will be performed in the following order: (A) reduction of cash payments; (B) reduction of COBRA benefits; (C) cancellation of acceleration of vesting on any equity awards for which the exercise price exceeds the then fair market value of the underlying equity; and (D) cancellation of acceleration of vesting of equity awards not covered under (C) above; provided, however that in the event that acceleration of vesting of equity awards is to be cancelled, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of such equity awards, that is, later granted equity awards shall be canceled before earlier granted equity awards.

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7. Non-Competition; Non-Solicitation; Confidential Information; Standstill

(a) Non-Competition. Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character. In consideration of his employment hereunder, Executive agrees that, during the term of Executive’s employment with the Company and for a six-month period after the date the Executive’s employment is terminated for any reason, provided in connection with a termination of employment pursuant to Sections 4(a) or (d), the Company is not in material breach in the performance of its obligations to the Executive pursuant to those Sections, the Executive shall not directly or indirectly (without the prior written consent of the Company) engage, directly or indirectly, whether as principal, agent, representative, consultant, employee, partner, stockholder, limited partner, other investor or otherwise (other than a passive investment of not more than two and one-half percent (2.5%) of the stock, equity or other ownership interest of any corporation, partnership or other entity) in any business entity primarily engaged, directly or indirectly through subsidiaries, and the Executive shall not be personally engaged, directly or indirectly, in the business of hotel management within the United States of America or Western Europe. The Executive shall not pursue any prospects listed on a deal pipeline list prepared by the Company and the Executive for a one-year period following the Date of Termination.

(b) Non-Solicitation. During the term of his employment with the Company pursuant to this Agreement and for a one-year period after the Executive’s employment is terminated pursuant to this Agreement for any reason, provided the Company is not in material breach in the performance of its obligations to the Executive as of the Date of Termination and is performing all of its obligations under Section 4 of this Agreement upon and following the Date of Termination, the Executive shall not, in any manner, directly or indirectly (without the prior written consent of the Company), solicit, induce, or encourage any employee, consultant or agent of the Company or any of its subsidiaries to terminate their employment, agency, or other such business relationship with the Company and its subsidiaries or to cease to render services to the Company and its subsidiaries and the Executive shall not initiate discussions with any such person for any such purpose or authorize or knowingly cooperate with or encourage the taking of any such actions by any other individual or entity; provided, however, that this paragraph shall not preclude the hiring or retention of any such person by any other individual or entity who (i) responds to a general employment advertisement by newspaper or similar advertisement, or (ii) is referred to another individual or entity by an employment agency or other similar entity, provided that Executive did not identify the person or the Company as a potential source of employees to such agency or similar entity. During the term of Executive’s employment pursuant to this Agreement and for a six (6) month period after the Executive’s employment is terminated pursuant to this Agreement for any reason, provided the Company is not in material breach in the performance of its obligations to the Executive as of the Date of Termination and is performing all of its obligations under Section 4 of this Agreement upon and following the Date of Termination, the Executive shall not, in any manner (without the prior written consent of the Company), solicit, induce or encourage any customer, vendor, or other party doing business with the Company to terminate their business relationship with the Company and its subsidiaries or to transfer their business from the Company or any of its subsidiaries, and the Executive shall not initiate discussions with any such person for any such purpose or authorize or knowingly cooperate with or encourage the taking of any such actions by any other individual or entity.

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(c) Treatment of Confidential Information. As a Company executive, Executive will acquire Confidential Information (as defined below) in the course of Executive’s employment. Executive agrees that, in consideration of employment with the Company, Executive will treat such Confidential Information as strictly confidential. Executive will not, directly or indirectly, at any time during employment with the Company or any time thereafter, and without regard to when or for what reason, if any, such employment shall terminate, use or cause to be used any such Confidential Information, in connection with any activity or business except in the normal course of performing his designated duties for the Company. Executive shall not disclose or cause to be disclosed any such Confidential Information to any third parties unless such disclosure is in accordance with the disclosure policies adopted by the Board or has been authorized in writing by the Board or except as may be required by law or legal process after providing the Company with prior written notice and an opportunity to respond to such disclosure (unless such notice is prohibited by law). For purposes of this Agreement, “Confidential Information” shall mean confidential or proprietary information, knowledge or data concerning the Company and its subsidiary companies’ businesses, strategies, operations, financial affairs, organizational matters, personnel matters, budgets, business plans, marketing plans, studies, policies, procedures, products, ideas, processes, software systems, trade secrets and technical know-how. Notwithstanding the foregoing, Confidential Information shall not include information which (i) is or becomes generally available to the public or is, at the time in question, in the public domain other than as a result of a disclosure by Executive not permitted hereunder, (ii) was available to Executive on a non-confidential basis prior to the date of this Agreement, or (iii) becomes available to Executive from a source other than the Company, its agents or representatives (or former agents or representatives).

(d) Standstill. During his term of employment and for a period of six months after the date the Executive’s employment is terminated, Executive shall not, directly or indirectly or in concert with any other person, engage in any of the following:

(i) purchase, offer to purchase, or agree to purchase or otherwise acquire, by means of a purchase, tender or exchange offer, business combination or in any other manner (including rights or options to acquire such ownership), (x) beneficial ownership of any common stock of the Company (“Common Stock”), or securities convertible into or exchangeable for Common Stock of the Company, that would result in the Executive, the Executive’s affiliates, and the members of any “group” of persons with which the Executive or his affiliates are acting in concert beneficially owning, in the aggregate (taking into account shares of Common Stock issuable upon conversion or exchange of any securities held by such the Executive and such other persons), more than 14.9% of the voting power of the outstanding Common Stock, or (y) material beneficial ownership of any debt obligations on hotel properties owned by the Company or any of its consolidated subsidiaries or any material assets owned by the Company or any of its consolidated subsidiaries;

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(ii) seek or propose to influence, advise, change or control the management, Board, governing instruments or policies or affairs of the Company or any of its affiliates, including, without limitation, by means of a solicitation of proxies or seeking to influence, advise or direct the vote of any holder of voting securities of the Company; or

(iii) be employed by any person that, directly or through its affiliates, engages in any of the foregoing.

Exercise of options, conversion of LTIP Units, vesting and delivery of shares of Common Stock pursuant to equity or other awards, plans and arrangements and any other Common Stock received or otherwise acquired by the Executive in connection with or as a result of the Executive’s employment with the Company or service on its Board are not prohibited by this Section 7(d). In addition, if persons with whom the Executive has in no way participated, assisted or cooperated with have taken actions that would be prohibited by Sections 7(d) above such that the Company would be considered to be in “play” through no act of the Executive, the Executive will no longer be subject to the limitations of Sections 7(d).

(e) Survival. Any termination of the Executive’s employment or of this Agreement (or breach of this Agreement by the Executive or the Company) shall have no effect on the continuing effectiveness of this Section 7, Sections 4, 5, 6 and 8 or any other provision hereof that by the nature of its terms is contemplated to survive any such termination.

(f) Validity. The terms and provisions of this Section 7 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive’s future employment imposed by this Section 7 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 7 unreasonable in duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction.

(g) Consideration. The parties acknowledge that this Agreement would not have been entered into and the benefits described in Section 2, 4 or 6 would not have been promised in the absence of the Executive’s promises under this Section 7.

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8. Indemnification

(a) If the Executive is made a party, is threatened to be made a party, or reasonably anticipates being made a party, to any Proceeding (as defined below) by reason of the fact that he is or was a director, officer, executive, agent, manager, trustee, consultant or representative of the Company or any of its affiliates or is or was serving at the request of the Company or any of its affiliates, or in connection with his service hereunder, as a director, officer, member, executive, agent, manager, trustee, consultant or representative of another person or entity, or if any Claim (as defined below) is made, is threatened to be made, or is reasonably anticipated to be made, that arises out of or relates to the Executive’s service in any of the foregoing capacities, then the Executive shall promptly be indemnified and held harmless to the fullest extent permitted or authorized by the Certificate of Incorporation or Bylaws of the Company, or if greater, by applicable law, against any and all costs, expenses, liabilities and losses (including, without limitation, attorneys’ and other professional fees, judgments, interest, expenses of investigation, penalties, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by the Executive in connection therewith or in connection with seeking to enforce his rights under this Section 8, and such indemnification shall continue as to the Executive even if he has ceased to be a director, officer, member, executive, agent, manager, trustee, consultant or representative of the Company or other person or entity and shall inure to the benefit of the Executive’s heirs, executors and administrators. The Executive shall be entitled to prompt advancement of any and all costs and expenses (including, without limitation, attorneys’ and other professional fees and other charges) incurred by him in connection with any such Proceeding or Claim, or in connection with seeking to enforce his rights under this Section 8, any such advancement to be made within 15 days after he gives written notice, supported by reasonable documentation, requesting such advancement. Such notice shall include, to the extent required by applicable law, an undertaking by the Executive to repay the amount advanced if he is ultimately determined not to be entitled to indemnification against such costs and expenses. Nothing in this Agreement shall operate to limit or extinguish any right to indemnification, advancement of expenses, or contribution that the Executive would otherwise have (including, without limitation, by agreement or under applicable law). For purposes of this Agreement, “Claim” shall include, without limitation, any claim, demand, request, investigation, dispute, controversy, threat, discovery request, or request for testimony or information and “Proceeding” shall include, without limitation, any actual, threatened, or reasonably anticipated, action, suit or proceeding, whether civil, criminal, administrative, investigative, appellate, formal, informal or other.

(b) A directors’ and officers’ liability insurance policy (or policies) shall be kept in place, during the Employment Period and thereafter until the later of (x) the sixth anniversary of the date on which the Executive’s employment with the Company terminates and (y) the date on which all claims against the Executive that would otherwise be covered by the policy (or policies) would become fully time barred, providing coverage to the Executive that is no less favorable to him in any respect (including, without limitation, with respect to scope, exclusions, amounts, and deductibles) than the coverage then being provided to any other present or former senior executive or director of the Company.

9. Other Matters

(a) The Executive represents and warrants that the execution and delivery of this Agreement and the performance of his duties and responsibilities in Section 2(a)(i) will not result in a breach of or conflict with any obligations owed by Executive to his former employer.

(b) The Company acknowledges that Executive has knowledge of confidential information regarding the business and affairs of his former employer. The Company hereby instructs and authorizes Executive not to disclose any such confidential information to any officer, director, employee, adviser, or other representative of the Company and not to make any use of such confidential information in the performance of Executive’s duties on behalf of the Company, and such non-disclosure shall not constitute “Cause” or otherwise constitute a violation of this Agreement.

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10. Successors

(a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns, provided that the Company may not assign this Agreement other than as described in Section 10(c) below.

(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid.

11. Disputes

(a) Mandatory Arbitration. Subject to the provisions of this Section 11, any controversy or claim between the Executive and the Company arising out of or relating to or concerning this Agreement (including the covenants contained in Section 7) or any aspect of the Executive’s employment with the Company or the termination of that employment (together, an “Employment Matter”) will be finally settled by arbitration in the County of New York administered by the American Arbitration Association (the “AAA”) under its Commercial Arbitration Rules then in effect. However, the AAA’s Commercial Arbitration Rules will be modified in the following ways: (i) notwithstanding any provision of the AAA rules to the contrary, the arbitration shall be heard by a panel of three neutral arbitrators, with each party appointing one arbitrator, who shall jointly appoint a third, (ii) each arbitrator will agree to treat as confidential evidence and other information presented to them, (iii) there will be no authority to award punitive damages (and the Executive and the Company agree not to request any such award), (iv) the optional Rules for Emergency Measures of Protections will apply, (v) there will be no authority to amend or modify the terms of this Agreement except as provided in Section 12(a) (and the Executive and the Company agree not to request any such amendment or modification) and (vi) a decision must be rendered within ten business days of the parties’ closing statements or submission of post-hearing briefs. The Executive and the Company agree that, to the extent permitted by law, a decision made by the arbitration panel with respect to any Employment Matter will be conclusive and binding on the Executive and the Company.

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(b) Injunctions and Enforcement of Arbitration Awards. The Executive or the Company may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the County of New York to enforce any arbitration award under Section 11(a). Also, the Company may bring such an action or proceeding, in addition to its rights under Section 11(a) and whether or not an arbitration proceeding has been or is ever initiated, to temporarily, preliminarily or permanently enforce any part of Section 7. The Executive agrees that (i) violating any part of Section 7 would cause damage to the Company that cannot be measured or repaired, (ii) the Company therefore is entitled to seek an injunction, restraining order or other equitable relief restraining any actual or threatened violation of Section 7, (iii) no bond will need to be posted for the Company to receive such an injunction, order or other relief and (iv) no proof will be required that monetary damages for violations of Section 7 would be difficult to calculate and that remedies at law would be inadequate.

(c) Jurisdiction and Choice of Forum. The Executive and the Company irrevocably submit to the exclusive jurisdiction of any state or federal court located in the County of New York over any Employment Matter that is not otherwise arbitrated or resolved according to Section 11(a). This includes any action or proceeding to compel arbitration or to enforce an arbitration award. Both the Executive and the Company (i) acknowledge that the forum stated in this Section 11(c) has a reasonable relation to this Agreement and to the relationship between the Executive and the Company and that the submission to the forum will apply even if the forum chooses to apply non-forum law, (ii) waive, to the extent permitted by law, any objection to personal jurisdiction or to the laying of venue of any action or proceeding covered by this Section 11(c) in the forum stated in this Section 11(c), (iii) agree not to commence any such action or proceeding in any forum other than the forum stated in this Section 11(c) and (iv) agree that, to the extent permitted by law, a final and non-appealable judgment in any such action or proceeding in any such court will be conclusive and binding on the Executive and the Company. However, nothing in this Agreement precludes the Executive or the Company from bringing any action or proceeding in any court for the purpose of enforcing the provisions of Section 11(a) and this Section 11(c).

(d) Waiver of Jury Trial. To the extent permitted by law, the Executive and the Company waive any and all rights to a jury trial with respect to any Employment Matter.

(e) Costs. The Company will reimburse as incurred any reasonable expenses, including reasonable attorney’s fees, the Executive incurs as a result of any Employment Matter, provided that if the Executive is not the prevailing party on at least one material issue in the Employment Matter, the Executive shall promptly return any such reimbursements. In addition, if the Executive is not the prevailing party on at least one material issue in the Employment Matter, the Executive shall promptly reimburse the Company any reasonable expenses, including reasonable attorney’s fees, the Company has incurred as a result of the Employment Matter, provided that such reimbursement shall not exceed fifty percent (50%) of the expenses, including attorney’s fees, incurred by the Executive.

12. Miscellaneous

(a) Amendment; Waiver. This Agreement may not be amended or modified, or any provision hereof waived, other than by a written agreement executed by the parties hereto or any of their respective successors and assigns.

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(b) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by overnight courier or registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:

at the Executive’s primary residential address
as shown on the records of the Company

If to the Company:

Morgans Hotel Group Co.
475 Tenth Avenue
New York, NY 10018
Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee provided that any notice made by hand delivery shall be deemed to have been received on the date it is actually delivered, any notice made by overnight courier shall be deemed to have been received on the date after such notice was so sent and any notice made by registered or certified mail, return receipt shall be deemed to have been received on the date that is five (5) business days after such notice was so sent.

(c) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. The Executive shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment.

(f) Governing Law. This Agreement will be governed by and construed in accordance with the law of the State of New York applicable to contracts made and to be performed entirely within that State.

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(g) No Waiver. The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason (subject to the proviso at the end of Section 3(c)) or the Company’s right to terminate the Executive for Cause (subject to the limitation in the last sentence of Section 3(b)), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(h) Entire Agreement; Conflict. This Agreement, together with the Stock Option Agreement, RSU Agreement, Outperformance Award Agreement, and Promoted Interest Pool Award Agreement (collectively, the “Related Agreements”), constitutes the final, complete and exclusive agreement between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, between the parties concerning the subject matter hereof. In the event of any conflict or inconsistency between the provisions of, or definitions contained in, this Agreement, on the one hand, and any Related Agreement or any other agreement or instrument related to the Executive’s employment to which he is subject, on the other hand, the provisions or definitions, as the case may be, the terms of the Related Agreements shall govern (notwithstanding the termination hereof) but this Agreement shall govern if in conflict with any plan document or other document or instrument related thereto (other than a Related Agreement).

(i) Section References. Any reference to a Section herein is a reference to a section of this Agreement unless otherwise stated.

(j) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.
SIGNATURES APPEAR ON THE NEXT PAGE.

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

EMPLOYER:		EXECUTIVE:
MORGANS HOTEL GROUP CO.
By:	/s/ Richard Szymanski	/s/ Daniel Flannery
	Name: Richard Szymanski	Daniel Flannery

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Exhibit A

Stock Option Agreement

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Option No.:                     

MORGAN HOTELS GROUP CO.
NON-QUALIFIED STOCK OPTION AGREEMENT

Morgan Hotels Group Co. (the “Company”), hereby grants an option to purchase shares of its common stock (the “Stock”) to the individual named below as the optionee, subject to the vesting conditions set forth in the attachment.

Grant Date: April 4, 2011

Name of Optionee: Daniel Flannery

Optionee’s Employee Identification Number: _______-______-______

Number of Shares Covered by Option: 200,000

Option Price per Share: $9.69 (At least 100% of Fair Market Value)

Vesting Start Date: April 4, 2011

By signing this cover sheet, you agree to all of the terms and conditions described in this Agreement.

Optionee:	/s/ Daniel Flannery
	(Signature)
Company:	/s/ Richard Szymanski
	(Signature)
	Title: CFO, Morgans Hotel Group

This is not a stock certificate or a negotiable instrument.

MORGAN HOTELS GROUP CO.
NON-QUALIFIED STOCK OPTION AGREEMENT

Non-Qualified Stock Option	This option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code and will be interpreted accordingly.
Vesting	This option is only exercisable before it expires and then only with respect to the vested portion of the option. Subject to the preceding sentence, you may exercise this option, in whole or in part, to purchase a whole number of vested shares not less than 100 shares, unless the number of shares purchased is the total number available for purchase under the option, by following the procedures set forth below in this Agreement.
	Your right to the Stock under this Agreement vests as to thirty three and one-third percent (331/3%) of the total number of shares of Stock covered by this grant, as shown on the cover sheet, each year on each of the first three one-year anniversaries of the Vesting Start Date. The resulting aggregate number of vested shares will be rounded down to the nearest whole number, and you cannot vest in more than the number of shares covered by this option.
	Except as otherwise provided in the employment agreement between you and the Company, no additional shares of Stock will vest after your Service has terminated for any reason.
	“Service” means service as a Service Provider to the Company or an Affiliate. Your change in position or duties shall not result in interrupted or terminated Service, so long as you continue to be a Service Provider to the Company or an Affiliate. Subject to the preceding sentence, whether a termination of Service shall have occurred shall be determined by the Compensation Committee of the Board of Directors (the “Board”), which determination shall be final, binding and conclusive.
	“Service Provider” means an employee, officer or director of the Company or an Affiliate, or a consultant or adviser currently providing services to the Company or an Affiliate.
	“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act of 1933, as now in effect or hereafter amended, including, without limitation, any Subsidiary. For purposes of granting stock options or stock appreciation rights, an entity may not be considered an Affiliate unless the Company holds a “controlling interest” in such entity, where the term “controlling interest” has the same meaning as provided in Treasury Regulation 1.414(c)-2(b)(2)(i), provided that the language “at least 50 percent” is used instead of “at least 80 percent” and, provided further, that where granting of stock options or stock appreciation rights is based upon a legitimate business criteria, the language “at least 20 percent” is used instead of “at least 80 percent” each place it appears in Treasury Regulation 1.414(c)-2(b)(2)(i)

	“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of Internal Revenue Code of 1986, as amended (the “Code”).
Term	Your option will expire in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the cover sheet. Your option will expire earlier if your Service terminates, as described below.
Termination of Service	Except as otherwise provided in the employment agreement between you and the Company, if your Service terminates for any reason, your option will expire at the close of business at Company headquarters on the 90th day after your termination date.
Notice of Exercise	When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form. Your notice must specify how many shares you wish to purchase (in a parcel of at least 100 shares generally). Your notice must also specify how your shares of Stock should be registered (e.g. in your name only or in your and your spouse’s names as joint tenants with right of survivorship). The notice will be effective when it is received by the Company.
	If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
Form of Payment	When you submit your notice of exercise, you must include payment of the option price for the shares you are purchasing. Payment may be made in one (or a combination) of the following forms:
	• Cash, your personal check, a cashier’s check, a money order or another cash equivalent acceptable to the Company.
	• Shares of Stock which have already been owned by you and which are surrendered to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price.

	• By delivery (on a form prescribed by the Company) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate option price and any withholding taxes.
Withholding Taxes	You will not be allowed to exercise this option unless you make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the option exercise or sale of Stock acquired under this option. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the exercise or sale of shares arising from this grant, the Company shall have the right to require such payments from you, or withhold such amounts from other payments due to you from the Company or any Affiliate. Subject to the prior approval of the Company, which may be withheld by the Company, in its sole discretion, you may elect to satisfy this withholding obligation, in whole or in part, by causing the Company to withhold shares of Stock otherwise issuable to you or by delivering to the Company shares of Stock already owned by you. The shares of Stock so delivered or withheld must have an aggregate Fair Market Value equal to the withholding obligation and may not be subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
	“Fair Market Value” with respect to a share of Stock means the value of a share of such Stock determined as follows: if on the determination date the Stock is listed on an established national or regional stock exchange, is admitted to quotation on The NASDAQ Stock Market, Inc. or is publicly traded on an established securities market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or in such market (if there is more than one such exchange or market the Compensation Committee of the Board shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the highest bid and lowest asked prices or between the high and low sale prices on such trading day) or, if no sale of Stock is reported for such trading day, on the next preceding day on which any sale shall have been reported. If the Stock is not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the share of Stock shall be the value of the Stock as determined by the Compensation Committee of the Board by the reasonable valuation method, in a manner consistent with Section 409A of the Code. “Fair Market Value” with respect to an award means the value of the award as determined by the Compensation Committee in good faith, taking into consideration applicable tax and accounting rules and regulations.

Corporate Transaction

Notwithstanding the vesting schedule set forth above, upon the consummation of a Corporate Transaction, this option will become 100% vested if it is not assumed, or equivalent options are not substituted for the options, by the Company or its successor. Notwithstanding any other provision in this Agreement but subject to the employment agreement between you and the Company, if assumed or substituted for, the option will expire one year after the date of termination of Service.

“Corporate Transaction” shall be deemed to have occurred if (i) any person or group of persons (as defined in Section 13(d) and 14(d) of the Exchange Act of 1934, as now in effect or hereafter amended (the “Exchange Act”)) together with its affiliates, excluding employee benefit plans of the Company, is or becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act) of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities; or (ii) individuals who at the beginning of any two-year period constitute the Board, plus new directors of the Company whose election or nomination for election by the Company’s shareholders is approved by a vote of at least two-thirds of the directors of the Company still in office who were directors of the Company at the beginning of such two-year period, cease for any reason during such two-year period to constitute at least two-thirds of the members of the Board; or (iii) a merger or consolidation of the Company with any other corporation or entity is consummated regardless of which entity is the survivor, other than a merger of consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the Company is completely liquidated or all or substantially all of the Company’s assets are sold.

Transfer of Option	During your lifetime, only you (or, in the event of your legal incapacity or incompetency, your guardian or legal representative) may exercise the option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or it may be transferred upon your death by the laws of descent and distribution.
	Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your spouse, nor is the Company obligated to recognize your spouse’s interest in your option in any other way.
Retention Rights	This Agreement does not give you the right to be retained or employed by the Company (or any Affiliates) in any capacity. The Company (and any Affiliate) reserve the right to terminate your Service at any time and for any reason, subject to the employment agreement between you and the Company.
Shareholder Rights	You, or your estate or heirs, have no rights as a shareholder of the Company until a certificate for your option’s shares has been issued (or an appropriate book entry has been made). No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued (or an appropriate book entry has been made).
Adjustments	In the event of a stock split, a stock dividend or a similar change in the Stock, the number of shares covered by this option and the option price per share shall be adjusted (and rounded down to the nearest whole number).
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of New York, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
Data Privacy	The Company may process personal data about you. Such data includes but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of this Agreement.
	By accepting this option, you give explicit consent to the Company to process any such personal data. You also give explicit consent to the Company to transfer any such personal data outside the country in which you work or are employed, including, with respect to non-U.S. resident Optionees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to facilitate the administration of this Agreement.

Consent to Electronic Delivery	The Company may choose to deliver certain statutory materials relating to this Agreement in electronic form. If at any time you would prefer to receive paper copies of any documents, as you are entitled to receive, the Company would be pleased to provide copies.
Electronic Signature	All references to signatures and delivery of documents in this Agreement can be satisfied by procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents, including this Agreement. Your electronic signature is the same as, and shall have the same force and effect as, your manual signature. Any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to this Agreement.
Scope of Agreement	This Agreement constitutes the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this grant are superseded.

By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above.

Exhibit B

Outperformance Award Agreement

MORGANS HOTEL GROUP CO.
2011 OUTPERFORMANCE PLAN AWARD AGREEMENT

2011 OUTPERFORMANCE PLAN AWARD AGREEMENT made as of the date set forth on Schedule A hereto by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “Company”), MORGANS GROUP LLC, a Delaware limited liability company (the “Operating Company”), and the party listed on Schedule A (the “Grantee”).

RECITALS

A. The Grantee is a senior management employee of the Company and provides services to the Operating Company.

B. The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) approved this and other 2011 outperformance plan (“2011 OPP”) awards pursuant to the Company’s Amended and Restated 2007 Omnibus Incentive Plan (the “Incentive Plan”) to provide certain senior management employees of the Company, including the Grantee, in connection with their employment with the incentive compensation described in this Award Agreement (this “Agreement”) and thereby provide additional incentive for them to promote the progress and success of the business of the Company and its Affiliates. 2011 OPP awards were approved by the Committee pursuant to authority delegated to it by the Board, including authority to make grants of stock-based performance incentive awards. This Agreement evidences one award (this “Award”) in a series of 2011 OPP awards and is subject to the terms and conditions set forth herein.

C. The Committee, effective as of the grant date specified in Schedule A hereto, awarded to the Grantee the 2011 OPP participation percentage in the Total Outperformance Pool (as defined herein), as set forth in Schedule A.

NOW, THEREFORE, the Company, the Operating Company, and the Grantee agree as follows:

1. Administration.

This Award and all other 2011 OPP awards shall be administered by the Committee, which in the administration of the 2011 OPP awards and this Award shall have all the powers and authority it has in the administration of the Incentive Plan as set forth in the Incentive Plan, but subject to this Agreement ; provided that all powers of the Committee hereunder can be exercised by the full Board if the Board so elects. The Committee, in its sole and absolute discretion, may provide for lapse of forfeiture restrictions and/or accelerated vesting under this Agreement of some or all of the Grantee’s unvested Award Participation that has not previously been forfeited.

2. Definitions.

Capitalized terms used herein shall have the meanings set forth below:

“Accelerated Payment Change of Control” means a Transactional Change of Control or a Change of Control within the meaning of subparagraph (iv) or (v) thereof.

“Additional Share Baseline Value” means, with respect to each Additional Share, the gross proceeds received by the Company or the Operating Company upon the issuance of such Additional Share, which amount shall be deemed to equal, as applicable:

(A) if such Additional Share is issued for cash in a public offering or private placement, the gross price to the public or to the purchaser(s);

(B) if such Additional Share is issued in exchange for assets or securities of another Person or upon the acquisition of another Person, the cash value imputed to such Additional Share for purposes of such transaction by the parties thereto, as determined in good faith by the Committee, or, if no such value was imputed, the mean between the high and low sale prices of a Common Share on the national securities exchange or established securities market on which the Common Shares are listed on the date of issuance of such Additional Share, or, if no sale of Common Shares is reported on such date, on the next preceding day on which any sale shall have been reported; and

(C) if such Additional Share is issued upon conversion or exchange of equity or debt securities of the Company, the Operating Company or any other Subsidiary of the Company, which securities were not previously counted as either Initial Shares or Additional Shares, the conversion or exchange price in effect as of the date of conversion or exchange pursuant to the terms of the security being exchanged or converted.

“Additional Shares” means, as of a particular date of determination, the number of Common Shares, other than those held by the Company, to the extent such Common Shares are issued after the Effective Date and on or before such date of determination in a capital raising transaction, in exchange for assets or securities or upon the acquisition of another Person, upon conversion or exchange of equity or debt securities of the Company or any Subsidiary of the Company, which securities were not previously counted as either Initial Shares or Additional Shares, or through the reinvestment of dividends or other distributions.

For the avoidance of doubt, “Additional Shares” shall exclude, without limitation:

(i) Common Shares issued after the Effective Date upon exercise of stock options or upon the exchange (directly or indirectly) of LTIP Units or other Units issued to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation,

(ii) Common Shares awarded after the Effective Date to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation for services provided or to be provided to the Company or any of its Affiliates,

(iii) LTIP Units or other Units awarded after the Effective Date to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation, and

(iv) any securities included in “Initial Shares.”

“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

“Award Common Units” means the units of membership interests in the Operating Company referred to as “Membership Units” in the LLC Agreement into which the Award LTIP Units may be converted in accordance with the terms of the LLC Agreement.

“Award LTIP Units” means a series of LTIP Units established by the Operating Company, with the rights, privileges, and preferences set forth in the designations thereof included in an amendment to the LLC Agreement that may be adopted hereafter by the Managing Member of the Operating Company in accordance with Section 8(a), which designations shall be in the form set forth on Exhibit A attached hereto.

“Award Participation” has the meaning set forth in Section 3.

“Baseline Value” means $8.87.

“Buyback Shares” means (without double-counting), as of a particular date of determination, (A) Common Shares or (B) the Shares Amount for Units (assuming that such Units were converted, exercised, exchanged or redeemed for Membership Units as of such date at the applicable conversion, exercise, exchange or redemption rate (or rate deemed applicable by the Committee if there is no such stated rate) and such Common Units were then tendered to the Operating Company for redemption pursuant to Section 4.2(e)(1) of the LLC Agreement as of such date), other than Units held by the Company, in the case of each (A) and (B), to the extent repurchased by the Company after the Effective Date and on or before such date of determination in a stock buyback transaction or in a redemption of Units for cash pursuant to Section 4.2(e)(1) of the LLC Agreement.

“Cause” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination and “Cause” is defined therein, then “Cause” shall have the meaning set forth in such definition, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Cause” or a substantially equivalent term, then “Cause” shall mean:

(i)

the Grantee’s willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Grantee’s incapacity due to physical or mental illness or any such failure after his issuance of a notice of termination for Good Reason), after a written demand for substantial performance is delivered to the Grantee by the Board, which demand specifically identifies the manner in which the Board believes that the Grantee has not substantially performed his duties;

(ii)

a material breach by Grantee of his Service Agreement;

(iii) the Grantee’s willful commission of an act of fraud, theft or dishonesty resulting in economic, financial or material reputational injury to the Company;

(iv) the Grantee’s conviction of, or entry by the Grantee of a guilty or no contest plea to, the commission of a felony; or

(v) the Grantee willfully engages in other misconduct materially injurious to the Company.

For purposes of this provision, no act or omission on the part of the Grantee shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission based upon a resolution duly adopted by the Board or advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Grantee shall not be deemed to be for Cause unless and until there shall have been delivered to the Grantee a copy of a resolution duly adopted by the majority of the Board (excluding the Grantee, if the Grantee is then a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Grantee and the Grantee is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Grantee is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

“Change of Control” means:

(i) individuals who, on the Effective Date, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director; or

(ii) any “person” (as such term is defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Effective Date, a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that an event described in this paragraph (ii) shall not be deemed to be a Change of Control if any of following becomes such a beneficial owner: (A) the Company or any majority-owned subsidiary of the Company (provided that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any such majority-owned subsidiary, or (C) any underwriter temporarily holding securities pursuant to an offering of such securities; or

(iii) the consummation of a merger, consolidation, share exchange or similar form of transaction involving the Company or any of its subsidiaries, or the sale of all or substantially all of the Company’s assets (a “Business Transaction”), unless immediately following such Business Transaction (A) more than 50% of the total voting power of the entity resulting from such Business Transaction or the entity acquiring the Company’s assets in such Business Transaction (the “Surviving Corporation”) is beneficially owned, directly or indirectly, by the Company’s shareholders immediately prior to any such Business Transaction, and (B) no person (other than the persons set forth in clauses (A), (B), or (C) of paragraph (ii) above or any tax-qualified, broad-based employee benefit plan of the Surviving Corporation or its affiliates) beneficially owns, directly or indirectly, 30% or more of the total voting power of the Surviving Corporation; or

(iv) Board approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company’s shareholders in substantially the same proportions as such shareholders owned the Company’s outstanding voting common equity interests immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company to the Grantee under this Agreement; or

(v) Approval by the shareholders of the Company or the Managing Member and/or Non-Managing Members of the Operating Company of a dissolution or liquidation of the Operating Company and satisfaction or effective waiver of all material contingencies to such liquidation or dissolution.

“CoC Fraction” means, for application pursuant to the proviso clause in the definition of “Final Baseline,” the number of calendar days that have elapsed since the Effective Date to and including the date as of which a Change of Control is consummated (or, with respect to a Transactional Change of Control, the date of the Public Announcement of such Transactional Change of Control), divided by 1,096.

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

“Common Shares” means shares of the Company’s common stock, par value $0.01 per share.

“Common Share Price” means, as of a particular date, the average of the Fair Market Value of one Common Share over the thirty (30) consecutive trading days ending on, and including, such date (or, if such date is not a trading day, the most recent trading day immediately preceding such date); provided, however, that if such date is the date of the Public Announcement of a Transactional Change of Control, the Common Share Price as of such date shall be equal to the fair market value, as determined by the Committee, of the total consideration payable in the transaction that ultimately results in the Transactional Change of Control for one Common Share.

“Continuous Service” means the continuous service, without interruption or termination, as a an employee or director of Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of (among other things) —

(A) any approved leave of absence,

(B) transfers among the Company and any Affiliate, or any successor, in any capacity of director or employee, or

(C) any change in status as long as the individual remains in the service of the Company or any Affiliate of the Company in the capacity of employee or director.

An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

“Disability” means:

(A) if the Grantee is or was a party to a Service Agreement prior to the applicable event, and “Disability” is defined therein, then “Disability” shall have the meaning set forth in such definition, or

(B) if the Grantee is not and was not a party to a Service Agreement prior to such event or the Grantee’s Service Agreement does not define “Disability” or a substantially equivalent term, then “Disability” shall mean a disability which renders the Grantee incapable of performing all of his or her material duties for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Grantee or the Grantee’s legal representative or by the insurance company which insures the Company’s long-term disability plan in which the Grantee is eligible to participate.

“Effective Date” means March 20, 2011.

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

“Fair Market Value” means, as of any given date, the fair market value of a security determined by the Committee using any reasonable method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1) of the Code); provided that, with respect to a Common Share, “Fair Market Value” means the value of such Common Share determined as follows: (A) if on the determination date the Common Shares are listed on the New York Stock Exchange, The NASDAQ Stock Market, Inc. or another national securities exchange or is publicly traded on an established securities market, the Fair Market Value of a Common Share shall be the closing price of the Common Shares on such exchange or in such market (if there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the high and low sale prices on such trading day) or, if no sale of Common Shares is reported for such trading day, on the next preceding day on which any sale shall have been reported; or (B) if the Common Shares are not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the Common Share shall be the value of the Common Shares as determined by the Committee in good faith in a manner consistent with Section 409A of the Code.

“Family Member” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Grantee, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than fifty percent of the beneficial interest, a foundation in which any one or more of these persons (or the Grantee) control the management of assets, and any other entity in which one or more of these persons (or the Grantee) own more than fifty percent of the voting interests.

“Final Baseline” means, as of the Final Valuation Date, an amount representing (without double-counting) the sum of:

(A) the Baseline Value multiplied by:

(i) the difference between (x) the Initial Shares and (y) all Buyback Shares repurchased or redeemed between the Effective Date and the Final Valuation Date, and then multiplied by

(ii) the sum of one hundred percent (100%) plus the Target Return Percentage; plus

(B) with respect to each Additional Share issued after the Effective Date, the Additional Share Baseline Value of such Additional Share, multiplied by the sum of (i) one hundred percent (100%) plus (ii) the product of the Target Return Percentage multiplied by a fraction (x) the numerator of which is the number of days from the issuance of such Additional Share to and including the Final Valuation Date and (y) the denominator of which is the number of days from and including the Effective Date to and including the Final Valuation Date; plus

(C) with respect to each Buyback Share repurchased or redeemed after the Effective Date, the Baseline Value, multiplied by the sum of (i) one hundred percent (100%) plus (ii) the product of the Target Return Percentage multiplied by a fraction (x) the numerator of which is the number of days from the Effective Date to and including the date such Buyback Share was repurchased or redeemed and (y) the denominator of which is the number of days from and including the Effective Date to and including the Final Valuation Date;

provided that if the Final Valuation Date occurs prior to the third anniversary of the Effective Date as a result of an Accelerated Payment Change of Control, then for purposes of this definition in connection with the calculation of the Total Outperformance Pool as of the Final Valuation Date, then the Target Return Percentage to be used in such calculation shall be reduced to a percentage equal to thirty percent (30%) multiplied by the CoC Fraction. If the Company consummates multiple issuances of Additional Shares and/or repurchases of Buyback Shares during any one monthly or quarterly period, such that it would be impractical to track the precise issuance date and issuance price of each individual Additional Share and/or repurchase or redemption date of each individual Buyback Share, the Committee may in its good faith discretion approve timing and calculation conventions (such as net-at-end-of-period or average-during-the-period) reasonably designed to simplify the administration of this Award.

“Final Valuation Date” means the earliest of: (A) the third anniversary of the Effective Date; or (B) in the event of an Accelerated Payment Change of Control that is not a Transactional Change of Control, the date on which such Change of Control shall occur; or (C) in the event of a Transactional Change of Control and subject to the consummation of such Transactional Change of Control, the date of the Public Announcement of such Transactional Change of Control; provided that if the Public Announcement occurs after 4pm New York City time or otherwise so late in the trading day that the market cannot meaningfully react on such day, then the Final Valuation Date shall mean the following trading day.

“Good Reason” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Good Reason” is defined therein, then “Good Reason” shall have the meaning set forth in such Service Agreement, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Good Reason” or a substantially equivalent term, so long as the Grantee terminates his or her employment within thirty (30) days after the Grantee has actual knowledge of the occurrence, without the written consent of the Grantee, of one of the following events that has not been cured within thirty (30) days after written notice thereof has been given by Grantee to the Company, then “Good Reason” shall mean:

(i) the assignment to the Grantee of duties materially inconsistent with the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated in his Service Agreement, or any other action by the Company which results in a material diminution in the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Grantee;

(ii) any material failure by the Company to comply with any of the provisions of the Service Agreement, other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Grantee;

(iii) any failure by the Company to obtain the assumption of his Service Agreement by a successor to all or substantially all of the business or assets of the Company; or

(iv) if his Service Agreement provides that the Executive will be nominated for election as a director of the Company, any failure by the Board to nominate the Executive for election as a director of the Company in accordance with the Service Agreement, or any failure of the Executive to be elected to be a member of the Board; or

(v) any requirement that the Grantee’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Grantee’s residence to his new place of employment;

“Initial Shares” means 32,642,795 Common Shares, which includes: (A) 30,311,503 Common Shares outstanding as of the Effective Date (other than currently unvested restricted Common Shares previously granted to employees or other persons or entities in exchange for services provided to the Company); plus (B) 954,065 Common Shares representing the Shares Amount for all of the Membership Units (other than LTIP Units and excluding Membership Units held by the Company) outstanding as of the Effective Date assuming that all of such Membership Units were tendered to the Operating Company for redemption pursuant to Section 4.2(e) of the LLC Agreement as of such date; plus (C) 1,377,227 Common Shares representing the Shares Amount for all of the Membership Units into which all LTIP Units outstanding as of the Effective Date could be converted without regard to the book capital account associated with them (but only to the extent such LTIP Units are currently vested), assuming that all of such Membership Units were tendered to the Operating Company for redemption pursuant to Section 4.2(e) of the LLC Agreement as of such date.

For the avoidance of doubt, Initial Shares (i) includes (x) currently vested Common Shares and (y) currently vested LTIP Units previously granted to employees or other persons or entities in exchange for services provided to the Company, and (ii) excludes (x) all Common Shares issuable upon exercise of stock options or upon the exchange (directly or indirectly) of unvested LTIP Units or other unvested Units issued to employees, non-employee directors, consultants, advisors or other persons or entities as incentive compensation, and (y) currently unvested restricted Common Shares previously granted to employees, non-employee directors, consultants, advisors or other persons or entities in exchange for services provided to the Company.

“LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of the Operating Company, dated as of February 17, 2006, among the Company, as managing member, and the non-managing members who are parties thereto, as amended from time to time.

“LTIP Units” means LTIP Units, as such term is defined in the LLC Agreement.

“Membership Units” has the meaning set forth in the LLC Agreement.

“Partial Service Factor” means a factor carried out to the sixth decimal to be used in calculating the Grantee’s adjusted Participation Amount pursuant to Section 4(b)(ii) hereof in the event of a Qualified Termination of the Grantee’s Continuous Service prior to the Final Valuation Date or pursuant to Section 4(e) in the event of a termination of the Grantee’s Continuous Service by reason of death or Disability prior to the Final Valuation Date, determined as follows:

the number of calendar days that have elapsed since the Effective Date to and including the effective date of such Qualified Termination or the date of death or Disability, divided by 1,096; provided, however, that if, after the effective date of such Qualified Termination or the date of death or Disability and before the third anniversary of the Effective Date, an Accelerated Payment Change of Control occurs, then there shall be subtracted from the foregoing denominator (1,096) a number of days equal to the days that would elapse between the date as of which the Accelerated Payment Change of Control is consummated (or, with respect to a Transactional Change of Control, the date of the Public Announcement of the Transactional Change of Control) and the third anniversary of the Effective Date.

“Participation Amount” has the meaning set forth in Section 3.

“Participation Percentage” means the percentage (of the Total Outperformance Pool) set forth opposite such term on Schedule A hereto

“Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, other entity or “group” (as defined in the Exchange Act).

“Public Announcement” means, with respect to a Transactional Change of Control, the earliest press release, filing with the SEC or other publicly available or widely disseminated communication issued by the Company or another Person who is a party to such transaction which discloses the consideration payable in and other material terms of the transaction that ultimately results in the Transactional Change of Control; provided, however, that if such consideration is subsequently increased or decreased, then the term “Public Announcement” shall be deemed to refer to the most recent such press release, filing or communication disclosing a change in consideration whereby the final consideration and material terms of the transaction that ultimately results in the Transactional Change of Control are announced. For the avoidance of doubt, the foregoing definition is intended to provide the Committee in the application of the proviso clause in the definition of “Common Share Price” with the information required to determine the fair market value of the consideration payable in the transaction that ultimately results in the Transactional Change of Control as of the earliest time when such information is publicly disseminated, particularly if the transaction consists of an unsolicited tender offer or a contested business combination where the terms of the transaction change over time.

“Qualified Termination” has the meaning set forth in Section 4.

“SEC” means the U.S. Securities and Exchange Commission.

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

“Service Agreement” means, as of a particular date, any employment, consulting or similar service agreement then in effect between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand, as amended or supplemented through such date, provided that, if no such agreement is then in effect, “Service Agreement” shall mean any employment, consulting or similar service agreement most recently in effect (on or after the Effective Date) prior to such date, as amended or supplemented, between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand.

“Shares Amount” has the meaning set forth in the LLC Agreement.

“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

“Target Return Percentage” means thirty percent (30%), representing a compound annual growth rate of approximately nine percent (9%) per annum over a three-year period, using annual compounding, except as otherwise defined for purposes of the definition of Final Baseline in certain circumstances, as described in the proviso clause of such definition.

“Total Outperformance Pool” means, as of the Final Valuation Date, a dollar amount calculated as follows: (A) subtract the Final Baseline from the Total Return, in each case as of the Final Valuation Date and (B) multiply the resulting amount by ten percent (10%); provided that if the resulting amount is a negative number, then the Total Outperformance Pool shall be zero.

“Total Return” means (without double-counting), as of the Final Valuation Date, an amount equal to the sum of (A) the Total Shares as of such date of determination multiplied by the Common Share Price as of such date, plus (B) an amount equal to the sum of the total dividends and other distributions actually declared between the Effective Date and the Final Valuation Date (excluding dividends and distributions paid in the form of additional Common Shares) so long as the “ex-dividend” date with respect thereto falls prior to the Final Valuation Date, in respect of Common Shares (it being understood, for the avoidance of doubt, that such total dividends and distributions shall be calculated by multiplying the amount of each per share dividend or distribution declared by the actual number of securities outstanding as of each record date with respect to the applicable dividend or distribution payment date).

“Total Shares” means (without double-counting), as of the Final Valuation Date, the sum of: (A) the Initial Shares, minus (B) all Buyback Shares repurchased or redeemed between the Effective Date and the Final Valuation Date, plus (C) all Additional Shares issued between the Effective Date and the Final Valuation Date.

“Transactional Change of Control” means (A) a Change of Control described in clause (ii) of the definition thereof where the “person” or “group” makes a tender offer for Common Shares, or (B) a Change of Control described in clause (iii) of the definition thereof; provided that if the applicable definition of “Change of Control” (or similar term) in the applicable Service Agreement does not track such clauses (ii) or (iii), then the term “Transactional Change of Control” shall mean a Change of Control meeting the substantive criteria set forth in such clauses, as reasonably determined in good faith by the Committee.

“Transfer” has the meaning set forth in Section 6.

“Units” means all Membership Units that are eligible for the Redemption Right (as defined in the LLC Agreement) and any other Membership Units, including LTIP Units, with economic attributes substantially similar to such Membership Units as determined by the Committee that are outstanding or are issuable upon the conversion, exercise, exchange or redemption of any securities of any kind convertible, exercisable, exchangeable or redeemable for Membership Units.

3. Outperformance Award; Vesting; Change of Control.

(a) The Operating Company hereby grants to the Grantee this Award consisting of the Participation Percentage set forth on Schedule A hereto (the “Award Participation”), which (A) will be subject to forfeiture to the extent provided in this Section 3 and (B) will be subject to vesting as provided below in this Section 3(a) and in Section 3(d) and Section 4. The Award will be made in the form of Award LTIP Units as provided in Section 8, subject to the Company having received confirmation that it is permitted under applicable stock exchange listing rules to issue Award LTIP Units, on the terms contemplated herein, under the Incentive Plan. The Company will use commercially reasonable efforts to obtain such confirmation within 90 days following the Effective Date. If the Company does not receive such confirmation within 90 days following the Effective Date, the Company and the Operating Company shall amend this Award Agreement to provide for an Award that is settled by a cash payment by the Operating Company to Grantee equal to his Participation Amount within 45 days following the Final Valuation Date. In the event Grantee receives Award LTIP Units pursuant hereto, references herein to Grantee’s Award Participation shall refer to Grantee’s Award LTIP Units and the provisions of Section 8 shall apply in lieu of specified provisions of this Award Agreement. At any time prior to the Final Valuation Date, the Committee may grant additional 2011 OPP awards with such Participation Percentages (up to a total of 100% for all 2011 Participation Percentages granted or reserved) set forth therein as the Committee may determine, in its sole discretion, The Award Participation shall vest (i) on the Final Valuation Date if the Continuous Service of the Grantee continues to that date or (ii) in accordance with Section 3(d), 4(b) and 4(d) hereof.

(b) As soon as practicable following the Final Valuation Date, but as of the Final Valuation Date, the Committee will:

(i) determine the Total Outperformance Pool (if any);

(ii) multiply (x) the Total Outperformance Pool calculated as of the Final Valuation Date by (y) the Grantee’s Participation Percentage as of the Final Valuation Date; and

(iii) if applicable (without double-counting), multiply the amount determined in clause (ii) by the Partial Service Factor or the CoC Fraction.

The resulting amount is hereafter referred to as the “Participation Amount.” The Committee will notify Grantee of his Participation Amount (if any) promptly following the determination thereof. If Grantee has received his Award in the form of Award LTIP Units, Section 8(b) will apply in lieu of the remainder of this Section 3(b). If this Award Agreement has been amended, as provided in Section 3(a), to provide for a payment in cash such notice will state whether the Committee has elected to cause the Company to pay the Participation Amount in cash or through the issuance of fully vested shares under one of the Company’s equity incentive compensation plans, subject to compliance with applicable laws and stock exchange listing requirements, or through a combination of cash and shares. If the Participation Amount is to be paid using shares, the shares will be valued at the Common Share Price as of the Final Valuation Date and will be issued under the Incentive Plan and be registered on a Form S-8. The Company shall pay Grantee’s Participation Amount within 45days following the Final Valuation Date.

(c) Any Award Participation that does not become vested pursuant to Section 3(a), Section 3(d), or Section 4 hereof shall, without payment of any consideration by the Company, automatically and without notice be forfeited and be and become null and void upon the termination of the Continuous Service of Grantee prior to the Final Valuation Date (other than by reason of a Qualified Termination, death or Disability), and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Award Participation.

(d) If there is a Change of Control, Grantee’s Award Participation shall vest immediately and automatically upon the occurrence of such Change of Control.

(e) In the event of a Change of Control, the Committee will make any determinations and certifications required by this Agreement and any provisions necessary with respect to the lapse of forfeiture restrictions and/or acceleration of vesting of this Award within a period of time that enables the Company to take any action or make any deliveries or payments it is obligated to make hereunder not later than the date of consummation of the Change of Control. For avoidance of doubt, in the event of a Change of Control, the performance of all calculations and actions pursuant to Section 3(b) hereof shall be conditioned upon the final consummation of such Change of Control.

4. Termination of Grantee’s Continuous Service; Death and Disability.

(a) If the Grantee is or was a party to a Service Agreement and his or her Continuous Service terminates, the provisions of Sections 4(b), 4(c), 4(d), and 4(e), hereof shall govern the treatment of the Grantee’s Award Participation exclusively, unless the Service Agreement contains provisions that expressly refer to this Section 4(a) and provides that those provisions of the Service Agreement shall instead govern the treatment of the Grantee’s Award Participation upon such termination. The foregoing sentence will be deemed an amendment to any applicable Service Agreement to the extent required to apply its terms consistently with this Section 4, such that, by way of illustration, any provisions of the Service Agreement with respect to accelerated vesting or payout or the lapse of forfeiture restrictions relating to the Grantee’s incentive or other compensation awards in the event of certain types of termination of the Grantee’s Continuous Service with the Company (such as, for example, termination at the end of the term, termination without Cause by the employer or termination for Good Reason by the employee) shall not be interpreted as requiring that any calculations set forth in Section 3 hereof be performed, or vesting occur with respect to this Award other than as specifically provided in this Section 4.

(b) In the event of termination of the Grantee’s Continuous Service by (A) the Company without Cause or (B) the Grantee for Good Reason (each a “Qualified Termination”) prior to the Final Valuation Date, then the Grantee will not forfeit the Award Participation upon such termination, but the following provisions of this Section 4(b) shall modify the calculations required to determine the Participation Amount and/or the vesting of the Award Participation, as applicable, with respect to the Grantee only:

(i) the calculations provided in Section 3(b) hereof shall be performed as of the Final Valuation Date, as if the Qualified Termination had not occurred;

(ii) the Participation Amount calculated pursuant to Section 3(b) shall be multiplied by the applicable Partial Service Factor; and

(iii) the Grantee’s Participation Amount as adjusted pursuant to Section 4(b)(ii) above shall no longer be subject to forfeiture pursuant to Section 3(c) hereof; provided that, notwithstanding that no Continuous Service requirement pursuant to Section 3(c) hereof will apply to the Grantee after the effective date of a Qualified Termination, the Grantee will not have the right to Transfer (as defined in Section 6 hereof) his or her Award Participation or request the redemption of any Award Common Units until such dates as of which his or her Participation Amount, as adjusted pursuant to Section 4(b)(ii) above, would have become vested pursuant to Section 3(a) hereof absent a Qualified Termination. For the avoidance of doubt, the purpose of this Section 4 (b)(iii) is to prevent a situation where grantees of 2011 OPP awards who have had a Qualified Termination would be able to realize the value of their Award Participation or any Award Common Units (through Transfer) before other grantees of 2011 OPP awards whose Continuous Service continues through the Final Valuation Date and the date for payment of the Participation Amount.

(c) Notwithstanding the foregoing, in the event any payment to be made hereunder after giving effect to this Section 4 is determined to constitute “nonqualified deferred compensation” subject to Section 409A of the Code, then, to the extent the Grantee is a “specified employee” under Section 409A of the Code subject to the six-month delay thereunder, any such payments to be made during the six-month period commencing on the Grantee’s “separation from service” (as defined in Section 409A of the Code) shall be delayed until the expiration of such six-month period.

(d) In the event of a termination of the Grantee’s Continuous Service as a result of his or her death or Disability prior to the Final Valuation Date, the Grantee will not forfeit the Award Participation, but the following provisions of this Section 4(d) shall apply:

(i) the calculations provided in Section 3(b) hereof shall be performed as of the Final Valuation Date, as if the Grantee’s death or Disability had not occurred; and

(ii) the Participation Amount calculated pursuant to Section 3(b) shall be multiplied by the applicable Partial Service Factor, and such adjusted amount shall be deemed the Grantee’s Participation Amount for all purposes under this Agreement; and

(iii) 100% of the Grantee’s Participation Amount as adjusted pursuant to Section 4(d)(ii) above shall no longer be subject to forfeiture pursuant to Section 3(c) hereof and shall automatically and immediately vest as of the Final Valuation Date.

(e) In the event of a termination of the Grantee’s Continuous Service prior to the Final Valuation Date (other than (1) a Qualified Termination or (2) by reason of death or Disability or (3) following a Change of Control), the Award Participation, unless it shall, as of the date of such termination, both (i) have ceased to be subject to forfeiture pursuant to Section 3(c) hereof, and (ii) have vested pursuant to Section 3(a) hereof, shall, without payment of any consideration by the Company, automatically and without notice terminate, be forfeited and be and become null and void, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such Award Participation.

5. No Payments by Award Recipients.

No amount shall be payable to the Company by the Grantee at any time in respect of this Agreement. The Grantee shall have no rights with respect to this Agreement (and the Award evidenced hereby) unless he or she shall have accepted this Agreement by signing and delivering to the Company a copy of this Agreement. Upon acceptance of this Agreement by the Grantee, the Grantee’s Award Participation shall constitute and shall be treated for all purposes as the property of the Grantee, subject to the terms of this Agreement.

6. Restrictions on Transfer.

Except as otherwise permitted by the Committee, no portion of the Award Participation or Award LTIP Units granted hereunder shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”), provided that vested Award Participation or vested Award LTIP Units may be Transferred to (i) the Grantee’s Family Members by gift or pursuant to domestic relations order in settlement of marital property rights or (ii) to an entity in which fifty percent (50%) or more of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in such entity, provided that the transferee agrees in writing with the Company to be bound by all the terms and conditions of this Agreement and that subsequent Transfers shall be prohibited except those in accordance with this Section 6. All Transfers of the Award Participation or any interest therein or Award LTIP Units must be in compliance with all applicable securities laws (including, without limitation, the Securities Act) and, in the case of the Award LTIP Units, the LLC Agreement. Any attempted Transfer of an Award Participation or Award LTIP Unit not in accordance with the terms and conditions of this Section 6 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Award Participation or Award LTIP Units as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer and shall not in any way give effect to any such Transfer of any Award Participation or Award LTIP Units. Except as provided expressly in this Section 6, this Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Changes in Capital Structure.

If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or other transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization, significant repurchases of stock, or other similar change in the capital stock of the Company shall occur, (iii) any extraordinary dividend or other distribution to holders of Common Shares shall be declared and paid other than in the ordinary course, or (iv) any other event shall occur that in each case in the good faith judgment of the Committee necessitates action by way of appropriate equitable or proportionate adjustment in the terms of this Award or this Agreement to avoid distortion in the value of this Award, then the Committee shall take such action as it deems necessary to maintain the Grantee’s rights hereunder so that they are substantially proportionate to the rights existing under this Award prior to such event, including, without limitation: (A) interpretations of or modifications to any defined term in this Agreement; (B) adjustments in any calculations provided for in this Agreement, and (C) substitution of other awards or otherwise.

8. Award LTIP Units

(a) Issuance of Award LTIP Units. In the event that, following the Effective Date, the Company determines, in its sole discretion, that the applicable stock exchange listing rules permit the Company to issue Award LTIP Units, the Company shall promptly notify Grantee of such determination and shall issue to Grantee the number of Award LTIP Units set forth on Schedule A hereto. The issuance of such Award LTIP Units shall be conditioned upon the Grantee, unless the Grantee is already a Non-Managing Member (as defined in the LLC Agreement), signing, as a Non-Managing Member, and delivering to the Operating Company a counterpart signature page to the LLC Agreement in the form provided by the Company. Upon execution and delivery of such counterpart signature page by the Grantee, the LLC Agreement shall be amended, at such time as set forth in the notice from the Company, to establish the designations of the Award LTIP Units and to make other necessary and appropriate amendments related to the creation of the series of Award LTIP Units, and to reflect the issuance to the Grantee of the Award LTIP Units and admission of Grantee as a Non-Managing Member of the Operating Company. Thereupon, the Grantee shall have all the rights of a Non-Managing Member of the Operating Company with respect to the number of Award LTIP Units specified on Schedule A hereto, as set forth in the LLC Agreement (as so amended), subject, however, to the restrictions, obligations and conditions specified herein. Award LTIP Units constitute and shall be treated for all purposes as the property of the Grantee, subject to the terms of this Agreement and the LLC Agreement.

(b) Post-Final Valuation Date Adjustments. If Grantee’s Award is made in the form of Award LTIP Units, then following determination of Grantee’s Participation Amount pursuant to Section 3(b), the Committee shall divide the resulting dollar amount by the Common Share Price calculated as of the Final Valuation Date (appropriately adjusted to the extent that the “Unit Adjustment Factor” (as defined in the LLC Agreement) is greater or less than 1.0). The resulting number is hereafter referred to as the “Total OPP Unit Equivalent.” If the Total OPP Unit Equivalent is smaller than the number of Award LTIP Units previously issued to the Grantee, then the Grantee, as of the Final Valuation Date, shall forfeit a number of Award LTIP Units equal to the difference without payment of any consideration by the Operating Company. Thereafter, the term Award LTIP Units will refer only to the Award LTIP Units that were not so forfeited and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in the Award LTIP Units that were so forfeited. If the Total OPP Unit Equivalent is greater than the number of Award LTIP Units previously issued to the Grantee, then, upon the performance of the calculations set forth in this Section 8(b): (A) the Company shall cause the Operating Company to issue to the Grantee, as of the Final Valuation Date, a number of additional

Award LTIP Units equal to the difference; (B) such additional Award LTIP Units shall be added to the Award LTIP Units previously issued, if any, and thereby become part of this Award; (C) the Company and the Operating Company shall take such corporate and limited liability company action as is necessary to accomplish the grant of such additional Award LTIP Units; and (D) thereafter the term Award LTIP Units will refer collectively to the Award LTIP Units, if any, issued prior to such additional grant plus such additional Award LTIP Units; provided that such issuance will be subject to the Grantee executing and delivering such documents, comparable to the documents executed and delivered in connection with the original issuance of Award LTIP Units, as the Company or the Operating Company reasonably request in order to comply with all applicable legal requirements, including, without limitation, federal and state securities laws. If the Total OPP Unit Equivalent is the same as the number of Award LTIP Units previously issued to the Grantee, then there will be no change to the number of Award LTIP Units under this Award pursuant to this Section 8(b).

(c) Vesting and Forfeiture. The Award LTIP Units shall vest and be subject to forfeiture on the same terms and conditions as the Award Participation, as set forth in Sections 3(a), 3(c), 3(d) and 4.

(d) Distributions. The holder of the Award LTIP Units shall be entitled to receive distributions with respect to such Award LTIP Units to the extent provided for in the LLC Agreement (as amended in accordance with Section 8(a)). The 2011 Award LTIP Unit Distribution Participation Date (as defined in the designation of rights and preferences of such Award LTIP Units, attached hereto as Exhibit A) with respect to Award LTIP Units in an aggregate number equal to the Total OPP Unit Equivalent will be the Valuation Date.

9. Miscellaneous.

(a) Amendments. This Agreement may be amended or modified only with the consent of the Company acting through the Committee; provided that any such amendment or modification materially or adversely affecting the rights of the Grantee hereunder must be consented to by the Grantee to be effective as against him. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company to correct any errors or ambiguities in this Agreement and/or to make such changes that do not materially or adversely affect the Grantee’s rights hereunder. This grant shall in no way affect the Grantee’s participation or benefits under any other plan or benefit program maintained or provided by the Company.

(b) Committee Determinations. The Committee will in good faith make the determinations and certifications required by this Award as promptly as reasonably practicable following the occurrence of the event or events necessitating such determinations or certifications.

(c) Status of the Award and Award LTIP Units; Incentive Plan Matters. This Award and the other 2011 OPP awards constitute other stock-based incentive compensation awards by the Company under the Incentive Plan and incentive compensation awards by the Operating Company. The Award LTIP Units are equity interests in the Operating Company. Any Award LTIP Units issued pursuant to Section 8 may, but need not, be issued as equity securities under the Incentive Plan insofar as the 2011 OPP has been established as an incentive program of the Operating Company. The Company may, under certain circumstances, have the right, as set forth in the LLC Agreement, to issue shares of Common Stock in exchange for Award Common Units into which Award LTIP Units may have been converted pursuant to the LLC Agreement, subject to certain limitations set forth in the LLC Agreement, and such shares of Common Stock may be issued under the Incentive Plan if the Committee so determines, to the extent such issuance is permitted under applicable stock exchange listing rules, as determined by the Committee in its sole and absolute discretion. The Committee may, in its sole and absolute discretion, determine whether and when Award LTIP Units issued pursuant to Section 3 become part of the Incentive Plan, and upon and to the extent of such determination this Award will be considered an award under the Incentive Plan. The Grantee acknowledges that the Grantee will have no right to approve or disapprove such determination by the Committee.

(d) Grantee Representations; Registration.

(i) The Grantee hereby represents and warrants that (A) he or she understands that he or she is responsible for consulting his or her own tax advisor with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of this Award may become subject, to his or her particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the Operating Company or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides services to the Operating Company on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Operating Company, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award; (D) Award LTIP Units are subject to substantial risks; (E) the Grantee has been furnished with, and has reviewed and understands, information relating to this Award; (F) the Grantee has been afforded the opportunity to obtain such additional information as he or she deemed necessary before accepting this Award; and (G) the Grantee has had an opportunity to ask questions of representatives of the Operating Company and the Company, or persons acting on their behalf, concerning this Award.

(ii) The Grantee hereby acknowledges that: (A) there is no public market for Award LTIP Units or Award Common Units and neither the Operating Company nor the Company has any obligation or intention to create such a market; (B) sales of Award LTIP Units and Award Common Units are subject to restrictions under the Securities Act and applicable state securities laws; (C) because of the restrictions on transfer or assignment of Award LTIP Units and Award Common Units set forth in the LLC Agreement and in this Agreement, the Grantee may have to bear the economic risk of his or her ownership of the LTIP Units covered by this Award for an indefinite period of time; (D) shares of Common Stock issued under the Incentive Plan in exchange for Award Common Units, if any, will be covered by a Registration Statement on Form S-8 (or a successor form under applicable rules and regulations of the Securities and Exchange Commission) under the Securities Act, to the extent that the Grantee is eligible to receive such shares under the Incentive Plan at the time of such issuance and such Registration Statement is then effective under the Securities Act; (E) resales of shares of Common Stock issued under the Incentive Plan in exchange for Award Common Units, if any, shall only be made in compliance with all applicable restrictions (including in certain cases “blackout periods” forbidding sales of Company securities) set forth in the then applicable Company employee manual or insider trading policy and in compliance with the registration requirements of the Securities Act or pursuant to an applicable exemption therefrom.

(e) Section 83(b) Election. In connection with each separate issuance of Award LTIP Units under this Award pursuant to Section 8, the Grantee hereby agrees to make an election to include in gross income in the year of transfer the applicable Award LTIP Units pursuant to Section 83(b) of the Code substantially in the form attached hereto as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder. The Grantee agrees to file such election (or to permit the Operating Company to file such election on the Grantee’s behalf) within thirty (30) days after the issuance of the Award LTIP Units with the IRS Service Center where the Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the Award LTIP Units are awarded to the Grantee. So long as the Grantee holds any Award LTIP Units, the Grantee shall disclose to the Operating Company in writing such information as may be reasonably requested with respect to ownership of Award LTIP Units as the Operating Company may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code applicable to the Operating Company or to comply with requirements of any other appropriate taxing authority.

(f) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(g) Governing Law. This Agreement is made under, and will be construed in accordance with, the laws of State of New York, without giving effect to the principles of conflict of laws of such State.

(h) No Obligation to Continue Position as an Employee. Neither the Company nor any Affiliate is obligated by or as a result of this Agreement to continue to have the Grantee as an employee, consultant or advisor and this Agreement shall not interfere in any way with the right of the Company or any Affiliate to terminate the Grantee’s Continuous Service at any time.

(i) Notices. Any notice to be given to the Company shall be addressed to the Secretary of the Company at 475 Tenth Avenue, New York, New York 10018 and any notice to be given the Grantee shall be addressed to the Grantee at the Grantee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Grantee may hereafter designate in writing to the other.

(j) Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to this Award, the Grantee will pay to the Company or, if appropriate, any of its Affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

(k) Headings. The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

(l) Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

(m) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company and the Operating Company, on the one hand, and any successors to the Grantee, on the other hand, by will or the laws of descent and distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Grantee.

(n) Section 409A. This Agreement shall be construed, administered and interpreted in accordance with a good faith interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Grantee, the Company and the Operating Company, to the extent necessary to exempt it from, or bring it into compliance with Section 409A of the Code.

(o) Entire Agreement; Conflict. This Agreement (including the Incentive Plan and the LLC Agreement to which it relates) constitutes the final, complete and exclusive agreement between the Grantee and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, between the parties concerning the subject matter hereof. Except as expressly provided otherwise herein, in the event of any conflict or inconsistency between the provisions of, or definitions contained in, this Agreement (including the LLC Agreement to which it relates), on the one hand, and Grantee’s Service Agreement, on the other hand, the terms of the this Agreement ((including the LLC Agreement to which it relates) shall govern.

[signature page follows]

IN WITNESS WHEREOF, the undersigned have caused this Award Agreement to be executed as of the date first above written.

MORGANS HOTEL GROUP CO.
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	Chief Financial Officer
MORGANS GROUP LLC
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:

GRANTEE

/s/ Daniel Flannery Name: Daniel Flannery

SCHEDULE A TO 2011 OUTPERFORMANCE PLAN AWARD AGREEMENT

Date of Award Agreement:	April 4, 2011
Name of Grantee:	Daniel Flannery
Participation Percentage:		10%
Grant Date:	April 4, 2011
Initial Grant of Award LTIP Units (if applicable)	157,500

Initials of Company representative: /s/RS Initials of Grantee: /s/DF

EXHIBIT A

MORGANS GROUP LLC

MEMBERSHIP UNIT DESIGNATION — 2011 OPP UNITS

The following are the terms of the 2011 OPP Units. Section references in this Exhibit A refer to sections of the LLC Agreement and capitalized terms are used as defined therein, unless stated otherwise.

1. LTIP Equivalence. Except as otherwise expressly provided in this Membership Unit Designation, 2011 OPP Units shall be treated as LTIP Units, and shall have the rights, privileges, restrictions, powers and duties applicable to LTIP Units under the LLC Agreement, including without limitation the provisions of Section 4.5.

2. Distributions.

(a) 2011 OPP Unit Distributions. Commencing from the Distribution Participation Date (as defined below) established for any 2011 OPP Units in the applicable award agreement, Holders of 2011 OPP Units shall be entitled to receive, if, when and as authorized by the Managing Member, any distributions otherwise payable with respect to LTIP Units and shall be treated as outstanding LTIP Units for purposes of the distribution provisions of the LLC Agreement. For the avoidance of doubt, for purposes of the first distribution to occur after the Distribution Participation Date, 2011 OPP Units that become fully earned and vested in accordance with the applicable Award Agreement on or before the first day of the relevant quarterly period shall be treated as having been outstanding for the full period. Prior to the Distribution Participation Date, 2011 OPP Units shall be entitled to any distributions by the Operating Company (i) in connection with an Adjustment Event as provided in Section 4.5(b), treating the 2011 OPP Units as outstanding LTIP Units, and (ii) if, when and as authorized by the Managing Member out of funds or other property legally available for the payment of distributions, distributions representing proceeds of a sale or other disposition of all or substantially all of the assets of the Operating Company in an amount per unit equal to the amount of any such distributions payable on the Membership Units, provided that the amount of distributions to any Holder of 2011 OPP Units under this clause (ii) shall not exceed the positive balances of the Capital Account of the Holder of such 2011 OPP Units to the extent attributable to the ownership of such 2011 OPP Units.

(b) Distribution Participation Date. The “Distribution Participation Date” for each 2011 OPP Unit will be either (i) with respect to 2011 OPP Units granted pursuant to the Managing Member’s 2011 Outperformance Plan, as it may be amended or supplemented from time to time or any successor plan under which additional 2011 OPP Units may be issued (the “Plan”), the applicable Final Valuation Date (as defined in the Award Agreement of each Person granted 2011 OPP Units under the Plan) or (ii) with respect to other 2011 OPP Units, such date as may be specified in the Award Agreement or other documentation pursuant to which such 2011 OPP Units are issued.

3. Allocations.

(a) Allocations of Net Income and Net Loss. Commencing with the portion of the taxable year of the Operating Company that begins on the Distribution Participation Date established for any 2011 OPP Units, such 2011 OPP Units shall be allocated Net Income and Net Loss under Sections 6.1 and 6.2 in amounts per 2011 OPP Unit equal to the amounts allocated per Membership Unit (adjusted to the extent required by Sections 6.3(b) through 6.3(g)). The Managing Member is authorized in its discretion to delay or accelerate the participation of the 2011 OPP Units in allocations of Net Income and Net Loss, or to adjust the allocations made after the Distribution Participation Date, so that the ratio of (i) the total amount of Net Income or Net Loss allocated under Sections 6.1 and 6.2 with respect to each 2011 OPP Unit in the taxable year in which that 2011 OPP Unit’s Distribution Participation Date falls, to (ii) the total amount distributed to that 2011 OPP Unit with respect to such period, is more nearly equal to such ratio as computed for the Membership Units held by the Managing Member.

(b) Special Allocations. 2011 OPP Units shall be treated as outstanding LTIP Units (and the Holders thereof treated as Holders of LTIP Units) for all purposes of Section 6.3(a).

4. Redemption.

(a) The Redemption Right provided to Non-Managing Members under Section 4.2(e)(1) shall not apply with respect to 2011 OPP Units or Membership Units into which they may be converted pursuant to the LLC Agreement until the date that is one year and six months after the Final Valuation Date, after which date the Redemption Right shall be available on the terms and conditions set forth in the LLC Agreement.

(b) During the period beginning on the Final Valuation Date (as defined in the applicable Award Agreement) and ending on the Business Day immediately preceding the six month anniversary of the Final Valuation Date, the Operating Company shall be entitled to redeem some or all of the 2011 OPP Units (or Membership Units into which they were converted by the Holder) at a redemption price per 2011 OPP Unit or Membership Unit, payable in cash, equal to the Common Share Price (as defined in the Applicable Award Agreement) as of the Final Valuation Date (as defined in the applicable Award Agreement). From and after the one year anniversary of the Final Valuation Date, for a period of six months, a Holder of 2011 OPP Units (or Membership Units into which they were converted by the Holder) shall have the right to cause the Operating Company to redeem, some or all of the 2011 OPP Units (or Membership Units into which they were converted by the Holder), at a redemption price per 2011 OPP Unit or Membership Unit, payable in cash, equal to the greater of (x) the Common Share Price (as defined in the Applicable Award Agreement) as of the Final Valuation Date (as defined in the applicable Award Agreement) and (y) the Cash Amount determined as of the date of the notice of redemption. The Operating Company may exercise its redemption right under this Section 4(b) by sending a notice to each Holder of 2011 OPP Units (or Membership Units into which they were converted by the Holder) setting forth the redemption date, which shall be no less than five (5) Business Days after the date of such notice, and the number of 2011 OPP Units (or Membership Units into which they were converted by the Holder) being redeemed and the procedure to be followed by Holders of 2011 OPP Units or Membership Units that are being redeemed. The Holder may exercise its redemption right under this Section 4(b) by sending a notice to the Operating Company setting forth the redemption date, which shall be no less than ten (10) Business Days after receipt of such notice by the Managing Member, and the number of 2011 OPP Units (or Membership Units into which they were converted by the Holder to be redeemed). The Managing Member shall be entitled to acquire 2011 OPP Units (or Membership Units into which they were converted by the Holder) pursuant to any exercise by the Operating Company or the Holder of the foregoing redemption rights (under this Section 4.2(b) or under Section 4.2(a)) in exchange for issuance of a number of Common Shares, which will be issued under the Incentive Plan and be registered on a Form S-8, with an aggregate value, based on the Value of the Common Shares as of the date of the redemption notice, equal to the applicable redemption price, provided that the Managing Member has determined, in its sole discretion, that it is permitted to do so under applicable stock exchange listing rules.

5. Voting Rights.

(a) Voting with LTIP Units. Except as otherwise provided herein, 2011 OPP Units and Non-Managing Members who hold 2011 OPP Units shall be treated as LTIP Units and LTIP Unitholders, respectively, for all purposes of Section 14.3.

(b) Special Approval Rights. So long as any 2011 OPP Units remain outstanding, the Operating Company shall not, without the affirmative vote of the Non-Managing Members who hold at least two-thirds of the 2011 OPP Units outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), amend, alter or repeal, whether by merger, consolidation or otherwise, the provisions of the LLC Agreement applicable to 2011 OPP Units so as to materially and adversely affect any right, privilege or voting power of the 2011 OPP Units or the Non-Managing Members who hold 2011 OPP Units as such, unless such amendment, alteration or repeal affects equally, ratably and proportionately the rights, privileges and powers of the holders of LTIP Units; but subject, in any case, to the following provisions:

(i)	Any difference in effect between the LTIP Units and the 2011 OPP Units that is required or reasonably desirable to implement the difference in the distribution or redemption rights with respect to LTIP Units and 2011 OPP Units shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the holders of LTIP Units;
(ii)	Any creation or issuance of any Membership Units or of any class or series of Membership Interest, whether ranking senior to, junior to, or on a parity with the 2011 OPP Units with respect to distributions and the distribution of assets upon liquidation, dissolution or winding up shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the holders of LTIP Units; and
(iii)	any waiver by the Operating Company of restrictions or limitations applicable to any outstanding LTIP Units or 2011 OPP Units with respect to any LTIP Unitholder or Unitholders or Holders of 2011 OPP Unit shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units or 2011 OPP Units with respect to other Unitholders or Holders.

EXHIBIT B

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1. The name, address and taxpayer identification number of the undersigned are:

Name:  _____ (the “Taxpayer”)

Address:  _____ 

Social Security No./Taxpayer Identification No.:                     

2. Description of property with respect to which the election is being made:

The election is being made with respect to                      Award LTIP Units in Morgans Group LLC (the “Operating Company”).

3. The date on which the Award LTIP Units were transferred is                       _____  , 2011. The taxable year to which this election relates is calendar year 2011.

4. Nature of restrictions to which the Award LTIP Units are subject:

(a)	With limited exceptions, until the Award LTIP Units vest, the Taxpayer may not transfer in any manner any portion of the Award LTIP Units without the consent of the Operating Company.
(b)	The Taxpayer’s Award LTIP Units vest in accordance with the vesting provisions described in Annex 1 attached hereto. Unvested Award LTIP Units are forfeited in accordance with the vesting provisions described in Annex 1 attached hereto.

5. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the Award LTIP Units with respect to which this election is being made was $  per Award LTIP Unit.

6. The amount paid by the Taxpayer for the Award LTIP Units was $0 per Award LTIP Unit.

7. A copy of this statement has been furnished to the Operating Company and Morgans Hotel Group Co.

Dated:  _____  , 2011 Signature  _____ 

ANNEX 1

Vesting Provisions of Award LTIP Units

The Award LTIP Units are subject to time-based and performance-based vesting with the final vesting percentage equaling the product of the time-based vesting percentage and the performance-based vesting percentage. Performance-based vesting will be from 0% to 100% based on Morgan Hotel Group Co.’s (the “Company’s”) per-share total return to shareholders for the period from [_____], 2011 to [_____], 2014 (or earlier in certain circumstances). Under the time-based vesting provisions, one hundred percent (100%) of the Award LTIP Units will vest on the last day of the performance period, provided that the Taxpayer remains an employee of the Company or any of its affiliates through such date, subject to acceleration in the event of certain extraordinary transactions or termination of the Taxpayer’s service relationship with the Company under specified circumstances. Unvested Award LTIP Units are subject to forfeiture in the event of failure to vest based on the passage of time (subject to above-mentioned acceleration) or the determination of the performance-based percentage.

Exhibit C

Promoted Interest Pool Award Agreement

MORGANS HOTEL GROUP CO.
2011 EXECUTIVE PROMOTED INTEREST BONUS POOL AWARD AGREEMENT

2011 EXECUTIVE PROMOTED INTEREST BONUS POOL AWARD AGREEMENT made as of the date set forth on Schedule A hereto by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “Company”), MORGANS GROUP LLC, a Delaware limited liability company (the “Operating Company”), and the party listed on Schedule A (the “Grantee”).

RECITALS

A. The Grantee is a senior management employee of the Company and provides services to the Operating Company.

B. The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) approved this and other 2011 long-term bonus pool awards (“2011 Bonus Pool Awards”) to provide certain senior management employees of the Company, including the Grantee, in connection with their employment with the incentive compensation described in this Award Agreement (this “Agreement” or this “Award Agreement”) and thereby provide additional incentive for them to promote the progress and success of the business of the Company and its Affiliates. 2011 Bonus Pool Awards were approved by the Committee pursuant to authority delegated to it by the Board. This Agreement evidences one award (this “Award”) in a series of substantially identical 2011 Bonus Pool Awards and is subject to the terms and conditions set forth herein.

C. The Committee, effective as of the grant date specified in Schedule A hereto, awarded to the Grantee the participation percentage in the promoted interest bonus pool provided herein, as set forth in Schedule A.

NOW, THEREFORE, the Company, the Operating Company, and the Grantee agree as follows:

1. Administration

This Award and all other 2011 Bonus Pool Awards shall be administered by the Committee; provided that all powers of the Committee hereunder can be exercised by the full Board if the Board so elects. The Committee, in its sole and absolute discretion, may make at any time any provision for lapse of forfeiture restrictions and/or accelerated vesting under this Agreement of some or all of the Grantee’s unvested Award Participation that has not previously been forfeited.

2. Definitions

Capitalized terms used herein shall have the meanings set forth below:

“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

“Award Participation” has the meaning set forth in Section 3.

“Award Period” means the period from and after the date of Grantee’s admission as an Employee Member and to and including the earlier to occur of (i) the third anniversary of the Effective Date and (ii) the termination of Grantee’s Continuing Service.

“Baseline Value” means $8.87.

“Bonus Pool Unit” means a unit of membership interest in Promote Pool LLC. The Bonus Pool Units shall be issued in different series, with each series corresponding to a separate Eligible Promoted Interest held by Promote Pool LLC or a wholly-owned subsidiary thereof.

“Cause” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Cause” is defined therein, then “Cause” shall have the meaning set forth in such definition, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Cause” or a substantially equivalent term, then “Cause” shall mean:

(i)	the Grantee’s willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Grantee’s incapacity due to physical or mental illness or any such failure after his issuance of a notice of termination for Good Reason), after a written demand for substantial performance is delivered to the Grantee by the Board, which demand specifically identifies the manner in which the Board believes that the Grantee has not substantially performed his duties;
(ii)	a material breach by Grantee of his Service Agreement;
(iii)	the Grantee’s willful commission of an act of fraud, theft or dishonesty resulting in economic, financial or material reputational injury to the Company;
(iv)	the Grantee’s conviction of, or entry by the Grantee of a guilty or no contest plea to, the commission of a felony; or
(v)	the Grantee willfully engages in other misconduct materially injurious to the Company.

For purposes of this provision, no act or omission on the part of the Grantee shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission based upon a resolution duly adopted by the Board or advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Grantee shall not be deemed to be for Cause unless and until there shall have been delivered to the Grantee a copy of a resolution duly adopted by the majority of the Board (excluding the Grantee, if the Grantee is then a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Grantee and the Grantee is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Grantee is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

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

“Common Share” means a share of the Company’s common stock, par value $0.01 per share.

“Common Share Price” means, as of a particular date, the average of the Fair Market Value of one Common Share over the thirty (30) consecutive trading days ending on, and including, such date (or, if such date is not a trading day, the most recent trading day immediately preceding such date).

“Common Share Return Condition” shall be deemed to be satisfied as of any date of determination if the Common Share Price, as of such date, shall be at least equal to (x) the Baseline Value multiplied by (y) an amount equal to (i) the sum of one plus the Target Return raised to (ii) the n/365th power, where “n” equals the number of days that has elapsed from and including the Effective Date to but excluding the date of determination.

“Continuous Service” means the continuous service, without interruption or termination, as a an employee or director of Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of (among other things)—

(A) any approved leave of absence,

(B) transfers among the Company and any Affiliate, or any successor, in any capacity of director or employee, or

(C) any change in status as long as the individual remains in the service of the Company or any Affiliate of the Company in the capacity of employee or director.

An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

“Designated Participation Percentage” means, with respect to any series of Employee Units, the lesser of 50% or the percentage determined by the Independent Committee at the time it approves the contribution of the applicable Eligible Promoted Interest in Promote Pool LLC, if such Eligible Promoted Interest did not satisfy the Safe Harbor Requirements as of the applicable Initial Closing.

“Disability” means:

(A) if the Grantee is or was a party to a Service Agreement prior to the applicable event, and “Disability” is defined therein, then “Disability” shall have the meaning set forth in such definition, or

(B) if the Grantee is not and was not a party to a Service Agreement prior to such event or the Grantee’s Service Agreement does not define “Disability” or a substantially equivalent term, then “Disability” shall mean a disability which renders the Grantee incapable of performing all of his or her material duties for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Grantee or the Grantee’s legal representative or by the insurance company which insures the Company’s long-term disability plan in which the Grantee is eligible to participate.

“Effective Date” means March 20, 2011.

“Eligible Promoted Interest” means a Promoted Interest that the Company or any entity through which the Company directly or indirectly acquires or has the right to acquire, or is created, in a transaction as to which the Initial Closing occurs during the Award Period and that satisfies either of the following requirements as of the Initial Closing:

(i) The Investment Committee (with the affirmative vote of its independent member) shall have determined in good faith that the applicable Promoted Interest satisfies the Safe Harbor Requirements; or

(ii) The terms of the hotel acquisition or development transaction, including the contribution of the applicable Promoted Interest to Promote Pool LLC, shall have been approved in good faith by the Independent Committee.

The determination as to whether a Promoted Interest that does not satisfy the Safe Harbor Requirements shall be deemed to be an Eligible Promoted Interest, and the Designated Participation Percentage with respect to such Eligible Promoted Interest, shall be made in good faith by the Independent Committee and shall be conclusive.

In the case of an Eligible Promoted Interest that the Company, the Operating Company, Promote Pool LLC, or a wholly owned subsidiary of the Company acquires or has the right to acquire, the Eligible Promoted Interest will consist of the entire applicable Promoted Interest. In the case of an Eligible Promoted Interest that any other entity in which the Company or the Operating Company has a direct or indirect equity interest acquires, or has the right to acquire, the “Eligible Promoted Interest” will, at the election of the Managing Member, consist of either (x) an assignment of the proceeds received by the Company, the Operating Company, or a wholly owned subsidiary of the Company with respect to the applicable Promoted Interest, or (y) a special allocation of the portion of such direct or indirect interest in the Eligible Promoted Interest that is owned by the Company, the Operating Company, or a wholly owned subsidiary that represents their respective direct or indirect interest in the Promoted Interest owned by such other entity.

An Eligible Promoted Interest can consist of either an equity interest in a Hotel Investment Entity or a contractual right to share in some or all of the profits, losses, or gains of a Hotel Investment Entity (a “Contractual Right”) or one or more hotel properties owned by a Hotel Investment Entity.

For the avoidance of doubt, an incentive management fee or other amount measured by a percentage of gross revenues, gross operating profit, net house profit, or similar performance measure and payable to the Company, or any entity through which the Company, directly or indirectly, holds an equity interest or a Contractual Right, as compensation for the performance of management services shall not be an Eligible Promoted Interest.

For the further avoidance of doubt, no Promoted Interest as to which the Initial Closing occurs after the Award Period shall be deemed to be an “Eligible Promoted Interest.”

“Employee Member” means a member of Promote Pool LLC other than the Managing Member or any other subsidiary of the Company.

“Employee Unit” means any Bonus Pool Unit that is held by an Employee Member or a permitted transferee thereof (other than Managing Member or any other subsidiary of the Company).

“Fair Market Value” means, as of any given date, the fair market value of a security, an Eligible Promoted Interest, or other property determined by the Committee using any reasonable method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1) of the Code); provided that, with respect to a Common Share, “Fair Market Value” means the value of such Common Share determined as follows: (A) if on the determination date the Common Shares are listed on the New York Stock Exchange, The NASDAQ Stock Market, Inc. or another national securities exchange or is publicly traded on an established securities market, the Fair Market Value of a Common Share shall be the closing price of the Common Shares on such exchange or in such market (if there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the high and low sale prices on such trading day) or, if no sale of Common Shares is reported for such trading day, on the next preceding day on which any sale shall have been reported; or (B) if the Common Shares are not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the Common Share shall be the value of the Common Shares as determined by the Committee in good faith in a manner consistent with Section 409A of the Code.

“Good Reason” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Good Reason” is defined therein, then “Good Reason” shall have the meaning set forth in such Service Agreement, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Good Reason” or a substantially equivalent term, so long as the Grantee terminates his or her employment within thirty (30) days after the Grantee has actual knowledge of the occurrence, without the written consent of the Grantee, of one of the following events that has not been cured within thirty (30) days after written notice thereof has been given by Grantee to the Company, then “Good Reason” shall mean:

(iii) the assignment to the Grantee of duties materially inconsistent with the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated in his Service Agreement, or any other action by the Company which results in a material diminution in the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Grantee;

(iv) any material failure by the Company to comply with any of the provisions of the Service Agreement, other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Grantee;

(v) any failure by the Company to obtain the assumption of his Service Agreement by a successor to all or substantially all of the business or assets of the Company; or

(vi) if his Service Agreement provides that the Executive will be nominated for election as a director of the Company, any failure by the Board to nominate the Executive for election as a director of the Company in accordance with the Service Agreement, or any failure of the Executive to be elected to be a member of the Board; or

(vii) any requirement that the Grantee’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Grantee’s residence to his new place of employment;

“Hotel Investment Entity” means a limited liability company, limited partnership, corporation, or other form of business entity that owns, directly or indirectly, or proposes to acquire or develop, one or more hotels or other hospitality-related properties. Neither the Company nor any consolidated subsidiary of the Company shall be deemed to be a Hotel Investment Entity.

“Independent Committee” means a committee (either standing or ad hoc) of the Board that has the responsibility and authority for determining whether a Promoted Interest that does not satisfy the Safe Harbor Requirements will nonetheless be contributed to Promote Pool LLC and, if so, what the Designated Participation Percentage with respect to such Promoted Interest will be.

“Initial Closing” means, with respect to any Eligible Promoted Interest, the date of the closing of the transaction as the result of which the Company, a consolidated subsidiary thereof, Promote Pool LLC, or any entity through which such Eligible Promoted Interest is held, and one or more unaffiliated persons become equity owners of the Hotel Investment Entity (or obtains a Contractual Right) related to such Eligible Promoted Interest. The independent member of the Investment Committee shall determine, in good faith, when the Initial Closing occurs with respect to any Eligible Promoted Interest.

“Investment Committee” means a management committee, established by the Board that includes at least one independent director that is delegated authority, among other things, to approve the terms of investments in Hotel Investment Entities and determine whether Promoted Interests in Hotel Investment Entities satisfy the Safe Harbor Requirements.

“LLC Agreement” means the limited liability company agreement of Promote Pool LLC, as it may be amended from time to time in accordance with its terms, that the Managing Member will enter in accordance with Section 7(a). The LLC Agreement will contain the provisions set forth on Exhibit A attached hereto and such other terms and conditions as the Committee shall in good faith determine are necessary or appropriate for implementing the provisions and accomplishing the objectives of this Award Agreement and the Award Agreements of other recipients of 2011 Bonus Pool Awards.

“Managing Member” means the Operating Company, or a wholly-owned subsidiary thereof, in its capacity as managing member of Promote Pool LLC.

“Member” means a member of Promote Pool LLC, which shall be either the Managing Member or an Employee Member.

“Opening” means, with respect to any Eligible Promoted Interest, the date on or after the Initial Closing on which all construction, development, and major renovation work is completed and substantially all of the rooms and other facilities in the applicable hotel are open for business. If the applicable hotel is operating as of the Initial Closing and the business plan relating to the hotel does not contemplate a substantial renovation or redevelopment of the hotel that will result in material disruption of the operations of the hotel for an extended period, the Opening shall be deemed to occur at the same time as the Initial Closing. If the business plan for such hotel contemplates such renovation or redevelopment, the Opening shall be deemed to occur following the completion of such renovation or redevelopment and substantially all of the rooms and other facilities in the applicable hotel are open for business. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, an Opening shall be deemed to occur with respect to any such hotel property when such hotel property meets the foregoing requirements. The independent member of the Investment Committee shall in good faith determine when an Opening occurs with respect to any Eligible Promoted Interest.

“Partial Sale Event” means, with respect to any Eligible Promoted Interest, the date on which (x) the applicable Hotel Investment Entity’s direct or indirect ownership interest in the applicable hotel property is reduced by reason of a disposition of an interest in such property to a third party; or (y) Promote Pool LLC’s direct or indirect ownership interest in such Eligible Promoted Interest is reduced by reason of a disposition of an interest in such Eligible Promoted Interest to a third party. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a Partial Sale Event described in clause (x) above with respect to any such hotel property shall be deemed to occur when the Hotel Investment Entity’s direct or indirect ownership interest in such hotel property is reduced. The independent member of the Investment Committee shall in good faith determine when a Partial Sales Event occurs with respect to any Eligible Promoted Interest.

“Participation Amount” has the meaning set forth in Section 3.

“Participation Percentage” means, as of any date of determination, the percentage set forth opposite such term on Schedule A hereto.

“Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, other entity or “group” (as defined in the Exchange Act).

“Promoted Interest” means an interest in a Hotel Investment Entity, or other Contractual Right, that represents a right to participate in profits, losses, and gains of the Hotel Investment Entity in excess of amounts attributable to the percentage of capital contributions made by the Company and its subsidiaries in the Hotel Investment Entity. For the avoidance of doubt, an incentive management fee or other amount measured by a percentage of gross revenues, gross operating profit, net house profit, or similar performance measure and payable to the Company or any entity holding such Interests as compensation for the performance of management services shall not be a Promoted Interest .

“Promoted Interest Proceeds” means, with respect to any Eligible Promoted Interest, the amount of any cash (or cash equivalent) distributions or dividends received by Promote Pool LLC with respect to such Eligible Promoted Interest or, if Promote Pool LLC receives any other property in exchange for or as a distribution with respect to an Eligible Promoted Interest, any cash (or cash equivalents) received as a distribution or dividend with respect to or upon the sale or disposition of such other property. In the case of the removal by the Company of the designation of an Eligible Promoted Interest as part of the Promoted Interest Bonus Pool, such removal shall be treated as a disposition of the Eligible Promoted Interest for an amount of cash equal to its Fair Market Value and an amount equal to such Fair Market Value shall be deemed to be Promoted Interest Proceeds hereunder.

“Promote Pool LLC” means MHG Employee Promoted Interest LLC, a to-be-formed Delaware limited liability company, or its successor.

“Qualified Management Agreement” means a hotel management agreement under which the Company or a consolidated subsidiary of the Company is the manager that contains terms that satisfy the requirements set forth in that certain letter delivered by the Company to Grantee concurrently with the execution of this Award, as determined by the Investment Committee in good faith.

“Qualified Termination” has the meaning set forth in Section 4.

“Safe Harbor Requirements” means, with respect to any Eligible Promoted Interest, the following requirements:

(i) The Company or one of its consolidated subsidiaries is manager of the hotel properties owned, directly or indirectly, by the Hotel Investment Entity pursuant to a Qualified Management Agreement;

(ii) The percentage interest acquired by the Company or any of its consolidated subsidiaries in the applicable Hotel Investment Entity does not exceed twenty percent (20%), without taking into account the applicable Promoted Interest;

(iii) The value of the aggregate capital contribution or capital commitment of the Company and its consolidated subsidiaries does not exceed $20 million; and

(iv) The equity investment by the Company and its consolidated subsidiaries must be on no less favorable terms, in any material respect, than the equity investment to the other investors in the Hotel Investment Entity (without taking into account the applicable Promoted Interest) or, if the equity investment by the other investors was made more than one year before the Initial Closing with respect to such Eligible Promoted Interest is anticipated to occur, the equity investment by the Company and its consolidated subsidiaries must be made based on the Fair Market Value of the interests acquired in the Hotel Investment Entity.

The determination by the Investment Committee as to whether a Promoted Interest satisfies the Safe Harbor Requirements shall be made in good faith and shall be conclusive.

“Sale Event” means, with respect to any Eligible Promoted Interest, the earlier of the date on which (x) the applicable Hotel Investment Entity no longer holds a direct or indirect ownership interest in the applicable hotel property or (ii) Promote Pool LLC no longer holds, directly or indirectly, such Eligible Promoted Interest. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a Sale Event described in clause (x) above with respect to any such hotel property shall be deemed to occur when the Hotel Investment Entity no longer owns a direct or indirect ownership interest in such hotel property. The independent member of the Investment Committee shall in good faith determine when a Sales Event occurs with respect to any Eligible Promoted Interest.

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

“Service Agreement” means, as of a particular date, any employment, consulting or similar service agreement then in effect between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand, as amended or supplemented through such date; provided that, if no such agreement is then in effect, “Service Agreement” shall mean any employment, consulting or similar service agreement most recently in effect (on or after the Effective Date) prior to such date, as amended or supplemented, between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand.

“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

“Target Return” shall be equal to nine percent (9%) per annum, compounded annually.

“Transfer” has the meaning set forth in Section 6.

3. Promoted Interest Bonus Pool Award; Vesting

(a) The Operating Company hereby grants to Grantee this Award consisting of the right, subject to the terms and conditions of this Award Agreement, to be admitted as an Employee Member of Promote Pool LLC and to receive the Participation Percentage of each series of the Employee Units issued by Promote Pool LLC during the Award Period (the “Award Participation”). The Award Participation (A) will be subject to forfeiture as provided in Section 3(c) and in Section 4 and (B) will be subject to vesting as provided below in Section 3(b) and in Section 4. At any time, the Committee may grant additional 2011 Bonus Pool Awards with such Participation Percentages set forth therein as the Committee may determine, in its sole discretion, provided that the total Participation Percentages of all 2011 Bonus Pool Awards (including this Award) outstanding at any time shall not exceed 100%.

(b) The interest of Grantee in each series of Employee Units issued to Grantee during the Award Period shall be eligible for vesting based on a combination of (i) the satisfaction of the vesting conditions relating to the hotel properties applicable to the Eligible Promoted Interest related to such series of Employee Units, as set forth below in this Section 3(b) and (ii) the passage of time (three years or a shorter period in certain circumstances as provided in Section 4) as provided in this Section 3(b). The Grantee’s interest in a series of Employee Units shall become vested in the following amounts, at the following times, and upon the following conditions, provided that the Continuous Service of the Grantee continues through and on the applicable vesting date described below or the accelerated vesting date provided in Section 4 hereof, as applicable:

(i) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later to occur of —

(A) the third anniversary of the Effective Date (or any accelerated vesting date provided in Section 4 hereof, if applicable ) and

(B) the Initial Closing with respect to the applicable Eligible Promoted Interest; and

(ii) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later of to occur of —

(A) the third anniversary of the Effective Date (or any accelerated vesting date provided in Section 4 hereof, if applicable ) and

(B) the Opening with respect to the applicable Eligible Promoted Interest;

provided that, in the case of an Eligible Promoted Interest in Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third divided by (II) the number of such hotel properties shall become vested on the later of to occur of (x) the date specified in paragraph (A) above and (y) the Opening of any such hotel property; and

(iii) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later of to occur of —

(A) the third anniversary of the Effective Date and

(B) the Sale Event with respect to the applicable Eligible Promoted Interest.

provided that, in the case of an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third divided by (II) the number of such hotel properties, shall become vested on the later to occur of (x) the date specified in paragraph (A) above and (y) the Sale Event with respect to any such hotel property; and

provided further that, in the event a Partial Sale Event occurs with respect to an Eligible Promoted Interest, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third multiplied by (II) the percentage of the Fair Market Value of the direct or indirect interest in the applicable Hotel Investment Entity or hotel property that was disposed of in such Partial Sale Event, as determined in good faith by the Investment Committee, shall become vested on the later to occur of (x) the date specified in paragraph (A) above and (y) the Partial Sale Event with respect to any such hotel property; and

provided further that, in the event a Partial Sale Event occurs with respect to a particular hotel property in the case of a Hotel Investment Entity that holds more than one property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third multiplied by (II) the percentage of the Fair Market Value of the direct or indirect interest in the applicable hotel property that was disposed of in such Partial Sale Event, as determined in good faith by the Investment Committee, divided by (III) the number of such hotel properties owned by such Hotel Investment Entity, shall become vested on the later of to occur of (x) the date specified in paragraph (A) above and (y) the Partial Sale Event with respect to any such hotel property; and

provided further that, in the event a Sale Event occurs with respect to an Eligible Promoted Interest (or with respect to a particular hotel property in the case of a Hotel Investment Entity that holds more than one property) without an Opening having occurred with respect thereto, then such Sale Event shall also be deemed to constitute the Opening with respect to such Eligible Promoted Interest for purpose of Section 3(b)(ii).

(c) Any portion of Grantee’s interest in any series of Employee Units that has not become vested pursuant to Section 3(b) and Grantee’s Award Participation shall, without payment of any consideration by the Company or Promote Pool LLC, automatically and without notice be forfeited and be and become null and void upon the termination of the Continuous Service of Grantee (other than by reason of a Qualified Termination, death or Disability), and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested portion of the Grantee’s Employee Units and in future issuances of Employee Units by Promote Pool LLC.

(d) In the event that a Hotel Investment Entity with respect to which Promote Pool LLC holds an Eligible Promoted Interest receives a new hotel property in exchange for another hotel property, with the result that Promote Pool LLC thereafter holds an Eligible Promoted Interest in such new hotel property, the vesting percentage that applied to the applicable series of Employee Units immediately prior to such exchange shall remain in effect with respect to such series following the exchange.

4. Termination of Grantee’s Continuous Service; Death and Disability

(a) If the Grantee is or was a party to a Service Agreement and his or her Continuous Service terminates, the applicable provisions of this Section 4 shall govern the treatment of the Grantee’s Award Participation, unless the Service Agreement contains provisions that expressly refer to this Section 4(a) and provides that those provisions of the Service Agreement shall instead govern the treatment of the Grantee’s Award Participation upon such termination. The foregoing sentence will be deemed an amendment to any applicable Service Agreement to the extent required to apply its terms consistently with this Section 4, such that, by way of illustration, any provisions of the Service Agreement with respect to accelerated vesting or payout or the lapse of forfeiture restrictions relating to the Grantee’s incentive or other compensation awards in the event of certain types of termination of the Grantee’s Continuous Service with the Company (such as, for example, termination at the end of the term, termination without Cause by the employer or termination for Good Reason by the employee) shall not be interpreted as requiring that vesting occur with respect to this Award other than as specifically provided in Section 3(b) and this Section 4.

(b) In the event of termination of the Grantee’s Continuous Service by (A) the Company without Cause, (B) the Grantee for Good Reason, or (C) by reason of the death or Disability of Grantee (each of the events described in (A), (B) and (C), a “Qualified Termination”), then the Award Participation shall terminate with respect to any future issuances of Employee Units and the Award Period shall terminate, each effective upon termination of Grantee’s Continuing Service, but the following provisions of this Section 4(b) shall modify the vesting of each series of Employee Units then held by Grantee:

(iv) the vesting conditions set forth in Sections 3(b)(i)(A) and 3(b)(ii)(A) (but not under Section 3(b)(iii)(A)) shall be deemed to have been satisfied with respect to each series of Employee Units held by Grantee as of the effective date of such Qualified Termination; and

(v) the Grantee’s interest in each series of Employee Units then held by Grantee shall vest under Sections 3(b)(i) and 3(b)(ii), to the extent provided in such sections, upon the satisfaction of the vesting conditions set forth in Sections 3(b)(i)(B) and 3(b)(ii)(B), as applicable (to the extent that any such condition shall not previously have been satisfied), as if such Qualified Termination had not occurred.

Upon the occurrence of a Qualified Termination, the unvested portion of Grantee’s interest in each series of Employee Units then held by Grantee that is subject to vesting upon the conditions set forth in Section 3(b)(iii) shall be forfeited, with the consequences set forth in the LLC Agreement.

(c) In the event of a termination of the Grantee’s Continuous Service other than a Qualified Termination, the Award Participation shall terminate with respect to any future issuances of Employee Units and the Award Period shall terminate, each effective upon termination of Grantee’s Continuing Service, and Grantee’s unvested interest in each series of Employee Units then held by Grantee shall be forfeited, with the consequences set forth in the LLC Agreement as described in Exhibit A, and shall no longer be subject to future vesting pursuant to Section 3(b)(i), 3(b)(ii), or 3(b)(iii), without payment of any consideration by the Company or Promote Pool LLC, automatically and without notice, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such Award Participation or such unvested interest in any series of Employee Units, other than with respect to any interest in any series of Employee Units that may have vested pursuant to Section 3(b)(i), 3(b)(ii), or 3(b)(iii) prior to such termination of Grantee’s Continuous Service.

5. Promote Pool LLC Units

(a) Formation of Promote Pool LLC. Prior to the Initial Closing of the first transaction in which the Company or any entity will receive an Eligible Promoted Interest after the Effective Date, the Company will organize Promote Pool LLC and enter into the LLC Agreement.

(b) Contribution of Eligible Promoted Interests. At the Initial Closing with respect to any Eligible Promoted Interest, Promote Pool LLC (or a wholly owned subsidiary thereof) will become a member or partner in, or acquire a Contractual Right with respect to, the applicable Hotel Investment Entity and, in that capacity, will acquire the Eligible Promoted Interest, or the Operating Company (or a subsidiary thereof) shall contribute the Eligible Promoted Interest to Promote Pool LLC.

(c) Issuance of Employee Units. Concurrently with the Initial Closing with respect to any Eligible Promoted Interest, the Managing Member shall amend the LLC Agreement to create a new series of Bonus Pool Units relating to the Eligible Promoted Interest. The portion of the Bonus Pool Units issued to Employee Members concurrently with the Initial Closing shall, as of such date, represent an aggregate interest in the applicable Eligible Promoted Interest equal to the Designated Participation Percentage with respect to such series of Bonus Pool Units. If the Initial Closing with respect to such Eligible Promoted Interest occurs during the Award Period, Promote Pool LLC shall issue to Grantee, concurrently with such Initial Closing, a percentage of the applicable series of Employee Units equal to the product of (i) his or her Participation Percentage as of such date times (ii) the Designated Participation Percentage with respect to such series of Bonus Pool Units.

(d) Distributions. Following the receipt by Promote Pool LLC or any of its wholly-owned subsidiaries of any Promoted Interest Proceeds, Promote Pool LLC shall distribute such Promoted Interest Proceeds to the Members in accordance with the terms and conditions of the LLC Agreement. The LLC Agreement will include provisions relating to distributions in substantially the form set forth on Exhibit A attached hereto.

6. Restrictions on Transfer

Subject to the next sentence, no portion of the Award Participation granted hereunder shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”). This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. Notwithstanding the foregoing, in the event Managing Member elects to sell or otherwise dispose of all or any portion of its interest in any series of interests in Promote Pool LLC to an unaffiliated third party, Managing Member shall ensure that such third party offers to acquire all or the comparable percentage (as the case may be) of the Employee Units in such Series held by each holder of such series of Employee Units, on the same terms and conditions as such unaffiliated third-party is acquiring the interests of the Managing Member, in accordance with such procedures for such offer and purchase as the Managing Member shall reasonably establish for such purpose.

7. Miscellaneous

(a) Amendments. This Agreement may be amended or modified only with the consent of the Company acting through the Committee; provided that any such amendment or modification materially and adversely affecting the rights or obligations of the Grantee hereunder must be consented to by the Grantee to be effective as against him. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company to correct any errors or ambiguities in this Agreement and/or to make such changes that do not materially adversely affect the Grantee’s rights or obligations hereunder. This grant shall in no way affect the Grantee’s participation or benefits under any other plan or benefit program maintained or provided by the Company.

(b) Committee Determinations. The Committee will make the determinations and certifications required by this Award as promptly as reasonably practicable following the occurrence of the event or events necessitating such determinations or certifications.

(c) Grantee Representations; Registration.

(i) The Grantee hereby represents and warrants that (A) he or she understands that he or she is responsible for consulting his or her own tax advisor with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of this Award may become subject, to his or her particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the Operating Company or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides services to the Operating Company on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Operating Company, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award; (D) Bonus Pool Units are subject to substantial risks; (E) the Grantee has been furnished with, and has reviewed and understands, information relating to this Award; (F) the Grantee has been afforded the opportunity to obtain such additional information as he or she deemed necessary before accepting this Award; (G) the Grantee has had an opportunity to ask questions of representatives of the Operating Company and the Company, or persons acting on their behalf, concerning this Award; and (H) the Grantee will provide services to Promote Pool LLC.

(ii) The Grantee hereby acknowledges that: (A) there will be no public market for Bonus Pool Units and neither the Operating Company nor the Company has any obligation or intention to create such a market; (B) transfers sales of Bonus Pool Units are subject to restrictions under the Securities Act and applicable state securities laws, in addition to the restrictions set forth herein and in the LLC Agreement; and (C) because of the restrictions on transfer or assignment of Bonus Pool Units set forth in the LLC Agreement and in this Agreement, the Grantee may have to bear the economic risk of his or her ownership of any Bonus Pool Units issued as a result of this Award for an indefinite period of time.

(d) Section 83(b) Election. In connection with each separate issuance of Bonus Pool Units under this Award, the Grantee hereby agrees to make an election to include in gross income in the year of transfer the applicable Bonus Pool Units pursuant to Section 83(b) of the Code substantially in the form attached hereto as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder. The Grantee agrees to file such election (or to permit Promote Pool LLC to file such election on the Grantee’s behalf) within thirty (30) days after the issuance of the Bonus Pool Units with the IRS Service Center where the Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the Bonus Pool Units are awarded to the Grantee. So long as the Grantee holds any Bonus Pool Units, the Grantee shall disclose to Promote Pool LLC in writing such information as may be reasonably requested with respect to ownership of Bonus Pool Units as Promote Pool LLC may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code applicable to Promote Pool LLC or to comply with requirements of any other appropriate taxing authority.

(e) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(f) Governing Law. This Agreement is made under, and will be construed in accordance with, the laws of State of New York, without giving effect to the principles of conflict of laws of such State.

(g) No Obligation to Continue Position as an Employee. Neither the Company nor any Affiliate is obligated by or as a result of this Agreement to continue to have the Grantee as an employee, consultant or advisor and this Agreement shall not interfere in any way with the right of the Company or any Affiliate to terminate the Grantee’s Continuous Service at any time.

(h) Notices. Any notice to be given to the Company shall be addressed to the Secretary of the Company at 475 Tenth Avenue, New York, New York 10018 and any notice to be given the Grantee shall be addressed to the Grantee at the Grantee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Grantee may hereafter designate in writing to the other.

(i) Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to this Award, the Grantee will pay to the Company or, if appropriate, any of its Affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

(j) Headings. The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

(k) Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

(l) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company, on the one hand, and any successors to the Grantee, on the other hand, by will or the laws of descent and distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Grantee.

(m) Section 409A. This Agreement shall be construed, administered and interpreted in accordance with a good faith interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Grantee the Company, to the extent necessary to exempt it from, or bring it into compliance with Section 409A of the Code.

[signature page follows]

IN WITNESS WHEREOF, the undersigned have caused this Award Agreement to be executed as of the date first above written.

MORGANS HOTEL GROUP CO.
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	Chief Financial Officer

GRANTEE

/s/ Daniel Flannery Name: Daniel Flannery

IN WITNESS WHEREOF, the undersigned has caused this Award Agreement to be executed as of the date first above written.

MORGANS GROUP LLC
By:	/s/ Richard Syzymanski
	Name:	Richard Szymanski
	Title:

SCHEDULE A TO 2011 PROMOTED INTEREST BONUS POOL
AWARD AGREEMENT

Date of Award Agreement:	April 4, 2011
Name of Grantee:	Daniel Flannery
Participation Percentage:		10%
Grant Date:	April 4, 2011

Initials of Company representative: /s/RS Initials of Grantee: /s/DF

EXHIBIT A

CERTAIN PROVISIONS OF THE LLC AGREEMENT

The LLC Agreement will include the following provisions in substantially the form set forth below (capitalized terms shall have the meanings set forth in the Award Agreement to which this Exhibit A is attached, if defined therein, or in Section 8 hereof, and Section numbers shall refer to sections of this Exhibit A, unless otherwise stated ):

1. Distributions.

(a) Promptly following the receipt by Promote Pool LLC or any of its wholly owned subsidiaries of any Promoted Interest Proceeds, including the receipt of any proceeds assigned to Grantee in respect of any Eligible Promoted Interest, Promote Pool LLC shall distribute such Promoted Interest Proceeds (with respect to any distribution, the “Aggregate Proceeds”) to the Members on the following terms and conditions:

(i) If the Employee Unit Distribution Conditions are satisfied as of the date of receipt of such Promoted Interest Proceeds by Promote Pool LLC or any of its wholly owned subsidiaries, an amount equal to the product of (x) the Aggregate Employee Participation Percentage then outstanding in the series of Bonus Pool Units related to the Eligible Promoted Interest with respect to which the Promoted Interest Proceeds were received times (y) the Aggregate Proceeds shall be paid, or set aside for future payment, in accordance with Section 1(b) or 1(c); and

(ii) The remainder of such Aggregate Proceeds shall be paid to the Managing Member.

(b) All amounts referred to in Section 1(a)(i) (with respect to any distribution, the “Employee Member Share”) shall be applied as follows:

(i) An amount equal to the product of (x) each Employee Member’s Vested Participation Percentage at such time in such series of Bonus Pool Units times (y) the Aggregate Proceeds shall be paid to such Employee Member ;and

(ii) The remainder of the Employee Member Share shall be set aside and held by Promote Pool LLC for future payment in accordance with Section 1(c).

(c) All amounts referred to in Section 1(b)(ii) shall be applied as follows:

(i) At such time as any Employee Member’s Vested Participation Percentage in the applicable series of Bonus Pool Units increases after the initial distribution of the applicable Aggregate Proceeds under Section 1(b), an amount equal to (x) the product of (I) such Employee Member’s Vested Participation Percentage (after such increase) in such series of Bonus Pool Units times (II) the Aggregate Proceeds minus (y) the aggregate amount of such Aggregate Proceeds that previously paid to such Employee Member under Section 1(b)(i) or this Section 1(c)(i).

(ii) At such time as any Employee Member’s unvested Bonus Pool Units in the applicable series are forfeited pursuant to Section 4 of such Employee’s Award Agreement, an amount equal to the product of (x) a fraction, the numerator of which is the number of unvested Bonus Pool Units in the applicable series so forfeited and the denominator of which is the aggregate number of outstanding Bonus Pool Units in such series times (y) the applicable Aggregate Proceeds.

2. Management of the LLC. Except as otherwise provided in the LLC Agreement or by law, management of Promote Pool LLC is reserved to and shall be vested solely and exclusively in the Managing Member. The rights and authority of the Managing Member shall include, without limitation, the right and authority, in its sole discretion, to —

(a) exercise all consent and voting rights with respect to the Eligible Promoted Interests,

(b) sell, transfer, or otherwise dispose of the interest of Promote Pool LLC in any Eligible Promoted Interest, subject to compliance with the provisions of Section 7 below, and

(c) issue additional Employee Units to persons granted 2011 Bonus Pool Awards, subject to the proviso at the end of Section 3(a) of the Award Agreements.

3. Amendments. The LLC Agreement, or any term or provision thereof, may be amended, waived, modified or supplemented from time to time by the Managing Member in its sole discretion; provided that any amendment to the provisions relating to the distribution of Promoted Interest Proceeds or the defined terms used therein that would materially adversely affect the rights or obligations of the holders of Employee Units granted hereunder shall require the consent of each Employee Member adversely affected thereby.

4. Transfer of Employee Units. No Employee Member may Transfer all or any part of his or her Employee Units, or any interest therein, directly or indirectly, without the consent of the Managing Member, which consent may be withheld in the Managing Member’s sole discretion. No Transfer of Employee Units, or any interest therein, in violation of this Agreement shall be made or recorded on the books of Promote Pool LLC and any such Transfer shall be null and void, ab initio. An Employee Member shall have no right to grant an assignee of his or her Employee Units, or any interest therein, the right to become a substituted member in Promote Pool LLC. As used herein, “Transfer” means the sale, encumbrance, mortgage, hypothecation, assignment, pledge, exchange or other disposition or transfer (including by operation of law), directly or indirectly, of all or any portion of an Interest. For the avoidance of doubt, any indirect Transfer by an Employee Member or the Company through the transfer or issuance of any equity interest in any entity formed for the purpose of holding Employee Units or Managing Member Units, respectively, or any interest therein, shall constitute a Transfer.

5. Effect of Forfeiture of Unvested Units. At such time as any unvested Employee Units of any Employee Member in any series are forfeited pursuant to Section 4 of the such Employee Member’s award agreement, such unvested Employee Units shall be cancelled and the Manager Percentage Interest shall be increased by a percentage equal to the product of (x) the Unit Percentage Interest with respect to such series in effect immediately prior to such forfeiture times (y) the number of Employee Units in such series that were then forfeited.

6. Issuance of Additional Employee Units. The Managing Member, in its sole discretion, shall be entitled to issue additional Employee Units in any series at any time, which additional Employee Units may be accompanied by a reduction in the Manager Percentage Interest with respect to such series and a corresponding increase in the Aggregate Employee Participation Percentage for such series, or may represent the issuance of additional Employee Units without a change in the Aggregate Employee Participation Percentage, subject to the proviso at the end of [Section 3(a)] of the Award Agreements.

7. Ownership and Control of Eligible Promoted Interests. If the Managing Member elects to Transfer an Eligible Promoted Interest prior to the occurrence of the Sale Event with respect to such Eligible Promoted Interest (or the Sale Events with respect to all hotel properties related to such Eligible Promoted Interest), the vesting conditions set forth in Sections 3(b)(i)(B), 3(b)(ii)(B) and 3(b)(iii)(B) of the Award Agreements with respect to such Eligible Promoted Interest will be deemed to have been satisfied (to the extent that any such condition shall not previously have been satisfied) and the net proceeds received by Promote Pool LLC in connection with such Transfer shall be deemed to constitute Promoted Interest Proceeds, and shall be distributable in accordance with Section 1, subject to satisfaction of the Payment Conditions and subject to satisfaction of the vesting conditions set forth in Sections 3(b)(i)(A), 3(b)(ii)(A) and 3(b)(iii)(A) of the Award Agreements with respect to individual Employee Members (to the extent that such condition shall not previously have been satisfied). Any Transfer of an Eligible Promoted Interest to the Company or a subsidiary of the Company shall be made for an amount of cash equal to its Fair Market Value.

8. Certain Defined Terms. Capitalized terms defined in the Award Agreement to which this Exhibit A is attached shall have the meanings ascribed therein to such terms. The following capitalized terms used in this Exhibit A shall have the meanings set forth below:

(a) “Aggregate Employee Participation Percentage” means, with respect to any series of Bonus Pool Units and as of any date of determination, a percentage equal to (i) one hundred percent (100%) minus (ii) the Manager Percentage Interest with respect to such series then in effect.

(b) “Award Agreement” means, with respect to any Employee Member, the award agreement pursuant to which such Employee Member was granted a 2011 Bonus Pool Award.

(c) “Employee Unit Distribution Conditions” means, as of the date of any receipt by Promote Pool LLC or any of its wholly-owned subsidiaries of any Promoted Interest Proceeds, the following:

(i) the Common Share Return Condition shall be satisfied; and

(ii) the Company or a consolidated subsidiary of the Company continues to manage the applicable hotel property immediately following the applicable event giving rise to the Promoted Interest Proceeds.

(d) “Manager Percentage Interest” means, with respect to any series of Bonus Pool Units and as of any date of determination, a percentage equal to (i) one hundred percent (100%) minus (ii) the Designated Participation Percentage with respect to such series plus (iii) the aggregate increases in the Manager Percentage Interest with respect to such series pursuant to Section 5 minus (iv) the aggregate decreases in the Manager Percentage Interest with respect to such series pursuant to Section 6 in connection with the issuances of additional Employee Units with respect to such series.

(e) “Unit Percentage Interest” means, with respect to a single Employee Unit of any series as of the date of determination, a fraction (expressed as a percentage) equal to (i) the Aggregate Employee Participation Percentage with respect to such series as of such date divided by (ii) the aggregate number of Employee Units in such series then outstanding.

(f) “Vested Participation Percentage” means, with respect to any Employee Member and any series of Bonus Pool Units and as of any date of determination, a fraction, (x) the numerator of which is the aggregate number of Employee Units in such series held by such Employee Member that have vested in accordance with Section 3(b) of such Employee’s Award Agreement and (y) the denominator of which is the aggregate number of Employee Units in such series then outstanding.

EXHIBIT B

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1. The name, address and taxpayer identification number of the undersigned are:

Name:  _____  (the “Taxpayer”)

Address:  _____ 

Social Security No./Taxpayer Identification No.:                     

2. Description of property with respect to which the election is being made:

The election is being made with respect to                      Bonus Pool Units (Series [_____]) (the “Bonus Pool Units”) in MHG Employee Promoted Interest LLC (the “Company”).

3. The date on which the Bonus Pool Units were transferred is                       _____, 20_. The taxable year to which this election relates is calendar year 20_.

4. Nature of restrictions to which the Bonus Pool Units are subject:

(a) With limited exceptions, until the Bonus Pool Units vest, the Taxpayer may not transfer in any manner any portion of the Bonus Pool Units without the consent of the Company.

(b) The Taxpayer’s Bonus Pool Units (vest in accordance with the vesting provisions described in Annex 1 attached hereto. Unvested Bonus Pool Units are forfeited in accordance with the vesting provisions described in Annex 1 attached hereto.

5. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the Bonus Pool Units with respect to which this election is being made was $  per Bonus Pool Unit.

6. The amount paid by the Taxpayer for the Award LTIP Units was $0 per Bonus Pool Unit.

7. A copy of this statement has been furnished to the Company and Morgans Group LLC.

Dated:  _____, 20_____  Signature  _____ 

ANNEX 1

Vesting Provisions of Bonus Pool Units

The Bonus Pool Units are subject to time-based and performance-based vesting with the final vesting percentage equaling the product of the time-based vesting percentage and the performance-based vesting percentage. Performance-based vesting will be from 0% to 100% based on the achievement of certain goals relating to hotel properties in which Morgans Group LLC or a subsidiary acquires an equity interest and becomes the hotel manager. Under the time-based vesting provisions, one hundred percent (100%) of the Bonus Pool Units will vest on the last day of the performance period, provided that the Taxpayer remains an employee of the Company or any of its affiliates through such date, subject to acceleration in the event of certain extraordinary transactions or termination of the Taxpayer’s service relationship with the Company under specified circumstances. Unvested Bonus Pool Units are subject to forfeiture in the event of failure to vest based on the passage of time or the determination of the performance-based percentage. The right to receive any payments with respect to vested Bonus Pool Units depends on a specified Morgan Hotel Group Co.’s (the “Company’s”) per-share total return to shareholders of Morgans Hotel Group Co. for the period from [                    ], 2011, to the proposed payment date.

Exhibit D

RSU Agreement

MORGANS HOTEL GROUP CO.
RESTRICTED STOCK UNIT AGREEMENT

Morgans Hotel Group Co. (the “Company”), hereby grants restricted stock units relating to shares of its common stock (the “Stock”), to the individual named below as the Grantee, subject to the vesting conditions set forth in the attachment.

Grant Date: April 4, 2011

Name of Grantee: Daniel Flannery            State of Residence:  _____ 

Grantee’s Social Security Number: ______-______-________

Number of Restricted Stock Units (RSUs) Covered by Grant: 43,000

Vesting Start Date: April 4, 2011

Vesting Schedule:

	Number of RSUs that vest, as
	a percentage of the number of
Vesting Date	RSUs granted
The 1 year anniversary of the Vesting Start Date		33	1/3
The 2 year anniversary of the Vesting Start Date		33	1/3
The 3 year anniversary of the Vesting Start Date		33	1/3

By signing this cover sheet, you agree to all of the terms and conditions described in this Agreement.

Grantee:	/s/ Daniel Flannery
	(Signature)
Company:	/s/ Richard Szymanski
	(Signature)
	Title: CFO

This is not a stock certificate or a negotiable instrument.

MORGANS HOTEL GROUP CO.
RESTRICTED STOCK UNIT AGREEMENT

Restricted Stock Unit Transferability	This grant is an award of stock units in the number of units set forth on the cover sheet, subject to the vesting conditions described below (“Restricted Stock Units”). Your Restricted Stock Units may not be transferred in any manner other than by will or by laws of descent and distribution. These terms shall be binding upon your executors, administrators, successors and assigns.
Vesting	Your Restricted Stock Unit grant vests as to the number of Stock Units indicated in the vesting schedule on the cover sheet, on the Vesting Dates shown on the cover sheet, provided you are in Service on the Vesting Date and meet the applicable vesting requirements set forth on the cover sheet. Except as otherwise provided in the employment agreement between you and the Company, no additional Stock Units will vest after your Service has terminated for any reason.
	“Stock Units” means a bookkeeping entry representing the equivalent of one share of Stock awarded to you pursuant to this Agreement.
	“Service” means service as a Service Provider to the Company or an Affiliate. Your change in position or duties shall not result in interrupted or terminated Service, so long as you continue to be a Service Provider to the Company or an Affiliate. Subject to the preceding sentence, whether a termination of Service shall have occurred shall be determined by the Compensation Committee of the Board of Directors (the “Board”), which determination shall be final, binding and conclusive.
	“Service Provider” means an employee, officer or director of the Company or an Affiliate, or a consultant or adviser currently providing services to the Company or an Affiliate

	“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act of 1933, as now in effect or hereafter amended, including, without limitation, any Subsidiary. For purposes of granting stock options or stock appreciation rights, an entity may not be considered an Affiliate unless the Company holds a “controlling interest” in such entity, where the term “controlling interest” has the same meaning as provided in Treasury Regulation 1.414(c)-2(b)(2)(i), provided that the language “at least 50 percent” is used instead of “at least 80 percent” and, provided further, that where granting of stock options or stock appreciation rights is based upon a legitimate business criteria, the language “at least 20 percent” is used instead of “at least 80 percent” each place it appears in Treasury Regulation 1.414(c)-2(b)(2)(i)
	“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of Internal Revenue Code of 1986, as amended (the “Code”).
Book Entry of Stock Pursuant to Vested Units	A book entry for the vested shares of Stock represented by the Restricted Stock Units will be made for you and the shares will be credited to your account by the Company within three (3) days of the applicable anniversary of the Vesting Date; provided, that, if such Vesting Date occurs during a period in which you are (i) subject to a lock-up agreement restricting your ability to sell Stock in the open market or (ii) are restricted from selling Stock in the open market because a trading window is not available, transfer of such vested shares will be delayed until the date immediately following the expiration of the lock-up agreement or the opening of a trading window but in no event beyond 21/2 months after the end of the calendar year in which the shares would have been otherwise transferred.
Forfeiture of Unvested Units	Except as otherwise provided in the employment agreement between you and the Company, in the event that your Service terminates for any reason, you will forfeit to the Company all of the Restricted Stock Units that have not yet vested or with respect to which all applicable restrictions and conditions have not lapsed.
Withholding Taxes	You agree, as a condition of this grant, that you will make acceptable arrangements, which must be consistent with and permitted by the rules and regulations established by the Company, to pay any withholding or other taxes that may be due as a result of vesting in Restricted Stock Units or your acquisition of Stock under this grant. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to this grant, the Company will have the right to: (i) require that you

	arrange such payments to the Company, or (ii) cause an immediate forfeiture of shares of Stock subject to the Restricted Stock Units granted pursuant to this Agreement in an amount equal to the withholding or other taxes due. In addition, in the Company’s sole discretion and consistent with the Company’s rules and regulations, the Company may permit you to pay the withholding or other taxes due as a result of the vesting of your Restricted Stock Units by delivery (on a form acceptable to the Board) of an irrevocable direction to a licensed securities broker selected by the Company to sell shares of Stock and to deliver all or part of the sales proceeds to the Company in payment of the withholding taxes.
Corporate Transaction	Notwithstanding the vesting schedule set forth above, upon the consummation of a Corporate Transaction, this award will become 100% vested if it is not assumed, or equivalent awards are not substituted for the award, by the Company or its successor.
	“Corporate Transaction” shall be deemed to have occurred if (i) any person or group of persons (as defined in Section 13(d) and 14(d) of the Exchange Act of 1934, as now in effect or hereafter amended (the “Exchange Act”)) together with its affiliates, excluding employee benefit plans of the Company, is or becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act) of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities; or (ii) individuals who at the beginning of any two-year period constitute the Board, plus new directors of the Company whose election or nomination for election by the Company’s shareholders is approved by a vote of at least two-thirds of the directors of the Company still in office who were directors of the Company at the beginning of such two-year period, cease for any reason during such two-year period to constitute at least two-thirds of the members of the Board; or (iii) a merger or consolidation of the Company with any other corporation or entity is consummated regardless of which entity is the survivor, other than a merger of consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the Company is completely liquidated or all or substantially all of the Company’s assets are sold.

Retention Rights	This Agreement does not give you the right to be retained or employed by the Company (or any Affiliates) in any capacity. The Company (and any Affiliate) reserve the right to terminate your Service at any time and for any reason, subject to the employment agreement between you and the Company.
Shareholder Rights	You do not have any of the rights of a shareholder with respect to the Restricted Stock Units unless and until the Stock relating to the Restricted Stock Units has been transferred to you. In the event of a cash dividend on outstanding Stock, you will be entitled to receive a cash payment for each Restricted Stock Unit. The Company may in its sole discretion require that dividends will be reinvested in additional stock units at Fair Market Value on the dividend payment date, subject to vesting and delivered at the same time as the Restricted Stock Unit.
	“Fair Market Value” with respect to a share of Stock means the value of a share of such Stock determined as follows: if on the determination date the Stock is listed on an established national or regional stock exchange, is admitted to quotation on The NASDAQ Stock Market, Inc. or is publicly traded on an established securities market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or in such market (if there is more than one such exchange or market the Compensation Committee of the Board shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the highest bid and lowest asked prices or between the high and low sale prices on such trading day) or, if no sale of Stock is reported for such trading day, on the next preceding day on which any sale shall have been reported. If the Stock is not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the share of Stock shall be the value of the Stock as determined by the Compensation Committee of the Board by the reasonable valuation method, in a manner consistent with Section 409A of the Code. “Fair Market Value” with respect to an award means the value of the award as determined by the Compensation Committee in good faith, taking into consideration applicable tax and accounting rules and regulations.

Adjustments	In the event of a stock split, a stock dividend or a similar change in the Company stock, the number of Restricted Stock Units covered by this grant will be adjusted (and rounded down to the nearest whole number).
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of New York, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
Data Privacy	The Company may process personal data about you. Such data includes, but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of this Agreement.
	By accepting these Restricted Stock Units, you give explicit consent to the Company to process any such personal data. You also give explicit consent to the Company to transfer any such personal data outside the country in which you are employed, including, with respect to non-U.S. resident grantees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to administer this Agreement.
Consent to Electronic Delivery	The Company may choose to deliver certain statutory materials relating to this Agreement in electronic form. If at any time you would prefer to receive paper copies of any documents, as you are entitled to receive, the Company would be pleased to provide copies.
Electronic Signature	All references to signatures and delivery of documents in this Agreement can be satisfied by procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents, including this Agreement. Your electronic signature is the same as, and shall have the same force and effect as, your manual signature. Any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to this Agreement.
Scope of Agreement	This Agreement constitutes the entire understanding between you and the Company regarding this grant of Restricted Stock Units. Any prior agreements, commitments or negotiations concerning this grant are superseded.

Exhibit E

Release Agreement

RELEASE AGREEMENT

THIS RELEASE AGREEMENT (this “Release”) is entered into as of [                    ] (the “Effective Date”), by                                          (“Executive”) in consideration of severance pay and other benefits (the “Severance Payment”) provided to Executive by Morgans Hotel Group Co., a Delaware corporation (the “Company”), pursuant to Section 4 of the Employment Agreement by and between the Company and Executive (the “Employment Agreement”).

1. Release. Subject to the last sentence of the first paragraph of this Section 1, Executive, on his own behalf and on behalf of his heirs, executors, administrators, attorneys and assigns, hereby unconditionally and irrevocably releases, waives and forever discharges the Company and each of its affiliates, parents, successors, predecessors, and the subsidiaries, directors, owners, members, shareholders, officers, agents, and employees of the Company and its affiliates, parents, successors, predecessors, and subsidiaries (collectively, all of the foregoing are referred to as the “Employer”), from any and all causes of action, claims and damages, including attorneys’ fees, whether known or unknown, foreseen or unforeseen, presently asserted or otherwise arising through the date of his signing of this Release, concerning his employment or separation from employment. Subject to the last sentence of the first paragraph of this Section 1, this Release includes, but is not limited to, any payments, benefits or damages arising under any federal law (including, but not limited to, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act of 1974, the Americans with Disabilities Act, Executive Order 11246, the Family and Medical Leave Act, and the Worker Adjustment and Retraining Notification Act, each as amended); any claim arising under any state or local laws, ordinances or regulations (including, but not limited to, any state or local laws, ordinances or regulations requiring that advance notice be given of certain workforce reductions); and any claim arising under any common law principle or public policy, including, but not limited to, all suits in tort or contract, such as wrongful termination, defamation, emotional distress, invasion of privacy or loss of consortium. Notwithstanding any other provision of this Release to the contrary, this Release does not encompass, and Executive does not release, waive or discharge, the obligations of the Company (a) to make the payments and provide the other benefits contemplated by the Employment Agreement or any other Agreement with Executive, or (b) under any restricted stock unit agreement, option agreement or other agreement pertaining to Executive’s equity ownership or other awards, or (c) under any indemnification or similar agreement with Executive, or (d) under this Release.

Executive understands that by signing this Release, he is not waiving any claims or administrative charges which cannot be waived by law. He is waiving, however, any right to monetary recovery or individual relief should any federal, state or local agency (including the Equal Employment Opportunity Commission) pursue any claim on his behalf arising out of or related to his employment with and/or separation from employment with the Company (other than with respect to those matters described in clauses (a), (b), (c) and (d) above.

Executive further agrees without any reservation whatsoever, never to sue the Employer or become a party to a lawsuit on the basis of any and all claims of any type lawfully and validly released in this Release.

2. Acknowledgments. Executive is signing this Release knowingly and voluntarily. He acknowledges that:

(a) He is hereby advised in writing to consult an attorney before signing this Release;

(b) He has relied solely on his own judgment and/or that of his attorney regarding the consideration for and the terms of this Release and is signing this Release knowingly and voluntarily of his own free will;

(c) He is not entitled to the Severance Payment unless he agrees to and honors the terms of this Release;

(d) He has been given at least twenty-one (21) calendar days to consider this Release, or he expressly waives his right to have at least twenty-one (21) days to consider this Release;

(e) He may revoke this Release within seven (7) calendar days after signing it by submitting a written notice of revocation to the Employer. He further understands that this Release is not effective or enforceable until after the seven (7) day period of revocation has expired without revocation, and that if he revokes this Release within the seven (7) day revocation period, he will not receive the Severance Payment;

(f) He has read and understands the Release and further understands that, subject to the limitations contained herein, it includes a general release of any and all known and unknown, foreseen or unforeseen claims presently asserted or otherwise arising through the date of his signing of this Release that he may have against the Employer; and

(g) No statements made or conduct by the Employer has in any way coerced or unduly influenced him or her to execute this Release.

3. No Admission of Liability. This Release does not constitute an admission of liability or wrongdoing on the part of the Employer, the Employer does not admit there has been any wrongdoing whatsoever against the Executive, and the Employer expressly denies that any wrongdoing has occurred.

4. Entire Agreement. There are no other agreements of any nature between the Employer and Executive with respect to the matters discussed in this Release, except as expressly stated herein, and in signing this Release, Executive is not relying on any agreements or representations, except those expressly contained in this Release.

5. Execution. It is not necessary that the Employer sign this Release following Executive’s full and complete execution of it for it to become fully effective and enforceable.

6. Severability. If any provision of this Release is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or controlling law, the remainder of this Release shall continue in full force and effect.

7. Governing Law. This Release shall be governed by the laws of the State of New York, excluding the choice of law rules thereof.

8. Headings. Section and subsection headings contained in this Release are inserted for the convenience of reference only. Section and subsection headings shall not be deemed to be a part of this Release for any purpose, and they shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof.

IN WITNESS WHEREOF, the undersigned has duly executed this Release as of the day and year first herein above written.

EXECUTIVE:

EX-10.6

Exhibit 10.6

MORGANS HOTEL GROUP CO.

2011 OUTPERFORMANCE PLAN AWARD AGREEMENT

2011 OUTPERFORMANCE PLAN AWARD AGREEMENT made as of the date set forth on Schedule A hereto by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “Company”), MORGANS GROUP LLC, a Delaware limited liability company (the “Operating Company”), and the party listed on Schedule A (the “Grantee”).

RECITALS

A. The Grantee is a senior management employee of the Company and provides services to the Operating Company.

B. The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) approved this and other 2011 outperformance plan (“2011 OPP”) awards pursuant to the Company’s Amended and Restated 2007 Omnibus Incentive Plan (the “Incentive Plan”) to provide certain senior management employees of the Company, including the Grantee, in connection with their employment with the incentive compensation described in this Award Agreement (this “Agreement”) and thereby provide additional incentive for them to promote the progress and success of the business of the Company and its Affiliates. 2011 OPP awards were approved by the Committee pursuant to authority delegated to it by the Board, including authority to make grants of stock-based performance incentive awards. This Agreement evidences one award (this “Award”) in a series of 2011 OPP awards and is subject to the terms and conditions set forth herein.

C. The Committee, effective as of the grant date specified in Schedule A hereto, awarded to the Grantee the 2011 OPP participation percentage in the Total Outperformance Pool (as defined herein), as set forth in Schedule A.

NOW, THEREFORE, the Company, the Operating Company, and the Grantee agree as follows:

1. Administration.

This Award and all other 2011 OPP awards shall be administered by the Committee, which in the administration of the 2011 OPP awards and this Award shall have all the powers and authority it has in the administration of the Incentive Plan as set forth in the Incentive Plan, but subject to this Agreement ; provided that all powers of the Committee hereunder can be exercised by the full Board if the Board so elects. The Committee, in its sole and absolute discretion, may provide for lapse of forfeiture restrictions and/or accelerated vesting under this Agreement of some or all of the Grantee’s unvested Award Participation that has not previously been forfeited.

2. Definitions.

Capitalized terms used herein shall have the meanings set forth below:

“Accelerated Payment Change of Control” means a Transactional Change of Control or a Change of Control within the meaning of subparagraph (iv) or (v) thereof.

“Additional Share Baseline Value” means, with respect to each Additional Share, the gross proceeds received by the Company or the Operating Company upon the issuance of such Additional Share, which amount shall be deemed to equal, as applicable:

(A) if such Additional Share is issued for cash in a public offering or private placement, the gross price to the public or to the purchaser(s);

(B) if such Additional Share is issued in exchange for assets or securities of another Person or upon the acquisition of another Person, the cash value imputed to such Additional Share for purposes of such transaction by the parties thereto, as determined in good faith by the Committee, or, if no such value was imputed, the mean between the high and low sale prices of a Common Share on the national securities exchange or established securities market on which the Common Shares are listed on the date of issuance of such Additional Share, or, if no sale of Common Shares is reported on such date, on the next preceding day on which any sale shall have been reported; and

(C) if such Additional Share is issued upon conversion or exchange of equity or debt securities of the Company, the Operating Company or any other Subsidiary of the Company, which securities were not previously counted as either Initial Shares or Additional Shares, the conversion or exchange price in effect as of the date of conversion or exchange pursuant to the terms of the security being exchanged or converted.

“Additional Shares” means, as of a particular date of determination, the number of Common Shares, other than those held by the Company, to the extent such Common Shares are issued after the Effective Date and on or before such date of determination in a capital raising transaction, in exchange for assets or securities or upon the acquisition of another Person, upon conversion or exchange of equity or debt securities of the Company or any Subsidiary of the Company, which securities were not previously counted as either Initial Shares or Additional Shares, or through the reinvestment of dividends or other distributions.

For the avoidance of doubt, “Additional Shares” shall exclude, without limitation:

(i) Common Shares issued after the Effective Date upon exercise of stock options or upon the exchange (directly or indirectly) of LTIP Units or other Units issued to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation,

(ii) Common Shares awarded after the Effective Date to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation for services provided or to be provided to the Company or any of its Affiliates,

(iii) LTIP Units or other Units awarded after the Effective Date to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation, and

(iv) any securities included in “Initial Shares.”

“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

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“Award Common Units” means the units of membership interests in the Operating Company referred to as “Membership Units” in the LLC Agreement into which the Award LTIP Units may be converted in accordance with the terms of the LLC Agreement.

“Award LTIP Units” means a series of LTIP Units established by the Operating Company, with the rights, privileges, and preferences set forth in the designations thereof included in an amendment to the LLC Agreement that may be adopted hereafter by the Managing Member of the Operating Company in accordance with Section 8(a), which designations shall be in the form set forth on Exhibit A attached hereto.

“Award Participation” has the meaning set forth in Section 3.

“Baseline Value” means $8.87.

“Buyback Shares” means (without double-counting), as of a particular date of determination, (A) Common Shares or (B) the Shares Amount for Units (assuming that such Units were converted, exercised, exchanged or redeemed for Membership Units as of such date at the applicable conversion, exercise, exchange or redemption rate (or rate deemed applicable by the Committee if there is no such stated rate) and such Common Units were then tendered to the Operating Company for redemption pursuant to Section 4.2(e)(1) of the LLC Agreement as of such date), other than Units held by the Company, in the case of each (A) and (B), to the extent repurchased by the Company after the Effective Date and on or before such date of determination in a stock buyback transaction or in a redemption of Units for cash pursuant to Section 4.2(e)(1) of the LLC Agreement.

“Cause” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination and “Cause” is defined therein, then “Cause” shall have the meaning set forth in such definition, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Cause” or a substantially equivalent term, then “Cause” shall mean:

(i) the Grantee’s willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Grantee’s incapacity due to physical or mental illness or any such failure after his issuance of a notice of termination for Good Reason), after a written demand for substantial performance is delivered to the Grantee by the Board, which demand specifically identifies the manner in which the Board believes that the Grantee has not substantially performed his duties;

(ii) a material breach by Grantee of his Service Agreement;

(iii) the Grantee’s willful commission of an act of fraud, theft or dishonesty resulting in economic, financial or material reputational injury to the Company;

(iv) the Grantee’s conviction of, or entry by the Grantee of a guilty or no contest plea to, the commission of a felony; or

(v) the Grantee willfully engages in other misconduct materially injurious to the Company.

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For purposes of this provision, no act or omission on the part of the Grantee shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission based upon a resolution duly adopted by the Board or advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Grantee shall not be deemed to be for Cause unless and until there shall have been delivered to the Grantee a copy of a resolution duly adopted by the majority of the Board (excluding the Grantee, if the Grantee is then a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Grantee and the Grantee is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Grantee is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

“Change of Control” means:

(i) individuals who, on the Effective Date, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director; or

(ii) any “person” (as such term is defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Effective Date, a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that an event described in this paragraph (ii) shall not be deemed to be a Change of Control if any of following becomes such a beneficial owner: (A) the Company or any majority-owned subsidiary of the Company (provided that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any such majority-owned subsidiary, or (C) any underwriter temporarily holding securities pursuant to an offering of such securities; or

(iii) the consummation of a merger, consolidation, share exchange or similar form of transaction involving the Company or any of its subsidiaries, or the sale of all or substantially all of the Company’s assets (a “Business Transaction”), unless immediately following such Business Transaction (A) more than 50% of the total voting power of the entity resulting from such Business Transaction or the entity acquiring the Company’s assets in such Business Transaction (the “Surviving Corporation”) is beneficially owned, directly or indirectly, by the Company’s shareholders immediately prior to any such Business Transaction, and (B) no person (other than the persons set forth in clauses (A), (B), or (C) of paragraph (ii) above or any tax-qualified, broad-based employee benefit plan of the Surviving Corporation or its affiliates) beneficially owns, directly or indirectly, 30% or more of the total voting power of the Surviving Corporation; or

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(iv) Board approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company’s shareholders in substantially the same proportions as such shareholders owned the Company’s outstanding voting common equity interests immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company to the Grantee under this Agreement; or

(v) Approval by the shareholders of the Company or the Managing Member and/or Non-Managing Members of the Operating Company of a dissolution or liquidation of the Operating Company and satisfaction or effective waiver of all material contingencies to such liquidation or dissolution.

“CoC Fraction” means, for application pursuant to the proviso clause in the definition of “Final Baseline,” the number of calendar days that have elapsed since the Effective Date to and including the date as of which a Change of Control is consummated (or, with respect to a Transactional Change of Control, the date of the Public Announcement of such Transactional Change of Control), divided by 1,096.

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

“Common Shares” means shares of the Company’s common stock, par value $0.01 per share.

“Common Share Price” means, as of a particular date, the average of the Fair Market Value of one Common Share over the thirty (30) consecutive trading days ending on, and including, such date (or, if such date is not a trading day, the most recent trading day immediately preceding such date); provided, however, that if such date is the date of the Public Announcement of a Transactional Change of Control, the Common Share Price as of such date shall be equal to the fair market value, as determined by the Committee, of the total consideration payable in the transaction that ultimately results in the Transactional Change of Control for one Common Share.

“Continuous Service” means the continuous service, without interruption or termination, as a an employee or director of Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of (among other things) —

(A) any approved leave of absence,

(B) transfers among the Company and any Affiliate, or any successor, in any capacity of director or employee, or

(C) any change in status as long as the individual remains in the service of the Company or any Affiliate of the Company in the capacity of employee or director.

An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

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“Disability” means:

(A) if the Grantee is or was a party to a Service Agreement prior to the applicable event, and “Disability” is defined therein, then “Disability” shall have the meaning set forth in such definition, or

(B) if the Grantee is not and was not a party to a Service Agreement prior to such event or the Grantee’s Service Agreement does not define “Disability” or a substantially equivalent term, then “Disability” shall mean a disability which renders the Grantee incapable of performing all of his or her material duties for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Grantee or the Grantee’s legal representative or by the insurance company which insures the Company’s long-term disability plan in which the Grantee is eligible to participate.

“Effective Date” means March 20, 2011.

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

“Fair Market Value” means, as of any given date, the fair market value of a security determined by the Committee using any reasonable method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1) of the Code); provided that, with respect to a Common Share, “Fair Market Value” means the value of such Common Share determined as follows: (A) if on the determination date the Common Shares are listed on the New York Stock Exchange, The NASDAQ Stock Market, Inc. or another national securities exchange or is publicly traded on an established securities market, the Fair Market Value of a Common Share shall be the closing price of the Common Shares on such exchange or in such market (if there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the high and low sale prices on such trading day) or, if no sale of Common Shares is reported for such trading day, on the next preceding day on which any sale shall have been reported; or (B) if the Common Shares are not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the Common Share shall be the value of the Common Shares as determined by the Committee in good faith in a manner consistent with Section 409A of the Code.

“Family Member” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Grantee, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than fifty percent of the beneficial interest, a foundation in which any one or more of these persons (or the Grantee) control the management of assets, and any other entity in which one or more of these persons (or the Grantee) own more than fifty percent of the voting interests.

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“Final Baseline” means, as of the Final Valuation Date, an amount representing (without double-counting) the sum of:

(A) the Baseline Value multiplied by:

(i) the difference between (x) the Initial Shares and (y) all Buyback Shares repurchased or redeemed between the Effective Date and the Final Valuation Date, and then multiplied by

(ii) the sum of one hundred percent (100%) plus the Target Return Percentage; plus

(B) with respect to each Additional Share issued after the Effective Date, the Additional Share Baseline Value of such Additional Share, multiplied by the sum of (i) one hundred percent (100%) plus (ii) the product of the Target Return Percentage multiplied by a fraction (x) the numerator of which is the number of days from the issuance of such Additional Share to and including the Final Valuation Date and (y) the denominator of which is the number of days from and including the Effective Date to and including the Final Valuation Date; plus

(C) with respect to each Buyback Share repurchased or redeemed after the Effective Date, the Baseline Value, multiplied by the sum of (i) one hundred percent (100%) plus (ii) the product of the Target Return Percentage multiplied by a fraction (x) the numerator of which is the number of days from the Effective Date to and including the date such Buyback Share was repurchased or redeemed and (y) the denominator of which is the number of days from and including the Effective Date to and including the Final Valuation Date;

provided that if the Final Valuation Date occurs prior to the third anniversary of the Effective Date as a result of an Accelerated Payment Change of Control, then for purposes of this definition in connection with the calculation of the Total Outperformance Pool as of the Final Valuation Date, then the Target Return Percentage to be used in such calculation shall be reduced to a percentage equal to thirty percent (30%) multiplied by the CoC Fraction. If the Company consummates multiple issuances of Additional Shares and/or repurchases of Buyback Shares during any one monthly or quarterly period, such that it would be impractical to track the precise issuance date and issuance price of each individual Additional Share and/or repurchase or redemption date of each individual Buyback Share, the Committee may in its good faith discretion approve timing and calculation conventions (such as net-at-end-of-period or average-during-the-period) reasonably designed to simplify the administration of this Award.

“Final Valuation Date” means the earliest of: (A) the third anniversary of the Effective Date; or (B) in the event of an Accelerated Payment Change of Control that is not a Transactional Change of Control, the date on which such Change of Control shall occur; or (C) in the event of a Transactional Change of Control and subject to the consummation of such Transactional Change of Control, the date of the Public Announcement of such Transactional Change of Control; provided that if the Public Announcement occurs after 4pm New York City time or otherwise so late in the trading day that the market cannot meaningfully react on such day, then the Final Valuation Date shall mean the following trading day.

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“Good Reason” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Good Reason” is defined therein, then “Good Reason” shall have the meaning set forth in such Service Agreement, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Good Reason” or a substantially equivalent term, so long as the Grantee terminates his or her employment within thirty (30) days after the Grantee has actual knowledge of the occurrence, without the written consent of the Grantee, of one of the following events that has not been cured within thirty (30) days after written notice thereof has been given by Grantee to the Company, then “Good Reason” shall mean:

(i) the assignment to the Grantee of duties materially inconsistent with the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated in his Service Agreement, or any other action by the Company which results in a material diminution in the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Grantee;

(ii) any material failure by the Company to comply with any of the provisions of the Service Agreement, other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Grantee;

(iii) any failure by the Company to obtain the assumption of his Service Agreement by a successor to all or substantially all of the business or assets of the Company; or

(iv) if his Service Agreement provides that the Executive will be nominated for election as a director of the Company, any failure by the Board to nominate the Executive for election as a director of the Company in accordance with the Service Agreement, or any failure of the Executive to be elected to be a member of the Board; or

(v) any requirement that the Grantee’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Grantee’s residence to his new place of employment;

“Initial Shares” means 32,642,795 Common Shares, which includes: (A) 30,311,503 Common Shares outstanding as of the Effective Date (other than currently unvested restricted Common Shares previously granted to employees or other persons or entities in exchange for services provided to the Company); plus (B) 954,065 Common Shares representing the Shares Amount for all of the Membership Units (other than LTIP Units and excluding Membership Units held by the Company) outstanding as of the Effective Date assuming that all of such Membership Units were tendered to the Operating Company for redemption pursuant to Section4.2(e) of the LLC Agreement as of such date; plus (C) 1,377,227 Common Shares representing the Shares Amount for all of the Membership Units into which all LTIP Units outstanding as of the Effective Date could be converted without regard to the book capital account associated with them (but only to the extent such LTIP Units are currently vested), assuming that all of such Membership Units were tendered to the Operating Company for redemption pursuant to Section 4.2(e) of the LLC Agreement as of such date..

For the avoidance of doubt, Initial Shares (i) includes (x) currently vested Common Shares and (y) currently vested LTIP Units previously granted to employees or other persons or entities in exchange for services provided to the Company, and (ii) excludes (x) all Common Shares issuable upon exercise of stock options or upon the exchange (directly or indirectly) of unvested LTIP Units or other unvested Units issued to employees, non-employee directors, consultants, advisors or other persons or entities as incentive compensation, and (y) currently unvested restricted Common Shares previously granted to employees, non-employee directors, consultants, advisors or other persons or entities in exchange for services provided to the Company.

“LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of the Operating Company, dated as of February 17, 2006, among the Company, as managing member, and the non-managing members who are parties thereto, as amended from time to time.

“LTIP Units” means LTIP Units, as such term is defined in the LLC Agreement.

“Membership Units” has the meaning set forth in the LLC Agreement.

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“Partial Service Factor” means a factor carried out to the sixth decimal to be used in calculating the Grantee’s adjusted Participation Amount pursuant to Section 4(b)(ii) hereof in the event of a Qualified Termination of the Grantee’s Continuous Service prior to the Final Valuation Date or pursuant to Section 4(e) in the event of a termination of the Grantee’s Continuous Service by reason of death or Disability prior to the Final Valuation Date, determined as follows:

the number of calendar days that have elapsed since the Effective Date to and including the effective date of such Qualified Termination or the date of death or Disability, divided by 1,096; provided, however, that if, after the effective date of such Qualified Termination or the date of death or Disability and before the third anniversary of the Effective Date, an Accelerated Payment Change of Control occurs, then there shall be subtracted from the foregoing denominator (1,096) a number of days equal to the days that would elapse between the date as of which the Accelerated Payment Change of Control is consummated (or, with respect to a Transactional Change of Control, the date of the Public Announcement of the Transactional Change of Control) and the third anniversary of the Effective Date.

“Participation Amount” has the meaning set forth in Section 3.

“Participation Percentage” means the percentage (of the Total Outperformance Pool) set forth opposite such term on Schedule A hereto

“Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, other entity or “group” (as defined in the Exchange Act).

“Public Announcement” means, with respect to a Transactional Change of Control, the earliest press release, filing with the SEC or other publicly available or widely disseminated communication issued by the Company or another Person who is a party to such transaction which discloses the consideration payable in and other material terms of the transaction that ultimately results in the Transactional Change of Control; provided, however, that if such consideration is subsequently increased or decreased, then the term “Public Announcement” shall be deemed to refer to the most recent such press release, filing or communication disclosing a change in consideration whereby the final consideration and material terms of the transaction that ultimately results in the Transactional Change of Control are announced. For the avoidance of doubt, the foregoing definition is intended to provide the Committee in the application of the proviso clause in the definition of “Common Share Price” with the information required to determine the fair market value of the consideration payable in the transaction that ultimately results in the Transactional Change of Control as of the earliest time when such information is publicly disseminated, particularly if the transaction consists of an unsolicited tender offer or a contested business combination where the terms of the transaction change over time.

“Qualified Termination” has the meaning set forth in Section 4.

“SEC” means the U.S. Securities and Exchange Commission.

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

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“Service Agreement” means, as of a particular date, any employment, consulting or similar service agreement then in effect between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand, as amended or supplemented through such date, provided that, if no such agreement is then in effect, “Service Agreement” shall mean any employment, consulting or similar service agreement most recently in effect (on or after the Effective Date) prior to such date, as amended or supplemented, between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand.

“Shares Amount” has the meaning set forth in the LLC Agreement.

“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

“Target Return Percentage” means thirty percent (30%), representing a compound annual growth rate of approximately nine percent (9%) per annum over a three-year period, using annual compounding, except as otherwise defined for purposes of the definition of Final Baseline in certain circumstances, as described in the proviso clause of such definition.

“Total Outperformance Pool” means, as of the Final Valuation Date, a dollar amount calculated as follows: (A) subtract the Final Baseline from the Total Return, in each case as of the Final Valuation Date and (B) multiply the resulting amount by ten percent (10%); provided that if the resulting amount is a negative number, then the Total Outperformance Pool shall be zero.

“Total Return” means (without double-counting), as of the Final Valuation Date, an amount equal to the sum of (A) the Total Shares as of such date of determination multiplied by the Common Share Price as of such date, plus (B) an amount equal to the sum of the total dividends and other distributions actually declared between the Effective Date and the Final Valuation Date (excluding dividends and distributions paid in the form of additional Common Shares) so long as the “ex-dividend” date with respect thereto falls prior to the Final Valuation Date, in respect of Common Shares (it being understood, for the avoidance of doubt, that such total dividends and distributions shall be calculated by multiplying the amount of each per share dividend or distribution declared by the actual number of securities outstanding as of each record date with respect to the applicable dividend or distribution payment date).

“Total Shares” means (without double-counting), as of the Final Valuation Date, the sum of: (A) the Initial Shares, minus (B) all Buyback Shares repurchased or redeemed between the Effective Date and the Final Valuation Date, plus (C) all Additional Shares issued between the Effective Date and the Final Valuation Date.

“Transactional Change of Control” means (A) a Change of Control described in clause (ii) of the definition thereof where the “person” or “group” makes a tender offer for Common Shares, or (B) a Change of Control described in clause (iii) of the definition thereof; provided that if the applicable definition of “Change of Control” (or similar term) in the applicable Service Agreement does not track such clauses (ii) or (iii), then the term “Transactional Change of Control” shall mean a Change of Control meeting the substantive criteria set forth in such clauses, as reasonably determined in good faith by the Committee.

“Transfer” has the meaning set forth in Section 6.

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“Units” means all Membership Units that are eligible for the Redemption Right (as defined in the LLC Agreement) and any other Membership Units, including LTIP Units, with economic attributes substantially similar to such Membership Units as determined by the Committee that are outstanding or are issuable upon the conversion, exercise, exchange or redemption of any securities of any kind convertible, exercisable, exchangeable or redeemable for Membership Units.

3. Outperformance Award; Vesting; Change of Control.

(a) The Operating Company hereby grants to the Grantee this Award consisting of the Participation Percentage set forth on Schedule A hereto (the “Award Participation”), which (A) will be subject to forfeiture to the extent provided in this Section 3 and (B) will be subject to vesting as provided below in this Section 3(a) and in Section 3(d) and Section 4. The Award will be made in the form of Award LTIP Units as provided in Section 8, subject to the Company having received confirmation that it is permitted under applicable stock exchange listing rules to issue Award LTIP Units, on the terms contemplated herein, under the Incentive Plan. The Company will use commercially reasonable efforts to obtain such confirmation within 90 days following the Effective Date. If the Company does not receive such confirmation within 90 days following the Effective Date, the Company and the Operating Company shall amend this Award Agreement to provide for an Award that is settled by a cash payment by the Operating Company to Grantee equal to his Participation Amount within 45 days following the Final Valuation Date. In the event Grantee receives Award LTIP Units pursuant hereto, references herein to Grantee’s Award Participation shall refer to Grantee’s Award LTIP Units and the provisions of Section 8 shall apply in lieu of specified provisions of this Award Agreement. At any time prior to the Final Valuation Date, the Committee may grant additional 2011 OPP awards with such Participation Percentages (up to a total of 100% for all 2011 Participation Percentages granted or reserved) set forth therein as the Committee may determine, in its sole discretion, The Award Participation shall vest (i) on the Final Valuation Date if the Continuous Service of the Grantee continues to that date or (ii) in accordance with Section 3(d), 4(b) and 4(d) hereof.

(b) As soon as practicable following the Final Valuation Date, but as of the Final Valuation Date, the Committee will:

(i) determine the Total Outperformance Pool (if any);

(ii) multiply (x) the Total Outperformance Pool calculated as of the Final Valuation Date by (y) the Grantee’s Participation Percentage as of the Final Valuation Date; and

(iii) if applicable (without double-counting), multiply the amount determined in clause (ii) by the Partial Service Factor or the CoC Fraction.

The resulting amount is hereafter referred to as the “Participation Amount.” The Committee will notify Grantee of his Participation Amount (if any) promptly following the determination thereof. If Grantee has received his Award in the form of Award LTIP Units, Section 8(b) will apply in lieu of the remainder of this Section 3(b). If this Award Agreement has been amended, as provided in Section 3(a), to provide for a payment in cash such notice will state whether the Committee has elected to cause the Company to pay the Participation Amount in cash or through the issuance of fully vested shares under one of the Company’s equity incentive compensation plans, subject to compliance with applicable laws and stock exchange listing requirements, or through a combination of cash and shares. If the Participation Amount is to be paid using shares, the shares will be valued at the Common Share Price as of the Final Valuation Date and will be issued under the Incentive Plan and be registered on a Form S-8. The Company shall pay Grantee’s Participation Amount within 45 days following the Final Valuation Date.

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(c) Any Award Participation that does not become vested pursuant to Section 3(a), Section 3(d), or Section 4 hereof shall, without payment of any consideration by the Company, automatically and without notice be forfeited and be and become null and void upon the termination of the Continuous Service of Grantee prior to the Final Valuation Date (other than by reason of a Qualified Termination, death or Disability), and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Award Participation.

(d) If there is a Change of Control, Grantee’s Award Participation shall vest immediately and automatically upon the occurrence of such Change of Control.

(e) In the event of a Change of Control, the Committee will make any determinations and certifications required by this Agreement and any provisions necessary with respect to the lapse of forfeiture restrictions and/or acceleration of vesting of this Award within a period of time that enables the Company to take any action or make any deliveries or payments it is obligated to make hereunder not later than the date of consummation of the Change of Control. For avoidance of doubt, in the event of a Change of Control, the performance of all calculations and actions pursuant to Section 3(b) hereof shall be conditioned upon the final consummation of such Change of Control.

4. Termination of Grantee’s Continuous Service; Death and Disability.

(a) If the Grantee is or was a party to a Service Agreement and his or her Continuous Service terminates, the provisions of Sections 4(b), 4(c), 4(d), and 4(e), hereof shall govern the treatment of the Grantee’s Award Participation exclusively, unless the Service Agreement contains provisions that expressly refer to this Section 4(a) and provides that those provisions of the Service Agreement shall instead govern the treatment of the Grantee’s Award Participation upon such termination. The foregoing sentence will be deemed an amendment to any applicable Service Agreement to the extent required to apply its terms consistently with this Section 4, such that, by way of illustration, any provisions of the Service Agreement with respect to accelerated vesting or payout or the lapse of forfeiture restrictions relating to the Grantee’s incentive or other compensation awards in the event of certain types of termination of the Grantee’s Continuous Service with the Company (such as, for example, termination at the end of the term, termination without Cause by the employer or termination for Good Reason by the employee) shall not be interpreted as requiring that any calculations set forth in Section 3 hereof be performed, or vesting occur with respect to this Award other than as specifically provided in this Section 4.

(b) In the event of termination of the Grantee’s Continuous Service by (A) the Company without Cause or (B) the Grantee for Good Reason (each a “Qualified Termination”) prior to the Final Valuation Date, then the Grantee will not forfeit the Award Participation upon such termination, but the following provisions of this Section 4(b) shall modify the calculations required to determine the Participation Amount and/or the vesting of the Award Participation, as applicable, with respect to the Grantee only:

(i) the calculations provided in Section 3(b) hereof shall be performed as of the Final Valuation Date, as if the Qualified Termination had not occurred;

(ii) the Participation Amount calculated pursuant to Section 3(b) shall be multiplied by the applicable Partial Service Factor; and

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(iii) the Grantee’s Participation Amount as adjusted pursuant to Section 4(b)(ii) above shall no longer be subject to forfeiture pursuant to Section 3(c) hereof; provided that, notwithstanding that no Continuous Service requirement pursuant to Section 3(c) hereof will apply to the Grantee after the effective date of a Qualified Termination, the Grantee will not have the right to Transfer (as defined in Section 6 hereof) his or her Award Participation or request the redemption of any Award Common Units until such dates as of which his or her Participation Amount, as adjusted pursuant to Section 4(b)(ii) above, would have become vested pursuant to Section 3(a) hereof absent a Qualified Termination. For the avoidance of doubt, the purpose of this Section 4 (b)(iii) is to prevent a situation where grantees of 2011 OPP awards who have had a Qualified Termination would be able to realize the value of their Award Participation or any Award Common Units (through Transfer) before other grantees of 2011 OPP awards whose Continuous Service continues through the Final Valuation Date and the date for payment of the Participation Amount.

(c) Notwithstanding the foregoing, in the event any payment to be made hereunder after giving effect to this Section 4 is determined to constitute “nonqualified deferred compensation” subject to Section 409A of the Code, then, to the extent the Grantee is a “specified employee” under Section 409A of the Code subject to the six-month delay thereunder, any such payments to be made during the six-month period commencing on the Grantee’s “separation from service” (as defined in Section 409A of the Code) shall be delayed until the expiration of such six-month period.

(d) In the event of a termination of the Grantee’s Continuous Service as a result of his or her death or Disability prior to the Final Valuation Date, the Grantee will not forfeit the Award Participation, but the following provisions of this Section 4(d) shall apply:

(i) the calculations provided in Section 3(b) hereof shall be performed as of the Final Valuation Date, as if the Grantee’s death or Disability had not occurred; and

(ii) the Participation Amount calculated pursuant to Section 3(b) shall be multiplied by the applicable Partial Service Factor, and such adjusted amount shall be deemed the Grantee’s Participation Amount for all purposes under this Agreement; and

(iii) 100% of the Grantee’s Participation Amount as adjusted pursuant to Section 4(d)(ii) above shall no longer be subject to forfeiture pursuant to Section 3(c) hereof and shall automatically and immediately vest as of the Final Valuation Date.

(e) In the event of a termination of the Grantee’s Continuous Service prior to the Final Valuation Date (other than (1) a Qualified Termination or (2) by reason of death or Disability or (3) following a Change of Control), the Award Participation, unless it shall, as of the date of such termination, both (i) have ceased to be subject to forfeiture pursuant to Section 3(c) hereof, and (ii) have vested pursuant to Section 3(a) hereof, shall, without payment of any consideration by the Company, automatically and without notice terminate, be forfeited and be and become null and void, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such Award Participation.

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5. No Payments by Award Recipients.

No amount shall be payable to the Company by the Grantee at any time in respect of this Agreement. The Grantee shall have no rights with respect to this Agreement (and the Award evidenced hereby) unless he or she shall have accepted this Agreement by signing and delivering to the Company a copy of this Agreement. Upon acceptance of this Agreement by the Grantee, the Grantee’s Award Participation shall constitute and shall be treated for all purposes as the property of the Grantee, subject to the terms of this Agreement.

6. Restrictions on Transfer.

Except as otherwise permitted by the Committee, no portion of the Award Participation or Award LTIP Units granted hereunder shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”), provided that vested Award Participation or vested Award LTIP Units may be Transferred to (i) the Grantee’s Family Members by gift or pursuant to domestic relations order in settlement of marital property rights or (ii) to an entity in which fifty percent (50%) or more of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in such entity, provided that the transferee agrees in writing with the Company to be bound by all the terms and conditions of this Agreement and that subsequent Transfers shall be prohibited except those in accordance with this Section 6. All Transfers of the Award Participation or any interest therein or Award LTIP Units must be in compliance with all applicable securities laws (including, without limitation, the Securities Act) and, in the case of the Award LTIP Units, the LLC Agreement. Any attempted Transfer of an Award Participation or Award LTIP Unit not in accordance with the terms and conditions of this Section 6 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Award Participation or Award LTIP Units as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer and shall not in any way give effect to any such Transfer of any Award Participation or Award LTIP Units. Except as provided expressly in this Section 6, this Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Changes in Capital Structure.

If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or other transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization, significant repurchases of stock, or other similar change in the capital stock of the Company shall occur, (iii) any extraordinary dividend or other distribution to holders of Common Shares shall be declared and paid other than in the ordinary course, or (iv) any other event shall occur that in each case in the good faith judgment of the Committee necessitates action by way of appropriate equitable or proportionate adjustment in the terms of this Award or this Agreement to avoid distortion in the value of this Award, then the Committee shall take such action as it deems necessary to maintain the Grantee’s rights hereunder so that they are substantially proportionate to the rights existing under this Award prior to such event, including, without limitation: (A) interpretations of or modifications to any defined term in this Agreement; (B) adjustments in any calculations provided for in this Agreement, and (C) substitution of other awards or otherwise.

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8. Award LTIP Units

(a) Issuance of Award LTIP Units. In the event that, following the Effective Date, the Company determines, in its sole discretion, that the applicable stock exchange listing rules permit the Company to issue Award LTIP Units, the Company shall promptly notify Grantee of such determination and shall issue to Grantee the number of Award LTIP Units set forth on Schedule A hereto. The issuance of such Award LTIP Units shall be conditioned upon the Grantee, unless the Grantee is already a Non-Managing Member (as defined in the LLC Agreement), signing, as a Non-Managing Member, and delivering to the Operating Company a counterpart signature page to the LLC Agreement in the form provided by the Company. Upon execution and delivery of such counterpart signature page by the Grantee, the LLC Agreement shall be amended, at such time as set forth in the notice from the Company, to establish the designations of the Award LTIP Units and to make other necessary and appropriate amendments related to the creation of the series of Award LTIP Units, and to reflect the issuance to the Grantee of the Award LTIP Units and admission of Grantee as a Non-Managing Member of the Operating Company. Thereupon, the Grantee shall have all the rights of a Non-Managing Member of the Operating Company with respect to the number of Award LTIP Units specified on Schedule A hereto, as set forth in the LLC Agreement (as so amended), subject, however, to the restrictions, obligations and conditions specified herein. Award LTIP Units constitute and shall be treated for all purposes as the property of the Grantee, subject to the terms of this Agreement and the LLC Agreement.

(b) Post-Final Valuation Date Adjustments. If Grantee’s Award is made in the form of Award LTIP Units, then following determination of Grantee’s Participation Amount pursuant to Section 3(b), the Committee shall divide the resulting dollar amount by the Common Share Price calculated as of the Final Valuation Date (appropriately adjusted to the extent that the “Unit Adjustment Factor” (as defined in the LLC Agreement) is greater or less than 1.0). The resulting number is hereafter referred to as the “Total OPP Unit Equivalent.” If the Total OPP Unit Equivalent is smaller than the number of Award LTIP Units previously issued to the Grantee, then the Grantee, as of the Final Valuation Date, shall forfeit a number of Award LTIP Units equal to the difference without payment of any consideration by the Operating Company. Thereafter, the term Award LTIP Units will refer only to the Award LTIP Units that were not so forfeited and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in the Award LTIP Units that were so forfeited. If the Total OPP Unit Equivalent is greater than the number of Award LTIP Units previously issued to the Grantee, then, upon the performance of the calculations set forth in this Section 8(b): (A) the Company shall cause the Operating Company to issue to the Grantee, as of the Final Valuation Date, a number of additional Award LTIP Units equal to the difference; (B) such additional Award LTIP Units shall be added to the Award LTIP Units previously issued, if any, and thereby become part of this Award; (C) the Company and the Operating Company shall take such corporate and limited liability company action as is necessary to accomplish the grant of such additional Award LTIP Units; and (D) thereafter the term Award LTIP Units will refer collectively to the Award LTIP Units, if any, issued prior to such additional grant plus such additional Award LTIP Units; provided that such issuance will be subject to the Grantee executing and delivering such documents, comparable to the documents executed and delivered in connection with the original issuance of Award LTIP Units, as the Company or the Operating Company reasonably request in order to comply with all applicable legal requirements, including, without limitation, federal and state securities laws. If the Total OPP Unit Equivalent is the same as the number of Award LTIP Units previously issued to the Grantee, then there will be no change to the number of Award LTIP Units under this Award pursuant to this Section 8(b).

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(c) Vesting and Forfeiture. The Award LTIP Units shall vest and be subject to forfeiture on the same terms and conditions as the Award Participation, as set forth in Sections 3(a), 3(c), 3(d) and 4.

(d) Distributions. The holder of the Award LTIP Units shall be entitled to receive distributions with respect to such Award LTIP Units to the extent provided for in the LLC Agreement (as amended in accordance with Section 8(a)). The 2011 Award LTIP Unit Distribution Participation Date (as defined in the designation of rights and preferences of such Award LTIP Units, attached hereto as Exhibit A) with respect to Award LTIP Units in an aggregate number equal to the Total OPP Unit Equivalent will be the Valuation Date.

9. Miscellaneous.

(a) Amendments. This Agreement may be amended or modified only with the consent of the Company acting through the Committee; provided that any such amendment or modification materially or adversely affecting the rights of the Grantee hereunder must be consented to by the Grantee to be effective as against him. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company to correct any errors or ambiguities in this Agreement and/or to make such changes that do not materially or adversely affect the Grantee’s rights hereunder. This grant shall in no way affect the Grantee’s participation or benefits under any other plan or benefit program maintained or provided by the Company.

(b) Committee Determinations. The Committee will in good faith make the determinations and certifications required by this Award as promptly as reasonably practicable following the occurrence of the event or events necessitating such determinations or certifications.

(c) Status of the Award and Award LTIP Units; Incentive Plan Matters. This Award and the other 2011 OPP awards constitute other stock-based incentive compensation awards by the Company under the Incentive Plan and incentive compensation awards by the Operating Company. The Award LTIP Units are equity interests in the Operating Company. Any Award LTIP Units issued pursuant to Section 8 may, but need not, be issued as equity securities under the Incentive Plan insofar as the 2011 OPP has been established as an incentive program of the Operating Company. The Company may, under certain circumstances, have the right, as set forth in the LLC Agreement, to issue shares of Common Stock in exchange for Award Common Units into which Award LTIP Units may have been converted pursuant to the LLC Agreement, subject to certain limitations set forth in the LLC Agreement, and such shares of Common Stock may be issued under the Incentive Plan if the Committee so determines, to the extent such issuance is permitted under applicable stock exchange listing rules, as determined by the Committee in its sole and absolute discretion. The Committee may, in its sole and absolute discretion, determine whether and when Award LTIP Units issued pursuant to Section 3 become part of the Incentive Plan, and upon and to the extent of such determination this Award will be considered an award under the Incentive Plan. The Grantee acknowledges that the Grantee will have no right to approve or disapprove such determination by the Committee.

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(d) Grantee Representations; Registration.

(i) The Grantee hereby represents and warrants that (A) he or she understands that he or she is responsible for consulting his or her own tax advisor with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of this Award may become subject, to his or her particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the Operating Company or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides services to the Operating Company on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Operating Company, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award; (D) Award LTIP Units are subject to substantial risks; (E) the Grantee has been furnished with, and has reviewed and understands, information relating to this Award; (F) the Grantee has been afforded the opportunity to obtain such additional information as he or she deemed necessary before accepting this Award; and (G) the Grantee has had an opportunity to ask questions of representatives of the Operating Company and the Company, or persons acting on their behalf, concerning this Award.

(ii) The Grantee hereby acknowledges that: (A) there is no public market for Award LTIP Units or Award Common Units and neither the Operating Company nor the Company has any obligation or intention to create such a market; (B) sales of Award LTIP Units and Award Common Units are subject to restrictions under the Securities Act and applicable state securities laws; (C) because of the restrictions on transfer or assignment of Award LTIP Units and Award Common Units set forth in the LLC Agreement and in this Agreement, the Grantee may have to bear the economic risk of his or her ownership of the LTIP Units covered by this Award for an indefinite period of time; (D) shares of Common Stock issued under the Incentive Plan in exchange for Award Common Units, if any, will be covered by a Registration Statement on Form S-8 (or a successor form under applicable rules and regulations of the Securities and Exchange Commission) under the Securities Act, to the extent that the Grantee is eligible to receive such shares under the Incentive Plan at the time of such issuance and such Registration Statement is then effective under the Securities Act; (E) resales of shares of Common Stock issued under the Incentive Plan in exchange for Award Common Units, if any, shall only be made in compliance with all applicable restrictions (including in certain cases “blackout periods” forbidding sales of Company securities) set forth in the then applicable Company employee manual or insider trading policy and in compliance with the registration requirements of the Securities Act or pursuant to an applicable exemption therefrom.

(e) Section 83(b) Election. In connection with each separate issuance of Award LTIP Units under this Award pursuant to Section 8, the Grantee hereby agrees to make an election to include in gross income in the year of transfer the applicable Award LTIP Units pursuant to Section 83(b) of the Code substantially in the form attached hereto as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder. The Grantee agrees to file such election (or to permit the Operating Company to file such election on the Grantee’s behalf) within thirty (30) days after the issuance of the Award LTIP Units with the IRS Service Center where the Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the Award LTIP Units are awarded to the Grantee. So long as the Grantee holds any Award LTIP Units, the Grantee shall disclose to the Operating Company in writing such information as may be reasonably requested with respect to ownership of Award LTIP Units as the Operating Company may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code applicable to the Operating Company or to comply with requirements of any other appropriate taxing authority.

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(f) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(g) Governing Law. This Agreement is made under, and will be construed in accordance with, the laws of State of New York, without giving effect to the principles of conflict of laws of such State.

(h) No Obligation to Continue Position as an Employee. Neither the Company nor any Affiliate is obligated by or as a result of this Agreement to continue to have the Grantee as an employee, consultant or advisor and this Agreement shall not interfere in any way with the right of the Company or any Affiliate to terminate the Grantee’s Continuous Service at any time.

(i) Notices. Any notice to be given to the Company shall be addressed to the Secretary of the Company at 475 Tenth Avenue, New York, New York 10018 and any notice to be given the Grantee shall be addressed to the Grantee at the Grantee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Grantee may hereafter designate in writing to the other.

(j) Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to this Award, the Grantee will pay to the Company or, if appropriate, any of its Affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

(k) Headings. The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

(l) Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

(m) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company and the Operating Company, on the one hand, and any successors to the Grantee, on the other hand, by will or the laws of descent and distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Grantee.

(n) Section 409A. This Agreement shall be construed, administered and interpreted in accordance with a good faith interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Grantee, the Company and the Operating Company, to the extent necessary to exempt it from, or bring it into compliance with Section 409A of the Code.

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(o) Entire Agreement; Conflict. This Agreement (including the Incentive Plan and the LLC Agreement to which it relates) constitutes the final, complete and exclusive agreement between the Grantee and the Company with respect to the subject matter hereof and replaces and supersedes any and all other agreements, offers or promises, whether oral or written, between the parties concerning the subject matter hereof. Except as expressly provided otherwise herein, in the event of any conflict or inconsistency between the provisions of, or definitions contained in, this Agreement (including the LLC Agreement to which it relates), on the one hand, and Grantee’s Service Agreement, on the other hand, the terms of the this Agreement ((including the LLC Agreement to which it relates) shall govern.

[signature page follows]

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IN WITNESS WHEREOF, the undersigned have caused this Award Agreement to be executed as of the date first above written.

MORGANS HOTEL GROUP CO.
By:
	Name:
	Title:
MORGANS GROUP LLC
By:
	Name:
	Title:

GRANTEE

Name:

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SCHEDULE A TO 2011 OUTPERFORMANCE PLAN AWARD AGREEMENT

Date of Award Agreement:                                                                
Name of Grantee:                                                                
Participation Percentage:                                                                
Grant Date:                                                                
Initial Grant of Award LTIP Units (if applicable)

Initials of Company representative:                       Initials of Grantee:                       

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EXHIBIT A

MORGANS GROUP LLC

MEMBERSHIP UNIT DESIGNATION — 2011 OPP UNITS

The following are the terms of the 2011 OPP Units. Section references in this Exhibit A refer to sections of the LLC Agreement and capitalized terms are used as defined therein, unless stated otherwise.

1. LTIP Equivalence. Except as otherwise expressly provided in this Membership Unit Designation, 2011 OPP Units shall be treated as LTIP Units, and shall have the rights, privileges, restrictions, powers and duties applicable to LTIP Units under the LLC Agreement, including without limitation the provisions of Section 4.5.

2. Distributions.

(a) 2011 OPP Unit Distributions. Commencing from the Distribution Participation Date (as defined below) established for any 2011 OPP Units in the applicable award agreement, Holders of 2011 OPP Units shall be entitled to receive, if, when and as authorized by the Managing Member, any distributions otherwise payable with respect to LTIP Units and shall be treated as outstanding LTIP Units for purposes of the distribution provisions of the LLC Agreement. For the avoidance of doubt, for purposes of the first distribution to occur after the Distribution Participation Date, 2011 OPP Units that become fully earned and vested in accordance with the applicable Award Agreement on or before the first day of the relevant quarterly period shall be treated as having been outstanding for the full period. Prior to the Distribution Participation Date, 2011 OPP Units shall be entitled to any distributions by the Operating Company (i) in connection with an Adjustment Event as provided in Section 4.5(b), treating the 2011 OPP Units as outstanding LTIP Units, and (ii) if, when and as authorized by the Managing Member out of funds or other property legally available for the payment of distributions, distributions representing proceeds of a sale or other disposition of all or substantially all of the assets of the Operating Company in an amount per unit equal to the amount of any such distributions payable on the Membership Units, provided that the amount of distributions to any Holder of 2011 OPP Units under this clause (ii) shall not exceed the positive balances of the Capital Account of the Holder of such 2011 OPP Units to the extent attributable to the ownership of such 2011 OPP Units.

(b) Distribution Participation Date. The “Distribution Participation Date” for each 2011 OPP Unit will be either (i) with respect to 2011 OPP Units granted pursuant to the Managing Member’s 2011 Outperformance Plan, as it may be amended or supplemented from time to time or any successor plan under which additional 2011 OPP Units may be issued (the “Plan”), the applicable Final Valuation Date (as defined in the Award Agreement of each Person granted 2011 OPP Units under the Plan) or (ii) with respect to other 2011 OPP Units, such date as may be specified in the Award Agreement or other documentation pursuant to which such 2011 OPP Units are issued.

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3. Allocations.

(a) Allocations of Net Income and Net Loss. Commencing with the portion of the taxable year of the Operating Company that begins on the Distribution Participation Date established for any 2011 OPP Units, such 2011 OPP Units shall be allocated Net Income and Net Loss under Sections 6.1 and 6.2 in amounts per 2011 OPP Unit equal to the amounts allocated per Membership Unit (adjusted to the extent required by Sections 6.3(b) through 6.3(g)). The Managing Member is authorized in its discretion to delay or accelerate the participation of the 2011 OPP Units in allocations of Net Income and Net Loss, or to adjust the allocations made after the Distribution Participation Date, so that the ratio of (i) the total amount of Net Income or Net Loss allocated under Sections 6.1 and 6.2 with respect to each 2011 OPP Unit in the taxable year in which that 2011 OPP Unit’s Distribution Participation Date falls, to (ii) the total amount distributed to that 2011 OPP Unit with respect to such period, is more nearly equal to such ratio as computed for the Membership Units held by the Managing Member.

(b) Special Allocations. 2011 OPP Units shall be treated as outstanding LTIP Units (and the Holders thereof treated as Holders of LTIP Units) for all purposes of Section 6.3(a).

4. Redemption.

(a) The Redemption Right provided to Non-Managing Members under Section 4.2(e)(1) shall not apply with respect to 2011 OPP Units or Membership Units into which they may be converted pursuant to the LLC Agreement until the date that is one year and six months after the Final Valuation Date, after which date the Redemption Right shall be available on the terms and conditions set forth in the LLC Agreement.

(b) During the period beginning on the Final Valuation Date (as defined in the applicable Award Agreement) and ending on the Business Day immediately preceding the six month anniversary of the Final Valuation Date, the Operating Company shall be entitled to redeem some or all of the 2011 OPP Units (or Membership Units into which they were converted by the Holder) at a redemption price per 2011 OPP Unit or Membership Unit, payable in cash, equal to the Common Share Price (as defined in the Applicable Award Agreement) as of the Final Valuation Date (as defined in the applicable Award Agreement). From and after the one year anniversary of the Final Valuation Date, for a period of six months, a Holder of 2011 OPP Units (or Membership Units into which they were converted by the Holder) shall have the right to cause the Operating Company to redeem, some or all of the 2011 OPP Units (or Membership Units into which they were converted by the Holder), at a redemption price per 2011 OPP Unit or Membership Unit, payable in cash, equal to the greater of (x) the Common Share Price (as defined in the Applicable Award Agreement) as of the Final Valuation Date (as defined in the applicable Award Agreement) and (y) the Cash Amount determined as of the date of the notice of redemption. The Operating Company may exercise its redemption right under this Section 4(b) by sending a notice to each Holder of 2011 OPP Units (or Membership Units into which they were converted by the Holder) setting forth the redemption date, which shall be no less than five (5) Business Days after the date of such notice, and the number of 2011 OPP Units (or Membership Units into which they were converted by the Holder) being redeemed and the procedure to be followed by Holders of 2011 OPP Units or Membership Units that are being redeemed. The Holder may exercise its redemption right under this Section 4(b) by sending a notice to the Operating Company setting forth the redemption date, which shall be no less than ten (10) Business Days after receipt of such notice by the Managing Member, and the number of 2011 OPP Units (or Membership Units into which they were converted by the Holder to be redeemed). The Managing Member shall be entitled to acquire 2011 OPP Units (or Membership Units into which they were converted by the Holder) pursuant to any exercise by the Operating Company or the Holder of the foregoing redemption rights (under this Section 4.2(b) or under Section 4.2(a)) in exchange for issuance of a number of Common Shares, which will be issued under the Incentive Plan and be registered on a Form S-8, with an aggregate value, based on the Value of the Common Shares as of the date of the redemption notice, equal to the applicable redemption price, provided that the Managing Member has determined, in its sole discretion, that it is permitted to do so under applicable stock exchange listing rules.

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5. Voting Rights.

(a) Voting with LTIP Units. Except as otherwise provided herein, 2011 OPP Units and Non-Managing Members who hold 2011 OPP Units shall be treated as LTIP Units and LTIP Unitholders, respectively, for all purposes of Section 14.3.

(b) Special Approval Rights. So long as any 2011 OPP Units remain outstanding, the Operating Company shall not, without the affirmative vote of the Non-Managing Members who hold at least two-thirds of the 2011 OPP Units outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), amend, alter or repeal, whether by merger, consolidation or otherwise, the provisions of the LLC Agreement applicable to 2011 OPP Units so as to materially and adversely affect any right, privilege or voting power of the 2011 OPP Units or the Non-Managing Members who hold 2011 OPP Units as such, unless such amendment, alteration or repeal affects equally, ratably and proportionately the rights, privileges and powers of the holders of LTIP Units; but subject, in any case, to the following provisions:

(i) Any difference in effect between the LTIP Units and the 2011 OPP Units that is required or reasonably desirable to implement the difference in the distribution or redemption rights with respect to LTIP Units and 2011 OPP Units shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the holders of LTIP Units;

(ii) Any creation or issuance of any Membership Units or of any class or series of Membership Interest, whether ranking senior to, junior to, or on a parity with the 2011 OPP Units with respect to distributions and the distribution of assets upon liquidation, dissolution or winding up shall not be deemed to have an effect that is not equal, ratable or proportionate to the effect on the holders of LTIP Units; and

(iii) any waiver by the Operating Company of restrictions or limitations applicable to any outstanding LTIP Units or 2011 OPP Units with respect to any LTIP Unitholder or Unitholders or Holders of 2011 OPP Unit shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units or 2011 OPP Units with respect to other Unitholders or Holders.

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EXHIBIT B

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1. The name, address and taxpayer identification number of the undersigned are:

Name:                                          (the “Taxpayer”)

Address:                                         

Social Security No./Taxpayer Identification No.:  _____ 

2. Description of property with respect to which the election is being made:

The election is being made with respect to                      Award LTIP Units in Morgans Group LLC (the “Operating Company”).

3. The date on which the Award LTIP Units were transferred is                       _____, 2011. The taxable year to which this election relates is calendar year 2011.

4. Nature of restrictions to which the Award LTIP Units are subject:

(a) With limited exceptions, until the Award LTIP Units vest, the Taxpayer may not transfer in any manner any portion of the Award LTIP Units without the consent of the Operating Company.

(b) The Taxpayer’s Award LTIP Units vest in accordance with the vesting provisions described in Annex 1 attached hereto. Unvested Award LTIP Units are forfeited in accordance with the vesting provisions described in Annex 1 attached hereto.

5. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the Award LTIP Units with respect to which this election is being made was $_____ per Award LTIP Unit.

6. The amount paid by the Taxpayer for the Award LTIP Units was $0 per Award LTIP Unit.

7. A copy of this statement has been furnished to the Operating Company and Morgans Hotel Group Co.

Dated:                       , 2011 Signature                                            

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ANNEX 1

Vesting Provisions of Award LTIP Units

The Award LTIP Units are subject to time-based and performance-based vesting with the final vesting percentage equaling the product of the time-based vesting percentage and the performance-based vesting percentage. Performance-based vesting will be from 0% to 100% based on Morgan Hotel Group Co.’s (the “Company’s”) per-share total return to shareholders for the period from [                    ], 2011 to [                    ], 2014 (or earlier in certain circumstances). Under the time-based vesting provisions, one hundred percent (100%) of the Award LTIP Units will vest on the last day of the performance period, provided that the Taxpayer remains an employee of the Company or any of its affiliates through such date, subject to acceleration in the event of certain extraordinary transactions or termination of the Taxpayer’s service relationship with the Company under specified circumstances. Unvested Award LTIP Units are subject to forfeiture in the event of failure to vest based on the passage of time (subject to above-mentioned acceleration) or the determination of the performance-based percentage.

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EX-10.7

Exhibit 10.7

MORGANS HOTEL GROUP CO.

2011 EXECUTIVE PROMOTED INTEREST BONUS POOL AWARD AGREEMENT

2011 EXECUTIVE PROMOTED INTEREST BONUS POOL AWARD AGREEMENT made as of the date set forth on Schedule A hereto by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “Company”), MORGANS GROUP LLC, a Delaware limited liability company (the “Operating Company”), and the party listed on Schedule A (the “Grantee”).

RECITALS

A. The Grantee is a senior management employee of the Company and provides services to the Operating Company.

B. The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) approved this and other 2011 long-term bonus pool awards (“2011 Bonus Pool Awards”) to provide certain senior management employees of the Company, including the Grantee, in connection with their employment with the incentive compensation described in this Award Agreement (this “Agreement” or this “Award Agreement”) and thereby provide additional incentive for them to promote the progress and success of the business of the Company and its Affiliates. 2011 Bonus Pool Awards were approved by the Committee pursuant to authority delegated to it by the Board. This Agreement evidences one award (this “Award”) in a series of substantially identical 2011 Bonus Pool Awards and is subject to the terms and conditions set forth herein.

C. The Committee, effective as of the grant date specified in Schedule A hereto, awarded to the Grantee the participation percentage in the promoted interest bonus pool provided herein, as set forth in Schedule A.

NOW, THEREFORE, the Company, the Operating Company, and the Grantee agree as follows:

1. Administration

This Award and all other 2011 Bonus Pool Awards shall be administered by the Committee; provided that all powers of the Committee hereunder can be exercised by the full Board if the Board so elects. The Committee, in its sole and absolute discretion, may make at any time any provision for lapse of forfeiture restrictions and/or accelerated vesting under this Agreement of some or all of the Grantee’s unvested Award Participation that has not previously been forfeited.

2. Definitions

Capitalized terms used herein shall have the meanings set forth below:

“Affiliate” means, with respect to the Company, any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

“Award Participation” has the meaning set forth in Section 3.

“Award Period” means the period from and after the date of Grantee’s admission as an Employee Member and to and including the earlier to occur of (i) the third anniversary of the Effective Date and (ii) the termination of Grantee’s Continuing Service.

“Baseline Value” means $8.87.

“Bonus Pool Unit” means a unit of membership interest in Promote Pool LLC. The Bonus Pool Units shall be issued in different series, with each series corresponding to a separate Eligible Promoted Interest held by Promote Pool LLC or a wholly-owned subsidiary thereof.

“Cause” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Cause” is defined therein, then “Cause” shall have the meaning set forth in such definition, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Cause” or a substantially equivalent term, then “Cause” shall mean:

(i) the Grantee’s willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from the Grantee’s incapacity due to physical or mental illness or any such failure after his issuance of a notice of termination for Good Reason), after a written demand for substantial performance is delivered to the Grantee by the Board, which demand specifically identifies the manner in which the Board believes that the Grantee has not substantially performed his duties;

(ii) a material breach by Grantee of his Service Agreement;

(iii) the Grantee’s willful commission of an act of fraud, theft or dishonesty resulting in economic, financial or material reputational injury to the Company;

(iv) the Grantee’s conviction of, or entry by the Grantee of a guilty or no contest plea to, the commission of a felony; or

(v) the Grantee willfully engages in other misconduct materially injurious to the Company.

For purposes of this provision, no act or omission on the part of the Grantee shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Company. Any act or omission based upon a resolution duly adopted by the Board or advice of counsel for the Company shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Company. The cessation of employment of the Grantee shall not be deemed to be for Cause unless and until there shall have been delivered to the Grantee a copy of a resolution duly adopted by the majority of the Board (excluding the Grantee, if the Grantee is then a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Grantee and the Grantee is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Grantee is guilty of the conduct giving rise to Cause for termination, and specifying the particulars thereof in detail.

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

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“Common Share” means a share of the Company’s common stock, par value $0.01 per share.

“Common Share Price” means, as of a particular date, the average of the Fair Market Value of one Common Share over the thirty (30) consecutive trading days ending on, and including, such date (or, if such date is not a trading day, the most recent trading day immediately preceding such date).

“Common Share Return Condition” shall be deemed to be satisfied as of any date of determination if the Common Share Price, as of such date, shall be at least equal to (x) the Baseline Value multiplied by (y) an amount equal to (i) the sum of one plus the Target Return raised to (ii) the n/365th power, where “n” equals the number of days that has elapsed from and including the Effective Date to but excluding the date of determination.

“Continuous Service” means the continuous service, without interruption or termination, as a an employee or director of Company or an Affiliate. Continuous Service shall not be considered interrupted in the case of (among other things)—

(A) any approved leave of absence,

(B) transfers among the Company and any Affiliate, or any successor, in any capacity of director or employee, or

(C) any change in status as long as the individual remains in the service of the Company or any Affiliate of the Company in the capacity of employee or director.

An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

“Designated Participation Percentage” means, with respect to any series of Employee Units, the lesser of 50% or the percentage determined by the Independent Committee at the time it approves the contribution of the applicable Eligible Promoted Interest in Promote Pool LLC, if such Eligible Promoted Interest did not satisfy the Safe Harbor Requirements as of the applicable Initial Closing.

“Disability” means:

(A) if the Grantee is or was a party to a Service Agreement prior to the applicable event, and “Disability” is defined therein, then “Disability” shall have the meaning set forth in such definition, or

(B) if the Grantee is not and was not a party to a Service Agreement prior to such event or the Grantee’s Service Agreement does not define “Disability” or a substantially equivalent term, then “Disability” shall mean a disability which renders the Grantee incapable of performing all of his or her material duties for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Grantee or the Grantee’s legal representative or by the insurance company which insures the Company’s long-term disability plan in which the Grantee is eligible to participate.

“Effective Date” means March 20, 2011.

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“Eligible Promoted Interest” means a Promoted Interest that the Company or any entity through which the Company directly or indirectly acquires or has the right to acquire, or is created, in a transaction as to which the Initial Closing occurs during the Award Period and that satisfies either of the following requirements as of the Initial Closing:

(i) The Investment Committee (with the affirmative vote of its independent member) shall have determined in good faith that the applicable Promoted Interest satisfies the Safe Harbor Requirements; or

(ii) The terms of the hotel acquisition or development transaction, including the contribution of the applicable Promoted Interest to Promote Pool LLC, shall have been approved in good faith by the Independent Committee.

The determination as to whether a Promoted Interest that does not satisfy the Safe Harbor Requirements shall be deemed to be an Eligible Promoted Interest, and the Designated Participation Percentage with respect to such Eligible Promoted Interest, shall be made in good faith by the Independent Committee and shall be conclusive.

In the case of an Eligible Promoted Interest that the Company, the Operating Company, Promote Pool LLC, or a wholly owned subsidiary of the Company acquires or has the right to acquire, the Eligible Promoted Interest will consist of the entire applicable Promoted Interest. In the case of an Eligible Promoted Interest that any other entity in which the Company or the Operating Company has a direct or indirect equity interest acquires, or has the right to acquire, the “Eligible Promoted Interest” will, at the election of the Managing Member, consist of either (x) an assignment of the proceeds received by the Company, the Operating Company, or a wholly owned subsidiary of the Company with respect to the applicable Promoted Interest, or (y) a special allocation of the portion of such direct or indirect interest in the Eligible Promoted Interest that is owned by the Company, the Operating Company, or a wholly owned subsidiary that represents their respective direct or indirect interest in the Promoted Interest owned by such other entity.

An Eligible Promoted Interest can consist of either an equity interest in a Hotel Investment Entity or a contractual right to share in some or all of the profits, losses, or gains of a Hotel Investment Entity (a “Contractual Right”) or one or more hotel properties owned by a Hotel Investment Entity.

For the avoidance of doubt, an incentive management fee or other amount measured by a percentage of gross revenues, gross operating profit, net house profit, or similar performance measure and payable to the Company, or any entity through which the Company, directly or indirectly, holds an equity interest or a Contractual Right, as compensation for the performance of management services shall not be an Eligible Promoted Interest.

For the further avoidance of doubt, no Promoted Interest as to which the Initial Closing occurs after the Award Period shall be deemed to be an “Eligible Promoted Interest.”

“Employee Member” means a member of Promote Pool LLC other than the Managing Member or any other subsidiary of the Company.

“Employee Unit” means any Bonus Pool Unit that is held by an Employee Member or a permitted transferee thereof (other than Managing Member or any other subsidiary of the Company).

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“Fair Market Value” means, as of any given date, the fair market value of a security, an Eligible Promoted Interest, or other property determined by the Committee using any reasonable method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1) of the Code); provided that, with respect to a Common Share, “Fair Market Value” means the value of such Common Share determined as follows: (A) if on the determination date the Common Shares are listed on the New York Stock Exchange, The NASDAQ Stock Market, Inc. or another national securities exchange or is publicly traded on an established securities market, the Fair Market Value of a Common Share shall be the closing price of the Common Shares on such exchange or in such market (if there is more than one such exchange or market, the Committee shall determine the appropriate exchange or market) on the determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the high and low sale prices on such trading day) or, if no sale of Common Shares is reported for such trading day, on the next preceding day on which any sale shall have been reported; or (B) if the Common Shares are not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value of the Common Share shall be the value of the Common Shares as determined by the Committee in good faith in a manner consistent with Section 409A of the Code.

“Good Reason” means: (A) if the Grantee is or was a party to a Service Agreement prior to such termination, and “Good Reason” is defined therein, then “Good Reason” shall have the meaning set forth in such Service Agreement, or (B) if the Grantee is not and was not party to a Service Agreement prior to such termination or the Grantee’s Service Agreement does not define “Good Reason” or a substantially equivalent term, so long as the Grantee terminates his or her employment within thirty (30) days after the Grantee has actual knowledge of the occurrence, without the written consent of the Grantee, of one of the following events that has not been cured within thirty (30) days after written notice thereof has been given by Grantee to the Company, then “Good Reason” shall mean:

(iii) the assignment to the Grantee of duties materially inconsistent with the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated in his Service Agreement, or any other action by the Company which results in a material diminution in the Grantee’s title, position, status, reporting relationships, authority, duties or responsibilities, other than insubstantial or inadvertent actions not taken in bad faith which are remedied by the Company within fifteen (15) business days after receipt of notice thereof given by the Grantee;

(iv) any material failure by the Company to comply with any of the provisions of the Service Agreement, other than insubstantial or inadvertent failures not in bad faith which are remedied by the Company promptly after receipt of notice thereof given by the Grantee;

(v) any failure by the Company to obtain the assumption of his Service Agreement by a successor to all or substantially all of the business or assets of the Company; or

(vi) if his Service Agreement provides that the Executive will be nominated for election as a director of the Company, any failure by the Board to nominate the Executive for election as a director of the Company in accordance with the Service Agreement, or any failure of the Executive to be elected to be a member of the Board; or

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(vii) any requirement that the Grantee’s principal place of employment be at a location more than 50 miles from his principal place of employment on the date of this Agreement, resulting in a material increase in distance from the Grantee’s residence to his new place of employment;

“Hotel Investment Entity” means a limited liability company, limited partnership, corporation, or other form of business entity that owns, directly or indirectly, or proposes to acquire or develop, one or more hotels or other hospitality-related properties. Neither the Company nor any consolidated subsidiary of the Company shall be deemed to be a Hotel Investment Entity.

“Independent Committee” means a committee (either standing or ad hoc) of the Board that has the responsibility and authority for determining whether a Promoted Interest that does not satisfy the Safe Harbor Requirements will nonetheless be contributed to Promote Pool LLC and, if so, what the Designated Participation Percentage with respect to such Promoted Interest will be.

“Initial Closing” means, with respect to any Eligible Promoted Interest, the date of the closing of the transaction as the result of which the Company, a consolidated subsidiary thereof, Promote Pool LLC, or any entity through which such Eligible Promoted Interest is held, and one or more unaffiliated persons become equity owners of the Hotel Investment Entity (or obtains a Contractual Right) related to such Eligible Promoted Interest. The independent member of the Investment Committee shall determine, in good faith, when the Initial Closing occurs with respect to any Eligible Promoted Interest.

“Investment Committee” means a management committee, established by the Board that includes at least one independent director that is delegated authority, among other things, to approve the terms of investments in Hotel Investment Entities and determine whether Promoted Interests in Hotel Investment Entities satisfy the Safe Harbor Requirements.

“LLC Agreement” means the limited liability company agreement of Promote Pool LLC, as it may be amended from time to time in accordance with its terms, that the Managing Member will enter in accordance with Section 7(a). The LLC Agreement will contain the provisions set forth on Exhibit A attached hereto and such other terms and conditions as the Committee shall in good faith determine are necessary or appropriate for implementing the provisions and accomplishing the objectives of this Award Agreement and the Award Agreements of other recipients of 2011 Bonus Pool Awards.

“Managing Member” means the Operating Company, or a wholly-owned subsidiary thereof, in its capacity as managing member of Promote Pool LLC.

“Member” means a member of Promote Pool LLC, which shall be either the Managing Member or an Employee Member.

“Opening” means, with respect to any Eligible Promoted Interest, the date on or after the Initial Closing on which all construction, development, and major renovation work is completed and substantially all of the rooms and other facilities in the applicable hotel are open for business. If the applicable hotel is operating as of the Initial Closing and the business plan relating to the hotel does not contemplate a substantial renovation or redevelopment of the hotel that will result in material disruption of the operations of the hotel for an extended period, the Opening shall be deemed to occur at the same time as the Initial Closing. If the business plan for such hotel contemplates such renovation or redevelopment, the Opening shall be deemed to occur following the completion of such renovation or redevelopment and substantially all of the rooms and other facilities in the applicable hotel are open for business. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, an Opening shall be deemed to occur with respect to any such hotel property when such hotel property meets the foregoing requirements. The independent member of the Investment Committee shall in good faith determine when an Opening occurs with respect to any Eligible Promoted Interest.

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“Partial Sale Event” means, with respect to any Eligible Promoted Interest, the date on which (x) the applicable Hotel Investment Entity’s direct or indirect ownership interest in the applicable hotel property is reduced by reason of a disposition of an interest in such property to a third party; or (y) Promote Pool LLC’s direct or indirect ownership interest in such Eligible Promoted Interest is reduced by reason of a disposition of an interest in such Eligible Promoted Interest to a third party. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a Partial Sale Event described in clause (x) above with respect to any such hotel property shall be deemed to occur when the Hotel Investment Entity’s direct or indirect ownership interest in such hotel property is reduced. The independent member of the Investment Committee shall in good faith determine when a Partial Sales Event occurs with respect to any Eligible Promoted Interest.

“Participation Amount” has the meaning set forth in Section 3.

“Participation Percentage” means, as of any date of determination, the percentage set forth opposite such term on Schedule A hereto.

“Person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, other entity or “group” (as defined in the Exchange Act).

“Promoted Interest” means an interest in a Hotel Investment Entity, or other Contractual Right, that represents a right to participate in profits, losses, and gains of the Hotel Investment Entity in excess of amounts attributable to the percentage of capital contributions made by the Company and its subsidiaries in the Hotel Investment Entity. For the avoidance of doubt, an incentive management fee or other amount measured by a percentage of gross revenues, gross operating profit, net house profit, or similar performance measure and payable to the Company or any entity holding such Interests as compensation for the performance of management services shall not be a Promoted Interest .

“Promoted Interest Proceeds” means, with respect to any Eligible Promoted Interest, the amount of any cash (or cash equivalent) distributions or dividends received by Promote Pool LLC with respect to such Eligible Promoted Interest or, if Promote Pool LLC receives any other property in exchange for or as a distribution with respect to an Eligible Promoted Interest, any cash (or cash equivalents) received as a distribution or dividend with respect to or upon the sale or disposition of such other property. In the case of the removal by the Company of the designation of an Eligible Promoted Interest as part of the Promoted Interest Bonus Pool, such removal shall be treated as a disposition of the Eligible Promoted Interest for an amount of cash equal to its Fair Market Value and an amount equal to such Fair Market Value shall be deemed to be Promoted Interest Proceeds hereunder.

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“Promote Pool LLC” means MHG Employee Promoted Interest LLC, a to-be-formed Delaware limited liability company, or its successor.

“Qualified Management Agreement” means a hotel management agreement under which the Company or a consolidated subsidiary of the Company is the manager that contains terms that satisfy the requirements set forth in that certain letter delivered by the Company to Grantee concurrently with the execution of this Award, as determined by the Investment Committee in good faith.

“Qualified Termination” has the meaning set forth in Section 4.

“Safe Harbor Requirements” means, with respect to any Eligible Promoted Interest, the following requirements:

(i) The Company or one of its consolidated subsidiaries is manager of the hotel properties owned, directly or indirectly, by the Hotel Investment Entity pursuant to a Qualified Management Agreement;

(ii) The percentage interest acquired by the Company or any of its consolidated subsidiaries in the applicable Hotel Investment Entity does not exceed twenty percent (20%), without taking into account the applicable Promoted Interest;

(iii) The value of the aggregate capital contribution or capital commitment of the Company and its consolidated subsidiaries does not exceed $20 million; and

(iv) The equity investment by the Company and its consolidated subsidiaries must be on no less favorable terms, in any material respect, than the equity investment to the other investors in the Hotel Investment Entity (without taking into account the applicable Promoted Interest) or, if the equity investment by the other investors was made more than one year before the Initial Closing with respect to such Eligible Promoted Interest is anticipated to occur, the equity investment by the Company and its consolidated subsidiaries must be made based on the Fair Market Value of the interests acquired in the Hotel Investment Entity.

The determination by the Investment Committee as to whether a Promoted Interest satisfies the Safe Harbor Requirements shall be made in good faith and shall be conclusive.

“Sale Event” means, with respect to any Eligible Promoted Interest, the earlier of the date on which (x) the applicable Hotel Investment Entity no longer holds a direct or indirect ownership interest in the applicable hotel property or (ii) Promote Pool LLC no longer holds, directly or indirectly, such Eligible Promoted Interest. With respect to an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a Sale Event described in clause (x) above with respect to any such hotel property shall be deemed to occur when the Hotel Investment Entity no longer owns a direct or indirect ownership interest in such hotel property. The independent member of the Investment Committee shall in good faith determine when a Sales Event occurs with respect to any Eligible Promoted Interest.

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

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“Service Agreement” means, as of a particular date, any employment, consulting or similar service agreement then in effect between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand, as amended or supplemented through such date; provided that, if no such agreement is then in effect, “Service Agreement” shall mean any employment, consulting or similar service agreement most recently in effect (on or after the Effective Date) prior to such date, as amended or supplemented, between the Grantee, on the one hand, and the Company or one of its Affiliates, on the other hand.

“Subsidiary” means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.

“Target Return” shall be equal to nine percent (9%) per annum, compounded annually.

“Transfer” has the meaning set forth in Section 6.

3. Promoted Interest Bonus Pool Award; Vesting

(a) The Operating Company hereby grants to Grantee this Award consisting of the right, subject to the terms and conditions of this Award Agreement, to be admitted as an Employee Member of Promote Pool LLC and to receive the Participation Percentage of each series of the Employee Units issued by Promote Pool LLC during the Award Period (the “Award Participation”). The Award Participation (A) will be subject to forfeiture as provided in Section 3(c) and in Section 4 and (B) will be subject to vesting as provided below in Section 3(b) and in Section 4. At any time, the Committee may grant additional 2011 Bonus Pool Awards with such Participation Percentages set forth therein as the Committee may determine, in its sole discretion, provided that the total Participation Percentages of all 2011 Bonus Pool Awards (including this Award) outstanding at any time shall not exceed 100%.

(b) The interest of Grantee in each series of Employee Units issued to Grantee during the Award Period shall be eligible for vesting based on a combination of (i) the satisfaction of the vesting conditions relating to the hotel properties applicable to the Eligible Promoted Interest related to such series of Employee Units, as set forth below in this Section 3(b) and (ii) the passage of time (three years or a shorter period in certain circumstances as provided in Section 4) as provided in this Section 3(b). The Grantee’s interest in a series of Employee Units shall become vested in the following amounts, at the following times, and upon the following conditions, provided that the Continuous Service of the Grantee continues through and on the applicable vesting date described below or the accelerated vesting date provided in Section 4 hereof, as applicable:

(i) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later to occur of —

(A) the third anniversary of the Effective Date (or any accelerated vesting date provided in Section 4 hereof, if applicable ) and

(B) the Initial Closing with respect to the applicable Eligible Promoted Interest; and

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(ii) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later of to occur of —

(A) the third anniversary of the Effective Date (or any accelerated vesting date provided in Section 4 hereof, if applicable ) and

(B) the Opening with respect to the applicable Eligible Promoted Interest;

provided that, in the case of an Eligible Promoted Interest in Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third divided by (II) the number of such hotel properties shall become vested on the later of to occur of (x) the date specified in paragraph (A) above and (y) the Opening of any such hotel property; and

(iii) one-third of Grantee’s interest in such series of Employee Units shall become vested on the later of to occur of —

(A) the third anniversary of the Effective Date and

(B) the Sale Event with respect to the applicable Eligible Promoted Interest.

provided that, in the case of an Eligible Promoted Interest in a Hotel Investment Entity that owns direct or indirect interests in more than one hotel property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third divided by (II) the number of such hotel properties, shall become vested on the later to occur of (x) the date specified in paragraph (A) above and (y) the Sale Event with respect to any such hotel property; and

provided further that, in the event a Partial Sale Event occurs with respect to an Eligible Promoted Interest, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third multiplied by (II) the percentage of the Fair Market Value of the direct or indirect interest in the applicable Hotel Investment Entity or hotel property that was disposed of in such Partial Sale Event, as determined in good faith by the Investment Committee, shall become vested on the later to occur of (x) the date specified in paragraph (A) above and (y) the Partial Sale Event with respect to any such hotel property; and

provided further that, in the event a Partial Sale Event occurs with respect to a particular hotel property in the case of a Hotel Investment Entity that holds more than one property, a percentage of Grantee’s interest in such series of Employee Units equal to (I) one-third multiplied by (II) the percentage of the Fair Market Value of the direct or indirect interest in the applicable hotel property that was disposed of in such Partial Sale Event, as determined in good faith by the Investment Committee, divided by (III) the number of such hotel properties owned by such Hotel Investment Entity, shall become vested on the later of to occur of (x) the date specified in paragraph (A) above and (y) the Partial Sale Event with respect to any such hotel property; and

provided further that, in the event a Sale Event occurs with respect to an Eligible Promoted Interest (or with respect to a particular hotel property in the case of a Hotel Investment Entity that holds more than one property) without an Opening having occurred with respect thereto, then such Sale Event shall also be deemed to constitute the Opening with respect to such Eligible Promoted Interest for purpose of Section 3(b)(ii).

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(c) Any portion of Grantee’s interest in any series of Employee Units that has not become vested pursuant to Section 3(b) and Grantee’s Award Participation shall, without payment of any consideration by the Company or Promote Pool LLC, automatically and without notice be forfeited and be and become null and void upon the termination of the Continuous Service of Grantee (other than by reason of a Qualified Termination, death or Disability), and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested portion of the Grantee’s Employee Units and in future issuances of Employee Units by Promote Pool LLC.

(d) In the event that a Hotel Investment Entity with respect to which Promote Pool LLC holds an Eligible Promoted Interest receives a new hotel property in exchange for another hotel property, with the result that Promote Pool LLC thereafter holds an Eligible Promoted Interest in such new hotel property, the vesting percentage that applied to the applicable series of Employee Units immediately prior to such exchange shall remain in effect with respect to such series following the exchange.

4. Termination of Grantee’s Continuous Service; Death and Disability

(a) If the Grantee is or was a party to a Service Agreement and his or her Continuous Service terminates, the applicable provisions of this Section 4 shall govern the treatment of the Grantee’s Award Participation, unless the Service Agreement contains provisions that expressly refer to this Section 4(a) and provides that those provisions of the Service Agreement shall instead govern the treatment of the Grantee’s Award Participation upon such termination. The foregoing sentence will be deemed an amendment to any applicable Service Agreement to the extent required to apply its terms consistently with this Section 4, such that, by way of illustration, any provisions of the Service Agreement with respect to accelerated vesting or payout or the lapse of forfeiture restrictions relating to the Grantee’s incentive or other compensation awards in the event of certain types of termination of the Grantee’s Continuous Service with the Company (such as, for example, termination at the end of the term, termination without Cause by the employer or termination for Good Reason by the employee) shall not be interpreted as requiring that vesting occur with respect to this Award other than as specifically provided in Section 3(b) and this Section 4.

(b) In the event of termination of the Grantee’s Continuous Service by (A) the Company without Cause, (B) the Grantee for Good Reason, or (C) by reason of the death or Disability of Grantee (each of the events described in (A), (B) and (C), a “Qualified Termination”), then the Award Participation shall terminate with respect to any future issuances of Employee Units and the Award Period shall terminate, each effective upon termination of Grantee’s Continuing Service, but the following provisions of this Section 4(b) shall modify the vesting of each series of Employee Units then held by Grantee:

(i) the vesting conditions set forth in Sections 3(b)(i)(A) and 3(b)(ii)(A) (but not under Section 3(b)(iii)(A)) shall be deemed to have been satisfied with respect to each series of Employee Units held by Grantee as of the effective date of such Qualified Termination; and

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(ii) the Grantee’s interest in each series of Employee Units then held by Grantee shall vest under Sections 3(b)(i) and 3(b)(ii), to the extent provided in such sections, upon the satisfaction of the vesting conditions set forth in Sections 3(b)(i)(B) and 3(b)(ii)(B), as applicable (to the extent that any such condition shall not previously have been satisfied), as if such Qualified Termination had not occurred.

Upon the occurrence of a Qualified Termination, the unvested portion of Grantee’s interest in each series of Employee Units then held by Grantee that is subject to vesting upon the conditions set forth in Section 3(b)(iii) shall be forfeited, with the consequences set forth in the LLC Agreement.

(c) In the event of a termination of the Grantee’s Continuous Service other than a Qualified Termination, the Award Participation shall terminate with respect to any future issuances of Employee Units and the Award Period shall terminate, each effective upon termination of Grantee’s Continuing Service, and Grantee’s unvested interest in each series of Employee Units then held by Grantee shall be forfeited, with the consequences set forth in the LLC Agreement as described in Exhibit A, and shall no longer be subject to future vesting pursuant to Section 3(b)(i), 3(b)(ii), or 3(b)(iii), without payment of any consideration by the Company or Promote Pool LLC, automatically and without notice, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such Award Participation or such unvested interest in any series of Employee Units, other than with respect to any interest in any series of Employee Units that may have vested pursuant to Section 3(b)(i), 3(b)(ii), or 3(b)(iii)prior to such termination of Grantee’s Continuous Service.

5. Promote Pool LLC Units

(a) Formation of Promote Pool LLC. Prior to the Initial Closing of the first transaction in which the Company or any entity will receive an Eligible Promoted Interest after the Effective Date, the Company will organize Promote Pool LLC and enter into the LLC Agreement.

(b) Contribution of Eligible Promoted Interests. At the Initial Closing with respect to any Eligible Promoted Interest, Promote Pool LLC (or a wholly owned subsidiary thereof) will become a member or partner in, or acquire a Contractual Right with respect to, the applicable Hotel Investment Entity and, in that capacity, will acquire the Eligible Promoted Interest, or the Operating Company (or a subsidiary thereof) shall contribute the Eligible Promoted Interest to Promote Pool LLC.

(c) Issuance of Employee Units. Concurrently with the Initial Closing with respect to any Eligible Promoted Interest, the Managing Member shall amend the LLC Agreement to create a new series of Bonus Pool Units relating to the Eligible Promoted Interest. The portion of the Bonus Pool Units issued to Employee Members concurrently with the Initial Closing shall, as of such date, represent an aggregate interest in the applicable Eligible Promoted Interest equal to the Designated Participation Percentage with respect to such series of Bonus Pool Units. If the Initial Closing with respect to such Eligible Promoted Interest occurs during the Award Period, Promote Pool LLC shall issue to Grantee, concurrently with such Initial Closing, a percentage of the applicable series of Employee Units equal to the product of (i) his or her Participation Percentage as of such date times (ii) the Designated Participation Percentage with respect to such series of Bonus Pool Units.

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(d) Distributions. Following the receipt by Promote Pool LLC or any of its wholly-owned subsidiaries of any Promoted Interest Proceeds, Promote Pool LLC shall distribute such Promoted Interest Proceeds to the Members in accordance with the terms and conditions of the LLC Agreement. The LLC Agreement will include provisions relating to distributions in substantially the form set forth on Exhibit A attached hereto.

6. Restrictions on Transfer

Subject to the next sentence, no portion of the Award Participation granted hereunder shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “Transfer”). This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. Notwithstanding the foregoing, in the event Managing Member elects to sell or otherwise dispose of all or any portion of its interest in any series of interests in Promote Pool LLC to an unaffiliated third party, Managing Member shall ensure that such third party offers to acquire all or the comparable percentage (as the case may be) of the Employee Units in such Series held by each holder of such series of Employee Units, on the same terms and conditions as such unaffiliated third-party is acquiring the interests of the Managing Member, in accordance with such procedures for such offer and purchase as the Managing Member shall reasonably establish for such purpose.

7. Miscellaneous

(a) Amendments. This Agreement may be amended or modified only with the consent of the Company acting through the Committee; provided that any such amendment or modification materially and adversely affecting the rights or obligations of the Grantee hereunder must be consented to by the Grantee to be effective as against him. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company to correct any errors or ambiguities in this Agreement and/or to make such changes that do not materially adversely affect the Grantee’s rights or obligations hereunder. This grant shall in no way affect the Grantee’s participation or benefits under any other plan or benefit program maintained or provided by the Company.

(b) Committee Determinations. The Committee will make the determinations and certifications required by this Award as promptly as reasonably practicable following the occurrence of the event or events necessitating such determinations or certifications.

(c) Grantee Representations; Registration.

(i) The Grantee hereby represents and warrants that (A) he or she understands that he or she is responsible for consulting his or her own tax advisor with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of this Award may become subject, to his or her particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the Operating Company or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides services to the Operating Company on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Operating Company, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award; (D) Bonus Pool Units are subject to substantial risks; (E) the Grantee has been furnished with, and has reviewed and understands, information relating to this Award; (F) the Grantee has been afforded the opportunity to obtain such additional information as he or she deemed necessary before accepting this Award; (G) the Grantee has had an opportunity to ask questions of representatives of the Operating Company and the Company, or persons acting on their behalf, concerning this Award; and (H) the Grantee will provide services to Promote Pool LLC.

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(ii) The Grantee hereby acknowledges that: (A) there will be no public market for Bonus Pool Units and neither the Operating Company nor the Company has any obligation or intention to create such a market; (B) transfers sales of Bonus Pool Units are subject to restrictions under the Securities Act and applicable state securities laws, in addition to the restrictions set forth herein and in the LLC Agreement; and (C) because of the restrictions on transfer or assignment of Bonus Pool Units set forth in the LLC Agreement and in this Agreement, the Grantee may have to bear the economic risk of his or her ownership of any Bonus Pool Units issued as a result of this Award for an indefinite period of time.

(d) Section 83(b) Election. In connection with each separate issuance of Bonus Pool Units under this Award, the Grantee hereby agrees to make an election to include in gross income in the year of transfer the applicable Bonus Pool Units pursuant to Section 83(b) of the Code substantially in the form attached hereto as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder. The Grantee agrees to file such election (or to permit Promote Pool LLC to file such election on the Grantee’s behalf) within thirty (30) days after the issuance of the Bonus Pool Units with the IRS Service Center where the Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the Bonus Pool Units are awarded to the Grantee. So long as the Grantee holds any Bonus Pool Units, the Grantee shall disclose to Promote Pool LLC in writing such information as may be reasonably requested with respect to ownership of Bonus Pool Units as Promote Pool LLC may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code applicable to Promote Pool LLC or to comply with requirements of any other appropriate taxing authority.

(e) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(f) Governing Law. This Agreement is made under, and will be construed in accordance with, the laws of State of New York, without giving effect to the principles of conflict of laws of such State.

(g) No Obligation to Continue Position as an Employee. Neither the Company nor any Affiliate is obligated by or as a result of this Agreement to continue to have the Grantee as an employee, consultant or advisor and this Agreement shall not interfere in any way with the right of the Company or any Affiliate to terminate the Grantee’s Continuous Service at any time.

(h) Notices. Any notice to be given to the Company shall be addressed to the Secretary of the Company at 475 Tenth Avenue, New York, New York 10018 and any notice to be given the Grantee shall be addressed to the Grantee at the Grantee’s address as it appears on the employment records of the Company, or at such other address as the Company or the Grantee may hereafter designate in writing to the other.

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(i) Withholding and Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to this Award, the Grantee will pay to the Company or, if appropriate, any of its Affiliates, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.

(j) Headings. The headings of paragraphs hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

(k) Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if each of the signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

(l) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors to the Company, on the one hand, and any successors to the Grantee, on the other hand, by will or the laws of descent and distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Grantee.

(m) Section 409A. This Agreement shall be construed, administered and interpreted in accordance with a good faith interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Grantee the Company, to the extent necessary to exempt it from, or bring it into compliance with Section 409A of the Code.

[signature page follows]

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IN WITNESS WHEREOF, the undersigned have caused this Award Agreement to be executed as of the date first above written.

MORGANS HOTEL GROUP CO.
By:
	Name:
	Title:

GRANTEE

Name:

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IN WITNESS WHEREOF, the undersigned has caused this Award Agreement to be executed as of the date first above written.

MORGANS GROUP LLC
By:
	Name:
	Title:

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SCHEDULE A TO 2011 PROMOTED INTEREST BONUS POOL
AWARD AGREEMENT

Date of Award Agreement: ________________

Name of Grantee: ________________________

Participation Percentage: ___________________

Grant Date: ______________________

Initials of Company representative:                      Initials of Grantee:                     

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EXHIBIT A

CERTAIN PROVISIONS OF THE LLC AGREEMENT

The LLC Agreement will include the following provisions in substantially the form set forth below (capitalized terms shall have the meanings set forth in the Award Agreement to which this Exhibit A is attached, if defined therein, or in Section 8 hereof, and Section numbers shall refer to sections of this Exhibit A, unless otherwise stated ):

1. Distributions.

(a) Promptly following the receipt by Promote Pool LLC or any of its wholly owned subsidiaries of any Promoted Interest Proceeds, including the receipt of any proceeds assigned to Grantee in respect of any Eligible Promoted Interest, Promote Pool LLC shall distribute such Promoted Interest Proceeds (with respect to any distribution, the “Aggregate Proceeds”) to the Members on the following terms and conditions:

(i) If the Employee Unit Distribution Conditions are satisfied as of the date of receipt of such Promoted Interest Proceeds by Promote Pool LLC or any of its wholly owned subsidiaries, an amount equal to the product of (x) the Aggregate Employee Participation Percentage then outstanding in the series of Bonus Pool Units related to the Eligible Promoted Interest with respect to which the Promoted Interest Proceeds were received times (y) the Aggregate Proceeds shall be paid, or set aside for future payment, in accordance with Section 1(b) or 1(c); and

(ii) The remainder of such Aggregate Proceeds shall be paid to the Managing Member.

(b) All amounts referred to in Section 1(a)(i) (with respect to any distribution, the “Employee Member Share”) shall be applied as follows:

(i) An amount equal to the product of (x) each Employee Member’s Vested Participation Percentage at such time in such series of Bonus Pool Units times (y) the Aggregate Proceeds shall be paid to such Employee Member ;and

(ii) The remainder of the Employee Member Share shall be set aside and held by Promote Pool LLC for future payment in accordance with Section 1(c).

(c) All amounts referred to in Section 1(b)(ii) shall be applied as follows:

(i) At such time as any Employee Member’s Vested Participation Percentage in the applicable series of Bonus Pool Units increases after the initial distribution of the applicable Aggregate Proceeds under Section 1(b), an amount equal to (x) the product of (I) such Employee Member’s Vested Participation Percentage (after such increase) in such series of Bonus Pool Units times (II) the Aggregate Proceeds minus (y) the aggregate amount of such Aggregate Proceeds that previously paid to such Employee Member under Section 1(b)(i) or this Section 1(c)(i).

(ii) At such time as any Employee Member’s unvested Bonus Pool Units in the applicable series are forfeited pursuant to Section 4 of such Employee’s Award Agreement, an amount equal to the product of (x) a fraction, the numerator of which is the number of unvested Bonus Pool Units in the applicable series so forfeited and the denominator of which is the aggregate number of outstanding Bonus Pool Units in such series times (y) the applicable Aggregate Proceeds.

2. Management of the LLC. Except as otherwise provided in the LLC Agreement or by law, management of Promote Pool LLC is reserved to and shall be vested solely and exclusively in the Managing Member. The rights and authority of the Managing Member shall include, without limitation, the right and authority, in its sole discretion, to —

(a) exercise all consent and voting rights with respect to the Eligible Promoted Interests,

(b) sell, transfer, or otherwise dispose of the interest of Promote Pool LLC in any Eligible Promoted Interest, subject to compliance with the provisions of Section 7 below, and

(c) issue additional Employee Units to persons granted 2011 Bonus Pool Awards, subject to the proviso at the end of Section 3(a) of the Award Agreements.

3. Amendments. The LLC Agreement, or any term or provision thereof, may be amended, waived, modified or supplemented from time to time by the Managing Member in its sole discretion; provided that any amendment to the provisions relating to the distribution of Promoted Interest Proceeds or the defined terms used therein that would materially adversely affect the rights or obligations of the holders of Employee Units granted hereunder shall require the consent of each Employee Member adversely affected thereby. .

4. Transfer of Employee Units. No Employee Member may Transfer all or any part of his or her Employee Units, or any interest therein, directly or indirectly, without the consent of the Managing Member, which consent may be withheld in the Managing Member’s sole discretion. No Transfer of Employee Units, or any interest therein, in violation of this Agreement shall be made or recorded on the books of Promote Pool LLC and any such Transfer shall be null and void, ab initio. An Employee Member shall have no right to grant an assignee of his or her Employee Units, or any interest therein, the right to become a substituted member in Promote Pool LLC. As used herein, “Transfer” means the sale, encumbrance, mortgage, hypothecation, assignment, pledge, exchange or other disposition or transfer (including by operation of law), directly or indirectly, of all or any portion of an Interest. For the avoidance of doubt, any indirect Transfer by an Employee Member or the Company through the transfer or issuance of any equity interest in any entity formed for the purpose of holding Employee Units or Managing Member Units, respectively, or any interest therein, shall constitute a Transfer.

5. Effect of Forfeiture of Unvested Units. At such time as any unvested Employee Units of any Employee Member in any series are forfeited pursuant to Section 4 of the such Employee Member’s award agreement, such unvested Employee Units shall be cancelled and the Manager Percentage Interest shall be increased by a percentage equal to the product of (x) the Unit Percentage Interest with respect to such series in effect immediately prior to such forfeiture times (y) the number of Employee Units in such series that were then forfeited.

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6. Issuance of Additional Employee Units. The Managing Member, in its sole discretion, shall be entitled to issue additional Employee Units in any series at any time, which additional Employee Units may be accompanied by a reduction in the Manager Percentage Interest with respect to such series and a corresponding increase in the Aggregate Employee Participation Percentage for such series, or may represent the issuance of additional Employee Units without a change in the Aggregate Employee Participation Percentage, subject to the proviso at the end of [Section 3(a)] of the Award Agreements.

7. Ownership and Control of Eligible Promoted Interests. If the Managing Member elects to Transfer an Eligible Promoted Interest prior to the occurrence of the Sale Event with respect to such Eligible Promoted Interest (or the Sale Events with respect to all hotel properties related to such Eligible Promoted Interest), the vesting conditions set forth in Sections 3(b)(i)(B), 3(b)(ii)(B) and 3(b)(iii)(B) of the Award Agreements with respect to such Eligible Promoted Interest will be deemed to have been satisfied (to the extent that any such condition shall not previously have been satisfied) and the net proceeds received by Promote Pool LLC in connection with such Transfer shall be deemed to constitute Promoted Interest Proceeds, and shall be distributable in accordance with Section 1, subject to satisfaction of the Payment Conditions and subject to satisfaction of the vesting conditions set forth in Sections 3(b)(i)(A), 3(b)(ii)(A) and 3(b)(iii)(A) of the Award Agreements with respect to individual Employee Members (to the extent that such condition shall not previously have been satisfied). Any Transfer of an Eligible Promoted Interest to the Company or a subsidiary of the Company shall be made for an amount of cash equal to its Fair Market Value.

8. Certain Defined Terms. Capitalized terms defined in the Award Agreement to which this Exhibit A is attached shall have the meanings ascribed therein to such terms. The following capitalized terms used in this Exhibit A shall have the meanings set forth below:

(a) “Aggregate Employee Participation Percentage” means, with respect to any series of Bonus Pool Units and as of any date of determination, a percentage equal to (i) one hundred percent (100%) minus (ii) the Manager Percentage Interest with respect to such series then in effect.

(b) “Award Agreement” means, with respect to any Employee Member, the award agreement pursuant to which such Employee Member was granted a 2011 Bonus Pool Award.

(c) “Employee Unit Distribution Conditions” means, as of the date of any receipt by Promote Pool LLC or any of its wholly-owned subsidiaries of any Promoted Interest Proceeds, the following:

(i) the Common Share Return Condition shall be satisfied; and

(ii) the Company or a consolidated subsidiary of the Company continues to manage the applicable hotel property immediately following the applicable event giving rise to the Promoted Interest Proceeds.

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(d) “Manager Percentage Interest” means, with respect to any series of Bonus Pool Units and as of any date of determination, a percentage equal to (i) one hundred percent (100%) minus (ii) the Designated Participation Percentage with respect to such series plus (iii) the aggregate increases in the Manager Percentage Interest with respect to such series pursuant to Section 5 minus (iv) the aggregate decreases in the Manager Percentage Interest with respect to such series pursuant to Section 6 in connection with the issuances of additional Employee Units with respect to such series.

(e) “Unit Percentage Interest” means, with respect to a single Employee Unit of any series as of the date of determination, a fraction (expressed as a percentage) equal to (i) the Aggregate Employee Participation Percentage with respect to such series as of such date divided by (ii) the aggregate number of Employee Units in such series then outstanding.

(f) “Vested Participation Percentage” means, with respect to any Employee Member and any series of Bonus Pool Units and as of any date of determination, a fraction, (x) the numerator of which is the aggregate number of Employee Units in such series held by such Employee Member that have vested in accordance with Section 3(b) of such Employee’s Award Agreement and (y) the denominator of which is the aggregate number of Employee Units in such series then outstanding.

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EXHIBIT B

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF
TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)
OF THE INTERNAL REVENUE CODE

The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:

1. The name, address and taxpayer identification number of the undersigned are:

Name:                                          (the “Taxpayer”)

Address:                                         

Social Security No./Taxpayer Identification No.:                     

2. Description of property with respect to which the election is being made:

The election is being made with respect to                      Bonus Pool Units (Series [_____]) (the “Bonus Pool Units”) in MHG Employee Promoted Interest LLC (the “Company”).

3. The date on which the Bonus Pool Units were transferred is  _____  ______, 20_. The taxable year to which this election relates is calendar year 20_.

4. Nature of restrictions to which the Bonus Pool Units are subject:

(a) With limited exceptions, until the Bonus Pool Units vest, the Taxpayer may not transfer in any manner any portion of the Bonus Pool Units without the consent of the Company.

(b) The Taxpayer’s Bonus Pool Units (vest in accordance with the vesting provisions described in Annex 1 attached hereto. Unvested Bonus Pool Units are forfeited in accordance with the vesting provisions described in Annex 1 attached hereto.

5. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the Bonus Pool Units with respect to which this election is being made was $_____ per Bonus Pool Unit .

6. The amount paid by the Taxpayer for the Award LTIP Units was $0 per Bonus Pool Unit.

7. A copy of this statement has been furnished to the Company and Morgans Group LLC.

Dated:                     , 20_____  Signature                     

23

ANNEX 1

Vesting Provisions of Bonus Pool Units

The Bonus Pool Units are subject to time-based and performance-based vesting with the final vesting percentage equaling the product of the time-based vesting percentage and the performance-based vesting percentage. Performance-based vesting will be from 0% to 100% based on the achievement of certain goals relating to hotel properties in which Morgans Group LLC or a subsidiary acquires an equity interest and becomes the hotel manager. Under the time-based vesting provisions, one hundred percent (100%) of the Bonus Pool Units will vest on the last day of the performance period, provided that the Taxpayer remains an employee of the Company or any of its affiliates through such date, subject to acceleration in the event of certain extraordinary transactions or termination of the Taxpayer’s service relationship with the Company under specified circumstances. Unvested Bonus Pool Units are subject to forfeiture in the event of failure to vest based on the passage of time or the determination of the performance-based percentage. The right to receive any payments with respect to vested Bonus Pool Units depends on a specified Morgan Hotel Group Co.’s (the “Company’s”) per-share total return to shareholders of Morgans Hotel Group Co. for the period from [                    ], 2011, to the proposed payment date.

24

EX-31.1

Exhibit 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael J. Gross, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Morgans Hotel Group Co. for the fiscal quarter ended March 31, 2011;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael J. Gross  

Michael J. Gross 

Chief Executive Officer 

Date: May 9, 2011

EX-31.2

Exhibit 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard Szymanski, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Morgans Hotel Group Co. for the fiscal quarter ended March 31, 2011;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Richard Szymanski  

Richard Szymanski 

Chief Financial Officer 

Date: May 9, 2011

EX-32.1

Exhibit 32.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Morgans Hotel Group Co. (the “Company”) for the fiscal quarter ended March 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Michael J. Gross, as Chief Executive Officer of the Company hereby certifies, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

/s/ Michael J. Gross  

Michael J. Gross 

Chief Executive Officer 

Date: May 9, 2011

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Morgans Hotel Group Co. (the “Company”) for the fiscal quarter ended March 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard Szymanski, as Chief Financial Officer of the Company hereby certifies, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

/s/ Richard Szymanski  

Richard Szymanski 

Chief Financial Officer 

Date: May 9, 2011

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.