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: June 30, 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	(I.R.S. employer
of 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 August 8, 2011 was 30,522,194.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS		4
MORGANS HOTEL GROUP CO. CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010		4
MORGANS HOTEL GROUP CO. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS		5
MORGANS HOTEL GROUP CO. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS		6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		35
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		62
ITEM 4. CONTROLS AND PROCEDURES		63
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		64
ITEM 1A. RISK FACTORS		64
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		65
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		65
ITEM 4. REMOVED AND RESERVED		65
ITEM 5. OTHER INFORMATION		65
ITEM 6. EXHIBITS		65
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
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

2

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.

3

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Morgans Hotel Group Co.

Consolidated Balance Sheets

(in thousands, except per share data)

	June 30,			December 31,
	2011			2010
	(unaudited)
ASSETS
Property and equipment, net	$	283,493		$	291,078
Goodwill		54,057			53,691
Investments in and advances to unconsolidated joint ventures		20,571			20,450
Assets held for sale, net		—			194,964
Investment in property held for non-sale disposition, net		—			9,775
Cash and cash equivalents		109,593			5,250
Restricted cash		22,280			28,783
Accounts receivable, net		6,776			6,018
Related party receivables		5,393			3,830
Prepaid expenses and other assets		9,098			7,007
Deferred tax asset, net		80,404			80,144
Other, net		12,697			13,786
Total assets	$	604,362		$	714,776
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Debt and capital lease obligations	$	534,865		$	558,779
Mortgage debt of property held for non-sale disposition		—			10,500
Accounts payable and accrued liabilities		26,656			23,604
Debt obligation, accounts payable and accrued liabilities of assets held for sale		—			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		—			1,509
Deferred gain on asset sales		79,878			—
Other liabilities		14,260			13,866
Total liabilities		655,659			716,581
Commitments and contingencies
Preferred securities, $.01 par value; liquidation preference $1,000 per share, 75,000 shares authorized and issued at June 30, 2011 and December 31, 2010, respectively		52,534			51,118
Common stock, $.01 par value; 200,000,000 shares authorized; 36,277,495 shares issued at June 30, 2011 and December 31, 2010, respectively		363			363
Additional paid-in capital		290,537			297,554
Treasury stock, at cost, 5,855,301 and 5,985,045 shares of common stock at June 30, 2011 and December 31, 2010, respectively		(90,867	)		(92,688	)
Accumulated comprehensive loss		(2,277	)		(3,194	)
Accumulated deficit		(310,757	)		(265,874	)
Total Morgans Hotel Group Co. stockholders’ deficit		(60,467	)		(12,721	)
Noncontrolling interest		9,170			10,916
Total deficit		(51,297	)		(1,805	)
Total liabilities and stockholders’ deficit	$	604,362		$	714,776

See accompanying notes to these consolidated financial statements.

4

Morgans Hotel Group Co.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(unaudited)

	Three Months			Three Months			Six Months			Six Months
	Ended June 30,			Ended June 30,			Ended June 30,			Ended June 30,
	2011			2010			2011			2010
Revenues:
Rooms	$	33,485		$	35,093		$	64,519		$	64,343
Food and beverage		15,611			17,549			33,641			35,045
Other hotel		1,733			2,444			3,749			4,653
Total hotel revenues		50,829			55,086			101,909			104,041
Management fees and other income		3,380			5,103			6,704			9,532
Total revenues		54,209			60,189			108,613			113,573
Operating Costs and Expenses:
Rooms		9,685			10,291			20,859			20,316
Food and beverage		13,135			14,184			28,237			28,100
Other departmental		1,036			1,260			2,247			2,512
Hotel selling, general and administrative		10,792			11,811			23,350			23,248
Property taxes, insurance and other		3,704			4,711			7,889			8,811
Total hotel operating expenses		38,352			42,257			82,582			82,987
Corporate expenses, including stock compensation of $2.0 million, $2.8 million, $6.0 million, and $6.6 million, respectively		8,049			9,220			18,883			19,225
Depreciation and amortization		4,199			8,011			12,572			15,356
Restructuring, development and disposal costs		3,800			1,189			8,393			1,866
Total operating costs and expenses		54,400			60,677			122,430			119,434
Operating loss		(191	)		(488	)		(13,817	)		(5,861	)
Interest expense, net		10,014			12,389			19,008			24,739
Equity in loss of unconsolidated joint ventures		910			7,739			10,393			8,002
Gain on asset sales		(620	)		—			(620	)		—
Other non-operating expenses		879			163			2,269			15,192
Loss before income tax expense		(11,374	)		(20,779	)		(44,867	)		(53,794	)
Income tax expense		428			279			293			573
Net loss from continuing operations		(11,802	)		(21,058	)		(45,160	)		(54,367	)
(Loss) income from discontinued operations, net of taxes		(5	)		(447	)		485			16,755
Net loss		(11,807	)		(21,505	)		(44,675	)		(37,612	)
Net loss attributable to noncontrolling interest		383			434			1,208			581
Net loss attributable to Morgans Hotel Group		(11,424	)		(21,071	)		(43,467	)		(37,031	)
Preferred stock dividends and accretion		2,229			2,114			4,416			4,192
Net loss attributable to common stockholders		(13,653	)		(23,185	)		(47,883	)		(41,223	)
Other comprehensive loss:
Unrealized gain on valuation of swap/cap agreements, net of tax		5			5,079			5			10,003
Share of unrealized (loss) gain on valuation of swap agreements from unconsolidated joint venture, net of tax		(845	)		—			1,021			—
Realized loss on settlement of swap/cap agreements, net of tax		—			(2,588	)		—			(5,141	)
Foreign currency translation (loss) gain, net of tax		(3	)		2			(109	)		256
Comprehensive loss	$	(14,496	)	$	(20,692	)	$	(46,966	)	$	(36,105	)
(Loss) income per share:
Basic and diluted continuing operations	$	(0.45	)	$	(0.75	)	$	(1.55	)	$	(1.91	)
Basic and diluted discontinued operations	$	(0.00	)	$	(0.01	)	$	0.02		$	0.55
Basic and diluted attributable to common stockholders	$	(0.45	)	$	(0.76	)	$	(1.53	)	$	(1.36	)
Weighted average number of common shares outstanding:
Basic and diluted		30,498			30,484			31,255			30,395

See accompanying notes to these consolidated financial statements.

5

Morgans Hotel Group Co.

Consolidated Statements of Cash Flows

(in thousands)
(unaudited)

	Six Months Ended June 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(44,675	)	$	(37,612	)
Adjustments to reconcile net loss to net cash used in operating activities (including discontinued operations):
Depreciation		11,198			14,506
Amortization of other costs		1,374			850
Amortization of deferred financing costs		5,974			3,057
Amortization of discount on convertible notes		1,138			1,138
Amortization of deferred gain on asset sales		(620	)		—
Stock-based compensation		6,018			6,588
Accretion of interest on capital lease obligation		956			2,879
Equity in losses from unconsolidated joint ventures		10,393			8,002
Gain on disposal of property held for non-sale disposition		—			(17,927	)
Impairment and loss on disposal of assets		1,040			—
Change in value of warrants		—			13,808
Change in value of interest rate caps and swaps, net		10			—
Changes in assets and liabilities:
Accounts receivable, net		1,507			(366	)
Related party receivables		(1,555	)		(107	)
Restricted cash		5,637			(12,459	)
Prepaid expenses and other assets		637			998
Accounts payable and accrued liabilities		(3,267	)		(3,275	)
Other liabilities		—			(138	)
Discontinued operations		(843	)		901
Net cash used in operating activities		(5,078	)		(19,157	)
Cash flows from investing activities:
Additions to property and equipment		(2,891	)		(7,210	)
Deposits to capital improvement escrows, net		556			199
Distributions from unconsolidated joint ventures		1,619			204
Proceeds from asset sales, net		268,147			—
Purchase of interest in food and beverage joint ventures, net of cash acquired		(19,294	)		—
Investments in and settlement related to unconsolidated joint ventures		(7,559	)		(3,578	)
Net cash provided by (used in) investing activities		240,578			(10,385	)
Cash flows from financing activities:
Proceeds from debt		63,992			—
Payments on debt and capital lease obligations		(193,496	)		—
Debt issuance costs		(428	)		(44	)
Cash paid in connection with vesting of stock based awards		(398	)		(433	)
Cost of issuance of preferred stock		—			(246	)
Distributions to holders of noncontrolling interests in consolidated subsidiaries		(827	)		(958	)
Net cash used in financing activities		(131,157	)		(1,681	)
Net increase (decrease) in cash and cash equivalents		104,343			(31,223	)
Cash and cash equivalents, beginning of period		5,250			68,956
Cash and cash equivalents, end of period	$	109,593		$	37,733
Supplemental disclosure of cash flow information:
Cash paid for interest	$	12,275		$	18,378
Cash paid for taxes	$	149		$	17
Acquisition of interest in unconsolidated joint ventures:
Furniture, fixture and equipment	$	(706	)	$	—
Other assets and liabilities, net		2,999			—
Distributions and losses in excess of investment in unconsolidated joint ventures		(1,587	)		—
Cash included in purchase of interest in food and beverage joint ventures	$	706		$	—

See accompanying notes to these consolidated financial statements.

6

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 June 30, 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 June 30, 2011 are as follows:

		Number of
Hotel Name	Location	Rooms		Ownership
Hudson	New York, NY		834		(1	)
Morgans	New York, NY		114		(2	)
Royalton	New York, NY		168		(2	)
Mondrian SoHo	New York, NY		270		(3	)
Delano South Beach	Miami Beach, FL		194		(4	)
Mondrian South Beach	Miami Beach, FL		328		(5	)
Shore Club	Miami Beach, FL		309		(6	)
Mondrian Los Angeles	Los Angeles, CA		237		(7	)
Clift	San Francisco, CA		372		(8	)
Ames	Boston, MA		114		(9	)
Sanderson	London, England		150		(5	)
St Martins Lane	London, England		204		(5	)
Water and Beach Club Hotel	San Juan, PR		78		(10	)
Hotel Las Palapas	Playa del Carmen, Mexico		75		(11	)

7

(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.
(2)	Operated under a management contract; wholly-owned until May 23, 2011, when the hotel was sold to a third-party.
(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 June 30, 2011 based on cash contributions. See note 4.
(4)	Wholly-owned hotel.
(5)	Owned through a 50/50 unconsolidated joint venture. See note 4.
(6)	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 June 30, 2011. See note 4
(7)	Operated under a management contract; wholly-owned until May 3, 2011, when the hotel was sold to a third party.
(8)	The hotel is operated under a long-term lease which is accounted for as a financing. See note 6.
(9)	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 June 30, 2011 based on cash contributions. See note 4.
(10)	Operated under a management contract, with an unconsolidated minority ownership interest of approximately 25% at June 30, 2011 based on cash contributions. Effective July 13, 2011 the Company no longer operates the Water and Beach Club Hotel.
(11)	Operated under a management contract.

Restaurant Joint Venture

Prior to June 20, 2011, the food and beverage operations of certain of the hotels were operated under 50/50 joint ventures with a third party restaurant operator, China Grill Management Inc. (“CGM”). The joint ventures operated, and CGM managed, certain restaurants and bars at Delano South Beach, Mondrian Los Angeles, Mondrian South Beach, Morgans, Sanderson and St Martins Lane. The food and beverage joint ventures at hotels the Company owned were consolidated, as the Company believed that it was the primary beneficiary of these entities. The Company’s partner’s share of the results of operations of these food and beverage joint ventures were recorded as noncontrolling interests in the accompanying consolidated financial statements. The food and beverage joint ventures at hotels in which the Company had a joint venture ownership interest were accounted for using the equity method, as the Company did not believe it exercised control over significant asset decisions such as buying, selling or financing, and the Company was not the primary beneficiary of the entities.

On June 20, 2011, pursuant to an omnibus agreement, subsidiaries of the Company acquired from affiliates of CGM the 50% interests CGM owned in the Company’s food and beverage joint ventures for approximately $20 million (the “CGM Transaction”). CGM has agreed to continue to manage the food and beverage operations at these properties for a transitional period pursuant to short-term cancellable management agreements while the Company reassesses its food and beverage strategy.

As a result of the CGM Transaction, the Company owns 100% of the former food and beverage joint venture entities located at Morgans, Delano South Beach, Sanderson and St Martins Lane, all of which are consolidated in the Company’s consolidated financial statements. Prior to the completion of the CGM Transaction, the Company accounted for the food and beverage entities located at Sanderson and St Martins Lane using the equity method of accounting. See note 4.

8

The Company’s resulting ownership interests in the remaining two of these food and beverage ventures, covered by the CGM Transaction, relating to the food and beverage operations at Mondrian Los Angeles and Mondrian South Beach, are less than 100%, and were reevaluated in accordance with ASC 810-10, Consolidation (“ASC 810-10”). The Company concluded that these two ventures do not meet the requirements of a variable interest entity and accordingly, these investments in joint ventures are accounted for using the equity method, as the Company does not believe it exercises control over significant asset decisions such as buying, selling or financing. See note 4. Prior to the completion of the CGM Transaction, the Company consolidated the Mondrian Los Angeles food and beverage entity, as it exercised control and was the primary beneficiary of the venture.

On August 5, 2011, an affiliate of Pebblebrook Hotel Trust (“Pebblebrook”), the company that purchased Mondrian Los Angeles in May 2011 (as discussed in note 12), exercised its option to purchase the Company’s remaining ownership interest in the food and beverage operations at Mondrian Los Angeles for approximately $2.5 million. As a result of Pebblebrook’s exercise of this purchase option, the Company no longer has any ownership interest in the food and beverage operations at Mondrian Los Angeles.

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 and six months ended June 30, 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.

Effective January 1, 2010, the Financial Accounting Standards Board (“FASB”) amended the guidance in 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.

9

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.

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 hotel properties or an interest therein. When the Company sells a wholly-owned hotel subject to a long-term management contract, the pretax gain is deferred and is recognized over the life of the contract. In such instances, the Company establishes a deferred tax asset on the deferred gain and recognizes the related tax benefit through the tax provision. In May 2011, the Company used a portion of its tax net operating loss carryforwards to offset the gains on the sale of Royalton, Morgans and Mondrian Los Angeles.

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 and six months ended June 30, 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.

10

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 June 30, 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.

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).

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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 June 30, 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.

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”).

In connection with its Outperformance Award Program, as discussed in note 7, the Company issued OPP LTIP Units (as defined in note 7) which were initially fair valued on the date of grant, and on June 30, 2011, utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run approximately 100,000 times. As the Company has the ability to settle the vested OPP LTIP Units with cash, these awards are not considered to be indexed to the Company’s stock price and must be accounted for as liabilities at fair value.

12

Although the Company has determined that the majority of the inputs used to value the OPP LTIP Units fall within Level 1 of the fair value hierarchy, the Monte Carlo simulation model utilizes Level 3 inputs, such as estimates of the Company’s volatility. Accordingly, the OPP LITP Unit liability was classified as a Level 3 fair value measure.

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 June 30, 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 June 30, 2011 and December 31, 2010 was approximately $237.9 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. For awards under the Company’s Outperformance Award Program, discussed in note 7, long-term incentive awards, the total compensation expense is based on the estimated fair value using the Monte Carlo pricing model. Compensation expense is recorded ratably over the vesting period, if any. Stock compensation expense recognized for the three months ended June 30, 2011 and 2010 was $2.0 million and $2.8 million, respectively. Stock compensation expense recognized for the six months ended June 30, 2011 and 2010 was $6.0 million and $6.6 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 (deficit) 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.

13

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 $9.2 million and $10.6 million as of June 30, 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, less than $0.3 million was recorded as noncontrolling interest as of December 31, 2010, which represents the Company’s joint venture partner’s interest in food and beverage 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.

New Accounting Pronouncements

Accounting Standards Update No. 2011-04 — “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU No.2011-04”) generally provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will be effective for interim and annual periods beginning on or after December 15, 2011. The Company does not believe ASU 2011-04 will have a material impact on its financial statements.

Accounting Standards Update No. 2011-05 — “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU No. 2011-05”) amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and it is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company believes the adoption of this update may provide additional detail on the consolidated financial statements when applicable, but will not have any other impact on the Company’s financial statements.

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.

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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 June 30, 2011, warrants issued to the Investors, unvested restricted stock units, LTIP Units (as defined in note 7), stock options, and OPP LTIP Units 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
	June 30, 2011			June 30, 2010
Numerator:
Net loss from continuing operations	$	(11,802	)	$	(21,058	)
Net loss from discontinued operations		(5	)		(447	)
Net loss		(11,807	)		(21,505	)
Net loss attributable to noncontrolling interest		383			434
Net loss attributable to Morgans Hotel Group Co.		(11,424	)		(21,071	)
Less: preferred stock dividends and accretion		2,229			2,114
Net loss attributable to common shareholders	$	(13,653	)	$	(23,185	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		30,498			30,484
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		30,498			30,484
Basic and diluted loss from continuing operations per share	$	(0.45	)	$	(0.75	)
Basic and diluted loss from discontinued operations per share	$	0.00		$	(0.01	)
Basic and diluted loss available to common stockholders per common share	$	(0.45	)	$	(0.76	)

	Six Months			Six Months
	Ended			Ended
	June 30, 2011			June 30, 2010
Numerator:
Net loss from continuing operations	$	(45,160	)	$	(54,367	)
Net income from discontinued operations		485			16,755
Net loss		(44,675	)		(37,612	)
Net loss attributable to noncontrolling interest		1,208			581
Net loss attributable to Morgans Hotel Group Co.		(43,467	)		(37,031	)
Less: preferred stock dividends and accretion		4,416			4,192
Net loss attributable to common shareholders	$	(47,883	)	$	(41,223	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		31,255			30,395
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		31,255			30,395
Basic and diluted loss from continuing operations per share	$	(1.55	)	$	(1.91	)
Basic and diluted income from discontinued operations per share	$	0.02		$	0.55
Basic and diluted loss available to common stockholders per common share	$	(1.53	)	$	(1.36	)

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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
	June 30,		December 31,
Investment	2011		2010
Mondrian South Beach	$	4,339	$	5,817
Morgans Hotel Group Europe Ltd.		1,631		1,366
Mondrian SoHo		—		—
Boston Ames		10,244		10,709
Mondrian Los Angeles food and beverage — SC Sunset (1)		2,500		—
Mondrian South Beach food and beverage — MC South Beach (1)		1,700		—
Other		157		2,558
Total investments in and advances to unconsolidated joint ventures	$	20,571	$	20,450

	As of		As of
	June 30,		December 31,
Investment	2011		2010
Restaurant Venture — SC London (2)	$	—	$	(1,509	)
Hard Rock Hotel & Casino (3)		—		—
Total losses from and distributions in excess of investment in unconsolidated joint ventures	$	—	$	(1,509	)

(1)	Following the CGM Transaction, the Company’s ownership interest in these food and beverage joint ventures are less than 100%, and based on the Company’s evaluation, these two ventures do not meet the requirements of a variable interest entity. Accordingly, these joint ventures are accounted for using the equity method. Effective August 5, 2011, the Company no longer has an ownership interest in the food and beverage operations at Mondrian Los Angeles. See note 1.
(2)	Until June 20, 2011, the Company had a 50% ownership interest in the SC London restaurant venture. In connection with the CGM Transaction, the Company owns 100% of the SC London restaurant venture, which is consolidated into the Company’s financial statements effective June 20, 2011, the date the CGM Transaction closed.
(3)	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).

Equity in income (loss) from unconsolidated joint ventures

	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
Investment	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
Morgans Hotel Group Europe Ltd.	$	885		$	687		$	892		$	1,499
Restaurant Venture — SC London (1)		(290	)		(191	)		(510	)		(448	)
Mondrian South Beach		(978	)		192			(1,478	)		(232	)
Ames		(1	)		(95	)		(465	)		(491	)
Mondrian SoHo		(529	)		(8,335	)		(2,461	)		(8,335	)
Hard Rock Hotel & Casino (2)		—			—			(6,376	)		—
Other		3			3			5			5
Total equity in loss from unconsolidated joint ventures	$	(910	)	$	(7,739	)	$	(10,393	)	$	(8,002	)

(1)	Until June 20, 2011, the Company had a 50% ownership interest in the SC London restaurant venture. As a result of the CGM Transaction, the Company now owns 100% of the SC London restaurant venture, which is consolidated into the Company’s financial statements effective June 20, 2011, the date the CGM Transaction closed.
(2)	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.

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Morgans Hotel Group Europe Limited

As of June 30, 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 and six months ended June 30, 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 June 30, 2011, Morgans Europe had outstanding mortgage debt of £99.5 million, or approximately $159.2 million at the exchange rate of 1.60 US dollars to GBP at June 30, 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.

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.

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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 June 30, 2011, there are remaining payables outstanding to vendors of approximately $1.3 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.

Following the formation of Hard Rock Hotel Holdings, LLC, additional cash contributions were made by both the DLJMB Parties and the Morgans Parties, including disproportionate cash contributions 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.

On February 6, 2011, 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.

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.

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

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 calculated, as defined, based on ratios of net operating income to debt service for the three months ended September 30, 2011 of 1:1 or greater. In addition to new funds 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 be treated as a loan with priority over the equity, to complete the project. 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 June 30, 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, consolidation 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.

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 June 30, 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 was outstanding as of June 30, 2011. The project also qualified for federal and state historic rehabilitation tax credits which were sold for approximately $16.9 million.

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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, including sufficient deposits into a debt service reserve account. 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 June 30, 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.

SC Sunset and MC South Beach

On June 20, 2011, the Company completed the CGM Transaction, pursuant to which subsidiaries of the Company acquired from affiliates of CGM the 50% interests CGM owned in the Company’s food and beverage joint ventures for approximately $20 million. CGM has agreed to continue to manage the food and beverage operations at these properties for a transitional period pursuant to short-term cancellable management agreements while the Company reassess its food and beverage strategy.

The Company’s ownership interest in two of the food and beverage ventures covered by the CGM Transaction, Sunset Restaurant LLC (“SC Sunset”) at Mondrian Los Angeles, and MC South Beach LLC (“MC South Beach”) at Mondrian South Beach, are less than 100%, and were reevaluated in accordance with ASC 810-10. The Company concluded that these two ventures do not meet the requirements of a variable interest entity and accordingly, these investments in joint ventures are accounted for using the equity method, as the Company does not believe it exercised control over significant asset decisions such as buying, selling or financing.

On August 5, 2011, an affiliate of Pebblebrook, the company that purchased Mondrian Los Angeles in May 2011 (as discussed in note 12), exercised its option to purchase the Company’s remaining ownership interest in the food and beverage operations at Mondrian Los Angeles for approximately $2.5 million. As a result of Pebblebrook’s exercise of this purchase option, the Company no longer has any ownership interest in the food and beverage operations at Mondrian Los Angeles.

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5. Other Liabilities

Other liabilities consist of the following (in thousands):

	As of		As of
	June 30,		December 31,
	2010		2009
OPP Liability (note 7)	$	394	$	—
Designer fee payable		13,866		13,866
	$	14,260	$	13,866

OPP Liability

As discussed further in note 7, the estimated fair value of the OPP LTIP Units liability was approximately $0.4 million at June 30, 2011.

Designer Fee Payable

As of June 30, 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.

6. Debt and Capital Lease Obligations

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

	As of		As of
	June 30,		December 31,		Interest rate at
Description	2011		2010		June 30, 2011
Notes secured by Hudson (a)	$	201,162	$	201,162	1.29% (LIBOR + 1.03%)
Notes secured by equity interests in Henry Hudson Holdings (a)		26,500		26,500	3.24% (LIBOR + 2.98%)
Clift debt (b)		85,989		85,033	9.60%
Liability to subsidiary trust (c)		50,100		50,100	8.68%
Convertible Notes, face value of $172.5 million (d)		165,007		163,869	2.38%
Revolving credit facility (e)		—		26,008	(e)
Capital lease obligations (f)		6,107		6,107	(f)
Debt and capital lease obligation	$	534,865	$	558,779
Mortgage debt secured by assets held for sale — Mondrian Los Angeles (a)	$	—		103,496
Notes secured by property held for non-sale disposition (g)	$	—	$	10,500

(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 another subsidiary of the Company entered into a mezzanine loan related to Hudson, secured by a pledge of the Company’s equity interests in Hudson Holdings.

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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 Holdings Mortgage and consent to certain refinancings and other modifications of the Hudson Holdings Mortgage.

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.

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% on the Hudson Holdings Amended Mortgage, capped the 30-day LIBOR rate at 4.25% on the Mondrian Holdings Amended Mortgage, and effectively cap the 30-day LIBOR rate at 7.0% on the Hudson mezzanine loan.

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, 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.

The Hudson Holdings Amended Mortgage requires the Company’s subsidiary borrower to fund reserve accounts to cover monthly debt service payments. The subsidiary borrower is also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of Hudson. Reserves are deposited into restricted cash accounts and are released as certain conditions are met. Starting in 2009, the mortgage had fallen below the required debt service coverage and as such, all excess cash, once all other reserve accounts were completed, were funded into a curtailment reserve account. At the time the modification agreement was entered into, the majority of the balance in the curtailment reserve account was used to reduce the amount of debt outstanding under the Hudson Holdings Amended Mortgage, as discussed above. Under the Hudson Holdings Amended Mortgage, all excess cash is required to be funded into the curtailment reserve account regardless of the Company’s debt service coverage ratio. The subsidiary borrower is not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations and certain other liabilities.

The Hudson Holdings Amended Mortgage prohibits the incurrence of additional debt on Hudson. Furthermore, the subsidiary borrower is not permitted to incur additional mortgage debt or partnership interest debt. The Hudson Holdings Amended Mortgage does 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 borrower, 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.

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The Hudson Holdings Amended Mortgage provides 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 Hudson Holdings Amended Mortgage, 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.

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 asset sales and debt refinancing. The Company believes it has 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.

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.

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(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) 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.

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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.

(e) 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, (the “Amended Revolving Credit Facility”).

The Amended Revolving Credit Facility provided for a maximum aggregate amount of commitments of $125.0 million, divided into two tranches, which were secured by the mortgages on Morgans, Royalton and Delano South Beach.

The Amended Revolving Credit Facility bore 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 had a borrowing margin of 3.75% per annum and base rate loans have a borrowing margin of 2.75% per annum.

On May 23, 2011, in connection with the sale of Royalton and Morgans, the Company used a portion of the sales proceeds to retire all outstanding debt under the Amended Revolving Credit Facility. These hotels, along with Delano South Beach, were collateral for the Amended Revolving Credit Facility, which terminated with the sale of the properties securing the facility.

On July 28, 2011, the Company and certain of its subsidiaries, including Beach Hotel Associates LLC (the “Florida Borrower” collectively, the “Borrowers”), entered into a secured Credit Agreement (the “Delano Credit Agreement”), with Deutsche Bank Securities Inc. as sole lead arranger, Deutsche Bank Trust Company Americas, as agent (the “Agent”), and the lenders party thereto (the “Lenders”).

The Delano Credit Agreement provides commitments for a $100 million revolving credit facility and includes a $15 million letter of credit sub-facility. The maximum amount of such commitments available at any time for borrowings and letters of credit is determined according to a borrowing base valuation equal to the lesser of (i) 55% of the appraised value of Delano (the “Florida Property”) and (ii) the adjusted net operating income for the Florida Property divided by 11%. Extensions of credit under the Delano Credit Agreement are available for general corporate purposes. The commitments under the Delano Credit Agreement may be increased by up to an additional $10 million during the first two years of the facility, subject to certain conditions, including obtaining commitments from any one or more lenders to provide such additional commitments. The commitments under the Delano Credit Agreement terminate on July 28, 2014, at which time all outstanding amounts under the Delano Credit Agreement will be due and payable.

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The obligations of the Borrowers under the Delano Credit Agreement are guaranteed by the Company and a subsidiary of the Company. Such obligations are also secured by a mortgage on the Florida Property and all associated assets of the Florida Borrower, as well as a pledge of all equity interests in the Florida Borrower.

The interest rate applicable to loans under the Delano Credit Agreement is a floating rate of interest per annum, at the Borrowers’ election, of either LIBOR (subject to a LIBOR floor of 1.00%) plus 4.00%, or a base rate plus 3.00%. In addition, a commitment fee of 0.50% applies to the unused portion of the commitments under the Delano Credit Agreement.

The Borrowers’ ability to borrow under the Delano Credit Agreement is subject to ongoing compliance by the Company and the Borrowers with various customary affirmative and negative covenants, including limitations on liens, indebtedness, issuance of certain types of equity, affiliated transactions, investments, distributions, mergers and asset sales. In addition, the Delano Credit Agreement requires that the Company and the Borrowers maintain a fixed charge coverage ratio (consolidated EBITDA to consolidated fixed charges) of no less than (i) 1.05 to 1.00 at all times on or prior to June 30, 2012 and (ii) 1.10 to 1.00 at all times thereafter.

The Delano Credit Agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the Lenders to, among other things, declare the principal, accrued interest and other obligations of the Borrowers under the Delano Credit Agreement to be immediately due and payable.

(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.

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 June 30, 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.

(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 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.

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7. Omnibus Stock Incentive Plan

RSUs, LTIPs and Stock Options

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.

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.

On April 7, 2011, the Compensation Committee of the Board of Directors of the Company issued an aggregate of 100,000 LTIP units to the Company’s Chief Financial Officer and other senior executive under the Amended 2007 Incentive Plan. All grants 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 estimated fair value of each such LTIP unit granted was $9.09 at the grant date.

Also on April 7, 2011, the Compensation Committee of the Board of Directors of the Company issued an aggregate of 186,900 RSUs to employees under the Amended 2007 Incentive Plan. All grants 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 estimated fair value of each such RSU granted was $9.09 at the grant date.

On May 19, 2011, the Company issued an aggregate of 36,270 RSUs to the Company’s non-employee directors under the Amended 2007 Incentive Plan, which vested immediately upon grant. The fair value of each such RSU was $8.27 at the grant date.

A summary of stock-based incentive awards as of June 30, 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		336,920			300,000		1,300,000
Distributed/exercised during 2011		(150,328	)		—		—
Forfeited during 2011		(91,015	)		—		—
Outstanding as of June 30, 2011		900,911			2,571,437		2,806,337
Vested as of June 30, 2011		208,576			2,243,835		1,506,337

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As of June 30, 2011 and December 31, 2010, there were approximately $11.9 million and $6.8 million, respectively, of total unrecognized compensation costs related to unvested RSU, LTIP and option share awards. As of June 30, 2011, the weighted-average period over which this unrecognized compensation expense will be recorded is approximately 1.4 years.

Total stock compensation expense related to RSUs, LTIPs and options, which is included in corporate expenses on the accompanying consolidated statements of operations and comprehensive loss, was $1.6 million and $2.8 million for the three months ended June 30, 2011 and 2010, respectively, and $5.6 million and $6.6 million for the six months ended June 30, 2011 and 2010, respectively.

Outperformance Award Program

In connection with the Company’s senior management changes announced in March 2011, the Compensation Committee of the Board of Directors of the Company implemented an Outperformance Award Program, which is a long-term incentive plan intended to provide the Company’s senior management with the ability to earn cash or equity awards based on the Company’s level of return to shareholders over a three-year period.

Pursuant to the Outperformance Award Program, each of the Company’s newly hired senior managers, Messrs. Hamamoto, Gross, Flannery and Gery, will receive, an award (an “Award”), in each case reflecting the participant’s right to receive a participating percentage (the “Participating Percentage”) in an outperformance pool if the Company’s total return to shareholders (including stock price appreciation plus dividends) increases by more than 30% (representing a compounded annual growth rate of approximately 9% per annum) over a three-year period from March 20, 2011 to March 20, 2014 (or a prorated hurdle rate over a shorter period in the case of certain changes of control), of a new series of outperformance long-term incentive units (the “OPP LTIP Units,” as described below), subject to vesting and the achievement of certain performance targets.

The total return to shareholders will be calculated based on the average closing price of the Company’s common shares on the 30 trading days ending on the Final Valuation Date (as defined below). The baseline value of the Company’s common shares for purposes of determining the total return to shareholders will be $8.87, the closing price of the Company’s common shares on March 18, 2011. The Participation Percentages granted to Messrs. Hamamoto, Gross, Flannery and Gery are 35%, 35%, 10% and 10%, respectively.

Each of the current participants’ Awards vests on March 20, 2014 (or earlier in the event of certain changes of control) (the “Final Valuation Date”), contingent upon each participant’s continued employment, except for certain accelerated vesting events described below.

The aggregate dollar amount available to all participants is equal to 10% of the amount by which the Company’s March 20, 2014 valuation exceeds 130% (subject to proration in the case of certain changes of control) of the Company’s March 20, 2011 valuation (the “Total Outperformance Pool”) and the dollar amount payable to each participant (the “Participation Amount”) is equal to such participant’s Participating Percentage in the Total Outperformance Pool. Following the Final Valuation Date, the participant will either forfeit existing OPP LTIP Units or receive additional OPP LTIP Units so that the value of the vested OPP LTIP Units of the participant are equivalent to the participant’s Participation Amount.

Participants will forfeit any unvested Awards upon termination of employment; provided, however, that in the event a participant’s employment terminates because of death or disability, or employment is terminated by the Company without Cause or by the participant for Good Reason, as such terms are defined in the participant’s employment agreements, the participant will not forfeit the Award and will receive, following the Final Valuation Date, a Participation Amount reflecting his partial service. If the Final Valuation Date is accelerated by reason of certain change of control transactions, each participant whose Award has not previously been forfeited will receive a Participation Amount upon the change of control reflecting the amount of time since the effective date of the program, which was March 20, 2011.

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OPP LTIP Units represent a special class of membership interest in our operating company, Morgans Group, which are structured as profits interests for federal income tax purposes. Conditioned upon minimum allocations to the capital accounts of the OPP LTIP Units for federal income tax purposes, each vested OPP LTIP Unit may be converted, at the election of the holder, into one Class A Unit in Morgans Group upon the receipt of shareholder approval for the shares of common stock underlying the OPP LTIP Units.

During the six-month period following the Final Valuation Date, Morgans Group may redeem some or all of the vested OPP LTIP Units (or Class A Units into which they were converted) at a price equal to the common share price (based on a 30-day average) on the Final Valuation Date. From and after the one-year anniversary of the Final Valuation Date, for a period of six months, participants will have the right to cause Morgans Group to redeem some or all of the vested OPP LTIP Units at a price equal to the greater of the common share price at the Final Valuation Date (determined as described above) or the then current common share price (calculated as determined in Morgans Group’s limited liability company agreement). Thereafter, beginning 18 months after the Final Valuation Date, each of these OPP LTIP Units (or Class A Units into which they were converted) is redeemable at the election of the holder for: (1) cash equal to the then fair market value of one share of the Company’s common stock, or (2) at the option of the Company, one share of common stock, in the event the Company then has shares available for that purpose under its shareholder-approved equity incentive plans. Participants are entitled to receive distributions on their vested OPP LTIP Units if any distributions are paid on the Company’s common stock following the Final Valuation Date.

The OPP LTIP Units were valued at approximately $7.3 million on the date of grant utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run approximately 100,000 times. For each simulation, the payoff is calculated at the settlement date, which is then discounted to the award date at a risk-free interest rate. The average of the values over all simulations is the expected value of the unit on the award date. Assumptions used in the valuations included factors associated with the underlying performance of the Company’s stock price and total shareholder return over the term of the performance awards including total stock return volatility and risk-free interest.

As the Company has the ability to settle the vested OPP LTIP Units with cash, these Awards are not considered to be indexed to the Company’s stock price and must be accounted for as liabilities at fair value. As of June 30, 2011, the fair value of the OPP LTIP Units were approximately $4.2 million and compensation expense relating to these OPP LTIP Units is being recorded over the vesting period. The fair value of the OPP LTIP Units were estimated on the date of grant and on June 30, 2011 using the following assumptions in the Monte-Carlo valuation: expected price volatility for the Company’s stock of 50%; a risk free rate of 1.46%; and no dividend payments over the measurement period.

Total stock compensation expense related to the OPP LTIP Units, which is included in corporate expenses on the accompanying consolidated statements of operations, was $0.4 million for the three and six months ended June 30, 2011.

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 June 30, 2011, the Company had undeclared and unpaid dividends of $10.3 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 securities, 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.

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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.

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 June 30, 2011, the value of the Series A Preferred Securities was $52.5 million, which includes accretion of $4.5 million.

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

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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 June 30, 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.

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.

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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 and six months ended June 30, 2011 and 2010 (in thousands):

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
Operating revenues	$	—		$	—		$	—		$	1,594
Operating expenses		(8	)		(160	)		(35	)		(1,930	)
Interest expense		—			(302	)		—			(735	)
Depreciation and amortization expense		—			—			—			(268	)
Income tax benefit (expense)		3			148			(323	)		274
(Loss) gain on disposal		—			(133	)		843			17,820
(Loss) income from discontinued operations	$	(5	)	$	(447	)	$	485		$	16,755

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 $3.4 million and $5.1 million for the three months ended June 30, 2011 and 2010, respectively, and $6.7 million and $9.5 million for the six months ended June 30, 2011 and 2010, respectively.

As of June 30, 2011 and December 31, 2010, the Company had receivables from these affiliates of approximately $5.4 million and $3.8 million, respectively, which are included in related party receivables on the accompanying consolidated balance sheets.

11. Litigation

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 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. 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. The Company opposed Petra’s motion for summary judgment, and cross-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 our motion for summary judgment dismissing the complaint, and denied the plaintiff’s motion for summary judgment. Petra thereafter appealed the decision. On May 19, 2011, the appellate court unanimously affirmed the trial courts’ grant of summary judgment in the Company’s favor and the dismissal of Petra’s complaint. Petra has petitioned the New York Court of Appeals for permission to appeal further and the Company has opposed that petition, but the Court of Appeals has not yet ruled. 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.

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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 and Deferred Gain

On May 3, 2011, pursuant to a purchase and sale agreement, Mondrian Holdings sold Mondrian Los Angeles for $137.0 million to Pebblebrook. 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, were approximately $40 million. The Company continues to operate the hotel under a 20-year management agreement with one 10-year extension option.

On May 23, 2011, pursuant to purchase and sale agreements, Royalton LLC, a subsidiary of the Company, sold 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, sold Morgans for $51.8 million to Madison 237 Hotel, L.L.C., an affiliate of FelCor Lodging Trust, Incorporated. The Company applied a portion of the proceeds from the sale to retire the outstanding balance on the Amended Revolving Credit Facility. Net proceeds, after the repayment of debt and closing costs, were approximately $93 million. The Company continues to operate the hotels under a 15-year management agreement with one 10-year extension option.

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

The Company recorded deferred gains of approximately $11.5 million, $13.0 million and $56.0 million, respectively, related to the sales of Royalton, Morgans and Mondrian Los Angeles. As the Company has significant continuing involvement through long-term management agreements, the gains on sales are deferred and recognized over the initial term of the related management agreement. For the three months ended June 30, 2011, the Company recorded a gain of $0.6 million on the consolidated statements of operations and comprehensive loss.

The Company’s hotel management agreements for Royalton and Morgans contain performance tests that stipulate certain minimum levels of operating performance. These performance test provisions give the Company the option to fund a shortfall in operating performance. If the Company chooses not to fund the shortfall, the hotel owner has the option to terminate the management agreement. As of June 30, 2011, an insignificant amount was recorded in accrued expenses related to these performance test provisions.

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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 six months ended June 30, 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 June 30, 2011, of Hudson in New York, Delano South Beach in Miami Beach, and Clift in San Francisco;

• our wholly-owned food and beverage operations, or Owned F&B Operations, consisting, as of June 30, 2011, of certain food and beverage operations located at Royalton, Morgans and Hudson in New York, Delano South Beach in Miami Beach, Clift in San Francisco, and Sanderson and St Martins Lane, both in London;

• our hotels in which we own partial interests, or Joint Venture Hotels, consisting, as of June 30, 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 investment in unconsolidated food and beverage operations, or F&B Ventures, consisting, as of June 30, 2011, of certain food and beverage operations located at Mondrian in Los Angeles and Mondrian South Beach in Miami Beach;

• our investments in hotels under development and other proposed properties;

• our management company subsidiary, Morgans Hotel Group Management LLC, or MHG Management Company, and certain non-U.S. management company affiliates, through which we manage Royalton and Morgans in New York, Mondrian in Los Angeles and Hotel Las Palapas in Playa del Carmen, Mexico; 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 May 2011, we sold Royalton, Morgans and Mondrian Los Angeles. We continue to operate these hotels under long-term management agreements.

In June 2011, we acquired from affiliates of China Grill Management Inc. (“CGM”) the 50% interests CGM owned in our food and beverage joint ventures for approximately $20 million (the “CGM Transaction”). The joint ventures operated restaurants and bars at Delano South Beach, Mondrian Los Angeles, Mondrian South Beach, Morgans, Sanderson and St Martins Lane. CGM has agreed to continue to manage the food and beverage operations at these properties for a transitional period pursuant to short-term cancellable management agreements while we reassess our food and beverage strategy.

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As a result of the CGM Transaction, we own 100% of the former food and beverage joint venture entities located at Morgans, Delano South Beach, Sanderson and St Martins Lane, all of which are consolidated in our consolidated financial statements. Prior to the completion of the CGM Transaction, we did not consolidate the food and beverage entities located at Sanderson and St Martins Lane.

Our resulting ownership interests in the remaining two of these food and beverage ventures covered by the CGM Transaction relating to certain food and beverage operations at Mondrian Los Angeles and Mondrian South Beach, are less than 100%, and were reevaluated in accordance with ASC 810-10, Consolidation (“ASC 810-10”). We concluded that these two ventures do not meet the requirements of a variable interest entity and accordingly, these investments in joint ventures are accounted for using the equity method, as we do not believe we exercise control over significant asset decisions such as buying, selling or financing. Prior to the completion of the CGM Transaction, we consolidated the Mondrian Los Angeles food and beverage entity, as we exercised control and were the primary beneficiary of the venture.

On August 5, 2011, an affiliate of Pebblebrook Hotel Trust (“Pebblebrook”), the company that purchased Mondrian Los Angeles in May 2011, exercised its option to purchase our remaining ownership interest in the food and beverage operations at Mondrian Los Angeles for approximately $2.5 million. As a result of Pebblebrook’s exercise of this purchase option, we no longer have any ownership interest in the food and beverage operations at Mondrian Los Angeles.

As of June 30, 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. Effective July 13, 2011, we terminated the management agreement and we no longer operate the San Juan Water and Beach Club.

In addition to the Joint Venture Hotels, as of June 30, 2011, we also operated the following hotels, in which we do not have an ownership interest, under management agreements which expire as follows:

• Mondrian Los Angeles — May 2031 (with one 10-year extension at our option);

• Royalton — May 2026 (with one 10-year extension at our option, subject to certain conditions);

• Morgans — May 2026 (with one 10-year extension at our option, subject to certain conditions); and

• Hotel Las Palapas in Playa del Carmen, Mexico —December 2014 (with one automatic five-year extension, so long as we are not in default under the management agreement).

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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, a Mondrian project in Doha, Qatar, and a Mondrian project in The Bahamas, 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. For example, our hotel management agreements for Royalton and Morgans contain performance tests that stipulate certain minimum levels of operating performance. These performance test provisions provide us the option to fund a shortfall in operating performance. If we choose not to fund the shortfall, the hotel owner has the option to terminate the management agreement. As of June 30, 2011, an insignificant amount was recorded in accrued expenses related to these performance test provisions. 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 further in note 4 of our consolidated financial statements.

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.

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 driven by occupancy of our hotels and the popularity of our bars and restaurants with our local customers. As a result of the CGM Transaction, we have begun to record 100% of the food and beverage revenue, and related expenses, for our Owned F&B Operations.

• 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 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.

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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.

• 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.

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• 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.

• Gain on asset sales. We recorded deferred gains of approximately $11.5 million, $13.0 million and $56.0 million, respectively, related to the sales of Royalton, Morgans and Mondrian Los Angeles, as discussed in note 12 of our consolidated financial statements. As we have significant continuing involvement with these hotels through long-term management agreements, the gains on sales are deferred and recognized over the initial term of the related management agreement.

• 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 during 2010 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 periods ended June 30, 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 loss carryforwards.

• Noncontrolling interest. Noncontrolling interest constitutes 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, as well as our third-party food and beverage joint venture partner’s interest in the profits and losses of our F&B Ventures.

• 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.

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• 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 has continued 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 business 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 second quarter of 2011, we continued to experience an increase in demand in most of our markets, as compared to the prior year, with increased occupancies accompanied by increases in average daily rate in all of our major markets resulting in strong increases in RevPAR performance for the second quarter compared to the same period in 2010. Overall, however, our operating results are still below pre-recessionary levels.

As demand has strengthened 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.

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.

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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 pre-recessionary periods. 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.

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, as defined below in “-Debt.” Net proceeds, after the repayment of debt and closing costs, were approximately $40 million. We continue to operate the hotel under a 20-year management agreement with one 10-year extension option.

Sale of Royalton and Morgans. On May 23, 2011, Royalton LLC, our subsidiary, completed the sale of Royalton for $88.2 million to Royalton 44 Hotel, L.L.C., an affiliate of FelCor Lodging Trust, Incorporated (“FelCor”), and Morgans Holdings LLC, our subsidiary, completed the sale of Morgans for $51.8 million to Madison 237 Hotel, L.L.C., an affiliate of FelCor. We applied a portion of the proceeds from the sales to retire the outstanding balance on our amended revolving credit facility. The hotels, along with Delano South Beach, were collateral for our amended revolving credit facility, which terminated with these sales of properties securing the facility. As of June 30, 2011, Delano South Beach is unencumbered. Net proceeds from the sales, after the repayment of debt and closing costs, were approximately $93 million. We continue to operate the hotels under a 15-year management agreement with one 10-year extension option.

Acquisition of Food and Beverage Joint Venture Interests. In June 2011, we acquired from affiliates of CGM the 50% interests CGM owned in our food and beverage joint ventures with CGM for approximately $20 million. The joint ventures operated certain restaurants and bars at Delano South Beach, Mondrian Los Angeles, Mondrian South Beach, Morgans, Sanderson and St Martins Lane. CGM has agreed to continue to manage the food and beverage operations at these properties for a transitional period pursuant to short-term cancellable management agreements while we reassess our food and beverage strategy.

On August 5, 2011, an affiliate of Pebblebrook, the company that purchased Mondrian Los Angeles in May 2011, exercised its option to purchase our remaining ownership interest in the food and beverage operations at Mondrian Los Angeles for approximately $2.5 million.

New Revolving Credit Facility. On July 28, 2011, we entered into a new $100 million senior secured revolving credit facility with borrowing capacity of up to $110 million, secured by Delano South Beach (the “Delano Facility”). Borrowings under the Delano Facility are subject to a borrowing base test and upon closing, our availability was $100 million. The interest rate is LIBOR plus 4.0%, subject to a LIBOR floor of 1.0%. The Delano Facility matures in three years and contains standard financial covenants, including a minimum fixed charge coverage ratio of 1.05x in the first year and 1.10x thereafter.

Baha Mar Development Deal. In August 2011, we entered into a hotel management and residential licensing agreement for a 310-room Mondrian-branded hotel, to be the lifestyle hotel destination in the 1,000 acre destination resort metropolis, Baha Mar Resort, in Nassau, The Bahamas. This hotel is expected to represent the fifth Mondrian hotel in the expansion of our iconic brand. Upon completion and opening of the hotel, we will operate Mondrian at Baha Mar pursuant to a 20-year management agreement. The hotel is scheduled to open in late 2014. We are required to fund approximately $10 million of key money just prior to and at opening of the hotel. At signing, this amount was funded into escrow and we are in the process of replacing this obligation with a $10 million standby letter of credit for up to 48 months.

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Operating Results

Comparison of Three Months Ended June 30, 2011 to Three Months Ended June 30, 2010

The following table presents our operating results for the three months ended June 30, 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 June 30, 2011 is comparable to the consolidated operating results for the three months ended June 30, 2010, with the exception of Mondrian Los Angeles, which we owned until May 3, 2011, Royalton and Morgans, which we owned until May 23, 2011, Hard Rock, which we managed until March 1, 2011, Mondrian SoHo, which opened in February 2011, and the completion of the CGM Transaction in June 2011, resulting in our full ownership of certain food and beverage operations previously owned through a 50/50 joint venture. The consolidated operating results are as follows:

	Three Months Ended
	June 30,			June 30,
	2011			2010			Changes ($)			Changes (%)
	(Dollars in thousands)
Revenues:
Rooms	$	33,485		$	35,093		$	(1,608	)		(4.6	)%
Food and beverage		15,611			17,549			(1,938	)		(11.0	)
Other hotel		1,733			2,444			(711	)		(29.1	)
Total hotel revenues		50,829			55,086			(4,257	)		(7.7	)
Management fee and other income		3,380			5,103			(1,723	)		(33.8	)
Total revenues		54,209			60,189			(5,980	)		(9.9	)
Operating Costs and Expenses:
Rooms		9,685			10,291			(606	)		(5.9	)
Food and beverage		13,135			14,184			(1,049	)		(7.4	)
Other departmental		1,036			1,260			(224	)		(17.8	)
Hotel selling, general and administrative		10,792			11,811			(1,019	)		(8.6	)
Property taxes, insurance and other		3,704			4,711			(1,007	)		(21.4	)
Total hotel operating expenses		38,352			42,257			(3,905	)		(9.2	)
Corporate expenses, including stock compensation		8,049			9,220			(1,171	)		(12.7	)
Depreciation and amortization		4,199			8,011			(3,812	)		(47.6	)
Restructuring, development and disposal costs		3,800			1,189			2,611			(1	)
Total operating costs and expenses		54,400			60,677			(6,277	)		(10.3	)
Operating loss		(191	)		(488	)		297			(60.9	)
Interest expense, net		10,014			12,389			(2,375	)		(19.2	)
Equity in loss of unconsolidated joint venture		910			7,739			(6,829	)		(88.2	)
Gain on asset sales		(620	)		—			(620	)		(1	)
Other non-operating expenses		879			163			716			(1	)
Loss before income tax expense		(11,374	)		(20,779	)		9,405			(45.3	)
Income tax expense		428			279			149			53.4
Net loss from continuing operations		(11,802	)		(21,058	)		9,256			(44.0	)
(Loss) from discontinued operations, net of tax		(5	)		(447	)		442			(98.9	)
Net loss		(11,807	)		(21,505	)		9,698			(45.1	)
Net loss attributable to non controlling interest		383			434			(51	)		(11.8	)
Net loss attributable to Morgans Hotel Group Co.		(11,424	)		(21,071	)		9,647			(45.8	)
Preferred stock dividends and accretion		(2,229	)		(2,114	)		(115	)		5.4
Net loss attributable to common stockholders	$	(13,653	)	$	(23,185	)	$	9,532			(41.1	)%

(1) Not meaningful.

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Total Hotel Revenues. Total hotel revenues decreased 7.7% to $50.8 million for the three months ended June 30, 2011 compared to $55.1 million for the three months ended June 30, 2010. The components of RevPAR from our Owned Hotels at June 30, 2011, which consisted of Hudson, Delano South Beach and Clift, for the three months ended June 30, 2011 and 2010 are summarized as follows:

	Three Months Ended
	June 30,			June 30,
	2011			2010			Change ($)		Change (%)
Occupancy		87.4	%		84.3	%		—		3.7	%
ADR	$	250		$	229		$	21		9.5	%
RevPAR	$	219		$	193		$	26		13.5	%

RevPAR from our Owned Hotels increased 13.5% to $219 for the three months ended June 30, 2011 compared to $193 for the three months ended June 30, 2010.

Rooms revenue decreased 4.6% to $33.5 million for the three months ended June 30, 2011 compared to $35.1 million for the three months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels rooms revenue increased 13.7%, which was directly attributable to the increase in RevPAR.

Food and beverage revenue decreased 11.0% to $15.6 million for the three months ended June 30, 2011 compared to $17.5 million for the three months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Slightly offsetting this decrease was an increase related to the CGM Transaction and the consolidation of previously unconsolidated food and beverage operations at our London hotels and an increase in food and beverage revenue at Delano South Beach, primarily as a result of increased occupancy as well as planned sales initiatives focused on our restaurant, which was newly re-concepted in late 2010.

Other hotel revenue decreased 29.1% to $1.7 million for the three months ended June 30, 2011 compared to $2.4 million for the three months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels’ other hotel revenue decreased 16.6% primarily due to decreased revenues related to ancillary services, such as our spa at Delano South Beach, as guests are still spending conservatively in light of the uncertain economic recovery.

Management Fee and Other Income. Management fee and other income decreased by 33.8% to $3.4 million for the three months ended June 30, 2011 compared to $5.1 million for the three months ended June 30, 2010. This decrease was primarily attributable to the termination of our management agreement at Hard Rock effective March 1, 2011 in connection with the Hard Rock settlement, as discussed further in note 4 to the consolidated financial statements.

Operating Costs and Expenses

Rooms expense decreased 5.9% to $9.7 million for the three months ended June 30, 2011 compared to $10.3 million for the three months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels rooms expense increased 12.7% as a result of the increase in rooms revenue attributable to increased occupancy.

Food and beverage expense decreased 7.4% to $13.1 million for the three months ended June 30, 2011 compared to $14.2 million for the three months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Slightly offsetting this decrease was an increase related to the CGM Transaction and the consolidation of previously unconsolidated food and beverage operations at our London hotels, as well as an increase in food and beverage expenses at Hudson as a result of the primary restaurant being closed from January 2010 to May 2010 during its re-concepting and renovation.

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Other departmental expense decreased 17.8% to $1.0 million for the three months ended June 30, 2011 compared to $1.3 million for the three months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels experienced a decrease of 7.7% as a direct result of the decrease in other hotel revenue noted above.

Hotel selling, general and administrative expense decreased 8.6% to $10.8 million for the three months ended June 30, 2011 compared to $11.8 million for the three months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these hotels during all periods presented, our Owned Hotels selling, general and administrative expense increased 9.0% 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 decreased 21.4% to $3.7 million for the three months ended June 30, 2011 compared to $4.7 million for the three months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels property taxes, insurance and other expense decreased 5.4% due to a reduction in the taxable basis at Hudson effective January 2011 which resulted in lower property taxes during the three months ended June 30, 2011 as compared to the same period in 2010.

Corporate expenses, including stock compensation decreased 12.7% to $8.0 million for the three months ended June 30, 2011 compared to $9.2 million for the three months ended June 30, 2010. This decrease was primarily due to a decrease in stock compensation expense recognized during the three months ended June 30, 2011 as the Company accelerated the vesting of unvested equity awards granted to our former Chief Executive Officer and our former President in connection with their separation from the Company in March 2011, which would have normally vested throughout the year. Slightly offsetting this decrease was an increase in stock compensation expense due to the issuance of new series of outperformance long-term incentive units (“OPP LTIP Units”) in March 2011 to our Chief Executive Officer, Executive Chairman, Chief Operating Officer and Chief Development Officer on their hiring, which must be recorded at their fair value, as discussed further in note 7 of our consolidated financial statements.

Depreciation and amortization decreased 47.6% to $4.2 million for the three months ended June 30, 2011 compared to $8.0 million for the three months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels depreciation and amortization increased slightly as a 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.

Restructuring, development and disposal costs increased to $3.8 million for the three months ended June 30, 2011 compared to $1.2 million for the three months ended June 30, 2010. The increase in expense was primarily due to severance costs related to employee and executive restructurings incurred during the three months ended June 30, 2011, for which there was no comparable costs incurred during the three months ended June 30, 2010.

Interest expense, net decreased 19.2% to $10.0 million for the three months ended June 30, 2011 compared to $12.4 million for the three months ended June 30, 2010. This decrease was primarily due to the repayment of the loan secured by Mondrian Los Angeles and the outstanding balance on our amended revolving credit facility as a result of the sale of Mondrian Los Angeles, Royalton and Morgans in May 2011. Additionally, a decrease was 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 during the three months ended June 30, 2010 at a much higher rate than the then current LIBOR rates.

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Equity in loss of unconsolidated joint ventures decreased 88.2% to $0.9 million for the three months ended June 30, 2011 compared to $7.7 million for the three months ended June 30, 2010. This change was primarily a result of our recognition in June 2010 of an $8.3 million impairment charge on our investment in Mondrian SoHo in 2010, for which there was no comparable impairment charge in 2011.

The components of RevPAR from our comparable Joint Venture Hotels for the three months ended June 30, 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
	June 30,			June 30,
	2011			2010			Change ($)		Change (%)
Occupancy		69.1	%		64.5	%		—		7.2	%
ADR	$	323		$	291		$	32		10.7	%
RevPAR	$	223		$	188		$	35		18.6	%

Gain on asset sales resulted in income of $0.6 million for the three months ended June 30, 2011. This income was related to the recognition of gains we recorded on the sales of Royalton, Morgans and Mondrian Los Angeles. As we have significant continuing involvement with these hotels through long-term management agreements, the gains on sales are deferred and recognized over the initial term of the related management agreement.

Other non-operating expense increased to $0.9 million for the three months ended June 30, 2011 as compared to $0.2 million for the three months ended June 30, 2010. The increase was primarily due to a change in accounting for the warrants issued to the Investors, defined below in “-Derivative Financial Instruments”, in connection with our Series A preferred securities. During the three months ended June 30, 2010, we recorded income related to these warrants for which there was no similar income recorded during the three months ended June 30, 2011. For further discussion, see notes 2 and 8 of our consolidated financial statements.

Income tax expense increased 53.4% to $0.4 million for the three months ended June 30, 2011 as compared to $0.3 million for the three months ended June 30, 2010. The slight change was primarily due to the recording of increased foreign state and local taxes during the three months ended June 30, 2011 as compared to the same period in 2010.

Loss from discontinued operations, net of tax resulted in an immaterial loss for the three months ended June 30, 2011 compared to a loss of $0.5 million for the three months ended June 30, 2010. This change was primarily a result of the disposal of the property across the street from Delano South Beach in January 2011.

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Operating Results

Comparison of Six Months Ended June 30, 2011 to Six Months Ended June 30, 2010

The following table presents our operating results for the six months ended June 30, 2011 and 2010, including the amount and percentage change in these results between the two periods. The consolidated operating results for the six months ended June 30, 2011 is comparable to the consolidated operating results for the six months ended June 30, 2010, with the exception of Mondrian Los Angeles, which we owned until May 3, 2011, Royalton and Morgans, which we owned until May 23, 2011, Hard Rock, which we managed until March 1, 2011, Mondrian SoHo, which opened in February 2011, and the completion of the CGM Transaction in June 2011, resulting in our full ownership of certain food and beverage operations previously owned through a 50/50 joint venture. The consolidated operating results are as follows:

	Six Months Ended
	June 30,			June 30,
	2011			2010			Changes ($)			Changes (%)
	(Dollars in thousands)
Revenues:
Rooms	$	64,519		$	64,343		$	176			0.3	%
Food and beverage		33,641			35,045			(1,404	)		(4.0	)
Other hotel		3,749			4,653			(904	)		(19.4	)
Total hotel revenues		101,909			104,041			(2,132	)		(2.0	)
Management fee and other income		6,704			9,532			(2,828	)		(29.7	)
Total revenues		108,613			113,573			(4,960	)		(4.4	)
Operating Costs and Expenses:
Rooms		20,859			20,316			543			2.7
Food and beverage		28,237			28,100			137			0.5
Other departmental		2,247			2,512			(265	)		(10.5	)
Hotel selling, general and administrative		23,350			23,248			102			0.4
Property taxes, insurance and other		7,889			8,811			(922	)		(10.5	)
Total hotel operating expenses		82,582			82,987			(405	)		(0.5	)
Corporate expenses, including stock compensation		18,883			19,225			(342	)		(1.8	)
Depreciation and amortization		12,572			15,356			(2,784	)		(18.1	)
Restructuring, development and disposal costs		8,393			1,866			6,527			(1	)
Total operating costs and expenses		122,430			119,434			2,996			2.5
Operating loss		(13,817	)		(5,861	)		(7,956	)		(1	)
Interest expense, net		19,008			24,739			(5,731	)		(23.2	)
Equity in loss of unconsolidated joint venture		10,393			8,002			2,391			29.9
Gain on asset sales		(620	)		—			(620	)		(1	)
Other non-operating expenses		2,269			15,192			(12,923	)		(85.1	)
Loss before income tax expense		(44,867	)		(53,794	)		8,927			(16.6	)
Income tax expense		293			573			(280	)		(48.9	)
Net loss from continuing operations		(45,160	)		(54,367	)		9,207			(16.9	)
Income from discontinued operations, net of tax		485			16,755			(16,270	)		(97.1	)
Net loss		(44,675	)		(37,612	)		(7,063	)		18.8
Net loss attributable to non controlling interest		1,208			581			627			(1	)
Net loss attributable to Morgans Hotel Group Co.		(43,467	)		(37,031	)		(6,436	)		17.4
Preferred stock dividends and accretion		4,416			4,192			(224	)		5.3
Net loss attributable to common stockholders	$	(47,883	)	$	(41,223	)	$	(6,660	)		16.2	%

(1) Not meaningful.

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Total Hotel Revenues. Total hotel revenues decreased 2.0% to $101.9 million for the six months ended June 30, 2011 compared to $104.0 million for the six months ended June 30, 2010. The components of RevPAR from our Owned Hotels, which consisted, as of June 30, 2011, of Hudson, Delano South Beach and Clift, for the six months ended June 30, 2011 and 2010 are summarized as follows:

	Six Months Ended
	June 30,			June 30,
	2011			2010			Change ($)		Change (%)
Occupancy		80.9	%		77.5	%		—		4.5	%
ADR	$	241		$	230		$	11		4.9	%
RevPAR	$	195		$	178		$	17		9.6	%

RevPAR from our Owned Hotels increased 9.6% to $195 for the six months ended June 30, 2011 compared to $178 for the six months ended June 30, 2010.

Rooms revenue slightly increased 0.3% to $64.5 million for the six months ended June 30, 2011 compared to $64.3 million for the six months ended June 30, 2010. We experienced an increase in rooms revenue of 9.8% at our Owned Hotels, which was directly attributable to the increase in occupancy and ADR shown above. This increase was largely offset by the impact of the sale in May 2011 of three hotels we previously owned.

Food and beverage revenue decreased 4.0% to $33.6 million for the six months ended June 30, 2011 compared to $35.0 million for the six months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Slightly offsetting this decrease was an increase related to the CGM Transaction and the consolidation of previously unconsolidated food and beverage operations at our London hotels, as well as an increase in food and beverage revenue at Delano South Beach, primarily as a result of increased occupancy as well as planned sales initiatives focused on the restaurant, which was newly re-concepted in late 2010.

Other hotel revenue decreased 19.4% to $3.7 million for the six months ended June 30, 2011 compared to $4.7 million for the six months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results for these three hotels during all periods presented, our Owned Hotels other hotel revenue decreased 15.6% primarily due to decreased revenues related to ancillary services, such as our spa at Delano South Beach, as guests are still spending conservatively in light of the uncertain economic recovery.

Management Fee and Other Income. Management fee and other income decreased by 29.7% to $6.7 million for the six months ended June 30, 2011 compared to $9.5 million for the six months ended June 30, 2010. This decrease was primarily attributable to the termination of our management agreement at Hard Rock effective March 1, 2011 in connection with the Hard Rock settlement, as discussed further in note 4 to our consolidated financial statements.

Operating Costs and Expenses

Rooms expense increased 2.7% to $20.9 million for the six months ended June 30, 2011 compared to $20.3 million for the six months ended June 30, 2010. We experienced an increase in rooms expense of 12.5% at our Owned Hotels, which was directly attributable to the increase in occupancy and ADR shown above, which was offset by the impact of the sale in May 2011 of three hotels we previously owned.

Food and beverage expense slightly increased 0.5% to $28.2 million for the six months ended June 30, 2011 compared to $28.1 million for the six months ended June 30, 2010. This increase was primarily related to the CGM Transaction and the consolidation of previously unconsolidated food and beverage operations at our London hotels and an increase in food and beverage expenses at Hudson as a result of the primary restaurant being closed from January 2010 to May 2010 during its re-concepting and renovation. Offsetting this increase was a decrease primarily due to the impact of the sale in May 2011 of three hotels we previously owned.

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Other departmental expense decreased 10.5% to $2.2 million for the six months ended June 30, 2011 compared to $2.5 million for the six months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results for these three hotels during all periods presented, our Owned Hotels experienced a decrease of 6.3% as a direct result of the decrease in other hotel revenue noted above.

Hotel selling, general and administrative expense slightly increased 0.4% to $23.4 million for the six months ended June 30, 2011 compared to $23.2 million for the six months ended June 30, 2010. This slight increase was due to a 10.1% increase in general and administrative expense at our Owned Hotels due to increased selling and marketing initiatives implemented across our hotel portfolio, including the addition of a global sales team. Offsetting this increase was a decrease due to the impact of the sale in May 2011 of three hotels we previously owned.

Property taxes, insurance and other expense decreased 10.5% to $7.9 million for the six months ended June 30, 2011 compared to $8.8 million for the six months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels property taxes, insurance and other expense was relatively flat.

Corporate expenses, including stock compensation slightly decreased 1.8% to $18.9 million for the six months ended June 30, 2011 compared to $19.2 million for the six months ended June 30, 2010. This decrease was primarily due to a decrease in stock compensation expense recognized during the six months ended June 30, 2011, primarily due previously granted higher valued awards becoming fully vested in 2010, as compared to the value of the awards vesting in 2011. Slightly offsetting this decrease was an increase in stock compensation expense recognized during the six months ended June 30, 2011 as the Company accelerated the vesting of unvested equity awards granted to our former Chief Executive Officer and our former President in connection with their separation from the Company in March 2011, which would have normally vested throughout the year, as well as, the issuance of OPP LTIP Units in March 2011 to our Chief Executive Officer, Executive Chairman, Chief Operating Officer and Chief Development Officer on their hiring, which are recorded at their fair value, as discussed further in note 7 of our consolidated financial statements.

Depreciation and amortization decreased 18.1% to $12.6 million for the six months ended June 30, 2011 compared to $15.4 million for the six months ended June 30, 2010. This decrease was primarily due to the impact of the sale in May 2011 of three hotels we previously owned. Excluding the operating results of these three hotels during all periods presented, our Owned Hotels depreciation and amortization increased slightly as a 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.

Restructuring, development and disposal costs increased to $8.4 million for the six months ended June 30, 2011 compared to $1.9 million for the six months ended June 30, 2010. The increase in expense was primarily due to severance costs related to employee and executive restructurings incurred during the six months ended June 30, 2011, for which there was no comparable costs incurred during the six months ended June 30, 2010.

Interest expense, net decreased 23.2% to $19.0 million for the six months ended June 30, 2011 compared to $24.7 million for the six months ended June 30, 2010. This decrease was primarily due to the repayment of the loan secured by Mondrian Los Angeles and the outstanding balance on our amended revolving credit facility as a result of the underlying hotel asset sales. Additionally, a decrease was 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 during the six months ended June 30, 2010 at a much higher rate than the rates applicable during the six months ended June 30, 2011.

Equity in loss of unconsolidated joint ventures increased 29.9% to $10.4 million for the six months ended June 30, 2011 compared to $8.0 million for the six months ended June 30, 2010. During 2011, we recognized expenses related to the Hard Rock settlement and an impairment loss recognized on Mondrian SoHo, which opened in February 2011. In June 2010, we recorded an $8.3 million impairment charge on our investment in Mondrian SoHo.

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The components of RevPAR from our comparable Joint Venture Hotels for the six months ended June 30, 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):

	Six Months Ended
	June 30,			June 30,
	2011			2010			Change ($)		Change (%)
Occupancy		68.1	%		64.0	%		—		6.3	%
ADR	$	325		$	315		$	10		3.3	%
RevPAR	$	221		$	201		$	20		9.8	%

Gain on asset sales resulted in income of $0.6 million for the six months ended June 30, 2011. This income was related to the recognition of gains we recorded on the sales of Royalton, Morgans and Mondrian Los Angeles. As we have significant continuing involvement with these hotels through long-term management agreements, the gains on sales are deferred and recognized over the initial term of the related management agreement.

Other non-operating expense decreased 85.1% to $2.3 million for the six months ended June 30, 2011 as compared to $15.2 million for the six months ended June 30, 2010. The decrease was primarily due to a change in accounting for warrants issued to the Investors, defined below in “-Derivative Financial Instruments”, in connection with the Series A preferred securities. During the six months ended June 30, 2010, we recorded $13.8 million of expense related to these warrants for which there was no similar expense recorded during the six months ended June 30, 2011. For further discussion, see notes 2 and 8 of our consolidated financial statements.

Income tax expense decreased 48.9% to $0.3 million for the six months ended June 30, 2011 as compared to $0.6 million for the six months ended June 30, 2010. The change was primarily due to the recording of decreased foreign state and local taxes during the six months ended June 30, 2011 as compared to the same period in 2010.

Income (loss) from discontinued operations, net of tax resulted in income of $0.5 million for the six months ended June 30, 2011 compared to income of $16.8 million for the six months ended June 30, 2010. This change was primarily a result of the gain recognized on disposal of Mondrian Scottsdale in March 2010.

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Liquidity and Capital Resources

As of June 30, 2011, we had approximately $109.6 million in cash and cash equivalents. As of June 30, 2011, total restricted cash was $22.3 million.

On July 28, 2011, we entered into a new revolving credit facility and as of that date, the maximum amount of borrowing available was $100.0 million.

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.

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, which as of June 30, 2011 was unencumbered. Our Joint Venture Hotels and the hotels which we manage but do not own or partially own, including Mondrian Los Angeles, Royalton, Morgans and Hotel Las Palapas, generally are subject to similar obligations under our management agreements or under debt agreements related to such hotels. 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, the F&B Ventures require between 2% to 4% of gross revenues of the restaurant of restricted cash to be to set aside for future replacement or refurbishment of furniture, fixtures and equipment.

We are focused on growing our portfolio, primarily with our core brands, in major gateway markets and key resort destinations. We intend to utilize the majority of our liquidity to fund new hotel growth. In August, we entered into a hotel management and residential licensing agreement for a 310-room Mondrian-branded hotel, to be the lifestyle hotel destination in the 1,000 acre destination resort metropolis, Baha Mar Resort, in Nassau, The Bahamas. The hotel is scheduled to open in late 2014. We are required to fund approximately $10 million of key money just prior to and at opening of the hotel. At signing, this amount was funded into escrow and we are in the process of replacing this obligation with a $10 million standby letter of credit for up to 48 months.

At Delano South Beach, we plan to renovate certain guest suites and common areas during 2011, which we estimate will cost approximately $5 — $7 million and will be funded from cash on hand.

Additionally, we plan to renovate some of the common areas and replace furniture, fixtures and equipment in guest rooms at Hudson during the next 12 months. We are in the process of finalizing the scope of this renovation. In addition, during 2011, we anticipate the development of approximately 16 guest rooms from rooms that were formerly single room occupancy (“SRO”) units at Hudson, which we believe will cost approximately $2 million.

In addition to reserve funds for capital expenditures, our Owned Hotels debt and lease agreements also require us to deposit cash into escrow accounts for taxes, insurance and debt service payments.

Under the Hudson Holdings Amended Mortgage (defined in “—Debt” below), all excess cash generated at Hudson is required to be deposited into the curtailment reserve account. As of June 30, 2011, there was approximately $7.0 million in the curtailment reserve account related to the Amended Hudson Mortgage.

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In October 2011, the Hudson Holdings Amended Mortgage, with an outstanding aggregate balance of $201.2 million as of June 30, 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.

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 and debt refinancing. We believe we have sufficient capital to refinance the debt and provide capital for growth.

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 June 30, 2011, have not declared any dividends. We have the option to redeem any or all of the Series A preferred securities at any time.

Other long-term liquidity requirements include our 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 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.

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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 and 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.

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 June 30, 2011, there are remaining payables outstanding to vendors of approximately $1.3 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 calculated, as defined, based on ratios of net operating income to debt service for the three months ended September 30, 2011 of 1:1 or greater.

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. There may be cash shortfalls from the operations of the hotel from time to time 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.

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Ames in Boston. As of June 30, 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 including sufficient deposits into a debt service reserve account, which if exercised would extend the maturity date for one year to October 9, 2012.

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 Six Months Ended June 30, 2011 to the Six Months ended June 30, 2010 —

Operating Activities. Net cash used in operating activities was $5.1 million for the six months ended June 30, 2011 as compared to $19.2 million for the six months ended June 30, 2010. The decrease in cash used in operating activities was primarily due to a release of deposits from the curtailment reserve escrow account as a result of our repayment of the Mondrian Los Angeles mortgage loan in May 2011.

Investing Activities. Net cash provided by investing activities amounted to $240.6 million for the six months ended June 30, 2011 as compared to net cash used in investing activities of $10.4 million for the six months ended June 30, 2010. The change was primarily related to the net proceeds we received from the sale of Mondrian Los Angeles, Royalton and Morgans during May 2011 slightly offset by the purchase of joint venture interests in certain food and beverage entities in the CGM Transaction.

Financing Activities. Net cash used in financing activities amounted to $131.2 million for the six months ended June 30, 2011 as compared to $1.7 million for the six months ended June 30, 2010. This increase was primarily due to the repayment of debt associated with the three hotels we sold during May 2011, for which there was no comparable transaction during 2010.

Debt

Mortgages and Hudson Mezzanine Loan. On October 6, 2006, our subsidiaries, 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 another subsidiary entered into a mezzanine loan related to Hudson, secured by a pledge of our equity interests in Hudson Holdings.

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 Holdings Mortgage and to consent to certain refinancings and other modifications of the Hudson Holding Mortgage.

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 (collectively, the “Amended Mortgages”). 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 bore 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% on the Hudson Holdings Amended Mortgage, capped the 30-day LIBOR rate at 4.25% on the Mondrian Holdings Amended Mortgage, and effectively cap the 30-day LIBOR rate at 7.0% on the Hudson mezzanine loan.

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.

The Hudson Holdings Amended Mortgage requires our subsidiary borrower to fund reserve accounts to cover monthly debt service payments. The subsidiary borrower is also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of Hudson. Reserves are deposited into restricted cash accounts and are released as certain conditions are met. Starting in 2009, the mortgage had fallen below the required debt service coverage and as such, all excess cash, once all other reserve accounts were completed, were funded into a curtailment reserve account. At the time the modification agreement was entered into, the majority of the balance in the curtailment reserve account was used to reduce the amount of debt outstanding under the Hudson Holdings Amended Mortgage, as discussed above. Under the Hudson Holdings Amended Mortgage, all excess cash is required to be funded into the curtailment reserve account regardless of our debt service coverage ratio. The subsidiary borrower is not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations and certain other liabilities.

The Hudson Holdings Amended Mortgage prohibits the incurrence of additional debt on Hudson. Furthermore, the subsidiary borrower is not permitted to incur additional mortgage debt or partnership interest debt. The Hudson Holdings Amended Mortgage does 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 borrower, 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 Hudson Holdings Amended Mortgage provides 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 Hudson Holdings Amended Mortgage, 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 June 30, 2011 the balance outstanding on the Hudson Holdings Amended Mortgage was $201.2 million and the balance outstanding on the Hudson mezzanine loan was $26.5 million.

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 and debt refinancing. We believe 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 $86.0 million at June 30, 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.

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.

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.

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Hudson Capital Leases. We lease two condominium units at Hudson which are reflected as capital leases with balances of $6.1 million at June 30, 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.

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 provided for a maximum aggregate amount of commitments of $125.0 million, divided into two tranches, which were secured by mortgages on Morgans, Royalton and Delano South Beach.

The amended revolving credit facility bore 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.

On May 23, 2011, in connection with the sale of Royalton and Morgans, we used a portion of the sales proceeds to retire all outstanding debt under the amended revolving credit facility. These hotels, along with Delano South Beach, were collateral for the amended revolving credit facility, which terminated upon the sale of any of the properties securing the facility.

Delano Credit Facility. On July 28, 2011, we and certain of our subsidiaries, including Beach Hotel Associates LLC (the “Florida Borrower” collectively, the “Borrowers”), entered into a secured Credit Agreement (the “Delano Credit Agreement”), with Deutsche Bank Securities Inc. as sole lead arranger, Deutsche Bank Trust Company Americas, as agent (the “Agent”), and the lenders party thereto (the “Lenders”).

The Delano Credit Agreement provides commitments for a $100 million revolving credit facility and includes a $15 million letter of credit sub-facility. The maximum amount of such commitments available at any time for borrowings and letters of credit is determined according to a borrowing base valuation equal to the lesser of (i) 55% of the appraised value of Delano (the “Florida Property”) and (ii) the adjusted net operating income for the Florida Property divided by 11%. Extensions of credit under the Delano Credit Agreement are available for general corporate purposes. The commitments under the Delano Credit Agreement may be increased by up to an additional $10 million during the first two years of the facility, subject to certain conditions, including obtaining commitments from any one or more lenders to provide such additional commitments. The commitments under the Delano Credit Agreement terminate on July 28, 2014, at which time all outstanding amounts under the Delano Credit Agreement will be due and payable.

The obligations of the Borrowers under the Delano Credit Agreement are guaranteed by us. Such obligations are also secured by a mortgage on the Florida Property and all associated assets of the Florida Borrower, as well as a pledge of all equity interests in the Florida Borrower.

The interest rate applicable to loans under the Delano Credit Agreement is a floating rate of interest per annum, at the Borrowers’ election, of either LIBOR (subject to a LIBOR floor of 1.00%) plus 4.00%, or a base rate plus 3.00%. In addition, a commitment fee of 0.50% applies to the unused portion of the commitments under the Delano Credit Agreement.

The Borrowers’ ability to borrow under the Delano Credit Agreement is subject to ongoing compliance by us and the Borrowers with various customary affirmative and negative covenants, including limitations on liens, indebtedness, issuance of certain types of equity, affiliated transactions, investments, distributions, mergers and asset sales. In addition, the Delano Credit Agreement requires that we and the Borrowers maintain a fixed charge coverage ratio (consolidated EBITDA to consolidated fixed charges) of no less than (i) 1.05 to 1.00 at all times on or prior to June 30, 2012 and (ii) 1.10 to 1.00 at all times thereafter.

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The Delano Credit Agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the Lenders to, among other things, declare the principal, accrued interest and other obligations of the Borrowers under the Delano Credit Agreement to be immediately due and payable.

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.

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 during the first six months 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 or lease agreements related to such hotels, with the exception of Delano South Beach, which as of June 30, 2011 was unencumbered. Our Joint Venture Hotels and the hotels which we manage but do not own or partially own, including Mondrian Los Angeles, Royalton, Morgans and Hotel Las Palapas, generally are subject to similar obligations under our management agreements or under debt agreements related to such hotels. 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, the restaurants and bars which we continue to own through joint ventures require the ventures to set aside restricted cash of between 2% to 4% of gross revenues of the restaurant. As of June 30, 2011, approximately $2.4 million was available in restricted cash reserves for future capital expenditures under these obligations related to our Owned Hotels.

At Delano South Beach, we plan to renovate certain guest suites and common areas during 2011 which we estimate will cost approximately $5 — $7 million and will be funded from cash on hand.

Additionally, we plan to renovate some of the common areas and replace furniture, fixtures and equipment in guest rooms at Hudson during the next 12 months. We are in the process of finalizing the scope of this renovation. In addition, during 2011, we anticipate the development of approximately 16 guest rooms from rooms that were formerly SRO units at Hudson, which we believe will cost approximately $2 million.

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Additionally, we anticipate we will need to renovate 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.

The lenders under the Amended Hudson Mortgage require our subsidiary borrower to fund a reserve account to cover monthly debt service payments. The subsidiary borrower is also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of Hudson. Reserves are deposited into restricted cash accounts and are released as certain conditions are met. In 2009, the Hudson Holdings Mortgage had fallen below the required debt service coverage and as such, all excess cash, once all other reserve accounts are completed, was funded into a curtailment reserve account. Under the Hudson Holdings Amended Mortgage, all excess cash is required to be funded into the curtailment reserve account. As of June 30, 2011, the balance in the curtailment reserve account was $7.0 million. Our subsidiary borrower is not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations, and certain other liabilities.

Management will evaluate the capital spent at its properties on an individual basis and ensure that such decisions do not impact the overall quality of our hotels or our guests’ experience.

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.

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. The fair value of our interest rate caps was insignificant as of June 30, 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.

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.

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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 June 30, 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 June 30, 2011, Morgans Europe had outstanding mortgage debt of £99.5 million, or approximately $159.2 million at the exchange rate of 1.60 US dollars to GBP at June 30, 2011.

Morgans Europe’s net income or loss and cash distributions or contributions are allocated to the partners in accordance with ownership interests. At June 30, 2011, we had an investment in Morgans Europe of $1.6 million. We account for this investment under the equity method of accounting. Our equity in income of the joint venture amounted to income of $0.9 million and income of $0.7 million for the three months ended June 30, 2011 and 2010, respectively, and income of $0.9 million and income of $1.5 million for the six months ended June 30, 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 June 30, 2011, the joint venture’s outstanding mortgage and mezzanine debt was $89.7 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 June 30, 2011, there are remaining payables outstanding to vendors of approximately $1.3 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 June 30, 2011, our investment in Mondrian South Beach was $4.3 million. Our equity in loss of Mondrian South Beach was $1.0 million for the three months ended June 30, 2011, and an equity in income of $0.6 million for the three months ended June 30, 2010. Our equity in loss of Mondrian South Beach was $1.5 million and $0.2 million for the six months ended June 30, 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 June 30, 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 including sufficient deposits into a debt service reserve account, which if exercised would extend the maturity date for one year to October 9, 2012.

As of June 30, 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 of Ames was less than $0.1 million and $0.1 million for the three months ended June 30, 2011 and 2010, respectively, and $0.5 million and $0.5 million for the six months ended June 30, 2011 and 2010, respectively.

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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 June 30, 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 calculated, as defined, based on ratios of net operating income to debt service for the three months ended September 30, 2011 of 1:1 or greater.

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. The loss we recorded, due to impairment charges, on our investment in Mondrian SoHo was $0.5 million and $2.5 million for the three and six months ended June 30, 2011, respectively.

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 June 30, 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.

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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.

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 June 30, 2011, our total outstanding consolidated debt, including capital lease obligations, was approximately $534.9 million, of which approximately $227.7 million, or 42.6%, was variable rate debt. At June 30, 2011, the one month LIBOR rate was 0.19%.

As of June 30, 2011, the $227.7 million of variable rate debt consists of our outstanding balances on the Hudson Holdings Amended Mortgage and Hudson mezzanine loan. In connection with the Hudson Holdings Amended Mortgage, an interest rate cap for 5.3% in the amount of approximately $201.2 million was entered into in September 2010, and was outstanding as of June 30, 2011. In connection with the Hudson mezzanine loan, an interest rate cap for 5.0% in the amount of $26.5 million was entered into in August 2010, and was outstanding as of June 30, 2011. These interest rate caps mature on October 15, 2011. If market rates of interest on this $227.7 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 $2.3 million annually and the maximum annual amount the interest expense would increase on this variable rate debt is $12.2 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 $227.7 million variable rate decrease by 1.0%, the decrease in interest expense would increase pre-tax earnings and cash flow by approximately $2.3 million annually.

As of June 30, 2011, our fixed rate debt of $301.1 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 June 30, 2011 would decrease by approximately $31.0 million. If market rates of interest decrease by 1.0%, or 100 basis points, the fair value of our fixed rate debt at June 30, 2011 would increase by $37.2 million.

62

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.

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 June 30, 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

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. We opposed Petra’s motion for summary judgment, and cross-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. Petra thereafter appealed the decision. On May 19, 2011, the appellate court unanimously affirmed the trial courts’ grant of summary judgment in our favor and the dismissal of Petra’s complaint. Petra has petitioned the New York Court of Appeals for permission to appeal further and we have opposed that petition, but the Court of Appeals has not yet ruled. We will continue to defend this lawsuit vigorously.

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 

August 8, 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)

67

Exhibit
Number			Description
	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)
	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	*	Purchase and Sale Agreement, dated as of April 3, 2011, by and among Morgans Holdings LLC and Madison 237 Hotel, L.L.C. (Morgans New York)
	10.2	*	Purchase and Sale Agreement, dated as of April 3, 2011, by and among Royalton, LLC and Royalton 44 Hotel, L.L.C. (Royalton New York)
	10.3	*	Purchase and Sale Agreement, dated as of April 22, 2011, by and among Mondrian Holdings LLC and Wolverines Owner, LLC (Mondrian Los Angeles)
	10.4	*	Credit Agreement, dated as of July 28, 2011, by and among Morgans Group, LLC, Beach Hotel Associates LLC, Morgans Hotel Group Co., Deutsche Bank Securities Inc., Deutsche Bank Trust Company Americas, and the financial institutions initially signatory thereto and their assignees pursuant to Section 13.5 thereto
	10.5	*	Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated as of July 28, 2011, by Beach Hotel Associates LLC, to Deutsche Bank Trust Company Americas, for itself, the Issuing Bank and for each of the Lenders from time party to the Credit Agreement, dated as of July 28, 2011

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Exhibit
Number			Description
	10.6	*	Security Agreement, dated as of July 28, 2011, from Beach Hotel Associates LLC to Deutsche Bank Trust Company Americas, for itself the Issuing Bank and for each of the Lenders from time to time party to the Credit Agreement, dated as of July 28, 2011
	10.7	*	Guaranty, dated as of July 28, 2011, by Morgans Hotel Group Co., Morgans Hotel Group Management LLC, in favor of Deutsche Bank Trust Company Americas for itself, the Issuing Bank and each of the Lenders under the Credit Agreement, dated as of July 28, 2011
	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

MORGANS NEW YORK

PURCHASE AND SALE AGREEMENT

BETWEEN

Morgans Holdings LLC,

a Delaware limited liability company,

AS SELLER

AND

Madison 237 Hotel, L.L.C.

a Delaware limited liability company,

AS PURCHASER

As of April 3, 2011

Table of Contents

	Page
ARTICLE I PURCHASE AND SALE		1
1.1 Agreement of Purchase and Sale		1
1.2 Property Defined		4
1.3 Permitted Exceptions		5
1.4 Purchase Price		5
1.5 Payment of Purchase Price		5
1.6 Earnest Money		6
1.7 Management Agreement		6
ARTICLE II TITLE AND SURVEY		6
2.1 Title Report		6
2.2 Survey		7
2.3 Approval of Title		7
2.4 Conveyance of Title		9
2.5 Title Policy		10
ARTICLE III INSPECTION		10
3.1 Right of Inspection		10
3.2 Seller Due Diligence Materials		12
ARTICLE IV CLOSING		13
4.1 Time and Place; Pre-Closing		13
4.2 Seller’s Closing Obligations and Deliveries		13
4.3 Purchaser’s Closing Obligations and Deliveries		16
4.4 Prorations, Credits and Other Adjustments		17
4.5 Closing Costs		22
4.6 Conditions Precedent to Obligation of Purchaser		22
4.7 Conditions Precedent to Obligation of Seller		23
4.8 Conditions Precedent to Obligation of Seller and Purchaser		24
4.9 Failure or Waiver of Conditions Precedent		24
4.10 Alcoholic Beverage License		25
4.11 No New Management Agreement Election		25
ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS		26
5.1 Representations and Warranties of Seller		26
5.2 Knowledge Defined		32
5.3 Covenants of Seller		32
5.4 Representations and Warranties of Purchaser		34
5.5 Covenants of Purchaser and/or of Seller		35
5.6 Employees		37
ARTICLE VI DEFAULT		40
6.1 Default by Purchaser		40
6.2 Default by Seller		41
6.3 Seller’s Right to Cure Defaults		41
ARTICLE VII SURVIVAL, INDEMNIFICATION, AND LIMITATIONS ON LIABILITY		42
7.1 Survival		42
7.2 Seller’s Indemnification		42
7.3 Purchaser’s Indemnification		43

i

	Page
7.4 Notice and Resolution of Claims		43
7.5 Limitations on Liability		44
7.6 Other Matters Regarding Indemnification		45
ARTICLE VIII RISK OF LOSS		46
8.1 Minor Damage		46
8.2 Major Damage		46
8.3 Definition of “Major” Loss or Damage		46
ARTICLE IX COMMISSIONS		47
9.1 Brokerage Commissions		47
ARTICLE X DISCLAIMERS AND WAIVERS		47
10.1 No Reliance on Documents		47
10.2 DISCLAIMERS		48
10.3 Repairs, Reserves, and Capital Expenditures		49
10.4 Effect and Survival of Disclaimers		49
ARTICLE XI MISCELLANEOUS		50
11.1 Confidentiality		50
11.2 Public Disclosure		51
11.3 Assignment		51
11.4 Notices		51
11.5 Modifications		53
11.6 Calculation of Time Periods; Time is of the Essence		53
11.7 Successors and Assigns		53
11.8 Entire Agreement		53
11.9 Further Assurances		53
11.10 Counterparts; Facsimile Signatures		53
11.11 Severability		54
11.12 Applicable Law		54
11.13 No Third Party Beneficiary		54
11.14 Exhibits and Schedules		54
11.15 Captions		55
11.16 Construction		55
11.17 Termination of Agreement		55
11.18 Attorneys Fees		55
11.19 No Waiver		55
11.20 No Reservation of Property		55
11.21 No Recordation		56

ii

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is made as of April 3, 2011 (the “Effective Date”), by and among Morgans Holdings LLC, a Delaware limited liability company (“Seller”), and Madison 237 Hotel, L.L.C., a Delaware limited liability company (such entity or any assignee permitted under Section 11.3 below, “Purchaser”). Unless otherwise noted, all capitalized terms set forth in this Agreement shall have the meanings ascribed to them in Annex A attached hereto.

W I T N E S S E T H:

WHEREAS, Seller is the owner and holder of the fee simple estate in and to that certain plot, piece and parcel of land located at 237 Madison Avenue, New York, New York, County of New York and more particularly described in Schedule 1.1(a) attached hereto (the “Land”), together with the hotel and all other improvements and fixtures (collectively, the “Improvements”) located on the Land (the Improvements and the Land are hereinafter sometimes collectively referred to as the “Real Property”) together with all Personal Property (as defined below); and

WHEREAS, Seller operates on the Real Property the hotel known as “Morgans” (the “Hotel”);

WHEREAS, Seller desires to cause the sale, assignment and transfer of its interests in and to the Property (as defined below), including the Personal Property, to Purchaser in accordance with the terms and provisions of this Agreement, and Purchaser desires to purchase such interests from Seller and assume certain liabilities related to the Property upon the terms more particularly set forth in this Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, Purchaser and Seller agree as follows:

ARTICLE I
PURCHASE AND SALE

1.1 Agreement of Purchase and Sale. Subject to the terms and conditions hereinafter set forth, Seller agrees to sell and convey, and Purchaser agrees to purchase, the entire fee simple estate in (a) and (b) below and all of Seller’s (or of any other subsidiaries of Morgans Group (collectively, and together with Seller, the “Seller Group”), which shall not include Asia de Cuba for purposes of this provision) right, title and interest in and to the balance of the following:

(a) The Land as described in Schedule 1.1(a) attached hereto.

(b) The Improvements.

1

(c) All tangible personal property owned by Seller or any member of Seller Group that is (i) used solely in connection with the operation of the Real Property (including without limitation appliances, furniture, furnishings, equipment, signage, carpeting, draperies and curtains, tools and supplies, decorations, china, glassware, linens, silver, utensils, computers, computer equipment and manuals, all owned vehicles and other similar items of personal property) and (ii) located at the Hotel as of the Effective Date or added to the Real Property after the Effective Date but prior to the Closing Date, subject to use and depletion of such tangible personal property in the ordinary course, but specifically excluding the personal property listed on Schedule 1.1(c) attached hereto (the “Excluded Personal Property”). The tangible personal property described in this Section 1.1(c) exclusive of the Excluded Personal Property, is hereinafter referred to collectively as the “Personal Property”.

(d) All contracts or reservations for the use of guest rooms, ballroom and banquet facilities, conference facilities, meeting rooms or other facilities of the Hotel or located within the Improvements for the Closing Date and the period from and after the Closing Date (collectively, the “Bookings”), and any deposits held by Seller Group in connection with the Bookings and not previously applied as of the Effective Date (or between the Effective Date and the Closing Date in accordance with the provisions of this Agreement).

(e) All contracts and agreements that are assignable without the consent of the counterparty thereto or additional costs or liability to Seller relating to the upkeep, repair, maintenance or operation of the Real Property or the Personal Property, including all deposits and credits thereunder (collectively, the “Service Contracts”), which are:

(i) listed on Schedule 1.1(e)-1 attached hereto (but specifically excluding (A) Bookings, (B) Space Leases, (C) insurance policies, (D) the Management Agreement, and (E) any contract or agreement listed on such Schedule 1.1(e)-1 which (I) is terminated on or before Closing pursuant to the terms of this Agreement, (II) expires pursuant to its terms on or before the Closing Date or (III) is terminated by the applicable counterparty thereto on or before the Closing Date);

(ii) listed on Schedule 1.1(e)-2 (the “Equipment Leases”, but specifically excluding any contract or agreement listed on such Schedule 1.1(e)-2 which (A) is terminated on or before Closing pursuant to the terms of this Agreement, (B) expires pursuant to its terms on or before the Closing Date or (C) is terminated by the applicable counterparty thereto on or before the Closing Date); or

(iii) entered into after the Effective Date in accordance with the terms of this Agreement;

provided, however, Purchaser will not acquire those Service Contracts and those Equipment Lease (1) entered into after the Effective Date as to which it notifies Seller in writing at least five (5) business days prior to the Closing Date that it does not intend to assume at Closing; provided, further, however, that for any Service Contract and Equipment Leases entered into within five business days prior to the Closing Date, Purchaser will not acquire those Service Contracts or Equipment Leases unless it affirmatively elects to do so in writing prior to the Closing Date or (2) which are listed on such Schedule 1.1(e)-1 under the heading “Asia de Cuba” (the “ADC Contracts”).

2

(f) All names, marks, logos and designs, used in the operation or ownership of the Property or any part thereof listed on Schedule 1.1(f), provided that Purchaser expressly acknowledges and agrees that the following items are specifically excluded and shall not be transferred hereunder: (i) all right, title or interest of any kind or nature whatsoever in and to, and intellectual property in any way relating to, the Manager’s Materials or Manager’s Tradenames (it being understood that certain rights with respect to certain of the foregoing items shall be granted to Purchaser pursuant to the New Management Agreement); (ii) all websites and domains used for the Hotel, including access to the FTP files of the websites; and (iii) any information or reports that relate solely to the period prior to the Closing (all such items not to be transferred hereunder being collectively referred to as the “Retained IP”).

(g) To the extent the same are assignable as of the Closing Date without (i) consent of a third party that refuses, after use of commercially reasonable efforts, to provide consent or (ii) additional costs or liability to Seller that Purchaser is unwilling to pay, and to the extent Purchaser elects in writing to assume same, in its sole discretion, all transferable licenses, franchises and permits owned by the Seller Group and used in or relating to the ownership, occupancy or operation of the Property or any part thereof, subject to Purchaser’s compliance with any limitations or restrictions on transfer or assignment of any computer-related materials or software which are contained in any license or similar agreement (collectively, the “Permits”), provided that the term Permits specifically excludes any and all non-transferable permits and licenses held by Seller in connection with the Property, including, without limitation, the liquor license and the permits and approvals required for the preparation, sale and service of food and beverage (collectively, such excluded Permits, the “Excluded Permits”).

(h) To the extent the same are assignable as of the Closing Date without (i) consent of a third party that refuses, after use of commercially reasonable efforts, to provide consent or (ii) additional costs or liability to Seller that Purchaser is unwilling to pay, and to the extent Purchaser elects in writing to assume same, in its sole discretion, all assignable telephone numbers, TWX numbers, post office boxes, signage rights, utility and development rights and privileges, site plans, surveys, environmental and other physical reports, plans and specifications pertaining to the Real Property, the Personal Property or both (all of the property described in clauses (f), (g) and (h) of this Section 1.1 that is not specifically deemed excluded being herein referred to, together with any goodwill of Seller Group in connection with the operation of the Hotel, collectively as the “Intangibles”).

(i) All: (i) food and beverages (subject to any legal restrictions pertaining to the sale or transfer of alcoholic beverages) that are in the Hotel as of the Closing Date; (ii) inventory held for sale by Seller to Hotel guests and others in the ordinary course of business including all opened and unopened retail inventory in any area at the Hotel conducting retail sales that is in the Hotel as of the Closing Date(provided, that Purchaser’s use of any such inventory that bears any Retained IP shall be subject to the use restrictions, if any, contained in the New Management Agreement) (collectively, “Retail Inventory”); (iii) engineering, maintenance and housekeeping supplies (including soap and cleaning materials, fuel and materials, stationery and printing items) that are in the Hotel as of the Closing Date (provided, that Purchaser’s use of any such inventory that bears any Retained IP shall be subject to the use restrictions, if any, contained in the New Management Agreement); and (iv) other supplies, whether used, unused or held in reserve storage for future use in connection with the maintenance and operation of the Real Property or the Personal Property that are in the Hotel as of the Closing Date (provided, that Purchaser’s use of any such inventory that bears any Retained IP shall be subject to the use restrictions, if any, contained in the New Management Agreement) (all of the foregoing being referred to herein as the “Consumable Inventory” and, to the extent contained in unopened boxes, bottles, jars or containers of any type as of the Closing Date, shall collectively be referred to, together with unopened packages of china, glass, silver and linens, as the “Unopened Inventory”).

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(j) [Intentionally Omitted]

(k) Subject to Section 4.4.9 hereof, Seller’s interest in the cash funds contained in “house banks” for the Hotel as of the Cut-Off Time, whether held in the name of Seller, the Hotel or Manager (defined below) and owned by Seller (collectively, the “House Bank Funds”). Purchaser expressly acknowledges and agrees that the Property to be transferred to Purchaser pursuant to this Agreement does not include any reserve or other accounts created or maintained by or on behalf of Seller or Manager in connection with the ownership or operation of the Hotel.

(l) The Receivables assigned pursuant to Section 4.4.4(c).

(m) Any deposits made by Seller with utility companies or governmental agencies or authorities relating to the Real Property to the extent apportionment is made therefor pursuant to Section 4.4.

1.2 Property Defined.

(a) The Real Property, the Personal Property, the Bookings, the Service Contracts, the Intangibles, the Consumable Inventory, the House Bank Funds, the Receivables referred to in Section 1.1(l) and the deposits referred to in Section 1.1(m) are hereinafter sometimes referred to collectively as the “Property”. The Purchase Price does not include, and shall be adjusted with respect to the House Bank Funds, the Receivables, the Unopened Inventory (solely to the extent such Unopened Inventory consists of items that are currently in use in the operation of the Hotel in the ordinary course and are not obsolete), and the other adjustment items described in Section 4.4 below.

(b) Notwithstanding anything to the contrary in Section 1.1 or Section 1.2(a) above, the following items are expressly excluded from the Property:

(i) All cash on hand or on deposit in any operating account or other account or reserve, security deposits held by Seller with respect to any Booking as of the Closing Date, utility and governmental agency deposits, deposits held by Seller in connection with any Service Contract to be assumed by Purchaser and the House Bank Funds, all of which are to be transferred at Closing subject to the terms of this Agreement.

(ii) The Excluded Personal Property.

(iii) The Retained IP.

(iv) The Excluded Permits.

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(v) Any tangible or intangible property (including, without limitations, fixtures, personal property or intellectual property) owned by: (A) the supplier, vendor, licensor, lessor or other party under any Service Contracts; (B) the tenant under the Space Lease, which excluded tangible or intangible property does not include any tangible personal property located outside of the premises subject to the Space Lease, other than supplies and equipment stored elsewhere in the Property and incidental tangible personal property that may be temporarily located outside such premises; (C) Manager; (D) any employees; (E) any guests or customers of the Hotel; or (F) any other third party.

(vi) The lease described on Schedule 1.2(b)(vi) attached hereto (the “Space Lease”), including any deposits relating to such Space Lease held by Seller and not applied to the tenant’s obligations as of the Effective Date. The parties expressly acknowledge and agree that, while the Purchaser will take title at Closing to the Hotel, subject to the Space Lease, Purchaser is expressly not assuming the Space Lease nor any obligations thereunder and will, pursuant to the Master Lease (defined below), lease to Seller the portion of the Hotel that constitutes the leased premises under the Space Lease.

1.3 Permitted Exceptions. The Property shall be conveyed subject to all matters which are, or are deemed to be, Permitted Exceptions pursuant to Article II below.

1.4 Purchase Price. Seller is to sell and Purchaser is to purchase the Property for a total of FIFTY ONE MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($51,800,000.00) (the “Purchase Price”).

1.5 Payment of Purchase Price.

(a) On the Closing Date, Purchaser shall deliver to Escrow Agent, by wire transfer of immediately available federal funds to the bank account designated in the Escrow Agreement, an amount equal to the Purchase Price, as increased or decreased by prorations and adjustments as herein provided, less the sum of the Earnest Money previously delivered to Escrow Agent and all interest accrued thereon.

(b) The Purchase Price (including the Earnest Money previously delivered to Escrow Agent), as increased or decreased by prorations and adjustments as herein provided, shall be payable in full at Closing in cash by wire transfer of immediately available federal funds to a bank account designated by Seller in writing to Purchaser and Escrow Agent prior to the Closing.

(c) Prior to Closing, Seller will notify Purchaser in writing of the proposed allocation of the Purchase Price among the Real Property and various items of personal property (i.e. the Property other than the Real Property) and such allocation shall be subject to Purchaser’s approval. Seller and Purchaser agree to file federal, state and local tax returns consistent with such allocations as may be agreed upon between the parties. If Purchaser and Seller cannot agree upon an allocation of the Purchase Price, each party shall file federal, state and local returns based on each party’s own determination of the proper allocations of the Purchase Price, bearing its own consequences of any discrepancies. Notwithstanding the foregoing, prior to Closing, Seller and Purchaser will agree upon an allocation between Real Property and Personal Property for the sole purpose of, and as necessary to complete and file, the required transfer tax reports and returns.

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1.6 Earnest Money.

(a) Within one (1) business day following the full execution and delivery of this Agreement by Seller and Purchaser, Purchaser shall deposit with First American Title Insurance Company (“Escrow Agent”) having its office at 633 Third Avenue, New York, NY 10017, Attention: Andrew Jaeger or Anthony Ruggeri, the sum of TWO MILLION FIVE HUNDRED NINETY THOUSAND AND NO/100 DOLLARS ($2,590,000.00) (together with accrued interest thereon, the “Earnest Money”) by wire transfer of immediately available federal funds to the bank account designated in the Escrow Agreement. The Earnest Money may be increased by an additional ONE MILLION ONE HUNDRED TEN THOUSAND AND NO/100 DOLLARS ($1,110,000.00) in the event Purchaser elects to adjourn the Closing pursuant to Section 4.10(b). The full amount of the Earnest Money is fully non-refundable to Purchaser except in the event that this Agreement is timely terminated as a result of Purchaser’s election to terminate strictly in accordance with and pursuant to the terms and provisions of this Agreement (including without limitation Section 2.3(b), Section 4.9, Section 6.2 or Section 8.2), in which case the Escrow Agent shall be obligated to refund the full amount of the Earnest Money to Purchaser pursuant to the terms of the Escrow Agreement.

(b) Escrow Agent shall hold the Earnest Money in a segregated, interest-bearing account in accordance with the terms and conditions of the Deposit Escrow Instructions attached hereto as Exhibit J (the “Escrow Agreement”). All interest accruing on such sums shall become a part of the Earnest Money and shall be distributed or applied as Earnest Money in accordance with the terms of the Escrow Agreement.

(c) Time is of the essence for the delivery of Earnest Money under this Agreement and the failure of Purchaser to timely deliver any portion of the same shall be a material default, and shall entitle Seller, at Seller’s sole option, to terminate this Agreement immediately and to pursue all remedies available to Seller under this Agreement.

1.7 Management Agreement. Purchaser acknowledges that the Hotel is being operated and managed by Morgans Hotel Group Management LLC, a Delaware limited liability company (“Manager”) (formerly known as Ian Schrager Hotel Management LLC), pursuant to that certain Hotel Management Agreement dated as of June 30, 1999, by and between Seller and Manager (the “Management Agreement”). At Closing, the Management Agreement will be terminated effective as of the Closing Date at Seller’s sole cost and expense and Purchaser (or its affiliate) and Manager will enter into a hotel management agreement in the form agreed to by the parties prior to the Effective Date (the “New Management Agreement”).

ARTICLE II
TITLE AND SURVEY

2.1 Title Report. Seller has obtained and delivered to Purchaser, a title report dated January 18, 2011 (Title No. 3008-342365NY2) (the “Title Report”) covering the Real Property from First American Title Insurance Company (the “Title Company”) and, has caused the Title Company to deliver to Purchaser a copy of each document referenced in the Title Report as an exception to title to the Real Property. Purchaser shall deliver to Seller, within five (5) days after receipt by Purchaser, a copy of any updates (each a “Title Update”) to the Title Report issued by the Title Company, provided that if Purchaser shall receive a Title Update less than five (5) days prior to the then scheduled Closing Date, then Purchaser shall deliver same to Seller prior to the Closing.

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2.2 Survey. Seller has obtained and delivered to Purchaser and the Title Company, at Purchaser’s sole cost and expense, a survey of the Real Property prepared by Earl B. Lovell dated September 18, 1926 last brought up to date with a visual examination by Earl B. Lovell-S.P. Belcher, Inc. on March 24, 2011 (the “Survey”).

2.3 Approval of Title.

(a) Except for Monetary Encumbrances and as reflected in the pro forma policy attached hereto as Exhibit I, Purchaser has approved all matters disclosed by the Title Report and the Survey.

(b) Purchaser shall have five (5) business days after receipt of a Title Update, if any, to notify Seller, in writing, of such objections as Purchaser may have to anything contained in such Title Update other than Permitted Exceptions (and if Purchaser receives a Title Update less than (5) business days prior to a scheduled Closing Date, then Purchaser shall deliver such written notice to Seller prior to the Closing). In the event Purchaser shall notify Seller, in writing, of objections to title or to matters shown on a Title Update, Seller shall have the right, but not the obligation (other than as explicitly set forth in this Agreement with respect to Monetary Encumbrances and certain other objections), to cure such objections. Within five (5) business days after receipt of Purchaser’s notice of objections (or, if sooner, two (2) business days prior Closing), Seller shall notify Purchaser in writing whether Seller elects to attempt to cure any or all of such objections. If Seller elects to attempt to cure any or all of such objections, Seller shall have the right to attempt to remove, satisfy or cure the same and for this purpose Seller shall, at Seller’s election, be entitled to reasonable adjournments of the Closing if additional time is required, but in no event shall the adjournments, in the aggregate, exceed thirty (30) days after the Outside Closing Date. If Seller elects not to attempt to cure any objections specified in Purchaser’s notice, or if Seller fails (for any reason or no reason) to effect a cure of those objections which it elected to attempt to cure prior to the Closing (or any date to which the Closing has been adjourned) and so notifies Purchaser in writing, or if Seller fails to respond to Purchaser’s notice within said five (5) business day period, Purchaser shall have the following options: (i) to accept a conveyance of the Property subject to the Permitted Exceptions and any matter objected to by Purchaser which Seller is unwilling or unable to cure (each of which shall also be deemed to be Permitted Exceptions), without reduction of the Purchase Price; or (ii) to terminate this Agreement by sending written notice thereof to Seller, and upon delivery of such notice of termination, (x) this Agreement shall terminate, (y) the Earnest Money shall be returned to Purchaser, and (z) thereafter neither party hereto shall have any further rights, obligations or

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liabilities hereunder except to the extent that any right, obligation or liability set forth herein expressly survives termination of this Agreement If: (A) Seller notifies Purchaser that Seller does not intend to attempt to cure any title objection; (B) Seller fails to respond to Purchaser’s notice within said five (5) business day period; (C) if, having commenced attempts to cure any objection, Seller later notifies Purchaser in writing that Seller will not effect a cure thereof or (D) Seller fails to timely cure any such title objection, then, in any such event, Purchaser shall, within five (5) business days after such notice has been given (or within five (5) business days after Seller’s five (5) business day period to respond to Purchaser’s objection notice has expired), notify Seller in writing whether Purchaser shall elect to accept the conveyance under clause (i) of the immediately preceding sentence or to terminate this Agreement under clause (ii) of the immediately preceding sentence. Purchaser’s failure to notify Seller of termination of this Agreement within such five (5) business day period shall be deemed to be an irrevocable election under clause (ii) above to terminate this Agreement and, in such event, (1) this Agreement shall terminate, (2) the Earnest Money shall be returned to Purchaser, and (3) thereafter neither party hereto shall have any further rights, obligations or liabilities hereunder except to the extent that any right, obligation or liability set forth herein expressly survives termination of this Agreement. If any time period contained in this Section 2.3(b) would end after the Outside Closing Date, same shall be automatically adjourned to the business day immediately after the expiration of such time period.

(c) In no event and under no circumstances shall Seller have any responsibility or obligation of any kind or nature whatsoever (express or implied) to cure any title matter objected to by Purchaser other than as set forth in this Section 2.3(c). Notwithstanding the foregoing sentence or anything else to the contrary contained in this Agreement, if any of the objections set forth in a written notice from Purchaser (A) consist of delinquent taxes, mortgages, deeds of trust, security agreements, construction or mechanics’ liens, fines arising from outstanding violations, tax liens or other liens or charges in a fixed sum (or capable of computation as a fixed sum), or (B) were caused, assumed, consented to or created by Seller (collectively, “Monetary Encumbrances”), then Seller shall be obligated to pay and discharge (or cause the Title Company to insure over in a manner reasonably satisfactory to Purchaser) such Monetary Encumbrances without limitation as to the cost thereof. Seller shall use its commercially reasonable efforts to cure any title matter objected to by Purchaser other than Monetary Encumbrances, provided that Seller’s obligation to incur costs and expenses in connection with paying and/or discharging any such title objections other than Monetary Encumbrances is limited to Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in the aggregate. Notwithstanding anything to the contrary contained herein, if Seller does not pay or discharge (i) a Monetary Encumbrance, Purchaser can elect to either consummate the transactions contemplated hereby and receive a credit to the Purchase Price in the amount required to remove, release and satisfy in full such Monetary Encumbrance or terminate this Agreement (in which event this Agreement shall terminate and the Earnest Money shall be returned to Purchaser) or (ii) a title matter other than a Monetary Encumbrance, Purchaser can elect to either consummate the transactions contemplated hereby (in which event it will receive a credit to the Purchase Price in the amount required to remove, release or satisfy in full such title matter, such credit not to exceed $250,000 less the aggregate amount theretofore expended by Seller to discharge title matters other than Monetary Encumbrances) or terminate this Agreement (in which event this Agreement shall terminate and the Earnest Money shall be returned to Purchaser).

(d) If Purchaser terminates this Agreement pursuant to this Section 2.3 by reason of (x) a Title Objection that related to a matter that first arose after the Effective Date by reason of an action by Seller in violation of this Agreement or (y) a Monetary Encumbrance that Seller fails to discharge in accordance with Section 2.3(c), then Purchaser shall be reimbursed by Seller for all of Purchaser’s documented third party costs incurred in connection with the transactions contemplated by this Agreement, including the negotiation of this Agreement, in an aggregate amount not to exceed $250,000.00.

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2.4 Conveyance of Title. Notwithstanding anything contained herein to the contrary, at Closing, Seller shall convey and transfer to Purchaser its interest in the Real Property subject to the following exceptions to title (the “Permitted Exceptions”):

(a) Those matters specifically set forth on Schedule B to Exhibit I.

(b) Any state of facts shown on the Survey.

(c) The lien of all ad valorem real estate taxes not yet due and payable as of the Closing Date, subject to adjustment as herein provided.

(d) All laws, ordinances, rules and regulations of the United States, the State of New York, any city or other subdivision or any agency, department, commission, bureau or instrumentality of any of the foregoing having jurisdiction over the Real Property or the Hotel, as the same may now exist or may be hereafter modified, supplemented or promulgated (collectively, the “Legal Requirements”); excluding in all cases any violation of which Seller has received notice and which is outstanding as of the Closing Date.

(e) All covenants, restrictions and utility company rights, easements and franchises relating to electricity, water, steam, gas, telephone, sewer or other service or the right to use and maintain poles, lines, wires, cables, pipes, boxes and other fixtures and facilities in, over, under and upon the Real Property or the Hotel, provided that, in the case of any of the foregoing items which shall not be of record as of the date hereof, the same do not materially adversely affect the present use of the Real Property or the Hotel.

(f) Any matters over which the Title Company is willing to insure at no additional cost, subject to the approval of Purchaser regarding the basis on which Title Company is willing to provide such coverage, which approval shall not to be unreasonably withheld unless the sole basis for the Title Company providing such coverage is an indemnity from Seller Group, in which event Purchaser shall be entitled to withhold approval in its sole and absolute discretion.

(g) Any matters against which the Title Company is willing to provide affirmative insurance against collection from the Real Property or interference with the current use of the Real Property at no additional cost, subject to the approval of Purchaser regarding the basis on which the Title Company is willing to provide such coverage, which approval shall not to be unreasonably withheld unless the sole basis for the Title Company providing such coverage is an indemnity from Seller Group, in which event Purchaser shall be entitled to withhold approval in its sole and absolute discretion.

(h) Any other matter or thing affecting title to the Real Property disclosed by a Title Update that was not objected to by Purchaser or waived or deemed waived by Purchaser in accordance with Section 2.3 hereof.

(i) [Intentionally Omitted.]

(j) All violations of laws, rules, regulations, statutes, ordinances, orders or requirements of law and/or conditions giving rise to the same first issued after the Effective Date; provided, however, same does not affect or limit in any manner the representations and warranties made by Seller under this Agreement nor Purchaser’s rights under this Agreement with respect to a breach of such representations and warranties including without limitation Purchaser’s ability to terminate this Agreement and receive a return of the Earnest Money in connection therewith.

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(k) Occupancy by transient guests of the Hotel and Bookings.

(l) The rights of the tenant under the Space Lease and any person claiming by, through or under such tenants to occupy the space as a tenant only, and without any rights of first offer, rights of first refusal, purchase options or any other rights other than as a mere tenant; provided, however, that this exception to title does not affect or limit in any manner the representations and warranties made by Seller elsewhere in this Agreement nor Purchaser’s rights under this Agreement with respect to a breach of such representations and warranties, including Purchaser’s right to terminate this Agreement and receive a return of the Earnest Money in connection therewith.

2.5 Title Policy. At Closing, Seller and Purchaser shall direct the Title Company to issue an ALTA Owner’s Policy 2006 in the form of the pro forma policy attached hereto as Exhibit I including without limitation all endorsements available with such ALTA Owner’s Policy 2006 in New York (the “Title Policy”), at Purchaser’s sole cost and expense, insuring Purchaser’s interest in and to the Real Property as of the Closing Date, subject to only to the Permitted Exceptions.

ARTICLE III
INSPECTION

3.1 Right of Inspection.

(a) Purchaser shall, subject to the rights of guests of the Hotel and the tenant under the Space Lease, have the right to make physical inspections of the Real Property and to examine at such place or places at the Hotel or elsewhere as the same may be located, any operating files maintained by or for the benefit of Seller in connection with the leasing, operation, current maintenance and/or management of the Property (“Property Information”), including, without limitation, the Space Lease, the Service Contracts, insurance policies, bills, invoices, receipts and other general records relating to the income and expenses of the Hotel, correspondence, tax certiorari, filings and papers including records used to prepare financial statements and documents relating to the amortization or depreciation of furniture, fixtures and equipment or other capital improvements, surveys, plans and specifications, warranties for services and materials provided to the Hotel, environmental audits and similar materials, materials related to Hotel Employees (as defined below) and the Union (as defined below), to the extent Seller is not prohibited by applicable contracts or law from disclosing such materials, and any other documents relating to the Property in Seller’s or Manager’s possession or control including without limitation the materials identified on Schedule 3.1(a) annexed hereto, but in all cases excluding (i) materials not directly related to the maintenance, operation and/or management of the Property solely to the extent same relate to Seller’s business and not the Property and (ii) attorney client privileged material. Purchaser and its accountants shall have the right to inspect and perform a review or audit of the books and records for the Property for the three (3) most recent full fiscal years, which shall be supplemented up to the month ending immediately prior to the Closing Date.

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(b) Purchaser shall keep all Property Information strictly confidential as and to the extent required by Section 11.1 below and the confidentiality agreement in effect between Purchaser and Morgans Hotel Group Co., provided that Purchaser may, subject to the terms and conditions of the Confidentiality Agreement, deliver copies of Property Information to its attorneys, accountants and other advisors in connection with the acquisition of the Property and to current and prospective lenders and partners provided that such parties agree to maintain the confidentiality of such Property Information.

(c) Purchaser understands and agrees that any on-site inspections of the Property shall only be conducted during business hours with not less than one (1) day’s prior notice to Seller (which may be telephonic). Seller may have its respective representatives attend any such inspections. Such physical inspection shall not disturb Hotel guests or the tenant under the Space Lease nor unreasonably interfere with the use of the Property by Seller or Manager. Such physical inspection shall not be invasive in any respect without Seller’s prior consent (which shall not be unreasonably withheld), and in any event shall be conducted in accordance with standards customarily employed in the industry and in compliance with all governmental laws, rules and regulations. Following each entry by Purchaser with respect to inspections and/or tests on the Real Property, Purchaser shall repair any damage to the Property caused by Purchaser or any of its agents, consultants or representatives in connection with Purchaser’s diligence activities at the Property, and restore the Property to the original condition as existed prior to any such inspections and/or tests, at Purchaser’s sole cost and expense; provided that (i) Purchaser shall not be required to fix, and shall not be responsible for, any pre-existing conditions at the Property or exacerbations thereof (other than any exacerbation caused by the gross negligence or willful misconduct of Purchaser or any of its agents, consultants, or representatives) and (ii) if Seller does not provide consent to any reasonable request for invasive testing, Purchaser shall have the right to terminate this Agreement (in which event the Earnest Money shall be returned to Purchaser).

(d) Seller shall reasonably cooperate with Purchaser in its due diligence but shall not be obligated to incur any out -of -pocket liability (other than legal and administrative costs and other de minimis costs) in connection therewith unless Purchaser agrees to be responsible for same. Purchaser shall not disrupt Seller’s, Manager’s or any tenant’s or guest’s activities on the Real Property and, except as provided in the immediately following sentence, shall not contact Manager’s on-site managers or on-site employees, or any other employees working at the Hotel, any guests of the Property, any party to a Service Contract, the tenant under the Space Lease, any lender providing financing secured by the Real Property or any governmental authority without in each instance obtaining Seller’s prior consent, which consent may not be unreasonably withheld and shall be deemed to have been refused if Seller does not respond to a request made hereunder within 24 hours. Purchaser shall be permitted to contact the general manager and the controller of the Hotel.

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(e) Purchaser shall indemnify, defend, protect and hold Seller harmless from and against any claim for liabilities, losses, costs, expenses (including reasonable attorneys’ fees actually incurred), damages or injuries directly arising out of or directly resulting from the inspection of the Property by Purchaser or its agents, employees, representatives, consultants or contractors and notwithstanding anything to the contrary in this Agreement, such obligation to indemnify, defend, protect and hold harmless Seller shall survive Closing or any termination of this Agreement; provided, however, that Purchaser shall not be required to indemnify or hold Seller harmless from any such liability, loss, cost, damage or injury resulting from the gross negligence or willful misconduct of Seller or any of its Affiliates, agents or employees or with respect to any condition existing at the Property prior to the Effective Date (or the exacerbation of any such condition) (other than any exacerbation caused by the gross negligence, or willful misconduct of Purchaser or any of its agents, consultants, or representatives). Purchaser agrees (i) that prior to entering the Property to conduct any inspection, Purchaser shall obtain and maintain, and shall cause each of its contractors and agents to maintain (and shall deliver evidence thereof in the form of a policy certificate satisfactory to Seller thereof), at no cost or expense to Seller, commercial general liability insurance from an insurer reasonably acceptable to Seller in the amount of Two Million Dollars ($2,000,000) with combined single limit for personal injury or property damage per occurrence, such policies to name Seller and Manager as additional insured parties, which insurance shall provide coverage against any claim for personal injury or property damage caused by Purchaser or its agents, employees, representatives or consultants in connection with any such tests and investigations, and (ii) to keep the Property free from all liens and encumbrances on account of any inspections and/or tests made by or for the benefit of Purchaser (other than inchoate liens that secure amounts that are paid prior to delinquency). Purchaser’s insurance may not be canceled or amended prior to Closing except upon not less than thirty (30) days’ prior written notice to Seller. Purchaser’s obligations under this Section 3.1 shall survive a termination of this Agreement.

3.2 Seller Due Diligence Materials. PURCHASER ACKNOWLEDGES THAT INFORMATION RELATED TO THE PROPERTY CONTAINED IN THE SECURE WEBSITE (THE “E-ROOM”) TO WHICH PURCHASER HAS PREVIOUSLY BEEN GRANTED ACCESS HAS BEEN MADE AVAILABLE TO PURCHASER IN THE E-ROOM BY SELLER. BY EXECUTING THIS AGREEMENT, PURCHASER ACKNOWLEDGES ITS RECEIPT THEREOF OR THE AVAILABILITY THEREOF AND THAT (1) PURCHASER HAS RECEIVED COPIES OF THE ENVIRONMENTAL, ENGINEERING, SOILS AND OTHER REPORTS REGARDING THE CONDITION OF THE PROPERTY (COLLECTIVELY, THE “REPORTS”) LISTED ON SCHEDULE 3.2 ATTACHED HERETO, AND (2) ANY REPORTS OR OTHER DOCUMENTS DELIVERED OR TO BE DELIVERED BY SELLER OR ITS AGENTS OR CONSULTANTS TO PURCHASER ARE BEING MADE AVAILABLE SOLELY AS AN ACCOMMODATION TO PURCHASER AND WITHOUT ANY REPRESENTATION OR WARRANTY OF SELLER AS TO THEIR ACCURACY OR COMPLETENESS OF FACTS OR OPINIONS SET FORTH THEREIN EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND THAT ANY RELIANCE BY PURCHASER ON SUCH REPORTS OR OTHER DOCUMENTS IN CONNECTION WITH THE PURCHASE OF THE PROPERTY IS UNDERTAKEN AT PURCHASER’S SOLE RISK. SUBJECT TO SELLER’S REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, PURCHASER AGREES THAT SELLER SHALL HAVE NO LIABILITY OR OBLIGATION WHATSOEVER FOR ANY UNINTENTIONAL INACCURACY IN OR OMISSION FROM THE OFFERING MATERIALS PREPARED IN CONNECTION WITH THE SALE OF THE PROPERTY OR ANY REPORTS OR OTHER DOCUMENTS MADE AVAILABLE TO PURCHASER OR ITS REPRESENTATIVES. PURCHASER HAS CONDUCTED ITS OWN INVESTIGATION OF THE CONDITION OF THE PROPERTY TO THE EXTENT PURCHASER DEEMS SUCH AN INVESTIGATION TO BE NECESSARY OR APPROPRIATE. For purposes of this Agreement, the term “Seller Due Diligence Materials” shall mean (i) the Reports, the Property Information and all other documents and materials provided or otherwise made available by Seller to Purchaser in the E-Room or pursuant to Section 3.1 and the other provisions of this Agreement or otherwise, together with any copies or reproductions of such documents or materials, or any summaries, abstracts, compilations, or other analyses made by Purchaser based on the information in such documents or materials, and (ii) all information set forth in this Agreement and the exhibits and schedules attached hereto and hereby made a part hereof.

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ARTICLE IV
CLOSING

4.1 Time and Place; Pre-Closing.

4.1.1 Subject to the provisions of Sections 4.6, 4.7, and 4.8 below, the consummation of the transaction contemplated hereby (“Closing”), as evidenced by the payment and release of the Purchase Price by Escrow Agent to Seller in accordance with the terms of this Agreement and the release by Escrow Agent of the deed executed by Seller for recording, shall occur on or before 4:00 p.m. (New York time) on May 17, 2011, as such date may be adjourned from time to time in accordance with this Agreement (“Outside Closing Date”, with the actual date of Closing being referred to herein as the “Closing Date”). The Closing shall occur through an escrow administered by Escrow Agent and the Purchase Price and all documents (unless otherwise mutually agreed in writing) shall be deposited with Escrow Agent as escrowee. At Closing, Seller and Purchaser shall perform the obligations set forth in, respectively, Section 4.2 and Section 4.3, the performance of which obligations shall be concurrent conditions.

4.1.2 Notwithstanding anything herein to the contrary, the parties shall “pre-close” the sale of the Property on the last business day immediately prior to the Closing Date (the “Pre-Closing Date”). The term “pre-close” shall mean that each of the parties shall deliver to Escrow Agent no later than 4:00 p.m. (New York time) on the Pre-Closing Date all of the documents and other items (other than the Purchase Price and other funds) required to be delivered by such party for Closing, including all of the closing documents required pursuant to Sections 4.2 and 4.3 hereof. With respect to the closing adjustments to be made between the parties pursuant to Section 4.4 hereof, the adjustments shall continue to be made effective as of the Cut-Off Time, but on the closing statement executed by the parties on the Pre-Closing Date, the parties shall in good faith estimate those adjustments which are not capable of being finalized prior to the Cut-Off Time, and the parties shall reconcile said estimated adjustments pursuant to Section 4.4.14 hereof.

4.2 Seller’s Closing Obligations and Deliveries. At Closing, subject to Section 4.1 above, Seller shall through Escrow Agent make the following deliveries and take the following actions:

(a) Execute and deliver to Purchaser one (1) original counterpart of a bargain and sale deed (“Deed”), in the form attached hereto as Exhibit A and made part hereof.

(b) Execute and deliver to Purchaser two (2) original counterparts of a bill of sale in the form attached hereto as Exhibit B and made a part hereof conveying all of Seller’s right title and interest in and to the Personal Property, Consumable Inventory (other than any Consumable Inventory that consists of alcoholic beverages) and Receivables (in each case solely to the extent included in the term, Property) without, except as expressly set forth in this Agreement, warranty of use and without warranty, expressed or implied, as to merchantability and fitness for any purpose, together with evidence of payment by Seller of any sales tax payable in connection therewith.

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(c) Execute and deliver to Purchaser two (2) original counterparts of an assignment and assumption agreement relating to Seller’s interest in the Service Contracts, the Bookings and the other Intangibles (in each case to the extent assignable and excluding the ADC Contracts and those Service Contracts as to which Purchaser provides notice in accordance with Section 1.1(e) that it does not intend to assume) (“Assignment of Contracts”) in the form attached hereto as Exhibit C and made a part hereof.

(d) Intentionally Omitted.

(e) Deliver to Purchaser a certificate, dated as of the Closing Date and executed on behalf of Seller by a duly authorized officer thereof, stating that all of the representations and warranties of Seller contained in this Agreement are true and correct in all material respects, other than any such representations and warranties that are qualified as to materiality, which (to the extent so qualified) shall be true and correct in all respects as of the Closing Date (with appropriate modifications of any representations and warranties made in Section 5.1 hereof to reflect any changes therein, including without limitation any changes resulting from actions under Section 5.3 hereof) or identifying any representation or warranty which is not, or no longer is, true and correct. In no event shall Seller be liable to Purchaser for, or be deemed to be in default hereunder by reason of, any breach of representation or warranty which results from any change that (i) occurs between the Effective Date and the Closing Date and (ii) is permitted under the terms of this Agreement or is beyond the reasonable control of Seller; provided, however, that the occurrence of any change that is not expressly permitted hereunder shall, if materially adverse to Purchaser, constitute the non-fulfillment of the condition set forth in Section 4.6(a) and Purchaser may elect to terminate this Agreement pursuant to Section 4.9. If, despite changes or other matters described in such certificate, the Closing occurs, Seller’s representations and warranties set forth in this Agreement shall be deemed to have been modified by all statements made in such certificate.

(f) Deliver to Purchaser and the Title Company such evidence as the Title Company may reasonably require as to the authority of the person or persons executing documents on behalf of Seller.

(g) Deliver to Purchaser an affidavit duly executed by Seller stating that Seller is not a “foreign person” as defined in the Federal Foreign Investment in Real Property Tax Act of 1980 and the 1984 Tax Reform Act, in the form attached hereto as Exhibit E.

(h) If not already delivered to Purchaser, deliver to Purchaser, originals, or, if unavailable, a copy of the Space Lease, the Service Contracts and the licenses and permits, if any, in the possession or control of Seller or Seller’s agents, together with such leasing and property files and records which are in the possession or control of Seller or Seller’s agents, and any keys to security deposit boxes and to the Hotel. For a period of four (4) years after Closing in case of Seller’s need in response to any legal requirement, a tax audit, tax return preparation or litigation threatened or brought against Seller, Purchaser shall keep the books and records for the Property with respect to the period of Seller’s ownership (to the extent that such records were provided to Purchaser and Seller did not retain copies thereof), at Purchaser’s expense, and allow Seller and its agents or representatives reasonable access, upon reasonable advance notice (which notice shall identify the nature of the information sought by Seller), at all reasonable times to examine and make copies of any and all books and records at Seller’s cost and expense, which right shall survive the Closing. The location of such items at the Hotel on the Closing Date in a location identified in a writing from Seller to Purchaser shall constitute delivery to Purchaser.

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(i) Deliver to Escrow Agent an executed counterpart closing statement consistent with this Agreement and in a customary form.

(j) Deliver a copy of the termination agreement executed by Seller and Manager, which has the effect of terminating the Management Agreement effective as of the Closing Date, and evidence of Seller’s termination of any Service Contract or Equipment Lease that are not being assumed by Purchaser in accordance with this Agreement (which evidence may consist of copies of any notices provided by Seller terminating, as of or prior to the Closing Date, such Service Contracts and Equipment Leases) and evidence of the removal of the Hotel from the scope of all barter agreements to which the Seller is a party.

(k) Deliver to Escrow Agent two (2) original executed counterpart copies of the Combined Real Estate Transfer Tax Return and Credit Line Mortgage Certificate (Form TP-584) completed by Seller with respect to the Deed.

(l) Deliver to Escrow Agent two (2) original executed counterpart copies of the New York City Real Property Transfer Tax Return completed by Seller with respect to the Deed.

(m) Deliver to Escrow Agent two (2) original executed counterpart copies of the New York State Real Property Transfer Report (Form RP-5217) completed by Seller with respect to the Deed.

(n) Deliver to Title Company a title affidavit generally in the form attached hereto as Exhibit F (the “Title Affidavit”).

(o) Deliver to Escrow Agent two (2) original executed counterpart copies of the IWA Assumption Agreement in the form attached hereto as Exhibit G (“IWA Assumption Agreement”), including any required consents of other parties thereto.

(p) Deliver to Purchaser the Intangibles in Seller’s possession or control. The location of such items at the Hotel on the Closing Date in a location identified in a writing from Seller to Purchaser shall constitute delivery to Purchaser.

(q) Deliver to Purchaser two (2) original counterpart copies of the New Management Agreement.

(r) Deliver to Purchaser (2) original executed counterpart copies of Master Lease Agreement in the form agreed to by the parties prior to the Effective Date (the “Master Lease”).

(s) Deliver to Escrow Agent two (2) original executed counterpart copies of an agreement regarding post-closing capital projects in the form agreed to by the parties prior to the Effective Date (the “Capital Repairs Escrow Agreement”).

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(t) Deliver to the operating lessee of the Property (or other holder of the temporary liquor license for the Hotel) designated by Purchaser two (2) original counterparts of a bill of sale in the form attached hereto as Exhibit B-2 and made a part hereof conveying all of Seller’s right title and interest in and to any Unopened Inventory that consists of alcoholic beverages, together with evidence of payment by Seller of any sales tax payable in connection therewith.

(u) Deliver such additional documents as are provided for under this Agreement, or that otherwise shall be reasonably requested by Purchaser, Title Company or any third party in order to consummate the transaction expressly contemplated by this Agreement. For avoidance of doubt, the possession or retention by Manager of possession of certain records, documents and assets that constitute a portion of the Property both before and after the Closing Date shall not mean that such records, documents and assets were not sold and transferred to Purchaser in accordance with the terms of this Agreement if this Agreement otherwise provides for such sale and transfer.

4.3 Purchaser’s Closing Obligations and Deliveries. At Closing, Purchaser shall through Escrow Agent make the following deliveries and take the following actions:

(a) Pay the Purchase Price, as increased or decreased by prorations and adjustments as herein provided, in immediately available wire transferred funds pursuant to Section 1.5 above, it being agreed that at Closing the Earnest Money shall be applied towards payment of the Purchase Price.

(b) Deliver a written direction to Escrow Agent that it is to disburse the Earnest Money to Seller in accordance with the Escrow Agreement.

(c) Deliver the same number of original executed counterparts of the instruments described in clauses (b), (c), (i), (k), (l), (m), (r), and (s) of Section 4.2 above to Escrow Agent.

(d) Deliver to Escrow Agent two (2) original executed counterpart copies of the IWA Assumption Agreement executed by Purchaser.

(e) Deliver to Seller a certificate, dated as of the Closing Date and executed on behalf of Purchaser by a duly authorized officer thereof, stating that, to the best knowledge of such duly authorized officer, the representations and warranties of Purchaser contained in this Agreement are true and correct as of the Closing Date.

(f) Deliver to Title Company such evidence as Title Company may reasonably require as to the authority of the person or persons executing documents on behalf of Purchaser.

(g) Deliver to Escrow Agent, for distribution upon Closing to Manager, two (2) original executed counterpart copies of the New Management Agreement.

(h) Deliver such additional documents as shall be reasonably required to consummate the transaction contemplated by this Agreement.

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4.4 Prorations, Credits and Other Adjustments. At Closing, Purchaser and Seller shall prorate all items of income and expense which are customarily prorated between a purchaser and seller for a hotel. For clarification it is the intent of the parties that unless specifically outlined differently below that Seller is responsible for all revenues and expenses attributable to the time prior to Cutoff Time and Purchaser is responsible for all revenues and expenses attributable to the time after the Cutoff time. At Closing, Purchaser and Seller shall make the prorations, credits, and other adjustments provided for below in, and in accordance with the procedures set forth in, this Section 4.4. Beginning as close to the anticipated Closing Date as practicable, Seller shall, in consultation with Purchaser and with Purchaser’s reasonable cooperation, cause to be prepared a prorations and credit statement (the “Preliminary Statement”) which shall reflect all of the prorations, credits and other adjustments to the Purchase Price at Closing required under this Section 4.4 or under any other provision of this Agreement. As soon as Purchaser and Seller have agreed upon the Preliminary Statement, they shall jointly deliver a mutually signed copy thereof to Escrow Agent. The net amount shown as owing to Seller or Purchaser in the Preliminary Statement shall be added to or subtracted from the proceeds of the Purchase Price payable to Seller through Escrow at Closing.

4.4.1 Proration of Taxes.

(a) All real estate ad valorem taxes, general assessments and special assessments and all personal property ad valorem taxes assessed against the Hotel (collectively, “Taxes”) with respect to the tax year in which Closing occurs shall be prorated between Purchaser and Seller as of the Closing Date. If the amount of any such Taxes is not ascertainable on the Closing Date, the proration for such Taxes shall be based on the tax rates set forth in the most recent available bill and the latest assessed valuation of the Property; provided, however, that after the Closing, Seller and Purchaser shall re-prorate the Taxes in accordance with Section 4.4.14 below and pay any deficiency in the original proration to the other party promptly upon receipt of the actual bill for the relevant taxable period. Purchaser shall give Seller written notice of the actual amounts of any such bills within five (5) business days after receipt thereof. If, at the time of the Closing, the Hotel is subject to a special assessment or assessments which are payable by Seller and which are or may become payable in installments, then, for the purposes of this Agreement, all of the installments of any such special assessment or assessments which are not delinquent on the Closing Date and which may be paid thereafter shall be equitably apportioned between Seller and Purchaser based upon their respective periods of ownership.

(b) Seller retains the right to continue and settle any proceeding pending as of the Effective Date to contest any Taxes for any taxable period which encompasses any period prior to the date of the Closing, and shall be entitled to any refunds or abatements of Taxes awarded in such proceedings or in any proceedings instituted by Purchaser to the extent the Taxes, refunds or abatements relate to periods of time prior to the Closing Date. Seller shall not, after the Effective Date, without the prior written consent of Purchaser, institute any proceeding to contest any Taxes after and shall not, from and after the Effective Date, settle any pending proceeding without the prior approval of Purchaser; provided, that Purchase shall not unreasonably withhold its consent if such settlement would not adversely affect the liability of Purchaser for Taxes for any taxable period following the Closing. Prior to Closing Seller shall not settle or discontinue any assessment review challenge for the 2011/12 tax year without written approval of Purchaser. However at Closing, Seller shall assign to Purchaser the Application to Review the 2011/12 tax assessments filed with the New York City Tax Commission and any Petition to Review that assessment and Purchaser shall have sole authority to settle or discontinue any such applications or proceeding. Seller shall be responsible for any fees or charges that may now or in the future be billed by its tax certiorari attorneys for services performed prior to the Closing Date (whether with respect to the 2011/12 tax year or any prior tax year). In addition, Seller shall instruct its tax certiorari attorneys to turn over all files and materials relating to the 2011/12 tax year.

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4.4.2 General Proration of Expenses.

(a) Unless otherwise set forth below, Seller shall receive credit for any pre-paid expenses Purchaser will receive credit for any unpaid expenses payable post-Closing with respect to period prior to the Closing based on actual usage or if actual usage is not determinable on a per-diem calculation. The following items of expense with respect to any portion or aspect of the Hotel shall be prorated between Seller and Purchaser as of the Closing Date:

(i) All charges and expenses under any Service Contracts being assumed by Purchaser.

(ii) All utility charges (but excluding any utility deposits). To the extent reasonably practicable, though, in lieu of prorating the charges for any metered utility service, Purchaser and Seller shall endeavor to have the utility read the meter as close as practicable to the Closing Date, render a final bill to Seller based on such reading, Seller shall pay a per diem for any day prior to closing that does not show on such meter reading and Purchaser shall thereafter be responsible for all subsequent bills relating to such service.

(iii) Prepaid expenses of the Hotel, excluding insurance but including without limitation, (A) amounts incurred to pay for natural gas (if any) held in storage pending use at the Hotel and (B) the expense of all transferable licenses and permits obtained in connection with the operation of the Hotel.

(iv) All other Hotel operating expenses, other than employment expenses (which are covered by Section 4.4.3 below).

4.4.3 Employment Expenses. All salaries, bonuses, other compensation and employment benefits for unused vacation, holiday, sick leave and personal days if, and to the extent, that amounts are accrued and vested and unused prior to the Closing Date, and contributions for retirement and welfare benefits required under a collective bargaining agreement, together with F.I.C.A., unemployment and other payroll taxes and benefits due with respect to the employment of such Employees by Manager, shall be prorated between Seller and Purchaser as of the Closing Date, with accrued vacation and other benefits due to employees covered by the Collective Bargaining Agreement being determined in accordance with the Collective Bargaining Agreement and such matters for other employees in accordance with past practices. Seller and/or Manager shall be current at the time of Closing with any contribution obligation to any employee benefit plans pursuant to the Collective Bargaining Agreement, and any proration will be limited to amounts accrued but not yet due to such employee benefit plans at the time of Closing Manager shall pay the salaries and related benefits that are payable to any Hotel Employees for work performed at the Hotel on the Closing Date, whether prior to or following the time of Closing, and such costs for the Closing Date shall be for the account of Purchaser except to the extent incurred in connection with operations the revenue from which is allocated to Seller in the event that the Cut-Off Time with respect to such items being extended until the early morning of the Closing Date.

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4.4.4 Hotel Revenues.

(a) At Closing, Purchaser shall receive one-half (1/2) of all revenues from the Hotel guest rooms and facilities occupied on the evening immediately preceding the Closing Date, including without limitation any sales taxes, room taxes, occupancy taxes and other taxes charged to guests in such rooms that Seller is obligated to remit to the applicable taxing authorities, all parking charges, sales from mini-bars, in-room food and beverage, telephone, facsimile and data communications, in-room movie, laundry, and other service charges allocable to such rooms with respect to the evening immediately preceding the Closing Date. All revenues from restaurants, bars, lounges, vending machines and other service operations conducted at the Property shall be allocated based on whether the same accrued before or after the Cut-Off Time, and Seller shall cause the Manager to separately record sales occurring before and after the Cut-Off Time at the Property. Notwithstanding the foregoing, all revenues from any bars and lounges at the Property shall be prorated based on the actual closing time for such bar or lounge. For example, if such bar or lounge closes at 2 a.m. on the Closing Date, Seller shall retain the revenues from, and be responsible for the operating costs reasonably attributable to, such services and operations even though such revenues were generated two (2) hours after the Cut-Off Time.

(b) Revenues from conferences, receptions, meetings, and other functions occurring in any conference, banquet or meeting rooms in the Hotel, or in any adjacent facilities owned or operated by Seller, including usage charges and related taxes, food and beverage sales, valet parking charges, equipment rentals, and telecommunications charges, shall be allocated between Seller and Purchaser, based on when the function therein commenced, with: (i) one-day functions commencing prior to the Cut-Off Time being allocable to Seller; (ii) functions commencing after the Cut-Off Time being allocable to Purchaser; and (iii) multi-day functions being allocated on a pro rata basis between Seller and Purchaser according to when the event commences and is scheduled to end in relation to the Cut-Off Time.

(c) At Closing, all accounts receivable of the Hotel and all related operations (other than Rent) which are maintained on the guest ledger (as opposed to the city ledger) and relate to guests that have not been at the hotel for a period in excess of seven (7) consecutive days and are outstanding (collectively, the “Receivables”) shall be assigned to Purchaser and Seller shall receive a proration credit in an amount equal to the face value (without further adjustment or allowance for uncollectible accounts) of such receivables as set forth on Manager’s books (including, without limitation, receivables accrued in connection with hotel reservations, the use of guest rooms, as reflected on the guest ledger). Purchaser shall have no right to any adjustment to the prorations with respect to the Receivables on or after Closing for inability to collect outstanding Receivables or otherwise. All other account receivables of the Hotel and related operations (other than Rent) shall remain the property of the Seller (“Retained Receivables”) and shall not be sold to Purchaser hereunder. There shall be no proration at closing for Retained Receivables and (i) Purchaser shall have no right or obligation to make efforts to collect the Retained Receivables and (ii) Purchaser and its manager shall deliver to Seller any amounts received by them after the Closing Date on account of the Retained Receivables (if the reasonably ascertainable intent of the payor thereof is that the payment thereof pertains to a Retained Receivable) reasonably promptly following receipt by Purchaser or its manager. Notwithstanding the foregoing, Seller may take such action, in the name of Seller or Seller’s designee and not in the name of Purchaser or the Hotel, in respect of the collection of any such Retained Receivables as Seller deems appropriate.

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(d) Any operating revenues not otherwise provided for in this Section 4.4, shall be prorated between Purchaser and Seller as of Closing.

4.4.5 [Intentionally omitted.]

4.4.6 Hotel Payables. At Closing, Purchaser shall receive a proration credit equal to the aggregate amount of all outstanding accounts payable for the Hotel as of the Closing Date (“Hotel Payables”) as set forth in a schedule attached to the Preliminary Statement. Purchaser shall: (a) assume the obligation to satisfy all Hotel Payables for which Purchaser received such credit at Closing; (b) indemnify, defend and hold Seller harmless against any claim for such Hotel Payables; and (c) assume all obligations of Seller to pay for any (i) consumables or other items ordered by or for the benefit of Seller in the ordinary course of business but which are not yet received as of the Closing Date and (ii) items or services listed on a purchase order log prepared by Manager which are not yet received as of the Closing Date, which list shall be updated by Manager immediately prior to Closing. There shall not be any adjustment to the Purchase Price in connection with Purchaser’s assumption of the liabilities described in clauses (i) and (ii) above.

4.4.7 [Intentionally Omitted]

4.4.8 Credit for Reservation Deposits. Purchaser shall receive a proration credit equal to the aggregate amount of advance deposits that shall have been received by Seller prior to the Cut-Off Time on account of reservations for use or occupancy of the Property after the Cut-Off Time.

4.4.9 Credit for Cash Banks. Seller shall receive a credit at Closing in an amount equal to all House Bank Funds actually received by Purchaser.

4.4.10 [Intentionally Omitted]

4.4.11 Regarding Hotel Prorations Generally. Unless this Section 4.4 expressly provides otherwise: (a) all prorations hereunder with respect to the Hotel shall be made as of 12:00:01 a.m., local time at the Hotel (“Cut-Off Time”) on the Closing Date; (b) all prorations shall be made on an actual daily basis; and (c) for purposes of such prorations, all items of revenue and expense with respect to the Hotel’s operations shall be classified and determined in accordance with the Uniform System of Accounts for the Lodging Industry, as reasonably modified by Manager for use at the Hotel consistent with past practices within the twelve (12) months preceding the Closing, and otherwise in accordance with generally accepted accounting principles. Except as otherwise expressly provided herein, in any case in which Purchaser receives a credit at Closing on account of any obligation of Seller hereunder, Seller shall have no further liability for such obligation to the extent of the credit so given, Purchaser shall pay and discharge the same, and Purchaser shall indemnify, defend and hold Seller harmless Seller with respect thereto.

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4.4.12 Vouchers. Purchaser shall: (a) honor all outstanding unexpired gift certificates, coupons or other writings issued by Seller or its affiliates prior to the Closing Date that entitles the holder or bearer thereof to a credit (whether in a specified dollar amount or for a specified item, such as room night or meals) to be applied against the usual charge for rooms, meals and/or goods and services at the Hotel (collectively, “Vouchers”) and shall assume all liability, if any, for all outstanding Vouchers as of the Closing Date; (b) receive a credit against the Purchase Price payable at Closing in the amount set forth on the Vouchers Schedule, with respect to the Vouchers listed thereon, as updated as of the Closing Date; (c) be reimbursed by Manager for any other Vouchers presented by holders thereof in accordance with Section 4.6 of the New Management Agreement (the “Manager Reimbursement Obligation”); and (d) indemnify, defend and hold Seller harmless from and against all claims, liabilities, costs and expenses arising out of a violation of this Section 4.4.12 with respect to the Vouchers from and after the Closing Date.

4.4.13 Utility and Other Deposits. At Closing, Seller shall be entitled to receive and retain all refundable cash or other deposits posted with utility companies serving the Property or any governmental agencies or authorities or posted pursuant to any Service Contract.

4.4.14 Final Statement; Post-Closing Adjustments. Except for prorations for Taxes, which shall be adjusted within fifteen (15) business days of receipt of the tax bill for the tax year in which the Closing occurs, and prorations of Percentage Rent in accordance with Section 4.4.5 hereof, Purchaser and Seller shall make a one-time post-Closing adjustment of any item of income and expense subject to adjustment as provided above which was either incomplete or incorrect (whether as a result of an error in calculation or a lack of complete and accurate information) as of the Closing. Purchaser will prepare and deliver to Seller for its review and approval a statement of prorations (the “Final Statement”) on or before March 31, 2012, and the party in whose favor the original incorrect adjustment or error was made (“Adjusting Party”) shall pay to the other party (“Requesting Party”) the sum necessary to correct such prior incorrect adjustment or error within ten (10) days after completion of the Final Statement. Such adjustment shall be final and no further adjustment to the prorations or the Purchase Price shall be made.

4.4.15 Resolution of Disputes. In the case of a dispute, the parties shall attempt to resolve such dispute, but if for any reason such dispute is not resolved by the date that is thirty (30) days after the delivery of the original notice of the claimed adjustment by Purchaser or Seller, but not to exceed ninety (90) days after Closing, then the parties shall, upon the written request of either party to the other, submit such dispute to Deloitte (“Outside Accountants”), and the determination of the Outside Accountants, which shall be made within a period of fifteen (15) days after such submittal by the parties, shall be conclusive. The fees and expenses of the Outside Accountants shall be paid equally by Purchaser and Seller. At such time as the amount of any adjustment or dispute shall be determined (either by agreement or by determination of the Outside Accountants), any amount that shall be payable by the Requesting Party to the Adjusting Party as a result of such adjustment or determination shall be paid within ten (10) business days after the date on which such agreement or determination shall have been made.

4.4.16 Survival. The provisions of this Section 4.4 shall survive Closing.

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4.5 Closing Costs.

4.5.1 State Transfer Tax. At Closing, Seller and Purchaser shall complete, sign and acknowledge any and all forms required for this transaction with respect to Article 31 of the New York State Tax Law, as the same may be amended from time to time (the “State Transfer Tax Law”). Seller shall pay the taxes imposed under the State Transfer Tax Law in connection with the consummation of the transactions contemplated by this Agreement on the Closing Date.

4.5.2 City Transfer Tax. At Closing, Seller and Purchaser shall complete, sign and acknowledge any and all forms required for this transaction with respect to Chapter 21 of Title 11 of the Administrative Code of the City of New York, as the same may be amended from time to time (the “City Transfer Tax Law”). Seller shall pay the taxes imposed under the City Transfer Tax Law in connection with the consummation of the transactions contemplated by this Agreement and any filing fees in connection therewith on the Closing Date.

4.5.3 Seller Closing Costs. At Closing, Seller shall also pay: (a) the fees of any counsel representing it in connection with this transaction; (b) all bulk sales taxes, sales tax on the sale of the Personal Property (or any part thereof) and any other sales or use taxes and occupancy, hotel or other taxes payable with respect to the operation of the Hotel through the Cut-Off Time (as it may be adjusted for certain activities in the Hotel pursuant to Section 4.4.4(a); (c) one-half of the escrow fees charged by Escrow Agent; and (d) all recording and filing fees relating to clearance of any title matter which is not a Permitted Exception. The parties acknowledge and agree that Seller may use the Purchase Price to pay Seller’s closing costs.

4.5.4 Purchaser Closing Costs. At Closing, Purchaser shall also pay: (a) the fees of any counsel representing Purchaser in connection with this transaction; (b) 100% of the (i) premium for the Title Policy, (ii) cost of any endorsements to the Title Policy, and (iii) cost of any title insurance provided to Purchaser’s lender; (c) the cost of the Survey and any modifications or updates to the Survey; (d) one-half of the escrow fees charged by Escrow Agent; (e) the cost of any updates obtained by Purchaser to the property condition report and the Phase I environmental report; and (f) the fees for recording the Deed and any other recordable documents (other than documents relating to clearance of any title matter which is not a Permitted Exception).

4.5.5 Other Costs. All other costs and expenses incident to this transaction and the closing thereof shall be paid in a manner consistent with custom for similar transactions in the city where the Hotel is located. Notwithstanding the foregoing, in the event that this Agreement is terminated as a result of a party’s default, such defaulting party shall pay all escrow and title cancellation fees charged in connection with such cancellation.

4.6 Conditions Precedent to Obligation of Purchaser. The obligation of Purchaser to consummate the transaction hereunder shall be subject to the fulfillment on or before the Closing Date of all of the following conditions, any or all of which may be waived by Purchaser in its sole discretion:

(a) All of the representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects, other than any such representations and warranties that are qualified as to materiality, which (to the extent so qualified) shall be true and correct in all respects, as of the Closing Date (in each case with appropriate modifications permitted under Section 4.2(e) above).

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(b) Seller shall have performed and observed in all material respects all covenants, obligations and agreements of this Agreement to be performed and observed by Seller as of the Closing Date, other than any such covenants, obligations or agreements that are qualified as to materiality, which (to the extent so qualified) Seller shall have performed and observed in all respects.

(c) Seller shall have delivered to Purchaser or deposited with Escrow Agent all of the items required to be delivered to Purchaser or deposited with Escrow Agent pursuant to the terms of Section 4.2.

(d) Title Company shall have issued, or be irrevocably committed to issue subject to payment of title premiums, the Title Policy.

(e) Seller shall have delivered to Purchaser more than ten (10) days in advance of the Closing Date an assumption agreement in the form of the IWA Assumption Agreement attached hereto as Exhibit G executed by Seller and Manager.

4.7 Conditions Precedent to Obligation of Seller. The obligation of Seller to consummate the transaction hereunder shall be subject to the fulfillment on or before the Closing Date of all of the following conditions, any or all of which may be waived by Seller in writing in its sole discretion:

(a) Purchaser shall have deposited with Escrow Agent the Purchase Price as adjusted pursuant to and payable in the manner provided for in this Agreement, subject to fulfillment or waiver of the conditions to Purchaser’s obligation to consummate the transaction hereunder on or before the Closing Date as set forth in Sections 4.6 and 4.8. All of the representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects, other than any such representations and warranties that are qualified as to materiality, which (to the extent so qualified) shall be true and correct in all respects, as of the Closing Date (in each case with modifications which are not materially adverse to Seller).

(b) Purchaser shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by Purchaser as of the Closing Date, other than any such covenants, obligations or agreements that are qualified as to materiality, which (to the extent so qualified) Purchaser shall have performed and observed in all respects.

(c) Purchaser shall have deposited with Escrow Agent all of the items required to be delivered to Seller or deposited with Escrow Agent pursuant to the terms of Section 4.3.

(d) Purchaser shall have delivered to Seller more than ten (10) days in advance of the Closing Date an assumption agreement in the form of the IWA Assumption Agreement attached hereto as Exhibit G executed by Purchaser.

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4.8 Conditions Precedent to Obligation of Seller and Purchaser. Notwithstanding anything herein to the contrary but subject to the remainder of this Section 4.8, the obligation of Seller and Purchaser to consummate the transaction hereunder shall be subject to the substantially simultaneous consummation of the transaction described in that certain Purchase and Sale Agreement, dated as of the date hereof, by and between Royalton, LLC, as seller, and Royalton 44 Hotel, L.L.C., a Delaware limited liability company regarding the purchase and sale of the hotel known as the Royalton Hotel located in New York, New York (the “Royalton PSA”). This condition precedent may only be waived by both Seller and Purchaser in writing.

(a) Notwithstanding anything to the contrary contained in this Agreement or the Royalton PSA, if the Royalton PSA is not consummated due to (i) a casualty or condemnation that occurs with respect to the property described therein, or (ii) (x) the failure of the conditions to the obligation of the purchaser to consummate the transaction contemplated set forth in section 4.6(a) or (b) thereof to be fulfilled or (y) the failure of the seller thereunder to make the deliveries required at the closing thereunder upon satisfaction of all conditions to the seller’s obligations to close thereunder, or (iii) the failure of any other condition precedent to the obligation of the purchaser thereunder to close thereunder to be satisfied, Purchaser may elect, in its sole discretion, to waive the condition precedent set forth in this Section 4.8 for both Seller and Purchaser; provided that, if Purchaser elects to waive the condition precedent set forth in this Section 4.8 for both Seller and Purchaser upon the occurrence of an event set forth in subsection (ii) above and such event resulted from the bad faith or an intentional breach by the seller under the Royalton PSA, Purchaser shall have the right to make the No New Management Agreement Election described in Section 4.11.

(b) Notwithstanding anything to the contrary contained in this Agreement or the Royalton PSA, if the Royalton PSA is not consummated due to (x) conditions to the obligation of the seller to consummate the transaction contemplated set forth in section 4.7(a) or (b) thereof to be fulfilled or (y) the failure of the purchaser thereunder to make the deliveries required at the closing thereunder upon satisfaction of all conditions to the purchaser’s obligations to close thereunder, in each case only to the extent such failure resulted from the bad faith or an intentional breach by such purchaser, Seller may elect, in its sole discretion, to waive the condition precedent set forth in this Section 4.8 for both Seller and Purchaser.

4.9 Failure or Waiver of Conditions Precedent. If any of the conditions set forth in Sections 4.6, 4.7, or 4.8 are not fulfilled (other than as a result of a default or breach by either party of their obligations hereunder (in which case the provisions of Article VI shall apply)), or waived on or before the Outside Closing Date, the sole and exclusive remedy available to the party benefited by such conditions shall be to terminate this Agreement by written notice to the other party, whereupon the Earnest Money shall be refunded to Purchaser (less Purchaser’s share of any escrow charges) and all rights and obligations hereunder of each party shall be at an end except those that expressly survive any termination of this Agreement. Either party benefited by a condition set forth in Section 4.6 or 4.7 above, as applicable, may, at its election, at any time or times on or before the date specified for the satisfaction of the condition, waive in writing the benefit of such condition. The parties’ consummation of the Closing pursuant to this Agreement shall waive any remaining unfulfilled conditions and any liability on the part of the other party for breaches of representations and warranties of which such party had actual knowledge as of the Closing.

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4.10 Alcoholic Beverage License.

(a) Purchaser acknowledges that Seller is the current licensee under the existing alcoholic beverage license for the Hotel (the “Existing Liquor License”). Seller shall cooperate with Purchaser in arranging for Purchaser to obtain all licenses and approvals required under any Legal Requirements for the continued sale of alcoholic beverages at the Hotel from and after the Closing Date (including temporary permits) consistent with the customary practices and procedures of the Hotel in effect as of the Effective Date (collectively, “Liquor Licenses”), provided that such cooperation shall (i) not create any potential liability for Seller greater than is in existence on the Effective Date (to the extent same is not covered by the present insurance policy at the Property) and (ii) be at no cost or expense to Seller. In no event shall Seller be required to transfer to Purchaser any alcoholic beverage inventory which is located at or held for use in the Hotel unless and until Purchaser has obtained a valid and effective license entitling Purchaser to sell alcoholic beverages at the Hotel and only to the extent that Seller is permitted to transfer such inventories pursuant to applicable law.

(b) Promptly following the Effective Date but in no event sooner than 30 days after the notice to the Community Board, Purchaser shall file all necessary applications and supporting materials with the New York State Liquor Authority as may be required for the issuance of all Liquor Licenses, and shall thereafter use commercially reasonable efforts to diligently pursue and obtain the issuance of such Liquor Licenses or a temporary permit prior to, or contemporaneously with, the Closing. If Purchaser has not secured a Liquor License or temporary permit as of the Outside Closing Date, then Purchaser shall be entitled to adjourn the Outside Closing Date by no more than 30 days upon giving notice of such election to Seller and depositing an additional ONE MILLION ONE HUNDRED TEN THOUSAND AND NO/100 DOLLARS ($1,110,000.00) with the Escrow Agent to be held as, and which shall become a part of, the Earnest Money, in each case prior to the Outside Closing Date. If Purchaser has not secured a Liquor License or temporary permit as of the Outside Closing Date, so adjourned, Purchaser’s obligation to close the purchase of the Hotel shall not be excused or delayed or in any other way be affected thereby, the Purchase Price shall not be reduced and Seller shall have no additional obligation as a result thereof. Purchaser shall keep Seller informed of the status of such applications, and shall promptly respond to Seller’s inquiries regarding the status of the same.

(c) If this Agreement is terminated and Purchaser has filed an application or otherwise commenced the process of obtaining the Liquor Licenses or obtaining any new licenses and permits, Purchaser shall withdraw all such applications and cease all other activities with respect to such transfer or such new licenses and permits.

4.11 No New Management Agreement Election. Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence of the event described in Section 4.8(a)(ii) and such event resulted from the bad faith or an intentional breach by the seller under the Royalton PSA, Purchaser shall have the right to elect to Close hereunder and not enter into the New Management Agreement at Closing (and entry into same shall not be a condition precedent in favor of Seller) (such election, the “No New Management Agreement Election”). In the event that Purchaser elects the No New Management Agreement Election, the Purchase Price shall be increased by FOUR MILLION DOLLARS ($4,000,000).

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ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS

5.1 Representations and Warranties of Seller. Seller hereby makes the following representations and warranties to Purchaser as of the Effective Date, subject to the qualifications and exceptions set forth below:

(a) Organization and Authority. Seller has been duly organized and is validly existing and in good standing under the laws of Delaware and is qualified to do business in the State of New York. Seller has the full right, power and authority to enter into this Agreement and to transfer all of the Property to be conveyed by Seller pursuant hereto and to consummate or cause to be consummated the transactions contemplated herein to be made or consummated by Seller. The person signing this Agreement on behalf of Seller is authorized to do so.

(b) No Breach. The execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated herein will not: (i) result in a breach or acceleration of or constitute a default or event of termination under the provisions of any agreement or instrument by which the Property is bound which would have a material adverse impact on the ownership and operation of the Property by Purchaser or the ability of Seller to consummate the transaction contemplated hereby; or (ii) constitute or result in the violation or breach by Seller of any judgment, order, writ, injunction or decree issued against or imposed upon Seller or result in the violation of any applicable law, rule or regulation of any governmental authority which, with respect to any of the foregoing, would have a material adverse impact on the ownership or operation of the Property by Purchaser or the ability of Seller to consummate the transactions contemplated hereby.

(c) Litigation/Condemnation. Except as set forth on schedule entitled “Litigation” annexed to the Property Information Letter, Seller has not received written notice of any litigation which is pending against (or is threatened to be filed against) Seller that arises out of the ownership of the Property, or that affects the Property, an adverse determination of which would, individually or in the aggregate, reasonably be expected to materially and adversely affect the Property or use thereof, or Seller’s ability to perform its obligation hereunder. Seller has not received written notice of any condemnation proceedings against the Property nor, to Seller’s knowledge, are any such proceedings threatened.

(d) Space Leases. Other than the Space Lease, there are no leases or other agreements currently affecting the Hotel (other than Bookings) pursuant to which any party has a right to occupy all or any portion of the Property, and Seller has made available to Purchaser a true, correct and complete copy of the Space Lease. Seller has complied with all of its obligations under the Space Lease with respect to tenant improvements and there are no leasing commissions that are or may become payable with respect to the Space Lease from and after the Closing Date. The tangible and intangible property (including, without limitations, fixtures, personal property or intellectual property) owned by the tenant under the Space Lease and located at the Property does not include any tangible personal property located outside of the premises subject to the Space Lease, other than supplies and equipment stored elsewhere in the Property and incidental tangible personal property that may be temporarily located outside such premises.

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(e) Service Contracts and Equipment Leases. There are no material Service Contracts, including without limitation Equipment Leases, which will affect the Property after the Closing Date except (i) as set forth on Schedule 1.1(e)-1 or Schedule 1.1(e)-2 or (ii) Service Contracts entered into after the Effective Date which Seller is permitted to enter into under the terms of this Agreement and has disclosed by written notice to Purchaser, and provided true, correct and complete copies of, to Purchaser at least five (5) business days prior to the Closing Date. No material Service Contracts, including without limitation Equipment Leases, have been amended in any material respect except (i) as set forth in said Schedules or (ii) as otherwise permitted pursuant to this Agreement to be amended after the Effective Date and disclosed to Purchaser (along with true, correct and complete copies thereof). As of the Effective Date and the Closing Date, no written notice of material default has been delivered by Seller or received by Seller with respect to any Service Contracts or Equipment Leases that remains uncured (and to Seller’s knowledge, no party is in default in any material respect under any material Service Contract or Equipment Lease). The copies of Service Contracts and Equipment Leases made available to Purchaser by Seller are true, correct and complete in all material respects as to each Service Contract or Equipment Lease. For purposes of this Section 5.1(e), a “material” Service Contract is a Service Contract that is reasonably likely to require payments in excess of $25,000.00 in any 12 month period or is not terminable on 3 months notice or less.

(f) Personal Property. Seller or a member of Seller Group owns good and marketable title to the Personal Property free and clear of all liens and encumbrances. Following the Closing, Purchaser will own the Personal Property free and clear of all liens and encumbrance other than any liens or encumbrances created by Purchaser.

(g) No Consents. Other than those that will be obtained, filed or given, as applicable, prior to Closing, no material consent, approval or action of, filing with or notice to any governmental or regulatory authority or any other person or entity is required to be obtained or made by Seller or Manager in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, other than those required of Purchaser.

(h) Patriot Act Compliance. Neither Seller nor any entity controlled by Seller: (i) is a person or entity listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (September 25, 2001) (the “Order”) and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable orders (such lists are collectively referred to as the “Lists”); (ii) is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order; or (iii) is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order.

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(i) Employees. There are no employees of the Hotel other than those employees who are employed by Manager with respect to the Hotel (“Employees”). Except as otherwise set forth on Schedule 5.1(i) attached hereto, Seller is not a party to or bound by any collective bargaining agreement or union agreement with respect to the Property, and Seller has provided true and correct copies of all such agreements to Purchaser. To Seller’s knowledge, neither Seller, Manager nor any Affiliate is in default under any such agreements. Except as set forth in part (1) of the schedule entitled “Employee Matters” attached to that certain letter from Seller to Purchaser dated as of the Effective Date (the “Property Information Letter”) (such schedule, the “Employee Schedule”) or on the Litigation schedule, no current or former employee of the Property, no governmental agency and no other person, agency or entity has made a formal charge, complaint or request for a grievance or an arbitration proceeding against Seller that has not been resolved alleging a breach or default under any such agreement or a violation of applicable law relating to personnel or employment matters and, to Seller’s knowledge, neither Seller nor Manager is in default in any material respect under any such agreement or in violation in any material respect of any such law. To Seller’s knowledge, the information regarding employees at the Property set forth in part (2) of the Employee Schedule, including their names, union status, salaries, benefits, job titles, and seniority, is true, correct and complete in all material respects, except for any information excluded in accordance with privacy rules established under the Collective Bargaining Agreement; and part (3) of the Employee Schedule identifies all material employee benefit plans and employee benefit programs (including any multi-employer plans), excluding such plans and programs set out or arising under any collective bargaining agreement or union agreement, maintained by or on behalf of Seller or Manager with respect to the Hotel, of which Seller has knowledge, for the health, welfare or benefit of a majority of the employees of the Property and/or their spouses, dependents or other qualified beneficiaries to which Seller or Manager contributes (the “Plans”).

(j) Violations of Law. Except for violations shown in or disclosed by the Title Report or any Title Update and any violations disclosed on the schedule entitled “Violations of Law” annexed to the Property Information Letter, Seller has not received any written notice of, nor does Seller have any knowledge of, any violation in any material respect of law (including fire, health, building, use, occupancy, rent control or stabilization, environmental or zoning codes) with respect to all or any part of the Property that remains uncured. Seller has not received any written notice of, nor does Seller have any knowledge of, any New York State Liquor Authority violations (and no events that with the giving of notice or passage of time or both would lead to New York State Liquor Authority violations) with respect to the Existing Liquor License.

(k) Deposits.

(i) Part (1) of the schedule entitled “Deposits” annexed to the Property Information Letter (the “Deposits Schedule”) contains a complete list of all deposits held by Seller pursuant to Service Contracts, Bookings, the Space Lease or otherwise in connection with the ownership or operation of the Hotel and sets forth, as of the Effective Date, all portions of any such deposit that have been applied by the Seller.

(ii) Part (2) of the Deposits Schedule contains a complete list of all deposits made by Seller to utility companies or governmental agencies or authorities relating to the Hotel and sets forth, as of the Effective Date, to Seller’s knowledge, all portions of any such deposit that have been applied by such entities.

(l) Vouchers; Barter Agreements. The schedule entitled “Vouchers and Barter Agreements” annexed to the Property Information Letter (the “Vouchers Schedule”) contains, to the knowledge of Seller, a true, correct and complete list, as of the Effective Date, of (x) all outstanding, unexpired gift certificates, coupons or other writings issued by Seller or Manager that entitle the holder or bearer thereof to a credit (whether in a specified dollar amount or for a specified item, such as room night or meals) to be applied against the charge for rooms, meals and/or goods and services at the Hotel, except as provided in below in this Section 5.1(l), and (y) all barter agreements to which Seller is a party. In addition to the above vouchers, Seller and its affiliates have issued writings entitling the holder of such writing to a credit (whether in a specified dollar amount or for a specified item), including, but not limited to, credits for room nights, meals at the Hotel’s restaurant(s), and charitable donations, all of which are subject to the Manager Reimbursement Obligation.

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(m) Reward Plans. Schedule 5.1(m) contains a true, correct and complete list and description of all reward points plans in which the Hotel participates.

(n) Intellectual Property. Schedule 1.1(f) contains a true, correct, and complete list of all names, marks, logos and designs, used in the operation or ownership of the Property or any part thereof (other than the Retained IP).

(o) Permits. Schedule 5.1(o) contains a true, correct and complete list of all transferable licenses, franchises and permits held by Seller and used in or relating to the ownership, occupancy or operation of the Property or any part thereof as of the Effective Date. Except as otherwise disclosed to Purchaser on Schedule 5.1(o), Seller has not received any written notice of any uncured violations of any Permit, and to Seller’s knowledge, all of the Permits described on Schedule 5.1(o) are in full force and effect. To Seller’s knowledge, all Permits necessary for the operation of the Hotel are set forth in Schedule 5.1(o).

(p) Tax Returns. Seller has, or has caused Manager to, file all tax returns with respect to the ownership, operation or maintenance of the Property and/or the Hotel that were required to be filed on or prior to the Effective Date and Seller has paid all taxes (including without limitation Taxes) due with respect to the ownership, operation or maintenance of the Property and/or the Hotel. Seller has not received written notice of any special tax assessment relating to the Hotel, the Property or any portion thereof, and there are no agreements between Seller and any governmental authority relating to Taxes affecting the Hotel or the Property except as set forth on Schedule 5.1(p).

(q) Bookings. Except as set forth on the schedule entitled “Bookings” annexed to the Property Information Letter as Schedule 5.1(q), no Bookings or reservations for rooms, food and beverages, meetings or other customary Hotel uses have been made with respect to any period commencing on or after the one year anniversary of the Effective Date.

(r) Tax Contests. Except as set forth in the schedule entitled “Tax Contests” annexed to the Property Information Letter, Seller is not contesting any taxes (including without limitation Taxes or tax certiorari) with respect to the Property or the operation, maintenance or ownership of the Hotel. Seller has provided all material information and documentation within its possession, control or knowledge related to tax contests, tax appeals and/or tax certiorari to Purchaser, Seller has duly filed a 2011/2012 tax appeal with respect to all assessments in connection with the Hotel (and same have not been rescinded or settled and are being prosecuted with diligence).

(s) Insurance. Seller has not received any written notice from any insurance company or board of fire underwriters of a requirement that has not been addressed in any material respect relating to any defects or inadequacies regarding the physical condition or operation of the Property that would have a material adverse effect on the current use or insurability of the Property or that would cause any material increase in the premiums for insurance for the Property, except for any such defects or inadequacies that have been cured or repaired.

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(t) Suits and Proceedings. There are no legal actions, suits, audits by municipal, State or Federal tax authorities that would be binding on a purchaser of the Property or similar proceedings pending and served, or, to Seller’s knowledge, threatened in writing against Seller or the Property except as set forth in Section 4.4.1(b).

(u) Non-Foreign Entity. Seller is not a “foreign person” or “foreign corporation” as those terms are defined in the Internal Revenue Code of 1986, as amended, and the regulations

(v) Bankruptcy. Seller has not (i) commenced a voluntary case, or had entered against it a petition, for relief under any federal bankruptcy act or any similar petition, order or decree under any federal or state law or statute relative to bankruptcy, insolvency or other relief for debtors, (ii) caused, suffered or consented to the appointment of a receiver, trustee, administrator, conservator, liquidator or similar official in any federal, state or foreign judicial or non-judicial proceedings, to hold, administer and/or liquidate all or substantially all of its property, or (iii) made an assignment for the benefit of creditors.

(w) Financial Statements. Seller has provided to Purchaser financial statements for the Hotel consisting of unaudited financial statements for the last three (3) fiscal years and year-to-date financial statements and operating budgets prepared for the Hotel for the current year. To Seller’s knowledge, all of these financial statements are in all material respects true and complete and fairly represent the financial condition of the Hotel as of the dates stated therein and such statements have been prepared in accordance with Generally Accepted Accounting Principles (GAAP) and the Uniform System of Accounts for the Lodging Industry, Tenth Revised Edition, 2006.

(x) No Options. Seller has not granted in writing any option, right of first offer or refusal or similar right in favor of any person to purchase or otherwise acquire the Property, or any direct or indirect interest in the Property, that is in effect.

(y) Unrecorded Contracts. Except as shown in or disclosed by the Title Policy, the Property is not subject to or bound or affected by any material contract, agreement, proffer or dedication with any municipal, State or Federal government agency to which Seller or Manager is a party or, to Seller’s knowledge, to which anyone else is a party, except to the extent that such contract, agreement, proffer or dedication would not be binding on Purchaser following the purchase of the Property hereunder or can be terminated within 30 days of notice without a termination fee.

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(z) ERISA.

(i) Seller either: (A) is not an “employee benefit plan” as defined in ERISA, whether or not subject to ERISA, or a “plan” as defined in Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”), and none of Seller’s assets constitutes (or is deemed to constitute for purposes of ERISA or Section 4975 of the Code, or any substantially similar Federal, State or municipal law) “plan assets” for purposes of 29 CFR Section 2510.3-101 or otherwise for purposes of ERISA or Section 4975 of the Code; or (B) is an “employee benefit plan” as defined in ERISA (an “Employee Benefit Plan,” which term shall not be deemed to include the Retirement Plan or any employee benefit plan administered pursuant to the Collective Bargaining Agreement), but not subject to ERISA or to Section 4975 of the Code, or it is an entity the assets of which are not considered to be “plan assets” or an “employee benefit plan” which is subject to ERISA or Section 4975 of the Code, and the consummation of the transaction contemplated by this Agreement will not constitute a non-exempt prohibited transaction or otherwise result in a violation of any Federal, State or municipal law that is substantially similar to Section 406 of ERISA or Section 4975 of the Code.

(ii) With respect to each plan subject to, or previously subject to Title IV of ERISA to which Seller or any entity aggregated with Seller under Section 414(b) or (c) of the Code or Section 4001 of ERISA (each, an “ERISA Affiliate”) or Manager, sponsors, maintains or contributes to, or has had any liability or obligation to contribute to with respect to the Employees (the “Title IV Plans”), to Seller’s knowledge (1) no lien in favor of any Title IV Plan, the Internal Revenue Service or the Pension Benefit Guaranty Corporation has arisen or been threatened against Seller or Manager; (2) neither Seller nor Manager has incurred or reasonably expects to incur prior to the Closing Date any liability under Title IV of ERISA arising in connection with the termination of, or complete or partial withdrawal from, any Title IV Plan; and (3) no plan withdrawal has occurred for which liability has been assessed; and (4) no potential withdrawal liability exists from any action of Seller occurring prior to closing with respect to any Title IV Plan covering employees of any Property.

(iii) To Seller’s knowledge, all contributions and premiums that are required to have been made by Seller or Manager to any Title IV Plan or Multiemployer Pension Plan, or by any ERISA Affiliate of the Seller with respect to any Title IV Plan, under the terms of such Plan or Title IV Plan, applicable law, or an applicable collective bargaining agreement, for all complete and partial periods up to and including the Closing Date, have been made or will be made to the appropriate Plan or Title IV Plan on or before the Closing Date.

(iv) No portion of the Property is subject to a lien arising under ERISA or, in so far as it relates to an Employee Benefit Plan, the Code. Each Employee Benefit Plan sponsored, established or maintained by Seller and under which any Hotel Employee benefits has been operated by Seller in conformity with the terms of such plan and in conformity with ERISA and the Code and regulations and other published rulings or guidance of the U.S. Department of Labor, the Internal Revenue Service (the “IRS”), or the Pension Benefit Guaranty Corporation (the “PBGC”), as applicable. Neither Seller nor any other “disqualified person” or “party in interest” as defined in Section 4975 of the Code and Section 3(14) of ERISA, respectively, has engaged in any “prohibited transaction”, as defined in Section 4975 of the Code or Section 406 of ERISA, with respect to any Employee Benefit Plan, nor have there been any fiduciary violations under ERISA, which in either case could subject Seller (or any officer, director or employee thereof) to any material Taxes under Section 502(i) of ERISA or Sections 4971 and 4975 of the Code. There is no filing, application or other matter pending with the IRS, the PBGC or the U. S. Department of Labor or any other governmental body regarding any such Employee Benefit Plans.

(v) Seller and Manager have complied in all material respects with all obligations under COBRA regarding any of the Employee Benefit Plans.

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(vi) Except as provided in Schedule 5.1(z)(vi), neither Seller nor Manager is a party to, and does not sponsor or maintain any plan, program or agreement applicable to any of the Hotel Employees that constitutes a non-qualified deferred compensation plan under Section 409A of the Code, nor does either sponsor or maintain any plan fund or program that provides health insurance benefits for retirees, except to the extent required by COBRA.

(vii) Seller and Manager have complied with all of their contribution obligations to the Employee Benefit Plans to which they are obligated to contribute pursuant to the Collective Bargaining Agreement applicable to the Bargaining Unit Employees, and will remain current up to and including the Closing.

Notwithstanding the foregoing, if Purchaser has actual knowledge of a breach of any representation or warranty made by Seller in this Agreement prior to Closing and Purchaser nevertheless proceeds to close the purchase of the Property, such representation or warranty by Seller shall be deemed to be qualified or modified to reflect Purchaser’s knowledge of such breach and Seller shall have no liability whatsoever respecting the same.

5.2 Knowledge Defined. For purposes of this Agreement, “knowledge” means (a) with respect to Seller, the actual knowledge of Richard Szymanski (provided that, in no event shall such person have any personal liability arising under this Agreement), without any duty of inquiry or investigation other than a duty to inquire of the general manager of the Hotel, and expressly excluding the knowledge of any other shareholder, partner, member, trustee, beneficiary, director, officer, employee, agent or representative of Seller or any of its affiliates, and (b) with respect to Purchaser: (i) the actual knowledge of Michael DeNicola and Jan Kuehnemann (provided that, in no event shall such person(s) have any personal liability arising under this Agreement); (ii) any matter disclosed in any exhibits or schedules to this Agreement; (iii) any matter disclosed in any of the Seller Due Diligence Materials or any other documents or materials provided or made available by Seller or its agents to Purchaser prior to Closing; and (iv) any matter disclosed by Purchaser’s inspections or investigations of the Property.

5.3 Covenants of Seller.

(a) Seller hereby covenants as follows (and covenants not to permit or suffer to exist same by Manager):

(i) From the Effective Date hereof until the Closing or earlier termination of this Agreement, Seller shall cause Manager to operate and maintain the Hotel in a manner generally consistent with the manner in which Manager has operated and maintained the Hotel during the twelve (12) month period prior to the date hereof, in good condition consistent with past practice, reasonable wear and tear excepted and so as to maintain levels of Consumable Inventory consistent with past practice, subject in all events to force majeure and other circumstances or events outside of control of Seller. This covenant shall terminate at Closing but Seller shall remain liable, post-Closing for any breach that occurs pre-Closing.

(ii) From and after the Effective Date, not to sell, assign or enter into any agreement to (or negotiate, or entertain any offers to) sell or transfer the Hotel or any portion thereof, except for the provision of hotel rooms and facilities in the ordinary course. This covenant shall terminate at Closing but Seller shall remain liable, post-Closing for any breach that occurs pre-Closing.

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(iii) From and after the Effective Date, Seller shall not (i) enter into any new, management agreement or Service Contracts or other agreement or encumbrance with respect to the Property, nor shall Seller enter into any agreements modifying the Service Contracts, Permitted Exceptions or the Space Lease unless: (1) (A) any such agreement or modification will not bind Purchaser or the Property after the Closing Date; (B) any such agreement or modification will be terminated effective as of the Closing Date if requested by Purchaser to do so; or (C) Seller has obtained Purchaser’s prior written consent to such agreement or modification, which consent may be granted or withheld by Purchaser in its sole discretion, and (2) Seller provides Purchaser with prior written notice of its intent to execute any such agreement or (ii) grant its consent to any action described in clause (i) above by Manager. Contracts and agreements entered into after the Effective Date in accordance with this Section 5.3(a)(iii) shall constitute, as applicable, “Service Contracts” or the “Space Lease” and be scheduled on, and (other than with respect to the Space Lease) assigned pursuant to, the Assignment of Contracts. This covenant shall terminate at Closing but Seller shall remain liable, post-Closing for any breach that occurs pre-Closing. Notwithstanding anything to the contrary contained in this Agreement, following the Effective Date, Seller shall not make any Bookings (other than bookings for individual rooms) for a date more than 1 year after the Effective Date, permit Seller or the Hotel (but same shall not apply to Manager) to have any employees, or allow any deposits under any Service Contract, Space Lease or other agreement affecting or related to the Property to be applied, utilized or refunded, without the consent of Purchaser.

(b) On or before the Closing Date, Seller shall remove the Hotel from the scope of all barter agreements to which Seller, Manager or any member of the Seller Group is a party (whether or not same are included on the Vouchers and Barter Agreements Schedule).

(c) Subject to Section 4.4, Seller shall promptly pay and discharge any taxes that are imposed, arise or are billed prior to Closing as and when such taxes shall become due. Seller shall promptly advise Purchaser of any notices it receives from governmental agencies relating to taxes (including without limitation Taxes). The provisions of this Section 5.3(c) shall survive the Closing.

(d) Seller shall cure any late or defective RPIE filing with the Department of Finance (to the extent not cured prior to the Effective Date) and shall be fully responsible and indemnify Purchaser for any penalties imposed with respect to such late or defective filings. Seller shall instruct its Tax Certiorari attorneys to correct and remove any penalties relating to such RPIE matters at its sole cost and expense and provide adequate proof of the satisfaction and dismissal of any fees or penalties. The provisions of this Section 5.3(d) shall survive the Closing.

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5.4 Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to Seller:

(a) ERISA. Purchaser is not acquiring the Property with the assets of an employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974.

(b) Organization and Authority. Purchaser has been duly organized and is validly existing and in good standing under the laws of the State of Delaware and it, or its assignee, will be qualified to do business in New York by the Closing Date. Purchaser has the full right, power and authority to purchase the Property as provided in this Agreement and to carry out Purchaser’s obligations hereunder, and all requisite action necessary to authorize Purchaser to enter into this Agreement and to carry out its obligations hereunder have been, or by the Closing will have been, taken. The person signing this Agreement on behalf of Purchaser is authorized to do so, and this Agreement is enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency and similar laws.

(c) No Breach. The execution, delivery and performance of this Agreement by Purchaser and the consummation of the transaction contemplated herein will not: (i) result in a breach or acceleration of or constitute a default under any agreement or instrument by which Purchaser is bound or affected which would have a material adverse impact on the ability of Purchaser to timely close the acquisition of the Property pursuant to the terms of this Agreement; or (ii) constitute or result in the violation or breach by Purchaser of any judgment, order, writ, injunction or decree issued against or imposed upon Purchaser or result in the violation of any applicable law, rule or regulation of any governmental authority which, with respect to any of the foregoing, would have a material adverse impact on the ability of Purchaser to timely complete the acquisition of the Property pursuant to this Agreement.

(d) No Consents. Other than those that will be obtained, filed or given, as applicable, prior to Closing, no consent, approval or action of, filing with or notice to any governmental or regulatory authority or any other person or entity on the part of Purchaser is required in connection with the execution, delivery and performance of Agreement or the consummation of the transactions contemplated.

(e) Pending Actions. There is no action, suit, arbitration, unsatisfied order or judgment, government investigation or proceeding pending against Purchaser an adverse determination of which would, individually or in the aggregate, reasonably be expected to materially and adversely 12 interfere with the consummation of the transaction contemplated by this Agreement.

(f) Patriot Act Compliance. Neither Purchaser nor any entity controlled by Purchaser (i) is in violation of any applicable anti-money laundering or anti-bribery laws and regulations, (ii) is a person or entity listed on the Lists; (iii) is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order; or (iv) is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order.

(g) Tax Identification Number. Purchaser’s valid tax identification number is 45-1137528.

(h) Bankruptcy. No petition in bankruptcy (voluntary or otherwise), assignment for the benefit of creditors, or petition seeking reorganization or arrangement or other action under federal or state bankruptcy laws is pending against or contemplated by Purchaser or its general partner(s) or controlling shareholders or members.

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5.5 Covenants of Purchaser and/or of Seller.

(a) [Intentionally Omitted.]

(b) Purchaser may at its election (but subject to the limitations of Section 3.1 above), inspect the Property for the presence of Hazardous Substances (as defined below), and, at Seller’s request, shall furnish to Seller without representation or warranty copies of any reports received by Purchaser in connection with any such inspection. Upon receipt of written request, Purchaser shall also furnish to Seller without representation or warranty copies of any other reports received by Purchaser relating to any other physical inspections of the Property conducted on Purchaser’s behalf, if any (including, specifically, without limitation, any reports analyzing compliance of the Property with the provisions of the Americans with Disabilities Act, 42 U.S.C. §12101, et seq., if applicable). As used herein, “Hazardous Substances” means all hazardous or toxic materials, substances, pollutants, contaminants, or wastes currently or hereafter identified as a hazardous substance or waste in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as “CERCLA”), as amended, the Superfund Amendments and Reauthorization Act (commonly known as “SARA”), the Resource Conservation and Recovery Act (commonly known as “RCRA”), or any other federal, state or local legislation or ordinances applicable to the Property (collectively, “Environmental Laws”).

Purchaser hereby assumes full responsibility for its inspections of the Property regarding Hazardous Substances and irrevocably waives any claim against Seller and releases Seller from all liability arising from the presence of Hazardous Substances on the Property. Notwithstanding the foregoing, Purchaser does not waive and hereby retains the right to recover from Seller in connection with any claim by any third party (other than a governmental authority) for personal injury arising from or relating to any alleged exposure to Hazardous Substances at, on, under, about, within or migrating to or from the Property prior to the Closing, but not to assert claims in addition to such claims asserted against Purchaser.

(c) Not later than three (3) days prior to the Closing, Seller shall send, or cause the Manager to send, written notice to guests or other persons who have safe deposit boxes at the Hotel advising of the sale of the Hotel and requesting verification or removal of the contents within two (2) days. The safe deposit boxes of guests or other persons not responding to said written notice shall be opened only in the presence of the Manager or representatives of both Seller and Purchaser. The contents of all boxes opened as aforesaid shall be listed at the time such boxes are opened and each such list shall be signed by or on behalf of the Manager or by or on behalf of Seller and Purchaser, and Purchaser shall not be liable or responsible for any items claimed to have been in said boxes unless such items are included in such list. Seller agrees to indemnify, defend and hold Purchaser harmless from and against any liability or responsibility for any items claimed to have been in said boxes but not included on such list and Purchaser agrees to indemnify, defend and hold Seller harmless from and against any liability or responsibility for items claimed to have been in said boxes and included in such list and all claims, losses and liabilities with respect thereto arising out of the acts or omissions of Purchaser after the Closing Date.

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(d) All baggage or other property of guests of the Hotel which has been checked with or left in the care of Seller and remains in Seller’s care as of the Cut-Off Time shall be inventoried and tagged jointly by Seller and Purchaser. Purchaser hereby agrees to defend, indemnify and hold harmless Seller against any claims, losses or liabilities in connection with such tagged baggage and property arising out of the acts or omissions of Purchaser from and after the Closing Date. Seller hereby agrees to defend, indemnify and hold harmless Purchaser against all claims, losses and liabilities with respect to such tagged baggage and property arising out of the acts or omissions of Seller prior to the Closing Date.

(e) Purchaser shall honor (and shall cause its manager to honor) all reservations made in the ordinary course of business at the Hotel and in accordance with this Agreement (including honoring the rates at which such reservations were made, including reservations made on a wholesale, reward points redemption, or other basis), or for any related conference, banquet, or meeting space or any other facilities in connection with the Hotel made by Seller on or prior to the Cut-Off Time for periods on or after the Closing Date.

The provisions of this Section 5.5 shall survive Closing or any earlier termination of this Agreement.

5.6 Employees.

(a) For purposes of this Agreement, (i) “Hotel Employees” means, collectively, all individuals employed at the Hotel by Manager or Seller as of the Closing Date, irrespective of whether such individuals are active or on leaves of absence or otherwise inactive but still employed at the Hotel, and (ii) “Bargaining Unit Employees” means all employees of Seller or Manager who work at the Hotel and are covered by the Collective Bargaining Agreement (defined below). The provisions of this Agreement set forth in Sections 5.6(b) through Section 5.6(f) will apply to Purchaser or Manager, as applicable, to the extent and only to the extent that Seller immediately before the Closing has a corresponding and direct obligation to Hotel Employees or to Bargaining Unit Employees and to their union representatives, and the obligation of Purchaser or Manager, as applicable, thereunder will be only to the same extent as the obligation of Seller. The provisions of Section 5.6(f), and any obligation of Purchaser or Manager thereunder shall be to the same extent and have the same nature as that of Seller immediately before the Closing. The provisions of Section 5.6(h) will operate and be applied, if and only to the extent that Seller has an obligation to contribute to the Retirement Plan that runs directly to such plan. Nothing in this Section 5.6 is intended by its own force and without the consent of Purchaser to enlarge any obligation or commitment of Purchaser or Manager beyond the obligation or commitment that Seller has immediately before the Closing.

(b) Purchaser agrees that it will cause the Manager to continue to employ, following the Closing, the Hotel Employees (the “Continuing Employees”) so that Seller shall not be required to give any layoff, closing or other termination notices or otherwise incur any liability pursuant to the provisions of the Federal Worker Adjustment and Retraining Notification Act. 29 U.S.C. 2101-2109 (the “Federal WARN Act”), the New York State Worker Adjustment and Retraining Notification Act, N.Y. Labor Law §860 et seq. and 12 NYCRR Part 921 (“New York WARN Act”). Purchaser further agrees that (i) all Bargaining Unit Employees shall be offered employment in accordance with Section 5.6(e) below, (ii) Purchaser or, as the case may be, the Manager shall be required to assume and discharge, in accordance with their terms, all obligations and liabilities of Seller or Manager with respect to costs of termination of any Hotel Employee incurred after the Closing including, without limitation, any severance claim made after the Closing or arising from the transactions contemplated by this Agreement.

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(c) From and after the Closing, Purchaser or Manager (i) shall be solely responsible for complying or causing compliance with all applicable provisions of federal, state and municipal laws and regulations relating to Continuing Employees, including Purchaser’s covenants set forth in this Section 5.6, including without limitation compliance with any applicable provisions of the Federal WARN Actor the New York WARN Act, and (ii) other than with respect to acts or omissions of Seller and/or Manager (whether same occur prior to or following the Closing Date), hereby agrees to indemnify, defend, protect and hold Seller, Manager, and their respective affiliates harmless from and against any and all liabilities, debts, costs, expenses, damages, attorneys’ fees and disbursements arising out of any violation of the Federal WARN Act or the New York WARN Act in connection with the transaction contemplated by this Agreement. Seller agrees to indemnify, defend, protect and hold Purchaser and its affiliates harmless from and against any and all liabilities, debts, costs, expenses, damages, attorneys’ fees and disbursements arising out of any violation of the Federal WARN Act or the New York WARN Act for (A) any period prior to the Closing and (B) with respect to all acts or omissions of Seller and/or Manger (whether same occur prior to or following the Closing Date).

(d) During the period prior to Closing, the parties agree to reasonably cooperate and also to consult on a regular basis and coordinate their activities relating to employee matters so as to facilitate a smooth transition of Hotel operations and the continued proper performance by the Hotel Employees of their respective duties up to Closing. Between the Effective Date and Closing, other than in the ordinary course of operations, Seller and/or Manager shall not replace, layoff or terminate any of the Hotel Employees, without Purchaser’s prior written consent, which consent may not be unreasonably withheld. Seller shall promptly deliver to Purchaser copies of any written materials delivered or received relating to Union representation of Hotel Employees, and Seller shall keep Purchaser updated with respect to the status of any discussions with respect thereto.

(e) Purchaser or Manager shall: (i) credit the Continuing Employees whose terms and conditions of employment are not covered by the Collective Bargaining Agreement with their original date of hire with the Hotel by the Seller or Manager or their predecessors for purposes of any length of service requirements, waiting periods, vesting periods, or differential benefits based on length of service in any benefit plan established or maintained by or on behalf of Purchaser (or Purchaser’s manager) for which such Hotel Employees may be eligible after the Closing; (ii) provide, subject to the consent of any third-party insurer or other similar third party having liability for benefit payments, that any pre-existing conditions, restrictions or waiting periods under any benefit plan established by or on behalf of Purchaser or Manager providing medical, dental, vision, or prescription drug coverage or benefits are waived to the extent necessary and possible under the applicable plans to provide immediate coverage for Hotel employees who are hired for the Hotel following termination of such Hotel Employees’ coverage under the benefit plans maintained by or on behalf of Seller.

(f) Without limiting any other provision of this Section 5.6, (i) Seller has informed Purchaser that Seller is a party to and is bound by the terms of that certain Collective Bargaining Agreement between Hotel Association of New York, Inc. and New York Hotel and Motel Trades Council, AFL-CIO (“Union”) dated as of July 1, 2006, (the “Collective Bargaining Agreement”), (ii) a copy of the Collective Bargaining Agreement has previously been delivered or made available to Purchaser for its review, and (iii) Purchaser shall cause Manager to retain all Bargaining Unit Employees following the Closing on an uninterrupted basis, without loss of seniority, compensation, benefits or other terms and conditions of employment subject to the Collective Bargaining Agreement and applicable law, and (iv) the Purchaser will cause Manager to recognize the Union and assume and be bound by the Collective Bargaining Agreement from and after the Closing Date.

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(g) Under the Collective Bargaining Agreement, Seller currently contributes, on a monthly basis, various amounts under the (A) New York Hotel Trades Council and Hotel Association of New York City, Inc. Health Benefits Fund, (B) New York Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund, (C) New York Hotel Trades Council and Hotel Association of New York City, Inc. Prepaid Legal Services Fund, and (D) New York Hotel Trades Council and Hotel Association of New York City, Inc. Training and Scholarship Fund (collectively, the “Union Employee Benefit Funds”). At Closing, accrued but not yet payable with respect to the Union Employee Benefit Funds shall be prorated, with the appropriate party receiving a credit to the Purchase Price, on a pro rata basis base on the date Closing occurs.

(h) Retirement Plan.

(i) The Seller and the Manager are currently “employers” with respect to the Hotel for purposes of Title IV of ERISA, and subsequent to the Closing Date, the Seller and Manager might otherwise have had an obligation to contribute to the New York Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund (the “Retirement Plan”) with respect to the Hotel, and accordingly, the parties have agreed to include provisions herein sufficient to comply with Section 4204 of ERISA. Seller and Purchaser agree that during the Contribution Period (as defined below), Purchaser (to the extent Seller and Manager have had an obligation to contribute) shall, either directly or through Manager, make contributions to the Retirement Plan in accordance with the Collective Bargaining Agreement, for substantially the same number of contribution base units, within the meaning of Section 4001(a)(11) of ERISA, for which Seller or Manager had an obligation to contribute with respect to the Hotel. If, as a result of a failure to comply with the foregoing requirements or as a result of any other action by Purchaser, Seller or Manager incurs any withdrawal liability under the Retirement Plan with respect to the Hotel, the Purchaser shall indemnify, defend, and hold Seller and any of its ERISA affiliates harmless from and against any such liability and all related costs and expenses, including reasonable attorneys’ fees. Purchaser agrees to reasonably cooperate with Seller, Manager and/or Retirement Plan representatives with respect to any inquiry or reasonable request for information and assistance in order to facilitate the transfer of the contribution obligation with respect to the Retirement Plan from Seller and Manager to Purchaser or Manager. The parties agree that they will notify the Retirement Plan of their intention that this transaction comply with Section 4204 of ERISA. Subject to Section 5.6(h)(ii), during the period commencing on the first day of the plan year following the Closing Date and ending on the expiration of the fifth such plan year (the “Contribution Period”), Purchaser or Manager shall provide to the Retirement Plan either a bond, letter of credit, or an escrow in an amount and manner meeting the requirements of Section 4204 of ERISA. The cost of any bond, letter of credit, or escrow provided under this Section 5.6(h)(i) shall be paid by Purchaser.

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(ii) To the extent required pursuant to Section 4204(a)(3) of ERISA, Seller and Manager shall provide to the Retirement Plan a bond or escrow equal to the present value of the withdrawal liability Seller would have had to the Retirement Plan with respect to the assets acquired by Purchaser pursuant to this Agreement (but for the provisions of Section 4204 of ERISA) or, if greater, an amount determined under Section 4204(a)(1)(B) of ERISA, reduced to the extent provided under Section 4204(a)(3) of ERISA in the event only a portion of Seller’s or Manager’s assets are distributed during the Contribution Period. If Purchaser or Manager at any time withdraws from the Retirement Plan in a complete or partial withdrawal with respect to the assets acquired by Purchaser pursuant to this Agreement during the Contribution Period, Purchaser shall be primarily liable and pay, and Seller and Manager shall be secondarily liable for, any withdrawal liability Seller or Manager would have had to the Retirement Plan with respect to the Hotel (but for the provisions of Section 4204 of ERISA) if any withdrawal liability of Purchaser with respect to such Retirement Plan is not paid. Purchaser shall indemnify and hold Seller and Manager harmless for any withdrawal liability incurred by Seller or Manager pursuant to the preceding sentence. Purchaser agrees to provide Seller and Manager with reasonable advance notice of any action or event which could result in the imposition of any withdrawal liability contemplated by this Section 5.6(h)(ii), and in any event Purchaser shall immediately furnish Seller and Manager with a copy of any notice including, but not limited to a notice of withdrawal liability, it may receive with respect to the Retirement Plan, together with all the pertinent details. If any such withdrawal liability shall be assessed against Purchaser, Purchaser further agrees to provide Seller and Manager with reasonable advance notice of any intention on the part of Purchaser not to make full payment of any withdrawal liability when the same shall become due. Any proposed notice or communication to the Retirement Plan relating to Purchaser’s obligations under this Section shall be provided to Seller and Manager at least ten (10) days before such notice is provided to the Retirement Plan, and the form of such notice and communication shall be subject to Seller’s and Manager’s written approval, which approval shall not be unreasonably withheld. Notwithstanding anything contained in this Section 5.6(h)(ii) to the contrary, Purchaser shall not be obligated to provide any bond, letter of credit, or escrow in the event and to the extent Purchaser obtains from the Retirement Plan or the Pension Benefit Guaranty Corporation a proper variance or exemption under Section 4204(c) of ERISA and the applicable regulations thereunder, provided any and all requirements of said variance or exemption are met and Purchaser approves such exception. Upon Purchaser’s request, Seller and Manager agree to reasonably cooperate with Purchaser in providing the Retirement Plan with notice of the parties’ intention that this transaction be covered by Section 4204 of ERISA and in providing Purchaser with Seller’s and Manager’s annual contributions to the Retirement Plan for the current plan year and the last three complete plan years of the Retirement Plan.

(i) Purchaser agrees to indemnify, defend and hold harmless Seller, Manager and their respective officers, directors, members, owners and affiliates (herein, the “Seller-Related Parties”) from and against any liability, or judgment asserted against any of the Seller-Related Parties on account of or with respect to any of the following: (i) any causes of action, damages, complaints, judgments, orders whatsoever, and all costs and expenses (including, without limitation, reasonable attorneys’ fees and costs) incurred in connection therewith, which may be asserted against any of the Seller-Related Parties on account of any violation of the National Labor Relations Act, Title VII of the Civil Rights Act, the Fair Labor Standards Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the Vocational Rehabilitation Act of 1973, the Federal WARN Act and/or the New York WARN Act, New York Labor Law, New York State and City Human Rights Law, and/or any other applicable federal, state or city employment statutes, laws, rules and regulations (collectively, “Employment Laws”) by Purchaser, or any designee or management company engaged by Purchaser to employ Hotel personnel (other than Manager), except to the extent such are based on the acts of any Seller Related Parties, and (ii) any claims or liabilities arising (A) under ERISA and/or any other applicable federal or state law or regulation concerning employee benefit plans with respect to the employment of employees by Purchaser or such designee or management company from and after the Closing or from the transactions contemplated by the Agreement, or (B) from or under any employee benefit plan applicable to any Continuing Employee or any other employee hired by Purchaser or such designee or management company to perform services at or for the Hotel, to the extent that any such claim or liability relates to any period of employment from and after the Closing.

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(j) Seller agrees to indemnify, defend and hold harmless Purchaser, or any designee or management company engaged by Purchaser to employ Hotel personnel and their respective officers, directors, members, owners and affiliates (herein, the “Purchaser-Related Parties”) from and against any claim, liability, or judgment asserted against any of the Purchaser-Related Parties on account of or with respect to any of the following: (i) any causes of action, damages, complaints, judgments, orders and/or claims, whatsoever, and all costs and expenses (including, without limitation, reasonable attorneys’ fees and costs) incurred in connection therewith, which may be asserted against any of the Purchaser-Related Parties on account of any violation of the Employment Laws occurring up to and including the Closing by Seller-Related Parties, except to the extent such are based on the acts of any Purchaser-Related Parties and (ii) any claims or liabilities arising (A) under ERISA and/or any other applicable federal or state law or regulation concerning employee benefit plans with respect to the employment of employees by Seller-Related Parties up to and including the Closing, or (B) from or under any employee benefit plan applicable to any Continuing Employee or any other employee hired by Purchaser or such designee or management company to perform services at or for the Hotel, to the extent that any such claim or liability relates to any period of employment up to and including the Closing.

(k) Purchaser’s and Seller’s obligations under this Section 5.6 shall survive Closing without limitation.

ARTICLE VI
DEFAULT

6.1 Default by Purchaser. If the sale of the Property as contemplated hereunder is not consummated due to Purchaser’s default hereunder, Seller shall be entitled, as its sole and exclusive remedy to terminate this Agreement and receive the Earnest Money as liquidated damages for the breach of this Agreement, it being agreed between the parties hereto that the actual damages to Seller in the event of such breach are impractical to ascertain and the amount of the Earnest Money is a reasonable estimate thereof. THEREFORE, SUBJECT TO THE PRECEDING SENTENCE, BY PLACING THEIR INITIALS BELOW, THE PARTIES ACKNOWLEDGE THAT THE EARNEST MONEY HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES’ REASONABLE ESTIMATE OF SELLER’S DAMAGES AND AS SELLER’S EXCLUSIVE REMEDY AGAINST PURCHASER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF PURCHASER. THE PARTIES ACKNOWLEDGE THAT THE PAYMENT OF SUCH LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER.

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Initials: Seller YG      Purchaser LM

Nothing contained in this Section 6.1 shall limit or prevent Seller, after Closing has occurred, from: (a) asserting any legal or equitable claims against Purchaser for Purchaser’s obligation to pay attorneys’ fees and other amounts under Section 11.18; (b) enforcing any indemnity obligation of Purchaser under this Agreement or preclude Seller from obtaining a damage award in connection therewith; or (c) enforcing Purchaser’s other obligations and liabilities which survive Closing.

6.2 Default by Seller. If (x) the sale of the Property as contemplated hereunder is not consummated due to Seller’s default hereunder, or (y) prior to Closing Seller defaults hereunder and, with respect to any default under this clause (y) only, such default shall continue for five (5) days after notice to Seller, then Purchaser shall be entitled, as its sole and exclusive remedy, to terminate this Agreement, receive the return of the Earnest Money and be reimbursed by Seller for all of Purchaser’s documented third party costs incurred in connection with the transactions contemplated by this Agreement, including without limitation the negotiation of this Agreement, in an aggregate amount not to exceed $250,000.00, in which event Seller shall be released from any and all other liability hereunder. Purchaser expressly waives its rights to seek monetary or other damages in the event of Seller’s default hereunder other than as expressly provided in the preceding sentence. Notwithstanding the foregoing, if Purchaser is ready, willing and able to close and Seller is obligated to close pursuant to the terms of this Agreement, then Purchaser shall have the right to file suit for specific performance against Seller in a court having jurisdiction in the country and state in which the Property is located, on or before sixty (60) days following the date upon which Closing was to have occurred (subject to the provisions of Section 4.11). Purchaser shall be deemed to have elected to waive such right to seek specific performance if it fails to file suit within such period. As material consideration to Seller’s entering into this Agreement with Purchaser, Purchaser expressly waives any right under statutory or common law or otherwise to record or file a lis pendens or a notice of pendency of action or similar notice against all of any portion of the Property unless all conditions precedent to Seller’s obligation to proceed to Closing have been satisfied or waived and Seller defaults in its obligation to proceed to Closing.

Nothing contained in this Section 6.2 shall limit or prevent Purchaser, after Closing has occurred, from: (a) asserting any legal or equitable claims against Seller for Seller’s obligation to pay attorneys’ fees and other amounts under Section 11.18; (b) enforcing any indemnity obligation of Seller under this Agreement or preclude Purchaser from obtaining a damage award in connection therewith; or (c) enforcing Seller’s other obligations and liabilities which survive Closing.

6.3 Seller’s Right to Cure Defaults. Notwithstanding anything to the contrary in this Agreement, neither party shall not have the right to exercise its remedies under Section 6.1 or 6.2, as applicable, for a default unless the party seeking to exercise remedies has provided written notice to the other party specifying in reasonable detail the nature of the default, and the other party has not cured the same within ten (10) business days after the other party’s receipt of such notice (the “Cure Period”), in which case the Outside Closing Date shall be extended until the date which is five (5) business days after the expiration of the Cure Period.

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ARTICLE VII
SURVIVAL, INDEMNIFICATION, AND LIMITATIONS ON LIABILITY

7.1 Survival. The representations and warranties of Seller set forth in Section 5.1 of this Agreement, as updated by the certificate of Seller to be delivered to Purchaser at Closing in accordance with Section 4.2(e) hereof, and any other representations and warranties of Seller contained herein or in any other instrument delivered to Purchaser in connection herewith shall survive Closing (i) indefinitely with respect to the representations and warranties contained in subsections (a), (d), (f), (h), (j)(solely with respect to Environmental Laws), (n), (q), (w), and (z) of Section 5.1, (ii) for a period equal to the applicable statute of limitations with respect to the representations and warranties contained in subsections (i), (p), (r)and (u) of Section 5.1, and (iii) for a period of six (6) months with respect to the remaining representations and warranties contained in Section 5.1. The representations and warranties of Purchaser set forth in Section 5.4, as updated by the certificate of Purchaser to be delivered to Seller at Closing in accordance with Section 4.3(d) hereof, and any other representations and warranties of Purchaser contained herein or in any other instrument delivered to Seller in connection herewith shall survive the Closing (i) indefinitely with respect to the representations and warranties contained in subsections (a), (b) and (f) of Section 5.4, (ii) for a period equal to the applicable statute of limitations with respect to the representations and warranties contained in subsection (g) of Section 5.4, and (iii) for a period of six (6) months from the Closing Date with respect to the remaining representations and warranties contained in Section 5.4.

7.2 Seller’s Indemnification. From and after the Closing, Seller shall, subject to the provisions of this Section 7.2, defend, indemnify and save harmless Purchaser and its Affiliates, and their respective employees, contractors, officers, directors, and agents (collectively, “Purchaser Indemnitees”) from and against any and all losses, injuries, claims, penalties, liabilities, fines, damages, costs or expenses (including, without limitation, reasonable attorneys’ fee and costs) (collectively, “Losses”) arising out of, resulting from or relating to:

(a) the inaccuracy of any representation or warranty of Seller;

(b) any charge, complaint or request for a grievance or an arbitration proceeding against Seller alleging a breach or default under any employment agreement or a violation of applicable law relating to personnel or employment matters made by or on behalf of any current or former employee at the Property to the extent such alleged breach, default, or violation pertains to any time period prior to the Closing Date; or

(c) the failure by Seller to perform or fulfill any covenant or agreement of Seller contained in this Agreement other than any such failure as to which Purchaser had knowledge on or before the Closing Date; or

(d) (i) any physical or personal injury or death caused to any person, or damage to property of unaffiliated third parties, to the extent such injury, death or damage occurred prior to the Closing Date in connection with the Property, and (ii) except (x) as may be the obligation of Purchaser pursuant to an express provision of this Agreement or (y) for any item for which Purchaser receives a credit at Closing (to the extent of such credit), any claims brought by any unaffiliated third party to the extent arising from acts, omissions or occurrences that occurred or accrued in connection with the Property prior to the Closing Date, including, without limitation, with respect to Service Contracts and leases. Notwithstanding the foregoing, unless otherwise specified in this Agreement neither claims for change to or remediation of the physical, structural or environmental condition of the Property nor claims of any government or governmental agency or authority relating to the physical, structural or environmental condition of the Property are subject to indemnification by Seller under clause (ii) above.

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The provisions of this Section 7.2 shall survive the Closing without limitation.

7.3 Purchaser’s Indemnification. From and after the Closing, Purchaser shall, subject to the provisions of this Section 7.3, defend, indemnify and save harmless Seller and its Affiliates, and their respective employees, contractors, officers, directors, and agents (collectively, “Seller Indemnitees”) from and against any and all Losses arising out of, resulting from or relating to:

(a) the inaccuracy of any representation or warranty of Purchaser; or

(b) the failure by Purchaser to perform or fulfill any covenant or agreement of Purchaser contained in this Agreement other than any such failure as to which Seller had knowledge on or before the Closing Date; or

(c) (i) any physical or personal injury or death caused to any person, or damage to property of unaffiliated third parties, to the extent such injury, death or damage occurred on or after the Closing Date in connection with the Property, and (ii) except (x) as may be the obligation of Seller pursuant to an express provision of this Agreement and with respect to which Purchaser did not receive a credit at Closing or (y) for any item for which Seller receives a credit at Closing (to the extent of such credit), any claims brought by an unaffiliated third party to the extent arising from acts, omissions, or occurrences that occur or accrue in connection with the Property on or after the Closing Date, including, without limitation, with respect to Service Contracts assumed by Purchaser at Closing.

The provisions of this Section 7.3 shall survive the Closing without limitation.

7.4 Notice and Resolution of Claims.

(a) Notice. Each Person entitled to indemnification pursuant to Section 7.2 or 7.3 (an “Indemnitee”) shall give written notice to the indemnifying party or parties from whom indemnity is sought (the “Indemnifying Party”) promptly after obtaining knowledge of any claim that it may have under Section 7.2 or 7.3, as applicable. The notice shall set forth in reasonable detail the claim and the basis for indemnification. Failure to give the notice in a timely manner shall not release the Indemnifying Party from its obligations under Section 7.2 or 7.3, as applicable, except to the extent that the failure materially prejudices the ability of the Indemnifying Party to contest that claim.

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(b) Defense of Third Party Claims. If a claim for indemnification pursuant to Section 7.2 or 7.3 shall arise from any action made or brought by a third party that would reasonably be expected to result in indemnifiable Losses (a “Third Party Claim”), the Indemnifying Party may assume the defense of the Third Party Claim. If the Indemnifying Party assumes the defense of the Third Party Claim, the defense shall be conducted by counsel chosen by the Indemnifying Party, who shall be reasonably acceptable to Indemnitee, provided that the Indemnitee shall retain the right to employ its own counsel and participate in the defense of the Third Party Claim at its own expense (which shall not be recoverable from the Indemnifying Party under this ARTICLE VII unless (i) the Indemnitee is advised by counsel reasonably satisfactory to the Indemnifying Party that use of counsel of the Indemnifying Party’s choice would be expected to give rise to a conflict of interest, (ii) the Indemnifying Party shall not have employed counsel to represent the Indemnitee within a reasonable time after notice of the assertion of any such claim or institution of any such action or proceeding, or (iii) the Indemnifying Party shall authorize the Indemnitee in writing to employ separate counsel at the expense of the Indemnifying Party, in each of which cases the reasonable expenses of counsel to the Indemnitee shall be reimbursed by the Indemnifying Party). In no event shall the Indemnifying Party be obligated to pay the fees and expenses of more than one counsel (other than local counsel) for all Indemnitees with respect to any claim indemnified under this ARTICLE VII; provided that an Indemnitee shall be entitled to employ separate counsel at the expense of the Indemnifying Party if the Indemnitee is advised by counsel reasonably satisfactory to the Indemnifying Party that use of such other counsel would give rise to a conflict of interest, in which case the reasonable expenses of counsel to such Indemnitee shall be reimbursed by the Indemnifying Party. Notwithstanding the foregoing provisions of this Section 7.4(b), (i) no Indemnifying Party shall be entitled to settle any Third Party Claim for which indemnification is sought under Section 7.2 or 7.3 without the Indemnitee’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed, unless it has assumed the defense of such Third Party Claim and as part of the settlement the Indemnitee is released from all liability with respect to the Third Party Claim and the settlement does not impose any equitable remedy on the Indemnitee or require the Indemnitee to admit any fault, culpability or failure to act by or on behalf of the Indemnitee, and (ii) no Indemnitee shall be entitled to settle any Third Party Claim for which indemnification is sought under Section 7.2 or 7.3 without the Indemnifying Party’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed, unless the Third Party claim is for money damages only and such settlement does not include a statement as to, or an admission of fault, culpability or a failure to act by or on behalf of the Indemnifying Party and as part of such settlement the Indemnifying Party is released from all liability (for indemnification pursuant to this ARTICLE VII and otherwise) with respect to such Third Party Claim. If the Indemnifying Party does not notify the Indemnitee within twenty (20) Business Days after receipt of the Indemnitee’s notice of a Third Party Claim of indemnity hereunder that it elects to assume the control of the defense of any Third Party Claim, the Indemnitee shall have the right to contest the Third Party Claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement and the costs of such actions by the Indemnitee shall be paid by the Indemnifying Party.

7.5 Limitations on Liability.

(a) Deductible.

(i) Seller shall not have any obligation or liability to any Purchaser Indemnitee under Section 7.2(a) unless and until the aggregate amount of Losses incurred or suffered by the Purchaser Indemnitees arising out of the matters referred to in Section 7.2(a) shall have exceeded $75,000, in which case Seller shall be obligated and liable under Section 7.2(a) only with respect to such excess. Notwithstanding the foregoing, Seller shall be liable for unpaid taxes and Losses incurred with respect to the existence of any leases other than the Space Lease without a dollar threshold.

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(ii) Purchaser shall not have any obligation or liability to any Seller Indemnitee under Section 7.3(a) unless and until the aggregate amount of Losses suffered by the Seller Indemnitees arising out of the matters referred to in Section 7.3(a) shall have exceeded $75,000, in which case Purchaser shall be obligated and liable under Section 7.3(a) only with respect to such excess.

(b) Limit of Liability. The aggregate liability of Seller or Purchaser, as applicable—

(i) under Section 7.2(a) or 7.3(a) shall not exceed three percent (3%) of the Purchase Price (notwithstanding the foregoing, Seller shall be liable for unpaid taxes, unpaid employee compensation with respect to the period ending on the Closing Date, and Losses incurred with respect to the existence of any leases other than the Space Lease, without a dollar ceiling and any amounts of liability described in this parenthetical shall not count toward such three percent (3%)); and

(ii) under Section 7.2(b), 7.2(c), 7.2(d), 7.3(b), or 7.3(c) shall not be subject to any limits.

(c) Limit on Time for Assertion of Claims. Neither Seller nor Purchaser shall have any obligation or liability pursuant to Section 7.2 or 7.3, respectively, for any breach of any representation or warranty unless notice of a claim asserting such breach shall have been given in accordance with Section 7.4 prior to the termination of the survival period applicable to such representation or warranty as set forth in Section 7.1.

7.6 Other Matters Regarding Indemnification.

(a) In the event either Seller or Purchaser (the “Claiming Party”) has actual knowledge on or before the Closing that any representation or warranty of the other is incorrect (either through independent investigation or through information and materials provided to the Claiming Party) or that a covenant of the other has been breached and the Claiming Party proceeds to Closing, then the Claiming Party shall not be permitted to assert a claim for such matters following the Closing Date.

(b) The right to be indemnified for Losses, on the terms and subject to the limitations set forth in this ARTICLE VII, shall be the exclusive remedy available to the Parties and the Indemnitees for the matters set forth in Sections 7.2 and 7.3.

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ARTICLE VIII
RISK OF LOSS

8.1 Minor Damage. In the event of loss or damage to the Real Property or any portion thereof (other than loss or damage of a nature that occurs in the ordinary course that is not expected to cost more than $100,000 to repair) Seller shall promptly inform Purchaser thereof. In the event of loss or damage to the Real Property or any portion thereof which is not “major” (as hereinafter defined), this Agreement shall remain in full force and effect provided Seller shall, at Seller’s option, either (a) perform any necessary repairs (to return the Real Property to substantially the condition in which it existed immediately prior to such loss or damage), or (b) assign to Purchaser all of Seller’s right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies or condemnation awards relating to the premises in question (other than business interruption proceeds attributable to the period prior to Closing and proceeds in respect of amounts expended by or on behalf of Seller prior to Closing to restore the Property). In the event that Seller elects to perform repairs upon the Real Property, Seller shall use reasonable efforts to complete such repairs promptly and the Outside Closing Date shall be extended a reasonable time, not to exceed thirty (30) days, in order to allow for the completion of such repairs. If Seller elects to assign a casualty claim to Purchaser, the Purchase Price shall be reduced by an amount equal to the deductible amount under Seller’s insurance policy with respect to such loss or damage and not paid by Seller prior to Closing and Seller shall assign all of its rights to proceeds under the applicable policy with respect to any claim for the applicable loss (other than business interruption proceeds attributable to the period prior to Closing and proceeds in respect of amounts expended by or on behalf of Seller prior to Closing to restore the Property). Upon Closing, full risk of loss with respect to the Property shall pass to Purchaser.

8.2 Major Damage. In the event of a “major” loss or damage to the Real Property, Purchaser may, upon notice in writing to Seller delivered within ten (10) days after Seller sends Purchaser written notice of the occurrence of such major loss or damage, terminate this Agreement by written notice to Seller, in which event the Earnest Money shall be returned to Purchaser and neither Seller nor Purchaser shall have any further rights or obligations under this Agreement except any obligations that expressly survive the termination of this Agreement. If Purchaser fails for any reason to deliver written notice of termination to Seller within ten (10) days after Seller sends Purchaser written notice of the occurrence of major loss or damage, then Purchaser shall be deemed to have elected to terminate this Agreement. If Purchaser elects to proceed with Closing, (x) Seller shall assign to Purchaser all of Seller’s right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies or condemnation awards relating to the premises in question (other than business interruption proceeds attributable to the period prior to Closing and proceeds in respect of amounts, if any, expended by or on behalf of Seller prior to Closing to make any reasonably necessary emergency repairs to the Property), and (y) the Purchase Price shall be reduced by an amount equal to the deductible amount under Seller’s insurance policy with respect to such loss or damage that has not been paid or expended by Seller prior to Closing in connection with reasonably necessary emergency repairs to the Property. Upon Closing, full risk of loss with respect to the Property shall pass to Purchaser. If Purchaser does not or is not entitled to terminate this Agreement with respect to a casualty, Seller, with Purchaser’s approval, will diligently commence and pursue initial emergency restoration of the Property so as to minimize the loss of business and good will of the Property.

8.3 Definition of “Major” Loss or Damage. For purposes of Sections 8.1 and 8.2, “major” loss or damage refers to the following (a) loss or damage to the Real Property or any portion thereof such that the cost of repairing or restoring the premises in question to a condition substantially identical to that of the premises in question prior to the event of damage would be, in the opinion of a licensed independent architect or registered professional engineer with a minimum of ten (10) years experience related to commercial real estate construction selected by Seller and approved by Purchaser, equal to or greater than ten percent (10%) of the Purchase Price or (b) any loss due to a condemnation which permanently and materially adversely modifies or impairs the continued operation of the Hotel in substantially the same manner as the Hotel is operated on the Effective Date. The provisions of this Section 8.3 are intended to supersede those of Section 5-1311 of the General Obligations Law of New York.

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ARTICLE IX
COMMISSIONS

9.1 Brokerage Commissions. In the event the transaction contemplated by this Agreement is consummated, but not otherwise, Seller agrees to pay to Jones Lang LaSalle Hotels (“Broker”) at Closing a brokerage commission pursuant to a separate written agreement between Seller and Broker and Seller shall indemnify and hold Purchaser harmless with respect to any payments due and owing to Broker in connection with this transaction under such agreement. Each party agrees that should any claim be made for brokerage commissions or finder’s fees by any broker or finder other than the Broker by, through or on account of any acts of said party or its representatives, said party will indemnify, defend, protect and hold the other party free and harmless from and against any and all loss, liability, cost, damage and expense in connection therewith. The provisions of this Section 9.1 shall survive Closing or earlier termination of this Agreement.

ARTICLE X
DISCLAIMERS AND WAIVERS

10.1 No Reliance on Documents. Except as expressly set forth in this Agreement, Seller makes no representation or warranty as to the truth, accuracy or completeness of any materials, data or information delivered by or on behalf of Seller or its brokers to Purchaser in connection with the transaction contemplated hereby including, without limitation, the Reports, material available in the E-Room, and other Seller Due Diligence Materials, provided, however, that Seller shall not intentionally alter any material, data or information for the purpose of misleading Purchaser. Purchaser acknowledges and agrees that all materials, data and information delivered by Seller to Purchaser in connection with the transaction contemplated hereby are provided to Purchaser as a convenience only and that any reliance on or use of such materials, data or information by Purchaser shall be at the sole risk of Purchaser, except as otherwise expressly stated herein. Without limiting the generality of the foregoing provisions, Purchaser acknowledges and agrees that (a) any environmental or other report with respect to the Property which is delivered by Seller to Purchaser shall be for general informational purposes only, (b) Purchaser shall not have any right to rely on any such report delivered by Seller to Purchaser, but rather will rely on its own inspections and investigations of the Property and any reports commissioned by Purchaser with respect thereto, and (c) except for matters expressly set forth in this Agreement, neither Seller nor any affiliate of Seller nor the person or entity which prepared any such report delivered by Seller to Purchaser shall have any liability to Purchaser for any inaccuracy in or omission from any such report or other materials provided to Purchaser in connection with this Agreement.

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10.2 DISCLAIMERS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING: IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, PROFITABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ZONING, TAX CONSEQUENCES, LATENT OR PATENT PHYSICAL OR ENVIRONMENTAL CONDITION, UTILITIES, OPERATING HISTORY OR PROJECTIONS, VALUATION, GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE PROPERTY WITH GOVERNMENTAL LAWS, THE TRUTH, ACCURACY OR COMPLETENESS OF THE PROPERTY DOCUMENTS OR ANY OTHER INFORMATION PROVIDED BY OR ON BEHALF OF SELLER TO PURCHASER, OR ANY OTHER MATTER OR THING REGARDING THE PROPERTY. PURCHASER ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE PROPERTY “AS IS, WHERE IS, WITH ALL FAULTS”, EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING. PURCHASER HAS NOT RELIED AND WILL NOT RELY ON, AND SELLER IS NOT LIABLE FOR OR BOUND BY, ANY EXPRESSED OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY OR RELATING THERETO (INCLUDING SPECIFICALLY, WITHOUT LIMITATION, PROPERTY INFORMATION PACKAGES DISTRIBUTED WITH RESPECT TO THE PROPERTY AND ANY ACTUAL OR PROPOSED BUDGETS FOR THE REAL PROPERTY) MADE OR FURNISHED BY SELLER, THE MANAGER OF THE PROPERTY, OR ANY REAL ESTATE BROKER OR AGENT REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING. PURCHASER REPRESENTS TO SELLER THAT PURCHASER IS A SOPHISTICATED INSTITUTIONAL INVESTOR WITH SUBSTANTIAL EXPERIENCE AND EXPERTISE WITH INVESTMENT PROPERTIES AND HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS PURCHASER DEEMS NECESSARY TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND WILL RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO, OTHER THAN SUCH REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AS ARE EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS DELIVERED AT CLOSING. UPON CLOSING AND SUBJECT TO THE REPRESENTATIONS AND WARRANTIES OF SELLER EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS DELIVERED AT CLOSING, PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER’S INVESTIGATIONS, AND PURCHASER, UPON CLOSING, SHALL BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER (AND SELLER’S OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) FROM

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AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES AND COURT COSTS) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER (AND SELLER’S OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS RELATING TO THE CONDITION OF THE PROPERTY (INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAWS) AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING THE PROPERTY EXCEPT FOR FRAUD AND OBLIGATIONS OF SELLER UNDER THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING. EXCEPT FOR FRAUD AND OBLIGATIONS OF SELLER UNDER THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING, PURCHASER AGREES THAT SHOULD ANY CLEANUP, REMEDIATION OR REMOVAL OF HAZARDOUS SUBSTANCES OR OTHER ENVIRONMENTAL CONDITIONS ON THE PROPERTY BE REQUIRED AFTER THE CLOSING DATE, SUCH CLEAN-UP, REMOVAL OR REMEDIATION SHALL BE THE RESPONSIBILITY OF AND SHALL BE PERFORMED AT THE SOLE COST AND EXPENSE OF PURCHASER.

The waivers and releases set forth in Sections 5.5(a) and 5.5(c) and in the immediately preceding paragraph include claims of which Purchaser is presently unaware or which Purchaser does not presently suspect to exist which, if known by Purchaser, would materially affect Purchaser’s waiver or release of Seller and the other parties referenced in this Section.

10.3 Repairs, Reserves, and Capital Expenditures. Purchaser acknowledges and agrees that except as provided in this Agreement, (a) Seller shall have no obligation to make any repairs, replacements, improvements or alterations to the Property or to expend any funds therefor, including, without limitation, any reserves that may be held for such purpose, and (b) Purchaser shall not be entitled to a credit to the Purchase Price at Closing in the event capital expenditures actually made at the Hotel for any year are less than the budgeted amount as of the date of the Closing.

10.4 Effect and Survival of Disclaimers. Seller and Purchaser acknowledge that the compensation to be paid to Seller for the Property has been decreased to take into account that the Property is being sold subject to the provisions of this Article X. Seller and Purchaser agree that the provisions of this Article X shall survive Closing.

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ARTICLE XI
MISCELLANEOUS

11.1 Confidentiality.

(a) Prior to the Closing, and subject to the provisions of Section 11.2, this Agreement, the terms hereof and the Property Information shall be treated as “Evaluation Material” in accordance with that certain Confidentiality Agreement dated October 26, 2010 executed by Purchaser in favor of Seller (the “Confidentiality Agreement”).”). Notwithstanding anything to the contrary contained in the Confidentiality Agreement, as of the Effective Date, the Confidentiality Agreement is hereby amended to provide that the terms of the transfers contemplated in this Agreement, including the Purchase Price and all other financial terms, shall be deemed to be “Evaluation Material” for purposes of the Confidentiality Agreement and that Purchaser shall be entitled to disclose the Evaluation Material (1) to Purchaser’s affiliates, officers, directors, lenders, investors and prospective investors, employees, agents and representatives (including legal counsel, accountants and similar professionals to the extent Purchaser deems it reasonably necessary to inform such party, in which case Purchaser shall inform each of the foregoing parties of such party’s obligations under this Section and shall secure the agreement of such parties to be bound by the terms hereof); or (2) as otherwise required by law, rule or regulation, including the rules or regulations promulgated by the Securities and Exchange Commission (“SEC”) or the New York Stock Exchange (“NYSE”) to the extent such SEC or NYSE rules or regulations are applicable to a party. In no event shall the foregoing preclude Purchaser from providing information regarding the terms of the transfers contemplated in this Agreement to Purchaser’s direct or indirect owners (excluding any shareholders or unitholders of the Purchaser’s publicly traded parent entity or the operating partnership that is a subsidiary of such parent entity), provided that Purchaser informs each of the foregoing parties of the confidentiality of such information. The parties acknowledge and agree that effective as of the Closing, the Confidentiality Agreement shall terminate and be of no further force or effect. Purchaser shall indemnify, defend and hold Seller harmless from and against any claims arising from a breach by it of this Section 11.1(a).

(b) The terms of the transfers contemplated in this Agreement, including the Purchase Price and all other financial terms, as well as the non-public information known by Seller relating to the Property or Purchaser and its affiliates shall remain confidential and shall not be disclosed by Seller without the written consent of Purchaser except (1) to Seller’s affiliates, officers, directors, employees, agents and representatives (including legal counsel, accountants and similar professionals to the extent Seller deems it reasonably necessary to inform such party, in which case Seller shall inform each of the foregoing parties of such party’s obligations under this Section and shall secure the agreement of such parties to be bound by the terms hereof); or (2) as otherwise required by law, rule or regulation, including the rules or regulations promulgated by the SEC or Nasdaq, to the extent such SEC or Nasdaq rules or regulations are applicable to a party, it being acknowledged by Purchaser that Seller’s parent entity will file a report on Form 8-K with the SEC following the Effective Date relating to this Agreement and that Seller shall be entitled to describe the material terms of this Agreement in its communications with investors. In no event shall the foregoing preclude Seller from providing information regarding the terms of the transfers contemplated in this Agreement to Seller’s direct or indirect owners (excluding any shareholders of the Seller’s publicly traded parent entity), provided that Seller informs each of the foregoing parties of the confidentiality of such information. Seller shall indemnify, defend and hold Purchaser harmless from and against any claims arising from a breach by it of this Section 11.1(b). The restrictions in this Section 11.1(b) shall terminate as of the Closing Date.

(c) Either party shall be entitled to an injunction restraining the other party or its agents or representatives from disclosing, in whole or in part, the confidential information governed by this Section 11.1 in violation of the provisions hereof. Nothing herein shall be construed as prohibiting either party from pursuing damages or any other available remedy at law or in equity for such breach or threatened breach of this Section 11.1 by the other party.

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(d) From and after the Closing, Seller and its affiliates shall hold in confidence, and shall not disclose to third parties without the prior written consent of Purchaser, any non-public proprietary information regarding the Hotel and the Property. The foregoing shall not be deemed to restrict the ability of Seller and its affiliates to comply with their disclosure and reporting obligations under applicable law. This Section 11.1(d) shall survive the Closing.

11.2 Public Disclosure Prior to Closing, any press releases with respect to the sale contemplated herein or any matters set forth in this Agreement will be made only in the form approved by Purchaser and Seller, such approval not to be unreasonably withheld, conditioned or delayed. If a party fails to respond with specific comments or objections to the other party within two Business Days after such party is notified of and has received the proposed press release, such failure to respond shall be deemed to constitute a party’s approval of such press release. Purchaser and Seller shall mutually agree on the content of the initial press release regarding the consummation of the transaction contemplated by this Agreement following the Closing. The provisions of this Section 11.2 shall survive the Closing.

11.3 Assignment. Purchaser may not assign or otherwise transfer this Agreement or any of its rights or obligations under this Agreement without first obtaining Seller’s written approval which may be given or withheld in Seller’s sole discretion; provided that Purchaser may assign all or any portion of this Agreement to one or more entities in which it holds, directly or indirectly, all of the equity interests. Any assignment by Purchaser of this Agreement shall not relieve Purchaser of its obligations under this Agreement and any permitted assignee must expressly assume the obligations of Purchaser in writing. Without limiting the foregoing, in no event shall Purchaser assign this Agreement to any assignee which, in the reasonable judgment of Seller, will cause the transaction contemplated hereby or any party thereto to violate the requirements of ERISA.

11.4 Notices. Any notice pursuant to this Agreement shall be given in writing by (a) personal delivery, or (b) reputable overnight delivery service with proof of delivery, or (c) legible facsimile transmission or PDF transmission completed before 5:00 p.m. (New York time) on a business day sent to the intended addressee at the address set forth below, or to such other address or to the attention of such other person as the addressee shall have designated by written notice sent in accordance herewith, and shall be deemed to have been given either at the time of personal delivery, or, in the case of expedited delivery service, as of the date actually received, or, in the case of facsimile transmission or PDF transmission, as of the date of the facsimile transmission or PDF transmission provided that an original of such facsimile or PDF is also sent to the intended addressee by means described in clauses (a), or (b) above. Notices may be given by a party’s counsel on behalf of such party as if such party had given such notice itself. Unless changed in accordance with the preceding sentence, the addresses for notices given pursuant to this Agreement shall be as follows:

If to Seller:

Morgans Holdings LLC
c/o Morgans Group, LLC
475 Tenth Avenue
New York, NY 10018
Attention: David Smail, Executive Vice President & Chief Legal Officer
Facsimile No.: (212) 277-4172
Email: david.smail@morganshotelgroup.com

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With a copy to:

Hogan Lovells US LLP
555 13^th Street NW
Washington, DC 20004
Attention: Bruce W. Gilchrist
Facsimile No.: (202) 637-5600
Email: bruce.gilchrist@hoganlovells.com

And to:

Hogan Lovells US LLP
875 Third Avenue
New York, New York 10022
Attention: Mitchell R. Lubart, Esq.
Facsimile no. (212) 918-3100
Email: mitchell.lubart@hoganlovells.com

If to Purchaser

c/o FelCor Lodging Trust Incorporated
545 E. John Carpenter Freeway
Suite 1300
Irving, TX 75062
Attention: Charlie Nye
Facsimile no. 972 444 4949
Email: cnye@felcor.com

With a copy to:

c/o FelCor Lodging Trust Incorporated
545 E. John Carpenter Freeway
Suite 1300
Irving, TX 75062
Attention: Michael DeNicola
Facsimile no. 972 444 4949
Email: mdenicola@felcor.com

With a copy to:

Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166-0193
Attention: Andrew Lance, Esq.
Facsimile no. 212.351.4035
Email: alance@gibsondunn.com

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11.5 Modifications. This Agreement cannot be changed orally, and no agreement shall be effective to waive, change, modify or discharge it in whole or in part unless such agreement is in writing and is signed by Seller and Purchaser.

11.6 Calculation of Time Periods; Time is of the Essence. Unless otherwise specified, in computing any period of time described in this Agreement, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday under the laws of the State in which the Real Property is located, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday or legal holiday. The final day of any such period shall be deemed to end at 5:00 p.m., New York time. Subject to the right of adjournment granted in Section 4.10(b), time shall be of the essence with respect to the obligations of the parties to consummate the Closing on or before the Outside Closing Date.

11.7 Successors and Assigns. Subject to the limitations on assignment set forth in Section 11.3 above, the terms and provisions of this Agreement are to apply to and bind the permitted successors and assigns of the parties hereto.

11.8 Entire Agreement. This Agreement, including the Exhibits, the Schedules and the Confidentiality Agreement contain the entire agreement between the parties pertaining to the subject matter hereof and fully supersedes all prior written or oral agreements and understandings between the parties pertaining to such subject matter.

11.9 Further Assurances. Each party agrees that it will without further consideration execute and deliver such other documents and take such other action, whether prior or subsequent to Closing, as may be reasonably requested by the other party to consummate more effectively the purposes or subject matter of this Agreement. Without limiting the generality of the foregoing, Purchaser shall, if requested by Seller, (a) execute acknowledgments of receipt with respect to any materials delivered by Seller to Purchaser with respect to the Property, and (b) obtain sellers’ permits for any sales activities conducted at the Property prior to Closing and/or obtain “sale for resale certificates” for any Personal Property that may be sold after the Closing. The provisions of this Section 11.9 shall survive Closing.

11.10 Counterparts; Facsimile Signatures. This Agreement may be executed in counterparts, and all such executed counterparts shall constitute the same agreement. It shall be necessary to account for only one such counterpart in proving this Agreement. In order to expedite the transaction contemplated herein, telecopied, facsimile or PDF signatures may be used in place of original signatures on this Agreement. Seller and Purchaser intend to be bound by the signatures on the telecopied, facsimile or PDF document, are aware that the other party will rely on the telecopied, facsimile or PDF signatures, and hereby waive any defenses to the enforcement of the terms of this Agreement based on the form of signature.

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11.11 Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement shall nonetheless remain in full force and effect.

11.12 Applicable Law. THIS AGREEMENT IS PERFORMABLE IN THE STATE OF NEW YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE SUBSTANTIVE FEDERAL LAWS OF THE UNITED STATES AND THE LAWS OF SUCH STATE. SELLER AND PURCHASER HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN A STATE OR FEDERAL COURT SITTING IN THE STATE OF NEW YORK. PURCHASER AND SELLER AGREE THAT THE PROVISIONS OF THIS SECTION 11.12 SHALL SURVIVE THE CLOSING OF THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT.

11.13 No Third Party Beneficiary. The provisions of this Agreement and of the documents to be executed and delivered at Closing are and will be for the benefit of Seller and Purchaser only and are not for the benefit of any third party, and accordingly, no third party shall have the right to enforce the provisions of this Agreement or of the documents to be executed and delivered at Closing.

11.14 Exhibits and Schedules. The following schedules or exhibits attached hereto shall be deemed to be an integral part of this Agreement:

Schedule 1.1(a) — Legal Description of Land
Schedule 1.1(c) — Excluded Personal Property
Schedule 1.1(e)-1 — Service Contracts
Schedule 1.1(e)-2 — Equipment Leases
Schedule 1.1(f) — Intellectual Property
Schedule 1.2(b)(vi) — Space Lease
Schedule 3.1(a) — Due Diligence Items
Schedule 3.2 — Reports
Schedule 5.1(i) — Employee Matters: Collective Bargaining and Union Agreements
Schedule 5.1(m) — Reward Plans
Schedule 5.1(o) — Permits
Schedule 5.1(p) — Special Tax Assessments and Agreements Relating to Taxes
Schedule 5.1(z)(vi) — Non-Qualified Deferred Compensation Plans

Exhibit A — Deed
Exhibit B — Bill of Sale
Exhibit B-2 — Bill of Sale for Alcoholic Beverages
Exhibit C— Assignment of Contracts
Exhibit D — [Intentionally Omitted]
Exhibit E —FIRPTA Certificate
Exhibit F — Title Affidavit
Exhibit G — IWA Assumption Agreement
Exhibit H — [Intentionally Omitted]
Exhibit I — Pro Forma Title Policy
Exhibit J — Escrow Agreement

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11.15 Captions. The section headings appearing in this Agreement are for convenience of reference only and are not intended, to any extent and for any purpose, to limit or define the text of any section or any subsection hereof.

11.16 Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any exhibits, schedules or amendments hereto. Singular words shall connote the plural as well as the singular, and plural words shall connote the singular as well as the plural, and the masculine shall include the feminine and the neuter, as the context may require. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”

11.17 Termination of Agreement. It is understood and agreed that if either Purchaser or Seller terminates this Agreement pursuant to a right of termination granted hereunder, such termination shall operate to relieve Seller and Purchaser from all obligations under this Agreement, except for such obligations as are specifically stated herein to survive the termination of this Agreement.

11.18 Attorneys Fees. If any action or proceeding is commenced by either party to enforce their rights under this Agreement or to collect damages as a result of the breach of any of the provisions of this Agreement, the prevailing party in such action or proceeding, including any bankruptcy, insolvency or appellate proceedings, shall be entitled to recover all reasonable costs and expenses, including, without limitation, reasonable attorneys’ fees and court costs, in addition to any other relief awarded by the court.

11.19 No Waiver. Failure of either party at any time to require performance of any provision of this Agreement shall not limit the party’s right to enforce the provision. Waiver of any breach of any provision shall not be a waiver of any succeeding breach of the provision or a waiver of the provision itself or any other provision.

11.20 No Reservation of Property. The preparation and/or delivery of unsigned drafts of this Agreement shall not create any legally binding rights in the Property and/or obligations of the parties, and Purchaser and Seller acknowledge that this Agreement shall be of no effect until it is duly executed by both Purchaser and Seller. Purchaser understands and agrees that Seller shall have the right to continue to market the Property and/or to negotiate with other potential purchasers of the Property until the satisfaction or waiver in writing of all conditions to the obligations of Purchaser under this Agreement.

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11.21 Exclusivity. Seller agrees neither it, nor any other member of the Seller Group will solicit, accept, negotiate, or otherwise pursue any offer related to the sale or other transfer or conveyance of the Property unless and until this Agreement is terminated in accordance with the provisions contained herein.

11.22 No Recordation. Purchaser shall not record this Agreement, nor any memorandum or other notice of this Agreement, in any public records.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the Effective Date.

SELLER:
MORGANS HOLDINGS LLC, a Delaware limited liability company
	By: Morgans Group LLC, its Managing Member
	By:	Morgans Hotel Group Co., its Managing Member
By:	/s/ Yoav Gery
	Name:	Yoav Gery
	Title:	Authorized Signatory
PURCHASER:
MADISON 237 HOTEL, L.L.C., a Delaware limited liability company
By:	/s/ Larry J. Mundy
	Name:	Larry J. Mundy
	Title:	Senior Vice President

Signature Page to Morgans Purchase and Sale Agreement

Parent Guaranty

MORGANS GROUP LLC, a Delaware limited liability company (“Guarantor”) (which by its execution of this Parent Guaranty acknowledges to Purchaser that it is under common control with Seller and will derive substantial benefit from the sale of the Property pursuant to the Agreement), agrees to and does hereby absolutely and unconditionally guarantee the payment and performance of (i) Seller’s obligations under the Agreement prior to Closing and (ii) after the Closing, each of the obligations of Seller under the Agreement which survive Closing, each of which obligations of Seller in clauses (i) and (ii) being subject to any limitations set forth in the Agreement, if applicable, on the remedies against Seller which are available to Purchaser upon the occurrence of a default by Seller under the Agreement (each, an “Obligation” and collectively, the “Obligations”). The term “Closing” as used in this Parent Guaranty shall include a closing of the sale of the Property resulting from a suit for specific performance.

Guarantor hereby waives any right to require Purchaser to (i) proceed against Seller or pursue any rights or remedies with respect to the Agreement, or (ii) pursue any other remedy whatsoever in Purchaser’s power. Purchaser shall have the right, subject to the limitations set forth in the Agreement, to enforce this Parent Guaranty regardless of the release or discharge of Seller by operation of law.

The liability of Guarantor under this Parent Guaranty shall not be deemed to have been waived, released, discharged, impaired or affected by reason of the release or discharge of Seller in any receivership, bankruptcy, winding-up or other creditors’ proceedings or the rejection, disaffirmance or disclaimer of the Agreement by any party in any such action or proceeding.

Guarantor authorizes Seller, without notice or consent and without affecting, impairing or discharging Guarantor’s liability hereunder, to from time to time (a) renew, modify, amend, extend or discharge the provisions of the Obligations, or of any other term contained within the Agreement, and (b) exercise or refrain from exercising any of its rights or obligations under the Agreement, at law or in equity. Guarantor’s liability hereunder shall not be impaired by Purchaser’s release in whole or in part of Seller or any member in Seller (other than Guarantor) from liability. Guarantor may not assign its obligations under this Parent Guaranty.

Reasonable attorneys’ fees and all other costs and expenses that may be incurred in the enforcement, or in defending the enforcement, of this Parent Guaranty and/or the Agreement shall be paid by the prevailing party. The parties agree that the obligation of the prevailing party to pay all attorneys’ fees and other costs and expenses incurred in pursuing or enforcing rights under this Parent Guaranty, or in defending any such action, whether in litigation, or with respect to the Obligations or this Parent Guaranty, or in administrative, bankruptcy or reorganization proceedings, shall not be subject to any cap on liability set forth in the Agreement (nor be counted toward any such cap), and, if the Purchaser is the prevailing party, shall constitute obligations which are guaranteed hereunder.

Guarantor represents and warrants to Purchaser that (i) it is a Delaware limited liability company, duly organized, validly existing and in good standing under the laws of the state in which it was formed, (ii) it has the power, right, authority and legal capacity to execute and deliver this Parent Guaranty and to fully perform and observe the terms hereof, (iii) the execution, delivery and performance by it of this Parent Guaranty has been duly authorized by all necessary action on behalf of Guarantor, (iv) all of the persons who execute and deliver this Parent Guaranty on behalf of Guarantor have been duly authorized and empowered on behalf of Guarantor so to do, (v) this Parent Guaranty is the valid and binding obligation of Guarantor enforceable against it in accordance with its terms, (vi) the execution, delivery and performance by it of this Parent Guaranty will not (A) violate any provision of any of its organizational documents, (B) require it to obtain any consent, approval or action of, or make any filing with or give any notice to, any person, (C) violate, conflict with or result in the breach of any of the terms of, result in a material modification of the effect of, otherwise give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both constitute) a default (by way of substitution, novation or otherwise) under, any agreement to which it or any of its affiliates (whether now or formerly existing) is a party or by or to which any of them or any of their properties may be bound or subject, (D) violate any order, judgment, injunction, award, decree or writ of any governmental body, entity or authority against, or binding upon, it or any of its affiliates or upon any of its or their properties or the business of Guarantor or (E) violate any law, statute, code, ordinance, regulation or other requirement of any governmental body, entity or authority, and (vii) there is no provision in the organizational documents of Guarantor that would prevent or limit, or is otherwise inconsistent with, Guarantor’s execution and delivery of, and performance under, this Parent Guaranty.

All notices to be delivered to Guarantor in respect of this Parent Guaranty shall be delivered to Guarantor at the address specified for Seller in the Agreement to which this Parent Guaranty is attached.

Guarantor hereby absolutely, irrevocably and unconditionally covenants and agrees that it is liable for the Obligations as a primary obligor and not merely as a surety, and that Guarantor shall fully perform each and every term and provision this Parent Guaranty. This Parent Guaranty is a guaranty of payment and performance and is not a guaranty of collection. If all or any part of the Obligations shall not be paid by Seller when the same became due and payable Guarantor shall, promptly upon written notice by Purchaser, pay in lawful money of the United States of America, the amount due on the Obligations to Purchaser at Purchaser’s address as set forth in the Agreement. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Obligations, and may be made from time to time with respect to the same or different items of Obligations. It shall not be necessary for Purchaser (and Guarantor hereby waives any rights which Guarantor may have to require Purchaser), in order to enforce this Parent Guaranty or the obligations of Guarantor hereunder, first to (a) institute suit or exhaust its remedies against Seller, (b) join Seller or any others liable on the Obligations in any action seeking to enforce this Parent Guaranty or the obligations of Guarantor hereunder, or (c) resort to any other means of obtaining payment of the Obligations. Purchaser shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Obligations.

The obligations of Guarantor under this Parent Guaranty shall remain in full force and effect without regard to, and shall not be impaired or affected by: (a) any exercise or nonexercise by Purchaser or its successors or assigns of any right, power or remedy or the waiver of any such right, power or remedy (except to the extent any such action, inaction, delay or omission gives Purchaser a valid and enforceable defense against the Obligation); or (b) any action or inaction, or any delay or omission in the exercise of any power or remedy on the part of Purchaser (except to the extent any such action, inaction, delay or omission gives Purchaser a valid and enforceable defense against the Obligation).

Further, the obligations of Guarantor under this Parent Guaranty shall remain in full force and effect without regard to, and shall not be impaired or affected by any bankruptcy, insolvency, reorganization, liquidation, or similar transaction affecting Seller.

As of the date hereof, and after giving effect to this Parent Guaranty and the contingent obligation evidenced hereby and all of Guarantor’s other obligations (whether or not contingent), Guarantor is, and will be, solvent, and will not be dissolved or wound-up.

If any term or provision of this Parent Guaranty or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Parent Guaranty, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each such term and provision of this Parent Guaranty shall be valid and be enforced to the fullest extent permitted by law, provided that the rights and obligations of the parties are not materially altered.

This Parent Guaranty shall be binding upon and inure to the benefit of the Purchaser and Guarantor and their respective successors, assigns and legal representatives.

Other than notices required to be given under the Agreement, Purchaser shall not be required to take any action of any kind or nature against Seller or its property, or resort to any security, at any time, before Purchaser may proceed against Guarantor under this Parent Guaranty.

Nothing in this Parent Guaranty shall give the Purchaser any right to set off any amounts due to Purchaser with respect to any Obligations or any cost of enforcement of the Agreement or this Parent Guaranty against any amounts owed by Purchaser (or its affiliates) under the New Management Agreement or otherwise.

Except to the extent any of the following rights, defenses, protections, and claims are available to Seller by the Agreement, by law or otherwise, Guarantor hereby expressly waives, relinquishes and releases any right, defense, protection, claim of exoneration or other claim, and any right to assert any right, defense, protection, claim of exoneration or other claim, in any action brought on, arising out of or relating to this Parent Guaranty or otherwise: (i) requiring Purchaser to proceed against or exhaust any security held from Seller, (ii) any defense based on any legal disability or other defense of Seller or other person or by reason of the cessation or limitation of the liability of Seller from any cause; (iii) any defense based on any lack of authority of the officers, directors, partners, or agents purporting to act on behalf of Seller or any principal of Seller or any defect in the formation of Seller or any principal of Seller; (iv) any defense based on any Purchaser’s failure to disclose to Guarantor any information or circumstances bearing on Seller’s financial condition or ability to perform the Obligations; and (v) all rights and defenses arising out of any election of remedies by Purchaser, even if/though that election of remedies has destroyed Guarantor’s rights of subrogation and reimbursement against Seller. Without limiting the generality of the foregoing, Guarantor hereby expressly waives (a) notice of the acceptance of this Parent Guaranty by any person or entity and (b) notice of any adverse change in the financial condition of Seller or of any other fact that might increase Guarantor’s risk hereunder.

MORGANS GROUP LLC, a Delaware limited liability comany
	By: Morgans Hotel Group Co., its managing member
		By:	/s/ Yoav Gery
			Name:	Yoav Gery
			Title:	Authorized Signatory

Signature Page to Morgans Parent Guaranty

Annex I

Definitions

(a) As used in this Agreement, the following terms have the meanings ascribed thereto below:

“Guest Records” shall mean guest records, profiles, histories, contact information and preferences gathered by Manager based on the guest’s stay or information provided by the guest during, prior to or after such stay at the Hotel.

“Operating Equipment” shall mean chinaware, glassware, linens, silverware, and other items of a comparable nature, and all replacements, additions and substitutions therefor.

“Manager’s Materials” shall mean materials, files, lists, records, compilations and methods of operation which constitute valuable proprietary information, trade secrets and Manager’s work product, including, by way of example and not of limitation, Guest Records, marketing techniques, customer and mailing lists and reservation systems.

“Manager’s Tradenames” shall mean the Primary Name, the marks “Morgans”, “A Morgans Hotel”, and “Asia de Cuba” or any other tradenames, trademarks, service marks, symbols, logos or designs owned or licensed by Manager or any of its affiliates including, without limitation, the name of any restaurant, bar and/or lounge at any Morgans Hotel, and any words or designs, marketing materials, concepts and trade dress (such as the menu and the items thereon) related thereto.

“Primary Name” shall mean Morgans.

(b) The following terms are defined in the Section of this Agreement set forth after such term below:

Additional Earnest Money	Section 1.6(b)
Adjusting Party	Section 4.4.14
Agreement	Introduction
Assignment of Contracts	Section 4.2(c)
Bargaining Unit Employees	Section 5.6(a)
Bookings	Section 1.1(d)
Broker	Section 9.1
City Transfer Tax Law	Section 4.5.2
Claiming Party	Section 7.6(a)
Closing	Section 4.1.1
Closing Date	Section 4.1.1
Code	Section 5.1(x)(i)
Collective Bargaining Agreement	Section 5.6(f)
Confidentiality Agreement	Section 11.1
Consumable Inventory	Section 1.1(i)
Continuing Employees	Sections 5.6(b)
Contribution Period	Section 5.6(h)(i)
Cut-Off Time	Section 4.4.11
Deed	Section 4.2(a)
Earnest Money	Section 1.6(b)
Effective Date	Introduction
Employees	Section 5.1(i)
Employment Laws	Section 5.6(i)
Environmental Laws	Section 5.5(b)
Equipment Leases	Section 1.1(e)
ERISA Affiliate	Section 5.1(x)(ii)
Escrow Agent	Section 1.6(a)
Escrow Agreement	Section 1.6(c)
Excluded Permits	Section 1.1(g)
Excluded Personal Property	Section 1.1(c)
Existing Liquor License	Section 4.10(a)
Federal WARN Act	Sections 5.6(b)
Final Statement	Section 4.4.14
Hazardous Substances	Section 5.5(b)
Hotel	Recitals
Hotel Employees	Section 5.6(a)
Hotel Payables	Section 4.4.6
House Bank Funds	Section 1.1(k)
Improvements	Recitals
Initial Earnest Money	Section 1.6(a)
Intangibles	Section 1.1(h)
IWA Assumption Agreement	Section 4.2(o)
knowledge	Section 5.2
Land	Recitals

Lease Year	Section 4.4.5(d)
Legal Requirements	Section 2.4(d)
Liquor Licenses	Section 4.10(b)
Lists	Section 5.1(h)
Losses	Section 7.2
Management Agreement	Section 1.7
Manager	Section 1.7
Monetary Encumbrances	Section 2.3(c)
New Management Agreement	Section 1.7
New York WARN Act	Sections 5.6(b)
No New Management Agreement Election	Section 4.11
OFAC	Section 5.1(h)
Order	Section 5.1(h)
Outside Accountants	Section 4.4.15
Outside Closing Date	Section 4.1.1
Percentage Rent	Section 4.4.5(d)
Permits	Section 1.1(g)
Permitted Exceptions	Section 2.4
Personal Property	Section 1.1(c)
Plans	Section 5.1(i)
Pre-Closing Date	Section 4.1.2
Preliminary Statement	Section 4.4
Property	Section 1.2(a)
Property Information	Section 3.1(a)
Purchase Price	Section 1.4
Purchaser	Introduction
Purchaser Indemnitees	Section 7.2
Purchaser-Related Parties	Section 5.6(j)
Real Property	Recitals
Receivables	Section 4.4.4(c)
Rent	Section 4.4.5
Requesting Party	Section 4.4.14
Retail Inventory	Section 1.1(i)
Retained IP	Section 1.1(f)
Retained Receivables	Section 4.4.4(c)
Retirement Plan	Section 5.6(h)(i)
Royalton PSA	Section 4.8
Seller	Introduction
Seller Cure Period	Section 6.3
Seller Indemnitees	Section 7.3
Seller-Related Parties	Section 5.6(i)
Service Contracts	Section 1.1(e)
Space Lease	Section 1.1(j)
State Transfer Tax Law	Section 4.5.1
Survey	Section 2.2
Taxes	Section 4.4.1(a)

Tenant Estoppel	Section 5.3(b)
Title Affidavit	Section 4.2(n)
Title Company	Section 2.1
Title IV Plans	Section 5.1(x)(ii)
Title Policy	Section 2.5
Title Report	Section 2.1
Title Update	Section 2.1
Union	Section 5.6(f)
Union Employee Benefit Funds	Section 5.6(f)
Unopened Inventory	Section 1.1(i)
Vouchers	Section 4.4.12

Schedule 1.1(a)

Legal Description of Land

ALL that certain plot, piece or parcel of land, situate, lying and being in the Borough of MANHATTAN, City, County and State of NEW YORK, bounded and described as follows:

BEGINNING at a point on the easterly side of MADISON AVENUE, distant 49 feet northerly from the corner formed by the intersection of the easterly side of MADISON AVENUE and the northerly side of 37TH STREET;

thence easterly parallel with the northerly side of 37TH STREET, and part of the way through a party wall, 100 feet;

thence northerly parallel with the easterly side of MADISON AVENUE, 49 feet 9 inches to the center line of the block between 37TH and 38TH STREETS;

thence westerly along said center line of the block and parallel with 37TH STREET, 100 feet to the easterly side of MADISON AVENUE;

thence southerly along the easterly side of MADISON AVENUE, 49 feet 9 inches to the point or place of BEGINNING.

Schedule 1.1(c)

Excluded Personal Property

1. 2 computers owned by Asia de Cuba

2. The liquor inventory at Asia de Cuba, which is the following as of March 25, 2011:

Items	Btls
Benedictine		1
Borgo Conventi		6
Clifford Bay		6
Bacardi Superior		1
Cruzan Pineapple		1
Crusher Petit Syrah		12
Dubachet Amaretto		5
El Dorado White Rum		3
Fusional		12
Grand Marnier		2
Juve and Camps		24
Mas de Mas		6
Mesta (Fontana) Red — for Sangria		18
Paco & Lola		6
Paso Creek Merlot		6
Southern Right (Sav Blanc)		30
Tapena Garnacha (Happy Hour)		6
Villa Maria		6
Wycliff Champagne		4

Schedule 1.1(e)-1

Service Contracts

Morgans

1. (Alarm Services) Inspection/Maintenance Contract, dated as of November 17, 1994, between Morgans Hotel and AFA Protective Systems, Inc., as extended by letter agreement, dated as of September 10, 2008, between Morgans Hotel and AFA Protective Systems, Inc.

2. LodgeNet Free-to-Guest License Agreement and Addendum thereto, dated as of February 11, 2010, between Morgans Holdings LLC and LodgeNet Interactive Corporation, as amended by that certain Amendment to LodgeNet Free to Guest License Agreement, dated as of June 2, 2010, between Morgans Holdings LLC and LodgeNet Interactive Corporation

3. LodgeNet Content and System Maintenance Agreement and Addendum thereto, dated as of February 11, 2010, between Morgans Holdings LLC and LodgeNet Interactive Corporation

4. Armored Car Service Agreement, dated as of February 1, 2010, between Garda CL Atlantic, Inc. and The Morgan Hotel

5. License Agreement — Hotels and Motels, dated as of January 12, 2010, between Morgans Holdings LLC and American Society of Composers, Authors and Publishers

6. Boiler Water Treatment Services Proposal, dated as of October 24, 2008, between Morgans Hotel and Chemical Specifics, Inc.

7. Contract for The Removal of Non-Hazardous Trade Waste (Morgans Hotel), dated as of May 7, 2009, between IESI NY Corporation and Morgans Hotel

8. Document Storage Agreement, dated as of February 27, 2006, between Morgans Hotel and GRM Information Management Services

9. Oil Burner Service Plan, dated as of September 1, 2008, between Stuyvesant Fuel Service Corp. and Morgans Hotel Group LLC

10. Harvard Maintenance / Proposal for Metal Maintenance & Refinishing, dated as of February 11, 2011, between Morgans Hotel and Harvard Maintenance, Inc.

11. (Long Distance Telephone) Service Agreement, dated as of August 20, 2009, between Morgans Holdings LLC and PAETEC

12. Mini Bar Master Service Agreement, dated as of June 28, 2005, between Morgans Hotel and Minibar North America, Inc.

13. (Parking) Agreement, dated as of January 1, 2000, between Rapid E. 38th Street Corp. and Morgans Hotel

14. Pest Control Program Proposal, dated as of May 13, 1997, for Morgan Hotel by Abalon Exterminating Company Inc.

15. Master Agreement for the Supply of Equipment, Software, Maintenance Services and Professional Services, dated as of December 20, 2000, between The Morgans Hotel and MAI Systems Corporation

16. Verizon Directory Advertising (Application), dated as of January 6, 2005, between Morgan’s Hotel and Verizon Directories Corp.

17. Computer Services Agreement, dated as of October 21, 2008, between Eleven Wireless, Inc. and SC Madison LLC dba Morgans Hotel

18. Elevator Full Service Preventative Maintenance Agreement (for Morgan Hotel), dated as of April 2, 2007, between Morgans Hotel Group LLC and Transel Elevator Company

19. Bid Acceptance for Nomadix Support Renewal, dated as of October 15, 2010, by Morgans for a bid submitted by Sunray Technology Integration

20. Customer Subscriber Agreement, dated as of October 7, 2010, between Morgans Holdings LLC and Cogent Communication, Inc.

21. SDD Managed Services Agreement, dated as of September 24, 2010, between Morgans and Systems Design & Development, Inc.

22. Music Performance Agreement — Hotel/Motel, dated as of April 9, 2009, between Morgans Holdings LLC and Broadcast Music, Inc.

23. SESAC, Inc. Hotel, Motel & Resort Performance License, effective as of January 1, 2008, between SESAC, Inc. and Morgans Holding LLC

24. Agreement for Interior Design Services, dated as of March 6, 2006, between Morgans Holdings LLC and Andree Putman Sarl

25. Agreement between Owner and Executive Architect, dated as of September 27, 2006, between Morgans Holdings LLC and R Wade Johnson Design Inc.

26. Asset Management Agreement, dated as of January 26, 2004, between Morgans and Moishe’s Guaranteed Storage Centers

Asia de Cuba

27. Air Conditioning/Heating Inspection and Maintenance Agreement (Restaurant), dated as of May 1, 2009, between Asia de Cuba Restaurant and Gem Air Conditioning Inc.

28. Contract for The Removal of Non-Hazardous Trade Waste (Asia de Cuba), dated as of May 5, 2009, between IESI NY Corporation and SC Madison LLC

29. ECOTEMP Lease Agreement, dated as of December 27, 2000, between Asia de Cuba/SC Madison LLC and Ecolab Inc.

30. Price Increase Letter, dated as of August, 2005, from Food Sanitation Consultant Service, Inc. regarding Asia de Cuba

31. Micros Service Maintenance Agreement, dated as of February 3, 2005, between Asia de Cuba — NYC and MICROS Retail Systems, Inc.

32. OpenTable Corporate Agreement, dated as of March 31, 2001, between OpenTable, Inc. and China Grill Management BD, Inc., as amended by Third Restaurant Addendum to the OpenTable Corporate Agreement, dated as of March 31, 2001, between OpenTable, Inc. and SC Madison LLC dba Asia de Cuba

33. Exclusive Services Agreement, dated as of February 18, 1998, between Ian Schrager Hotels LLC and Philippe Starck (acting on his behalf and/or on behalf of Ubik Sarl), as supplemented by General Terms and Conditions of Design Services, undated

34. Central Station Service Contract, dated as of May 2, 1998, between Asia de Cuba, Inc. and AFA Protective Systems, Inc.

Schedule 1.1(e)-2

Equipment Leases

Morgans

1. Firstcorp Equipment Lease Agreement, dated as of August 15, 2008, between IFC Credit Corporation and SC Madison LLC dba Morgans Hotel

2. Pitney Bowes Agreement, dated as of September 25, 2003, between Pitney Bowes Credit Corporation and Morgans Hotel Group

3. Pitney Bowes Agreement, dated as of June 23, 2008, between Pitney Bowes and Morgans Hotel

4. LDI Lease Agreement, dated as of November 20, 2010, between LDI Color Toolbox and Morgans Hotel

Asia de Cuba

None

Schedule 1.1(f)

Intellectual Property

None.

Schedule 1.2(b)(vi)

Space Lease

Amended and Restated Lease Agreement between Morgans Holdings LLC and SC Madison LLC dated as of January 1, 2000, as extended by extension letter dated January 15, 2007 (for leased restaurant)

Schedule 3.1(a)

Due Diligence Items

1. Hotel Contracts. As applicable, hotel specific purchasing agreements, maintenance contracts, union contracts, and other labor agreements.

2. Licenses and Permits. Copies of all requested operating licenses including the liquor license and related documents.

3. Leases. Copies of all leases affecting the Property or any portion thereof including, but not limited to, ground, equipment and capital leases.

4. Reports. If available, copies of most current reports on toxic materials to include hazardous waste, asbestos and PCBs. Copies of most current reports related to the physical condition of the Property.

5. Plans. All available plans, specifications, permits and certificates of occupancy.

6. Capital Expenditures. Listing of all capital expenditures and improvements made to the Property during the last three years including date of expenditures and cost. Capital budget, if available, covering current year. Status of all capital expenditure programs and projects currently underway.

7. Financials. All requested books, files, financial statements, group sales and reservation reports and records relating to the operation of the Property, including, but not limited to:

• Operating budgets for the current year and previous year.

• Monthly financial statements for the current year to date and the three (3) prior years, with comparisons of actual to budget to prior year results (audited, if available). These reports should include a detailed market segmentation summary.

• Projected year-end operating results (shown monthly and year-end) for the current calendar year.

• Copies of the current year and previous year marketing plans.

• Copies of all group-booking reports and pace reports.

• Schedule of aged accounts receivable as of the most recent month and year-end with explanations for any accounts over $1,000 and 60 days old.

• Schedule of accounts payable and accrued liabilities as of the most recent month-end and year-end.

• Detail of any amounts due from/to management company, including but not limited to, fees, corporate charges, and any reimbursable.

• Schedule of any known security deposits, advance deposits, prepaid rent, gift certificates, tenant security deposits and unearned income as of the most recent month-end.

• Bank reconciliations for the past six months.

• Schedule of existing insurance coverage and historic loss runs for the last three (3) full policy years and current stub year.

8. Employees.

• List of employees, subject to union restrictions, to include position, tenure and compensation and any employee contracts and benefits.

• Collective bargaining agreements.

• Employee handbook.

• Record of recent written grievances.

• Recent historic and pending written Workmen’s Comp claims.

9. Guest Satisfactions. Copies of most recent guest satisfaction surveys.

10. Utility Bills. Copies of the most recent utility bills relating to the Real Property.

11. Tax Bills. Copies of the most recent tax bills relating to the Real Property and a description of any items in dispute. Any tax abatement proceedings in progress.

12. Tax Filings. Copies of business/gross receipt tax or other local tax filings.

13. Existing Title Commitment/Policy. Copies of the most recent title policy or commitment with copies of all exception documents (including unrecorded leases), and UCC searches (with copies of financing statements).

14. Survey. A copy of the most current on-the-ground as-built survey of the Real Property.

15. Litigation. List of all threatened (in writing), pending and existing litigation involving the Real Property and/or the Seller or the property manager. If available, summary of crime and accident reports for the most recent twelve-month period.

16. Compliance. Correspondence from any governmental authority regarding legal compliance.

17. Star Reports. Updated STAR Competitive Set Reports.

Schedule 3.2

Reports

1. Zoning Report, dated as of June 21, 2005, prepared by Zoning Info, Inc. for Wachovia Bank, N.A., its successors and assigns

2. LL11/98 Report of Periodic Inspection of Exterior Walls and Appurtenances for Cycle 6 Examinations at 237 Madison Avenue, Manhattan with Back-Up Report, filed as of January 3, 2007, prepared by Hugh Robotham, Architect, P.C.

3. Property Condition Report, dated as of January 29, 2011, prepared by EMG, Inc. for Morgans Group LLC

4. Phase I Environmental Site Assessment, dated as of January 31, 2011, prepared by EMG, Inc. for Morgans Group LLC

Schedule 5.1(i)

Employee Matters

Collective Bargaining and Union Agreements

1. Collective Bargaining Agreement, for the period of July 1, 2006 through June 30, 2012, by and between Hotel Association of New York City, Inc. and the New York Hotel & Motel Trades Council, AFL-CIO

2. Agreement, dated as of February, 2011, by and between the New York Hotel & Motel Trades Council, AFL-CIO and Morgans Hotel Group on behalf of the Morgans Hotel

3. Agreement, dated as of March 28, 2008, by and between the New York Hotel & Motel Trades Council, AFL-CIO and Morgans Hotel Group on behalf of SC Madison, LLC d/b/a Asia de Cuba Restaurant

4. Me Too Agreement, dated as of August 9, 2005, by and between the Morgans Hotel Group, LLC and the New York Hotel & Motel Trades Council, AFL-CIO

Schedule 5.1(m)

Reward Points Plans

1. Rewards Participation Agreement, dated as of June 1, 2009 by and between American Express Travel Related Services Company, Inc. and Morgans Group LLC

Schedule 5.1(o)

Transferable Licenses, Franchises and Permits

Permits

1. The City of New York Department of Buildings Certificate of Occupancy #96628, issued on July 24, 1990, for a cellar, mezzanine, and seventeen story fireproof building, hotel

2. The City of New York Department of Buildings Amended Certificate of Occupancy, superseding Certificate of Occupancy #47782 — Sub-Cellar, Cellar, 1st Floor, Mezzanine, 2nd Floor, 3rd thru 11th Floors, 12th & 13th Floors, 14th Floor, 15th Floor, 16th Floor, 17th & Roof

3. The City of New York Department of Buildings Freight & Sidewalk Elevator Inspection Certificate No. 152435, dated as of July 7, 2010

4. The City of New York Department of Buildings Passenger Elevator Inspection Certificate (North), dated as of July 7, 2010

5. The City of New York Department of Buildings Passenger Elevator Inspection Certificate (South), dated as of July 7, 2010

6. New York City Fire Department, Bureau of Fire Prevention Certificate, issued on February 28, 2011

7. New York City Fire Department, Bureau of Fire Prevention, Certificate of Fitness #61987707 for W12 Maintenance Sprinkler System, issued on January 6, 2010

8. The Hartford Steam Boiler Inspection and Insurance Co., Certificate of Boiler or Pressure Vessel Inspection, dated as of March 25, 2010

9. The Hartford Steam Boiler Inspection and Insurance Co., Certificate of Boiler or Pressure Vessel Inspection, dated as of April 30, 2009

10. New York City Fire Department, Bureau of Fire Prevention, Open Flame Permit, issued to Asia de Cuba

11. The City of New York Department of Health and Mental Hygiene, Food Service Establishment Permit, issued as of September 15, 2010 to SC Madison LLC, Asia de Cuba

12. Sentinel Fire Control, Inc. Certificate of Inspection for Automatic Fire Suppression Systems, issued December, 2010 to Asia de Cuba

Uncured Violations

None.

Schedule 5.1(p)

Special Tax Assessments and Agreements Relating to Taxes

None.

Schedule 5.1(z)(vi)

Non-Qualified Deferred Compensation Plans

None.

Exhibit A

Form of Deed

(see attached)

BARGAIN AND SALE DEED

FROM

MORGANS HOLDINGS LLC

TO

MADISON 237 HOTEL, L.L.C.

Location of Property:

Street Address:	237 Madison Avenue
County:	New York
State:	New York
Block:	867
Lot:	0020
Record and Return to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attention: Andrew A. Lance, Esq.
Telecopy: 212-351-4035
Tax Notices to:
Attention:
Telecopy:

BARGAIN AND SALE DEED

THIS INDENTURE, made as of the  _____  day of                     , 2011 by MORGANS HOLDINGS LLC, a Delaware limited liability company (incorrectly recited as a New York limited liability company on the vesting deeds described in the first recital below), having an address at  _____  (“Grantor”), in favor of MADISON 237 HOTEL, L.L.C., a Delaware limited liability company, having an address at  _____  (“Grantee”),

WITNESSETH, that Grantor, in consideration of Ten Dollars ($10.00) and other good and valuable consideration paid by Grantee, the receipt and sufficiency of which are hereby acknowledged, does hereby grant and release unto Grantee and its successors and assigns, forever, all that certain plot, piece or parcel of land lying and being in the County of New York, State of New York, as more particularly described on Exhibit A attached hereto and made a part hereof (the “Land”) (being the same premises conveyed to the Grantor by deeds recorded on July 28, 1998 in Reel 2692, page 1167, as to an undivided 67% interest and in Reel 2692, page 1160, as to an undivided 33% interest) and all buildings, structures and other improvements located on the Land (collectively with the Land, the “Property”);

TOGETHER with all right, title and interest, if any, of Grantor in and to any strips or gores adjoining the Property, any streets and roads abutting the Property to the center lines thereof; and

TOGETHER with the appurtenances and all the estate and rights of Grantor in and to the Property;

TO HAVE AND TO HOLD the Property unto Grantee and its successors and assigns, forever.

Grantor, in compliance with Section 13 of the Lien Law, covenants that Grantor will receive the consideration for this conveyance and will hold the right to receive such consideration as a trust fund to be applied first for the purpose of paying the cost of the improvement and will apply the same first to the payment of the cost of the improvement before using any part of the total of the same for any other purpose.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, Grantor has duly executed this indenture as of the date first above written.

MORGANS HOLDINGS LLC
a Delaware limited liability company

By:

Its:

STATE OF NEW YORK	)
	)	ss:
COUNTY OF NEW YORK	)

On the  _____  day of  _____ in the year 2011, before me, the undersigned, a Notary Public in and for the above referenced State, personally appeared                     , personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person on behalf of which the individual acted, executed the instrument.

Notary Public

Exhibit A to Deed

Description of Land

237 Madison Avenue, Block 867, Lot 0020

ALL THAT CERTAIN PLOT, PIECE OR PARCEL OF LAND, SITUATE, LYING AND BEING IN THE BOROUGH OF MANHATTAN, CITY, COUNTY AND STATE OF NEW YORK, BOUNDED AND DESCRIBED AS FOLLOWS

BEGINNING AT A POINT ON THE EASTERLY SIDE OF MADISON AVENUE DISTANT 49 FEET NORTHERLY FROM THE CORNER FORMED BY THE INTERSECTION OF THE EASTERLY SIDE OF MADISON AVENUE AND THE NORTHERLY SIDE OF 37TH STREET;

THENCE EASTERLY PARALLEL WITH THE NORTHERLY SIDE OF 37TH STREET AND PART OF THE WAY THROUGH A PARTY WALL 100 FEET;

THENCE NORTHERLY PARALLEL WITH THE EASTERLY SIDE OF MADISON AVENUE 49 FEET 9 INCHES TO THE CENTER LINE OF THE BLOCK BETWEEN 37TH AND 38TH STREETS;

THENCE WESTERLY ALONG SAID CENTER LINE OF THE BLOCK AND PARALLEL WITH 37TH STREET 100 FEET TO THE EASTERLY SIDE OF MADISON AVENUE;

THENCE SOUTHERLY ALONG THE EASTERLY SIDE OF MADISON AVENUE 49 FEET 9 INCHES TO THE POINT OR PLACE OF BEGINNING.

Exhibit B

Form of Bill of Sale

BILL OF SALE

For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, MORGANS HOLDINGS LLC, a Delaware limited liability company (“Seller”), in connection with the sale of certain real property located in New York, New York, which is more particularly described in that certain Purchase and Sale Agreement dated as of                     , 2011 (“Purchase Agreement”), between Seller and MADISON 237 HOTEL, L.L.C., a Delaware limited liability company (“Purchaser”), hereby grants, assigns, transfers, conveys and delivers to Purchaser, without recourse and without any representation or warranty (including warranty of use and warranty, express or implied, as to merchantability and fitness for any purpose) except as expressly set forth in the Purchase Agreement, all of Seller’s right, title and interest in and to the “Personal Property”, “Consumable Inventory” and the “Receivables” assigned pursuant to Section 4.4.4(c) of the Purchase Agreement, as such terms are defined in the Purchase Agreement and, in each case, solely to the extent the “Personal Property”, “Consumable Inventory” and “Receivables” are included in the definition of “Property” in the Purchase Agreement. This Bill of Sale shall be governed by the laws of the State of New York.

[Signature on following page]

IN WITNESS WHEREOF, Seller has executed this Bill of Sale as of                     , 2011.

SELLER:

MORGANS HOLDINGS LLC,
a Delaware limited liability company

By:

Its:

Exhibit B-2

Form of Bill of Sale for Alcoholic Beverages

BILL OF SALE (LIQUOR INVENTORY)

For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, MORGANS HOLDINGS LLC, a Delaware limited liability company (“Seller”), in connection with the sale of certain real property located in New York, New York, which is more particularly described in that certain Purchase and Sale Agreement dated as of                     , 2011 (“Purchase Agreement”), between Seller and MADISON 237 HOTEL, L.L.C., a Delaware limited liability company (“Purchaser”), hereby grants, assigns, transfers, conveys and delivers to                     , without recourse and without any representation or warranty (including warranty of use and warranty, express or implied, as to merchantability and fitness for any purpose) except as expressly set forth in the Purchase Agreement, all of Seller’s right, title and interest in and to the “Unopened Inventory” (as such term is defined in the Purchase Agreement) that consists of alcoholic beverages. Attached hereto as Exhibit A is evidence of payment by Seller of any sales tax payable with respect to the Unopened Inventory being transferred hereunder. This Bill of Sale shall be governed by the laws of the State of New York.

[Signature on following page]

IN WITNESS WHEREOF, Seller has executed this Bill of Sale (Liquor Inventory) as of                     , 2011.

SELLER:

MORGANS HOLDINGS LLC,
a Delaware limited liability company

By:

Its:

Exhibit A

Evidence of Payment of Sales Tax

Exhibit C

Form of Assignment of Contracts

ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS,
BOOKINGS AND INTANGIBLES

THIS ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS, BOOKINGS AND INTANGIBLES (this “Assignment”) is made as of                     , 2011, by MORGANS HOLDINGS LLC, a Delaware limited liability company (“Seller”), in favor of MADISON 237 HOTEL, L.L.C., a Delaware limited liability company (“Purchaser”).

RECITALS

A. Seller is the owner of certain property commonly known as the “Morgans” located at 237 Madison Avenue, New York, New York.

B. Seller and Purchaser have entered into that certain Purchase and Sale Agreement dated as of                     , 2011 (as may be amended, the “Purchase Agreement”), pursuant to which Seller has agreed to sell and Purchaser has agreed to purchase the real property described in Schedule 1.1(a) attached thereto and the improvements located thereon, on the terms and conditions stated in the Purchase Agreement. All terms not otherwise defined herein shall have the meaning assigned to them in the Purchase Agreement.

C. Pursuant to the Purchase Agreement, Seller has agreed to assign to Purchaser all of Seller’s right, title and interest to (a) the Service Contracts that Purchaser has elected to assume under the Purchase Agreement (the “Assumed Service Contracts”), as set forth on Annex 1 attached hereto (b) the Bookings, and (c) the Intangibles.

NOW, THEREFORE, Seller and Purchaser agree as follows:

1. Assignment. Seller hereby sells, assigns, transfers and conveys to Purchaser, without recourse and without representation or warranty (except to the extent expressly provided in the Purchase Agreement, as to which all of the limitations set forth in the Purchase Agreement shall apply), all of Seller’s right, title and interest in and to (a) the Assumed Service Contracts, (b) the Bookings and (c) the Intangibles.

2. Assumption. Purchaser hereby assumes the benefits of Seller and assumes and agrees to be bound by all of the covenants, obligations, liabilities, and burdens of Seller that arise or accrue from and after the date of this Assignment under or in connection with (a) the Assumed Service Contracts, (b) the Bookings, and (c) the Intangibles. This Assignment is made by Seller without recourse and without any express or implied representation or warranty whatsoever (except to the extent expressly provided in the Purchase Agreement, as to which all of the limitations set forth in the Purchase Agreement shall apply).

3. Successors. This Assignment shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, legal representatives, successors and assigns.

4. Governing Law. This Assignment shall be governed by the laws of the State of New York.

5. Further Assurances. Seller and Purchaser agree to execute such other documents and perform such other acts as may be reasonably necessary or proper and usual to effect this Assignment.

6. Counterparts. This Assignment may be executed in counterparts, each of which shall be deemed an original, and both of which together shall constitute one and the same instrument.

[signature page follows]

IN WITNESS WHEREOF, Purchaser and Seller have executed this Assignment as of the date first above written.

SELLER:

MORGANS HOLDINGS LLC,
a Delaware limited liability company

By:

Its:

PURCHASER:

MADISON 237 HOTEL, L.L.C.,
a Delaware limited liability company

By:

Its:

Annex 1

Assumed Service Contracts

[to be completed at Closing — not to include any asia de cuba contracts]

Exhibit D

[Intentionally Omitted]

Exhibit E

Form of FIRPTA Certificate

CERTIFICATION OF NON-FOREIGN STATUS

A. Federal FIRPTA Certificate

Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”) provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. For U.S. tax purposes (including Code Section 1445), the owner of a disregarded entity (which has legal title to a U.S. real property interest under local law) will be the transferor of the property and not the disregarded entity. To inform the transferee that withholding of tax is not required upon the disposition of a U.S. real property interest by                                            (the “Transferor”) the undersigned hereby certifies the following on behalf of the Transferor:

1. Transferor is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Code and the Income Tax Regulations promulgated thereunder);

2. Transferor’s U.S. tax identification number is                     ; and

3. Transferor’s office address is                     .

Transferor understands that this certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

Transferor understands that Transferee is relying on this certification in determining whether withholding is required upon said transfer.

Under penalty of perjury the undersigned declare that they have examined this certification and to the best of their knowledge and belief it is true, correct and complete, and they further declare that they have authority to sign this certification on behalf of Transferor.

Dated as of                      , 2011

TRANSFEROR:
                                             ,
a                                           
 

By:  

Its:

Exhibit F

Form of Title Affidavit

TITLE AFFIDAVIT

Title No. 3111-00130

The undersigned (“Owner”) hereby certifies that, to the best of its knowledge:

1. That there are no leases or occupancy agreements (recorded or unrecorded) affecting the premises described on Exhibit A (the “Real Property”), or other parties in possession, except as shown on the attached Exhibit B. As to those items set forth on Exhibit B, there are no options to purchase, rights of first refusal or rights of first offer to purchase the Real Property or similar rights with respect to the Real Property contained in the respective leases and/or agreements other then specifically indicated on Exhibit B or as may be set forth in the leases or occupancy agreements.

2. There are no unrecorded claims against the Real Property, nor any set of facts by reason of which title to the Real Property might be disputed or questioned, and Owner has been in peaceable and undisputed possession of the Real Property since title was acquired.

3. There has not been any construction, repairs, alterations or improvements made, ordered or contracted to be made on or to the Real Property, nor materials ordered therefor within the last one hundred twenty (120) days, which has not been paid for; nor are there any fixtures attached to the Real Property which have not been paid for in full; and that there are no outstanding or disputed claims for any such work or item; except as shown on attached Exhibit C.

4. There has been no work done upon the Real Property by the City of New York, nor has the City of New York made any demand for any such work that may result in charges by the New York City Department of Rent and Housing Maintenance, or charges by the New York City Department of Environmental Protection for water tap closings or any related work, whether or not such charges are liens against the property which this policy insures.

5. No fee for an inspection, re-inspection, examination or service performed by the New York City Department of Buildings have been levied, charged, created or incurred that may become a lien on the Real Property. (See Section 26-128 of the Administrative Code of New York).

6. There are no other liens issued pursuant to the Administrative Code of the City of New York which may affect the Real Property.

7. The unrecorded lease between Arthur Felber and Elm Hotel Corp., dated June 1, 1959 (as described in Exception 3 of Schedule B-1 to the title report dated February 24, 2011 (the “Morgans Title Report”) and as assigned and modified as described in such Exception 3) is terminated/expired and the tenant no longer remains in possession of space at the Real Property.

8. The unrecorded lease between 237 Hotel Corporation and Toms Associates, dated June 2, 1962 (as described in Exception 4 of Schedule B-1 to the Morgans Title Report) is terminated/expired and the tenant no longer remains in possession of space at the Real Property.

9. The unrecorded lease between Executive Hotel Associates and Executive Partnership, Inc., dated May 4, 1964 (as described in Exception 5 of Schedule B-1 to the Morgans Title Report) is terminated/expired and the tenant no longer remains in possession of space at the Real Property.

10. The unrecorded lease between Morgans Holdings LLC and Ian Schrager Hotel Management LLC, dated July 28, 1998 (as described in Exception 6 of Schedule B-1 to the Morgans Title Report) is terminated/expired and the tenant no longer remains in possession of space at the Real Property.

11. The unrecorded lease between Morgans Holdings LLC and Madison Bar Company LLC, dated August 13, 2004 (as described in Exception 7 of Schedule B-1 to the Morgans Title Report) is terminated/expired and the tenant no longer remains in possession of space at the Real Property.

12. The Environmental Control Board Violation #:034829059K in the amount of $800.00 was filed against a party with a similar name to Morgans Holding LLC and such violation does not affect the Real Property.

This affidavit is made for the purpose of aiding Chicago Title Insurance Company and First American Title Insurance Companies (the “Title Companies”) in determining the insurability of title to the Real Property and to induce the Title Companies to issue a policy of title insurance to MADISON 237 HOTEL, L.L.C., a Delaware limited liability company (“Purchaser”), in connection with Purchaser’s acquisition of the Real Property from Owner. The undersigned avers the foregoing statements are true and correct to the best of its knowledge; provided that, the foregoing statements are made by the undersigned solely as of                                           , 2011, and the accuracy of such statements shall not be extended beyond such date.

As used herein, “to the best of its knowledge” shall mean the actual knowledge of Richard Szymanski (provided that, in no event shall such person have any personal liability arising under this affidavit), without any duty of inquiry or investigation, and expressly excluding the knowledge of any other shareholder, partner, member, trustee, beneficiary, director, officer, manager, employee, agent or representative of Owner or any of its affiliates.

[signature page follows]

EXECUTED this                       day of                      , 2011.

OWNER:

MORGANS HOLDINGS LLC,
a Delaware limited liability company
 

By:  

Its:  

STATE OF NEW YORK	)
	)	ss:
COUNTY OF NEW YORK	)

On the             day of                       in the year 2011, before me, the undersigned, a Notary Public in and for the above referenced State, personally appeared                                  , personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person on behalf of which the individual acted, executed the instrument.

Notary Public

Exhibit A

Real Property

ALL that certain plot, piece or parcel of land, situate, lying and being in the Borough of MANHATTAN, City, County and State of NEW YORK, bounded and described as follows:

BEGINNING at a point on the easterly side of MADISON AVENUE, distant 49 feet northerly from the corner formed by the intersection of the easterly side of MADISON AVENUE and the northerly side of 37TH STREET;

thence easterly parallel with the northerly side of 37TH STREET, and part of the way through a party wall, 100 feet;

thence northerly parallel with the easterly side of MADISON AVENUE, 49 feet 9 inches to the center line of the block between 37TH and 38TH STREETS;

thence westerly along said center line of the block and parallel with 37TH STREET, 100 feet to the easterly side of MADISON AVENUE;

thence southerly along the easterly side of MADISON AVENUE, 49 feet 9 inches to the point or place of BEGINNING.

Exhibit B

Leases on Real Property

1. Amended and Restated Lease, dated as of January 1, 2000, between Morgans Holdings LLC, a Delaware limited liability company, as landlord, and SC Madison LLC, a Delaware limited liability company, as tenant, as amended by that letter dated as of January 1, 2000 and by that letter dated as of January 15, 2007.

Exhibit G

Form of IWA Assumption Agreement

IWA ASSUMPTION AGREEMENT

This IWA Assumption Agreement ( “IWA AA”) is made and entered into as of this            day of                     , 2011, by and among Morgans Holdings LLC, a Delaware limited liability company (the “Seller”), which owns the hotel located at 237 Madison Avenue, New York, NY commonly known as “Morgans” (the “Hotel”), whose manager, Morgans Hotel Group Management LLC, a Delaware limited liability company (the “Manager”), is the employer of the bargaining unit employees employed at the Hotel (the “Employees”), Madison 237 Hotel L.L.C., a Delaware limited liability company (“Buyer”), and New York Hotel and Motel Trades Council, AFL-CIO (the “Union”).

WHEREAS, Buyer has agreed to purchase the Hotel from Seller pursuant to that certain Purchase and Sale Agreement date as of                 , 2011, (the “Purchase Agreement”) and Manager shall operate the Hotel for Buyer and shall employ the Employees;

WHEREAS, Seller and Manager are bound to a collective bargaining agreement known as the Industry Wide Agreement between the Union and the Hotel Association of New York City, Inc. for a term of July 1, 2006 through June 30, 2012 (“IWA”);

WHEREAS, Article 59 of the IWA also provides that an owner of a hotel that is not the employer shall be bound by the Successor and Assigns provisions of the IWA and the arbitration provisions thereof as they relate to any dispute regarding the Successor and Assigns provision and shall agree to retain all bargaining unit employees, whose employment will continue uninterrupted without loss of seniority, compensation, benefits, or other terms and conditions of employment, subject to the IWA and applicable law;

IT IS NOW THEREFORE AGREED THAT:

1. Effective at the closing of the sale of the Hotel from Seller to Buyer (“Closing”), Buyer, which will not be the employer of any Employees, agrees that it has assumed and adopted, and is bound by, the Successors and Assigns provisions of the IWA and the arbitration provisions thereof as they relate to any dispute regarding the Successors and Assigns provisions and agrees to cause Manager to retain all bargaining unit employees, whose employment will continue uninterrupted without loss of seniority, compensation, benefits, or other terms and conditions of employment, subject to the IWA and applicable law.

2. Manager, as the employer of the Employees following the Closing, agrees that effective at Closing, it will continue to be bound by all terms and conditions, both economic and non-economic, of the IWA.

3. Nothing herein shall modify or limit the rights and obligations between Buyer and Seller that survive the Closing as set forth in their Purchase and Sale Agreement.

4. Effective immediately, any and all disputes between the Union and any party hereto regarding this IWA AA shall be subject to Article 26 of the IWA, the entirety of which is incorporated herein by reference.

5. This Agreement may be signed in counterparts, each of which shall be deemed an original.

IN WITNESS THEREOF, the parties have duly executed this IWA AA as of the date set forth above.

MADISON 237 HOTEL L.L.C.		MORGANS HOLDINGS LLC
By:		By:
	Name:		Name:
	Title:		Title:
NEW YORK HOTEL AND MOTEL TRADES COUNCIL, AFL-CIO		MORGANS HOTEL GROUP MANAGEMENT LLC
By:		By:
	Name:		Name:
	Title:		Title:

Assumption Agreement\IWA Assumption Agreement

Exhibit H

[Intentionally Omitted]

Exhibit I

Pro Forma Title Policy

American Land Title Association Owner’s Policy

Policy No: 3111-00130

OWNER’S POLICY OF TITLE INSURANCE

Issued by

CHICAGO TITLE INSURANCE COMPANY

Any notice of claim and any other notice or statement in writing required to be given the Company under this Policy must be given to the Company at the address shown in Section 18 of the Conditions.

COVERED RISKS

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B, AND THE CONDITIONS, CHICAGO TITLE INSURANCE COMPANY, a Nebraska corporation (the “Company”) insures, as of Date of Policy and, to the extent stated in Covered Risks 9 and 10, after Date of Policy, against loss or damage, not exceeding the Amount of Insurance, sustained or incurred by the Insured by reason of:

1.	Title being vested other than as stated in Schedule A.
2.	Any defect in or lien or encumbrance on the Title. This Covered Risk includes but is not limited to insurance against loss from

(a) A defect in the Title caused by

(i)	forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation;
(ii)	failure of any person or Entity to have authorized a transfer or conveyance;
(iii)	a document affecting Title not properly created, executed, witnessed, sealed, acknowledged, notarized, or delivered;
(iv)	failure to perform those acts necessary to create a document by electronic means authorized by law;
(v)	a document executed under a falsified, expired, or otherwise invalid power of attorney;
(vi)	a document not properly filed, recorded, or indexed in the Public Records including failure to perform those acts by electronic means authorized by law; or
(vii)	a defective judicial or administrative proceeding.

(b)	The lien of real estate taxes or assessments imposed on the Title by a governmental authority due or payable, but unpaid.
(c)	Any encroachment, encumbrance, violation, variation, or adverse circumstance affecting the Title that would be disclosed by an accurate and complete land survey of the Land. The term “encroachment” includes encroachments of existing improvements located on the Land onto adjoining land, and encroachments onto the Land of existing improvements located on adjoining land.

3.	Unmarketable Title.
4.	No right of access to and from the Land.
5.	The violation or enforcement of any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to

(a)	the occupancy, use, or enjoyment of the Land;
(b)	the character, dimensions, or location of any improvement erected on the Land;

American Land Title Association Owner’s Policy

Policy No: 3111-00130

(c)	the subdivision of land; or
(d)	environmental protection

if a notice, describing any part of the Land, is recorded in the Public Records setting forth the violation or intention to enforce, but only to the extent of the violation or enforcement referred to in that notice.

6.	An enforcement action based on the exercise of a governmental police power not covered by Covered Risk 5 if a notice of the enforcement action, describing any part of the Land, is recorded in the Public Records, but only to the extent of the enforcement referred to in that notice.
7.	The exercise of the rights of eminent domain if a notice of the exercise, describing any part of the Land, is recorded in the Public Records.
8.	Any taking by a governmental body that has occurred and is binding on the rights of a purchaser for value without Knowledge.
9.	Title being vested other than as staled Schedule A or being defective

(a)

as a result of the avoidance in whole or in part, or from a court order providing an alternative remedy, of a transfer of all or any part of the title to or any interest in the Land occurring prior to the transaction vesting Title as shown in Schedule A because that prior transfer constituted a fraudulent or preferential transfer under federal bankruptcy, state insolvency, or similar creditors’ rights laws; or

(b)

because the instrument of transfer vesting Title as shown in Schedule A constitutes a preferential transfer under federal bankruptcy, state insolvency, or similar creditors’ rights laws by reason of the failure of its recording in the Public Records

(i)	to be timely, or
(ii)	to impart notice of its existence to a purchaser for value or to a judgment or lien creditor.

10. Any defect in or lien or encumbrance on the Title or other matter included in Covered Risks 1 through 9 that has been created or attached or has been filed or recorded in the Public Records subsequent to Date of Policy and prior to the recording of the deed or other instrument of transfer in the Public Records that vests Title as shown in Schedule A.

The Company will also pay the costs, attorneys, fees, and expenses incurred in defense of any matter insured against by this Policy, but only to the extent provided in the Conditions.

IN WITNESS WHEREOF, CHICAGO TITLE INSURANCE COMPANY has caused this policy to be signed and sealed by its duly authorized officers.

Issued by: CHICAGO TITLE INSURANCE COMPANY 711 3RD AVE, 5TH FLOOR NEW YORK, NY 10017-4014 Tel (212) 880-1200    Fax (212) 880-1400		CHICAGO TITLE INSURANCE COMPANY
		By:	/s/ Raymond R. Quirk
			Raymond R. Quirk President
		By:	/s/ Michael L. Gravelle
Countersigned			Michael L. Gravelle Secretary

Authorized Signatory

American Land Title Association Owner’s Policy

Policy No: 3111-00130

EXCLUSIONS FROM COVERAGE

The following matters are expressly excluded from the coverage of this policy, and the Company will not pay loss or damage, costs, attorneys’ fees, or expenses that arise by reason of:

1. (a) Any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to

(i)	the occupancy, use, or enjoyment of the Land;
(ii)	the character, dimensions or location of any improvement erected on the Land;
(iii)	the subdivision of land; or
(iv)	environmental protection;

or the effect of any violation of these laws, ordinances, or governmental regulations. This Exclusion 1(a) does not modify or limit the coverage provided under Covered Risk 5.

(b) Any governmental police power. This Exclusion 1(b) does not modify or limit the coverage provided under Covered Risk 6.

2.	Rights of eminent domain. This Exclusion does not modify or limit the coverage provided under Covered Risk 7 or 8.
3.	Defects, liens, encumbrances, adverse claims, or other matters:

(a)	created, suffered, assumed, or agreed to by the Insured Claimant;
(b)	not Known to the Company, not recorded in the Public Records at Date of Policy, but Known to the Insured Claimant and not disclosed in writing to the Company by the Insured Claimant prior to the date the Insured Claimant became an Insured under this policy;
(c)	resulting in no loss or damage to the Insured Claimant;
(d)	attaching or created subsequent to Date of Policy (however, this does not modify or limit the coverage provided under Covered Risk 9 and 10); or
(e)	resulting in loss or damage that would not have been sustained if the Insured Claimant had paid value for the Title.

4. Any claim, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws, that the transaction vesting the Title as shown in Schedule A, is

(a)	a fraudulent conveyance or fraudulent transfer; or
(b)	a preferential transfer for any reason not stated in Covered Risk 9 of this policy.

5. Any lien on the Title for real estate taxes or assessments imposed by governmental authority and created or attaching between Date of Policy and the date of recording of the deed or other instrument of transfer in the Public Records that vests Title as shown in Schedule A.

CONDITIONS

1.	DEFINITION OF TERMS
	The following terms when used in this policy mean:

(a)	“Amount of Insurance”: The amount stated in Schedule A, as may be increased or decreased by endorsement to this policy, increased by Section 8(b), or decreased by Sections 10 and 11 of these Conditions.
(b)	“Date of Policy”: The date designated as “Date of Policy” in Schedule A.
(c)	“Entity”: A corporation, partnership, trust, limited liability company, or other similar legal entity.
(d)	“Insured”: The Insured “named in Schedule A.

(i) The term “Insured” also includes

(A)	successors to the Title of the Insured, by operation of law as distinguished from purchase, including heirs, devisees, survivors, personal representatives, or next of kin;
(B)	successors to an Insured by dissolution, merger, consolidation, distribution, or reorganization;
(C)	successors to an Insured by its conversion to another kind of Entity;
(D)	a grantee of an Insured under a deed delivered without payment of actual valuable consideration conveying the Title

(1)	if the stock, shares, memberships, or other equity interests of the grantee are wholly-owned by the named Insured,
(2)	if the grantee wholly owns the named Insured,
(3)	if the grantee is wholly-owned by an affiliated Entity of the named Insured, provided the affiliated Entity and the named Insured are both wholly-owned by the same person or Entity, or
(4)	if the grantee is a trustee or beneficiary of a trust created by a written instrument established by the Insured named in Schedule A for estate planning purposes.

(ii) With regard to (A), (B), (C), and (D) reserving, however, all rights and defenses as to any successor that the Company would have had against any predecessor Insured.

(e)	“Insured Claimant”: An Insured claiming loss or damage.
(f)	“Knowledge” or “Known”: Actual knowledge, not constructive knowledge or notice that may be imputed to an Insured by reason of the Public Records or any other records that impart constructive notice of matters affecting the Title.
(g)	“Land”: The land described in Schedule A, and affixed improvements that by law constitute real property. The term “Land” does not include any property beyond the lines of the area described in Schedule A, nor any right, title, interest, estate, or easement in abutting streets, roads, avenues, alleys, lanes, ways, or waterways, but this does not modify or limit the extent that a right of access to and from the Land is insured by this policy.
(h)	“Mortgage”: Mortgage, deed of trust, trust deed, or other security instrument, including one evidenced by electronic means authorized by law.
(i)	“Public Records”: Records established under state statutes at Date of Policy for the purpose of imparting constructive notice of matters relating to real property to purchasers for value and without Knowledge. With respect to Covered Risk 5(d), “Public Records” shall also include environmental protection liens filed in the records of the clerk of the United States District Court for the district where the Land is located.
(j)	“Title”: The estate or interest described in Schedule A.
(k)	“Unmarketable Title”: Title affected by an alleged or apparent matter that would permit a prospective purchaser or lessee of the Title or lender on the Title to be released from the obligation to purchase, lease, or lend if there is a contractual condition requiring the delivery of marketable title.

2.

CONTINUATION OF INSURANCE

The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title. This policy shall not continue in force in favor of any purchaser from the Insured of either (i) an estate or interest in the Land, or (ii) an obligation secured by a purchase money Mortgage given to the Insured.

CHICAGO TITLE INSURANCE COMPANY

AMERICAN LAND TITLE ASSOCIATION OWNERS POLICY (6/17/06)
WITH NEW YORK COVERAGE ENDORSEMENT APPENDED (A.L.T.A.)

SCHEDULE A

Policy No.:	Effective Date	Amount of Insurance:
3111-00130		$51,800,000.00

1.	Name of Insured:
	MADISON 237 HOTEL, L.L.C.

2.	The estate or interest in the land which is covered by this Policy is:
	FEE SIMPLE

3.	Title to the estate or interest in the land is vested in the insured by:
	Deed made by MORGANS HOLDINGS LLS -to- MADISON 237 HOTEL, L.L.C., dated                     , 2011, to be recorded.

4. The Land referred to in this policy is described as follows: — SEE ATTACHED DESCRIPTION —

Authorized Signatory

SCHEDULE A DESCRIPTION

Policy No.: 3111-00130

ALL that certain plot, piece or parcel of land, situate, lying and being in the Borough of MANHATTAN, City, County and State of NEW YORK, bounded and described as follows:

BEGINNING at a point on the easterly side of MADISON AVENUE, distant 49 feet northerly from the corner formed by the intersection of the easterly side of MADISON AVENUE and the northerly side of 37TH STREET;

thence easterly parallel with the northerly side of 37TH STREET, and part of the way through a party wall, 100 feet;

thence northerly parallel with the easterly side of MADISON AVENUE, 49 feet 9 inches to the center line of the block between 37TH and 38TH STREETS;

thence westerly along said center line of the block and parallel with 37TH STREET, 100 feet to the easterly side of MADISON AVENUE;

thence southerly along the easterly side of MADISON AVENUE, 49 feet 9 inches to the point or place of BEGINNING.

SCHEDULE B

Policy No.: 3111 - 00130

This policy does not insure against loss or damage (and the Company will not pay costs, attorney’s fees or expenses) which arise by reason of:

NOTE: THIS IS A PRO FORMA POLICY AND DOES NOT REFLECT THE PRESENT STATE OF THE TITLE NOR IS IT A COMMITMENT TO (i) INSURE THE TITLE, OR (ii) ISSUE ANY OF THE ATTACHED ENDORSEMENTS.

1. Rights of tenants or persons in possession, as tenants only, under that certain Amended and Restated Lease, dated as of January 1, 2000, between Morgans Holdings LLC, a Delaware limited liability company, as landlord, and SC Madison LLC, a Delaware limited liability company, as tenant, as ameneded by that letter dated as of January 1, 2000 and by that letter dated January 15, 2007 containing no purchase options, rights of first refusal, first offer to purchase the property or similar rights with respect to the property.

2. a. Building encroaches and projects upon Madison Avenue by 2-l/4 inches.

b. Brick at third story projects 3/4 inch onto Madison Avenue.

c. Ornamental brick, limestone pilasters, roof cornice, ornamental trim, door trim, cellar doors, stand pipe and ledge project upon Madison Avenue.

d. Tile at roof of 14 story building projects 6 inches more or less south onto the premises herein described.

e. 14- to 20-story brick and brownstone front building on northerly adjoining premises encroaches 1/2 inch onto premises herein described.

f. Brick retaining wall on southerly adjoining premises encroaches 1-1/4 inches northerly onto premises herein described.

g. Five-story building on southerly adjoining premises encroaches 1 inch northerly on the premises herein described.

h. Chimney encroaches upon the southerly adjoining premises (survey does not specify to which building said chimney belongs).

i. Chimney of five story building on southerly adjoining premises is fastened to the southerly wall of building on premises herein described and carried up.

As shown on a survey made by Earl B. Lovell dated 9/15/1926 and last brought to date by Earl B. Lovell-S.P. Belcher, Inc. on 3/24/2011.

With respect to 2a and b above, Policy insures that each building or improvement may remain in its present location as long as it shall stand and the Company hereby insures the Insured against any loss or damage that Insured shall sustain as a result of a final judicial determination of a court of competent jurisdiction as to the forced removal of the building or improvements as a result of the aforementioned encroachments.

- SCHEDULE B -

SCHEDULE B (Continued)

Policy No.: 3111 - 00130

3. Terms, Covenants, and Restrictions contained in an instrument recorded in Liber 486 cp 594 on 3/2/1847. Policy insures that a violation of the foregoing restrictions will not result in reversion or forfeiture of title.

4. Covenants and Restrictions Liber 817 Cp. 89 and Liber 845 Cp. 318. Policy insures that any violation of same will not result in a reversion or forfeiture of title.

5. The policy to be issued hereunder will contain the following:

This policy is issued contemporaneously with Policy No. Y 3008-342365NY2 of FIRST AMERICAN TITLE INSURANCE COMPANY for $~ (50%).

At the time liability for any loss shall have been fixed pursuant to the conditions of this policy, this Company shall not be liable to the insured for a greater portion of the loss than the amount that this policy bears to the whole amount of insurance held by the insured under this and the said policy.

- SCHEDULE B (Continued) -

Issued by

CHICAGO TITLE INSURANCE COMPANY ENDORSEMENT

STANDARD NEW YORK ENDORSEMENT
(OWNER’S POLICY)

Attached to and made a part of Policy Number: 3111-00130

The following is added as a Covered Risk:

“11. Any statutory lien for services, labor or materials furnished prior to the date hereof, and which has now gained or which may hereafter gain priority over the estate or interest of the insured as shown in Schedule A of this policy.”

1. Exclusion Number 5 is deleted, and the following is substituted:

5. Any lien on the Title for real estate taxes, assessments, water charges or sewer rents imposed by governmental authority and created or attaching between Date of Policy and the date of recording of the deed or other instrument of transfer in the Public Records that vests Title as Shown in Schedule A.

This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements.

Dated:		CHICAGO TITLE INSURANCE COMPANY
		By:	/s/ Raymond R. Quirk
			Raymond R. Quirk President
		By:	/s/ Michael L. Gravelle
			Michael L. Gravelle Secretary

Authorized Signatory

Note: This endorsement shall not be valid or binding until countersigned by an authorized signatory.

STANDARD NEW YORK ENDORSEMENT (11/1/08)
FOR USE WITH ALTA OWNER’S POLICY (6-17-06)

American Land Title Association Owner’s Policy

Policy No: 3111-00130

OWNER’S POLICY OF TITLE INSURANCE

Issued by

CHICAGO TITLE INSURANCE COMPANY

Any notice of claim and any other notice or statement in writing required to be given the Company under this Policy must be given to the Company at the address shown in Section 18 of the Conditions.

COVERED RISKS

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B, AND THE CONDITIONS, CHICAGO TITLE INSURANCE COMPANY, a Nebraska corporation (the “Company”) insures, as of Date of Policy and, to the extent stated in Covered Risks 9 and 10, after Date of Policy, against loss or damage, not exceeding the Amount of Insurance, sustained or incurred by the Insured by reason of:

1.	Title being vested other than as stated in Schedule A.
2.	Any defect in or lien or encumbrance on the Title. This Covered Risk includes but is not limited to insurance against loss from

(a) A defect in the Title caused by

(i)	forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation;
(ii)	failure of any person or Entity to have authorized a transfer or conveyance;
(iii)	a document affecting Title not properly created, executed, witnessed, sealed, acknowledged, notarized, or delivered;
(iv)	failure to perform those acts necessary to create a document by electronic means authorized by law;
(v)	a document executed under a falsified, expired, or otherwise invalid power of attorney;
(vi)	a document not properly filed, recorded, or indexed in the Public Records including failure to perform those acts by electronic means authorized by law; or
(vii)	a defective judicial or administrative proceeding.

(b)	The lien of real estate taxes or assessments imposed on the Title by a governmental authority due or payable, but unpaid.
(c)	Any encroachment, encumbrance, violation, variation, or adverse circumstance affecting the Title that would be disclosed by an accurate and complete land survey of the Land. The term “encroachment” includes encroachments of existing improvements located on the Land onto adjoining land, and encroachments onto the Land of existing improvements located on adjoining land.

3.	Unmarketable Title.
4.	No right of access to and from the Land.
5.	The violation or enforcement of any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to

(a)	the occupancy, use, or enjoyment of the Land;
(b)	the character, dimensions, or location of any improvement erected on the Land;

American Land Title Association Owner’s Policy

Policy No: 3111-00130

(c)	the subdivision of land; or
(d)	environmental protection

if a notice, describing any part of the Land, is recorded in the Public Records setting forth the violation or intention to enforce, but only to the extent of the violation or enforcement referred to in that notice.

6.	An enforcement action based on the exercise of a governmental police power not covered by Covered Risk 5 if a notice of the enforcement action, describing any part of the Land, is recorded in the Public Records, but only to the extent of the enforcement referred to in that notice.
7.	The exercise of the rights of eminent domain if a notice of the exercise, describing any part of the Land, is recorded in the Public Records.
8.	Any taking by a governmental body that has occurred and is binding on the rights of a purchaser for value without Knowledge.
9.	Title being vested other than as stated Schedule A or being defective

(a)

as a result of the avoidance in whole or in part, or from a court order providing an alternative remedy, of a transfer of all or any part of the title to or any interest in the Land occurring prior to the transaction vesting Title as shown in Schedule A because that prior transfer constituted a fraudulent or preferential transfer under federal bankruptcy, state insolvency, or similar creditors’ rights laws; or

(b)

because the instrument of transfer vesting Title as shown in Schedule A constitutes a preferential transfer under federal bankruptcy, state insolvency, or similar creditors’ rights laws by reason of the failure of its recording in the Public Records

(i)	to be timely, or
(ii)	to impart notice of its existence to a purchaser for value or to a judgment or lien creditor.

10. Any defect in or lien or encumbrance on the Title or other matter included in Covered Risks 1 through 9 that has been created or attached or has been filed or recorded in the Public Records subsequent to Date of Policy and prior to the recording of the deed or other instrument of transfer in the Public Records that vests Title as shown in Schedule A.

The Company will also pay the costs, attorneys’ fees, and expenses incurred in defense of any matter insured against by this Policy, but only to the extent provided in the Conditions.

IN WITNESS WHEREOF, CHICAGO TITLE INSURANCE COMPANY has caused this policy to be signed and sealed by its duly authorized officers.

Issued by: CHICAGO TITLE INSURANCE COMPANY 711 3RD AVE, 5TH FLOOR NEW YORK, NY 10017-4014 Tel (212) 880-1200    Fax (212) 880-1400		CHICAGO TITLE INSURANCE COMPANY
		By:	/s/ Raymond R. Quirk
			Raymond R. Quirk President
		By:	/s/ Michael L. Gravelle
Countersigned			Michael L. Gravelle Secretary

 
 
Authorized Signatory

American Land Title Association Owner’s Policy

Policy No: 3111-00130

EXCLUSIONS FROM COVERAGE

The following matters are expressly excluded from the coverage of this policy, and the Company will not pay loss or damage, costs, attorneys’ fees, or expenses that arise by reason of:

1. (a) Any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to

(i)	the occupancy, use, or enjoyment of the Land;
(ii)	the character, dimensions or location of any improvement erected on the Land;
(iii)	the subdivision of land; or
(iv)	environmental protection;

or the effect of any violation of these laws, ordinances, or governmental regulations. This Exclusion 1(a) does not modify or limit the coverage provided under Covered Risk 5.

(b) Any governmental police power. This Exclusion 1(b) does not modify or limit the coverage provided under Covered Risk 6.

2.	Rights of eminent domain. This Exclusion does not modify or limit the coverage provided under Covered Risk 7 or 8.
3.	Defects, liens, encumbrances, adverse claims, or other matters:

(a)	created, suffered, assumed, or agreed to by the Insured Claimant;
(b)	not Known to the Company, not recorded in the Public Records at Date of Policy, but Known to the Insured Claimant and not disclosed in writing to the Company by the Insured Claimant prior to the date the Insured Claimant became an Insured under this policy;
(c)	resulting in no loss or damage to the Insured Claimant;
(d)	attaching or created subsequent to Date of Policy (however, this does not modify or limit the coverage provided under Covered Risk 9 and 10); or
(e)	resulting in loss or damage that would not have been sustained if the Insured Claimant had paid value for the Title.

4. Any claim, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws, that the transaction vesting the Title as shown in Schedule A, is

(a)	a fraudulent conveyance or fraudulent transfer; or
(b)	a preferential transfer for any reason not stated in Covered Risk 9 of this policy.

5. Any lien on the Title for real estate taxes or assessments imposed by governmental authority and created or attaching between Date of Policy and the date of recording of the deed or other instrument of transfer in the Public Records that vests Title as shown in Schedule A.

CONDITIONS

1. DEFINITION OF TERMS

The following terms when used in this policy mean:

(a)	“Amount of Insurance”: The amount stated in Schedule A, as may be increased or decreased by endorsement to this policy, increased by Section 8(b), or decreased by Sections 10 and 11 of these Conditions.
(b)	“Date of Policy”: The date designated as “Date of Policy” in Schedule A.
(c)	“Entity”: A corporation, partnership, trust, limited liability company, or other similar legal entity.
(d)	“Insured”: The Insured named in Schedule A.

(i) The term “Insured” also includes

(A)	successors to the Title of the Insured by operation of law as distinguished from purchase, including heirs, devisees, survivors, personal representatives, or next of kin;
(B)	successors to an Insured by dissolution, merger, consolidation, distribution, or reorganization;
(C)	successors to an Insured by its conversion to another kind of Entity;
(D)	a grantee of an Insured under a deed delivered without payment of actual valuable consideration conveying the Title

(1)	if the stock, shares, memberships, or other equity interests of the grantee are wholly-owned by the named Insured,
(2)	if the grantee wholly owns the named Insured,
(3)	if the grantee is wholly-owned by an affiliated Entity of the named Insured, provided the affiliated Entity and the named Insured are both wholly-owned by the same person or Entity, or
(4)	if the grantee is a trustee or beneficiary of a trust created by a written instrument established by the Insured named in Schedule A for estate planning purposes.

(ii) With regard to (A), (B), (C), and (D) reserving, however, all rights and defenses as to any successor that the Company would have had against any predecessor Insured.

(e)	“Insured Claimant”: An Insured claiming loss or damage.
(f)	“Knowledge” or “Known”: Actual knowledge, not constructive knowledge or notice that may be imputed to an Insured by reason of the Public Records or any other records that impart constructive notice of matters affecting the Title.
(g)	“Land”: The land described in Schedule A, and affixed improvements that by law constitute real property. The term “Land” does not include any property beyond the lines of the area described in Schedule A, nor any right, title, interest, estate, or easement in abutting streets, roads, avenues, alleys, lanes, ways, or waterways, but this does not modify or limit the extent that a right of access to and from the Land is insured by this policy.
(h)	“Mortgage”: Mortgage, deed of trust, trust deed, or other security instrument, including one evidenced by electronic means authorized by law.
(i)	“Public Records”: Records established under state statutes at Date of Policy for the purpose of imparting constructive notice of matters relating to real property to purchasers for value and without Knowledge. With respect to Covered Risk 5(d), “Public Records” shall also include environmental protection liens filed in the records of the clerk of the United States District Court for the district where the Land is located.
(j)	“Title”: The estate or interest described in Schedule A.
(k)	“Unmarketable Title”: Title affected by an alleged or apparent matter that would permit a prospective purchaser or lessee of the Title or lender on the Title to be released from the obligation to purchase, lease, or lend if there is a contractual condition requiring the delivery of marketable title.

2.

CONTINUATION OF INSURANCE

The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title. This policy shall not continue in force in favor of any purchaser from the Insured of either (i) an estate or interest in the Land, or (ii) an obligation secured by a purchase money Mortgage given to the Insured.

CHICAGO TITLE INSURANCE COMPANY

AMERICAN LAND TITLE ASSOCIATION OWNERS POLICY (6/17/06)
WITH NEW YORK COVERAGE ENDORSEMENT APPENDED (A.L.T.A.)

SCHEDULE A

Policy No.:	Effective Date	Amount of Insurance:
3111-00130		$	51,800,000.00

1.	Name of Insured:
	MADISON 237 HOTEL, L.L.C.

2.	The estate or interest in the land which is covered by this Policy is:
	FEE SIMPLE

3.	Title to the estate or interest in the land is vested in the insured by:
	Deed made by MORGANS HOLDINGS LLS -to- MADISON 237 HOTEL, L.L.C., dated                     , 2011, to be recorded.

4. The Land referred to in this policy is described as follows: — SEE ATTACHED DESCRIPTION —

Authorized Signatory

SCHEDULE A DESCRIPTION

Policy No.: 3111-00130

ALL that certain plot, piece or parcel of land, situate, lying and being in the Borough of MANHATTAN, City, County and State of NEW YORK, bounded and described as follows:

BEGINNING at a point on the easterly side of MADISON AVENUE, distant 49 feet northerly from the corner formed by the intersection of the easterly side of MADISON AVENUE and the northerly side of 37TH STREET;

thence easterly parallel with the northerly side of 37TH STREET, and part of the way through a party wall, 100 feet;

thence northerly parallel with the easterly side of MADISON AVENUE, 49 feet 9 inches to the center line of the block between 37TH and 38TH STREETS;

thence westerly along said center line of the block and parallel with 37TH STREET, 100 feet to the easterly side of MADISON AVENUE;

thence southerly along the easterly side of MADISON AVENUE, 49 feet 9 inches to the point or place of BEGINNING.

SCHEDULE B

Policy No.: 3111-00130

This policy does not insure against loss or damage (and the Company will not pay costs, attorney’s fees or expenses) which arise by reason of:

NOTE: THIS IS A PRO FORMA POLICY AND DOES NOT REFLECT THE PRESENT STATE OF THE TITLE NOR IS IT A COMMITMENT TO (i) INSURE THE TITLE, OR (ii) ISSUE ANY OF THE ATTACHED ENDORSEMENTS.

1. Rights of tenants or persons in possession, as tenants only, under that certain Amended and Restated Lease, dated as of January 1, 2000, between Morgans Holdings LLC, a Delaware limited liability company, as landlord, and SC Madison LLC, a Delaware limited liability company, as tenant, as ameneded by that letter dated as of January 1, 2000 and by that letter dated January 15, 2007 containing no purchase options, rights of first refusal, first offer to purchase the property or similar rights with respect to the property.

2. a. Building encroaches and projects upon Madison Avenue by 2-l/4 inches.

b. Brick at third story projects 3/4 inch onto Madison Avenue.

c. Ornamental brick, limestone pilasters, roof cornice, ornamental trim, door trim, cellar doors, stand pipe and ledge project upon Madison Avenue.

d. Tile at roof of 14 story building projects 6 inches more or less south onto the premises herein described.

e. 14- to 20-story brick and brownstone front building on northerly adjoining premises encroaches 1/2 inch onto premises herein described.

f. Brick retaining wall on southerly adjoining premises encroaches 1-1/4 inches northerly onto premises herein described.

g. Five-story building on southerly adjoining premises encroaches 1 inch northerly on the premises herein described.

h. Chimney encroaches upon the southerly adjoining premises (survey does not specify to which building said chimney belongs).

i. Chimney of five story building on southerly adjoining premises is fastened to the southerly wall of building on premises herein described and carried up.

As shown on a survey made by Earl B. Lovell dated 9/15/1926 and last brought to date by Earl B. Lovell-S.P. Belcher, Inc. on 3/24/2011.

With respect to 2a and b above, Policy insures that each building or improvement may remain in its present location as long as it shall stand and the Company hereby insures the Insured against any loss or damage that Insured shall sustain as a result of a final judicial determination of a court of competent jurisdiction as to the forced removal of the building or improvements as a result of the aforementioned encroachments.

- SCHEDULE B -

SCHEDULE B (Continued)

Policy No.: 3111-00130

3. Terms, Covenants, and Restrictions contained in an instrument recorded in Liber 486 cp 594 on 3/2/1847. Policy insures that a violation of the foregoing restrictions will not result in reversion or forfeiture of title.

4. Covenants and Restrictions Liber 817 Cp. 89 and Liber 845 Cp. 318. Policy insures that any violation of same will not result in a reversion or forfeiture of title.

5. The policy to be issued hereunder will contain the following:

This policy is issued contemporaneously with Policy No. Y 3008 — 342365NY2 of FIRST AMERICAN TITLE INSURANCE COMPANY for $~ (50%).

At the time liability for any loss shall have been fixed pursuant to the conditions of this policy, this Company shall not be liable to the insured for a greater portion of the loss than the amount that this policy bears to the whole amount of insurance held by the insured under this and the said policy.

- SCHEDULE B (Continued) -

Issued by

CHICAGO TITLE INSURANCE COMPANY ENDORSEMENT

STANDARD NEW YORK ENDORSEMENT
(OWNER’S POLICY)

Attached to and made a part of Policy Number: 3111-00130

The following is added as a Covered Risk:

“11. Any statutory lien for services, labor or materials furnished prior to the date hereof, and which has now gained or which may hereafter gain priority over the estate or interest of the insured as shown in Schedule A of this policy.”

1. Exclusion Number 5 is deleted, and the following is substituted:

5. Any lien on the Title for real estate taxes, assessments, water charges or sewer rents imposed by governmental authority and created or attaching between Date of Policy and the date of recording of the deed or other instrument of transfer in the Public Records that vests Title as Shown in Schedule A.

This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements.

Dated:		CHICAGO TITLE INSURANCE COMPANY
		By:	/s/ Raymond R. Quirk
			Raymond R. Quirk President
		By:	/s/ Michael L. Gravelle
			Michael L. Gravelle Secretary

Authorized Signatory

Note: This endorsement shall not be valid or binding until countersigned by an authorized signatory.

STANDARD NEW YORK ENDORSEMENT (11/1/08)
FOR USE WITH ALTA OWNER’S POLICY (6-17-06)

Issued by

CHICAGO TITLE INSURANCE COMPANY ENDORSEMENT

LAND SAME AS SURVEY ENDORSEMENT

Attached to and made a part of Policy Number: 3111-00130

The Company hereby assures the Insured that said Land is the same as that delineated on the plat of a survey made by (SURVEY READING TO FOLLOW).

The Company hereby insures said Assured against loss which said Assured shall sustain in the event said assurances herein shall prove to be incorrect.

The total liability of the Company under said policy and any endorsement therein shall not exceed in the aggregate, the face amount of said policy and costs which the Company is obligated under the Conditions thereof to pay.

This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the Policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

Dated:		CHICAGO TITLE INSURANCE COMPANY
		By:	/s/ Raymond R. Quirk
			Raymond R. Quirk President
		By:	/s/ Michael L. Gravelle
			Michael L. Gravelle Secretary

Authorized Signatory

Note: This endorsement shall not be valid or binding until countersigned by an authorized signatory.

TIRSA LAND SAME AS SURVEY ENDORSEMENT (5/1/07)

Issued by

CHICAGO TITLE INSURANCE COMPANY (“Issuing Co-Insurer”) ENDORSEMENT

Attached to and made a part of Policy Number: 3111-00130

CO-INSURANCE ENDORSEMENT

Attached to and made a part of Chicago Title Insurance Company (“Issuing Co-Insurer”) Policy No. 311100130 (“Co-Insurance Policy”). Issuing Co-Insurer and any other co-insurers are collectively referred to as “Co-Insurers.”

1.	Co-Insurer issues this endorsement as evidence of Co-Insurer’s liability under Co-Insurance Policy and directs that this endorsement be attached to the Co-Insurance Policy adopting its Covered Risks, Exclusions, Conditions, Schedules and Endorsements, as follows:
	Amount and proportion of insurance and Aggregate Amount of Insurance under the Co-Insurance Policy:

			Amount of	Proportion of
Co-Insurers	Name and Address	Policy Number	Insurance	Liability
Issuing Co- Insurer	Chicago Title Insurance Company P.O. Box 45023 Jacksonville, FL 32232-5023	3111-00129	$~		50	%
Co-Insurer	First American Title Insurance Company 1 First American Way Santa Ana, CA 92707	Y3008-342365NY2	$~		50	%
AGGREGATE POLICY			$~		100	%

2. Each Co-Insurer shall be liable to the Insured under the Co-Insurance Policy only for the total of the loss and costs multiplied by its Proportion of Liability.

3. Any notice of claim and any other notice or statement in writing required to be given under the Co-Insurance Policy must be given to Co-Insurer at its address set forth above.

4. Any endorsement to the Co-Insurance Policy issued after the date of this Co-Insurance Endorsement must be signed on behalf of the Co-Insurer by its authorized officer or agent.

5. This Co-Insurance Endorsement is effective as of the Date of Policy of the Co-Insurance Policy. This Co-Insurance Endorsement may be executed in counterparts.

This endorsement is issued as part of the Co-Insurance Policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements.

DATED:	DATED:
Issuing Co-Insurer	Issuing Co-Insurer
Chico Title Insurance Company	First American Title Insurance Company

By: By:

TIRSA Co-Insurance Endorsement (11/1/08)

American Land Title Association Owner’s Policy

Policy No: 3111-00130

3. NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT

The Insured shall notify the Company promptly in writing (i) in case of any litigation as set forth in Section 5(a) of these Conditions, (ii) in case Knowledge shall come to an Insured hereunder of any claim of title or interest that is adverse to the Title, as insured, and that might cause loss or damage for which the Company may be liable by virtue of this policy, or (iii) if the Title, as insured, is rejected as Unmarketable Title. If the Company is prejudiced by the failure of the Insured Claimant to provide prompt notice, the Company’s liability to the Insured Claimant under the policy shall be reduced to the extent of the prejudice.

4. PROOF OF LOSS

In the event the Company is unable to determine the amount of loss or damage, the Company may, at its option, require as a condition of payment that the Insured Claimant furnish a signed proof of loss. The proof of loss must describe the defect, lien, encumbrance, or other matter insured against by this policy that constitutes the basis of loss or damage and shall state, to the extent possible, the basis of calculating the amount of the loss or damage.

5. DEFENSE AND PROSECUTION OF ACTIONS

(a) Upon written request by the Insured, and subject to the options contained in Section 7 of these Conditions, the Company, at its own cost and without unreasonable delay, shall provide for the defense of an Insured in litigation in which any third party asserts a claim covered by this policy adverse to the Insured. This obligation is limited to only those stated causes of action alleging matters insured against by this policy. The Company shall have the right to select counsel of its choice (subject to the right of the Insured to object for reasonable cause) to represent the Insured as to those stated causes of action. It shall not be liable for and will not pay the fees of any other counsel. The Company will not pay any fees, costs, or expenses incurred by the Insured in the defense of those causes of action that allege matters not insured against by this policy.

(b) The Company shall have the right, in addition to the options contained in Section 7 of these Conditions, at its own cost, to institute and prosecute any action or proceeding or to do any other act that in its opinion may be necessary or desirable to establish the Title, as insured, or to prevent or reduce loss or damage to the Insured. The Company may take any appropriate action under the terms of this policy, whether or not it shall be liable to the Insured. The exercise of these rights shall not be an admission of liability or waiver of any provision of this policy. If the Company exercises its rights under this subsection, it must do so diligently.

(c) Whenever the Company brings an action or asserts a defense as required or permitted by this policy, the Company may pursue the litigation to a final determination by a court of competent jurisdiction, and it expressly reserves the right, in its sole discretion, to appeal any adverse judgment or order.

6. DUTY OF INSURED CLAIMANT TO COOPERATE

(a)

In all cases where this policy permits or requires the Company to prosecute or provide for the defense of any action or proceeding and any appeals, the Insured shall secure to the Company the right to so prosecute or provide defense in the action or proceeding, including the right to use, at its option, the name of the Insured for this purpose. Whenever requested by the Company, the Insured, at the Company’s expense, shall give the Company all reasonable aid (i) in securing evidence, obtaining witnesses, prosecuting or defending the action or proceeding, or effecting settlement, and (ii) in any other lawful act that in the opinion of the Company may be necessary or desirable to establish the Title or any other matter as insured. If the Company is prejudiced by the failure of the Insured to furnish the required cooperation, the Company’s obligations to the Insured under the policy shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or matters requiring such cooperation.

(b)

The Company may reasonably require the Insured Claimant to submit to examination under oath by any authorized representative of the Company and to produce for examination, inspection, and copying, at such reasonable times and places as may be designated by the authorized representative of the Company, all records, in whatever medium maintained, including books, ledgers, checks, memoranda, correspondence, reports, e-mails, disks, tapes, and videos whether bearing a date before or after Date of Policy, that reasonably pertain to the loss or damage. Further, if requested by any authorized representative of the Company, the Insured Claimant shall grant its permission, in writing, for any authorized representative of the Company to examine, inspect, and copy all of these records in the custody or control of a third party that reasonably pertain to the loss or damage. All information designated as confidential by the Insured Claimant provided to the Company pursuant to this Section shall not be disclosed to others unless, in the reasonable judgment of the Company, it is necessary in the administration of the claim. Failure of the Insured Claimant to submit for examination under oath, produce any reasonably requested information, or grant permission to secure reasonably necessary information from third parties as required in this subsection, unless prohibited by law or governmental regulation, shall terminate any liability of the Company under this policy as to that claim.

7. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY

In case of a claim under this policy, the Company shall have the following additional options:

(a)	To Pay or Tender Payment of the Amount of Insurance.
	To pay or tender payment of the Amount of Insurance under this policy together with any costs, attorneys fees, and expenses incurred by the Insured Claimant that were authorized by the Company up to the time of payment or tender of payment and that the Company is obligated to pay. Upon the exercise by the Company of this option, all liability and obligations of the Company to the Insured under this policy other than to make the payment required in this subsection, shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation.
(b)	To Pay or Otherwise Settle With Parties Other Than the Insured or With the Insured Claimant.

(i)	to pay or otherwise settle with other parties for or in the name of an Insured Claimant any claim insured against under this policy. In addition, the Company will pay any costs, attorneys’ fees, and expenses incurred by the Insured Claimant that were authorized by the Company up to the time of payment and that the Company is obligated to pay; or
(ii)	to pay or otherwise settle with the Insured Claimant the loss or damage provided for under this policy, together with any costs, attorneys’ fees, and expenses incurred by the Insured Claimant that were authorized by the Company up to the time of payment and that the Company is obligated to pay.

Upon the exercise by the Company of either of the options provided for in subsections (b)(i) or (ii), the Company’s obligations to the Insured under this policy for the claimed loss or damage, other than the payments required to be made, shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation.

8. DETERMINATION AND EXTENT OF LIABILITY

This policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by the Insured Claimant who has suffered loss or damage by reason of matters insured against by this policy.

(a) The extent of liability of the Company for loss or damage under this policy shall not exceed the lesser of

(i)	the Amount of Insurance; or
(ii)	the difference between the value of the Title as insured and the value of the Title subject to the risk insured against by this policy.

American Land Title Association Owner’s Policy

Policy No: 3111-00130

(b) If the Company pursues its rights under Section 5 of these Conditions and is unsuccessful in establishing the Title, as insured,

(i)	the Amount of Insurance shall be increased by 10%, and
(ii)	the Insured Claimant shall have the right to have the loss or damage determined either as of the date the claim was made by the Insured Claimant or as of the date it is settled and paid.

(c) In addition to the extent of liability under (a) and (b), the Company will also pay those costs, attorneys’ fees, and expenses incurred in accordance with Sections 5 and 7 of these Conditions.

9. LIMITATION OF LIABILITY

(a)	If the Company establishes the Title, or removes the alleged defect, lien or encumbrance, or cures the lack of a right of access to or from the Land, or cures the claim of Unmarketable Title, all as insured, in a reasonably diligent manner by any method, including litigation and the completion of any appeals, it shall have fully performed its obligations with respect to that matter and shall not be liable for any loss or damage caused to the Insured.
(b)	In the event of any litigation, including litigation by the Company or with the Company’s consent, the Company shall have no liability for loss or damage until there has been a final determination by a court of competent jurisdiction, and disposition of all appeals, adverse to the Title, as insured.
(c)	The Company shall not be liable for loss or damage to the Insured for liability voluntarily assumed by the Insured in settling any claim or suit without the prior written consent of the Company.

10. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY

All payments under this policy, except payments made for costs, attorneys’ fees, and expenses, shall reduce the Amount of Insurance by the amount of the payment.

11. LIABILITY NONCUMULATIVE

The Amount of Insurance shall be reduced by any amount the Company pays under any policy insuring a Mortgage to which exception is taken in Schedule B or to which the Insured has agreed, assumed, or taken subject, or which is executed by an Insured after Date of Policy and which is a charge or lien on the Title, and the amount so paid shall be deemed a payment to the Insured under this policy.

12. PAYMENT OF LOSS

When liability and the extent of loss or damage have been definitely fixed in accordance with these Conditions, the payment shall be made within 30 days.

13. RIGHTS OF RECOVERY UPON PAYMENT OR SETTLEMENT

(a)

Whenever the Company shall have settled and paid a claim under this policy, it shall be subrogated and entitled to the rights of the Insured Claimant in the Title and all other rights and remedies in respect to the claim that the Insured Claimant has against any person or property, to the extent of the amount of any loss, costs, attorneys’ fees, and expenses paid by the Company. If requested by the Company, the Insured Claimant shall execute documents to evidence the transfer to the Company of these rights and remedies. The Insured Claimant shall permit the Company to sue, compromise, or settle in the name of the Insured Claimant and to use the name of the Insured Claimant in any transaction or litigation involving these rights and remedies.

If a payment on account of a claim does not fully cover the loss of the Insured Claimant, the Company shall defer the exercise of its right to recover until after the Insured Claimant shall have recovered its loss.

(b) The Company’s right of subrogation includes the rights of the Insured to indemnities, guaranties, other policies of insurance, or bonds, notwithstanding any terms or conditions contained in those instruments that address subrogation rights.

14. ARBITRATION

Either the Company or the Insured may demand that the claim or controversy shall be submitted to arbitration pursuant to the Title Insurance Arbitration Rules of the American Land Title Association (“Rules”). Except as provided in the Rules, there shall be no joinder or consolidation with claims or controversies of other persons. Arbitrable matters may include, but are not limited to, any controversy or claim between the Company and the Insured arising out of or relating to this policy, any service in connection with its issuance or the breach of a policy provision, or to any other controversy or claim arising out of the transaction giving rise to this policy. All arbitrable matters when the Amount of Insurance is $2,000,000 or less shall be arbitrated at the option of either the Company or the Insured. All arbitrable matters when the Amount of Insurance is in excess of $2,000,000 shall be arbitrated only when agreed to by both the Company and the Insured. Arbitration pursuant to this policy and under the Rules shall be binding upon the parties. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court of competent jurisdiction.

15. LIABILITY LIMITED TO THIS POLICY; POLICY ENTIRE CONTRACT

(a)	This policy together with all endorsements, if any, attached to it by the Company is the entire policy and contract between the Insured and the Company. In interpreting any provision of this policy, this policy shall be construed as a whole.
(b)	Any claim of loss or damage that arises out of the status of the Title or by any action asserting such claim shall be restricted to this policy.
(c)	Any amendment of or endorsement to this policy must be in writing and authenticated by an authorized person, or expressly incorporated by Schedule A of this policy.
(d)	Each endorsement to this policy issued at any time is made a part of this policy and is subject to all of its terms and provisions. Except as the endorsement expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsement, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance.

16. SEVERABILITY

In the event any provision of this policy, in whole or in part, is held invalid or unenforceable under applicable law, the policy shall be deemed not to include that provision or such part held to be invalid, but all other provisions shall remain in full force and effect.

17. CHOICE OF LAW; FORUM

(a) Choice of Law: The Insured acknowledges the Company has underwritten the risks covered by this policy and determined the premium charged therefor in reliance upon the law affecting interests in real property and applicable to the interpretation, rights, remedies, or enforcement of policies of title insurance of the jurisdiction where the Land is located. Therefore, the court or an arbitrator shall apply the law of the jurisdiction where the Land is located to determine the validity of claims against the Title that are adverse to the Insured and to interpret and enforce the terms of this policy. In neither case shall the court or arbitrator apply its conflicts of law principles to determine the applicable law.

(b) Choice of Forum: Any litigation or other proceeding brought by the Insured against the Company must be filed only in a state or federal court within the United States of America or its territories having appropriate jurisdiction.

18. NOTICES, WHERE SENT

Any notice of claim and any other notice or statement in writing required to be given to the Company under this policy must be given to the Company at:

Chicago Title Insurance Company

Attn: Claims Department

P.O. Box 45023

Jacksonville, FL 32232-5023

Exhibit J

Form of Escrow Agreement

DEPOSIT ESCROW INSTRUCTIONS

                                    , 2011

First American Title Insurance Company
633 Third Avenue
New York, New York 10017
Attention: Andrew Jaeger

Attention:

Re: Deposit under that certain Purchase and Sale Agreement dated                      , 2011 (the “Agreement”), by and between Morgans Holdings LLC, a Delaware limited liability company (“Seller”), and Madison 237 Hotel, L.L.C., a Delaware limited liability company (“Purchaser”); Escrow No.                       (“Escrow”).

Gentlemen and Ladies:

Purchaser and Seller have entered into the Agreement pursuant to which Purchaser agrees to purchase the Property (as defined in the Agreement). A copy of the Agreement has been delivered to you concurrently herewith.

In accordance with Section 1.6 of the Agreement, within one (1) business day following the execution of the Agreement, Purchaser will be delivering by wire transfer of immediately available federal funds in the amount of Two Million Five Hundred Ninety Thousand and 00/100 Dollars ($2,590,000.00), which may be increased by an amount equal to One Million One Hundred Ten Thousand and 00/100 ($1,110,000.00) pursuant to Section 4.10(b) of the Agreement (collectively and together with any interest earned thereon, the “Earnest Money”), for deposit in the Escrow. You are to place the Earnest Money in an interest bearing account (for this purpose, Purchaser’s Federal Employer I.D. number is 45-1137528) and hold the Earnest Money in the Escrow and deliver it to Seller or Purchaser in accordance with these instructions. An executed IRS Form W-9 for Purchaser has been delivered to you to enable the Earnest Money to be invested.

In the event that (i) you receive written notice from Seller or Purchaser (the party that delivers such written notice is referred to herein as the “Notice Party”), which notice shall be delivered concurrently to the other party (the “Other Party”), stating that the Notice Party is terminating the Agreement and is entitled to the Earnest Money under the terms of the Agreement, and (ii) you have received written confirmation from the Other Party of its receipt of such written notice from the Notice Party, you shall, on the tenth (10th) business day after the Other Party’s receipt of such written notice from the Notice Party, deliver the Earnest Money (by delivering cash, certified check or some other form of immediately available funds, to the Notice Party at the address or pursuant to the wiring instructions provided in such written notice from the Notice Party); provided that, if you receive written notice from the Other Party or the Other Party’s counsel within nine (9) business days after the Other Party’s receipt of the such written notice from the Notice Party that the Other Party disputes the Notice Party’s right to receive the Earnest Money and directs you not to make the foregoing delivery, you shall not deliver the Earnest Money to the Notice Party but shall instead retain it or, if appropriate, interplead the Earnest Money in a court of competent jurisdiction in the State of New York. All notices delivered pursuant to these instructions shall be made in accordance with the provisions of Section 11.4 of the Agreement. Notices to Escrow Agent will be delivered to the attention of Andrew Jaeger, Esq. and Michael Berey, Esq., reference Title No [                     ].

You are not to disclose to any person (other than the parties hereto, their employees, agents or independent contractors) any information about the Agreement or its existence or this letter of instructions (except if requested by either party or as may be required by court in any litigation or by law).

You are to maintain the Earnest Money in a federally-insured interest-bearing account at JP Morgan Chase and all interest accruing thereon shall be paid to the party entitled to the Earnest Money in accordance with this deposit escrow instruction letter. We understand that you shall not be responsible for any penalties, loss of principal or interest, or the consequences of a delay in withdrawal of the Deposit and interest accrued thereon, if any, which may be imposed as a result of the making or the redeeming of the above investment, as the case may be. Seller and Purchaser also agree that Escrow Agent shall not be liable for any loss or impairment of the Deposit while the Deposit is in the course of collection or of the Escrow if such loss or impairment results from the failure, insolvency or suspension of the financial institution in which the Deposit is deposited. Nor shall you be required to institute legal proceedings of any kind pursuant to these instructions, nor be required to defend any legal proceedings which may be instituted against you with respect to the subject matter of these instructions unless you are requested to do so by Purchaser or Seller and arrangements reasonably satisfactory to you have been made to indemnify you against the cost and expense of such defense by the party making such request. If any dispute shall arise with respect to these instructions, whether such dispute arises between the parties hereto or between the parties hereto and other persons, you may interplead such disputants. You shall be responsible only for the performance of such duties as are strictly set forth herein and in no event shall you be liable for any act or failure to act under the provisions of this letter except where such action or inaction is the result of your willful misconduct or gross negligence.

Seller and Purchaser each hereby agrees, jointly and severally, to indemnify you and hold you harmless against any loss, liability or damage (including the cost of litigation and reasonable counsel fees) incurred in connection with the performance of your duties hereunder except as a result of your willful misconduct or negligence.

In the event of any dispute between Seller and Purchaser respecting these instructions, Seller and Purchaser may elect to submit such dispute to any court of competent jurisdiction in the State of New York in accordance with Section 11.12 of the Agreement. The prevailing party in any such dispute shall be entitled to recover its legal fees and expenses incurred in connection with such dispute.

Please indicate your agreement to comply with the foregoing instructions by executing at least three (3) copies of this letter and returning, by overnight courier, one to Hogan Lovells US LLP, as counsel for Seller, and one to Gibson, Dunn & Crutcher LLP, as counsel for Purchaser.

Very truly yours,

SELLER: MORGANS HOLDINGS LLC, a Delaware limited liability company
	By: Morgans Group LLC, its Managing Member
		By: Morgans Hotel Group Co., its Managing Member

By:
	Name:
	Title:
PURCHASER: MADISON 237 HOTEL, L.L.C., a Delaware limited liability company
By:
	Name:
	Title:

ACKNOWLEDGED AND AGREED:

First American Title Insurance Company

By:
	Name:	Michael J. Berey
	Title:	Senior Vice-President and Senior Underwriting Counsel

Date:                      , 2011

EX-10.2

Exhibit 10.2

ROYALTON NEW YORK

PURCHASE AND SALE AGREEMENT

BETWEEN

Royalton, LLC,

a Delaware limited liability company,

AS SELLER

AND

Royalton 44 Hotel, L.L.C.

a Delaware limited liability company,

AS PURCHASER

As of April 3, 2011

Table of Contents

	Page
ARTICLE I PURCHASE AND SALE		1
1.1 Agreement of Purchase and Sale		1
1.2 Property Defined		4
1.3 Permitted Exceptions		5
1.4 Purchase Price		5
1.5 Payment of Purchase Price		5
1.6 Earnest Money		6
1.7 Management Agreement		6
ARTICLE II TITLE AND SURVEY		6
2.1 Title Report		6
2.2 Survey		6
2.3 Approval of Title		7
2.4 Conveyance of Title		8
2.5 Title Policy		10
ARTICLE III INSPECTION		11
3.1 Right of Inspection		11
3.2 Seller Due Diligence Materials		13
ARTICLE IV CLOSING		13
4.1 Time and Place; Pre-Closing		13
4.2 Seller’s Closing Obligations and Deliveries		14
4.3 Purchaser’s Closing Obligations and Deliveries		17
4.4 Prorations, Credits and Other Adjustments		17
4.5 Closing Costs		22
4.6 Conditions Precedent to Obligation of Purchaser		23
4.7 Conditions Precedent to Obligation of Seller		24
4.8 Conditions Precedent to Obligation of Seller and Purchaser		24
4.9 Failure or Waiver of Conditions Precedent		25
4.10 Alcoholic Beverage License		25
4.11 No New Management Agreement Election		26
ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS		26
5.1 Representations and Warranties of Seller		26
5.2 Knowledge Defined		33
5.3 Covenants of Seller		33
5.4 Representations and Warranties of Purchaser		34
5.5 Covenants of Purchaser and/or of Seller		35
5.6 Employees		37
ARTICLE VI DEFAULT		41
6.1 Default by Purchaser		41
6.2 Default by Seller		42
6.3 Seller’s Right to Cure Defaults		42

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	Page
ARTICLE VII SURVIVAL, INDEMNIFICATION, AND LIMITATIONS ON LIABILITY		42
7.1 Survival		42
7.2 Seller’s Indemnification		43
7.3 Purchaser’s Indemnification		43
7.4 Notice and Resolution of Claims		44
7.5 Limitations on Liability		45
7.6 Other Matters Regarding Indemnification		46
ARTICLE VIII RISK OF LOSS		46
8.1 Minor Damage		46
8.2 Major Damage		47
8.3 Definition of “Major” Loss or Damage		47
ARTICLE IX COMMISSIONS		47
9.1 Brokerage Commissions		47
ARTICLE X DISCLAIMERS AND WAIVERS		48
10.1 No Reliance on Documents		48
10.2 DISCLAIMERS		48
10.3 Repairs, Reserves, and Capital Expenditures		50
10.4 Effect and Survival of Disclaimers		50
ARTICLE XI MISCELLANEOUS		50
11.1 Confidentiality		50
11.2 Public Disclosure		51
11.3 Assignment		52
11.4 Notices		52
11.5 Modifications		53
11.6 Calculation of Time Periods; Time is of the Essence		53
11.7 Successors and Assigns		54
11.8 Entire Agreement		54
11.9 Further Assurances		54
11.10 Counterparts; Facsimile Signatures		54
11.11 Severability		54
11.12 Applicable Law		54
11.13 No Third Party Beneficiary		55
11.14 Exhibits and Schedules		55
11.15 Captions		55
11.16 Construction		56
11.17 Termination of Agreement		56
11.18 Attorneys Fees		56
11.19 No Waiver		56
11.20 No Reservation of Property		56
11.21 No Recordation		56

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PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is made as of April 3, 2011 (the “Effective Date”), by and among Royalton, LLC, a Delaware limited liability company (“Seller”), and Royalton 44 Hotel, L.L.C., a Delaware limited liability company (such entity or any assignee permitted under Section 11.3 below, “Purchaser”). Unless otherwise noted, all capitalized terms set forth in this Agreement shall have the meanings ascribed to them in Annex A attached hereto.

W I T N E S S E T H:

WHEREAS, Seller is the owner and holder of the fee simple estate in and to that certain plot, piece and parcel of land located at 44 West 44^th Street, New York, New York, County of New York and more particularly described in Schedule 1.1(a) attached hereto (the “Land”), together with the hotel and all other improvements and fixtures (collectively, the “Improvements”) located on the Land (the Improvements and the Land are hereinafter sometimes collectively referred to as the “Real Property”) together with all Personal Property (as defined below); and

WHEREAS, Seller operates on the Real Property the hotel known as “Royalton” (the “Hotel”);

WHEREAS, Seller desires to cause the sale, assignment and transfer of its interests in and to the Property (as defined below), including the Personal Property, and Seller’s affiliate’s interests in and to the Trademarks (as defined below) to Purchaser in accordance with the terms and provisions of this Agreement, and Purchaser desires to purchase such interests from Seller and assume certain liabilities related to the Property upon the terms more particularly set forth in this Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, Purchaser and Seller agree as follows:

ARTICLE I
PURCHASE AND SALE

1.1 Agreement of Purchase and Sale. Subject to the terms and conditions hereinafter set forth, Seller agrees to sell and convey, and Purchaser agrees to purchase, the entire fee simple estate in (a) and (b) below and all of Seller’s (or of any other subsidiaries of Morgans Group (collectively, and together with Seller, the “Seller Group”)) right, title and interest in and to the balance of the following:

(a) The Land as described in Schedule 1.1(a) attached hereto.

(b) The Improvements.

(c) All tangible personal property owned by Seller or any member of Seller Group that is (i) used solely in connection with the operation of the Real Property (including without limitation appliances, furniture, furnishings, equipment, signage, carpeting, draperies and curtains, tools and supplies, decorations, china, glassware, linens, silver, utensils, computers, computer equipment and manuals, all owned vehicles and other similar items of personal property) and (ii) located at the Hotel as of the Effective Date or added to the Real Property after the Effective Date but prior to the Closing Date, subject to use and depletion of such tangible personal property in the ordinary course, but specifically excluding the personal property listed on Schedule 1.1(c) attached hereto (the “Excluded Personal Property”). The tangible personal property described in this Section 1.1(c) exclusive of the Excluded Personal Property, is hereinafter referred to collectively as the “Personal Property”.

(d) All contracts or reservations for the use of guest rooms, ballroom and banquet facilities, conference facilities, meeting rooms or other facilities of the Hotel or located within the Improvements for the Closing Date and the period from and after the Closing Date (collectively, the “Bookings”), and any deposits held by Seller Group in connection with the Bookings and not previously applied as of the Effective Date (or between the Effective Date and the Closing Date in accordance with the provisions of this Agreement).

(e) All contracts and agreements that are assignable without the consent of the counterparty thereto or additional costs or liability to Seller relating to the upkeep, repair, maintenance or operation of the Real Property or the Personal Property, including all deposits and credits thereunder (collectively, the “Service Contracts”), which are:

(i) listed on Schedule 1.1(e)-1 attached hereto (but specifically excluding (A) Bookings, (B) Space Leases, (C) insurance policies, (D) the Management Agreement, and (E) any contract or agreement listed on such Schedule 1.1(e)-1 which (I) is terminated on or before Closing pursuant to the terms of this Agreement, (II) expires pursuant to its terms on or before the Closing Date or (III) is terminated by the applicable counterparty thereto on or before the Closing Date);

(ii) listed on Schedule 1.1(e)-2 (the “Equipment Leases”, but specifically excluding any contract or agreement listed on such Schedule 1.1(e)-2 which (A) is terminated on or before Closing pursuant to the terms of this Agreement, (B) expires pursuant to its terms on or before the Closing Date or (C) is terminated by the applicable counterparty thereto on or before the Closing Date); or

(iii) entered into after the Effective Date in accordance with the terms of this Agreement;

provided, however, Purchaser will not acquire those Service Contracts and those Equipment Leases entered into after the Effective Date as to which it notifies Seller in writing at least five (5) business days prior to the Closing Date that it does not intend to assume at Closing; provided, further, however, that for any Service Contract and Equipment Leases entered into within five business days prior to the Closing Date, Purchaser will not acquire those Service Contracts or Equipment Leases unless it affirmatively elects to do so in writing prior to the Closing Date.

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(f) All names, marks, logos and designs used in the operation or ownership of the Property or any part thereof listed on Schedule 1.1(f) (collectively, the “Trademarks”), provided that Purchaser expressly acknowledges and agrees that the following items are specifically excluded and shall not be transferred hereunder: (i) all right, title or interest of any kind or nature whatsoever in and to, and intellectual property in any way relating to, the Manager’s Materials or Manager’s Tradenames (it being understood that certain rights with respect to certain of the foregoing items shall be granted to Purchaser pursuant to the New Management Agreement); (ii) all websites and domains used for the Hotel, including access to the FTP files of the websites (other than www.royaltonhotel.com, which shall be transferred to Purchaser); and (iii) any information or reports that relate solely to the period prior to the Closing (all such items not to be transferred hereunder being collectively referred to as the “Retained IP”).

(g) To the extent the same are assignable as of the Closing Date without (i) consent of a third party that refuses, after use of commercially reasonable efforts, to provide consent or (ii) additional costs or liability to Seller that Purchaser is unwilling to pay, and to the extent Purchaser elects in writing to assume same, in its sole discretion, all transferable licenses, franchises and permits owned by the Seller Group and used in or relating to the ownership, occupancy or operation of the Property or any part thereof, subject to Purchaser’s compliance with any limitations or restrictions on transfer or assignment of any computer-related materials or software which are contained in any license or similar agreement (collectively, the “Permits”), provided that the term Permits specifically excludes any and all non-transferable permits and licenses held by Seller in connection with the Property, including, without limitation, the liquor license and the permits and approvals required for the preparation, sale and service of food and beverage (collectively, such excluded Permits, the “Excluded Permits”).

(h) To the extent the same are assignable as of the Closing Date without (i) consent of a third party that refuses, after use of commercially reasonable efforts, to provide consent or (ii) additional costs or liability to Seller that Purchaser is unwilling to pay, and to the extent Purchaser elects in writing to assume same, in its sole discretion, all assignable telephone numbers, TWX numbers, post office boxes, signage rights, utility and development rights and privileges, site plans, surveys, environmental and other physical reports, plans and specifications pertaining to the Real Property, the Personal Property or both (all of the property described in clauses (f), (g) and (h) of this Section 1.1 that is not specifically deemed excluded being herein referred to, together with any goodwill of Seller Group in connection with the operation of the Hotel, collectively as the “Intangibles”).

(i) All: (i) food and beverages (subject to any legal restrictions pertaining to the sale or transfer of alcoholic beverages) that are in the Hotel as of the Closing Date; (ii) inventory held for sale by Seller to Hotel guests and others in the ordinary course of business including all opened and unopened retail inventory in any area at the Hotel conducting retail sales that is in the Hotel as of the Closing Date (provided, that Purchaser’s use of any such inventory that bears any Retained IP shall be subject to the use restrictions, if any, contained in the New Management Agreement) (collectively, “Retail Inventory”); (iii) engineering, maintenance and housekeeping supplies (including soap and cleaning materials, fuel and materials, stationery and printing items) that are in the Hotel as of the Closing Date (provided, that Purchaser’s use of any such inventory that bears any Retained IP shall be subject to the use restrictions, if any, contained in the New Management Agreement); and (iv) other supplies, whether used, unused or held in reserve storage for future use in connection with the maintenance and operation of the Real Property or the Personal Property that are in the Hotel as of the Closing Date (provided, that Purchaser’s use of any such inventory that bears any Retained IP shall be subject to the use restrictions, if any, contained in the New Management Agreement) (all of the foregoing being referred to herein as the “Consumable Inventory” and, to the extent contained in unopened boxes, bottles, jars or containers of any type as of the Closing Date, shall collectively be referred to, together with unopened packages of china, glass, silver and linens, as the “Unopened Inventory”).

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(j) [Intentionally Omitted]

(k) Subject to Section 4.4.9 hereof, Seller’s interest in the cash funds contained in “house banks” for the Hotel as of the Cut-Off Time, whether held in the name of Seller, the Hotel or Manager (defined below) and owned by Seller (collectively, the “House Bank Funds”). Purchaser expressly acknowledges and agrees that the Property to be transferred to Purchaser pursuant to this Agreement does not include any reserve or other accounts created or maintained by or on behalf of Seller or Manager in connection with the ownership or operation of the Hotel.

(l) The Receivables assigned pursuant to Section 4.4.4(c).

(m) Any deposits made by Seller with utility companies or governmental agencies or authorities relating to the Real Property to the extent apportionment is made therefor pursuant to Section 4.4.

1.2 Property Defined.

(a) The Real Property, the Personal Property, the Bookings, the Service Contracts, the Intangibles, the Consumable Inventory, the House Bank Funds, the Receivables referred to in Section 1.1(l) and the deposits referred to in Section 1.1(m) are hereinafter sometimes referred to collectively as the “Property”. The Purchase Price does not include, and shall be adjusted with respect to the House Bank Funds, the Receivables, the Unopened Inventory (solely to the extent such Unopened Inventory consists of items that are currently in use in the operation of the Hotel in the ordinary course and are not obsolete), and the other adjustment items described in Section 4.4 below.

(b) Notwithstanding anything to the contrary in Section 1.1 or Section 1.2(a) above, the following items are expressly excluded from the Property:

(i) All cash on hand or on deposit in any operating account or other account or reserve, security deposits held by Seller with respect to any Booking as of the Closing Date, utility and governmental agency deposits, deposits held by Seller in connection with any Service Contract to be assumed by Purchaser and the House Bank Funds, all of which are to be transferred at Closing subject to the terms of this Agreement.

(ii) The Excluded Personal Property.

(iii) The Retained IP.

(iv) The Excluded Permits.

(v) Any tangible or intangible property (including, without limitations, fixtures, personal property or intellectual property) owned by: (A) the supplier, vendor, licensor, lessor or other party under any Service Contracts; (B) the tenant under the Space Lease, which excluded tangible or intangible property does not include any tangible personal property located outside of the premises subject to the Space Lease, other than supplies and equipment stored elsewhere in the Property and incidental tangible personal property that may be temporarily located outside such premises; (C) Manager; (D) any employees; (E) any guests or customers of the Hotel; or (F) any other third party.

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(vi) The lease described on Schedule 1.2(b)(vi) attached hereto (the “Space Lease”), including any deposits relating to such Space Lease held by Seller and not applied to the tenant’s obligations as of the Effective Date. The parties acknowledge that Seller shall be required to terminate the Space Lease as of Closing.

1.3 Permitted Exceptions. The Property shall be conveyed subject to all matters which are, or are deemed to be, Permitted Exceptions pursuant to Article II below.

1.4 Purchase Price. Seller is to sell and Purchaser is to purchase the Property for a total of EIGHTY EIGHT MILLION TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($88,200,000.00) (the “Purchase Price”).

1.5 Payment of Purchase Price.

(a) On the Closing Date, Purchaser shall deliver to Escrow Agent, by wire transfer of immediately available federal funds to the bank account designated in the Escrow Agreement, an amount equal to the Purchase Price, as increased or decreased by prorations and adjustments as herein provided, less the sum of the Earnest Money previously delivered to Escrow Agent and all interest accrued thereon.

(b) The Purchase Price (including the Earnest Money previously delivered to Escrow Agent), as increased or decreased by prorations and adjustments as herein provided, shall be payable in full at Closing in cash by wire transfer of immediately available federal funds to a bank account designated by Seller in writing to Purchaser and Escrow Agent prior to the Closing.

(c) Prior to Closing, Seller will notify Purchaser in writing of the proposed allocation of the Purchase Price among the Real Property and various items of personal property (i.e. the Property other than the Real Property) and such allocation shall be subject to Purchaser’s approval. Seller and Purchaser agree to file federal, state and local tax returns consistent with such allocations as may be agreed upon between the parties. If Purchaser and Seller cannot agree upon an allocation of the Purchase Price, each party shall file federal, state and local returns based on each party’s own determination of the proper allocations of the Purchase Price, bearing its own consequences of any discrepancies. Notwithstanding the foregoing, prior to Closing, Seller and Purchaser will agree upon an allocation between Real Property and Personal Property for the sole purpose of, and as necessary to complete and file, the required transfer tax reports and returns.

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1.6 Earnest Money.

(a) Within one (1) business day following the full execution and delivery of this Agreement by Seller and Purchaser, Purchaser shall deposit with First American Title Insurance Company (“Escrow Agent”) having its office at 633 Third Avenue, New York, NY 10017, Attention: Andrew Jaeger or Anthony Ruggeri, the sum of FOUR MILLION FOUR HUNDRED TEN THOUSAND AND NO/100 DOLLARS ($4,410,000.00) (together with accrued interest thereon, the “Earnest Money”) by wire transfer of immediately available federal funds to the bank account designated in the Escrow Agreement. The Earnest Money may be increased by an additional ONE MILLION EIGHT HUNDRED NINETY THOUSAND AND NO/100 DOLLARS ($1,890,000.00) in the event Purchaser elects to adjourn the Closing pursuant to Section 4.10(b). The full amount of the Earnest Money is fully non-refundable to Purchaser except in the event that this Agreement is timely terminated as a result of Purchaser’s election to terminate strictly in accordance with and pursuant to the terms and provisions of this Agreement (including without limitation Section 2.3(b), Section 4.9, Section 6.2 or Section 8.2), in which case the Escrow Agent shall be obligated to refund the full amount of the Earnest Money to Purchaser pursuant to the terms of the Escrow Agreement.

(b) Escrow Agent shall hold the Earnest Money in a segregated, interest-bearing account in accordance with the terms and conditions of the Deposit Escrow Instructions attached hereto as Exhibit J (the “Escrow Agreement”). All interest accruing on such sums shall become a part of the Earnest Money and shall be distributed or applied as Earnest Money in accordance with the terms of the Escrow Agreement.

(c) Time is of the essence for the delivery of Earnest Money under this Agreement and the failure of Purchaser to timely deliver any portion of the same shall be a material default, and shall entitle Seller, at Seller’s sole option, to terminate this Agreement immediately and to pursue all remedies available to Seller under this Agreement.

1.7 Management Agreement. Purchaser acknowledges that the Hotel is being operated and managed by Morgans Hotel Group Management LLC, a Delaware limited liability company (“Manager”) (formerly known as Ian Schrager Hotel Management LLC), pursuant to that certain Hotel Management Agreement dated as of June 30, 1999, by and between Seller and Manager (the “Management Agreement”). At Closing, the Management Agreement will be terminated effective as of the Closing Date at Seller’s sole cost and expense and Purchaser (or its affiliate) and Manager will enter into a hotel management agreement in the form agreed to by the parties prior to the Effective Date (the “New Management Agreement”).

ARTICLE II
TITLE AND SURVEY

2.1 Title Report. Seller has obtained and delivered to Purchaser, a title report dated January 18, 2011 (Title No. 3008-342365NY1) (the “Title Report”) covering the Real Property from First American Title Insurance Company (the “Title Company”) and, has caused the Title Company to deliver to Purchaser a copy of each document referenced in the Title Report as an exception to title to the Real Property. Purchaser shall deliver to Seller, within five (5) days after receipt by Purchaser, a copy of any updates (each a “Title Update”) to the Title Report issued by the Title Company, provided that if Purchaser shall receive a Title Update less than five (5) days prior to the then scheduled Closing Date, then Purchaser shall deliver same to Seller prior to the Closing.

2.2 Survey. Seller has obtained and delivered to Purchaser and the Title Company, at Purchaser’s sole cost and expense, a survey of the Real Property prepared by Earl B. Lovell-S.P. Belcher, Inc. dated March 15, 1996, last brought up to date with a visual examination by Earl B. Lovell-S.P. Belcher, Inc. on March 29, 2011 (the “Survey”).

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2.3 Approval of Title.

(a) Except for Monetary Encumbrances and as reflected in the pro forma policy attached hereto as Exhibit I, Purchaser has approved all matters disclosed by the Title Report and the Survey.

(b) Purchaser shall have five (5) business days after receipt of a Title Update, if any, to notify Seller, in writing, of such objections as Purchaser may have to anything contained in such Title Update other than Permitted Exceptions (and if Purchaser receives a Title Update less than (5) business days prior to a scheduled Closing Date, then Purchaser shall deliver such written notice to Seller prior to the Closing). In the event Purchaser shall notify Seller, in writing, of objections to title or to matters shown on a Title Update, Seller shall have the right, but not the obligation (other than as explicitly set forth in this Agreement with respect to Monetary Encumbrances and certain other objections), to cure such objections. Within five (5) business days after receipt of Purchaser’s notice of objections (or, if sooner, two (2) business days prior Closing), Seller shall notify Purchaser in writing whether Seller elects to attempt to cure any or all of such objections. If Seller elects to attempt to cure any or all of such objections, Seller shall have the right to attempt to remove, satisfy or cure the same and for this purpose Seller shall, at Seller’s election, be entitled to reasonable adjournments of the Closing if additional time is required, but in no event shall the adjournments, in the aggregate, exceed thirty (30) days after the Outside Closing Date. If Seller elects not to attempt to cure any objections specified in Purchaser’s notice, or if Seller fails (for any reason or no reason) to effect a cure of those objections which it elected to attempt to cure prior to the Closing (or any date to which the Closing has been adjourned) and so notifies Purchaser in writing, or if Seller fails to respond to Purchaser’s notice within said five (5) business day period, Purchaser shall have the following options: (i) to accept a conveyance of the Property subject to the Permitted Exceptions and any matter objected to by Purchaser which Seller is unwilling or unable to cure (each of which shall also be deemed to be Permitted Exceptions), without reduction of the Purchase Price; or (ii) to terminate this Agreement by sending written notice thereof to Seller, and upon delivery of such notice of termination, (x) this Agreement shall terminate, (y) the Earnest Money shall be returned to Purchaser, and (z) thereafter neither party hereto shall have any further rights, obligations or liabilities hereunder except to the extent that any right, obligation or liability set forth herein expressly survives termination of this Agreement If: (A) Seller notifies Purchaser that Seller does not intend to attempt to cure any title objection; (B) Seller fails to respond to Purchaser’s notice within said five (5) business day period; (C) if, having commenced attempts to cure any objection, Seller later notifies Purchaser in writing that Seller will not effect a cure thereof or (D) Seller fails to timely cure any such title objection, then, in any such event, Purchaser shall, within five (5) business days after such notice has been given (or within five (5) business days after Seller’s five (5) business day period to respond to Purchaser’s objection notice has expired), notify Seller in writing whether Purchaser shall elect to accept the conveyance under clause (i) of the immediately preceding sentence or to terminate this Agreement under clause (ii) of the immediately preceding sentence. Purchaser’s failure to notify Seller of termination of this Agreement within such five (5) business day period shall be deemed to be an irrevocable election under clause (ii) above to terminate this Agreement and, in such event, (1) this Agreement shall terminate, (2) the Earnest Money shall be returned to Purchaser, and (3) thereafter neither party hereto shall have any further rights, obligations or liabilities hereunder except to the extent that any right, obligation or liability set forth herein expressly survives termination of this Agreement. If any time period contained in this Section 2.3(b) would end after the Outside Closing Date, same shall be automatically adjourned to the business day immediately after the expiration of such time period.

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(c) In no event and under no circumstances shall Seller have any responsibility or obligation of any kind or nature whatsoever (express or implied) to cure any title matter objected to by Purchaser other than as set forth in this Section 2.3(c). Notwithstanding the foregoing sentence or anything else to the contrary contained in this Agreement, if any of the objections set forth in a written notice from Purchaser (A) consist of delinquent taxes, mortgages, deeds of trust, security agreements, construction or mechanics’ liens, fines arising from outstanding violations, tax liens or other liens or charges in a fixed sum (or capable of computation as a fixed sum), or (B) were caused, assumed, consented to or created by Seller (collectively, “Monetary Encumbrances”), then Seller shall be obligated to pay and discharge (or cause the Title Company to insure over in a manner reasonably satisfactory to Purchaser) such Monetary Encumbrances without limitation as to the cost thereof. Seller shall use its commercially reasonable efforts to cure any title matter objected to by Purchaser other than Monetary Encumbrances, provided that Seller’s obligation to incur costs and expenses in connection with paying and/or discharging any such title objections other than Monetary Encumbrances is limited to Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in the aggregate. Notwithstanding anything to the contrary contained herein, if Seller does not pay or discharge (i) a Monetary Encumbrance, Purchaser can elect to either consummate the transactions contemplated hereby and receive a credit to the Purchase Price in the amount required to remove, release and satisfy in full such Monetary Encumbrance or terminate this Agreement (in which event this Agreement shall terminate and the Earnest Money shall be returned to Purchaser) or (ii) a title matter other than a Monetary Encumbrance, Purchaser can elect to either consummate the transactions contemplated hereby (in which event it will receive a credit to the Purchase Price in the amount required to remove, release or satisfy in full such title matter, such credit not to exceed $250,000 less the aggregate amount theretofore expended by Seller to discharge title matters other than Monetary Encumbrances) or terminate this Agreement (in which event this Agreement shall terminate and the Earnest Money shall be returned to Purchaser).

(d) If Purchaser terminates this Agreement pursuant to this Section 2.3 by reason of (x) a Title Objection that related to a matter that first arose after the Effective Date by reason of an action by Seller in violation of this Agreement or (y) a Monetary Encumbrance that Seller fails to discharge in accordance with Section 2.3(c), then Purchaser shall be reimbursed by Seller for all of Purchaser’s documented third party costs incurred in connection with the transactions contemplated by this Agreement, including the negotiation of this Agreement, in an aggregate amount not to exceed $250,000.00.

2.4 Conveyance of Title. Notwithstanding anything contained herein to the contrary, at Closing, Seller shall convey and transfer to Purchaser its interest in the Real Property subject to the following exceptions to title (the “Permitted Exceptions”):

(a) Those matters specifically set forth on Schedule B to Exhibit I.

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(b) Any state of facts shown on the Survey.

(c) The lien of all ad valorem real estate taxes not yet due and payable as of the Closing Date, subject to adjustment as herein provided.

(d) All laws, ordinances, rules and regulations of the United States, the State of New York, any city or other subdivision or any agency, department, commission, bureau or instrumentality of any of the foregoing having jurisdiction over the Real Property or the Hotel, as the same may now exist or may be hereafter modified, supplemented or promulgated (collectively, the “Legal Requirements”); excluding in all cases any violation of which Seller has received notice and which is outstanding as of the Closing Date.

(e) All covenants, restrictions and utility company rights, easements and franchises relating to electricity, water, steam, gas, telephone, sewer or other service or the right to use and maintain poles, lines, wires, cables, pipes, boxes and other fixtures and facilities in, over, under and upon the Real Property or the Hotel, provided that, in the case of any of the foregoing items which shall not be of record as of the date hereof, the same do not materially adversely affect the present use of the Real Property or the Hotel.

(f) Any matters over which the Title Company is willing to insure at no additional cost, subject to the approval of Purchaser regarding the basis on which Title Company is willing to provide such coverage, which approval shall not to be unreasonably withheld unless the sole basis for the Title Company providing such coverage is an indemnity from Seller Group, in which event Purchaser shall be entitled to withhold approval in its sole and absolute discretion.

(g) Any matters against which the Title Company is willing to provide affirmative insurance against collection from the Real Property or interference with the current use of the Real Property at no additional cost, subject to the approval of Purchaser regarding the basis on which the Title Company is willing to provide such coverage, which approval shall not to be unreasonably withheld unless the sole basis for the Title Company providing such coverage is an indemnity from Seller Group, in which event Purchaser shall be entitled to withhold approval in its sole and absolute discretion.

(h) Any other matter or thing affecting title to the Real Property disclosed by a Title Update that was not objected to by Purchaser or waived or deemed waived by Purchaser in accordance with Section 2.3 hereof.

(i) [Intentionally Omitted.]

(j) All violations of laws, rules, regulations, statutes, ordinances, orders or requirements of law and/or conditions giving rise to the same first issued after the Effective Date; provided, however, same does not affect or limit in any manner the representations and warranties made by Seller under this Agreement nor Purchaser’s rights under this Agreement with respect to a breach of such representations and warranties including without limitation Purchaser’s ability to terminate this Agreement and receive a return of the Earnest Money in connection therewith;

(k) Occupancy by transient guests of the Hotel and Bookings.

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(l) The rights of the tenant under the Space Lease and any person claiming by, through or under such tenants to occupy the space as a tenant only, and without any rights of first offer, rights of first refusal, purchase options or any other rights other than as a mere tenant; provided, however, that this exception to title does not affect or limit in any manner the representations and warranties made by Seller elsewhere in this Agreement nor Purchaser’s rights under this Agreement with respect to a breach of such representations and warranties, including Purchaser’s right to terminate this Agreement and receive a return of the Earnest Money in connection therewith.

2.5 Title Policy. At Closing, Seller and Purchaser shall direct the Title Company to issue an ALTA Owner’s Policy 2006 in the form of the pro forma policy attached hereto as Exhibit I including without limitation all endorsements available with such ALTA Owner’s Policy 2006 in New York (the “Title Policy”), at Purchaser’s sole cost and expense, insuring Purchaser’s interest in and to the Real Property as of the Closing Date, subject to only to the Permitted Exceptions.

2.6 Sidewalk Violations. Seller (i) represents that, prior to the Effective Date, Seller has commenced the process of resolving the alleged sidewalk violations set forth on Schedule 2.6 attached hereto such that the notices of such alleged sidewalk violations (the “Sidewalk Notices”) can be removed from the applicable land records and (ii) covenants and agrees, prior to Closing, to pay any and all fines and penalties related to, in connection with, or arising out of such Sidewalk Notices or the underlying conditions relating thereto (the “Sidewalk Violation Fines”) at its sole cost and expense (such costs associated therewith shall not be subject to the limitation set forth in Section 2.3(c) or otherwise in this Agreement). Seller agrees to diligently pursue the removal of such Sidewalk Notices prior to Closing. In the event that the Sidewalk Notices are not removed from the land records prior to Closing, Seller shall (i) use reasonable efforts, at Seller’s expense, subsequent to Closing to cause the Sidewalk Notices to be removed from the land records (such costs associated therewith shall not be subject to the limitation set forth in Section 2.3(c) or otherwise in this Agreement) and shall pay such Sidewalk Violation Fines and (ii) indemnify Purchaser with respect to such Sidewalk Notices and Sidewalk Violation Fines. If Seller fails to remove such Sidewalk Notices from the land records and pay any Sidewalk Violation Fines within 90 days following the Closing, Purchaser shall be entitled, at Seller’s sole cost and expense, to cause such Sidewalk Notices to be removed and such Sidewalk Violation Fines to be paid. Notwithstanding anything in this Agreement to the contrary, Purchaser shall not have the right to adjourn the Closing or terminate this Agreement if the Sidewalk Notices are not removed from the land records or any Sidewalk Violation Fines are not paid on or prior to the Closing Date.

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ARTICLE III
INSPECTION

3.1 Right of Inspection

(a) Purchaser shall, subject to the rights of guests of the Hotel and the tenant under the Space Lease, have the right to make physical inspections of the Real Property and to examine at such place or places at the Hotel or elsewhere as the same may be located, any operating files maintained by or for the benefit of Seller in connection with the leasing, operation, current maintenance and/or management of the Property (“Property Information”), including, without limitation, the Space Lease, the Service Contracts, insurance policies, bills, invoices, receipts and other general records relating to the income and expenses of the Hotel, correspondence, tax certiorari, filings and papers including records used to prepare financial statements and documents relating to the amortization or depreciation of furniture, fixtures and equipment or other capital improvements, surveys, plans and specifications, warranties for services and materials provided to the Hotel, environmental audits and similar materials, materials related to Hotel Employees (as defined below) and the Union (as defined below), to the extent Seller is not prohibited by applicable contracts or law from disclosing such materials, and any other documents relating to the Property in Seller’s or Manager’s possession or control including without limitation the materials identified on Schedule 3.1(a) annexed hereto, but in all cases excluding (i) materials not directly related to the maintenance, operation and/or management of the Property solely to the extent same relate to Seller’s business and not the Property and (ii) attorney client privileged material. Purchaser and its accountants shall have the right to inspect and perform a review or audit of the books and records for the Property for the three (3) most recent full fiscal years, which shall be supplemented up to the month ending immediately prior to the Closing Date.

(b) Purchaser shall keep all Property Information strictly confidential as and to the extent required by Section 11.1 below and the confidentiality agreement in effect between Purchaser and Morgans Hotel Group Co., provided that Purchaser may, subject to the terms and conditions of the Confidentiality Agreement, deliver copies of Property Information to its attorneys, accountants and other advisors in connection with the acquisition of the Property and to current and prospective lenders and partners provided that such parties agree to maintain the confidentiality of such Property Information.

(c) Purchaser understands and agrees that any on-site inspections of the Property shall only be conducted during business hours with not less than one (1) day’s prior notice to Seller (which may be telephonic). Seller may have its respective representatives attend any such inspections. Such physical inspection shall not disturb Hotel guests or the tenant under the Space Lease nor unreasonably interfere with the use of the Property by Seller or Manager. Such physical inspection shall not be invasive in any respect without Seller’s prior consent (which shall not be unreasonably withheld), and in any event shall be conducted in accordance with standards customarily employed in the industry and in compliance with all governmental laws, rules and regulations. Following each entry by Purchaser with respect to inspections and/or tests on the Real Property, Purchaser shall repair any damage to the Property caused by Purchaser or any of its agents, consultants or representatives in connection with Purchaser’s diligence activities at the Property, and restore the Property to the original condition as existed prior to any such inspections and/or tests, at Purchaser’s sole cost and expense; provided that (i) Purchaser shall not be required to fix, and shall not be responsible for, any pre-existing conditions at the Property or exacerbations thereof (other than any exacerbation caused by the gross negligence or willful misconduct of Purchaser or any of its agents, consultants, or representatives) and (ii) if Seller does not provide consent to any reasonable request for invasive testing, Purchaser shall have the right to terminate this Agreement (in which event the Earnest Money shall be returned to Purchaser).

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(d) Seller shall reasonably cooperate with Purchaser in its due diligence but shall not be obligated to incur any out -of -pocket liability (other than legal and administrative costs and other de minimis costs) in connection therewith unless Purchaser agrees to be responsible for same. Purchaser shall not disrupt Seller’s, Manager’s or any tenant’s or guest’s activities on the Real Property and, except as provided in the immediately following sentence, shall not contact Manager’s on-site managers or on-site employees, or any other employees working at the Hotel, any guests of the Property, any party to a Service Contract, the tenant under the Space Lease, any lender providing financing secured by the Real Property or any governmental authority without in each instance obtaining Seller’s prior consent, which consent may not be unreasonably withheld and shall be deemed to have been refused if Seller does not respond to a request made hereunder within 24 hours. Purchaser shall be permitted to contact the general manager and the controller of the Hotel.

(e) Purchaser shall indemnify, defend, protect and hold Seller harmless from and against any claim for liabilities, losses, costs, expenses (including reasonable attorneys’ fees actually incurred), damages or injuries directly arising out of or directly resulting from the inspection of the Property by Purchaser or its agents, employees, representatives, consultants or contractors and notwithstanding anything to the contrary in this Agreement, such obligation to indemnify, defend, protect and hold harmless Seller shall survive Closing or any termination of this Agreement; provided, however, that Purchaser shall not be required to indemnify or hold Seller harmless from any such liability, loss, cost, damage or injury resulting from the gross negligence or willful misconduct of Seller or any of its Affiliates, agents or employees or with respect to any condition existing at the Property prior to the Effective Date (or the exacerbation of any such condition) (other than any exacerbation caused by the gross negligence, or willful misconduct of Purchaser or any of its agents, consultants, or representatives). Purchaser agrees (i) that prior to entering the Property to conduct any inspection, Purchaser shall obtain and maintain, and shall cause each of its contractors and agents to maintain (and shall deliver evidence thereof in the form of a policy certificate satisfactory to Seller thereof), at no cost or expense to Seller, commercial general liability insurance from an insurer reasonably acceptable to Seller in the amount of Two Million Dollars ($2,000,000) with combined single limit for personal injury or property damage per occurrence, such policies to name Seller and Manager as additional insured parties, which insurance shall provide coverage against any claim for personal injury or property damage caused by Purchaser or its agents, employees, representatives or consultants in connection with any such tests and investigations, and (ii) to keep the Property free from all liens and encumbrances on account of any inspections and/or tests made by or for the benefit of Purchaser (other than inchoate liens that secure amounts that are paid prior to delinquency). Purchaser’s insurance may not be canceled or amended prior to Closing except upon not less than thirty (30) days’ prior written notice to Seller. Purchaser’s obligations under this Section 3.1 shall survive a termination of this Agreement.

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3.2 Seller Due Diligence Materials. PURCHASER ACKNOWLEDGES THAT INFORMATION RELATED TO THE PROPERTY CONTAINED IN THE SECURE WEBSITE (THE “E-ROOM”) TO WHICH PURCHASER HAS PREVIOUSLY BEEN GRANTED ACCESS HAS BEEN MADE AVAILABLE TO PURCHASER IN THE E-ROOM BY SELLER. BY EXECUTING THIS AGREEMENT, PURCHASER ACKNOWLEDGES ITS RECEIPT THEREOF OR THE AVAILABILITY THEREOF AND THAT (1) PURCHASER HAS RECEIVED COPIES OF THE ENVIRONMENTAL, ENGINEERING, SOILS AND OTHER REPORTS REGARDING THE CONDITION OF THE PROPERTY (COLLECTIVELY, THE “REPORTS”) LISTED ON SCHEDULE 3.2 ATTACHED HERETO, AND (2) ANY REPORTS OR OTHER DOCUMENTS DELIVERED OR TO BE DELIVERED BY SELLER OR ITS AGENTS OR CONSULTANTS TO PURCHASER ARE BEING MADE AVAILABLE SOLELY AS AN ACCOMMODATION TO PURCHASER AND WITHOUT ANY REPRESENTATION OR WARRANTY OF SELLER AS TO THEIR ACCURACY OR COMPLETENESS OF FACTS OR OPINIONS SET FORTH THEREIN EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND THAT ANY RELIANCE BY PURCHASER ON SUCH REPORTS OR OTHER DOCUMENTS IN CONNECTION WITH THE PURCHASE OF THE PROPERTY IS UNDERTAKEN AT PURCHASER’S SOLE RISK. SUBJECT TO SELLER’S REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, PURCHASER AGREES THAT SELLER SHALL HAVE NO LIABILITY OR OBLIGATION WHATSOEVER FOR ANY UNINTENTIONAL INACCURACY IN OR OMISSION FROM THE OFFERING MATERIALS PREPARED IN CONNECTION WITH THE SALE OF THE PROPERTY OR ANY REPORTS OR OTHER DOCUMENTS MADE AVAILABLE TO PURCHASER OR ITS REPRESENTATIVES. PURCHASER HAS CONDUCTED ITS OWN INVESTIGATION OF THE CONDITION OF THE PROPERTY TO THE EXTENT PURCHASER DEEMS SUCH AN INVESTIGATION TO BE NECESSARY OR APPROPRIATE. For purposes of this Agreement, the term “Seller Due Diligence Materials” shall mean (i) the Reports, the Property Information and all other documents and materials provided or otherwise made available by Seller to Purchaser in the E-Room or pursuant to Section 3.1 and the other provisions of this Agreement or otherwise, together with any copies or reproductions of such documents or materials, or any summaries, abstracts, compilations, or other analyses made by Purchaser based on the information in such documents or materials, and (ii) all information set forth in this Agreement and the exhibits and schedules attached hereto and hereby made a part hereof.

ARTICLE IV
CLOSING

4.1 Time and Place; Pre-Closing.

4.1.1 Subject to the provisions of Sections 4.6, 4.7, and 4.8 below, the consummation of the transaction contemplated hereby (“Closing”), as evidenced by the payment and release of the Purchase Price by Escrow Agent to Seller in accordance with the terms of this Agreement and the release by Escrow Agent of the deed executed by Seller for recording, shall occur on or before 4:00 p.m. (New York time) on May 17, 2011, as such date may be adjourned from time to time in accordance with this Agreement (“Outside Closing Date”, with the actual date of Closing being referred to herein as the “Closing Date”). The Closing shall occur through an escrow administered by Escrow Agent and the Purchase Price and all documents (unless otherwise mutually agreed in writing) shall be deposited with Escrow Agent as escrowee. At Closing, Seller and Purchaser shall perform the obligations set forth in, respectively, Section 4.2 and Section 4.3, the performance of which obligations shall be concurrent conditions.

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4.1.2 Notwithstanding anything herein to the contrary, the parties shall “pre-close” the sale of the Property on the last business day immediately prior to the Closing Date (the “Pre-Closing Date”). The term “pre-close” shall mean that each of the parties shall deliver to Escrow Agent no later than 4:00 p.m. (New York time) on the Pre-Closing Date all of the documents and other items (other than the Purchase Price and other funds) required to be delivered by such party for Closing, including all of the closing documents required pursuant to Sections 4.2 and 4.3 hereof. With respect to the closing adjustments to be made between the parties pursuant to Section 4.4 hereof, the adjustments shall continue to be made effective as of the Cut-Off Time, but on the closing statement executed by the parties on the Pre-Closing Date, the parties shall in good faith estimate those adjustments which are not capable of being finalized prior to the Cut-Off Time, and the parties shall reconcile said estimated adjustments pursuant to Section 4.4.14 hereof.

4.2 Seller’s Closing Obligations and Deliveries. At Closing, subject to Section 4.1 above, Seller shall through Escrow Agent make the following deliveries and take the following actions:

(a) Execute and deliver to Purchaser one (1) original counterpart of a bargain and sale deed (“Deed”), in the form attached hereto as Exhibit A and made part hereof.

(b) Execute and deliver to Purchaser two (2) original counterparts of a bill of sale in the form attached hereto as Exhibit B and made a part hereof conveying all of Seller’s right title and interest in and to the Personal Property, Consumable Inventory (other than any Consumable Inventory that consists of alcoholic beverages) and Receivables (in each case solely to the extent included in the term, Property) without, except as expressly set forth in this Agreement, warranty of use and without warranty, expressed or implied, as to merchantability and fitness for any purpose, together with evidence of payment by Seller of any sales tax payable in connection therewith.

(c) Execute and deliver to Purchaser two (2) original counterparts of an assignment and assumption agreement relating to Seller’s interest in the Service Contracts, the Bookings and the other Intangibles (in each case to the extent assignable and excluding those Service Contracts as to which Purchaser provides notice in accordance with Section 1.1(e) that it does not intend to assume) (“Assignment of Contracts”) in the form attached hereto as Exhibit C and made a part hereof.

(d) Intentionally Omitted.

(e) Deliver to Purchaser a certificate, dated as of the Closing Date and executed on behalf of Seller by a duly authorized officer thereof, stating that all of the representations and warranties of Seller contained in this Agreement are true and correct in all material respects, other than any such representations and warranties that are qualified as to materiality, which (to the extent so qualified) shall be true and correct in all respects as of the Closing Date (with appropriate modifications of any representations and warranties made in Section 5.1 hereof to reflect any changes therein, including without limitation any changes resulting from actions under Section 5.3 hereof) or identifying any representation or warranty which is not, or no longer is, true and correct. In no event shall Seller be liable to Purchaser for, or be deemed to be in default hereunder by reason of, any breach of representation or warranty which results from any change that (i) occurs between the Effective Date and the Closing Date and (ii) is permitted under the terms of this Agreement or is beyond the reasonable control of Seller; provided, however, that the occurrence of any change that is not expressly permitted hereunder shall, if materially adverse to Purchaser, constitute the non-fulfillment of the condition set forth in Section 4.6(a) and Purchaser may elect to terminate this Agreement pursuant to Section 4.9. If, despite changes or other matters described in such certificate, the Closing occurs, Seller’s representations and warranties set forth in this Agreement shall be deemed to have been modified by all statements made in such certificate.

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(f) Deliver to Purchaser and the Title Company such evidence as the Title Company may reasonably require as to the authority of the person or persons executing documents on behalf of Seller.

(g) Deliver to Purchaser an affidavit duly executed by Seller stating that Seller is not a “foreign person” as defined in the Federal Foreign Investment in Real Property Tax Act of 1980 and the 1984 Tax Reform Act, in the form attached hereto as Exhibit E.

(h) If not already delivered to Purchaser, deliver to Purchaser, originals, or, if unavailable, a copy of the Space Lease, the Service Contracts and the licenses and permits, if any, in the possession or control of Seller or Seller’s agents, together with such leasing and property files and records which are in the possession or control of Seller or Seller’s agents, and any keys to security deposit boxes and to the Hotel. For a period of four (4) years after Closing in case of Seller’s need in response to any legal requirement, a tax audit, tax return preparation or litigation threatened or brought against Seller, Purchaser shall keep the books and records for the Property with respect to the period of Seller’s ownership (to the extent that such records were provided to Purchaser and Seller did not retain copies thereof), at Purchaser’s expense, and allow Seller and its agents or representatives reasonable access, upon reasonable advance notice (which notice shall identify the nature of the information sought by Seller), at all reasonable times to examine and make copies of any and all books and records at Seller’s cost and expense, which right shall survive the Closing. The location of such items at the Hotel on the Closing Date in a location identified in a writing from Seller to Purchaser shall constitute delivery to Purchaser.

(i) Deliver to Escrow Agent an executed counterpart closing statement consistent with this Agreement and in a customary form.

(j) Deliver a copy of the termination agreement executed by Seller and Manager, which has the effect of terminating the Management Agreement effective as of the Closing Date, and evidence of Seller’s termination of any Service Contract or Equipment Lease that are not being assumed by Purchaser in accordance with this Agreement (which evidence may consist of copies of any notices provided by Seller terminating, as of or prior to the Closing Date, such Service Contracts and Equipment Leases) and evidence of the removal of the Hotel from the scope of all barter agreements to which the Seller is a party.

(k) Deliver to Escrow Agent two (2) original executed counterpart copies of the Combined Real Estate Transfer Tax Return and Credit Line Mortgage Certificate (Form TP-584) completed by Seller with respect to the Deed.

(l) Deliver to Escrow Agent two (2) original executed counterpart copies of the New York City Real Property Transfer Tax Return completed by Seller with respect to the Deed.

(m) Deliver to Escrow Agent two (2) original executed counterpart copies of the New York State Real Property Transfer Report (Form RP-5217) completed by Seller with respect to the Deed.

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(n) Deliver to Title Company a title affidavit generally in the form attached hereto as Exhibit F (the “Title Affidavit”).

(o) Deliver to Escrow Agent two (2) original executed counterpart copies of the IWA Assumption Agreement in the form attached hereto as Exhibit G (“IWA Assumption Agreement”), including any required consents of other parties thereto.

(p) Deliver to Purchaser the Intangibles in Seller’s possession or control. The location of such items at the Hotel on the Closing Date in a location identified in a writing from Seller to Purchaser shall constitute delivery to Purchaser.

(q) Deliver to Purchaser two (2) original counterpart copies of the New Management Agreement.

(r) Deliver to Escrow Agent an instrument or document, in a form reasonable approved by Purchaser, required in order to transfer the domain name www.royaltonhotel.com to Purchaser.

(s) Deliver to Escrow Agent two (2) original executed counterpart copies of an agreement regarding post-closing capital projects in the form agreed to by the parties prior to the Effective Date (the “Capital Repairs Escrow Agreement”).

(t) Deliver to the operating lessee of the Property (or other holder of the temporary liquor license for the Hotel) designated by Purchaser two (2) original counterparts of a bill of sale in the form attached hereto as Exhibit B-2 and made a part hereof conveying all of Seller’s right title and interest in and to any Unopened Inventory that consists of alcoholic beverages, together with evidence of payment by Seller of any sales tax payable in connection therewith.

(u) Deliver to the operating lessee of the Property (or other holder of the temporary liquor license for the Hotel) designated by Purchaser two (2) original counterparts of a bill of sale in the form attached hereto as Exhibit B-3 and made a part hereof conveying all of 43^rd Restaurant LLC’s right title and interest in and to any Unopened Inventory that consists of alcoholic beverages, together with evidence of payment by 43^rd Restaurant LLC of any sales tax payable in connection therewith.

(v) Deliver to Purchaser two (2) original executed counterpart copies of an assignment of Seller’s affiliate’s interests in the Trademarks, in the form attached hereto as Exhibit K and made a part hereof (the “Trademark Assignment”).

(w) Deliver to Purchaser evidence of the termination of the Space Lease.

(x) Deliver such additional documents as are provided for under this Agreement, or that otherwise shall be reasonably requested by Purchaser, Title Company or any third party in order to consummate the transaction expressly contemplated by this Agreement. For avoidance of doubt, the possession or retention by Manager of possession of certain records, documents and assets that constitute a portion of the Property both before and after the Closing Date shall not mean that such records, documents and assets were not sold and transferred to Purchaser in accordance with the terms of this Agreement if this Agreement otherwise provides for such sale and transfer.

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4.3 Purchaser’s Closing Obligations and Deliveries. At Closing, Purchaser shall through Escrow Agent make the following deliveries and take the following actions:

(a) Pay the Purchase Price, as increased or decreased by prorations and adjustments as herein provided, in immediately available wire transferred funds pursuant to Section 1.5 above, it being agreed that at Closing the Earnest Money shall be applied towards payment of the Purchase Price.

(b) Deliver a written direction to Escrow Agent that it is to disburse the Earnest Money to Seller in accordance with the Escrow Agreement.

(c) Deliver the same number of original executed counterparts of the instruments described in clauses (b), (c), (i), (k), (l), (m), (s), and (v) of Section 4.2 above to Escrow Agent.

(d) Deliver to Escrow Agent two (2) original executed counterpart copies of the IWA Assumption Agreement executed by Purchaser.

(e) Deliver to Seller a certificate, dated as of the Closing Date and executed on behalf of Purchaser by a duly authorized officer thereof, stating that, to the best knowledge of such duly authorized officer, the representations and warranties of Purchaser contained in this Agreement are true and correct as of the Closing Date.

(f) Deliver to Title Company such evidence as Title Company may reasonably require as to the authority of the person or persons executing documents on behalf of Purchaser.

(g) Deliver to Escrow Agent, for distribution upon Closing to Manager, two (2) original executed counterpart copies of the New Management Agreement.

(h) Deliver such additional documents as shall be reasonably required to consummate the transaction contemplated by this Agreement.

4.4 Prorations, Credits and Other Adjustments. At Closing, Purchaser and Seller shall prorate all items of income and expense which are customarily prorated between a purchaser and seller for a hotel. For clarification it is the intent of the parties that unless specifically outlined differently below that Seller is responsible for all revenues and expenses attributable to the time prior to Cutoff Time and Purchaser is responsible for all revenues and expenses attributable to the time after the Cutoff time. At Closing, Purchaser and Seller shall make the prorations, credits, and other adjustments provided for below in, and in accordance with the procedures set forth in, this Section 4.4. Beginning as close to the anticipated Closing Date as practicable, Seller shall, in consultation with Purchaser and with Purchaser’s reasonable cooperation, cause to be prepared a prorations and credit statement (the “Preliminary Statement”) which shall reflect all of the prorations, credits and other adjustments to the Purchase Price at Closing required under this Section 4.4 or under any other provision of this Agreement. As soon as Purchaser and Seller have agreed upon the Preliminary Statement, they shall jointly deliver a mutually signed copy thereof to Escrow Agent. The net amount shown as owing to Seller or Purchaser in the Preliminary Statement shall be added to or subtracted from the proceeds of the Purchase Price payable to Seller through Escrow at Closing.

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4.4.1 Proration of Taxes.

(a) All real estate ad valorem taxes, general assessments and special assessments and all personal property ad valorem taxes assessed against the Hotel (collectively, “Taxes”) with respect to the tax year in which Closing occurs shall be prorated between Purchaser and Seller as of the Closing Date. If the amount of any such Taxes is not ascertainable on the Closing Date, the proration for such Taxes shall be based on the tax rates set forth in the most recent available bill and the latest assessed valuation of the Property; provided, however, that after the Closing, Seller and Purchaser shall re-prorate the Taxes in accordance with Section 4.4.14 below and pay any deficiency in the original proration to the other party promptly upon receipt of the actual bill for the relevant taxable period. Purchaser shall give Seller written notice of the actual amounts of any such bills within five (5) business days after receipt thereof. If, at the time of the Closing, the Hotel is subject to a special assessment or assessments which are payable by Seller and which are or may become payable in installments, then, for the purposes of this Agreement, all of the installments of any such special assessment or assessments which are not delinquent on the Closing Date and which may be paid thereafter shall be equitably apportioned between Seller and Purchaser based upon their respective periods of ownership.

(b) Seller retains the right to continue and settle any proceeding pending as of the Effective Date to contest any Taxes for any taxable period which encompasses any period prior to the date of the Closing, and shall be entitled to any refunds or abatements of Taxes awarded in such proceedings or in any proceedings instituted by Purchaser to the extent the Taxes, refunds or abatements relate to periods of time prior to the Closing Date. Seller shall not, after the Effective Date, without the prior written consent of Purchaser, institute any proceeding to contest any Taxes after and shall not, from and after the Effective Date, settle any pending proceeding without the prior approval of Purchaser; provided, that Purchase shall not unreasonably withhold its consent if such settlement would not adversely affect the liability of Purchaser for Taxes for any taxable period following the Closing. Prior to Closing Seller shall not settle or discontinue any assessment review challenge for the 2011/12 tax year without written approval of Purchaser. However at Closing, Seller shall assign to Purchaser the Application to Review the 2011/12 tax assessments filed with the New York City Tax Commission and any Petition to Review that assessment and Purchaser shall have sole authority to settle or discontinue any such applications or proceeding. Seller shall be responsible for any fees or charges that may now or in the future be billed by its tax certiorari attorneys for services performed prior to the Closing Date (whether with respect to the 2011/12 tax year or any prior tax year). In addition, Seller shall instruct its tax certiorari attorneys to turn over all files and materials relating to the 2011/12 tax year.

4.4.2 General Proration of Expenses.

(a) Unless otherwise set forth below, Seller shall receive credit for any pre-paid expenses Purchaser will receive credit for any unpaid expenses payable post-Closing with respect to period prior to the Closing based on actual usage or if actual usage is not determinable on a per-diem calculation. The following items of expense with respect to any portion or aspect of the Hotel shall be prorated between Seller and Purchaser as of the Closing Date:

(i) All charges and expenses under any Service Contracts being assumed by Purchaser.

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(ii) All utility charges (but excluding any utility deposits). To the extent reasonably practicable, though, in lieu of prorating the charges for any metered utility service, Purchaser and Seller shall endeavor to have the utility read the meter as close as practicable to the Closing Date, render a final bill to Seller based on such reading, Seller shall pay a per diem for any day prior to closing that does not show on such meter reading and Purchaser shall thereafter be responsible for all subsequent bills relating to such service.

(iii) Prepaid expenses of the Hotel, excluding insurance but including without limitation, (A) amounts incurred to pay for natural gas (if any) held in storage pending use at the Hotel and (B) the expense of all transferable licenses and permits obtained in connection with the operation of the Hotel.

(iv) All other Hotel operating expenses, other than employment expenses (which are covered by Section 4.4.3 below).

4.4.3 Employment Expenses. All salaries, bonuses, other compensation and employment benefits for unused vacation, holiday, sick leave and personal days if, and to the extent, that amounts are accrued and vested and unused prior to the Closing Date, and contributions for retirement and welfare benefits required under a collective bargaining agreement, together with F.I.C.A., unemployment and other payroll taxes and benefits due with respect to the employment of such Employees by Manager, shall be prorated between Seller and Purchaser as of the Closing Date, with accrued vacation and other benefits due to employees covered by the Collective Bargaining Agreement being determined in accordance with the Collective Bargaining Agreement and such matters for other employees in accordance with past practices. Seller and/or Manager shall be current at the time of Closing with any contribution obligation to any employee benefit plans pursuant to the Collective Bargaining Agreement, and any proration will be limited to amounts accrued but not yet due to such employee benefit plans at the time of Closing Manager shall pay the salaries and related benefits that are payable to any Hotel Employees for work performed at the Hotel on the Closing Date, whether prior to or following the time of Closing, and such costs for the Closing Date shall be for the account of Purchaser except to the extent incurred in connection with operations the revenue from which is allocated to Seller in the event that the Cut-Off Time with respect to such items being extended until the early morning of the Closing Date.

4.4.4 Hotel Revenues.

(a) At Closing, Purchaser shall receive one-half (1/2) of all revenues from the Hotel guest rooms and facilities occupied on the evening immediately preceding the Closing Date, including without limitation any sales taxes, room taxes, occupancy taxes and other taxes charged to guests in such rooms that Seller is obligated to remit to the applicable taxing authorities, all parking charges, sales from mini-bars, in-room food and beverage, telephone, facsimile and data communications, in-room movie, laundry, and other service charges allocable to such rooms with respect to the evening immediately preceding the Closing Date. All revenues from restaurants, bars, lounges, vending machines and other service operations conducted at the Property shall be allocated based on whether the same accrued before or after the Cut-Off Time, and Seller shall cause the Manager to separately record sales occurring before and after the Cut-Off Time at the Property. Notwithstanding the foregoing, all revenues from any bars and lounges at the Property shall be prorated based on the actual closing time for such bar or lounge. For example, if such bar or lounge closes at 2 a.m. on the Closing Date, Seller shall retain the revenues from, and be responsible for the operating costs reasonably attributable to, such services and operations even though such revenues were generated two (2) hours after the Cut-Off Time.

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(b) Revenues from conferences, receptions, meetings, and other functions occurring in any conference, banquet or meeting rooms in the Hotel, or in any adjacent facilities owned or operated by Seller, including usage charges and related taxes, food and beverage sales, valet parking charges, equipment rentals, and telecommunications charges, shall be allocated between Seller and Purchaser, based on when the function therein commenced, with: (i) one-day functions commencing prior to the Cut-Off Time being allocable to Seller; (ii) functions commencing after the Cut-Off Time being allocable to Purchaser; and (iii) multi-day functions being allocated on a pro rata basis between Seller and Purchaser according to when the event commences and is scheduled to end in relation to the Cut-Off Time.

(c) At Closing, all accounts receivable of the Hotel and all related operations (other than Rent) which are maintained on the guest ledger (as opposed to the city ledger) and relate to guests that have not been at the hotel for a period in excess of seven (7) consecutive days and are outstanding (collectively, the “Receivables”) shall be assigned to Purchaser and Seller shall receive a proration credit in an amount equal to the face value (without further adjustment or allowance for uncollectible accounts) of such receivables as set forth on Manager’s books (including, without limitation, receivables accrued in connection with hotel reservations, the use of guest rooms, as reflected on the guest ledger). Purchaser shall have no right to any adjustment to the prorations with respect to the Receivables on or after Closing for inability to collect outstanding Receivables or otherwise. All other account receivables of the Hotel and related operations (other than Rent) shall remain the property of the Seller (“Retained Receivables”) and shall not be sold to Purchaser hereunder. There shall be no proration at closing for Retained Receivables and (i) Purchaser shall have no right or obligation to make efforts to collect the Retained Receivables and (ii) Purchaser and its manager shall deliver to Seller any amounts received by them after the Closing Date on account of the Retained Receivables (if the reasonably ascertainable intent of the payor thereof is that the payment thereof pertains to a Retained Receivable) reasonably promptly following receipt by Purchaser or its manager. Notwithstanding the foregoing, Seller may take such action, in the name of Seller or Seller’s designee and not in the name of Purchaser or the Hotel, in respect of the collection of any such Retained Receivables as Seller deems appropriate.

(d) Any operating revenues not otherwise provided for in this Section 4.4, shall be prorated between Purchaser and Seller as of Closing.

4.4.5 [Intentionally omitted.]

4.4.6 Hotel Payables. At Closing, Purchaser shall receive a proration credit equal to the aggregate amount of all outstanding accounts payable for the Hotel as of the Closing Date (“Hotel Payables”) as set forth in a schedule attached to the Preliminary Statement. Purchaser shall: (a) assume the obligation to satisfy all Hotel Payables for which Purchaser received such credit at Closing; (b) indemnify, defend and hold Seller harmless against any claim for such Hotel Payables; and (c) assume all obligations of Seller to pay for any (i) consumables or other items ordered by or for the benefit of Seller in the ordinary course of business but which are not yet received as of the Closing Date and (ii) items or services listed on a purchase order log prepared by Manager which are not yet received as of the Closing Date, which list shall be updated by Manager immediately prior to Closing. There shall not be any adjustment to the Purchase Price in connection with Purchaser’s assumption of the liabilities described in clauses (i) and (ii) above.

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4.4.7 [Intentionally Omitted]

4.4.8 Credit for Reservation Deposits. Purchaser shall receive a proration credit equal to the aggregate amount of advance deposits that shall have been received by Seller prior to the Cut-Off Time on account of reservations for use or occupancy of the Property after the Cut-Off Time.

4.4.9 Credit for Cash Banks. Seller shall receive a credit at Closing in an amount equal to all House Bank Funds actually received by Purchaser.

4.4.10 [Intentionally Omitted]

4.4.11 Regarding Hotel Prorations Generally. Unless this Section 4.4 expressly provides otherwise: (a) all prorations hereunder with respect to the Hotel shall be made as of 12:00:01 a.m., local time at the Hotel (“Cut-Off Time”) on the Closing Date; (b) all prorations shall be made on an actual daily basis; and (c) for purposes of such prorations, all items of revenue and expense with respect to the Hotel’s operations shall be classified and determined in accordance with the Uniform System of Accounts for the Lodging Industry, as reasonably modified by Manager for use at the Hotel consistent with past practices within the twelve (12) months preceding the Closing, and otherwise in accordance with generally accepted accounting principles. Except as otherwise expressly provided herein, in any case in which Purchaser receives a credit at Closing on account of any obligation of Seller hereunder, Seller shall have no further liability for such obligation to the extent of the credit so given, Purchaser shall pay and discharge the same, and Purchaser shall indemnify, defend and hold Seller harmless Seller with respect thereto.

4.4.12 Vouchers. Purchaser shall: (a) honor all outstanding unexpired gift certificates, coupons or other writings issued by Seller or its affiliates prior to the Closing Date that entitles the holder or bearer thereof to a credit (whether in a specified dollar amount or for a specified item, such as room night or meals) to be applied against the usual charge for rooms, meals and/or goods and services at the Hotel (collectively, “Vouchers”) and shall assume all liability, if any, for all outstanding Vouchers as of the Closing Date; (b) receive a credit against the Purchase Price payable at Closing in the amount set forth on the Vouchers Schedule, with respect to the Vouchers listed thereon, as updated as of the Closing Date; (c) be reimbursed by Manager for any other Vouchers presented by holders thereof in accordance with Section 4.6 of the New Management Agreement (the “Manager Reimbursement Obligation”); and (d) indemnify, defend and hold Seller harmless from and against all claims, liabilities, costs and expenses arising out of a violation of this Section 4.4.12 with respect to the Vouchers from and after the Closing Date.

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4.4.13 Utility and Other Deposits. At Closing, Seller shall be entitled to receive and retain all refundable cash or other deposits posted with utility companies serving the Property or any governmental agencies or authorities or posted pursuant to any Service Contract

4.4.14 Final Statement; Post-Closing Adjustments. Except for prorations for Taxes, which shall be adjusted within fifteen (15) business days of receipt of the tax bill for the tax year in which the Closing occurs, and prorations of Percentage Rent in accordance with Section 4.4.5 hereof, Purchaser and Seller shall make a one-time post-Closing adjustment of any item of income and expense subject to adjustment as provided above which was either incomplete or incorrect (whether as a result of an error in calculation or a lack of complete and accurate information) as of the Closing. Purchaser will prepare and deliver to Seller for its review and approval a statement of prorations (the “Final Statement”) on or before March 31, 2012, and the party in whose favor the original incorrect adjustment or error was made (“Adjusting Party”) shall pay to the other party (“Requesting Party”) the sum necessary to correct such prior incorrect adjustment or error within ten (10) days after completion of the Final Statement. Such adjustment shall be final and no further adjustment to the prorations or the Purchase Price shall be made.

4.4.15 Resolution of Disputes. In the case of a dispute, the parties shall attempt to resolve such dispute, but if for any reason such dispute is not resolved by the date that is thirty (30) days after the delivery of the original notice of the claimed adjustment by Purchaser or Seller, but not to exceed ninety (90) days after Closing, then the parties shall, upon the written request of either party to the other, submit such dispute to Deloitte (“Outside Accountants”), and the determination of the Outside Accountants, which shall be made within a period of fifteen (15) days after such submittal by the parties, shall be conclusive. The fees and expenses of the Outside Accountants shall be paid equally by Purchaser and Seller. At such time as the amount of any adjustment or dispute shall be determined (either by agreement or by determination of the Outside Accountants), any amount that shall be payable by the Requesting Party to the Adjusting Party as a result of such adjustment or determination shall be paid within ten (10) business days after the date on which such agreement or determination shall have been made.

4.4.16 Survival. The provisions of this Section 4.4 shall survive Closing.

4.5 Closing Costs.

4.5.1 State Transfer Tax. At Closing, Seller and Purchaser shall complete, sign and acknowledge any and all forms required for this transaction with respect to Article 31 of the New York State Tax Law, as the same may be amended from time to time (the “State Transfer Tax Law”). Seller shall pay the taxes imposed under the State Transfer Tax Law in connection with the consummation of the transactions contemplated by this Agreement on the Closing Date.

4.5.2 City Transfer Tax. At Closing, Seller and Purchaser shall complete, sign and acknowledge any and all forms required for this transaction with respect to Chapter 21 of Title 11 of the Administrative Code of the City of New York, as the same may be amended from time to time (the “City Transfer Tax Law”). Seller shall pay the taxes imposed under the City Transfer Tax Law in connection with the consummation of the transactions contemplated by this Agreement and any filing fees in connection therewith on the Closing Date.

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4.5.3 Seller Closing Costs. At Closing, Seller shall also pay: (a) the fees of any counsel representing it in connection with this transaction; (b) all bulk sales taxes, sales tax on the sale of the Personal Property (or any part thereof) and any other sales or use taxes and occupancy, hotel or other taxes payable with respect to the operation of the Hotel through the Cut-Off Time (as it may be adjusted for certain activities in the Hotel pursuant to Section 4.4.4(a); (c) one-half of the escrow fees charged by Escrow Agent; and (d) all recording and filing fees relating to clearance of any title matter which is not a Permitted Exception. The parties acknowledge and agree that Seller may use the Purchase Price to pay Seller’s closing costs.

4.5.4 Purchaser Closing Costs. At Closing, Purchaser shall also pay: (a) the fees of any counsel representing Purchaser in connection with this transaction; (b) 100% of the (i) premium for the Title Policy, (ii) cost of any endorsements to the Title Policy, and (iii) cost of any title insurance provided to Purchaser’s lender; (c) the cost of the Survey and any modifications or updates to the Survey; (d) one-half of the escrow fees charged by Escrow Agent; (e) the cost of any updates obtained by Purchaser to the property condition report and the Phase I environmental report; and (f) the fees for recording the Deed and any other recordable documents (other than documents relating to clearance of any title matter which is not a Permitted Exception).

4.5.5 Other Costs. All other costs and expenses incident to this transaction and the closing thereof shall be paid in a manner consistent with custom for similar transactions in the city where the Hotel is located. Notwithstanding the foregoing, in the event that this Agreement is terminated as a result of a party’s default, such defaulting party shall pay all escrow and title cancellation fees charged in connection with such cancellation.

4.6 Conditions Precedent to Obligation of Purchaser. The obligation of Purchaser to consummate the transaction hereunder shall be subject to the fulfillment on or before the Closing Date of all of the following conditions, any or all of which may be waived by Purchaser in its sole discretion:

(a) All of the representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects, other than any such representations and warranties that are qualified as to materiality, which (to the extent so qualified) shall be true and correct in all respects, as of the Closing Date (in each case with appropriate modifications permitted under Section 4.2(e) above).

(b) Seller shall have performed and observed in all material respects all covenants, obligations and agreements of this Agreement to be performed and observed by Seller as of the Closing Date, other than any such covenants, obligations or agreements that are qualified as to materiality, which (to the extent so qualified) Seller shall have performed and observed in all respects.

(c) Seller shall have delivered to Purchaser or deposited with Escrow Agent all of the items required to be delivered to Purchaser or deposited with Escrow Agent pursuant to the terms of Section 4.2.

(d) Title Company shall have issued, or be irrevocably committed to issue subject to payment of title premiums, the Title Policy.

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(e) Seller shall have delivered to Purchaser more than ten (10) days in advance of the Closing Date an assumption agreement in the form of the IWA Assumption Agreement attached hereto as Exhibit G executed by Seller and Manager.

4.7 Conditions Precedent to Obligation of Seller. The obligation of Seller to consummate the transaction hereunder shall be subject to the fulfillment on or before the Closing Date of all of the following conditions, any or all of which may be waived by Seller in writing in its sole discretion:

(a) Purchaser shall have deposited with Escrow Agent the Purchase Price as adjusted pursuant to and payable in the manner provided for in this Agreement, subject to fulfillment or waiver of the conditions to Purchaser’s obligation to consummate the transaction hereunder on or before the Closing Date as set forth in Sections 4.6 and 4.8. All of the representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects, other than any such representations and warranties that are qualified as to materiality, which (to the extent so qualified) shall be true and correct in all respects, as of the Closing Date (in each case with modifications which are not materially adverse to Seller).

(b) Purchaser shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by Purchaser as of the Closing Date, other than any such covenants, obligations or agreements that are qualified as to materiality, which (to the extent so qualified) Purchaser shall have performed and observed in all respects.

(c) Purchaser shall have deposited with Escrow Agent all of the items required to be delivered to Seller or deposited with Escrow Agent pursuant to the terms of Section 4.3.

(d) Purchaser shall have delivered to Seller more than ten (10) days in advance of the Closing Date an assumption agreement in the form of the IWA Assumption Agreement attached hereto as Exhibit G executed by Purchaser.

4.8 Conditions Precedent to Obligation of Seller and Purchaser. Notwithstanding anything herein to the contrary but subject to the remainder of this Section 4.8, the obligation of Seller and Purchaser to consummate the transaction hereunder shall be subject to the substantially simultaneous consummation of the transaction described in that certain Purchase and Sale Agreement, dated as of the date hereof, by and between Morgans Holdings LLC, as seller, and 237 Madison Hotel, L.L.C., a Delaware limited liability company regarding the purchase and sale of the hotel known as the Morgans located in New York, New York (the “Morgans PSA”). This condition precedent may only be waived by both Seller and Purchaser in writing.

(a) Notwithstanding anything to the contrary contained in this Agreement or the Morgans PSA, if the Morgans PSA is not consummated due to (i) a casualty or condemnation that occurs with respect to the property described therein, or (ii) (x) the failure of the conditions to the obligation of the purchaser to consummate the transaction contemplated set forth in section 4.6(a) or (b) thereof to be fulfilled or (y) the failure of the seller thereunder to make the deliveries required at the closing thereunder upon satisfaction of all conditions to the seller’s obligations to close thereunder, or (iii) the failure of any other condition precedent to the obligation of the purchaser thereunder to close thereunder to be satisfied, Purchaser may elect, in its sole discretion, to waive the condition precedent set forth in this Section 4.8 for both Seller and Purchaser; provided that, if Purchaser elects to waive the condition precedent set forth in this Section 4.8 for both Seller and Purchaser upon the occurrence of an event set forth in subsection (ii) above and such event resulted from the bad faith or an intentional breach by the seller under the Morgans PSA, Purchaser shall have the right to make the No New Management Agreement Election described in Section 4.11.

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(b) Notwithstanding anything to the contrary contained in this Agreement or the Morgans PSA, if the Morgans PSA is not consummated due to (x) conditions to the obligation of the seller to consummate the transaction contemplated set forth in section 4.7(a) or (b) thereof to be fulfilled or (y) the failure of the purchaser thereunder to make the deliveries required at the closing thereunder upon satisfaction of all conditions to the purchaser’s obligations to close thereunder, in each case only to the extent such failure resulted from the bad faith or an intentional breach by such purchaser, Seller may elect, in its sole discretion, to waive the condition precedent set forth in this Section 4.8 for both Seller and Purchaser.

4.9 Failure or Waiver of Conditions Precedent. If any of the conditions set forth in Sections 4.6, 4.7, or 4.8 are not fulfilled (other than as a result of a default or breach by either party of their obligations hereunder (in which case the provisions of Article VI shall apply)), or waived on or before the Outside Closing Date, the sole and exclusive remedy available to the party benefited by such conditions shall be to terminate this Agreement by written notice to the other party, whereupon the Earnest Money shall be refunded to Purchaser (less Purchaser’s share of any escrow charges) and all rights and obligations hereunder of each party shall be at an end except those that expressly survive any termination of this Agreement. Either party benefited by a condition set forth in Section 4.6 or 4.7 above, as applicable, may, at its election, at any time or times on or before the date specified for the satisfaction of the condition, waive in writing the benefit of such condition. The parties’ consummation of the Closing pursuant to this Agreement shall waive any remaining unfulfilled conditions and any liability on the part of the other party for breaches of representations and warranties of which such party had actual knowledge as of the Closing.

4.10 Alcoholic Beverage License.

(a) Purchaser acknowledges that Seller and 43^rd Restaurant LLC are the current licensees under the existing alcoholic beverage licenses for the Hotel (the “Existing Liquor Licenses”). Seller shall cooperate with Purchaser in arranging for Purchaser to obtain all licenses and approvals required under any Legal Requirements for the continued sale of alcoholic beverages at the Hotel from and after the Closing Date (including temporary permits) consistent with the customary practices and procedures of the Hotel in effect as of the Effective Date (collectively, “Liquor Licenses”), provided that such cooperation shall (i) not create any potential liability for Seller or 43^rd Restaurant LLC greater than is in existence on the Effective Date (to the extent same is not covered by the present insurance policy at the Property) and (ii) be at no cost or expense to Seller or 43^rd Restaurant LLC. In no event shall Seller or 43^rd Restaurant LLC be required to transfer to Purchaser any alcoholic beverage inventory which is located at or held for use in the Hotel unless and until Purchaser has obtained a valid and effective license entitling Purchaser to sell alcoholic beverages at the Hotel and only to the extent that Seller or 43^rd Restaurant LLC is permitted to transfer such inventories pursuant to applicable law.

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(b) Promptly following the Effective Date but in no event sooner than 30 days after the notice to the Community Board, Purchaser shall file all necessary applications and supporting materials with the New York State Liquor Authority as may be required for the issuance of all Liquor Licenses, and shall thereafter use commercially reasonable efforts to diligently pursue and obtain the issuance of such Liquor Licenses or a temporary permit prior to, or contemporaneously with, the Closing. If Purchaser has not secured a Liquor License or temporary permit as of the Outside Closing Date, then Purchaser shall be entitled to adjourn the Outside Closing Date by no more than 30 days upon giving notice of such election to Seller and depositing an additional ONE MILLION EIGHT HUNDRED NINETY THOUSAND AND NO/100 DOLLARS ($1,890,000.00) with the Escrow Agent to be held as, and which shall become a part of, the Earnest Money, in each case prior to the Outside Closing Date. If Purchaser has not secured a Liquor License or temporary permit as of the Outside Closing Date, so adjourned, Purchaser’s obligation to close the purchase of the Hotel shall not be excused or delayed or in any other way be affected thereby, the Purchase Price shall not be reduced and Seller shall have no additional obligation as a result thereof. Purchaser shall keep Seller informed of the status of such applications, and shall promptly respond to Seller’s inquiries regarding the status of the same.

(c) If this Agreement is terminated and Purchaser has filed an application or otherwise commenced the process of obtaining the Liquor Licenses or obtaining any new licenses and permits, Purchaser shall withdraw all such applications and cease all other activities with respect to such transfer or such new licenses and permits.

4.11 No New Management Agreement Election. Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence of the event described in Section 4.8(a)(ii) and such event resulted from the bad faith or an intentional breach by the seller under the Morgans PSA, Purchaser shall have the right to elect to Close hereunder and not enter into the New Management Agreement at Closing (and entry into same shall not be a condition precedent in favor of Seller) (such election, the “No New Management Agreement Election”). In the event that Purchaser elects the No New Management Agreement Election, the Purchase Price shall be increased by FIVE MILLION DOLLARS ($5,000,000).

ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS

5.1 Representations and Warranties of Seller. Seller hereby makes the following representations and warranties to Purchaser as of the Effective Date, subject to the qualifications and exceptions set forth below:

(a) Organization and Authority. Seller has been duly organized and is validly existing and in good standing under the laws of Delaware and is qualified to do business in the State of New York. Seller has the full right, power and authority to enter into this Agreement and to transfer all of the Property to be conveyed by Seller pursuant hereto and to consummate or cause to be consummated the transactions contemplated herein to be made or consummated by Seller. The person signing this Agreement on behalf of Seller is authorized to do so.

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(b) No Breach. The execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated herein will not: (i) result in a breach or acceleration of or constitute a default or event of termination under the provisions of any agreement or instrument by which the Property is bound which would have a material adverse impact on the ownership and operation of the Property by Purchaser or the ability of Seller to consummate the transaction contemplated hereby; or (ii) constitute or result in the violation or breach by Seller of any judgment, order, writ, injunction or decree issued against or imposed upon Seller or result in the violation of any applicable law, rule or regulation of any governmental authority which, with respect to any of the foregoing, would have a material adverse impact on the ownership or operation of the Property by Purchaser or the ability of Seller to consummate the transactions contemplated hereby.

(c) Litigation/Condemnation. Except as set forth on schedule entitled “Litigation” annexed to the Property Information Letter, Seller has not received written notice of any litigation which is pending against (or is threatened to be filed against) Seller that arises out of the ownership of the Property, or that affects the Property, an adverse determination of which would, individually or in the aggregate, reasonably be expected to materially and adversely affect the Property or use thereof, or Seller’s ability to perform its obligation hereunder. Seller has not received written notice of any condemnation proceedings against the Property nor, to Seller’s knowledge, are any such proceedings threatened.

(d) Space Leases. Other than the Space Lease, there are no leases or other agreements currently affecting the Hotel (other than Bookings) pursuant to which any party has a right to occupy all or any portion of the Property, and Seller has made available to Purchaser a true, correct and complete copy of the Space Lease. Seller has complied with all of its obligations under the Space Lease with respect to tenant improvements and there are no leasing commissions that are or may become payable with respect to the Space Lease from and after the Closing Date. The tangible and intangible property (including, without limitations, fixtures, personal property or intellectual property) owned by the tenant under the Space Lease and located at the Property does not include any tangible personal property located outside of the premises subject to the Space Lease, other than supplies and equipment stored elsewhere in the Property and incidental tangible personal property that may be temporarily located outside such premises.

(e) Service Contracts and Equipment Leases. There are no material Service Contracts, including without limitation Equipment Leases, which will affect the Property after the Closing Date except (i) as set forth on Schedule 1.1(e)-1 or Schedule 1.1(e)-2 or (ii) Service Contracts entered into after the Effective Date which Seller is permitted to enter into under the terms of this Agreement and has disclosed by written notice to Purchaser, and provided true, correct and complete copies of, to Purchaser at least five (5) business days prior to the Closing Date. No material Service Contracts, including without limitation Equipment Leases, have been amended in any material respect except (i) as set forth in said Schedules or (ii) as otherwise permitted pursuant to this Agreement to be amended after the Effective Date and disclosed to Purchaser (along with true, correct and complete copies thereof). As of the Effective Date and the Closing Date, no written notice of material default has been delivered by Seller or received by Seller with respect to any Service Contracts or Equipment Leases that remains uncured (and to Seller’s knowledge, no party is in default in any material respect under any material Service Contract or Equipment Lease). The copies of Service Contracts and Equipment Leases made available to Purchaser by Seller are true, correct and complete in all material respects as to each Service Contract or Equipment Lease. For purposes of this Section 5.1(e), a “material” Service Contract is a Service Contract that is reasonably likely to require payments in excess of $25,000.00 in any 12 month period or is not terminable on 3 months notice or less.

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(f) Personal Property. Seller or a member of Seller Group owns good and marketable title to the Personal Property free and clear of all liens and encumbrances. Following the Closing, Purchaser will own the Personal Property free and clear of all liens and encumbrance other than any liens or encumbrances created by Purchaser.

(g) No Consents. Other than those that will be obtained, filed or given, as applicable, prior to Closing, no material consent, approval or action of, filing with or notice to any governmental or regulatory authority or any other person or entity is required to be obtained or made by Seller or Manager in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, other than those required of Purchaser.

(h) Patriot Act Compliance. Neither Seller nor any entity controlled by Seller: (i) is a person or entity listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (September 25, 2001) (the “Order”) and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable orders (such lists are collectively referred to as the “Lists”); (ii) is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order; or (iii) is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order.

(i) Employees. There are no employees of the Hotel other than those employees who are employed by Manager with respect to the Hotel (“Employees”). Except as otherwise set forth on Schedule 5.1(i) attached hereto, Seller is not a party to or bound by any collective bargaining agreement or union agreement with respect to the Property, and Seller has provided true and correct copies of all such agreements to Purchaser. To Seller’s knowledge, neither Seller, Manager nor any Affiliate is in default under any such agreements. Except as set forth in part (1) of the schedule entitled “Employee Matters” attached to that certain letter from Seller to Purchaser dated as of the Effective Date (the “Property Information Letter”) (such schedule, the “Employee Schedule”) or on the Litigation schedule, no current or former employee of the Property, no governmental agency and no other person, agency or entity has made a formal charge, complaint or request for a grievance or an arbitration proceeding against Seller that has not been resolved alleging a breach or default under any such agreement or a violation of applicable law relating to personnel or employment matters and, to Seller’s knowledge, neither Seller nor Manager is in default in any material respect under any such agreement or in violation in any material respect of any such law. To Seller’s knowledge, the information regarding employees at the Property set forth in part (2) of the Employee Schedule, including their names, union status, salaries, benefits, job titles, and seniority, is true, correct and complete in all material respects, except for any information excluded in accordance with privacy rules established under the Collective Bargaining Agreement; and part (3) of the Employee Schedule identifies all material employee benefit plans and employee benefit programs (including any multi-employer plans), excluding such plans and programs set out or arising under any collective bargaining agreement or union agreement, maintained by or on behalf of Seller or Manager with respect to the Hotel, of which Seller has knowledge, for the health, welfare or benefit of a majority of the employees of the Property and/or their spouses, dependents or other qualified beneficiaries to which Seller or Manager contributes (the “Plans”).

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(j) Violations of Law. Except for violations shown in or disclosed by the Title Report or any Title Update and any violations disclosed on the schedule entitled “Violations of Law” annexed to the Property Information Letter, Seller has not received any written notice of, nor does Seller have any knowledge of, any violation in any material respect of law (including fire, health, building, use, occupancy, rent control or stabilization, environmental or zoning codes) with respect to all or any part of the Property that remains uncured. Seller has not received any written notice of, nor does Seller have any knowledge of, any New York State Liquor Authority violations (and no events that with the giving of notice or passage of time or both would lead to New York State Liquor Authority violations) with respect to the Existing Liquor Licenses.

(k) Deposits.

(i) Part (1) of the schedule entitled “Deposits” annexed to the Property Information Letter (the “Deposits Schedule”) contains a complete list of all deposits held by Seller pursuant to Service Contracts, Bookings, the Space Lease or otherwise in connection with the ownership or operation of the Hotel and sets forth, as of the Effective Date, all portions of any such deposit that have been applied by the Seller.

(ii) Part (2) of the Deposits Schedule contains a complete list of all deposits made by Seller to utility companies or governmental agencies or authorities relating to the Hotel and sets forth, as of the Effective Date, to Seller’s knowledge, all portions of any such deposit that have been applied by such entities.

(l) Vouchers; Barter Agreements. The schedule entitled “Vouchers and Barter Agreements” annexed to the Property Information Letter (the “Vouchers Schedule”) contains, to the knowledge of Seller, a true, correct and complete list, as of the Effective Date, of (x) all outstanding, unexpired gift certificates, coupons or other writings issued by Seller or Manager that entitle the holder or bearer thereof to a credit (whether in a specified dollar amount or for a specified item, such as room night or meals) to be applied against the charge for rooms, meals and/or goods and services at the Hotel, except as provided in below in this Section 5.1(l), and (y) all barter agreements to which Seller is a party. In addition to the above vouchers, Seller and its affiliates have issued writings entitling the holder of such writing to a credit (whether in a specified dollar amount or for a specified item), including, but not limited to, credits for room nights, meals at the Hotel’s restaurant(s), and charitable donations, all of which are subject to the Manager Reimbursement Obligation.

(m) Reward Plans. Schedule 5.1(m) contains a true, correct and complete list and description of all reward points plans in which the Hotel participates.

(n) Intellectual Property. Schedule 1.1(f) contains a true, correct, and complete list of all names, marks, logos and designs, used in the operation or ownership of the Property or any part thereof (other than the Retained IP) and all registered trademarks relating to the name “Royalton” that are owned by any member of the Seller Group.

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(o) Permits. Schedule 5.1(o) contains a true, correct and complete list of all transferable licenses, franchises and permits held by Seller and used in or relating to the ownership, occupancy or operation of the Property or any part thereof as of the Effective Date. Except as otherwise disclosed to Purchaser on Schedule 5.1(o), Seller has not received any written notice of any uncured violations of any Permit, and to Seller’s knowledge, all of the Permits described on Schedule 5.1(o) are in full force and effect. To Seller’s knowledge, all Permits necessary for the operation of the Hotel are set forth in Schedule 5.1(o).

(p) Tax Returns. Seller has, or has caused Manager to, file all tax returns with respect to the ownership, operation or maintenance of the Property and/or the Hotel that were required to be filed on or prior to the Effective Date and Seller has paid all taxes (including without limitation Taxes) due with respect to the ownership, operation or maintenance of the Property and/or the Hotel. Seller has not received written notice of any special tax assessment relating to the Hotel, the Property or any portion thereof, and there are no agreements between Seller and any governmental authority relating to Taxes affecting the Hotel or the Property except as set forth on Schedule 5.1(p).

(q) Bookings. Except as set forth on the schedule entitled “Bookings” annexed to the Property Information Letter as Schedule 5.1(q), no Bookings or reservations for rooms, food and beverages, meetings or other customary Hotel uses have been made with respect to any period commencing on or after the one year anniversary of the Effective Date.

(r) Tax Contests. Except as set forth in the schedule entitled “Tax Contests” annexed to the Property Information Letter, Seller is not contesting any taxes (including without limitation Taxes or tax certiorari) with respect to the Property or the operation, maintenance or ownership of the Hotel. Seller has provided all material information and documentation within its possession, control or knowledge related to tax contests, tax appeals and/or tax certiorari to Purchaser, Seller has duly filed a 2011/2012 tax appeal with respect to all assessments in connection with the Hotel (and same have not been rescinded or settled and are being prosecuted with diligence).

(s) Insurance. Seller has not received any written notice from any insurance company or board of fire underwriters of a requirement that has not been addressed in any material respect relating to any defects or inadequacies regarding the physical condition or operation of the Property that would have a material adverse effect on the current use or insurability of the Property or that would cause any material increase in the premiums for insurance for the Property, except for any such defects or inadequacies that have been cured or repaired.

(t) Suits and Proceedings. There are no legal actions, suits, audits by municipal, State or Federal tax authorities that would be binding on a purchaser of the Property or similar proceedings pending and served, or, to Seller’s knowledge, threatened in writing against Seller or the Property except as set forth in Section 4.4.1(b).

(u) Non-Foreign Entity. Seller is not a “foreign person” or “foreign corporation” as those terms are defined in the Internal Revenue Code of 1986, as amended, and the regulations.

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(v) Bankruptcy. Seller has not (i) commenced a voluntary case, or had entered against it a petition, for relief under any federal bankruptcy act or any similar petition, order or decree under any federal or state law or statute relative to bankruptcy, insolvency or other relief for debtors, (ii) caused, suffered or consented to the appointment of a receiver, trustee, administrator, conservator, liquidator or similar official in any federal, state or foreign judicial or non-judicial proceedings, to hold, administer and/or liquidate all or substantially all of its property, or (iii) made an assignment for the benefit of creditors.

(w) Financial Statements. Seller has provided to Purchaser financial statements for the Hotel consisting of unaudited financial statements for the last three (3) fiscal years and year-to-date financial statements and operating budgets prepared for the Hotel for the current year. To Seller’s knowledge, all of these financial statements are in all material respects true and complete and fairly represent the financial condition of the Hotel as of the dates stated therein and such statements have been prepared in accordance with Generally Accepted Accounting Principles (GAAP) and the Uniform System of Accounts for the Lodging Industry, Tenth Revised Edition, 2006.

(x) No Options. Seller has not granted in writing any option, right of first offer or refusal or similar right in favor of any person to purchase or otherwise acquire the Property, or any direct or indirect interest in the Property, that is in effect.

(y) Unrecorded Contracts. Except as shown in or disclosed by the Title Policy, the Property is not subject to or bound or affected by any material contract, agreement, proffer or dedication with any municipal, State or Federal government agency to which Seller or Manager is a party or, to Seller’s knowledge, to which anyone else is a party, except to the extent that such contract, agreement, proffer or dedication would not be binding on Purchaser following the purchase of the Property hereunder or can be terminated within 30 days of notice without a termination fee.

(z) ERISA.

(i) Seller either: (A) is not an “employee benefit plan” as defined in ERISA, whether or not subject to ERISA, or a “plan” as defined in Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”), and none of Seller’s assets constitutes (or is deemed to constitute for purposes of ERISA or Section 4975 of the Code, or any substantially similar Federal, State or municipal law) “plan assets” for purposes of 29 CFR Section 2510.3-101 or otherwise for purposes of ERISA or Section 4975 of the Code; or (B) is an “employee benefit plan” as defined in ERISA (an “Employee Benefit Plan,” which term shall not be deemed to include the Retirement Plan or any employee benefit plan administered pursuant to the Collective Bargaining Agreement), but not subject to ERISA or to Section 4975 of the Code, or it is an entity the assets of which are not considered to be “plan assets” or an “employee benefit plan” which is subject to ERISA or Section 4975 of the Code, and the consummation of the transaction contemplated by this Agreement will not constitute a non-exempt prohibited transaction or otherwise result in a violation of any Federal, State or municipal law that is substantially similar to Section 406 of ERISA or Section 4975 of the Code.

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(ii) With respect to each plan subject to, or previously subject to Title IV of ERISA to which Seller or any entity aggregated with Seller under Section 414(b) or (c) of the Code or Section 4001 of ERISA (each, an “ERISA Affiliate”) or Manager, sponsors, maintains or contributes to, or has had any liability or obligation to contribute to with respect to the Employees (the “Title IV Plans”), to Seller’s knowledge (1) no lien in favor of any Title IV Plan, the Internal Revenue Service or the Pension Benefit Guaranty Corporation has arisen or been threatened against Seller or Manager; (2) neither Seller nor Manager has incurred or reasonably expects to incur prior to the Closing Date any liability under Title IV of ERISA arising in connection with the termination of, or complete or partial withdrawal from, any Title IV Plan; and (3) no plan withdrawal has occurred for which liability has been assessed; and (4) no potential withdrawal liability exists from any action of Seller occurring prior to closing with respect to any Title IV Plan covering employees of any Property.

(iii) To Seller’s knowledge, all contributions and premiums that are required to have been made by Seller or Manager to any Title IV Plan or Multiemployer Pension Plan, or by any ERISA Affiliate of the Seller with respect to any Title IV Plan, under the terms of such Plan or Title IV Plan, applicable law, or an applicable collective bargaining agreement, for all complete and partial periods up to and including the Closing Date, have been made or will be made to the appropriate Plan or Title IV Plan on or before the Closing Date.

(iv) No portion of the Property is subject to a lien arising under ERISA or, in so far as it relates to an Employee Benefit Plan, the Code. Each Employee Benefit Plan sponsored, established or maintained by Seller and under which any Hotel Employee benefits has been operated by Seller in conformity with the terms of such plan and in conformity with ERISA and the Code and regulations and other published rulings or guidance of the U.S. Department of Labor, the Internal Revenue Service (the “IRS”), or the Pension Benefit Guaranty Corporation (the “PBGC”), as applicable. Neither Seller nor any other “disqualified person” or “party in interest” as defined in Section 4975 of the Code and Section 3(14) of ERISA, respectively, has engaged in any “prohibited transaction”, as defined in Section 4975 of the Code or Section 406 of ERISA, with respect to any Employee Benefit Plan, nor have there been any fiduciary violations under ERISA, which in either case could subject Seller (or any officer, director or employee thereof) to any material Taxes under Section 502(i) of ERISA or Sections 4971 and 4975 of the Code. There is no filing, application or other matter pending with the IRS, the PBGC or the U. S. Department of Labor or any other governmental body regarding any such Employee Benefit Plans.

(v) Seller and Manager have complied in all material respects with all obligations under COBRA regarding any of the Employee Benefit Plans.

(vi) Except as provided in Schedule 5.1(z)(vi), neither Seller nor Manager is a party to, and does not sponsor or maintain any plan, program or agreement applicable to any of the Hotel Employees that constitutes a non-qualified deferred compensation plan under Section 409A of the Code, nor does either sponsor or maintain any plan fund or program that provides health insurance benefits for retirees, except to the extent required by COBRA.

(vii) Seller and Manager have complied with all of their contribution obligations to the Employee Benefit Plans to which they are obligated to contribute pursuant to the Collective Bargaining Agreement applicable to the Bargaining Unit Employees, and will remain current up to and including the Closing.

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Notwithstanding the foregoing, if Purchaser has actual knowledge of a breach of any representation or warranty made by Seller in this Agreement prior to Closing and Purchaser nevertheless proceeds to close the purchase of the Property, such representation or warranty by Seller shall be deemed to be qualified or modified to reflect Purchaser’s knowledge of such breach and Seller shall have no liability whatsoever respecting the same.

5.2 Knowledge Defined. For purposes of this Agreement, “knowledge” means (a) with respect to Seller, the actual knowledge of Richard Szymanski (provided that, in no event shall such person have any personal liability arising under this Agreement), without any duty of inquiry or investigation other than a duty to inquire of the general manager of the Hotel, and expressly excluding the knowledge of any other shareholder, partner, member, trustee, beneficiary, director, officer, employee, agent or representative of Seller or any of its affiliates, and (b) with respect to Purchaser: (i) the actual knowledge of Michael DeNicola and Jan Kuehnemann (provided that, in no event shall such person(s) have any personal liability arising under this Agreement); (ii) any matter disclosed in any exhibits or schedules to this Agreement; (iii) any matter disclosed in any of the Seller Due Diligence Materials or any other documents or materials provided or made available by Seller or its agents to Purchaser prior to Closing; and (iv) any matter disclosed by Purchaser’s inspections or investigations of the Property.

5.3 Covenants of Seller.

(a) Seller hereby covenants as follows (and covenants not to permit or suffer to exist same by Manager):

(i) From the Effective Date hereof until the Closing or earlier termination of this Agreement, Seller shall cause Manager to operate and maintain the Hotel in a manner generally consistent with the manner in which Manager has operated and maintained the Hotel during the twelve (12) month period prior to the date hereof, in good condition consistent with past practice, reasonable wear and tear excepted and so as to maintain levels of Consumable Inventory consistent with past practice, subject in all events to force majeure and other circumstances or events outside of control of Seller. This covenant shall terminate at Closing but Seller shall remain liable, post-Closing for any breach that occurs pre-Closing.

(ii) From and after the Effective Date, not to sell, assign or enter into any agreement to (or negotiate, or entertain any offers to) sell or transfer the Hotel or any portion thereof, except for the provision of hotel rooms and facilities in the ordinary course. This covenant shall terminate at Closing but Seller shall remain liable, post-Closing for any breach that occurs pre-Closing.

(iii) From and after the Effective Date, Seller shall not (i) enter into any new, management agreement or Service Contracts or other agreement or encumbrance with respect to the Property, nor shall Seller enter into any agreements modifying the Service Contracts, Permitted Exceptions or the Space Lease unless: (1) (A) any such agreement or modification will not bind Purchaser or the Property after the Closing Date; (B) any such agreement or modification will be terminated effective as of the Closing Date if requested by Purchaser to do so; or (C) Seller has obtained Purchaser’s prior written consent to such agreement or modification, which consent may be granted or withheld by Purchaser in its sole discretion, and (2) Seller provides Purchaser with prior written notice of its intent to execute any such agreement or (ii) grant its consent to any action described in clause (i) above by Manager. Contracts and agreements entered into after the Effective Date in accordance with this Section 5.3(a)(iii) shall constitute, as applicable, “Service Contracts” or the “Space Lease” and be scheduled on, and (other than with respect to the Space Lease) assigned pursuant to, the Assignment of Contracts. This covenant shall terminate at Closing but Seller shall remain liable, post-Closing for any breach that occurs pre-Closing. Notwithstanding anything to the contrary contained in this Agreement, following the Effective Date, Seller shall not make any Bookings (other than bookings for individual rooms) for a date more than 1 year after the Effective Date, permit Seller or the Hotel (but same shall not apply to Manager) to have any employees, or allow any deposits under any Service Contract, Space Lease or other agreement affecting or related to the Property to be applied, utilized or refunded, without the consent of Purchaser.

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(b) On or before the Closing Date, Seller shall remove the Hotel from the scope of all barter agreements to which Seller, Manager or any member of the Seller Group is a party (whether or not same are included on the Vouchers and Barter Agreements Schedule).

(c) Subject to Section 4.4, Seller shall promptly pay and discharge any taxes that are imposed, arise or are billed prior to Closing as and when such taxes shall become due. Seller shall promptly advise Purchaser of any notices it receives from governmental agencies relating to taxes (including without limitation Taxes). The provisions of this Section 5.3(c) shall survive the Closing.

(d) Seller shall cure any late or defective RPIE filing with the Department of Finance (to the extent not cured prior to the Effective Date) and shall be fully responsible and indemnify Purchaser for any penalties imposed with respect to such late or defective filings. Seller shall instruct its Tax Certiorari attorneys to correct and remove any penalties relating to such RPIE matters at its sole cost and expense and provide adequate proof of the satisfaction and dismissal of any fees or penalties. The provisions of this Section 5.3(d) shall survive the Closing.

5.4 Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to Seller:

(a) ERISA. Purchaser is not acquiring the Property with the assets of an employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974.

(b) Organization and Authority. Purchaser has been duly organized and is validly existing and in good standing under the laws of the State of Delaware and it, or its assignee, will be qualified to do business in New York by the Closing Date. Purchaser has the full right, power and authority to purchase the Property as provided in this Agreement and to carry out Purchaser’s obligations hereunder, and all requisite action necessary to authorize Purchaser to enter into this Agreement and to carry out its obligations hereunder have been, or by the Closing will have been, taken. The person signing this Agreement on behalf of Purchaser is authorized to do so, and this Agreement is enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency and similar laws.

(c) No Breach. The execution, delivery and performance of this Agreement by Purchaser and the consummation of the transaction contemplated herein will not: (i) result in a breach or acceleration of or constitute a default under any agreement or instrument by which Purchaser is bound or affected which would have a material adverse impact on the ability of Purchaser to timely close the acquisition of the Property pursuant to the terms of this Agreement; or (ii) constitute or result in the violation or breach by Purchaser of any judgment, order, writ, injunction or decree issued against or imposed upon Purchaser or result in the violation of any applicable law, rule or regulation of any governmental authority which, with respect to any of the foregoing, would have a material adverse impact on the ability of Purchaser to timely complete the acquisition of the Property pursuant to this Agreement.

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(d) No Consents. Other than those that will be obtained, filed or given, as applicable, prior to Closing, no consent, approval or action of, filing with or notice to any governmental or regulatory authority or any other person or entity on the part of Purchaser is required in connection with the execution, delivery and performance of Agreement or the consummation of the transactions contemplated.

(e) Pending Actions. There is no action, suit, arbitration, unsatisfied order or judgment, government investigation or proceeding pending against Purchaser an adverse determination of which would, individually or in the aggregate, reasonably be expected to materially and adversely 12 interfere with the consummation of the transaction contemplated by this Agreement.

(f) Patriot Act Compliance. Neither Purchaser nor any entity controlled by Purchaser (i) is in violation of any applicable anti-money laundering or anti-bribery laws and regulations, (ii) is a person or entity listed on the Lists; (iii) is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order; or (iv) is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order.

(g) Tax Identification Number. Purchaser’s valid tax identification number is 45-1137592.

(h) Bankruptcy. No petition in bankruptcy (voluntary or otherwise), assignment for the benefit of creditors, or petition seeking reorganization or arrangement or other action under federal or state bankruptcy laws is pending against or contemplated by Purchaser or its general partner(s) or controlling shareholders or members.

5.5 Covenants of Purchaser and/or of Seller.

(a) [Intentionally Omitted.]

(b) Purchaser may at its election (but subject to the limitations of Section 3.1 above), inspect the Property for the presence of Hazardous Substances (as defined below), and, at Seller’s request, shall furnish to Seller without representation or warranty copies of any reports received by Purchaser in connection with any such inspection. Upon receipt of written request, Purchaser shall also furnish to Seller without representation or warranty copies of any other reports received by Purchaser relating to any other physical inspections of the Property conducted on Purchaser’s behalf, if any (including, specifically, without limitation, any reports analyzing compliance of the Property with the provisions of the Americans with Disabilities Act, 42 U.S.C. §12101, et seq., if applicable). As used herein, “Hazardous Substances” means all hazardous or toxic materials, substances, pollutants, contaminants, or wastes currently or hereafter identified as a hazardous substance or waste in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as “CERCLA”), as amended, the Superfund Amendments and Reauthorization Act (commonly known as “SARA”), the Resource Conservation and Recovery Act (commonly known as “RCRA”), or any other federal, state or local legislation or ordinances applicable to the Property (collectively, “Environmental Laws”).

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Purchaser hereby assumes full responsibility for its inspections of the Property regarding Hazardous Substances and irrevocably waives any claim against Seller and releases Seller from all liability arising from the presence of Hazardous Substances on the Property. Notwithstanding the foregoing, Purchaser does not waive and hereby retains the right to recover from Seller in connection with any claim by any third party (other than a governmental authority) for personal injury arising from or relating to any alleged exposure to Hazardous Substances at, on, under, about, within or migrating to or from the Property prior to the Closing, but not to assert claims in addition to such claims asserted against Purchaser.

(c) Not later than three (3) days prior to the Closing, Seller shall send, or cause the Manager to send, written notice to guests or other persons who have safe deposit boxes at the Hotel advising of the sale of the Hotel and requesting verification or removal of the contents within two (2) days. The safe deposit boxes of guests or other persons not responding to said written notice shall be opened only in the presence of the Manager or representatives of both Seller and Purchaser. The contents of all boxes opened as aforesaid shall be listed at the time such boxes are opened and each such list shall be signed by or on behalf of the Manager or by or on behalf of Seller and Purchaser, and Purchaser shall not be liable or responsible for any items claimed to have been in said boxes unless such items are included in such list. Seller agrees to indemnify, defend and hold Purchaser harmless from and against any liability or responsibility for any items claimed to have been in said boxes but not included on such list and Purchaser agrees to indemnify, defend and hold Seller harmless from and against any liability or responsibility for items claimed to have been in said boxes and included in such list and all claims, losses and liabilities with respect thereto arising out of the acts or omissions of Purchaser after the Closing Date.

(d) All baggage or other property of guests of the Hotel which has been checked with or left in the care of Seller and remains in Seller’s care as of the Cut-Off Time shall be inventoried and tagged jointly by Seller and Purchaser. Purchaser hereby agrees to defend, indemnify and hold harmless Seller against any claims, losses or liabilities in connection with such tagged baggage and property arising out of the acts or omissions of Purchaser from and after the Closing Date. Seller hereby agrees to defend, indemnify and hold harmless Purchaser against all claims, losses and liabilities with respect to such tagged baggage and property arising out of the acts or omissions of Seller prior to the Closing Date.

(e) Purchaser shall honor (and shall cause its manager to honor) all reservations made in the ordinary course of business at the Hotel and in accordance with this Agreement (including honoring the rates at which such reservations were made, including reservations made on a wholesale, reward points redemption, or other basis), or for any related conference, banquet, or meeting space or any other facilities in connection with the Hotel made by Seller on or prior to the Cut-Off Time for periods on or after the Closing Date.

The provisions of this Section 5.5 shall survive Closing or any earlier termination of this Agreement.

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5.6 Employees.

(a) For purposes of this Agreement, (i) “Hotel Employees” means, collectively, all individuals employed at the Hotel by Manager or Seller as of the Closing Date, irrespective of whether such individuals are active or on leaves of absence or otherwise inactive but still employed at the Hotel, and (ii) “Bargaining Unit Employees” means all employees of Seller or Manager who work at the Hotel and are covered by the Collective Bargaining Agreement (defined below). The provisions of this Agreement set forth in Sections 5.6(b) through Section 5.6(f) will apply to Purchaser or Manager, as applicable, to the extent and only to the extent that Seller immediately before the Closing has a corresponding and direct obligation to Hotel Employees or to Bargaining Unit Employees and to their union representatives, and the obligation of Purchaser or Manager, as applicable, thereunder will be only to the same extent as the obligation of Seller. The provisions of Section 5.6(f), and any obligation of Purchaser or Manager thereunder shall be to the same extent and have the same nature as that of Seller immediately before the Closing. The provisions of Section 5.6(h) will operate and be applied, if and only to the extent that Seller has an obligation to contribute to the Retirement Plan that runs directly to such plan. Nothing in this Section 5.6 is intended by its own force and without the consent of Purchaser to enlarge any obligation or commitment of Purchaser or Manager beyond the obligation or commitment that Seller has immediately before the Closing.

(b) Purchaser agrees that it will cause the Manager to continue to employ, following the Closing, the Hotel Employees (the “Continuing Employees”) so that Seller shall not be required to give any layoff, closing or other termination notices or otherwise incur any liability pursuant to the provisions of the Federal Worker Adjustment and Retraining Notification Act. 29 U.S.C. 2101-2109 (the “Federal WARN Act”), the New York State Worker Adjustment and Retraining Notification Act, N.Y. Labor Law §860 et seq. and 12 NYCRR Part 921 (“New York WARN Act”). Purchaser further agrees that (i) all Bargaining Unit Employees shall be offered employment in accordance with Section 5.6(e) below, (ii) Purchaser or, as the case may be, the Manager shall be required to assume and discharge, in accordance with their terms, all obligations and liabilities of Seller or Manager with respect to costs of termination of any Hotel Employee incurred after the Closing including, without limitation, any severance claim made after the Closing or arising from the transactions contemplated by this Agreement.

(c) From and after the Closing, Purchaser or Manager (i) shall be solely responsible for complying or causing compliance with all applicable provisions of federal, state and municipal laws and regulations relating to Continuing Employees, including Purchaser’s covenants set forth in this Section 5.6, including without limitation compliance with any applicable provisions of the Federal WARN Actor the New York WARN Act, and (ii) other than with respect to acts or omissions of Seller and/or Manager (whether same occur prior to or following the Closing Date), hereby agrees to indemnify, defend, protect and hold Seller, Manager, and their respective affiliates harmless from and against any and all liabilities, debts, costs, expenses, damages, attorneys’ fees and disbursements arising out of any violation of the Federal WARN Act or the New York WARN Act in connection with the transaction contemplated by this Agreement. Seller agrees to indemnify, defend, protect and hold Purchaser and its affiliates harmless from and against any and all liabilities, debts, costs, expenses, damages, attorneys’ fees and disbursements arising out of any violation of the Federal WARN Act or the New York WARN Act for (A) any period prior to the Closing and (B) with respect to all acts or omissions of Seller and/or Manger (whether same occur prior to or following the Closing Date).

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(d) During the period prior to Closing, the parties agree to reasonably cooperate and also to consult on a regular basis and coordinate their activities relating to employee matters so as to facilitate a smooth transition of Hotel operations and the continued proper performance by the Hotel Employees of their respective duties up to Closing. Between the Effective Date and Closing, other than in the ordinary course of operations, Seller and/or Manager shall not replace, layoff or terminate any of the Hotel Employees, without Purchaser’s prior written consent, which consent may not be unreasonably withheld. Seller shall promptly deliver to Purchaser copies of any written materials delivered or received relating to Union representation of Hotel Employees, and Seller shall keep Purchaser updated with respect to the status of any discussions with respect thereto.

(e) Purchaser or Manager shall: (i) credit the Continuing Employees whose terms and conditions of employment are not covered by the Collective Bargaining Agreement with their original date of hire with the Hotel by the Seller or Manager or their predecessors for purposes of any length of service requirements, waiting periods, vesting periods, or differential benefits based on length of service in any benefit plan established or maintained by or on behalf of Purchaser (or Purchaser’s manager) for which such Hotel Employees may be eligible after the Closing; (ii) provide, subject to the consent of any third-party insurer or other similar third party having liability for benefit payments, that any pre-existing conditions, restrictions or waiting periods under any benefit plan established by or on behalf of Purchaser or Manager providing medical, dental, vision, or prescription drug coverage or benefits are waived to the extent necessary and possible under the applicable plans to provide immediate coverage for Hotel employees who are hired for the Hotel following termination of such Hotel Employees’ coverage under the benefit plans maintained by or on behalf of Seller.

(f) Without limiting any other provision of this Section 5.6, (i) Seller has informed Purchaser that Seller is a party to and is bound by the terms of that certain Collective Bargaining Agreement between Hotel Association of New York, Inc. and New York Hotel and Motel Trades Council, AFL-CIO (“Union”) dated as of July 1, 2006, (the “Collective Bargaining Agreement”), (ii) a copy of the Collective Bargaining Agreement has previously been delivered or made available to Purchaser for its review, and (iii) Purchaser shall cause Manager to retain all Bargaining Unit Employees following the Closing on an uninterrupted basis, without loss of seniority, compensation, benefits or other terms and conditions of employment subject to the Collective Bargaining Agreement and applicable law, and (iv) the Purchaser will cause Manager to recognize the Union and assume and be bound by the Collective Bargaining Agreement from and after the Closing Date.

(g) Under the Collective Bargaining Agreement, Seller currently contributes, on a monthly basis, various amounts under the (A) New York Hotel Trades Council and Hotel Association of New York City, Inc. Health Benefits Fund, (B) New York Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund, (C) New York Hotel Trades Council and Hotel Association of New York City, Inc. Prepaid Legal Services Fund, and (D) New York Hotel Trades Council and Hotel Association of New York City, Inc. Training and Scholarship Fund (collectively, the “Union Employee Benefit Funds”). At Closing, accrued but not yet payable with respect to the Union Employee Benefit Funds shall be prorated, with the appropriate party receiving a credit to the Purchase Price, on a pro rata basis base on the date Closing occurs.

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(h) Retirement Plan.

(i) The Seller and the Manager are currently “employers” with respect to the Hotel for purposes of Title IV of ERISA, and subsequent to the Closing Date, the Seller and Manager might otherwise have had an obligation to contribute to the New York Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund (the “Retirement Plan”) with respect to the Hotel, and accordingly, the parties have agreed to include provisions herein sufficient to comply with Section 4204 of ERISA. Seller and Purchaser agree that during the Contribution Period (as defined below), Purchaser (to the extent Seller and Manager have had an obligation to contribute) shall, either directly or through Manager, make contributions to the Retirement Plan in accordance with the Collective Bargaining Agreement, for substantially the same number of contribution base units, within the meaning of Section 4001(a)(11) of ERISA, for which Seller or Manager had an obligation to contribute with respect to the Hotel. If, as a result of a failure to comply with the foregoing requirements or as a result of any other action by Purchaser, Seller or Manager incurs any withdrawal liability under the Retirement Plan with respect to the Hotel, the Purchaser shall indemnify, defend, and hold Seller and any of its ERISA affiliates harmless from and against any such liability and all related costs and expenses, including reasonable attorneys’ fees. Purchaser agrees to reasonably cooperate with Seller, Manager and/or Retirement Plan representatives with respect to any inquiry or reasonable request for information and assistance in order to facilitate the transfer of the contribution obligation with respect to the Retirement Plan from Seller and Manager to Purchaser or Manager. The parties agree that they will notify the Retirement Plan of their intention that this transaction comply with Section 4204 of ERISA. Subject to Section 5.6(h)(ii), during the period commencing on the first day of the plan year following the Closing Date and ending on the expiration of the fifth such plan year (the “Contribution Period”), Purchaser or Manager shall provide to the Retirement Plan either a bond, letter of credit, or an escrow in an amount and manner meeting the requirements of Section 4204 of ERISA. The cost of any bond, letter of credit, or escrow provided under this Section 5.6(h)(i) shall be paid by Purchaser.

(ii) To the extent required pursuant to Section 4204(a)(3) of ERISA, Seller and Manager shall provide to the Retirement Plan a bond or escrow equal to the present value of the withdrawal liability Seller would have had to the Retirement Plan with respect to the assets acquired by Purchaser pursuant to this Agreement (but for the provisions of Section 4204 of ERISA) or, if greater, an amount determined under Section 4204(a)(1)(B) of ERISA, reduced to the extent provided under Section 4204(a)(3) of ERISA in the event only a portion of Seller’s or Manager’s assets are distributed during the Contribution Period. If Purchaser or Manager at any time withdraws from the Retirement Plan in a complete or partial withdrawal with respect to the assets acquired by Purchaser pursuant to this Agreement during the Contribution Period, Purchaser shall be primarily liable and pay, and Seller and Manager shall be secondarily liable for, any withdrawal liability Seller or Manager would have had to the Retirement Plan with respect to the Hotel (but for the provisions of Section 4204 of ERISA) if any withdrawal liability of Purchaser with respect to such Retirement Plan is not paid. Purchaser shall indemnify and hold Seller and Manager harmless for any withdrawal liability incurred by

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Seller or Manager pursuant to the preceding sentence. Purchaser agrees to provide Seller and Manager with reasonable advance notice of any action or event which could result in the imposition of any withdrawal liability contemplated by this Section 5.6(h)(ii), and in any event Purchaser shall immediately furnish Seller and Manager with a copy of any notice including, but not limited to a notice of withdrawal liability, it may receive with respect to the Retirement Plan, together with all the pertinent details. If any such withdrawal liability shall be assessed against Purchaser, Purchaser further agrees to provide Seller and Manager with reasonable advance notice of any intention on the part of Purchaser not to make full payment of any withdrawal liability when the same shall become due. Any proposed notice or communication to the Retirement Plan relating to Purchaser’s obligations under this Section shall be provided to Seller and Manager at least ten (10) days before such notice is provided to the Retirement Plan, and the form of such notice and communication shall be subject to Seller’s and Manager’s written approval, which approval shall not be unreasonably withheld. Notwithstanding anything contained in this Section 5.6(h)(ii) to the contrary, Purchaser shall not be obligated to provide any bond, letter of credit, or escrow in the event and to the extent Purchaser obtains from the Retirement Plan or the Pension Benefit Guaranty Corporation a proper variance or exemption under Section 4204(c) of ERISA and the applicable regulations thereunder, provided any and all requirements of said variance or exemption are met and Purchaser approves such exception. Upon Purchaser’s request, Seller and Manager agree to reasonably cooperate with Purchaser in providing the Retirement Plan with notice of the parties’ intention that this transaction be covered by Section 4204 of ERISA and in providing Purchaser with Seller’s and Manager’s annual contributions to the Retirement Plan for the current plan year and the last three complete plan years of the Retirement Plan.

(i) Purchaser agrees to indemnify, defend and hold harmless Seller, Manager and their respective officers, directors, members, owners and affiliates (herein, the “Seller-Related Parties”) from and against any liability, or judgment asserted against any of the Seller-Related Parties on account of or with respect to any of the following: (i) any causes of action, damages, complaints, judgments, orders whatsoever, and all costs and expenses (including, without limitation, reasonable attorneys’ fees and costs) incurred in connection therewith, which may be asserted against any of the Seller-Related Parties on account of any violation of the National Labor Relations Act, Title VII of the Civil Rights Act, the Fair Labor Standards Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the Vocational Rehabilitation Act of 1973, the Federal WARN Act and/or the New York WARN Act, New York Labor Law, New York State and City Human Rights Law, and/or any other applicable federal, state or city employment statutes, laws, rules and regulations (collectively, “Employment Laws”) by Purchaser, or any designee or management company engaged by Purchaser to employ Hotel personnel (other than Manager), except to the extent such are based on the acts of any Seller Related Parties, and (ii) any claims or liabilities arising (A) under ERISA and/or any other applicable federal or state law or regulation concerning employee benefit plans with respect to the employment of employees by Purchaser or such designee or management company from and after the Closing or from the transactions contemplated by the Agreement, or (B) from or under any employee benefit plan applicable to any Continuing Employee or any other employee hired by Purchaser or such designee or management company to perform services at or for the Hotel, to the extent that any such claim or liability relates to any period of employment from and after the Closing.

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(j) Seller agrees to indemnify, defend and hold harmless Purchaser, or any designee or management company engaged by Purchaser to employ Hotel personnel and their respective officers, directors, members, owners and affiliates (herein, the “Purchaser-Related Parties”) from and against any claim, liability, or judgment asserted against any of the Purchaser-Related Parties on account of or with respect to any of the following: (i) any causes of action, damages, complaints, judgments, orders and/or claims, whatsoever, and all costs and expenses (including, without limitation, reasonable attorneys’ fees and costs) incurred in connection therewith, which may be asserted against any of the Purchaser-Related Parties on account of any violation of the Employment Laws occurring up to and including the Closing by Seller-Related Parties, except to the extent such are based on the acts of any Purchaser-Related Parties and (ii) any claims or liabilities arising (A) under ERISA and/or any other applicable federal or state law or regulation concerning employee benefit plans with respect to the employment of employees by Seller-Related Parties up to and including the Closing, or (B) from or under any employee benefit plan applicable to any Continuing Employee or any other employee hired by Purchaser or such designee or management company to perform services at or for the Hotel, to the extent that any such claim or liability relates to any period of employment up to and including the Closing.

(k) Purchaser’s and Seller’s obligations under this Section 5.6 shall survive Closing without limitation.

ARTICLE VI
DEFAULT

6.1 Default by Purchaser. If the sale of the Property as contemplated hereunder is not consummated due to Purchaser’s default hereunder, Seller shall be entitled, as its sole and exclusive remedy to terminate this Agreement and receive the Earnest Money as liquidated damages for the breach of this Agreement, it being agreed between the parties hereto that the actual damages to Seller in the event of such breach are impractical to ascertain and the amount of the Earnest Money is a reasonable estimate thereof. THEREFORE, SUBJECT TO THE PRECEDING SENTENCE, BY PLACING THEIR INITIALS BELOW, THE PARTIES ACKNOWLEDGE THAT THE EARNEST MONEY HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES’ REASONABLE ESTIMATE OF SELLER’S DAMAGES AND AS SELLER’S EXCLUSIVE REMEDY AGAINST PURCHASER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF PURCHASER. THE PARTIES ACKNOWLEDGE THAT THE PAYMENT OF SUCH LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER.

INITIALS: Seller YG      Purchaser LM

Nothing contained in this Section 6.1 shall limit or prevent Seller, after Closing has occurred, from: (a) asserting any legal or equitable claims against Purchaser for Purchaser’s obligation to pay attorneys’ fees and other amounts under Section 11.18; (b) enforcing any indemnity obligation of Purchaser under this Agreement or preclude Seller from obtaining a damage award in connection therewith; or (c) enforcing Purchaser’s other obligations and liabilities which survive Closing.

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6.2 Default by Seller. If (x) the sale of the Property as contemplated hereunder is not consummated due to Seller’s default hereunder, or (y) prior to Closing Seller defaults hereunder and, with respect to any default under this clause (y) only, such default shall continue for five (5) days after notice to Seller, then Purchaser shall be entitled, as its sole and exclusive remedy, to terminate this Agreement, receive the return of the Earnest Money and be reimbursed by Seller for all of Purchaser’s documented third party costs incurred in connection with the transactions contemplated by this Agreement, including without limitation the negotiation of this Agreement, in an aggregate amount not to exceed $250,000.00, in which event Seller shall be released from any and all other liability hereunder. Purchaser expressly waives its rights to seek monetary or other damages in the event of Seller’s default hereunder other than as expressly provided in the preceding sentence. Notwithstanding the foregoing, if Purchaser is ready, willing and able to close and Seller is obligated to close pursuant to the terms of this Agreement, then Purchaser shall have the right to file suit for specific performance against Seller in a court having jurisdiction in the country and state in which the Property is located, on or before sixty (60) days following the date upon which Closing was to have occurred (subject to the provisions of Section 4.11). Purchaser shall be deemed to have elected to waive such right to seek specific performance if it fails to file suit within such period. As material consideration to Seller’s entering into this Agreement with Purchaser, Purchaser expressly waives any right under statutory or common law or otherwise to record or file a lis pendens or a notice of pendency of action or similar notice against all of any portion of the Property unless all conditions precedent to Seller’s obligation to proceed to Closing have been satisfied or waived and Seller defaults in its obligation to proceed to Closing.

Nothing contained in this Section 6.2 shall limit or prevent Purchaser, after Closing has occurred, from: (a) asserting any legal or equitable claims against Seller for Seller’s obligation to pay attorneys’ fees and other amounts under Section 11.18; (b) enforcing any indemnity obligation of Seller under this Agreement or preclude Purchaser from obtaining a damage award in connection therewith; or (c) enforcing Seller’s other obligations and liabilities which survive Closing.

6.3 Seller’s Right to Cure Defaults. Notwithstanding anything to the contrary in this Agreement, neither party shall not have the right to exercise its remedies under Section 6.1 or 6.2, as applicable, for a default unless the party seeking to exercise remedies has provided written notice to the other party specifying in reasonable detail the nature of the default, and the other party has not cured the same within ten (10) business days after the other party’s receipt of such notice (the “Cure Period”), in which case the Outside Closing Date shall be extended until the date which is five (5) business days after the expiration of the Cure Period.

ARTICLE VII
SURVIVAL, INDEMNIFICATION, AND LIMITATIONS ON LIABILITY

7.1 Survival. The representations and warranties of Seller set forth in Section 5.1 of this Agreement, as updated by the certificate of Seller to be delivered to Purchaser at Closing in accordance with Section 4.2(e) hereof, and any other representations and warranties of Seller contained herein or in any other instrument delivered to Purchaser in connection herewith shall survive Closing (i) indefinitely with respect to the representations and warranties contained in subsections (a), (d), (f), (h), (j)(solely with respect to Environmental Laws), (n), (q), (w), and (z) of Section 5.1, (ii) for a period equal to the applicable statute of limitations with respect to the representations and warranties contained in subsections (i), (p), (r)and (u) of Section 5.1, and (iii) for a period of six (6) months with respect to the remaining representations and warranties contained in Section 5.1. The representations and warranties of Purchaser set forth in Section 5.4, as updated by the certificate of Purchaser to be delivered to Seller at Closing in accordance with Section 4.3(d) hereof, and any other representations and warranties of Purchaser contained herein or in any other instrument delivered to Seller in connection herewith shall survive the Closing (i) indefinitely with respect to the representations and warranties contained in subsections (a), (b) and (f) of Section 5.4, (ii) for a period equal to the applicable statute of limitations with respect to the representations and warranties contained in subsection (g) of Section 5.4, and (iii) for a period of six (6) months from the Closing Date with respect to the remaining representations and warranties contained in Section 5.4.

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7.2 Seller’s Indemnification. From and after the Closing, Seller shall, subject to the provisions of this Section 7.2, defend, indemnify and save harmless Purchaser and its Affiliates, and their respective employees, contractors, officers, directors, and agents (collectively, “Purchaser Indemnitees”) from and against any and all losses, injuries, claims, penalties, liabilities, fines, damages, costs or expenses (including, without limitation, reasonable attorneys’ fee and costs) (collectively, “Losses”) arising out of, resulting from or relating to:

(a) the inaccuracy of any representation or warranty of Seller;

(b) any charge, complaint or request for a grievance or an arbitration proceeding against Seller alleging a breach or default under any employment agreement or a violation of applicable law relating to personnel or employment matters made by or on behalf of any current or former employee at the Property to the extent such alleged breach, default, or violation pertains to any time period prior to the Closing Date; or

(c) the failure by Seller to perform or fulfill any covenant or agreement of Seller contained in this Agreement other than any such failure as to which Purchaser had knowledge on or before the Closing Date; or

(d) (i) any physical or personal injury or death caused to any person, or damage to property of unaffiliated third parties, to the extent such injury, death or damage occurred prior to the Closing Date in connection with the Property, and (ii) except (x) as may be the obligation of Purchaser pursuant to an express provision of this Agreement or (y) for any item for which Purchaser receives a credit at Closing (to the extent of such credit), any claims brought by any unaffiliated third party to the extent arising from acts, omissions or occurrences that occurred or accrued in connection with the Property prior to the Closing Date, including, without limitation, with respect to Service Contracts and leases. Notwithstanding the foregoing, unless otherwise specified in this Agreement neither claims for change to or remediation of the physical, structural or environmental condition of the Property nor claims of any government or governmental agency or authority relating to the physical, structural or environmental condition of the Property are subject to indemnification by Seller under clause (ii) above.

The provisions of this Section 7.2 shall survive the Closing without limitation.

7.3 Purchaser’s Indemnification. From and after the Closing, Purchaser shall, subject to the provisions of this Section 7.3, defend, indemnify and save harmless Seller and its Affiliates, and their respective employees, contractors, officers, directors, and agents (collectively, “Seller Indemnitees”) from and against any and all Losses arising out of, resulting from or relating to:

(a) the inaccuracy of any representation or warranty of Purchaser; or

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(b) the failure by Purchaser to perform or fulfill any covenant or agreement of Purchaser contained in this Agreement other than any such failure as to which Seller had knowledge on or before the Closing Date; or

(c) (i) any physical or personal injury or death caused to any person, or damage to property of unaffiliated third parties, to the extent such injury, death or damage occurred on or after the Closing Date in connection with the Property, and (ii) except (x) as may be the obligation of Seller pursuant to an express provision of this Agreement and with respect to which Purchaser did not receive a credit at Closing or (y) for any item for which Seller receives a credit at Closing (to the extent of such credit), any claims brought by an unaffiliated third party to the extent arising from acts, omissions, or occurrences that occur or accrue in connection with the Property on or after the Closing Date, including, without limitation, with respect to Service Contracts assumed by Purchaser at Closing.

The provisions of this Section 7.3 shall survive the Closing without limitation.

7.4 Notice and Resolution of Claims.

(a) Notice. Each Person entitled to indemnification pursuant to Section 7.2 or 7.3 (an “Indemnitee”) shall give written notice to the indemnifying party or parties from whom indemnity is sought (the “Indemnifying Party”) promptly after obtaining knowledge of any claim that it may have under Section 7.2 or 7.3, as applicable. The notice shall set forth in reasonable detail the claim and the basis for indemnification. Failure to give the notice in a timely manner shall not release the Indemnifying Party from its obligations under Section 7.2 or 7.3, as applicable, except to the extent that the failure materially prejudices the ability of the Indemnifying Party to contest that claim.

(b) Defense of Third Party Claims. If a claim for indemnification pursuant to Section 7.2 or 7.3 shall arise from any action made or brought by a third party that would reasonably be expected to result in indemnifiable Losses (a “Third Party Claim”), the Indemnifying Party may assume the defense of the Third Party Claim. If the Indemnifying Party assumes the defense of the Third Party Claim, the defense shall be conducted by counsel chosen by the Indemnifying Party, who shall be reasonably acceptable to Indemnitee, provided that the Indemnitee shall retain the right to employ its own counsel and participate in the defense of the Third Party Claim at its own expense (which shall not be recoverable from the Indemnifying Party under this ARTICLE VII unless (i) the Indemnitee is advised by counsel reasonably satisfactory to the Indemnifying Party that use of counsel of the Indemnifying Party’s choice would be expected to give rise to a conflict of interest, (ii) the Indemnifying Party shall not have employed counsel to represent the Indemnitee within a reasonable time after notice of the assertion of any such claim or institution of any such action or proceeding, or (iii) the Indemnifying Party shall authorize the Indemnitee in writing to employ separate counsel at the expense of the Indemnifying Party, in each of which cases the reasonable expenses of counsel to the Indemnitee shall be reimbursed by the Indemnifying Party). In no event shall the Indemnifying Party be obligated to pay the fees and expenses of more than one counsel (other than local counsel) for all Indemnitees with respect to any claim indemnified under this ARTICLE VII; provided that an Indemnitee shall be entitled to employ separate counsel at the expense of the Indemnifying Party if the Indemnitee is advised by counsel reasonably satisfactory to the Indemnifying Party that use of such other counsel would give rise to a conflict of interest, in which case the reasonable expenses of counsel to such Indemnitee shall be reimbursed by the Indemnifying Party. Notwithstanding the foregoing provisions of this Section 7.4(b), (i) no Indemnifying Party shall be entitled to settle any Third Party Claim for which indemnification is sought under Section 7.2 or 7.3 without the Indemnitee’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed, unless it has assumed the defense of such Third Party Claim and as part of the settlement the Indemnitee is released from all liability with respect to the Third Party Claim and the settlement does not impose any equitable remedy on the Indemnitee or require the Indemnitee to admit any fault, culpability or failure to act by or on behalf of the Indemnitee, and (ii) no Indemnitee shall be entitled to settle any Third Party Claim for which indemnification is sought under Section 7.2 or 7.3 without the Indemnifying Party’s prior

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written consent, which shall not be unreasonably withheld, conditioned or delayed, unless the Third Party claim is for money damages only and such settlement does not include a statement as to, or an admission of fault, culpability or a failure to act by or on behalf of the Indemnifying Party and as part of such settlement the Indemnifying Party is released from all liability (for indemnification pursuant to this ARTICLE VII and otherwise) with respect to such Third Party Claim. If the Indemnifying Party does not notify the Indemnitee within twenty (20) Business Days after receipt of the Indemnitee’s notice of a Third Party Claim of indemnity hereunder that it elects to assume the control of the defense of any Third Party Claim, the Indemnitee shall have the right to contest the Third Party Claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement and the costs of such actions by the Indemnitee shall be paid by the Indemnifying Party.

7.5 Limitations on Liability.

(a) Deductible.

(i) Seller shall not have any obligation or liability to any Purchaser Indemnitee under Section 7.2(a) unless and until the aggregate amount of Losses incurred or suffered by the Purchaser Indemnitees arising out of the matters referred to in Section 7.2(a) shall have exceeded $75,000, in which case Seller shall be obligated and liable under Section 7.2(a) only with respect to such excess. Notwithstanding the foregoing, Seller shall be liable for unpaid taxes and Losses incurred with respect to the existence of any leases other than the Space Lease without a dollar threshold.

(ii) Purchaser shall not have any obligation or liability to any Seller Indemnitee under Section 7.3(a) unless and until the aggregate amount of Losses suffered by the Seller Indemnitees arising out of the matters referred to in Section 7.3(a) shall have exceeded $75,000, in which case Purchaser shall be obligated and liable under Section 7.3(a) only with respect to such excess.

(b) Limit of Liability. The aggregate liability of Seller or Purchaser, as applicable—

(i) under Section 7.2(a) or 7.3(a) shall not exceed three percent (3%) of the Purchase Price (notwithstanding the foregoing, Seller shall be liable for unpaid taxes, unpaid employee compensation with respect to the period ending on the Closing Date, and Losses incurred with respect to the existence of any leases other than the Space Lease, without a dollar ceiling and any amounts of liability described in this parenthetical shall not count toward such three percent (3%)); and

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(ii) under Section 7.2(b), 7.2(c), 7.2(d), 7.3(b), or 7.3(c) shall not be subject to any limits.

(c) Limit on Time for Assertion of Claims. Neither Seller nor Purchaser shall have any obligation or liability pursuant to Section 7.2 or 7.3, respectively, for any breach of any representation or warranty unless notice of a claim asserting such breach shall have been given in accordance with Section 7.4 prior to the termination of the survival period applicable to such representation or warranty as set forth in Section 7.1.

7.6 Other Matters Regarding Indemnification.

(a) In the event either Seller or Purchaser (the “Claiming Party”) has actual knowledge on or before the Closing that any representation or warranty of the other is incorrect (either through independent investigation or through information and materials provided to the Claiming Party) or that a covenant of the other has been breached and the Claiming Party proceeds to Closing, then the Claiming Party shall not be permitted to assert a claim for such matters following the Closing Date.

(b) The right to be indemnified for Losses, on the terms and subject to the limitations set forth in this ARTICLE VII, shall be the exclusive remedy available to the Parties and the Indemnitees for the matters set forth in Sections 7.2 and 7.3.

ARTICLE VIII
RISK OF LOSS

8.1 Minor Damage. In the event of loss or damage to the Real Property or any portion thereof (other than loss or damage of a nature that occurs in the ordinary course that is not expected to cost more than $100,000 to repair) Seller shall promptly inform Purchaser thereof. In the event of loss or damage to the Real Property or any portion thereof which is not “major” (as hereinafter defined), this Agreement shall remain in full force and effect provided Seller shall, at Seller’s option, either (a) perform any necessary repairs (to return the Real Property to substantially the condition in which it existed immediately prior to such loss or damage), or (b) assign to Purchaser all of Seller’s right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies or condemnation awards relating to the premises in question (other than business interruption proceeds attributable to the period prior to Closing and proceeds in respect of amounts expended by or on behalf of Seller prior to Closing to restore the Property). In the event that Seller elects to perform repairs upon the Real Property, Seller shall use reasonable efforts to complete such repairs promptly and the Outside Closing Date shall be extended a reasonable time, not to exceed thirty (30) days, in order to allow for the completion of such repairs. If Seller elects to assign a casualty claim to Purchaser, the Purchase Price shall be reduced by an amount equal to the deductible amount under Seller’s insurance policy with respect to such loss or damage and not paid by Seller prior to Closing and Seller shall assign all of its rights to proceeds under the applicable policy with respect to any claim for the applicable loss (other than business interruption proceeds attributable to the period prior to Closing and proceeds in respect of amounts expended by or on behalf of Seller prior to Closing to restore the Property). Upon Closing, full risk of loss with respect to the Property shall pass to Purchaser.

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8.2 Major Damage. In the event of a “major” loss or damage to the Real Property, Purchaser may, upon notice in writing to Seller delivered within ten (10) days after Seller sends Purchaser written notice of the occurrence of such major loss or damage, terminate this Agreement by written notice to Seller, in which event the Earnest Money shall be returned to Purchaser and neither Seller nor Purchaser shall have any further rights or obligations under this Agreement except any obligations that expressly survive the termination of this Agreement. If Purchaser fails for any reason to deliver written notice of termination to Seller within ten (10) days after Seller sends Purchaser written notice of the occurrence of major loss or damage, then Purchaser shall be deemed to have elected to terminate this Agreement. If Purchaser elects to proceed with Closing, (x) Seller shall assign to Purchaser all of Seller’s right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies or condemnation awards relating to the premises in question (other than business interruption proceeds attributable to the period prior to Closing and proceeds in respect of amounts, if any, expended by or on behalf of Seller prior to Closing to make any reasonably necessary emergency repairs to the Property), and (y) the Purchase Price shall be reduced by an amount equal to the deductible amount under Seller’s insurance policy with respect to such loss or damage that has not been paid or expended by Seller prior to Closing in connection with reasonably necessary emergency repairs to the Property. Upon Closing, full risk of loss with respect to the Property shall pass to Purchaser. If Purchaser does not or is not entitled to terminate this Agreement with respect to a casualty, Seller, with Purchaser’s approval, will diligently commence and pursue initial emergency restoration of the Property so as to minimize the loss of business and good will of the Property.

8.3 Definition of “Major” Loss or Damage. For purposes of Sections 8.1 and 8.2, “major” loss or damage refers to the following (a) loss or damage to the Real Property or any portion thereof such that the cost of repairing or restoring the premises in question to a condition substantially identical to that of the premises in question prior to the event of damage would be, in the opinion of a licensed independent architect or registered professional engineer with a minimum of ten (10) years experience related to commercial real estate construction selected by Seller and approved by Purchaser, equal to or greater than ten percent (10%) of the Purchase Price or (b) any loss due to a condemnation which permanently and materially adversely modifies or impairs the continued operation of the Hotel in substantially the same manner as the Hotel is operated on the Effective Date. The provisions of this Section 8.3 are intended to supersede those of Section 5-1311 of the General Obligations Law of New York.

ARTICLE IX
COMMISSIONS

9.1 Brokerage Commissions. In the event the transaction contemplated by this Agreement is consummated, but not otherwise, Seller agrees to pay to Jones Lang LaSalle Hotels (“Broker”) at Closing a brokerage commission pursuant to a separate written agreement between Seller and Broker and Seller shall indemnify and hold Purchaser harmless with respect to any payments due and owing to Broker in connection with this transaction under such agreement. Each party agrees that should any claim be made for brokerage commissions or finder’s fees by any broker or finder other than the Broker by, through or on account of any acts of said party or its representatives, said party will indemnify, defend, protect and hold the other party free and harmless from and against any and all loss, liability, cost, damage and expense in connection therewith. The provisions of this Section 9.1 shall survive Closing or earlier termination of this Agreement.

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ARTICLE X
DISCLAIMERS AND WAIVERS

10.1 No Reliance on Documents. Except as expressly set forth in this Agreement, Seller makes no representation or warranty as to the truth, accuracy or completeness of any materials, data or information delivered by or on behalf of Seller or its brokers to Purchaser in connection with the transaction contemplated hereby including, without limitation, the Reports, material available in the E-Room, and other Seller Due Diligence Materials, provided, however, that Seller shall not intentionally alter any material, data or information for the purpose of misleading Purchaser. Purchaser acknowledges and agrees that all materials, data and information delivered by Seller to Purchaser in connection with the transaction contemplated hereby are provided to Purchaser as a convenience only and that any reliance on or use of such materials, data or information by Purchaser shall be at the sole risk of Purchaser, except as otherwise expressly stated herein. Without limiting the generality of the foregoing provisions, Purchaser acknowledges and agrees that (a) any environmental or other report with respect to the Property which is delivered by Seller to Purchaser shall be for general informational purposes only, (b) Purchaser shall not have any right to rely on any such report delivered by Seller to Purchaser, but rather will rely on its own inspections and investigations of the Property and any reports commissioned by Purchaser with respect thereto, and (c) except for matters expressly set forth in this Agreement, neither Seller nor any affiliate of Seller nor the person or entity which prepared any such report delivered by Seller to Purchaser shall have any liability to Purchaser for any inaccuracy in or omission from any such report or other materials provided to Purchaser in connection with this Agreement.

10.2 DISCLAIMERS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING: IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, PROFITABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ZONING, TAX CONSEQUENCES, LATENT OR PATENT PHYSICAL OR ENVIRONMENTAL CONDITION, UTILITIES, OPERATING HISTORY OR PROJECTIONS, VALUATION, GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE PROPERTY WITH GOVERNMENTAL LAWS, THE TRUTH, ACCURACY OR COMPLETENESS OF THE PROPERTY DOCUMENTS OR ANY OTHER INFORMATION PROVIDED BY OR ON BEHALF OF SELLER TO PURCHASER, OR ANY OTHER MATTER OR THING REGARDING THE PROPERTY. PURCHASER ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE PROPERTY “AS IS, WHERE IS, WITH ALL FAULTS”, EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING. PURCHASER HAS NOT RELIED AND WILL NOT RELY ON, AND SELLER IS

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NOT LIABLE FOR OR BOUND BY, ANY EXPRESSED OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY OR RELATING THERETO (INCLUDING SPECIFICALLY, WITHOUT LIMITATION, PROPERTY INFORMATION PACKAGES DISTRIBUTED WITH RESPECT TO THE PROPERTY AND ANY ACTUAL OR PROPOSED BUDGETS FOR THE REAL PROPERTY) MADE OR FURNISHED BY SELLER, THE MANAGER OF THE PROPERTY, OR ANY REAL ESTATE BROKER OR AGENT REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING. PURCHASER REPRESENTS TO SELLER THAT PURCHASER IS A SOPHISTICATED INSTITUTIONAL INVESTOR WITH SUBSTANTIAL EXPERIENCE AND EXPERTISE WITH INVESTMENT PROPERTIES AND HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS PURCHASER DEEMS NECESSARY TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND WILL RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO, OTHER THAN SUCH REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AS ARE EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS DELIVERED AT CLOSING. UPON CLOSING AND SUBJECT TO THE REPRESENTATIONS AND WARRANTIES OF SELLER EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS DELIVERED AT CLOSING, PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER’S INVESTIGATIONS, AND PURCHASER, UPON CLOSING, SHALL BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER (AND SELLER’S OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES AND COURT COSTS) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER (AND SELLER’S OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS RELATING TO THE CONDITION OF THE PROPERTY (INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAWS) AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING THE PROPERTY EXCEPT FOR FRAUD AND OBLIGATIONS OF SELLER UNDER THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING. EXCEPT FOR FRAUD AND OBLIGATIONS OF SELLER UNDER THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING, PURCHASER AGREES THAT SHOULD ANY CLEANUP, REMEDIATION OR REMOVAL OF HAZARDOUS SUBSTANCES OR OTHER ENVIRONMENTAL CONDITIONS ON THE PROPERTY BE REQUIRED AFTER THE CLOSING DATE, SUCH CLEAN-UP, REMOVAL OR REMEDIATION SHALL BE THE RESPONSIBILITY OF AND SHALL BE PERFORMED AT THE SOLE COST AND EXPENSE OF PURCHASER.

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The waivers and releases set forth in Sections 5.5(a) and 5.5(c) and in the immediately preceding paragraph include claims of which Purchaser is presently unaware or which Purchaser does not presently suspect to exist which, if known by Purchaser, would materially affect Purchaser’s waiver or release of Seller and the other parties referenced in this Section.

10.3 Repairs, Reserves, and Capital Expenditures. Purchaser acknowledges and agrees that except as provided in this Agreement, (a) Seller shall have no obligation to make any repairs, replacements, improvements or alterations to the Property or to expend any funds therefor, including, without limitation, any reserves that may be held for such purpose, and (b) Purchaser shall not be entitled to a credit to the Purchase Price at Closing in the event capital expenditures actually made at the Hotel for any year are less than the budgeted amount as of the date of the Closing.

10.4 Effect and Survival of Disclaimers. Seller and Purchaser acknowledge that the compensation to be paid to Seller for the Property has been decreased to take into account that the Property is being sold subject to the provisions of this Article X. Seller and Purchaser agree that the provisions of this Article X shall survive Closing.

ARTICLE XI
MISCELLANEOUS

11.1 Confidentiality.

(a) Prior to the Closing, and subject to the provisions of Section 11.2, this Agreement, the terms hereof and the Property Information shall be treated as “Evaluation Material” in accordance with that certain Confidentiality Agreement dated October 26, 2010 executed by Purchaser in favor of Seller (the “Confidentiality Agreement”).”). Notwithstanding anything to the contrary contained in the Confidentiality Agreement, as of the Effective Date, the Confidentiality Agreement is hereby amended to provide that the terms of the transfers contemplated in this Agreement, including the Purchase Price and all other financial terms, shall be deemed to be “Evaluation Material” for purposes of the Confidentiality Agreement and that Purchaser shall be entitled to disclose the Evaluation Material (1) to Purchaser’s affiliates, officers, directors, lenders, investors and prospective investors, employees, agents and representatives (including legal counsel, accountants and similar professionals to the extent Purchaser deems it reasonably necessary to inform such party, in which case Purchaser shall inform each of the foregoing parties of such party’s obligations under this Section and shall secure the agreement of such parties to be bound by the terms hereof); or (2) as otherwise required by law, rule or regulation, including the rules or regulations promulgated by the Securities and Exchange Commission (“SEC”) or the New York Stock Exchange (“NYSE”) to the extent such SEC or NYSE rules or regulations are applicable to a party. In no event shall the foregoing preclude Purchaser from providing information regarding the terms of the transfers contemplated in this Agreement to Purchaser’s direct or indirect owners (excluding any shareholders or unitholders of the Purchaser’s publicly traded parent entity or the operating partnership that is a subsidiary of such parent entity), provided that Purchaser informs each of the foregoing parties of the confidentiality of such information. The parties acknowledge and agree that effective as of the Closing, the Confidentiality Agreement shall terminate and be of no further force or effect. Purchaser shall indemnify, defend and hold Seller harmless from and against any claims arising from a breach by it of this Section 11.1(a).

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(b) The terms of the transfers contemplated in this Agreement, including the Purchase Price and all other financial terms, as well as the non-public information known by Seller relating to the Property or Purchaser and its affiliates shall remain confidential and shall not be disclosed by Seller without the written consent of Purchaser except (1) to Seller’s affiliates, officers, directors, employees, agents and representatives (including legal counsel, accountants and similar professionals to the extent Seller deems it reasonably necessary to inform such party, in which case Seller shall inform each of the foregoing parties of such party’s obligations under this Section and shall secure the agreement of such parties to be bound by the terms hereof); or (2) as otherwise required by law, rule or regulation, including the rules or regulations promulgated by the SEC or Nasdaq, to the extent such SEC or Nasdaq rules or regulations are applicable to a party, it being acknowledged by Purchaser that Seller’s parent entity will file a report on Form 8-K with the SEC following the Effective Date relating to this Agreement and that Seller shall be entitled to describe the material terms of this Agreement in its communications with investors. In no event shall the foregoing preclude Seller from providing information regarding the terms of the transfers contemplated in this Agreement to Seller’s direct or indirect owners (excluding any shareholders of the Seller’s publicly traded parent entity), provided that Seller informs each of the foregoing parties of the confidentiality of such information. Seller shall indemnify, defend and hold Purchaser harmless from and against any claims arising from a breach by it of this Section 11.1(b). The restrictions in this Section 11.1(b) shall terminate as of the Closing Date.

(c) Either party shall be entitled to an injunction restraining the other party or its agents or representatives from disclosing, in whole or in part, the confidential information governed by this Section 11.1 in violation of the provisions hereof. Nothing herein shall be construed as prohibiting either party from pursuing damages or any other available remedy at law or in equity for such breach or threatened breach of this Section 11.1 by the other party.

(d) From and after the Closing, Seller and its affiliates shall hold in confidence, and shall not disclose to third parties without the prior written consent of Purchaser, any non-public proprietary information regarding the Hotel and the Property. The foregoing shall not be deemed to restrict the ability of Seller and its affiliates to comply with their disclosure and reporting obligations under applicable law. This Section 11.1(d) shall survive the Closing.

11.2 Public Disclosure Prior to Closing, any press releases with respect to the sale contemplated herein or any matters set forth in this Agreement will be made only in the form approved by Purchaser and Seller, such approval not to be unreasonably withheld, conditioned or delayed. If a party fails to respond with specific comments or objections to the other party within two Business Days after such party is notified of and has received the proposed press release, such failure to respond shall be deemed to constitute a party’s approval of such press release. Purchaser and Seller shall mutually agree on the content of the initial press release regarding the consummation of the transaction contemplated by this Agreement following the Closing. The provisions of this Section 11.2 shall survive the Closing.

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11.3 Assignment. Purchaser may not assign or otherwise transfer this Agreement or any of its rights or obligations under this Agreement without first obtaining Seller’s written approval which may be given or withheld in Seller’s sole discretion; provided that Purchaser may assign all or any portion of this Agreement to one or more entities in which it holds, directly or indirectly, all of the equity interests. Any assignment by Purchaser of this Agreement shall not relieve Purchaser of its obligations under this Agreement and any permitted assignee must expressly assume the obligations of Purchaser in writing. Without limiting the foregoing, in no event shall Purchaser assign this Agreement to any assignee which, in the reasonable judgment of Seller, will cause the transaction contemplated hereby or any party thereto to violate the requirements of ERISA.

11.4 Notices. Any notice pursuant to this Agreement shall be given in writing by (a) personal delivery, or (b) reputable overnight delivery service with proof of delivery, or (c) legible facsimile transmission or PDF transmission completed before 5:00 p.m. (New York time) on a business day sent to the intended addressee at the address set forth below, or to such other address or to the attention of such other person as the addressee shall have designated by written notice sent in accordance herewith, and shall be deemed to have been given either at the time of personal delivery, or, in the case of expedited delivery service, as of the date actually received, or, in the case of facsimile transmission or PDF transmission, as of the date of the facsimile transmission or PDF transmission provided that an original of such facsimile or PDF is also sent to the intended addressee by means described in clauses (a), or (b) above. Notices may be given by a party’s counsel on behalf of such party as if such party had given such notice itself. Unless changed in accordance with the preceding sentence, the addresses for notices given pursuant to this Agreement shall be as follows:

If to Seller:

Royalton, LLC
c/o Morgans Group, LLC
475 Tenth Avenue
New York, NY 10018
Attention: David Smail, Executive Vice President & Chief Legal Officer
Facsimile No.: (212) 277-4172
Email: david.smail@morganshotelgroup.com

With a copy to:

Hogan Lovells US LLP
555 13^th Street NW
Washington, DC 20004
Attention: Bruce W. Gilchrist
Facsimile No.: (202) 637-5600
Email: bruce.gilchrist@hoganlovells.com

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And to:

Hogan Lovells US LLP
875 Third Avenue
New York, New York 10022
Attention: Mitchell R. Lubart, Esq.
Facsimile no. (212) 918-3100
Email: mitchell.lubart@hoganlovells.com

If to Purchaser

c/o FelCor Lodging Trust Incorporated
545 E. John Carpenter Freeway
Suite 1300
Irving, TX 75062
Attention: Charlie Nye
Facsimile no. 972 444 4949
Email: cnye@felcor.com

With a copy to:

c/o FelCor Lodging Trust Incorporated
545 E. John Carpenter Freeway
Suite 1300
Irving, TX 75062
Attention: Michael DeNicola
Facsimile no. 972 444 4949
Email: mdenicola@felcor.com

With a copy to:

Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166-0193
Attention: Andrew Lance, Esq.
Facsimile no. 212.351.4035
Email: alance@gibsondunn.com

11.5 Modifications. This Agreement cannot be changed orally, and no agreement shall be effective to waive, change, modify or discharge it in whole or in part unless such agreement is in writing and is signed by Seller and Purchaser.

11.6 Calculation of Time Periods; Time is of the Essence. Unless otherwise specified, in computing any period of time described in this Agreement, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday under the laws of the State in which the Real Property is located, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday or legal holiday. The final day of any such period shall be deemed to end at 5:00 p.m., New York time. Subject to the right of adjournment granted in Section 4.10(b), time shall be of the essence with respect to the obligations of the parties to consummate the Closing on or before the Outside Closing Date.

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11.7 Successors and Assigns. Subject to the limitations on assignment set forth in Section 11.3 above, the terms and provisions of this Agreement are to apply to and bind the permitted successors and assigns of the parties hereto.

11.8 Entire Agreement. This Agreement, including the Exhibits, the Schedules and the Confidentiality Agreement contain the entire agreement between the parties pertaining to the subject matter hereof and fully supersedes all prior written or oral agreements and understandings between the parties pertaining to such subject matter.

11.9 Further Assurances. Each party agrees that it will without further consideration execute and deliver such other documents and take such other action, whether prior or subsequent to Closing, as may be reasonably requested by the other party to consummate more effectively the purposes or subject matter of this Agreement. Without limiting the generality of the foregoing, Purchaser shall, if requested by Seller, (a) execute acknowledgments of receipt with respect to any materials delivered by Seller to Purchaser with respect to the Property, and (b) obtain sellers’ permits for any sales activities conducted at the Property prior to Closing and/or obtain “sale for resale certificates” for any Personal Property that may be sold after the Closing. The provisions of this Section 11.9 shall survive Closing.

11.10 Counterparts; Facsimile Signatures. This Agreement may be executed in counterparts, and all such executed counterparts shall constitute the same agreement. It shall be necessary to account for only one such counterpart in proving this Agreement. In order to expedite the transaction contemplated herein, telecopied, facsimile or PDF signatures may be used in place of original signatures on this Agreement. Seller and Purchaser intend to be bound by the signatures on the telecopied, facsimile or PDF document, are aware that the other party will rely on the telecopied, facsimile or PDF signatures, and hereby waive any defenses to the enforcement of the terms of this Agreement based on the form of signature.

11.11 Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement shall nonetheless remain in full force and effect.

11.12 Applicable Law. THIS AGREEMENT IS PERFORMABLE IN THE STATE OF NEW YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE SUBSTANTIVE FEDERAL LAWS OF THE UNITED STATES AND THE LAWS OF SUCH STATE. SELLER AND PURCHASER HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN A STATE OR FEDERAL COURT SITTING IN THE STATE OF NEW YORK. PURCHASER AND SELLER AGREE THAT THE PROVISIONS OF THIS SECTION 11.12 SHALL SURVIVE THE CLOSING OF THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT.

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11.13 No Third Party Beneficiary. The provisions of this Agreement and of the documents to be executed and delivered at Closing are and will be for the benefit of Seller and Purchaser only and are not for the benefit of any third party, and accordingly, no third party shall have the right to enforce the provisions of this Agreement or of the documents to be executed and delivered at Closing.

11.14 Exhibits and Schedules. The following schedules or exhibits attached hereto shall be deemed to be an integral part of this Agreement:

Schedule 1.1(a) — Legal Description of Land
Schedule 1.1(c) — Excluded Personal Property
Schedule 1.1(e)-1 — Service Contracts
Schedule 1.1(e)-2 — Equipment Leases
Schedule 1.1(f) — Intellectual Property
Schedule 1.2(b)(vi) — Space Lease
Schedule 2.6 — Sidewalk Violation Notices
Schedule 3.1(a) — Due Diligence Items
Schedule 3.2 — Reports
Schedule 5.1(i) — Employee Matters: Collective Bargaining and Union Agreements
Schedule 5.1(m) — Reward Plans
Schedule 5.1(o) — Permits
Schedule 5.1(p) — Special Tax Assessments and Agreements Relating to Taxes
Schedule 5.1(z)(vi) — Non-Qualified Deferred Compensation Plans

Exhibit A — Deed
Exhibit B — Bill of Sale
Exhibit B-2 — Bill of Sale for Alcoholic Beverages (Seller)
Exhibit B-3 — Bill of Sale for Alcoholic Beverages (43^rd Restaurant LLC)
Exhibit C — Assignment of Contracts
Exhibit D — [Intentionally Omitted]
Exhibit E — FIRPTA Certificate
Exhibit F — Title Affidavit
Exhibit G — IWA Assumption Agreement
Exhibit H — [Intentionally Omitted]
Exhibit I — Pro Forma Title Policy
Exhibit J — Escrow Agreement
Exhibit K —Trademark Assignment

11.15 Captions. The section headings appearing in this Agreement are for convenience of reference only and are not intended, to any extent and for any purpose, to limit or define the text of any section or any subsection hereof.

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11.16 Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any exhibits, schedules or amendments hereto. Singular words shall connote the plural as well as the singular, and plural words shall connote the singular as well as the plural, and the masculine shall include the feminine and the neuter, as the context may require. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”

11.17 Termination of Agreement. It is understood and agreed that if either Purchaser or Seller terminates this Agreement pursuant to a right of termination granted hereunder, such termination shall operate to relieve Seller and Purchaser from all obligations under this Agreement, except for such obligations as are specifically stated herein to survive the termination of this Agreement.

11.18 Attorneys Fees. If any action or proceeding is commenced by either party to enforce their rights under this Agreement or to collect damages as a result of the breach of any of the provisions of this Agreement, the prevailing party in such action or proceeding, including any bankruptcy, insolvency or appellate proceedings, shall be entitled to recover all reasonable costs and expenses, including, without limitation, reasonable attorneys’ fees and court costs, in addition to any other relief awarded by the court.

11.19 No Waiver. Failure of either party at any time to require performance of any provision of this Agreement shall not limit the party’s right to enforce the provision. Waiver of any breach of any provision shall not be a waiver of any succeeding breach of the provision or a waiver of the provision itself or any other provision.

11.20 No Reservation of Property. The preparation and/or delivery of unsigned drafts of this Agreement shall not create any legally binding rights in the Property and/or obligations of the parties, and Purchaser and Seller acknowledge that this Agreement shall be of no effect until it is duly executed by both Purchaser and Seller. Purchaser understands and agrees that Seller shall have the right to continue to market the Property and/or to negotiate with other potential purchasers of the Property until the satisfaction or waiver in writing of all conditions to the obligations of Purchaser under this Agreement.

11.21 Exclusivity. Seller agrees neither it, nor any other member of the Seller Group will solicit, accept, negotiate, or otherwise pursue any offer related to the sale or other transfer or conveyance of the Property unless and until this Agreement is terminated in accordance with the provisions contained herein.

11.22 No Recordation. Purchaser shall not record this Agreement, nor any memorandum or other notice of this Agreement, in any public records.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the Effective Date.

SELLER:
ROYALTON, LLC,
a Delaware limited liability company
	By: Morgans Group LLC, its Managing Member
		By: Morgans Hotel Group Co., its Managing Member
By:	/s/ Yoav Gery
	Name: Yoav Gery
	Title:   Authorized Signatory
PURCHASER:
ROYALTON 44 HOTEL, L.L.C.,
a Delaware limited liability company
By:	/s/ Larry J. Mundy
	Name: Larry J. Mundy
	Title:   Senior Vice President

Signature Page to Royalton Purchase and Sale Agreement

Parent Guaranty

MORGANS GROUP LLC, a Delaware limited liability company (“Guarantor”) (which by its execution of this Parent Guaranty acknowledges to Purchaser that it is under common control with Seller and will derive substantial benefit from the sale of the Property pursuant to the Agreement), agrees to and does hereby absolutely and unconditionally guarantee the payment and performance of (i) Seller’s obligations under the Agreement prior to Closing and (ii) after the Closing, each of the obligations of Seller under the Agreement which survive Closing, each of which obligations of Seller in clauses (i) and (ii) being subject to any limitations set forth in the Agreement, if applicable, on the remedies against Seller which are available to Purchaser upon the occurrence of a default by Seller under the Agreement (each, an “Obligation” and collectively, the “Obligations”). The term “Closing” as used in this Parent Guaranty shall include a closing of the sale of the Property resulting from a suit for specific performance.

Guarantor hereby waives any right to require Purchaser to (i) proceed against Seller or pursue any rights or remedies with respect to the Agreement, or (ii) pursue any other remedy whatsoever in Purchaser’s power. Purchaser shall have the right, subject to the limitations set forth in the Agreement, to enforce this Parent Guaranty regardless of the release or discharge of Seller by operation of law.

The liability of Guarantor under this Parent Guaranty shall not be deemed to have been waived, released, discharged, impaired or affected by reason of the release or discharge of Seller in any receivership, bankruptcy, winding-up or other creditors’ proceedings or the rejection, disaffirmance or disclaimer of the Agreement by any party in any such action or proceeding.

Guarantor authorizes Seller, without notice or consent and without affecting, impairing or discharging Guarantor’s liability hereunder, to from time to time (a) renew, modify, amend, extend or discharge the provisions of the Obligations, or of any other term contained within the Agreement, and (b) exercise or refrain from exercising any of its rights or obligations under the Agreement, at law or in equity. Guarantor’s liability hereunder shall not be impaired by Purchaser’s release in whole or in part of Seller or any member in Seller (other than Guarantor) from liability. Guarantor may not assign its obligations under this Parent Guaranty.

Reasonable attorneys’ fees and all other costs and expenses that may be incurred in the enforcement, or in defending the enforcement, of this Parent Guaranty and/or the Agreement shall be paid by the prevailing party. The parties agree that the obligation of the prevailing party to pay all attorneys’ fees and other costs and expenses incurred in pursuing or enforcing rights under this Parent Guaranty, or in defending any such action, whether in litigation, or with respect to the Obligations or this Parent Guaranty, or in administrative, bankruptcy or reorganization proceedings, shall not be subject to any cap on liability set forth in the Agreement (nor be counted toward any such cap), and, if the Purchaser is the prevailing party, shall constitute obligations which are guaranteed hereunder.

Guarantor represents and warrants to Purchaser that (i) it is a Delaware limited liability company, duly organized, validly existing and in good standing under the laws of the state in which it was formed, (ii) it has the power, right, authority and legal capacity to execute and deliver this Parent Guaranty and to fully perform and observe the terms hereof, (iii) the execution, delivery and performance by it of this Parent Guaranty has been duly authorized by all necessary action on behalf of Guarantor, (iv) all of the persons who execute and deliver this Parent Guaranty on behalf of Guarantor have been duly authorized and empowered on behalf of Guarantor so to do, (v) this Parent Guaranty is the valid and binding obligation of Guarantor enforceable against it in accordance with its terms, (vi) the execution, delivery and performance by it of this Parent Guaranty will not (A) violate any provision of any of its organizational documents, (B) require it to obtain any consent, approval or action of, or make any filing with or give any notice to, any person, (C) violate, conflict with or result in the breach of any of the terms of, result in a material modification of the effect of, otherwise give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both constitute) a default (by way of substitution, novation or otherwise) under, any agreement to which it or any of its affiliates (whether now or formerly existing) is a party or by or to which any of them or any of their properties may be bound or subject, (D) violate any order, judgment, injunction, award, decree or writ of any governmental body, entity or authority against, or binding upon, it or any of its affiliates or upon any of its or their properties or the business of Guarantor or (E) violate any law, statute, code, ordinance, regulation or other requirement of any governmental body, entity or authority, and (vii) there is no provision in the organizational documents of Guarantor that would prevent or limit, or is otherwise inconsistent with, Guarantor’s execution and delivery of, and performance under, this Parent Guaranty.

All notices to be delivered to Guarantor in respect of this Parent Guaranty shall be delivered to Guarantor at the address specified for Seller in the Agreement to which this Parent Guaranty is attached.

Guarantor hereby absolutely, irrevocably and unconditionally covenants and agrees that it is liable for the Obligations as a primary obligor and not merely as a surety, and that Guarantor shall fully perform each and every term and provision this Parent Guaranty. This Parent Guaranty is a guaranty of payment and performance and is not a guaranty of collection. If all or any part of the Obligations shall not be paid by Seller when the same became due and payable Guarantor shall, promptly upon written notice by Purchaser, pay in lawful money of the United States of America, the amount due on the Obligations to Purchaser at Purchaser’s address as set forth in the Agreement. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Obligations, and may be made from time to time with respect to the same or different items of Obligations. It shall not be necessary for Purchaser (and Guarantor hereby waives any rights which Guarantor may have to require Purchaser), in order to enforce this Parent Guaranty or the obligations of Guarantor hereunder, first to (a) institute suit or exhaust its remedies against Seller, (b) join Seller or any others liable on the Obligations in any action seeking to enforce this Parent Guaranty or the obligations of Guarantor hereunder, or (c) resort to any other means of obtaining payment of the Obligations. Purchaser shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Obligations.

The obligations of Guarantor under this Parent Guaranty shall remain in full force and effect without regard to, and shall not be impaired or affected by: (a) any exercise or nonexercise by Purchaser or its successors or assigns of any right, power or remedy or the waiver of any such right, power or remedy (except to the extent any such action, inaction, delay or omission gives Purchaser a valid and enforceable defense against the Obligation); or (b) any action or inaction, or any delay or omission in the exercise of any power or remedy on the part of Purchaser (except to the extent any such action, inaction, delay or omission gives Purchaser a valid and enforceable defense against the Obligation).

Further, the obligations of Guarantor under this Parent Guaranty shall remain in full force and effect without regard to, and shall not be impaired or affected by any bankruptcy, insolvency, reorganization, liquidation, or similar transaction affecting Seller.

As of the date hereof, and after giving effect to this Parent Guaranty and the contingent obligation evidenced hereby and all of Guarantor’s other obligations (whether or not contingent), Guarantor is, and will be, solvent, and will not be dissolved or wound-up.

If any term or provision of this Parent Guaranty or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Parent Guaranty, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each such term and provision of this Parent Guaranty shall be valid and be enforced to the fullest extent permitted by law, provided that the rights and obligations of the parties are not materially altered.

This Parent Guaranty shall be binding upon and inure to the benefit of the Purchaser and Guarantor and their respective successors, assigns and legal representatives.

Other than notices required to be given under the Agreement, Purchaser shall not be required to take any action of any kind or nature against Seller or its property, or resort to any security, at any time, before Purchaser may proceed against Guarantor under this Parent Guaranty.

Nothing in this Parent Guaranty shall give the Purchaser any right to set off any amounts due to Purchaser with respect to any Obligations or any cost of enforcement of the Agreement or this Parent Guaranty against any amounts owed by Purchaser (or its affiliates) under the New Management Agreement or otherwise.

Except to the extent any of the following rights, defenses, protections, and claims are available to Seller by the Agreement, by law or otherwise, Guarantor hereby expressly waives, relinquishes and releases any right, defense, protection, claim of exoneration or other claim, and any right to assert any right, defense, protection, claim of exoneration or other claim, in any action brought on, arising out of or relating to this Parent Guaranty or otherwise: (i) requiring Purchaser to proceed against or exhaust any security held from Seller, (ii) any defense based on any legal disability or other defense of Seller or other person or by reason of the cessation or limitation of the liability of Seller from any cause; (iii) any defense based on any lack of authority of the officers, directors, partners, or agents purporting to act on behalf of Seller or any principal of Seller or any defect in the formation of Seller or any principal of Seller; (iv) any defense based on any Purchaser’s failure to disclose to Guarantor any information or circumstances bearing on Seller’s financial condition or ability to perform the Obligations; and (v) all rights and defenses arising out of any election of remedies by Purchaser, even if/though that election of remedies has destroyed Guarantor’s rights of subrogation and reimbursement against Seller. Without limiting the generality of the foregoing, Guarantor hereby expressly waives (a) notice of the acceptance of this Parent Guaranty by any person or entity and (b) notice of any adverse change in the financial condition of Seller or of any other fact that might increase Guarantor’s risk hereunder.

MORGANS GROUP LLC, a Delaware limited liability comany
	By: Morgans Hotel Group Co., its managing member
		By:	/s/ Yoav Gery Name: Yoav Gery
			Title:   Authorized Signatory

Signature Page to Royalton Parent Guaranty

Annex I

Definitions

(a) As used in this Agreement, the following terms have the meanings ascribed thereto below:

“Guest Records” shall mean guest records, profiles, histories, contact information and preferences gathered by Manager based on the guest’s stay or information provided by the guest during, prior to or after such stay at the Hotel.

“Operating Equipment” shall mean chinaware, glassware, linens, silverware, and other items of a comparable nature, and all replacements, additions and substitutions therefor.

“Manager’s Materials” shall mean materials, files, lists, records, compilations and methods of operation which constitute valuable proprietary information, trade secrets and Manager’s work product, including, by way of example and not of limitation, Guest Records, marketing techniques, customer and mailing lists and reservation systems.

“Manager’s Tradenames” shall mean the marks “Morgans”, “A Morgans Hotel”, and “Asia de Cuba” or any other tradenames, trademarks, service marks, symbols, logos or designs owned or licensed by Manager or any of its affiliates including, without limitation, the name of any restaurant, bar and/or lounge at any Morgans Hotel, and any words or designs, marketing materials, concepts and trade dress (such as the menu and the items thereon) related thereto; provided that the Trademarks shall be specifically excluded from this definition.

(b) The following terms are defined in the Section of this Agreement set forth after such term below:

Additional Earnest Money	Section 1.6(b)
Adjusting Party	Section 4.4.14
Agreement	Introduction
Assignment of Contracts	Section 4.2(c)
Bargaining Unit Employees	Section 5.6(a)
Bookings	Section 1.1(d)
Broker	Section 9.1
City Transfer Tax Law	Section 4.5.2
Claiming Party	Section 7.6(a)
Closing	Section 4.1.1
Closing Date	Section 4.1.1
Code	Section 5.1(x)(i)
Collective Bargaining Agreement	Section 5.6(f)
Confidentiality Agreement	Section 11.1
Consumable Inventory	Section 1.1(i)
Continuing Employees	Sections 5.6(b)
Contribution Period	Section 5.6(h)(i)
Cut-Off Time	Section 4.4.11
Deed	Section 4.2(a)
Earnest Money	Section 1.6(b)
Effective Date	Introduction
Employees	Section 5.1(i)
Employment Laws	Section 5.6(i)
Environmental Laws	Section 5.5(b)
Equipment Leases	Section 1.1(e)
ERISA Affiliate	Section 5.1(x)(ii)
Escrow Agent	Section 1.6(a)
Escrow Agreement	Section 1.6(c)
Excluded Permits	Section 1.1(g)
Excluded Personal Property	Section 1.1(c)
Existing Liquor Licenses	Section 4.10(a)
Federal WARN Act	Sections 5.6(b)
Final Statement	Section 4.4.14
Hazardous Substances	Section 5.5(b)
Hotel	Recitals
Hotel Employees	Section 5.6(a)
Hotel Payables	Section 4.4.6
House Bank Funds	Section 1.1(k)
Improvements	Recitals
Initial Earnest Money	Section 1.6(a)
Intangibles	Section 1.1(h)
IWA Assumption Agreement	Section 4.2(o)
knowledge	Section 5.2
Land	Recitals

Lease Year	Section 4.4.5(d)
Legal Requirements	Section 2.4(d)
Liquor Licenses	Section 4.10(b)
Lists	Section 5.1(h)
Losses	Section 7.2
Management Agreement	Section 1.7
Manager	Section 1.7
Monetary Encumbrances	Section 2.3(c)
Morgans PSA	Section 1.8
New Management Agreement	Section 1.7
New York WARN Act	Sections 5.6(b)
No New Management Agreement Election	Section 4.11
OFAC	Section 5.1(h)
Order	Section 5.1(h)
Outside Accountants	Section 4.4.15
Outside Closing Date	Section 4.1.1
Percentage Rent	Section 4.4.5(d)
Permits	Section 1.1(g)
Permitted Exceptions	Section 2.4
Personal Property	Section 1.1(c)
Plans	Section 5.1(i)
Pre-Closing Date	Section 4.1.2
Preliminary Statement	Section 4.4
Property	Section 1.2(a)
Property Information	Section 3.1(a)
Purchase Price	Section 1.4
Purchaser	Introduction
Purchaser Indemnitees	Section 7.2
Purchaser-Related Parties	Section 5.6(j)
Real Property	Recitals
Receivables	Section 4.4.4(c)
Rent	Section 4.4.5
Requesting Party	Section 4.4.14
Retail Inventory	Section 1.1(i)
Retained IP	Section 1.1(f)
Retained Receivables	Section 4.4.4(c)
Retirement Plan	Section 5.6(h)(i)
Seller	Introduction
Seller Cure Period	Section 6.3
Seller Indemnitees	Section 7.3
Seller-Related Parties	Section 5.6(i)
Service Contracts	Section 1.1(e)
Sidewalk Notices	Section 2.6
Sidewalk Violation Fines	Section 2.6
Space Lease	Section 1.1(j)
State Transfer Tax Law	Section 4.5.1

Survey	Section 2.2
Taxes	Section 4.4.1(a)
Tenant Estoppel	Section 5.3(b)
Title Affidavit	Section 4.2(n)
Title Company	Section 2.1
Title IV Plans	Section 5.1(x)(ii)
Title Policy	Section 2.5
Title Report	Section 2.1
Title Update	Section 2.1
Union	Section 5.6(f)
Union Employee Benefit Funds	Section 5.6(f)
Unopened Inventory	Section 1.1(i)
Vouchers	Section 4.4.12

Schedule 1.1(a)

Legal Description of Land

ALL that certain plot, piece or parcel of land, situate, lying and being in the Borough of MANHATTAN, County of NEW YORK, City and State of NEW YORK, bounded and described as follows:

BEGINNING at a point on the northerly side of WEST 43RD STREET distant 240 feet easterly from the corner formed by the intersection of the northerly side of WEST 43RD STREET and the easterly side of the AVENUE OF AMERICA’S;

running thence northerly parallel with the AVENUE OF AMERICA’S, 200 feet 10 inches to the southerly side of WEST 44TH STREET;

thence easterly along the southerly side of WEST 44TH STREET, 49 feet 10-1/2 inches;

thence southerly along a line form an angle of 90 degrees 02 minutes 10 seconds on its easterly side with the southerly side of WEST 44TH STREET, 200 feet 10 inches to the northerly side of WEST 43RD STREET;

thence westerly along the northerly side of WEST 43RD STREET, 49 feet 9 inches to the point or place of BEGINNING.

Schedule 1.1(c)

Excluded Personal Property

None.

Schedule 1.1(e)-1

Service Contracts

1. License Agreement — Hotels and Motels, dated as of March 22, 2010, between Royalton, LLC and American Society of Composers, Authors and Publishers

2. Dean & Deluca Private Label Mini Bar Purchasing Guidelines and Restrictions, effective as of March 2, 2009, between Royalton, LLC and Dean & Deluca Brands, Inc.

3. Elavon Payment Delivery Service Billing Authorization, dated as of May 7, 2010, between Royalton, LLC and Elavon, Inc.

4. Service Agreement, dated as of August 31, 2009, between Royalton, LLC and PAETEC

5. Service Maintenance Agreement, dated as of October 7, 2010, between Micros Retail Systems, Inc. and Royalton Hotel/44 Restaurant, LLC

6. Music Performance Agreement, dated as of January 24, 2003, between Royalton, LLC and Broadcast Music, Inc.

7. Master Agreement for the Supply of Equipment, Software, Maintenance Services and Professional Services, dated as of December 20, 2000, between Royalton Hotel and MAI Systems Corporation

8. Operating Agreement, dated as of June 1, 2008, between Royalton Hotel and 1114 Sixth [Avenue] LLC

9. LodgeNet Free-to-Guest License Agreement and Addendum thereto, dated as of January 4, 2010, between LodgeNet Interactive Corporation and Royalton, LLC

10. LodgeNet Content and System Maintenance Agreement and Addendum thereto, dated as of January 4, 2010, between LodgeNet Interactive Corporation and Royalton, LLC

11. LodgeNet Work Order (FTG Receiving Equipment), dated as of January 4, 2010, between LodgeNet Interactive Corporation and Royalton, LLC

12. LodgeNet Work Order (Headend Investment), dated as of January 4, 2010, between LodgeNet Interactive Corporation and Royalton, LLC

13. Consulting Agreement, dated as of August 31, 2010 (effective as of July 1, 2010), between 43^rd Restaurant LLC and Contemporary Cocktails, Inc.

14. Master Services Agreement, dated as of July 30, 2010, between RCN Telecom Services, Inc. and Royalton, LLC

15. Computer Services Agreement, dated as of November 8, 2010, between Eleven Wireless, Inc. and Royalton, LLC

16. (iPad) Software License and Maintenance Agreement, dated as of June  _____, 2010, between Intelity Solutions, LLC and Morgans Group Management LLC

17. Linen Service Agreement, dated as of November 9, 2010, between Prestige Hospitality Services and Morgans Hotel Group

18. Customer Care Services Agreement, dated as of November 2, 2009, between Sunray Technology Ventures Inc. and Royalton Hotel

19. The TeleManager Program Services Modification Agreement, dated as of October 28, 2010, between Royalton and Systems Design & Development, Inc.

20. Avero Slingshot Master Subscription Agreement, dated as of September 11, 2007, between Morgans Hotel Group and Avero

21. Consultant Services Agreement (Interior Design), dated as of February 28, 2006, between Royalton, LLC and Roman and Williams Building Interiors

22. Consultant Services Agreement (Interior Design), dated as of October 16, 2006, between Royalton, LLC and Studio CMP

23. Consultant Services Agreement (Interior Design), dated as of January 2, 2007, between Royalton, LLC and Roman and Williams Building Interiors

24. Consultant Services Agreement (Interior Design), dated as of April 30, 2010, between Royalton, LLC and Own Entity, LLC

25. Music Services Agreement, dated as of March 19, 2008, between Morgans Hotel Group and Sauce Industries, LLC (d/b/a Gray V)

26. Agreement between Owner and Executive Architect, dated as of September 22, 2006, between Royalton, LLC and R Wade Johnson Design Inc.

27. OpenTable Client Agreement, dated as of September 11, 2007, between OpenTable, Inc. and Brasserie Forty-Four, including Exhibit C to OpenTable Client Agreement — Product & Services Order Form, dated as of July 22, 2008

28. SESAC LLC Hotel, Motel & Resort Performance License, effective as of January 1, 2008, between SESAC LLC and Royalton, LLC

29. Document Storage Agreement, dated as of February 27, 2006, between GRM Information Management Services and Royalton Hotel

30. Contract for the Removal of Non-Hazardous Trade Waste, effective as of April 1, 2009, between Royalton Hotel and IESI NY Corporation

31. Self-Service Storage Facility Occupancy Agreement, dated as of March 31, 2011, between Manhattan Mini Storage LLC and Brasserie 44

32. Automatic Payment Non-Participation Addendum, dated as of November 29, 2007, between 43^rd Restaurant LLC dba Brasserie 44 and Shift4 Corporation

33. Armored Car Service Agreement, dated as of February 1, 2010, between Garda CL Atlantic, Inc. and The Royalton Hotel

Schedule 1.1(e)-2

Equipment Leases

1. Lease Agreement, dated as of August 23, 2010, between Royalton, LLC and LDI Color Toolbox

2. Pitney Bowes Agreement, dated as of May 9, 2007, between 44^th Hotel Associates and Pitney Bowes Credit Corporation

3. (iPad) Software License and Maintenance Agreement, dated as of June  _____, 2010, between Intelity Solutions, LLC and Morgans Group Management LLC

Schedule 1.1(f)

Intellectual Property

	REGISTRATION NUMBER
TRADEMARK	(APPLICATION NUMBER)	COUNTRY
ROYALTON	1974811 (74/641687)	USA
ROYALTON	3829913 (76/698270)	USA
44	N/A (85/110574)	USA
FORTY FOUR	N/A [Common Law Mark]	USA
BAR 44 44 & Design	3484470 (77/369297)	USA
BRASSERIE 44 44 & DESIGN	3484475 (77/369393)	USA
ROYALTON	000806752 (000806752)	European Community
ROYALTON	000865147 (000865147)	European Community
ROYALTON	2148931 (2148931)	United Kingdom
ROYALTON	2168832 (2168832)	United Kingdom
THE ROYALTON HOTEL	2130038 (2130038)	United Kingdom
ROYALTON	393139 (2008730766)	Russian Federation

Schedule 1.2(b)(vi)

Space Lease

Amended and Restated Lease Agreement between Royalton, LLC and 43^rd Restaurant LLC dated as of August 31, 2000 (for leased restaurant)

Schedule 2.6

Sidewalk Violations

1.	Sidewalk Violation Number 42542, filed July 23, 1987.
2.	Sidewalk Violation Number 76402, filed May 15, 2000.

Schedule 3.1(a)

Due Diligence Items

1. Hotel Contracts. As applicable, hotel specific purchasing agreements, maintenance contracts, union contracts, and other labor agreements.

2. Licenses and Permits. Copies of all requested operating licenses including the liquor license and related documents.

3. Leases. Copies of all leases affecting the Property or any portion thereof including, but not limited to, ground, equipment and capital leases.

4. Reports. If available, copies of most current reports on toxic materials to include hazardous waste, asbestos and PCBs. Copies of most current reports related to the physical condition of the Property.

5. Plans. All available plans, specifications, permits and certificates of occupancy.

6. Capital Expenditures. Listing of all capital expenditures and improvements made to the Property during the last three years including date of expenditures and cost. Capital budget, if available, covering current year. Status of all capital expenditure programs and projects currently underway.

7. Financials. All requested books, files, financial statements, group sales and reservation reports and records relating to the operation of the Property, including, but not limited to:

• Operating budgets for the current year and previous year.

• Monthly financial statements for the current year to date and the three (3) prior years, with comparisons of actual to budget to prior year results (audited, if available). These reports should include a detailed market segmentation summary.

• Projected year-end operating results (shown monthly and year-end) for the current calendar year.

• Copies of the current year and previous year marketing plans.

• Copies of all group-booking reports and pace reports.

• Schedule of aged accounts receivable as of the most recent month and year-end with explanations for any accounts over $1,000 and 60 days old.

• Schedule of accounts payable and accrued liabilities as of the most recent month-end and year-end.

• Detail of any amounts due from/to management company, including but not limited to, fees, corporate charges, and any reimbursable.

• Schedule of any known security deposits, advance deposits, prepaid rent, gift certificates, tenant security deposits and unearned income as of the most recent month-end.

• Bank reconciliations for the past six months.

• Schedule of existing insurance coverage and historic loss runs for the last three (3) full policy years and current stub year.

8. Employees.

• List of employees, subject to union restrictions, to include position, tenure and compensation and any employee contracts and benefits.

• Collective bargaining agreements.

• Employee handbook.

• Record of recent written grievances.

• Recent historic and pending written Workmen’s Comp claims.

9. Guest Satisfactions. Copies of most recent guest satisfaction surveys.

10. Utility Bills. Copies of the most recent utility bills relating to the Real Property.

11.	Tax Bills. Copies of the most recent tax bills relating to the Real Property and a description of any items in dispute. Any tax abatement proceedings in progress.
12.	Tax Filings. Copies of business/gross receipt tax or other local tax filings.

13. Existing Title Commitment/Policy. Copies of the most recent title policy or commitment with copies of all exception documents (including unrecorded leases), and UCC searches (with copies of financing statements).

14. Survey. A copy of the most current on-the-ground as-built survey of the Real Property.

15. Litigation. List of all threatened (in writing), pending and existing litigation involving the Real Property and/or the Seller or the property manager. If available, summary of crime and accident reports for the most recent twelve-month period.

16. Compliance. Correspondence from any governmental authority regarding legal compliance.

17. Star Reports. Updated STAR Competitive Set Reports.

Schedule 3.2

Reports

1. Zoning Report, dated as of June 21, 2005, prepared by Zoning Info, Inc. for Wachovia Bank, N.A., its successors and assigns

2. LL11/98 Report of Periodic Inspection of Exterior Walls and Appurtenances for Cycle 6 Examinations at 44 West 44^th Street, Manhattan, filed as of January 31, 2007, prepared by Hugh Robotham, Architect, P.C.

3. Property Condition Report, dated as of January 31, 2011, prepared by EMG, Inc. for Morgans Group LLC

4. Phase I Environmental Site Assessment, dated as of January 31, 2011, prepared by EMG, Inc. for Morgans Group LLC

Schedule 5.1(i)

Employee Matters

Collective Bargaining and Union Agreements

1. Collective Bargaining Agreement, for the period of July 1, 2006 through June 30, 2012, by and between Hotel Association of New York City, Inc. and the New York Hotel & Motel Trades Council, AFL-CIO

2. Agreement, dated as of February 2011, by and between the New York Hotel & Motel Trades Council, AFL-CIO and Morgans Hotel Group on behalf of the Royalton Hotel

3. Agreement, dated as of September 22, 2010, by and between The Royalton Hotel and the New York Hotel & Motel Trades Council, AFL-CIO

4. Agreement, dated as of March 28, 2008, by and between the New York Hotel & Motel Trades Council, AFL-CIO and Morgans Hotel Group

5. Agreement, dated as of July 7, 2010, by and between Morgans Hotel Group on behalf of the Royalton Hotel and the New York Hotel and Motel Trades Council, AFL-CIO

6. Agreement, dated as of May 25, 2007, by and between the New York Hotel & Motel Trades Council, ALF-CIO and the Royalton Hotel

7. Me Too Agreement, dated as of August 9, 2005, by and between the Morgans Hotel Group, LLC and the New York Hotel & Motel Trades Council, AFL-CIO

Schedule 5.1(m)

Reward Points Plans

1. Rewards Participation Agreement, dated as of June 1, 2009 by and between American Express Travel Related Services Company, Inc. and Morgans Group LLC

Schedule 5.1(o)

Transferable Licenses, Franchises and Permits

Permits

1. The City of New York Department of Buildings Certificate of Occupancy #108520 issued on December 20, 1995, for a cellar, mezzanine, penthouse, roof, and twelve story fireproof building hotel

2. The City of New York Department of Buildings Place of Assembly/Certificate of Operation No. 104635600 for an eating and drinking establishment

3. Department of Buildings of New York City, Elevator Inspection/Test Report for Nos. 1P6824, 1P6825 and 1P6826 Passenger Elevators, dated as of November 29, 2010

4. Department of Buildings, Freight & Sidewalk Elevator Inspection Certificate #1S2964, dated as of November 29, 2010

5. Isseks Bros., Inc. Certificate of Compliance with local law regarding water tank sanitization and chlorination, dated November 3, 2010

6. Fire Department, City of New York, Bureau of Fire Prevention, FPIMS Account No. 98072812, Fire Safety Test Certificate for 2 Stand Pipe Siamese Connections, dated as of March 9, 2011

7. The City of New York Department of Health and Mental Hygiene, Food Service Establishment Permit with FDM, ordered as of March 16, 2011 by Royalton, LLC

8. Fire Department, City of New York, Bureau of Fire Prevention AC Permit Roof/Ceiling, issued November 17, 2010

Uncured Violations

None.

Schedule 5.1(p)

Special Tax Assessments and Agreements Relating to Taxes

None.

Schedule 5.1(z)(vi)

Non-Qualified Deferred Compensation Plans

None.

Exhibit A

Form of Deed

(see attached)

BARGAIN AND SALE DEED

FROM

ROYALTON, LLC

TO

ROYALTON 44 HOTEL, L.L.C.

Location of Property:

Street Address:	44 West 44th Street
County:	New York
State:	New York
Block:	1259
Lot:	0011

Record and Return to:

Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attention: Andrew A. Lance, Esq.
Telecopy: 212-351-4035

Tax Notices to:

Attention:

Telecopy:

BARGAIN AND SALE DEED

THIS INDENTURE, made as of the  _____  day of  _____, 2011 by ROYALTON, LLC, a Delaware limited liability company, having an address at  _____  (“Grantor”), in favor of ROYALTON 44 HOTEL, L.L.C., a Delaware limited liability company, having an address at  _____  (“Grantee”),

WITNESSETH, that Grantor, in consideration of Ten Dollars ($10.00) and other good and valuable consideration paid by Grantee, the receipt and sufficiency of which are hereby acknowledged, does hereby grant and release unto Grantee and its successors and assigns, forever, all that certain plot, piece or parcel of land lying and being in the County of New York, State of New York, as more particularly described on Exhibit A attached hereto and made a part hereof (the “Land”) (being the same premises conveyed to the Grantor by deed recorded on April 11, 1996 in Reel 2312, page 1835) and all buildings, structures and other improvements located on the Land (collectively with the Land, the “Property”);

TOGETHER with all right, title and interest, if any, of Grantor in and to any strips or gores adjoining the Property, any streets and roads abutting the Property to the center lines thereof; and

TOGETHER with the appurtenances and all the estate and rights of Grantor in and to the Property;

TO HAVE AND TO HOLD the Property unto Grantee and its successors and assigns, forever.

Grantor, in compliance with Section 13 of the Lien Law, covenants that Grantor will receive the consideration for this conveyance and will hold the right to receive such consideration as a trust fund to be applied first for the purpose of paying the cost of the improvement and will apply the same first to the payment of the cost of the improvement before using any part of the total of the same for any other purpose.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, Grantor has duly executed this indenture as of the date first above written.

ROYALTON, LLC
a Delaware limited liability company

By:

Its:

STATE OF NEW YORK	)
	)     ss:
COUNTY OF NEW YORK	)

On the  _____  day of in the year 2011, before me, the undersigned, a Notary Public in and for the above referenced State, personally appeared  _____, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person on behalf of which the individual acted, executed the instrument.

Notary Public

Exhibit A to Deed

Description of Land

44 West 44^th Street, Block 1259, Lot 0011

ALL THAT CERTAIN PLOT, PIECE OR PARCEL OF LAND, SITUATE, LYING AND BEING IN THE BOROUGH OF MANHATTAN, COUNTY, CITY AND STATE OF NEW YORK, BOUNDED AND DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT ON THE NORTHERLY SIDE OF WEST 43RD STREET, DISTANT 240 FEET EASTERLY FROM THE CORNER FORMED BY THE INTERSECTION OF THE NORTHERLY SIDE OF WEST 43RD STREET AND THE EASTERLY SIDE OF AVENUE OF THE AMERICAS;

RUNNING THENCE NORTHERLY PARALLEL WITH THE AVENUE OF THE AMERICAS, 200 FEET 10 INCHES TO THE SOUTHERLY SIDE OF WEST 44TH STREET;

THENCE EASTERLY ALONG THE SOUTHERLY SIDE OF WEST 44TH STREET, 49 FEET 10-1/2 INCHES;

THENCE SOUTHERLY ALONG A LINE FORMING AN ANGLE OF 90° 02’ 10” ON ITS EASTERLY SIDE WITH THE SOUTHERLY SIDE OF WEST 44TH STREET, 200 FEET 10 INCHES TO THE NORTHERLY SIDE OF WEST 43RD STREET;

THENCE WESTERLY ALONG THE NORTHERLY SIDE OF WEST 43RD STREET, 49 FEET 9 INCHES TO THE POINT OR PLACE OF BEGINNING.

Exhibit B

Form of Bill of Sale

BILL OF SALE

For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ROYALTON, LLC, a Delaware limited liability company (“Seller”), in connection with the sale of certain real property located in New York, New York, which is more particularly described in that certain Purchase and Sale Agreement dated as of  _____, 2011 (“Purchase Agreement”), between Seller and ROYALTON 44 HOTEL, L.L.C., a Delaware limited liability company (“Purchaser”), hereby grants, assigns, transfers, conveys and delivers to Purchaser, without recourse and without any representation or warranty (including warranty of use and warranty, express or implied, as to merchantability and fitness for any purpose) except as expressly set forth in the Purchase Agreement, all of Seller’s right, title and interest in and to the “Personal Property”, “Consumable Inventory” and the “Receivables” assigned pursuant to Section 4.4.4(c) of the Purchase Agreement, as such terms are defined in the Purchase Agreement and, in each case, solely to the extent the “Personal Property”, “Consumable Inventory” and “Receivables” are included in the definition of “Property” in the Purchase Agreement. This Bill of Sale shall be governed by the laws of the State of New York.

[Signature on following page]

IN WITNESS WHEREOF, Seller has executed this Bill of Sale as of  _____, 2011.

SELLER:

ROYALTON, LLC,

a Delaware limited liability company

By:

Its:

Exhibit B-2

Form of Bill of Sale for Alcoholic Beverages (Seller)

BILL OF SALE (LIQUOR INVENTORY)

For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ROYALTON, LLC, a Delaware limited liability company (“Seller”), in connection with the sale of certain real property located in New York, New York, which is more particularly described in that certain Purchase and Sale Agreement dated as of  _____, 2011 (“Purchase Agreement”), between Seller and ROYALTON 44 HOTEL, L.L.C., a Delaware limited liability company (“Purchaser”), hereby grants, assigns, transfers, conveys and delivers to  _____, without recourse and without any representation or warranty (including warranty of use and warranty, express or implied, as to merchantability and fitness for any purpose) except as expressly set forth in the Purchase Agreement, all of Seller’s right, title and interest in and to the “Unopened Inventory” (as such term is defined in the Purchase Agreement) that consists of alcoholic beverages. Attached hereto as Exhibit A is evidence of payment by Seller of any sales tax payable with respect to the Unopened Inventory being transferred hereunder. This Bill of Sale shall be governed by the laws of the State of New York.

[Signature on following page]

IN WITNESS WHEREOF, Seller has executed this Bill of Sale (Liquor Inventory) as of  _____, 2011.

SELLER:

ROYALTON, LLC,

a Delaware limited liability company

By:

Its:

Exhibit A

Evidence of Payment of Sales Tax

Exhibit B-3

Form of Bill of Sale for Alcoholic Beverages (43^rd Restaurant LLC)

BILL OF SALE (LIQUOR INVENTORY)

For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, in connection with the sale of certain real property located in New York, New York, which is more particularly described in that certain Purchase and Sale Agreement dated as of  _____, 2011 (“Purchase Agreement”), between ROYALTON, LLC, a Delaware limited liability company and ROYALTON 44 HOTEL, L.L.C., a Delaware limited liability company (“Purchaser”), 43^RD RESTAURANT LLC, a Delaware limited liability company hereby grants, assigns, transfers, conveys and delivers to  _____, without recourse and without any representation or warranty (including warranty of use and warranty, express or implied, as to merchantability and fitness for any purpose) except as expressly set forth in the Purchase Agreement, all of 43^rd Restaurant LLC’s right, title and interest in and to the “Unopened Inventory” (as such term is defined in the Purchase Agreement) that consists of alcoholic beverages. Attached hereto as Exhibit A is evidence of payment by 43^rd Restaurant LLC of any sales tax payable with respect to the Unopened Inventory being transferred hereunder. This Bill of Sale shall be governed by the laws of the State of New York.

[Signature on following page]

IN WITNESS WHEREOF, Seller has executed this Bill of Sale (Liquor Inventory) as of  _____, 2011.

SELLER:

43^RD RESTAURANT LLC,

a Delaware limited liability company

By:

Its:

Exhibit A

Evidence of Payment of Sales Tax

Exhibit C

Form of Assignment of Contracts

ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS,
BOOKINGS AND INTANGIBLES

THIS ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS, BOOKINGS AND INTANGIBLES (this “Assignment”) is made as of  _____, 2011, by ROYALTON, LLC, a Delaware limited liability company (“Seller”), in favor of ROYALTON 44 HOTEL, L.L.C., a Delaware limited liability company (“Purchaser”).

RECITALS

A. Seller is the owner of certain property commonly known as the “Royalton” located at 44 West 44^th Street, New York, New York.

B. Seller and Purchaser have entered into that certain Purchase and Sale Agreement dated as of  _____, 2011 (as may be amended, the “Purchase Agreement”), pursuant to which Seller has agreed to sell and Purchaser has agreed to purchase the real property described in Schedule 1.1(a) attached thereto and the improvements located thereon, on the terms and conditions stated in the Purchase Agreement. All terms not otherwise defined herein shall have the meaning assigned to them in the Purchase Agreement.

C. Pursuant to the Purchase Agreement, Seller has agreed to assign to Purchaser all of Seller’s right, title and interest to (a) the Service Contracts that Purchaser has elected to assume under the Purchase Agreement (the “Assumed Service Contracts”), as set forth on Annex 1 attached hereto (b) the Bookings, and (c) the Intangibles.

NOW, THEREFORE, Seller and Purchaser agree as follows:

1. Assignment. Seller hereby sells, assigns, transfers and conveys to Purchaser, without recourse and without representation or warranty (except to the extent expressly provided in the Purchase Agreement, as to which all of the limitations set forth in the Purchase Agreement shall apply), all of Seller’s right, title and interest in and to (a) the Assumed Service Contracts, (b) the Bookings and (c) the Intangibles.

2. Assumption. Purchaser hereby assumes the benefits of Seller and assumes and agrees to be bound by all of the covenants, obligations, liabilities, and burdens of Seller that arise or accrue from and after the date of this Assignment under or in connection with (a) the Assumed Service Contracts, (b) the Bookings, and (c) the Intangibles. This Assignment is made by Seller without recourse and without any express or implied representation or warranty whatsoever (except to the extent expressly provided in the Purchase Agreement, as to which all of the limitations set forth in the Purchase Agreement shall apply).

3. Successors. This Assignment shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, legal representatives, successors and assigns.

4. Governing Law. This Assignment shall be governed by the laws of the State of New York.

5. Further Assurances. Seller and Purchaser agree to execute such other documents and perform such other acts as may be reasonably necessary or proper and usual to effect this Assignment.

6. Counterparts. This Assignment may be executed in counterparts, each of which shall be deemed an original, and both of which together shall constitute one and the same instrument.

[signature page follows]

IN WITNESS WHEREOF, Purchaser and Seller have executed this Assignment as of the date first above written.

SELLER:

ROYALTON, LLC,

a Delaware limited liability company

By:

Its:

PURCHASER:

ROYALTON 44 HOTEL, L.L.C.,

a Delaware limited liability company

By:

Its:

Annex 1

Assumed Service Contracts

[to be completed at Closing]

Exhibit D

[Intentionally Omitted]

Exhibit E

Form of FIRPTA Certificate

CERTIFICATION OF NON-FOREIGN STATUS

A. Federal FIRPTA Certificate

Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”) provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. For U.S. tax purposes (including Code Section 1445), the owner of a disregarded entity (which has legal title to a U.S. real property interest under local law) will be the transferor of the property and not the disregarded entity. To inform the transferee that withholding of tax is not required upon the disposition of a U.S. real property interest by  _____  (the “Transferor”) the undersigned hereby certifies the following on behalf of the Transferor:

1. Transferor is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Code and the Income Tax Regulations promulgated thereunder);

2. Transferor’s U.S. tax identification number is  _____; and

3. Transferor’s office address is  _____.

Transferor understands that this certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

Transferor understands that Transferee is relying on this certification in determining whether withholding is required upon said transfer.

Under penalty of perjury the undersigned declare that they have examined this certification and to the best of their knowledge and belief it is true, correct and complete, and they further declare that they have authority to sign this certification on behalf of Transferor.

Dated as of ___________, 2011

TRANSFEROR:

____________________________________________________________,

a ___________________________________________________________

By:

Its:

Exhibit F

Form of Title Affidavit

TITLE AFFIDAVIT

Title No. 3111-00129

The undersigned (“Owner”) hereby certifies that, to the best of its knowledge:

1. That there are no leases or occupancy agreements (recorded or unrecorded) affecting the premises described on Exhibit A (the “Real Property”), or other parties in possession, except as shown on the attached Exhibit B. As to those items set forth on Exhibit B, there are no options to purchase, rights of first refusal or rights of first offer to purchase the Real Property or similar rights with respect to the Real Property contained in the respective leases and/or agreements other then specifically indicated on Exhibit B or as may be set forth in the leases or occupancy agreements.

2. There are no unrecorded claims against the Real Property, nor any set of facts by reason of which title to the Real Property might be disputed or questioned, and Owner has been in peaceable and undisputed possession of the Real Property since title was acquired.

3. There has not been any construction, repairs, alterations or improvements made, ordered or contracted to be made on or to the Real Property, nor materials ordered therefor within the last one hundred twenty (120) days, which has not been paid for; nor are there any fixtures attached to the Real Property which have not been paid for in full; and that there are no outstanding or disputed claims for any such work or item; except as shown on attached Exhibit C.

4. There has been no work done upon the Real Property by the City of New York, nor has the City of New York made any demand for any such work that may result in charges by the New York City Department of Rent and Housing Maintenance, or charges by the New York City Department of Environmental Protection for water tap closings or any related work, whether or not such charges are liens against the property which this policy insures.

5. No fee for an inspection, re-inspection, examination or service performed by the New York City Department of Buildings have been levied, charged, created or incurred that may become a lien on the Real Property. (See Section 26-128 of the Administrative Code of New York).

6. There are no other liens issued pursuant to the Administrative Code of the City of New York which may affect the Real Property.

7. The unrecorded lease between Royalton, LLC and Ian Schrager Hotel Management LLC, dated July 28, 1998 (as described in Exception 4 of Schedule B-1 to the title report dated February 24, 2011) is terminated/expired and the tenant no longer remains in possession of space at the Real Property.

This affidavit is made for the purpose of aiding Chicago Title Insurance Company and First American Title Insurance Companies (the “Title Companies”) in determining the insurability of title to the Real Property and to induce the Title Companies to issue a policy of title insurance to ROYALTON 44 HOTEL, L.L.C., a Delaware limited liability company (“Purchaser”), in connection with Purchaser’s acquisition of the Real Property from Owner. The undersigned avers the foregoing statements are true and correct to the best of its knowledge; provided that, the foregoing statements are made by the undersigned solely as of  _____, 2011, and the accuracy of such statements shall not be extended beyond such date.

As used herein, “to the best of its knowledge” shall mean the actual knowledge of Richard Szymanski (provided that, in no event shall such person have any personal liability arising under this affidavit), without any duty of inquiry or investigation, and expressly excluding the knowledge of any other shareholder, partner, member, trustee, beneficiary, director, officer, manager, employee, agent or representative of Owner or any of its affiliates.

[signature page follows]

EXECUTED this  _____  day of  _____, 2011.

OWNER:

ROYALTON, LLC,

a Delaware limited liability company

By:

Its:

STATE OF NEW YORK	)
	)     ss:
COUNTY OF NEW YORK	)

On the  _____  day of in the year 2011, before me, the undersigned, a Notary Public in and for the above referenced State, personally appeared  _____, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person on behalf of which the individual acted, executed the instrument.

Notary Public

Exhibit A

Real Property

ALL that certain plot, piece or parcel of land, situate, lying and being in the Borough of MANHATTAN, County of NEW YORK, City and State of NEW YORK, bounded and described as follows:

BEGINNING at a point on the northerly side of WEST 43RD STREET distant 240 feet easterly from the corner formed by the intersection of the northerly side of WEST 43RD STREET and the easterly side of the AVENUE OF AMERICA’S;

running thence northerly parallel with the AVENUE OF AMERICA’S, 200 feet 10 inches to the southerly side of WEST 44TH STREET;

thence easterly along the southerly side of WEST 44TH STREET, 49 feet 10-1/2 inches;

thence southerly along a line form an angle of 90 degrees 02 minutes 10 seconds on its easterly side with the southerly side of WEST 44TH STREET, 200 feet 10 inches to the northerly side of WEST 43RD STREET;

thence westerly along the northerly side of WEST 43RD STREET, 49 feet 9 inches to the point or place of BEGINNING.

Exhibit B

Leases on Real Property

None.

Exhibit G

Form of IWA Assumption Agreement

IWA ASSUMPTION AGREEMENT

This IWA Assumption Agreement ( “IWA AA”) is made and entered into as of this  _____  day of  _____, 2011, by and among Royalton, LLC, a Delaware limited liability company (the “Seller”), which owns the hotel located at 44 West 44^th Street, New York, NY commonly known as “Royalton” (the “Hotel”), whose manager, Morgans Hotel Group Management LLC, a Delaware limited liability company (the “Manager”), is the employer of the bargaining unit employees employed at the Hotel (the “Employees”), Royalton 44 Hotel, L.L.C., a Delaware limited liability company (“Buyer”), and New York Hotel and Motel Trades Council, AFL-CIO (the “Union”).

WHEREAS, Buyer has agreed to purchase the Hotel from Seller pursuant to that certain Purchase and Sale Agreement date as of  ____________, 2011, (the “Purchase Agreement”) and Manager shall operate the Hotel for Buyer and shall employ the Employees;

WHEREAS, Seller and Manager are bound to a collective bargaining agreement known as the Industry Wide Agreement between the Union and the Hotel Association of New York City, Inc. for a term of July 1, 2006 through June 30, 2012 (“IWA”);

WHEREAS, Article 59 of the IWA also provides that an owner of a hotel that is not the employer shall be bound by the Successor and Assigns provisions of the IWA and the arbitration provisions thereof as they relate to any dispute regarding the Successor and Assigns provision and shall agree to retain all bargaining unit employees, whose employment will continue uninterrupted without loss of seniority, compensation, benefits, or other terms and conditions of employment, subject to the IWA and applicable law;

IT IS NOW THEREFORE AGREED THAT:

1. Effective at the closing of the sale of the Hotel from Seller to Buyer (“Closing”), Buyer, which will not be the employer of any Employees, agrees that it has assumed and adopted, and is bound by, the Successors and Assigns provisions of the IWA and the arbitration provisions thereof as they relate to any dispute regarding the Successors and Assigns provisions and agrees to cause Manager to retain all bargaining unit employees, whose employment will continue uninterrupted without loss of seniority, compensation, benefits, or other terms and conditions of employment, subject to the IWA and applicable law.

2. Manager, as the employer of the Employees following the Closing, agrees that effective at Closing, it will continue to be bound by all terms and conditions, both economic and non-economic, of the IWA.

3. Nothing herein shall modify or limit the rights and obligations between Buyer and Seller that survive the Closing as set forth in their Purchase and Sale Agreement.

4. Effective immediately, any and all disputes between the Union and any party hereto regarding this IWA AA shall be subject to Article 26 of the IWA, the entirety of which is incorporated herein by reference.

5. This Agreement may be signed in counterparts, each of which shall be deemed an original.

IN WITNESS THEREOF, the parties have duly executed this IWA AA as of the date set forth above.

ROYALTON 44 HOTEL, L.L.C.		ROYALTON, LLC
By:		By:
	Name:		Name:
	Title:		Title:
NEW YORK HOTEL AND MOTEL		MORGANS HOTEL GROUP
TRADES COUNCIL, AFL-CIO		MANAGEMENT LLC
By:		By:
	Name:		Name:
	Title:		Title:

Assumption Agreement\IWA Assumption Agreement

Exhibit H

[Intentionally Omitted]

Exhibit I

Pro Forma Title Policy

American Land Title Association	Owner’s Policy
	Policy No: 3111-00129

OWNER’S POLICY OF TITLE INSURANCE

Issued by

CHICAGO TITLE INSURANCE COMPANY

Any notice of claim and any other notice or statement in writing required to be given the Company under this Policy must be given to the Company at the address shown in Section 18 of the Conditions.

COVERED RISKS

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B, AND THE CONDITIONS, CHICAGO TITLE INSURANCE COMPANY, a Nebraska corporation (the “Company”) insures, as of Date of Policy and, to the extent stated in Covered Risks 9 and 10, after Date of Policy, against loss or damage, not exceeding the Amount of Insurance, sustained or incurred by the Insured by reason of:

1. Title being vested other than as stated in Schedule A.

2. Any defect in or lien or encumbrance on the Title. This Covered Risk includes but is not limited to insurance against loss from

(a) A defect in the Title caused by

(i) forgery, fraud, undue influence, duress incompetency, incapacity, or impersonation;

(ii) failure of any person or Entity to have authorized a transfer or conveyance;

(iii) a document affecting Title not properly created, executed, witnessed, sealed, acknowledged, notarized, or delivered;

(iv) failure to perform those acts necessary to create a document by electronic means authorized by law;

(v) a document executed under a falsified, expired, or otherwise invalid power of attorney;

(vi) a document not properly filed, recorded, or indexed in the Public Records including failure to perform those acts by electronic means authorized by law; or

(vii) a defective judicial or administrative proceeding.

(b) The lien of real estate taxes or assessments imposed on the Title by a governmental authority due or payable, but unpaid.

(c) Any encroachment, encumbrance, violation, variation, or adverse circumstance affecting the Title that would be disclosed by an accurate and complete land survey of the Land. The term “encroachment” includes encroachments of existing improvements located on the Land onto adjoining land, and encroachments onto the Land of existing improvements located on adjoining land.

3. Unmarketable Title.

4. No right of access to and from the Land.

5. The violation or enforcement of any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to

(a) the occupancy, use, or enjoyment of the Land;

(b) the character, dimensions, or location of any improvement erected on the Land;

American Land Title Association	Owner’s Policy
	Policy No: 3111-00129

(c)	the subdivision of land; or
(d)	environmental protection

if a notice, describing any part of the Land, is recorded in the Public Records setting forth the violation or intention to enforce, but only to the extent of the violation or enforcement referred to in that notice.

6. An enforcement action based on the exercise of a governmental police power not covered by Covered Risk 5 if a notice of the enforcement action, describing any part of the Land, is recorded in the Public Records, but only to the extent of the enforcement referred to in that notice.

7. The exercise of the rights of eminent domain if a notice of the exercise, describing any part of the Land, is recorded in the Public Records.

8. Any taking by a governmental body that has occurred and is binding on the rights of a purchaser for value without Knowledge.

9. Title being vested other than as stated Schedule A or being defective

(a) as a result of the avoidance in whole or in part, or from a court order providing an alternative remedy, of a transfer of all or any part of the title to or any interest in the Land occurring prior to the transaction vesting Title as shown in Schedule A because that prior transfer constituted a fraudulent or preferential transfer under federal bankruptcy, state insolvency, or similar creditors’ rights laws; or

(b) because the instrument of transfer vesting Title as shown in Schedule A constitutes a preferential transfer under federal bankruptcy, state insolvency, or similar creditors’ rights laws by reason of the failure of its recording in the Public Records

(i) to be timely, or

(ii) to impart notice of its existence to a purchaser for value or to a judgment or lien creditor.

10. Any defect in or lien or encumbrance on the Title or other matter included in Covered Risks 1 through 9 that has been created or attached or has been filed or recorded in the Public Records subsequent to Date of Policy and prior to the recording of the deed or other instrument of transfer in the Public Records that vests Title as shown in Schedule A.

The Company will also pay the costs, attorneys’ fees, and expenses incurred in defense of any matter insured against by this Policy, but only to the extent provided in the Conditions.

IN WITNESS WHEREOF, CHICAGO TITLE INSURANCE COMPANY has caused this policy to be signed and sealed by its duly authorized officers.

Issued by: CHICAGO TITLE INSURANCE COMPANY 711 3RD AVE, 5TH FLOOR NEW YORK, NY 10017-4014 Tel (212) 880-1200    Fax (212) 880-1400 Countersigned		CHICAGO TITLE INSURANCE COMPANY
		By:	/s/ Raymond R. Quirk
			Raymond R. Quirk President
		By:	/s/ Michael L. Gravelle
			Michael L. Gravelle Secretary

Authorized Signatory

American Land Title Association	Owner’s Policy
	Policy No: 3111-00129

EXCLUSIONS FROM COVERAGE

The following matters are expressly excluded from the coverage of this policy, and the Company will not pay loss or damage, costs, attorneys’ fees, or expenses that arise by reason of:

1. (a)  Any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to

(i) the occupancy, use, or enjoyment of the Land;

(ii) the character, dimensions or location of any improvement erected on the Land;

(iii) the subdivision of land; or

(iv) environmental protection;

or the effect of any violation of these laws, ordinances, or governmental regulations. This Exclusion 1(a) does not modify or limit the coverage provided under Covered Risk 5.

(b) Any governmental police power. This Exclusion 1(b) does not modify or limit the coverage provided under Covered Risk 6.

2. Rights of eminent domain. This Exclusion does not modify or limit the coverage provided under Covered Risk 7 or 8.

3. Defects, liens, encumbrances, adverse claims, or other matters:

(a) created, suffered, assumed, or agreed to by the Insured Claimant;

(b) not Known to the Company, not recorded in the Public Records at Date of Policy, but Known to the Insured Claimant and not disclosed in writing to the Company by the Insured Claimant prior to the date the Insured Claimant became an Insured under this policy;

(c) resulting in no loss or damage to the Insured Claimant;

(d) attaching or created subsequent to Date of Policy (however, this does not modify or limit the coverage provided under Covered Risk 9 and 10); or

(e) resulting in loss or damage that would not have been sustained if the Insured Claimant had paid value for the Title.

4. Any claim, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws, that the transaction vesting the Title as shown in Schedule A, is

(a) a fraudulent conveyance or fraudulent transfer; or

(b) a preferential transfer for any reason not stated in Covered Risk 9 of this policy.

5. Any lien on the Title for real estate taxes or assessments imposed by governmental authority and created or attaching between Date of Policy and the date of recording of the deed or other instrument of transfer in the Public Records that vests Title as shown in Schedule A.

CONDITIONS

1.	DEFINITION OF TERMS
	The following terms when used in this policy mean:

(a)	“Amount of Insurance”: The amount stated in Schedule A, as may be increased or decreased by endorsement to this policy, increased by Section 8(b), or decreased by Sections 10 and 11 of these Conditions.
(b)	“Date of Policy”: The date designated as “Date of Policy” in Schedule A.
(c)	“Entity”: A corporation, partnership, trust, limited liability company, or other similar legal entity.
(d)	“Insured”: The Insured named in Schedule A.

(i) The term “Insured” also includes

(A)	successors to the Title of the Insured by operation of law as distinguished from purchase, including heirs, devisees, survivors, personal representatives, or next of kin;
(B)	successors to an Insured by dissolution, merger, consolidation, distribution, or reorganization;
(C)	successors to an Insured by its conversion to another kind of Entity;
(D)	a grantee of an Insured under a deed delivered without payment of actual valuable consideration conveying the Title

(1)	if the stock, shares, memberships, or other equity interests of the grantee are wholly-owned by the named Insured,
(2)	if the grantee wholly owns the named Insured,
(3)	if the grantee is wholly-owned by an affiliated Entity of the named Insured, provided the affiliated Entity and the named Insured are both wholly-owned by the same person or Entity, or
(4)	if the grantee is a trustee or beneficiary of a trust created by a written instrument established by the Insured named in Schedule A for estate planning purposes.

(ii) With regard to (A), (B), (C), and (D) reserving, however, all rights and defenses as to any successor that the Company would have had against any predecessor Insured.

(e)	“Insured Claimant”: An Insured claiming loss or damage.
(f)	“Knowledge” or “Known”: Actual knowledge, not constructive knowledge or notice that may be imputed to an Insured by reason of the Public Records or any other records that impart constructive notice of matters affecting the Title.
(g)	“Land”: The land described in Schedule A, and affixed improvements that by law constitute real property. The term “Land” does not include any property beyond the lines of the area described in Schedule A, nor any right, title, interest, estate, or easement in abutting streets, roads, avenues, alleys, lanes, ways, or waterways, but this does not modify or limit the extent that a right of access to and from the Land is insured by this policy.
(h)	“Mortgage”: Mortgage, deed of trust, trust deed, or other security instrument, including one evidenced by electronic means authorized by law.
(i)	“Public Records”: Records established under state statutes at Date of Policy for the purpose of imparting constructive notice of matters relating to real property to purchasers for value and without Knowledge. With respect to Covered Risk 5(d), “Public Records” shall also include environmental protection liens filed in the records of the clerk of the United States District Court for the district where the Land is located.
(j)	“Title”: The estate or interest described in Schedule A.
(k)	“Unmarketable Title”: Title affected by an alleged or apparent matter that would permit a prospective purchaser or lessee of the Title or lender on the Title to be released from the obligation to purchase, lease, or lend if there is a contractual condition requiring the delivery of marketable title.

2.

CONTINUATION OF INSURANCE

The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title. This policy shall not continue in force in favor of any purchaser from the Insured of either (i) an estate or interest in the Land, or (ii) an obligation secured by a purchase money Mortgage given to the Insured.

CHICAGO TITLE INSURANCE COMPANY

AMERICAN LAND TITLE ASSOCIATION OWNERS POLICY (6/17/06)
WITH NEW YORK COVERAGE ENDORSEMENT APPENDED (A.L.T.A.)

SCHEDULE A

Policy No.:	Effective Date	Amount of Insurance:
3111-00129			$88,200,000.00

1.	Name of Insured:
	ROYALTON 44 HOTEL, L.L.C.

2.	The estate or interest in the land which is covered by this Policy is:
	FEE SIMPLE

3.	Title to the estate or interest in the land is vested in the insured by:
	Deed made by ROYALTON LLC -to- ROYALTON 44 HOTEL, L.L.C, dated                     , 2011, to be recorded.

4. The Land referred to in this policy is described as follows: — SEE ATTACHED DESCRIPTION —

Authorized Signatory

SCHEDULE A DESCRIPTION

Policy No.: 3111-00129

ALL that certain plot, piece or parcel of land, situate, lying and being in the Borough of MANHATTAN, County of NEW YORK, City and State of NEW YORK, bounded and described as follows:

BEGINNING at a point on the northerly side of WEST 43RD STREET distant 240 feet easterly from the corner formed by the intersection of the northerly side of WEST 43RD STREET and the easterly side of the AVENUE OF AMERICA’S;

running thence northerly parallel with the AVENUE OF AMERICA’S, 200 feet 10 inches to the southerly side of WEST 44TH STREET;

thence easterly along the southerly side of WEST 44TH STREET, 49 feet 10-1/2 inches;

thence southerly along a line form an angle of 90 degrees 02 minutes 10 seconds on its easterly side with the southerly side of WEST 44TH STREET, 200 feet 10 inches to the northerly side of WEST 43RD STREET;

thence westerly along the northerly side of WEST 43RD STREET, 49 feet 9 inches to the point or place of BEGINNING.

SCHEDULE B

Policy No.: 3111-00129

This policy does not insure against loss or damage (and the Company will not pay costs, attorney’s fees or expenses) which arise by reason of:

NOTE: THIS IS A PRO FORMA POLICY AND DOES NOT REFLECT THE PRESENT STATE OF THE TITLE NOR IS IT A COMMITMENT TO (i) INSURE THE TITLE, OR (ii) ISSUE ANY OF THE ATTACHED ENDORSEMENTS.

1. a. Former window sills project 1-1/2 inches onto westerly adjoining premises.

b. Independent wall encroaches upon the westerly adjoining premises.

c. Building on westerly adjoining premises leans l/2 inch east onto premises herein described at 2nd floor.

d. Building on premises herein described leans 1-1/2 inches west of the westerly line.

e. Roof cornice, ledges, window sills, trim, planters, stand pipes, entrance cornice, and entrance columns and trim, hand rails and water meters project upon West 44th Street.

f. Canopy at third floor, iron grating and steps encroach upon west 44th Street.

g. Return cornices and ledges project upon the easterly and westerly adjoining premises.

h. Ends of walls encroach upon West 44th Street.

i. Window sills, air conditioner and air conditioner vents project upon the easterly adjoining premises.

j. Independent walls on easterly adjoining premises encroach upon the premises herein described and lean 3/4 inch west.

k. Brick chiminies and flue pipe on westerly wall of buildings adjoining on the east are fastened to the easterly wall of the building on the premises herein described and carried to the roof thereof.

l. Lamps, vents, vent pipe, roof cornice, ledges, window sills, trim, stand pipes, entrance cornice, entrance columns and trim project upon West 43rd Street.

m. Iron cellar doors and step encroach upon West 43rd Street.

n. Independent wall encroaches upon West 43rd Street by 1/4 inch.

As shown on a survey made by Earl B. Lovell-S.P. Belcher, Inc. dated 03/15/1996 and last brought to date by the same on 03/29/2011.

With respect to 1b, d, h and n Policy insures that each building or

- SCHEDULE B -

SCHEDULE B (Continued)

Policy No.: 3111-00129

improvement may remain in its present location as long as it shall stand and the Company hereby insures the Insured against any loss or damage that Insured shall sustain as a result of a final judicial determination of a court of competent jurisdiction as to the forced removal of the building or improvements as a result of the aforementioned encroachments.

2. Agreements recorded in Liber 4540 cp 280 and Liber 5035 cp 159. Policy insures that a violation of te foregoing Agreements will not result in a reversion or forfeiture of title.

3. Lot Line Window Declaration made by 44TH BUILDING CORPORATION dated 1/27/1989, recorded 2/10/1989 in Reel 1535 Page 16. Policy insures that a violation of the foregoing Declaration will not result in a reversion or forfeiture of title.

4. The policy to be issued hereunder will contain the following:

This policy is issued contemporaneously with Policy No. Y 3008-342365NY1 of FIRST AMERICAN TITLE INSURANCE COMPANY for ~ (50%).

At the time liability for any loss shall have been fixed pursuant to the conditions of this policy, this Company shall not be liable to the insured for a greater portion of the loss than the amount that this policy bears to the whole amount of insurance held by the insured under this and the said policy.

- SCHEDULE B (Continued) -

Issued by
CHICAGO TITLE INSURANCE COMPANY	ENDORSEMENT

STANDARD NEW YORK ENDORSEMENT
(OWNER’S POLICY)

Attached to and made a part of Policy Number: 3111-00129

The following is added as a Covered Risk:

“11. Any statutory lien for services, labor or materials furnished prior to the date hereof, and which has now gained or which may hereafter gain priority over the estate or interest of the insured as shown in Schedule A of this policy.”

1. Exclusion Number 5 is deleted, and the following is substituted:

5. Any lien on the Title for real estate taxes, assessments, water charges or sewer rents imposed by governmental authority and created or attaching between Date of Policy and the date of recording of the deed or other instrument of transfer in the Public Records that vests Title as Shown in Schedule A.

This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements.

Dated:		CHICAGO TITLE INSURANCE COMPANY
		By:	/s/ Raymond R. Quirk
			Raymond R. Quirk President
		By:	/s/ Michael L. Gravelle
			Michael L. Gravelle Secretary

Authorized Signatory

Note: This endorsement shall not be valid or binding until countersigned by an authorized signatory.

STANDARD NEW YORK ENDORSEMENT (11/1/08)

FOR USE WITH ALTA OWNER’S POLICY (6-17-06)

Issued by
CHICAGO TITLE INSURANCE COMPANY	ENDORSEMENT

LAND SAME AS SURVEY ENDORSEMENT

Attached to and made a part of Policy Number: 3111-00129

The Company hereby assures the Insured that said Land is the same as that delineated on the plat of a survey made by (SURVEY READING TO FOLLOW).

The Company hereby insures said Assured against loss which said Assured shall sustain in the event said assurances herein shall prove to be incorrect.

The total liability of the Company under said policy and any endorsement therein shall not exceed, in the aggregate, the face amount of said policy and costs which the Company is obligated under the Conditions thereof to pay.

This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the Policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

Dated:		CHICAGO TITLE INSURANCE COMPANY
		By:	/s/ Raymond R. Quirk
			Raymond R. Quirk President
		By:	/s/ Michael L. Gravelle
			Michael L. Gravelle Secretary

Authorized Signatory

Note: This endorsement shall not be valid or binding until countersigned by an authorized signatory.

TIRSA LAND SAME AS SURVEY ENDORSEMENT (5/1/07)

Issued by
CHICAGO TITLE INSURANCE COMPANY (“Issuing Co-Insurer”)	ENDORSEMENT

Attached to and made a part of Policy Number: 3111-00129

CO-INSURANCE ENDORSEMENT

Attached to and made a part of Chicago Title Insurance Company (“Issuing Co-Insurer”) Policy No. 311100129 (“Co-Insurance Policy”). Issuing Co-Insurer and any other co-insurers are collectively referred to as “Co-Insurers.”

1.	Co-Insurer issues this endorsement as evidence of Co-Insurer’s liability under Co-Insurance Policy and directs that this endorsement be attached to the Co-Insurance Policy adopting its Covered Risks, Exclusions, Conditions, Schedules and Endorsements, as follows:
	Amount and proportion of insurance and Aggregate Amount of Insurance under the Co-Insurance Policy:

			Amount of	Proportion of
Co-Insurers	Name and Address	Policy Number	Insurance	Liability
Issuing Co- Insurer	Chicago Title Insurance Company P.O. Box 45023 Jacksonville, FL 32232-5023	3111-00129	$~		50	%
Co-Insurer	First American Title Insurance Company 1 First American Way Santa Ana, CA 92707	Y 3008-342365NY1	$~		50	%
AGGREGATE POLICY			$~		100	%

2. Each Co-Insurer shall be liable to the Insured under the Co-Insurance Policy only for the total of the loss and costs multiplied by its Proportion of Liability.

3. Any notice of claim and any other notice or statement in writing required to be given under the Co-Insurance Policy must be given to Co-Insurer at its address set forth above.

4. Any endorsement to the Co-Insurance Policy issued after the date of this Co-Insurance Endorsement must be signed on behalf of the Co-Insurer by its authorized officer or agent.

5. This Co-Insurance Endorsement is effective as of the Date of Policy of the Co-Insurance Policy. This Co-Insurance Endorsement may be executed in counterparts.

This endorsement is issued as part of the Co-Insurance Policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements.

DATED:	DATED:
Issuing Co-Insurer	Issuing Co-Insurer
Chico Title Insurance Company	First American Title Insurance Company
By:	By:

TIRSA Co-Insurance Endorsement (11/1/08)

American Land Title Association	Owner’s Policy
	Policy No: 3111-00129

3.	NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT
	The Insured shall notify the Company promptly in writing (i) in case of any litigation as set forth in Section 5(a) of these Conditions, (ii) in case Knowledge shall come to an Insured hereunder of any claim of title or interest that is adverse to the Title, as insured, and that might cause loss or damage for which the Company may be liable by virtue of this policy, or (iii) if the Title, as insured, is rejected as Unmarketable Title. If the Company is prejudiced by the failure of the Insured Claimant to provide prompt notice, the Company’s liability to the Insured Claimant under the policy shall be reduced to the extent of the prejudice.
4.	PROOF OF LOSS
	In the event the Company is unable to determine the amount of loss or damage, the Company may, at its option, require as a condition of payment that the Insured Claimant furnish a signed proof of loss. The proof of loss must describe the defect, lien, encumbrance, or other matter insured against by this policy that constitutes the basis of loss or damage and shall state, to the extent possible, the basis of calculating the amount of the loss or damage.
5.	DEFENSE AND PROSECUTION OF ACTIONS

(a)	Upon written request by the Insured, and subject to the options contained in Section 7 of these Conditions, the Company, at its own cost and without unreasonable delay, shall provide for the defense of an Insured in litigation in which any third party asserts a claim covered by this policy adverse to the Insured. This obligation is limited to only those stated causes of action alleging matters insured against by this policy. The Company shall have the right to select counsel of its choice (subject to the right of the Insured to object for reasonable cause) to represent the Insured as to those stated causes of action. It shall not be liable for and will not pay the fees of any other counsel. The Company will not pay any fees, costs, or expenses incurred by the Insured in the defense of those causes of action that allege matters not insured against by this policy.
(b)	The Company shall have the right, in addition to the options contained in Section 7 of these Conditions, at its own cost, to institute and prosecute any action or proceeding or to do any other act that in its opinion may be necessary or desirable to establish the Title, as insured, or to prevent or reduce loss or damage to the Insured. The Company may take any appropriate action under the terms of this policy, whether or not it shall be liable to the Insured. The exercise of these rights shall not be an admission of liability or waiver of any provision of this policy. If the Company exercises its rights under this subsection, it must do so diligently.
(c)	Whenever the Company brings an action or asserts a defense as required or permitted by this policy, the Company may pursue the litigation to a final determination by a court of competent jurisdiction, and it expressly reserves the right, in its sole discretion, to appeal any adverse judgment or order.

6. DUTY OF INSURED CLAIMANT TO COOPERATE

(a)

In all cases where this policy permits or requires the Company to prosecute or provide for the defense of any action or proceeding and any appeals, the Insured shall secure to the Company the right to so prosecute or provide defense in the action or proceeding, including the right to use, at its option, the name of the Insured for this purpose. Whenever requested by the Company, the Insured, at the Company’s expense, shall give the Company all reasonable aid (i) in securing evidence, obtaining witnesses, prosecuting or defending the action or proceeding, or effecting settlement, and (ii) in any other lawful act that in the opinion of the Company may be necessary or desirable to establish the Title or any other matter as insured. If the Company is prejudiced by the failure of the Insured to furnish the required cooperation, the Company’s obligations to the Insured under the policy shall terminate, including any liability or obligation to defend, prosecute, orcontinue any litigation, with regard to the matter or matters requiring such cooperation.

(b)

The Company may reasonably require the Insured Claimant to submit to examination under oath by any authorized representative of the Company and to produce for examination, inspection, and copying, at such reasonable times and places as may be designated by the authorized representative of the Company, all records, in whatever medium maintained, including books, ledgers, checks, memoranda, correspondence, reports, e-mails, disks, tapes, and videos whether bearing a date before or after Date of Policy, that reasonably pertain to the loss or damage. Further, if requested by any authorized representative of the Company, the Insured Claimant shall grant its permission, in writing, for any authorized representative of the Company to examine, inspect, and copy all of these records in the custody or control of a third party that reasonably pertain to the loss or damage. All information designated as confidential by the Insured Claimant provided to the Company pursuant to this Section shall not be disclosed to others unless, in the reasonable judgment of the Company, it is necessary in the administration of the claim. Failure of the Insured Claimant to submit for examination under oath, produce any reasonably requested information, or grant permission to secure reasonably necessary information from third parties as required in this subsection, unless prohibited by law or governmental regulation, shall terminate any liability of the Company under this policy as to that claim.

7.	OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY
	In case of a claim under this policy, the Company shall have the following additional options:

(a)	To Pay or Tender Payment of the Amount of Insurance.
	To pay or tender payment of the Amount of Insurance under this policy together with any costs, attorneys’ fees, and expenses incurred by the Insured Claimant that were authorized by the Company up to the time of payment or lender of payment and that the Company is obligated to pay.
	Upon the exercise by the Company of this option, all liability and obligations of the Company to the Insured under this policy, other than to make the payment required in this subsection, shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation.
(b)	To Pay or Otherwise Settle With Parties Other Than the Insured or With the Insured Claimant.

(i)	to pay or otherwise settle with other parties for or in the name of an Insured Claimant any claim insured against under this policy. In addition, the Company will pay any costs, attorneys’ fees, and expenses incurred by the Insured Claimant that were authorized by the Company up to the time of payment and that the Company is obligated to pay; or
(ii)	to pay or otherwise settle with the Insured Claimant the loss or damage provided for under this policy, together with any costs, attorneys’ fees, and expenses incurred by the Insured Claimant that were authorized by the Company up to the time of payment and that the Company is obligated to pay.

Upon the exercise by the Company of either of the options provided for in subsections (b)(i) or (ii), the Company’s obligations to the Insured under this policy for the claimed loss or damage, other than the payments required to be made, shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation.

8.	DETERMINATION AND EXTENT OF LIABILITY
	This policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by the Insured Claimant who has suffered loss or damage by reason of matters insured against by this policy.

(a) The extent of liability of the Company for loss or damage under this policy shall not exceed the lesser of

(i)	the Amount of Insurance; or
(ii)	the difference between the value of the Title as insured and the value of the Title subject to the risk insured against by this policy.

American Land Title Association	Owner’s Policy
	Policy No: 3111-00129

(b) If the Company pursues its rights under Section 5 of these Conditions and is unsuccessful in establishing the Title, as insured,

(i)	the Amount of Insurance shall be increased by 10%, and
(ii)	the Insured Claimant shall have the right to have the loss or damage determined either as of the date the claim was made by the Insured Claimant or as of the date it is settled and paid.

(c) In addition to the extent of liability under (a) and (b), the Company will also pay those costs, attorneys’ fees, and expenses incurred in accordance with Sections 5 and 7 of these Conditions.

9. LIMITATION OF LIABILITY

(a)	If the Company establishes the Title, or removes the alleged defect, lien or encumbrance, or cures the lack of a right of access to or from the Land, or cures the claim of Unmarketable Title, all as insured, in a reasonably diligent manner by any method, including litigation and the completion of any appeals, it shall have fully performed its obligations with respect to that matter and shall not be liable for any loss or damage caused to the Insured.
(b)	In the event of any litigation, including litigation by the Company or with the Company’s consent, the Company shall have no liability for loss or damage until there has been a final determination by a court of competent jurisdiction, and disposition of all appeals, adverse to the Title, as insured.
(c)	The Company shall not be liable for loss or damage to the Insured for liability voluntarily assumed by the Insured in settling any claim or suit without the prior written consent of the Company.

10.	REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY
	All payments under this policy, except payments made for costs, attorneys’ fees, and expenses, shall reduce the Amount of Insurance by the amount of the payment.
11.	LIABILITY NONCUMULATIVE
	The Amount of Insurance shall be reduced by any amount the Company pays under any policy insuring a Mortgage to which exception is taken in Schedule B or to which the Insured has agreed, assumed, or taken subject, or which is executed by an Insured after Date of Policy and which is a charge or lien on the Title, and the amount so paid shall be deemed a payment to the Insured under this policy.
12.	PAYMENT OF LOSS
	When liability and the extent of loss or damage have been definitely fixed in accordance with these Conditions, the payment shall be made within 30 days.
13.	RIGHTS OF RECOVERY UPON PAYMENT OR SETTLEMENT

(a)	Whenever the Company shall have settled and paid a claim under this policy, it shall be subrogated and entitled to the rights of the Insured Claimant in the Title and all other rights and remedies in respect to the claim that the Insured Claimant has against any person or property, to the extent of the amount of any loss, costs, attorneys’ fees, and expenses paid by the Company. If requested by the Company, the Insured Claimant shall execute documents to evidence the transfer to the Company of these rights and remedies. The Insured Claimant shall permit the Company to sue, compromise, or settle in the name of the Insured Claimant and to use the name of the Insured Claimant in any transaction or litigation involving these rights and remedies.
	If a payment on account of a claim does not fully cover the loss of the Insured Claimant, the Company shall defer the exercise of its right to recover until after the Insured Claimant shall have recovered its loss.
(b)	The Company’s right of subrogation includes the rights of the Insured to indemnities, guaranties, other policies of insurance, or bonds, notwithstanding any terms or conditions contained in those instruments that address subrogation rights.

14.

ARBITRATION

Either the Company or the Insured may demand that the claim or controversy shall be submitted to arbitration pursuant to the Title Insurance Arbitration Rules of the American Land Title Association (“Rules”). Except as provided in the Rules, there shall be no joinder or consolidation with claims or controversies of other persons. Arbitrable matters may include, but are not limited to, any controversy or claim between the Company and the Insured arising out of or relating to this policy, any service in connection with its issuance or the breach of a policy provision, or to any other controversy or claim arising out of the transaction giving rise to this policy. All arbitrable matters when the Amount of Insurance is $2,000,000 or less shall be arbitrated at the option of either the Company or the Insured. All arbitrable matters when the Amount of Insurance is in excess of $2,000,000 shall be arbitrated only when agreed to by both the Company and the Insured. Arbitration pursuant to this policy and under the Rules shall be binding upon the parties. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court of competent jurisdiction.

15. LIABILITY LIMITED TO THIS POLICY; POLICY ENTIRE CONTRACT

(a)	This policy together with all endorsements, if any, attached to it by the Company is the entire policy and contract between the Insured and the Company. In interpreting any provision of this policy, this policy shall be construed as a whole.
(b)	Any claim of loss or damage that arises out of the status of the Title or by any action asserting such claim shall be restricted to this policy.
(c)	Any amendment of or endorsement to this policy must be in writing and authenticated by an authorized person, or expressly incorporated by Schedule A of this policy.
(d)	Each endorsement to this policy issued at any time is made a part of this policy and is subject to all of its terms and provisions. Except as the endorsement expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsement, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance.

16.	SEVERABILITY
	In the event any provision of this policy, in whole or in part, is held invalid or unenforceable under applicable law, the policy shall be deemed not to include that provision or such part held to be invalid, but all other provisions shall remain in full force and effect.
17.	CHOICE OF LAW; FORUM

(a)

Choice of Law: The Insured acknowledges the Company has underwritten the risks covered by this policy and determined the premium charged therefor in reliance upon the law affecting interests in real property and applicable to the interpretation, rights, remedies, or enforcement of policies of title insurance of the jurisdiction where the Land is located. Therefore, the court or an arbitrator shall apply the law of the jurisdiction where the Land is located to determine the validity of claims against the Title that are adverse to the Insured and to interpret and enforce the terms of this policy. In neither case shall the court or arbitrator apply its conflicts of law principles to determine the applicable law.

(b)

Choice of Forum: Any litigation or other proceeding brought by the Insured against the Company must be filed only in a state or federal court within the United States of America or its territories having appropriate jurisdiction.

18.	NOTICES, WHERE SENT
	Any notice of claim and any other notice or statement in writing required to be given to the Company under this policy must be given to the Company at:
	Chicago Title Insurance Company
	Attn: Claims Department
	P.O. Box 45023
	Jacksonville, FL 32232-5023

Exhibit J

Form of Escrow Agreement

DEPOSIT ESCROW INSTRUCTIONS

______________, 2011

First American Title Insurance Company
633 Third Avenue
New York, New York 10017
Attention: Andrew Jaeger

Attention:

Re: Deposit under that certain Purchase and Sale Agreement dated  _____, 2011 (the “Agreement”), by and between Royalton, LLC, a Delaware limited liability company (“Seller”), and Royalton 44 Hotel, L.L.C., a Delaware limited liability company (“Purchaser”); Escrow No.  _____  (“Escrow”).

Gentlemen and Ladies:

Purchaser and Seller have entered into the Agreement pursuant to which Purchaser agrees to purchase the Property (as defined in the Agreement). A copy of the Agreement has been delivered to you concurrently herewith.

In accordance with Section 1.6 of the Agreement, within one (1) business day following the execution of the Agreement, Purchaser will be delivering by wire transfer of immediately available federal funds in the amount of Four Million Four Hundred Ten Thousand and 00/100 Dollars ($4,410,000.00), which may be increased by an amount equal to One Million Eight Hundred Ninety Thousand and 00/100 ($1,890,000.00) pursuant to Section 4.10(b) of the Agreement (collectively and together with any interest earned thereon, the “Earnest Money”), for deposit in the Escrow. You are to place the Earnest Money in an interest bearing account (for this purpose, Purchaser’s Federal Employer I.D. number is 45-1137592) and hold the Earnest Money in the Escrow and deliver it to Seller or Purchaser in accordance with these instructions. An executed IRS Form W-9 for Purchaser has been delivered to you to enable the Earnest Money to be invested.

In the event that (i) you receive written notice from Seller or Purchaser (the party that delivers such written notice is referred to herein as the “Notice Party”), which notice shall be delivered concurrently to the other party (the “Other Party”), stating that the Notice Party is terminating the Agreement and is entitled to the Earnest Money under the terms of the Agreement, and (ii) you have received written confirmation from the Other Party of its receipt of such written notice from the Notice Party, you shall, on the tenth (10th) business day after the Other Party’s receipt of such written notice from the Notice Party, deliver the Earnest Money (by delivering cash, certified check or some other form of immediately available funds, to the Notice Party at the address or pursuant to the wiring instructions provided in such written notice from the Notice Party); provided that, if you receive written notice from the Other Party or the Other Party’s counsel within nine (9) business days after the Other Party’s receipt of the such written notice from the Notice Party that the Other Party disputes the Notice Party’s right to receive the Earnest Money and directs you not to make the foregoing delivery, you shall not deliver the Earnest Money to the Notice Party but shall instead retain it or, if appropriate, interplead the Earnest Money in a court of competent jurisdiction in the State of New York. All notices delivered pursuant to these instructions shall be made in accordance with the provisions of Section 11.4 of the Agreement. Notices to Escrow Agent will be delivered to the attention of Andrew Jaeger, Esq. and Michael Berey, Esq., reference Title No [_____].

You are not to disclose to any person (other than the parties hereto, their employees, agents or independent contractors) any information about the Agreement or its existence or this letter of instructions (except if requested by either party or as may be required by court in any litigation or by law).

You are to maintain the Earnest Money in a federally-insured interest-bearing account at JP Morgan Chase and all interest accruing thereon shall be paid to the party entitled to the Earnest Money in accordance with this deposit escrow instruction letter. We understand that you shall not be responsible for any penalties, loss of principal or interest, or the consequences of a delay in withdrawal of the Deposit and interest accrued thereon, if any, which may be imposed as a result of the making or the redeeming of the above investment, as the case may be. Seller and Purchaser also agree that Escrow Agent shall not be liable for any loss or impairment of the Deposit while the Deposit is in the course of collection or of the Escrow if such loss or impairment results from the failure, insolvency or suspension of the financial institution in which the Deposit is deposited. Nor shall you be required to institute legal proceedings of any kind pursuant to these instructions, nor be required to defend any legal proceedings which may be instituted against you with respect to the subject matter of these instructions unless you are requested to do so by Purchaser or Seller and arrangements reasonably satisfactory to you have been made to indemnify you against the cost and expense of such defense by the party making such request. If any dispute shall arise with respect to these instructions, whether such dispute arises between the parties hereto or between the parties hereto and other persons, you may interplead such disputants. You shall be responsible only for the performance of such duties as are strictly set forth herein and in no event shall you be liable for any act or failure to act under the provisions of this letter except where such action or inaction is the result of your willful misconduct or gross negligence.

Seller and Purchaser each hereby agrees, jointly and severally, to indemnify you and hold you harmless against any loss, liability or damage (including the cost of litigation and reasonable counsel fees) incurred in connection with the performance of your duties hereunder except as a result of your willful misconduct or negligence.

In the event of any dispute between Seller and Purchaser respecting these instructions, Seller and Purchaser may elect to submit such dispute to any court of competent jurisdiction in the State of New York in accordance with Section 11.12 of the Agreement. The prevailing party in any such dispute shall be entitled to recover its legal fees and expenses incurred in connection with such dispute.

Please indicate your agreement to comply with the foregoing instructions by executing at least three (3) copies of this letter and returning, by overnight courier, one to Hogan Lovells US LLP, as counsel for Seller, and one to Gibson, Dunn & Crutcher LLP, as counsel for Purchaser.

Very truly yours,

SELLER:
ROYALTON, LLC,
a Delaware limited liability company
	By: Morgans Group LLC, its Managing Member
		By: Morgans Hotel Group Co., its Managing Member
By:
	Name:
	Title:
PURCHASER:
ROYALTON 44 HOTEL, L.L.C.,
a Delaware limited liability company
By:
	Name:
	Title:

ACKNOWLEDGED AND AGREED:

First American Title Insurance Company

By:
	Name:	Michael J. Berey
	Title:	Senior Vice-President and Senior Underwriting Counsel

Date: ______________, 2011

Exhibit K

Form of Trademark Assignment

TRADEMARK ASSIGNMENT

THIS TRADEMARK ASSIGNMENT (this “Assignment”) is made and entered into as of March  _____, 2011 (“Effective Date”) by and between Morgans Group LLC, a Delaware limited liability company, with its principal office at 475 10th Avenue, New York, New York 10018, USA (“Assignor”), and [INSERT ASSIGNEE] (“Assignee”).

WHEREAS, Assignor is the owner of the trademarks, trademark registrations and trademark applications set forth on Schedule A hereto (the “Trademarks”), including the pending Trademark Application filed as an intent-to-use application (the “ITU Mark”).

WHEREAS, Assignor has a bona fide intent to use the ITU Mark in connection with the services for which the application for an ITU Mark has been filed;

WHEREAS, Assignor and Assignee are parties to that certain Purchase and Sale Agreement dated  _____  (the “Purchase Agreement”);

WHEREAS, pursuant to the Purchase Agreement, Assignee agreed to purchase (i) that portion of Assignor’s business in which Assignor has a bona fide intent to use the ITU Mark, and (ii) all of Assignor’s right, title and interest in and to the Trademarks and any and all goodwill of the business symbolized by the Trademarks; and

NOW, THEREFORE, for the consideration set forth in the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Assignment. Effective upon the Closing, Assignor hereby assigns, conveys, grants, and transfers to Assignee, in perpetuity, all of Assignor’s right, title and interest in and to the Trademarks, including but not limited to any and all common law rights in the Trademarks, and any and all goodwill of the business symbolized by the Trademarks, including all rights therein provided by international conventions and treaties, and all rights to sue for past, present and future infringement of the rights being assigned hereby which Assignor may have, throughout the world, including, without limitation, the right to retain the proceeds from such infringement claims. Assignee is hereby empowered to bring, prosecute, defend, and appear in suits, actions, and proceedings of any nature under or concerning the Trademarks, and any applications, registrations, and renewals thereof, in its own name as Trademark proprietor.

2. Further Assurances. Assignor shall, at the cost and expense of Assignee, take all actions and execute all documents necessary or desirable to record and perfect the interest of Assignee in and to the Trademarks, and shall not enter into any agreement in conflict with this Assignment.

IN WITNESS WHEREOF, each Party has caused this Assignment to be executed as of the date first written above by its duly authorized officer. The Parties state that they and/or their authorized representative have carefully read, been advised upon, understand and agree upon each and every term of this Assignment, to which execute below.

Assignor hereby requests the Commissioner of Patents and Trademarks, and the corresponding entities or agencies in any applicable foreign countries, to record Assignee as the assignee and owner of the Marks.

* * * * *

MORGANS GROUP LLC

Name:

Title:

[INSERT ASSIGNEE]

Name:

Title:

SCHEDULE A

	REGISTRATION NUMBER
TRADEMARK	(APPLICATION NUMBER)	COUNTRY	GOODS AND SERVICES
ROYALTON	1974811 (74/641687)	USA	Class 42: Hotel services
ROYALTON	3829913 (76/698270)	USA	Class 43: Providing temporary accommodations; hotel, bar and restaurant services; providing a website for making hotel and restaurant reservations; making hotel and restaurant reservations for others; providing social meeting, banquet, social function, conference, exhibition and meeting facilities; catering services; spa services, namely, providing temporary accommodations and meals to clients of a health or beauty spa; consulting services in the field of hospitality; providing personalized information about hotels via the internet; providing information in the field of restaurant dining via the internet
44	N/A (85/110574)	USA	Class 41: Bar and restaurant services
FORTY FOUR	N/A (Common Law Mark)	USA
BAR 44 44 & Design	3484470 (77/369297)	USA	Class 43: Bar and restaurant services
BRASSERIE 44 44 & DESIGN	3484475 (77/369393)	USA	Class 43: Bar and restaurant services

	REGISTRATION NUMBER
TRADEMARK	(APPLICATION NUMBER)	COUNTRY	GOODS AND SERVICES
ROYALTON	000806752 (000806752)	European Community	Class 20: Furniture; cots; beds; mirrors; picture frames; pillows; curtain rings, rods and rails; non-metal doorknobs and drawer pulls Class 42: Providing of food and drink; temporary accommodation; medical, hygienic and beauty care; veterinary and agricultural services; legal services; scientific and industrial research; computer programming; hotel services; reservation services for hotel accommodation; room hire; provision of conference and exhibition facilities; banqueting services; bar, café and restaurant services; cocktail lounge and coffee shop services; food cooking services; beauty salon services; hairdressing salon services; creche services; photography, printing and lithographic services; health club services; professional consultations relating to hotel franchising
ROYALTON	000865147 (000865147)	European Community	Class 3: Cleaning, polishing, scouring and abrasive preparations for personal use; shoe cleaning and shoe polishing preparations, make-up removers, pumice stones for personal use; soaps, foam bath, shower and bath gels, bath oils, bath beads, bath salts; hair care preparations, shampoos, hair conditioners, hair gels, hair lotions and hair styling preparations; perfumes, colognes, splashes, and toilet waters; essential oils and aromatherapy oils; body oils, shaving preparations, shaving lotions, shaving creams and shaving gels, suntan and sun screen lotions, creams, oils and gels; cosmetics; make-up, concealers, eye shadows, eye and eyebrow pencils, facial powders, mascara; cotton wool for cosmetic purposes; hand and nail care preparations, namely nail polishes and varnishes, bases and top coats, hand and cuticle creams, lotions and oils, nail polish removers, cuticle creams, gels and removers Class 16: Paper, cardboard; stationery, letterhead, envelopes, post cards, headed note paper, cards, headed writing paper, corporate forms, paper bags, paper boxes, signage, brochures, posters, printed advertisement; pencils, pens, markers, pen and pencil cases; wrapping paper; books; cookery books; menus; address books; calendars; diaries; date books; paper plates; paper cups, paper napkins, paper place mats; playing cards Class 21: Dishes; plates; bowls; serving dishes; cups; mugs; glasses; glassware; dish covers; dish stands; kitchen, cooking and serving utensils; earthenware; wine decanters; wine bottles; wine buckets; vases; china, crystal, earthenware, glass porcelain and terracotta objects d’art; coffee and tea services of non-precious metal; non-electric coffee and tea pots; infusers of non-precious metal; meal trays; pots; pans; cookware; kettles; flower pots and baskets; shaving pots; shaving brushes; shaving brush stands; hair combs and brushes; cosmetic brushes; applicators and sponges; toothbrushes; perfume atomizers and bottles; containers for burning and diffusing incense, perfume and oils; candle holders and candlesticks of non-precious metal; trash and rubbish cans and bins; tissue holders and dispensers; toilet paper holders and dispensers; ceramic door knobs

	REGISTRATION NUMBER
TRADEMARK	(APPLICATION NUMBER)	COUNTRY	GOODS AND SERVICES
			Class 24: Bedding, blankets, comforters, sheets, bed linens, bed spreads and covers, duvet covers; pillows; shams and covers; dust ruffles; fabrics, none being textile piece goods for making up into suits, dresses, jackets or trousers; upholstery fabrics; window and shower curtains; window dressings; table linens, table cloths, cloth napkins, table runners; potholders; place mats; bath mats; bath and kitchen towels; washcloths; textile tapestries Class 39: Valet parking, car and van transportation services; ticket reservation services; travel guide services
ROYALTON	2148931 (2148931)	United Kingdom	Class 08: Hand tools and implements (hand operated); cutlery; side arms; razors Class 16: Paper, cardboard, stationery; letterhead, envelopes, post cards, note paper, cards, writing paper, corporate forms, paper bags, paper boxes, signage, brochures, posters, printed advertisements; pencils, pens, markers; pen and pencil cases; wrapping paper; books; cookery books; menus; address books; calendars; diaries; date books; paper plates, paper cups, paper napkins, paper place mats; plying cards Class 20: Furniture; cots; beds; mirrors; picture frames; pillows; curtain rings, rods and rails; non-metal doorknobs and drawer pulls Class 21: Dishes; plates; bowls; serving dishes; cups; mugs; glasses; glassware; dish covers; dish stands; kitchen, cooking and serving utensils; earthenware; wine decanters; wine bottles; wine buckets; vases; china, crystal, earthenware, glass, porcelain and terracotta objects d’art; coffee and tea services of non-precious metal; non-electric coffee and tea pots; infusers of non-precious metal; meal trays; pots; pans; cookware; kettles; flower pots and baskets; shaving pots; shaving brushes; shaving brush stands; hair combs and brushes; cosmetic brushes; applicators and sponges; toothbrushes; perfume atomizers and bottles; containers for burning and diffusing incense, perfume and oils; candle holders and candlesticks of non-precious metal; trash rubbish cans and bins; tissue holders and dispensers; toilet paper holders and dispensers; ceramic door knobs

	REGISTRATION NUMBER
TRADEMARK	(APPLICATION NUMBER)	COUNTRY	GOODS AND SERVICES
			Class 25: Clothing; footwear; headgear; exercise wear; sports wear; shirts, polo shirts, golf shirts, t-shirts; shorts; pants; golf pants; boxer shorts; night shirts, nightgowns, pajamas; lingerie; undergarments; bathrobes; caps, hats, visors; scarves; socks; aprons; shower caps Class 27: Carpet, rugs, mats and matting; linoleums and other materials for covering existing floors; wall hangings Class 42: Hotel services; hotel accommodation services; housekeeping services; reservation services for hotel accommodation; room hire; provision of conference and exhibition services; catering services; banqueting services; bar, restaurant, cocktail lounge, café’, cafeteria, and coffee bar services; food cooking services; beauty and salon services; hairdressing salon services; concierge services
ROYALTON	2168832 (2168832)	United Kingdom	Class 03: Cleaning, polishing, scouring and abrasive preparations for personal use; shoe cleaning and shoe polishing preparations, make-up removers, pumice stones for personal use; soaps; foam bath, shower and bath gels, bath oil, bath beads, bath salts; hair care preparations; shampoos, hair conditioners, hair gels, hair lotions and hair styling preparations; perfumes; colognes, splashes, and toilet waters; essential oils and aromatherapy oils; body oils, shaving preparations, shaving lotions, shaving creams and shaving gels, suntan and sun screen lotions, creams, oils and gels; cosmetics, make-up, concealers, eye shadows, eye and eyebrow pencils, facial powders, mascara; cotton wool for cosmetic purposes; hand and nail care preparations, nail polishes and varnishes, bases and top coats, hand and cuticle creams, lotions and oils, nail polish removers, cuticle creams, gels and removers Class 14: Precious metals and their alloys and goods in precious metals or coated therewith, not included in other classes; jewelry, precious stones; horological and chronometric instruments; silverware Class 26: Lace and embroidery, ribbons and braid; buttons, hooks and eyes, pins and needles; artificial flowers Class 28: Games and playthings; gymnastic and sporting articles not included in other classes; decorations for christmas trees Class 32: Beers; mineral and aerated waters and other non-alcoholic drinks; fruit drinks and fruit juices; syrups and other preparations for making beverages

	REGISTRATION NUMBER
TRADEMARK	(APPLICATION NUMBER)	COUNTRY	GOODS AND SERVICES
			Class 33: Alcoholic beverages (except beers)
			Class 34: Tobacco; smokers’ articles; matches
			Class 39: Valet parking services; car and van transportation services; transport reservation services; travel guide services
THE ROYALTON HOTEL	2130038 (2130038)	United Kingdom	Class 42: Hotel services
ROYALTON	393139 (2008730766)	Russian Federation	Class 35: Providing real estate management services in connection with condominium and hotel properties Class 37: Real estate development services, namely the development of mixed use hotel, condominium and commercial properties Class 43: Services for providing food and drink; temporary accommodations; hotels; hotel, bar and restaurant services; making hotel reservations for others; providing banquet and social function facilities for special occasions; consulting services in the field of hospitality, provision of food and drink and temporary accommodation

EX-10.3

Exhibit 10.3

MONDRIAN LOS ANGELES

PURCHASE AND SALE AGREEMENT

BETWEEN

MONDRIAN HOLDINGS LLC,

A DELAWARE LIMITED LIABILITY COMPANY

AS SELLER

AND

WOLVERINES OWNER LLC,

A DELAWARE LIMITED LIABILITY COMPANY

AS PURCHASER

As of April 22, 2011

Table of Contents

	Page
ARTICLE I PURCHASE AND SALE		1
1.1 Agreement of Purchase and Sale		1
1.2 Property Defined		4
1.3 Permitted Exceptions		5
1.4 Purchase Price		5
1.5 Payment of Purchase Price		5
1.6 Earnest Money		5
1.7 Management Agreement		6
ARTICLE II TITLE AND SURVEY		6
2.1 Title Report		6
2.2 Survey		6
2.3 Approval of Title		6
2.4 Conveyance of Title		8
2.5 Title Policy		8
ARTICLE III INSPECTION		9
3.1 Right of Inspection		9
3.2 Seller Due Diligence Materials		10
ARTICLE IV CLOSING		11
4.1 Time and Place; Pre-Closing		11
4.2 Seller’s Closing Obligations and Deliveries		12
4.3 Purchaser’s Closing Obligations and Deliveries		14
4.4 Prorations, Credits and Other Adjustments		14
4.5 Closing Costs		21
4.6 Conditions Precedent to Obligation of Purchaser		21
4.7 Conditions Precedent to Obligation of Seller		22
4.8 Failure or Waiver of Conditions Precedent		22
ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS		24
5.1 Representations and Warranties of Seller		24
5.2 Knowledge Defined		26
5.3 Covenants of Seller		26
5.4 Representations and Warranties of Purchaser		27
5.5 Covenants of Purchaser and/or of Seller		29
5.6 Employees		30
5.7 Independent Audit		32
ARTICLE VI DEFAULT		32
6.1 Default by Purchaser		32
6.2 Default by Seller		33
6.3 Seller’s Right to Cure Defaults		33
6.4 Purchaser’s Right to Cure Defaults		33
ARTICLE VII SURVIVAL, INDEMNIFICATION, AND LIMITATIONS ON LIABILITY		34
7.1 Survival		34
7.2 Seller’s Indemnification		34
7.3 Purchaser’s Indemnification		34
7.4 Notice and Resolution of Claims		34
7.5 Limitations on Liability		36
7.6 Other Matters Regarding Indemnification		36

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	Page
ARTICLE VIII RISK OF LOSS		37
8.1 Minor Damage		37
8.2 Major Damage		37
8.3 Definition of “Major” Loss or Damage		38
ARTICLE IX COMMISSIONS		38
9.1 Brokerage Commissions		38
ARTICLE X DISCLAIMERS AND WAIVERS		38
10.1 No Reliance on Documents		38
10.2 DISCLAIMERS		39
10.3 Repairs, Reserves, and Capital Expenditures		40
10.4 Effect and Survival of Disclaimers		41
ARTICLE XI MISCELLANEOUS		41
11.1 Confidentiality		41
11.2 Public Disclosure		41
11.3 Assignment		42
11.4 Notices		42
11.5 Modifications		43
11.6 Calculation of Time Periods; Time is of the Essence		43
11.7 Successors and Assigns		43
11.8 Entire Agreement		43
11.9 Further Assurances		44
11.10 Counterparts; Facsimile Signatures		44
11.11 Severability		44
11.12 Applicable Law		44
11.13 No Third Party Beneficiary		44
11.14 Exhibits and Schedules		45
11.15 Captions		45
11.16 Construction		45
11.17 Termination of Agreement		45
11.18 Attorneys Fees		45
11.19 No Waiver		46
11.20 No Reservation of Property		46
11.21 No Recordation		46

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PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is made as of April 22, 2011 (the “Effective Date”), by and between Mondrian Holdings LLC, a Delaware limited liability company (“Seller”), and Wolverines Owner LLC, a Delaware limited liability company (“Purchaser”). Unless otherwise noted, all capitalized terms set forth in this Agreement shall have the meanings ascribed to them in Annex A attached hereto.

W I T N E S S E T H:

WHEREAS, Seller is the owner and holder of the fee simple estate in and to that certain plot, piece and parcel of land located at 8440 Sunset Boulevard, West Hollywood, California, County of Los Angeles and more particularly described in Schedule 1.1(a) attached hereto (the “Land”), together with the 237 room hotel, restaurants, bars, spas, lounges, meeting rooms and all other improvements and fixtures (collectively, the “Improvements”) located on the Land (the Improvements and the Land are hereinafter sometimes collectively referred to as the “Real Property”); and

WHEREAS, Seller operates on the Real Property the hotel known as “Mondrian” (the “Hotel”);

WHEREAS, Seller desires to cause the sale, assignment and transfer of its interests in and to the Property (as defined below) to Purchaser in accordance with the terms and provisions of this Agreement, and Purchaser desires to purchase such interests from Seller and assume certain liabilities related to the Property upon the terms more particularly set forth in this Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, Purchaser and Seller agree as follows:

ARTICLE I
PURCHASE AND SALE

1.1 Agreement of Purchase and Sale. Subject to the terms and conditions hereinafter set forth, Seller agrees to sell and convey, and Purchaser agrees to purchase, all of the right, title and interest of Seller or any affiliate of Seller (which shall not include 8440 LLC or Sunset Restaurant LLC) in and to the following:

(a) The Land as described in Schedule 1.1(a) attached hereto.

(b) The Improvements.

(c) All tangible personal property owned by Seller or any affiliate of Seller and located on the Real Property, used solely in connection with the operation of the Real Property (including appliances, furniture, fixtures (other than those which constitute Improvements), furnishings, equipment, machinery, building systems, security systems, key cards (together with all devices for coding and monogramming such key cards), vehicles, appliances, carpeting, draperies and curtains, tools and supplies, decorations, china, glassware, linens, silver, utensils, computers, computer equipment and manuals, computer software and programs, uniforms, works of art, materials, supplies and other similar items of personal property) and that are located at the Hotel as of the Closing Date, but specifically excluding the personal property listed on Schedule 1.1(c) attached hereto (the “Excluded Personal Property”). The tangible personal property described in this Section 1.1(c), exclusive of the Excluded Personal Property, is hereinafter referred to collectively as the “Personal Property”).

(d) All contracts or reservations for the use of spas, guest rooms, ballroom and banquet facilities, conference facilities, meeting rooms or other facilities of the Hotel or located within the Improvements, for the Closing Date and the period from and after the Closing Date (collectively, the “Bookings”), and any deposits held by Seller in connection with the Bookings and not previously applied as of the Closing Date.

(e) All contracts, agreements and warranties to which Seller is a party that are assignable without the consent of the counterparty thereto or additional costs or liability to Seller, or with respect to which Seller obtains consent to an assignment hereunder from the applicable counterparty, relating to the upkeep, repair, maintenance or operation of the Real Property or the Personal Property, including all deposits and credits thereunder (to the extent the obligation to apply or return such deposits or credits is assumed by Purchaser) (collectively, the “Service Contracts”), including the contracts and agreements: (i) listed on Schedules 1.1(e)-1(a) attached hereto (which sets forth the Service Contracts assignable without the consent of the counterparty thereto or additional costs or liability to Seller) and 1.1(e)-1(b) attached hereto (which sets forth the Service Contracts in effect as of the Effective Date that are not assignable without the consent of the counterparty thereto or additional costs or liability to Seller) (but specifically excluding (A) Bookings, (B) Space Leases, (C) insurance policies, (D) the Management Agreement, and (E) any contract or agreement listed on such Schedule 1.1(e)-1 which (1) is terminated on or before Closing pursuant to the terms of this Agreement, (2) expires pursuant to its terms on or before the Closing Date or (3) is terminated by the applicable counterparty thereto on or before the Closing Date); (ii) providing for the lease of equipment or other personal property listed on Schedule 1.1(e)-2(a) (which sets forth any such leases assignable without the consent of the counterparty thereto or additional costs or liability to Seller) and 1.1(e)-2(b) attached hereto (which sets forth any such leases in effect as of the Effective Date that are not assignable without the consent of the counterparty thereto or additional costs or liability to Seller) (collectively, the “Equipment Leases”, but specifically excluding any contract or agreement listed on such Schedule 1.1(e)-2(a) or Schedule 1.1(e)-2(b) which (A) is terminated on or before Closing pursuant to the terms of this Agreement, (B) expires pursuant to its terms on or before the Closing Date or (C) is terminated by the applicable counterparty thereto on or before the Closing Date); and (iii) entered into after the Effective Date and which Seller is permitted to enter into under the terms of this Agreement.

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(f) All names, marks, logos and designs, used in the operation or ownership of the Property or any part thereof listed on Schedule 1.1(f), provided that Purchaser expressly acknowledges and agrees that the following items are specifically excluded and shall not be transferred hereunder: (i) all right, title or interest of any kind or nature whatsoever in and to, and intellectual property in any way relating to, the Manager’s Materials or Manager’s Tradenames (it being understood that certain rights with respect to certain of the foregoing items shall be granted to Purchaser pursuant to the Management Agreement); (ii) all websites and domains used for the Hotel, including access to the FTP files of the websites; and (iii) any information or reports that relate solely to the period prior to the Closing (all such items not to be transferred hereunder being collectively referred to as the “Retained IP”).

(g) To the extent the same are assignable as of the Closing Date without consent of a third party or additional costs or liability to Seller and to the extent assumed by Purchaser, all transferable licenses, franchises and permits owned by Seller and used in or relating to the ownership, occupancy or operation of the Property or any part thereof as listed on Schedule 1.1(g), subject to Purchaser’s compliance with any limitations or restrictions on transfer or assignment of any computer-related materials or software which are contained in any license or similar agreement (collectively, the “Permits”), provided that the term Permits specifically excludes any and all non-transferable permits and licenses held by Seller in connection with the Property, including, without limitation, the liquor license and the permits and approvals required for the preparation, sale and service of food and beverage (it being acknowledged that the Existing Liquor License will be transferred pursuant to the Liquor Assets Escrow Agreement) (collectively, such excluded Permits, the “Excluded Permits”).

(h) To the extent the same are assignable as of the Closing Date without consent of a third party or additional costs or liability to Seller, all assignable telephone numbers, TWX numbers, post office boxes, signage rights, utility and development rights and privileges, site plans, surveys, environmental and other physical reports, plans and specifications pertaining to the Real Property and the Personal Property (all of the property described in clauses (f), (g), and (h) of this Section 1.1 that is not specifically deemed excluded being herein referred to collectively as the “Intangibles”).

(i) All: (i) food and beverages (excluding alcoholic beverages) that are in the Hotel as of the Closing Date; (ii) inventory held for sale by Seller to Hotel guests and others in the ordinary course of business including all opened and unopened retail inventory in any area at the Hotel conducting retail sales that is in the Hotel as of the Closing Date (collectively, “Retail Inventory”); (iii) engineering, maintenance and housekeeping supplies (including soap and cleaning materials, fuel and materials, stationery and printing items) that are in the Hotel as of the Closing Date; and (iv) other supplies, whether used, unused or held in reserve storage for future use in connection with the maintenance and operation of the Real Property or the Personal Property that are in the Hotel as of the Closing Date (all of the foregoing being referred to herein as the “Consumable Inventory” and, to the extent contained in unopened boxes, bottles, jars or containers of any type as of the Closing Date, shall collectively be referred to, together with unopened packages of china, glass, silver and linens (but excluding any bottles of alcoholic beverages), as the “Unopened Inventory”).

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(j) To the extent the same are in effect on the Closing Date, all leases or licenses for the lease and occupancy of space at the Hotel listed and described on Schedule 1.1(j) attached hereto (collectively, the “Space Leases”), including any deposits relating to such Space Leases held by Seller and not applied to the tenant’s obligations as of the Closing Date. For purposes of this Agreement, the term “Space Leases” does not include Bookings.

(k) Subject to Section 4.4.9 hereof, Seller’s interest in the funds contained in “house banks” for the Hotel as of the Cut-Off Time, whether held in the name of Seller, the Hotel or Manager (defined below) and owned by Seller (collectively, the “House Bank Funds”). Purchaser expressly acknowledges and agrees that the Property to be transferred to Purchaser pursuant to this Agreement does not include any reserve or other accounts created or maintained by or on behalf of Seller or Manager in connection with the ownership or operation of the Hotel.

(l) Any deposits made by Seller with utility companies or governmental agencies or authorities relating to the Real Property to the extent apportionment is made therefor pursuant to Section 4.4.

1.2 Property Defined.

(a) The Real Property, the Personal Property, the Permits, the Bookings, the Service Contracts, the Intangibles, the Unopened Inventory, the Retail Inventory, the Consumable Inventory, the Space Leases and the House Bank Funds are hereinafter sometimes referred to collectively as the “Property”. The Purchase Price is generally subject to adjustment pursuant to Section 4.4, and specifically does not include payment for, and shall be adjusted with respect to (among other things), the House Bank Funds, and certain of the Unopened Inventory and the Retail Inventory, as described in Section 4.4 below.

(b) Notwithstanding anything to the contrary in Section 1.1 or Section 1.2(a) above, the following items are expressly excluded from the Property:

(i) All cash on hand or on deposit in any operating account or other account or reserve, except for security deposits held by Seller as landlord with respect to any Space Lease as of the Closing Date, security deposits held by Seller with respect to any Booking as of the Closing Date, utility and governmental agency deposits, deposits held by Seller in connection with any Service Contract to be assumed by Purchaser and the House Bank Funds, all of which are to be transferred at Closing subject to the terms of this Agreement.

(ii) The Excluded Personal Property.

(iii) The Retained IP.

(iv) The Excluded Permits.

(v) All accounts receivable of the Hotel and all related operations (collectively, the “Receivables”).

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(vi) Any tangible or intangible property (including, without limitations, fixtures, personal property or intellectual property) owned by: (A) the supplier, vendor, licensor, lessor or other party under any Service Contracts; (B) the tenants under any Space Leases; (C) Manager (but solely with respect to the types of tangible and intangible property that Manager would retain upon termination of the New Management Agreement); (D)  any employees; (E) any guests or customers of the Hotel; or (F) any other third party.

1.3 Permitted Exceptions. The Property shall be conveyed subject only to the matters which are, or are deemed to be, Permitted Exceptions pursuant to Article II below.

1.4 Purchase Price. Seller is to sell and Purchaser is to purchase the Property for a total of ONE HUNDRED THIRTY SEVEN MILLION AND NO/100 DOLLARS ($137,000,000.00) (the “Purchase Price”).

1.5 Payment of Purchase Price.

(a) On the Closing Date, Purchaser shall deliver to Escrow Agent, by wire transfer of immediately available federal funds to the bank account designated in the Escrow Agreement, an amount equal to the Purchase Price, as increased or decreased by prorations and adjustments as herein provided, less the Earnest Money previously delivered to Escrow Agent.

(b) The Purchase Price (including the Earnest Money previously delivered to Escrow Agent), as increased or decreased by prorations and adjustments as herein provided, shall be payable in full at Closing in cash by wire transfer of immediately available federal funds to a bank account designated by Seller in writing to Purchaser and Escrow Agent prior to the Closing.

(c) Seller and Purchaser agree that attached hereto as Schedule 1.5(c) is an allocation of the Purchase Price among the Real Property and various items of personal property (i.e., the Property other than the Real Property). Each party agrees to file federal, state and local tax returns consistent with such allocations agreed upon between the parties.

1.6 Earnest Money.

(a) Within one (1) business day following the full execution and delivery of this Agreement by Seller and Purchaser, Purchaser shall deposit with First American Title Insurance Company (“Escrow Agent”) having its office at 633 Third Avenue, New York, NY 10017, Attention: Andrew Jaeger or Anthony Ruggeri, the sum of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) (together with accrued interest thereon, the “Earnest Money”) by wire transfer of immediately available federal funds to the bank account designated in the Escrow Agreement. The full amount of the Earnest Money is deemed earned by Seller when the Additional Earnest Money is delivered pursuant hereto by Purchaser and is non-refundable to Purchaser except in the event that this Agreement is timely terminated as a result of Purchaser’s election to terminate in accordance with and pursuant to Section 2.3(b), Section 4.8, Section 6.2 or Section 8.2 below, in which case the Escrow Agent shall be obligated to refund the full amount of the Earnest Money to Purchaser pursuant to the terms of the Escrow Agreement.

5

(b) Escrow Agent shall hold the Earnest Money in a segregated, interest-bearing account in accordance with the terms and conditions of the Deposit Escrow Instructions attached hereto as Exhibit G (the “Escrow Agreement”). All interest accruing on such sums shall become a part of the Earnest Money and shall be distributed or applied as Earnest Money in accordance with the terms of the Escrow Agreement.

(c) Time is of the essence for the delivery of Earnest Money under this Agreement and the failure of Purchaser to timely deliver any portion of the same shall be a material default, and shall entitle Seller, at Seller’s sole option, to terminate this Agreement immediately and to pursue all remedies available to Seller under this Agreement.

1.7 Management Agreement. Purchaser acknowledges that the Hotel is being operated and managed by Morgans Hotel Group Management LLC, a Delaware limited liability company (“Manager”) (formerly known as Ian Schrager Hotel Management LLC), pursuant to that certain Property Management Agreement dated as of June 30, 1999, by and between Seller and Manager (the “Management Agreement”). At Closing, the Management Agreement will be terminated effective as of the Closing Date at Seller’s sole cost and expense and Purchaser and Manager will enter into a hotel management agreement in the form agreed to by the parties prior to the Effective Date (the “New Management Agreement”).

ARTICLE II
TITLE AND SURVEY

2.1 Title Report. Seller has obtained and delivered to Purchaser, a title report dated March 14, 2011 (Title No. NCS — 48012 — NY) (the “Title Report”) covering the Real Property from First American Title Insurance Company (the “Title Company”) and, has caused the Title Company to deliver to Purchaser a copy of each document referenced in the Title Report as an exception to title to the Real Property. Purchaser shall deliver to Seller, within five (5) days after receipt by Purchaser, a copy of any updates (each a “Title Update”) to the Title Report issued by the Title Company, provided that if Purchaser shall receive a Title Update less than five (5) days prior to the then scheduled Closing Date, then Purchaser shall deliver same to Seller prior to the Closing.

2.2 Survey. Purchaser has obtained a survey of the Real Property prepared by Scott E. Ohana. P.L.S. with a visual examination update April 15, 2011 (Reference No. J.N. 113-11) (as so updated, the “Survey”).

2.3 Approval of Title.

(a) Purchaser has approved all title exceptions and survey matters set forth on Schedule 2.4(a) attached hereto.

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(b) Purchaser shall have five (5) business days after receipt of a Title Update, if any, to notify Seller, in writing, of such objections as Purchaser may have to anything contained in such Title Update other than Permitted Exceptions (and if Purchaser receives a Title Update less than (5) days prior to a scheduled Closing Date, then Purchaser shall deliver such written notice to Seller prior to the Closing). In the event Purchaser shall notify Seller, in writing, of objections to title or to matters shown on a Title Update, Seller shall have the right, but not the obligation, to cure such objections. Within five (5) business days after receipt of Purchaser’s notice of objections, Seller shall notify Purchaser in writing whether Seller elects to attempt to cure any or all of such objections. If Seller elects to attempt to cure any or all of such objections, Seller shall have the right to attempt to remove, satisfy or cure the same and for this purpose Seller shall, at Seller’s election, be entitled to reasonable adjournments of the Closing if additional time is required, but in no event shall the adjournments, in the aggregate, exceed sixty (60) days after the Outside Closing Date. If Seller elects not to attempt to cure any objections specified in Purchaser’s notice, or if Seller fails (despite using reasonable commercial efforts) to effect a cure of those objections which it elected to attempt to cure prior to the Closing (or any date to which the Closing has been adjourned) and so notifies Purchaser in writing, or if Seller fails to respond to Purchaser’s notice within said five (5) business day period, Purchaser shall have the following options: (i) to accept a conveyance of the Property subject to the Permitted Exceptions and any matter objected to by Purchaser which Seller is unwilling or unable to cure (each of which shall also be deemed to be Permitted Exceptions), without reduction of the Purchase Price; or (ii) to terminate this Agreement by sending written notice thereof to Seller, and upon delivery of such notice of termination, this Agreement shall terminate and the Earnest Money shall be returned to Purchaser, and thereafter neither party hereto shall have any further rights, obligations or liabilities hereunder except to the extent that any right, obligation or liability set forth herein expressly survives termination of this Agreement. If: (A) Seller notifies Purchaser that Seller does not intend to attempt to cure any title objection; (B) Seller fails to respond to Purchaser’s notice within said five (5) business day period; or (C) if, having commenced attempts to cure any objection, Seller later notifies Purchaser in writing that Seller will not effect a cure thereof, then, in any such event, Purchaser shall, within five (5) days after such notice has been given (or within five (5) days after Seller’s five (5) business day period to respond to Purchaser’s objection notice has expired), notify Seller in writing whether Purchaser shall elect to accept the conveyance under clause (i) of the immediately preceding sentence or to terminate this Agreement under clause (ii) of the immediately preceding sentence. Purchaser’s failure to notify Seller of termination of this Agreement within such five (5) business day period shall be deemed to be an irrevocable election under clause (i) above to accept conveyance of the Property without reduction of the Purchase Price.

(c) Unless expressly agreed to by Seller, Seller have no responsibility or obligation of any kind or nature whatsoever (express or implied) to cure any title matter objected to by Purchaser. Notwithstanding the foregoing sentence, if any exceptions on the Title Report or any of the objections set forth in a written notice from Purchaser consist of delinquent taxes, mortgages, deeds of trust, security agreements, construction or mechanics’ liens, tax liens or other liens or charges in a fixed sum (or capable of computation as a fixed sum) (collectively, “Monetary Encumbrances”), then Seller shall be obligated to pay and discharge (or cause the Title Company to insure over) such Monetary Encumbrances, provided that (1) Seller’s obligation to incur costs and expenses in connection with paying and/or discharging all such Monetary Encumbrances is limited to Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in the aggregate and (2) the foregoing aggregate limitation of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) shall not apply to any liens securing loans made to Seller and any other Monetary Encumbrances that were caused, assumed, consented to or created by Seller.

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2.4 Conveyance of Title. Notwithstanding anything contained herein to the contrary, at Closing, Seller shall convey and transfer to Purchaser its interest in the Real Property subject to the following exceptions to title (the “Permitted Exceptions”):

(a) Those matters specifically set forth on Schedule 2.4(a) attached hereto and made a part hereof.

(b) Any state of facts shown on the Survey.

(c) The lien of all ad valorem real estate taxes and assessments not yet due and payable as of the Closing Date, subject to adjustment as herein provided.

(d) All laws, ordinances, rules and regulations of the United States, the State of California, any city or other subdivision or any agency, department, commission, bureau or instrumentality of any of the foregoing having jurisdiction over the Real Property or the Hotel, as the same may now exist or may be hereafter modified, supplemented or promulgated (collectively, the “Legal Requirements”).

(e) All presently existing and future liens of real estate taxes or assessments and water rates, water meter charges, water frontage charges and sewer taxes, rents and charges, if any, subject to apportionment as provided in this Agreement.

(f) Any matters over which the Title Company is willing to insure to the reasonable satisfaction of Purchaser at no additional cost (or, if there is additional cost, if Seller will pay the cost).

(g) Any matters against which the Title Company is willing to provide affirmative insurance to the reasonable satisfaction of Purchaser at no additional cost (or, if there is additional cost, if Seller will pay the cost).

(h) Any other matter affecting title to the Real Property that was not objected to by Purchaser or was waived or deemed waived by Purchaser in accordance with Section 2.3 hereof.

(i) All violations of laws, rules, regulations, statutes, ordinances, orders or requirements of law and/or conditions giving rise to the same;

(j) The rights of Hotel guests which occupy the Hotel or have any Booking or reservation for rooms, food and beverages, meetings and other customary Hotel uses relating to periods subsequent to the Closing Date; and

(k) The rights of the tenants under the Space Leases and any person claiming by, through or under such tenants.

2.5 Title Policy. At Closing, Seller and Purchaser shall direct the Title Company to issue an ALTA Owner’s Policy 2006 (“Title Policy”) insuring Purchaser’s interest in and to the Real Property as of the Closing Date, subject to the Permitted Exceptions.

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ARTICLE III
INSPECTION

3.1 Right of Inspection.

(a) Purchaser shall, subject to the rights of guests of the Hotel and the tenants under the Space Leases, have the right to make physical inspections of the Real Property and to examine at such place or places at the Hotel or elsewhere as the same may be located, any operating files maintained by or for the benefit of Seller in connection with the leasing, operation, current maintenance and/or management of the Property (“Property Information”), including, without limitation, the Space Leases, the Service Contracts, insurance policies, bills, invoices, receipts and other general records relating to the income and expenses of the Hotel, correspondence, surveys, plans and specifications, warranties for services and materials provided to the Hotel, environmental audits and similar materials, materials related to Hotel Employees (as defined below), to the extent Seller is not prohibited by applicable contracts or law from disclosing such materials, and any other documents relating to the Property in Seller’s or Manager’s possession or control, but excluding materials not directly related to the maintenance and/or management of the Property such as, without limitation, Seller’s financial projections, forecasts, budgets, appraisals, company tax records, internal memoranda, correspondence and reports and similar proprietary or confidential information; provided, however that it is anticipated and Purchaser and Seller agree that Manager will provide Purchaser with Manager’s forecasts and budgets with respect to the future operation of the Property.

(i) Subject to Section 11.2, Purchaser shall keep all Property Information strictly confidential, provided that Purchaser may deliver copies of Property Information to its attorneys, accountants and other advisors in connection with the acquisition of the Property and to current and prospective lenders and partners provided that such parties agree to maintain the confidentiality of such Property Information and that Purchaser is liable to Seller for any breach by any such party of the confidentiality of such Property Information.

(b) Purchaser understands and agrees that any on-site inspections of the Property shall only be conducted during business hours with not less than two (2) business days prior notice to Seller. Seller may have its respective representatives attend any such inspections. Such physical inspection shall not disturb Hotel guests or tenants under the Space Leases nor unreasonably interfere with the use of the Property by Seller or Manager. Such physical inspection shall not be invasive in any respect, and in any event shall be conducted in accordance with standards customarily employed in the industry and in compliance with all governmental laws, rules and regulations. Following each entry by Purchaser with respect to inspections and/or tests on the Real Property, Purchaser shall repair any damage to the Property caused by Purchaser or any of its agents, consultants or representatives in connection with Purchaser’s diligence activities at the Property, and restore the Property to the original condition as existed prior to any such inspections and/or tests, at Purchaser’s sole cost and expense.

(c) Seller shall reasonably cooperate with Purchaser in its due diligence but shall not be obligated to incur any liability in connection therewith. Purchaser shall not disrupt Seller’s, Manager’s or any tenant’s or guest’s activities on the Real Property and shall not contact Manager’s on-site managers or on-site employees, or any other employees working at the Hotel, any guests of the Property, any party to a Service Contract, any tenants under the Space Leases, any lender providing financing secured by the Real Property or any governmental authority without in each instance obtaining Seller’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed.

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(d) Purchaser shall indemnify, defend, protect and hold Seller harmless from and against any claim for liabilities, losses, costs, expenses (including reasonable attorneys’ fees actually incurred), damages or injuries arising out of or resulting from or in connection with the inspection of the Property by Purchaser or its agents, employees, representatives, consultants or contractors and notwithstanding anything to the contrary in this Agreement, such obligation to indemnify, defend, protect and hold harmless Seller shall survive Closing or any termination of this Agreement. Purchaser agrees (i) that prior to entering the Property to conduct any inspection, Purchaser shall obtain and maintain, and shall cause each of its consultants, contractors and agents to maintain (and shall deliver evidence thereof in the form of a policy certificate satisfactory to Seller thereof), at no cost or expense to Seller, commercial general liability insurance from an insurer reasonably acceptable to Seller in the amount of Two Million Dollars ($2,000,000) with combined single limit for personal injury or property damage per occurrence, such policies to name Seller and Manager as additional insured parties, which insurance shall provide coverage against any claim for personal injury or property damage caused by Purchaser or its agents, employees, representatives or consultants in connection with any such tests and investigations, and (ii) to keep the Property free from all liens and encumbrances on account of any inspections and/or tests made by or for the benefit of Purchaser. Purchaser’s insurance may not be canceled or amended prior to Closing except upon not less than thirty (30) days’ prior written notice to Seller. Purchaser’s obligations under this Section 3.1 shall survive a termination of this Agreement.

3.2 Seller Due Diligence Materials. PURCHASER ACKNOWLEDGES THAT INFORMATION RELATED TO THE PROPERTY CONTAINED IN THE SECURE WEBSITE (THE “E-ROOM”) TO WHICH PURCHASER HAS PREVIOUSLY BEEN GRANTED ACCESS HAS BEEN MADE AVAILABLE TO PURCHASER IN THE E-ROOM BY SELLER. BY EXECUTING THIS AGREEMENT, PURCHASER ACKNOWLEDGES ITS RECEIPT THEREOF OR THE AVAILABILITY THEREOF AND THAT (1) PURCHASER HAS RECEIVED COPIES OF THE ENVIRONMENTAL, ENGINEERING, SOILS AND OTHER REPORTS REGARDING THE CONDITION OF THE PROPERTY (COLLECTIVELY, THE “REPORTS”) LISTED ON SCHEDULE 3.2 ATTACHED HERETO, AND (2) ANY REPORTS OR OTHER DOCUMENTS DELIVERED OR TO BE DELIVERED BY SELLER OR ITS AGENTS OR CONSULTANTS TO PURCHASER ARE BEING MADE AVAILABLE SOLELY AS AN ACCOMMODATION TO PURCHASER AND WITHOUT ANY REPRESENTATION OR WARRANTY OF SELLER AS TO THEIR ACCURACY OR COMPLETENESS OF FACTS OR OPINIONS SET FORTH THEREIN EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND THAT ANY RELIANCE BY PURCHASER ON SUCH REPORTS OR OTHER DOCUMENTS IN CONNECTION WITH THE PURCHASE OF THE PROPERTY IS UNDERTAKEN AT PURCHASER’S SOLE RISK. PURCHASER AGREES THAT SELLER SHALL HAVE NO LIABILITY OR OBLIGATION WHATSOEVER FOR ANY UNINTENTIONAL INACCURACY IN OR OMISSION FROM THE OFFERING MATERIALS

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PREPARED IN CONNECTION WITH THE SALE OF THE PROPERTY OR ANY REPORTS OR OTHER DOCUMENTS MADE AVAILABLE TO PURCHASER OR ITS REPRESENTATIVES SUBJECT TO SELLER’S REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT. PURCHASER HAS CONDUCTED ITS OWN INVESTIGATION OF THE CONDITION OF THE PROPERTY TO THE EXTENT PURCHASER DEEMS SUCH AN INVESTIGATION TO BE NECESSARY OR APPROPRIATE. For purposes of this Agreement, the term “Seller Due Diligence Materials” shall mean the Reports, the Property Information and all other documents and materials provided or otherwise made available by Seller to Purchaser in the E-Room or pursuant to Section 3.1 and the other provisions of this Agreement or otherwise, together with any copies or reproductions of such documents or materials, or any summaries, abstracts, compilations, or other analyses made by Purchaser based on the information in such documents or materials.

ARTICLE IV
CLOSING

4.1 Time and Place; Pre-Closing.

(a) Subject to the provisions of Sections 4.6 and 4.7 below, the consummation of the transaction contemplated hereby (“Closing”), as evidenced by the payment and release of the Purchase Price to Seller and the release by Seller of the deed for recording, shall occur on or before 4:00 p.m. (New York time) on May 3, 2011, as such date may be adjourned from time to time in accordance with this Agreement (“Outside Closing Date”, with the actual date of Closing being referred to herein as the “Closing Date”). The Closing shall occur through an escrow administered by Escrow Agent and the Purchase Price and all documents (unless otherwise mutually agreed) shall be deposited with Escrow Agent as escrowee. At Closing, Seller and Purchaser shall perform the obligations set forth in, respectively, Section 4.2 and Section 4.3, the performance of which obligations shall be concurrent conditions.

(b) Notwithstanding anything herein to the contrary, the parties shall “pre-close” the sale of the Property on the last business day immediately prior to the Closing Date (the “Pre-Closing Date”). The term “pre-close” shall mean that each of the parties shall deliver to Escrow Agent no later than 4:00 p.m. (New York time) on the Pre-Closing Date all of the documents and other items (other than closing proceeds and other funds) required to be delivered by such party for Closing, including all of the closing documents required pursuant to Sections 4.2 and 4.3 hereof. With respect to the closing adjustments to be made between the parties pursuant to Section 4.4 hereof, the adjustments shall continue to be made effective as of the Cut-Off Time, but on the closing statement executed by the parties on the Pre-Closing Date, the parties shall in good faith estimate those adjustments which are not capable of being finalized prior to the Cut-Off Time, and the parties shall reconcile said estimated adjustments pursuant to Section 4.4.14 hereof.

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4.2 Seller’s Closing Obligations and Deliveries. At Closing, subject to Section 4.1 above, Seller shall through Escrow Agent make the following deliveries and take the following actions:

(a) Execute and deliver to Purchaser one (1) original counterpart of a grant deed (“Deed”), in the form attached hereto as Exhibit A and made part hereof, conveying the Real Property subject only to the Permitted Exceptions.

(b) Execute and deliver to Purchaser two (2) original counterparts of a bill of sale in the form attached hereto as Exhibit B and made a part hereof conveying all of Seller’s right title and interest in and to the Personal Property, the Unopened Inventory, the Retail Inventory, the Consumable Inventory without warranty of use and without warranty, expressed or implied, as to merchantability and fitness for any purpose.

(c) Execute and deliver to Purchaser two (2) original counterparts of an assignment and assumption of Seller’s interest in the Service Contracts (including the Equipment Leases), the Bookings the Permits and the other Intangibles (in each case to the extent assignable) (“Assignment of Contracts”) in the form attached hereto as Exhibit C and made a part hereof.

(d) Execute and deliver to Purchaser two (2) original counterparts of an assignment and assumption of Seller’s interest in the Space Leases (“Assignment of Space Leases”) in the form attached hereto as Exhibit D and made a part hereof.

(e) Deliver to Purchaser a certificate, dated as of the Closing Date and executed on behalf of Seller by a duly authorized officer thereof, stating that, to the best knowledge of such duly authorized officer, the representations and warranties of Seller contained in this Agreement are true and correct in all material respects as of the Closing Date (with appropriate modifications of those representations and warranties made in Section 5.1 hereof to reflect any changes therein including without limitation any changes resulting from actions under Section 5.3 hereof) or identifying any representation or warranty which is not, or no longer is, true and correct. Seller shall not be liable to Purchaser for, or be deemed to be in default hereunder by reason of, any breach of representation or warranty which results from any change that (i) occurs between the Effective Date and the Closing Date and (ii) is permitted under the terms of this Agreement or is beyond the reasonable control of Seller; provided, however, that if any of the foregoing changes are not permitted under the terms of this Agreement but are materially adverse to Purchaser, then any such changes constitute the non-fulfillment of the condition set forth in Section 4.6(a) and Purchaser may elect to terminate this Agreement pursuant to Section 4.8.If, despite changes or other matters described in such certificate, the Closing occurs, Seller’s representations and warranties set forth in this Agreement shall be deemed to have been modified by all statements made in such certificate.

(f) Deliver to Purchaser and the Title Company such evidence as the Title Company may reasonably require as to the authority of the person or persons executing documents on behalf of Seller.

(g) Deliver to Purchaser an affidavit duly executed by Seller stating that Seller is not a “foreign person” as defined in the Federal Foreign Investment in Real Property Tax Act of 1980 and the 1984 Tax Reform Act, in the form attached hereto as Exhibit E.

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(h) If not already delivered to Purchaser, deliver to Purchaser, originals, or, if unavailable, copies of the Space Leases, the Service Contracts and the Permits, if any, in the possession or control of Seller or Seller’s agents, together with such leasing and property files and records which are (A) in the possession or control of Seller or Seller’s agents and (B) material in connection with the continued operation, leasing and maintenance of the Property and any keys to security deposit boxes. For a period of four (4) years after Closing in case of Seller’s need in response to any legal requirement, a tax audit, tax return preparation or litigation threatened or brought against Seller, Purchaser shall maintain the books and records for the Property with respect to the period of Seller’s ownership (to the extent that such records were provided to Purchaser and Seller did not retain copies thereof), at Purchaser’s expense, and allow Seller and its agents or representatives reasonable access, upon reasonable advance notice (which notice shall identify the nature of the information sought by Seller), at all reasonable times to examine and make copies of any and all books and records at Seller’s cost and expense, which right shall survive the Closing. The location of such items at the Hotel on the Closing Date shall constitute delivery to Purchaser.

(i) Deliver to Escrow Agent an executed counterpart closing statement consistent with this Agreement and in a customary form.

(j) Deliver a copy of the termination agreement executed by Seller and Manager, which has the effect of terminating the Management Agreement effective as of the Closing Date.

(k) Deliver to Title Company a title affidavit generally in the form attached hereto as Exhibit F (the “Title Affidavit”).

(l) Deliver to Purchaser the Intangibles in Seller’s possession or control. The location of such items at the Hotel on the Closing Date shall constitute delivery to Purchaser.

(m) Deliver to Purchaser two (2) original counterpart copies of the New Management Agreement executed by the Manager.

(n) Deliver to Purchaser a certificate or registration of title for any owned vehicle or other Personal Property included in the Property which requires such certification or registration, duly executed, conveying such vehicle or such other Personal Property to Purchaser.

(o) Deliver any real estate transfer tax declaration (including, without limitation, a Preliminary Change of Ownership Report) and all other documents required under Applicable Law in connection with the conveyance of the Real Property.

(p) Deliver to Purchaser (2) original executed counterpart copies of a Post-Closing F&B Operations Agreement in the form agreed to by the parties prior to the Effective Date.

(q) Deliver to Escrow Agent two (2) original executed counterpart copies of an agreement regarding post-closing capital projects in the form agreed to by the parties prior to the Effective Date (the “Capital Repairs Escrow Agreement”).

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(r) Deliver to Purchaser two (2) original executed counterpart copies of the Liquor Assets Escrow Agreement executed by Liquor Seller.

(s) Deliver such additional documents as shall be reasonably required to consummate the transaction expressly contemplated by this Agreement.

4.3 Purchaser’s Closing Obligations and Deliveries. At Closing, Purchaser shall through Escrow Agent make the following deliveries and take the following actions:

(a) Pay the Purchase Price, as increased or decreased by prorations and adjustments as herein provided, to Seller in immediately available wire transferred funds pursuant to Section 1.5 above, it being agreed that at Closing the Earnest Money shall be applied towards payment of the Purchase Price.

(b) Deliver a written direction to Escrow Agent to disburse the Earnest Money to Seller in accordance with the Escrow Agreement.

(c) Deliver the same number of original executed counterparts of the instruments described in clauses (b), (c), (d), (i), (p), and (q) of Section 4.2 above to Seller or Escrow Agent, as applicable.

(d) Deliver to Seller a certificate, dated as of the Closing Date and executed on behalf of Purchaser by a duly authorized officer thereof, stating that, to the best knowledge of such duly authorized officer, the representations and warranties of Purchaser contained in this Agreement are true and correct in all material respects as of the Closing Date.

(e) Deliver to Seller and Title Company such evidence as Title Company may reasonably require as to the authority of the person or persons executing documents on behalf of Purchaser.

(f) Deliver to Seller, on behalf of Manager, two (2) original executed counterpart copies of the New Management Agreement.

(g) Deliver to Seller two (2) original executed counterpart copies of the Liquor Assets Escrow Agreement executed by Wolverines Lessee.

(h) Deliver such additional documents as shall be reasonably required to consummate the transaction contemplated by this Agreement.

4.4 Prorations, Credits and Other Adjustments. At Closing, Purchaser and Seller shall prorate all items of income and expense which are customarily prorated between a purchaser and seller for hotel properties comparable to the Hotel, including, without limitation, the prorations and other adjustments provided below, and the net amount consequently owing to Seller or Purchaser shall be added to or subtracted from the proceeds of the Purchase Price payable to Seller at Closing. Beginning as close to the anticipated Closing Date as practicable, Seller shall, in consultation with Purchaser and with Purchaser’s reasonable cooperation, cause to be prepared a prorations and credit statement (the “Preliminary Statement”) which shall reflect all of the prorations, credits and other adjustments to the Purchase Price at Closing required under this Section 4.4 or under any other provision of this Agreement. As soon as Purchaser and Seller have agreed upon the Preliminary Statement, they shall jointly deliver a mutually signed copy thereof to Escrow Agent. To the extent Purchaser and Seller are unable to agree by Closing on any item on the Preliminary Statement, Seller’s estimation of such item shall be used and such item shall be finally resolved on the Final Statement (defined below) pursuant to Section 4.4.14 below.

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4.4.1 Proration of Taxes.

(a) All real estate ad valorem taxes, general assessments and special assessments and all personal property ad valorem taxes assessed against the Hotel (collectively, “Taxes”) with respect to the tax year in which Closing occurs shall be prorated between Purchaser and Seller as of the Closing Date. If the amount of any such Taxes is not ascertainable on the Closing Date, the proration for such Taxes shall be based on the tax rates set forth in the most recent available bill and the latest assessed valuation of the Property; provided, however, that after the Closing, Seller and Purchaser shall re-prorate the Taxes in accordance with Section 4.4.14 below and pay any deficiency in the original proration to the other party promptly upon receipt of the actual bill for the relevant taxable period. Purchaser shall give Seller written notice of the actual amounts of any such bills within three (3) days after receipt thereof. If, at the time of the Closing, the Hotel is subject to a special assessment or assessments which are payable by Seller and which are or may become payable in installments, then, for the purposes of this Agreement, all of the installments of any such special assessment or assessments which are not delinquent on the Closing Date and which may be paid thereafter shall be equitably apportioned between Seller and Purchaser based upon their respective periods of ownership in relation to the benefits for which such assessments were levied.

(b) Seller retains the right to commence, continue and settle any proceeding to contest any Taxes for any taxable period which terminates prior to the date of the Closing, and shall be entitled to any refunds or abatements of Taxes awarded in such proceedings.

(c) Seller shall have the right to commence, continue and settle any proceeding to contest any Taxes for any taxable period which includes the Closing Date. Notwithstanding the foregoing, if Purchaser desires to contest any Taxes for such taxable period and Seller has not commenced any proceeding to contest any such Taxes for such taxable period, Purchaser shall provide written notice requesting that Seller contest such Taxes. If Seller desires to contest such Taxes, Seller shall provide written notice to Purchaser within fifteen (15) days after receipt of Purchaser’s request confirming that Seller will contest such Taxes, in which case Seller shall proceed to contest such Taxes, and Purchaser shall not have the right to contest such Taxes. If Seller fails to provide such written notice confirming that Seller will contest such Taxes within such fifteen (15) day period, Purchaser shall have the right to contest such Taxes. Any refunds or abatements awarded in such proceedings shall be used first to reimburse the party contesting such Taxes for the reasonable costs and expenses incurred by such party in contesting such Taxes, and the remainder of such refunds or abatements shall be prorated between Seller and Purchaser as of the Cut-Off Time, and the party receiving such refunds or abatements promptly shall pay such prorated amount due to the other party.

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(d) Purchaser shall have the right to commence, continue and settle any proceedings to contest Taxes for any taxable period which commences after the Closing Date, and shall be entitled to any refunds or abatements of Taxes awarded in such proceedings.

(e) Seller and Purchaser shall use commercially reasonable efforts to cooperate with the party contesting the Taxes (at no cost or expense to the party not contesting the Taxes other than any de minimis cost or expense or any cost or expense which the requesting party agrees in writing to reimburse) and to execute and deliver any documents and instruments reasonably requested by the party contesting the Taxes in furtherance of the contest of such Taxes.

4.4.2 General Proration of Expenses.

(a) The following items of expense with respect to any portion or aspect of the Hotel shall be prorated between Seller and Purchaser as of the Closing Date:

(i) All charges and expenses under any Service Contracts.

(ii) All utility charges (but excluding any utility deposits). To the extent reasonably practicable, though, in lieu of prorating the charges for any metered utility service, Purchaser and Seller shall endeavor to have the utility read the meter as close as practicable to the Closing Date, render a final bill to Seller based on such reading and Purchaser shall thereafter be responsible for all subsequent bills relating to such service.

(iii) Prepaid expenses of the Hotel, excluding insurance but including without limitation, (A) amounts incurred to pay for natural gas (if any) held in storage pending use at the Hotel and (B) the expense of all transferable licenses and permits obtained in connection with the operation of the Hotel.

(iv) All other Hotel operating expenses, other than employment expenses (which are covered by Section 4.4.3 below).

4.4.3 Employment Expenses. All salaries, bonuses, other compensation and employment benefits for unused vacation, holiday, sick leave and personal days if, and to the extent, that amounts are accrued and vested and unused prior to the Closing Date, and contributions for retirement and welfare benefits, together with F.I.C.A., unemployment and other payroll taxes and benefits due with respect to the employment of the Employees shall be prorated between Seller and Purchaser as of the Closing Date, with accrued vacation and other benefits due to Employees in accordance with past practices. Purchaser shall pay the salaries and related benefits that are payable to any Employees for work performed at the Hotel on the Closing Date, whether prior to or following the time of Closing, regardless of whether such persons are employees of Seller, Manager or Purchaser.

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4.4.4 Hotel Revenues.

(a) At Closing, Seller shall receive one-half (1/2) of all revenues from the Hotel guest rooms and facilities occupied on the evening immediately preceding the Closing Date, including without limitation any sales taxes, room taxes, occupancy taxes and other taxes charged to guests in such rooms, all parking charges, sales from mini-bars, in-room food and beverage, telephone, facsimile and data communications, in-room movie, laundry, and other service charges allocable to such rooms with respect to the evening immediately preceding the Closing Date. All revenues from restaurants, bars, lounges, vending machines and other service operations conducted at the Property shall be allocated based on whether the same accrued before or after the Cut-Off Time, and Seller shall cause the Manager to separately record sales occurring before and after the Cut-Off Time at the Property. Notwithstanding the foregoing, all revenues from any bars and lounges at the Property shall be prorated based on the actual closing time for such bar or lounge. For example, if such bar or lounge closes at 2 a.m. on the Closing Date, Seller shall retain the revenues from such services and operations even though such revenues were generated two (2) hours after the Cut-Off Time.

(b) Revenues from conferences, receptions, meetings, and other functions occurring in any conference, banquet or meeting rooms in the Hotel, or in any adjacent facilities owned or operated by Seller, including usage charges and related taxes, food and beverage sales, valet parking charges, equipment rentals, and telecommunications charges, shall be allocated between Seller and Purchaser, based on when the function therein commenced, with: (i) one-day functions commencing prior to the Cut-Off Time being allocable to Seller; (ii) functions commencing after the Cut-Off Time being allocable to Purchaser; and (iii) multi-day functions being allocated on a pro rata basis between Seller and Purchaser according to when the event commences and is scheduled to end in relation to the Cut-Off Time.

(c) Any operating revenues not otherwise provided for in this Section 4.4, shall be prorated between Purchaser and Seller as of Closing.

4.4.5 Rent.

(a) Rent and other payments payable by tenants, licensees, concessionaires, and other persons using or occupying the Real Property or any part thereof under a Space Lease or otherwise, if any, for or in connection with such use or occupancy, including, without limitation, fixed monthly rentals, additional rentals, percentage rentals, escalation rentals, retroactive rentals, operating cost pass-throughs, common area maintenance charges, HVAC charges, payments of taxes and insurance expenses, promotional/marketing charges, construction receivables and other sums and charges payable by the tenants under the Space Leases (collectively, “Rent”) shall be prorated as of the Closing Date such that Seller will be entitled to Rent attributable to periods prior to the Closing Date and Purchaser will be entitled to Rent attributable to periods from and after the Closing Date, all as more particularly set forth below:

(b) All Rent, other than Percentage Rent, owed under any Space Lease collected during the calendar month for the month in which the Closing occurs, but prior to the Closing Date, shall be applied in the following order of priority (after deduction of actual out-of-pocket costs of collection paid by Seller to third parties): (i) first, to Rent due from such tenant for the month in which the Closing occurs prorated between Seller and Purchaser as of the Closing Date, and (ii) second, to the extent the applicable tenant shall be in arrears for any Rent due for periods of time prior to the calendar month during which the Closing occurs (“Rent Arrears”), then Rent collected from such tenant during the calendar month in which the Closing occurs shall be applied to Rent Arrears due from such tenant for the months preceding the month during which the Closing occurs.

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(c) All Rent, other than Percentage Rent, owed under any Space Lease collected after the Closing Date shall be applied in the following order of priority (after deduction of actual out-of-pocket costs of collection paid by Purchaser to third parties): (i) first, to Rent then due from the applicable tenant to Purchaser; (ii) second, to Rent due from the applicable tenant for the calendar month in which the Closing occurs, prorated between Seller and Purchaser as of the Closing Date; and (iii) third, thereafter to the balance of Rent Arrears due then to Seller from such tenant. Any sums owed to Seller or Purchaser, as the case may be, pursuant to the foregoing shall be paid to the party entitled hereunder to receive such sum within fifteen (15) days following receipt thereof by the other party. Purchaser shall deliver to Seller by the twentieth (20th) day of the first full calendar month after the Closing and every month thereafter through the twelfth (12th) month following the Closing, a statement of the collection status of each Rent Arrear until the collection of all Rent Arrears. For one (1) year following the Closing, Seller shall have the right, upon reasonable notice, but no more often than once in such twelve (12) month period, to audit Purchaser’s books and records to verify the amount of Rent Arrears which has actually been collected by Purchaser. Purchaser shall pursue all Rent Arrears in the ordinary course of business and shall have the right to negotiate settlements with tenants who have Rent Arrears as it may determine in good faith; provided that, at its sole cost and expense (A) Seller shall have the unrestricted right to pursue collection from any tenant not in possession of its space as of the Closing Date in Seller’s sole discretion including, without limitation, initiating and prosecuting a lawsuit against the applicable tenant and (B) in the event that after Closing Purchaser evicts or otherwise terminates the possession of any tenant with Rent Arrears, Seller shall have the unrestricted right to pursue collection from such tenant in Seller’s sole discretion including, without limitation, initiating and prosecuting a lawsuit against the applicable tenant.

(d) Percentage rent or overage rent (referred to herein as “Percentage Rent”) under each Lease shall be prorated between Purchaser and Seller for the Lease Year (as defined below) in which the Closing occurs in proportion to the relative periods of ownership of Seller and Purchaser during such Lease Year, with an adjustment to be made post-Closing upon completion of each applicable Lease Year to account for any Percentage Rent paid after Closing Date occurs. As used herein, the term “Lease Year” means the twelve (12) month period (or, as to tenants for which the Closing occurs during a partial Lease Year, such applicable shorter period) as to which annual Percentage Rent is owed under each Lease.

4.4.6 Hotel Payables. At Closing, Purchaser shall receive a proration credit equal to the aggregate amount of all outstanding accounts payable for the Hotel with respect to purchases of goods and services delivered prior to the Closing Date (“Hotel Payables”) as set forth in a schedule attached to the Preliminary Statement. Purchaser shall: (a) assume the obligation to satisfy all Hotel Payables for which Purchaser received such credit at Closing; (b) indemnify, defend and hold Seller harmless against any claim for such Hotel Payables; and (c) assume all obligations of Seller to pay for any (i) consumables or other items ordered by or for the benefit of Seller in the ordinary course of business but which are not yet received as of the Closing Date and (ii) items or services listed on a purchase order log prepared by Manager which are not yet received as of the Closing Date, which list shall be updated by Manager immediately prior to Closing. There shall not be any adjustment to the Purchase Price in connection with Purchaser’s assumption of the liabilities described in clauses (i) and (ii) above.

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4.4.7 Credit for Certain Inventories. At Closing, Seller shall receive a credit (based upon the original net invoice price paid) for (x) all unopened Liquor Inventory owned by 8440 LLC as of the Closing (which Liquor Inventory is not being purchased by Purchaser hereunder but shall be transferred in accordance with the Liquor Assets Escrow Agreement, subject to the post-Closing food and beverage operations agreement referred to in Section 4.2(p)) and (y) all unopened Retail Inventories at the Hotel as of the Closing Date, and Purchaser shall purchase all such unopened Retail Inventories. The amount of such credit shall be based on the actual costs (including without limitation sales tax) paid by Seller (or 8440, as applicable) for the actual inventory of such unopened Liquor Inventory and Retail Inventories by Seller’s and Purchaser’s representatives.

4.4.8 Credit for Reservation Deposits. Purchaser shall receive a proration credit equal to the aggregate amount of advance deposits that shall have been received by Seller prior to the Cut-Off Time on account of reservations for use or occupancy of the Property after the Cut-Off Time.

4.4.9 Credit for Cash Banks. Seller shall receive a credit at Closing in an amount equal to all House Bank Funds.

4.4.10 Space Lease Deposits. Purchaser shall receive a credit at Closing in an amount equal to the aggregate amount of security and other deposits of tenants under the Space Leases which have not been applied to the tenants’ obligations in accordance with the terms of such Space Leases as of the Closing Date. All obligations with respect to such security deposits shall be assumed by Purchaser and Purchaser shall indemnify, defend and hold Seller harmless with respect thereto.

4.4.11 Regarding Hotel Prorations Generally. Unless this Section 4.4 expressly provides otherwise: (a) all prorations hereunder with respect to the Hotel shall be made as of 12:00:01 a.m., local time at the Hotel (“Cut-Off Time”) on the Closing Date; (b) all prorations shall be made on an actual daily basis; and (c) for purposes of such prorations, all items of revenue and expense with respect to the Hotel’s operations shall be classified and determined in accordance with the Uniform System of Accounts for the Lodging Industry, as reasonably modified by Manager for use at the Hotel consistent with past practices within the twelve (12) months preceding the Closing, and otherwise in accordance with generally accepted accounting principles. Except as otherwise expressly provided herein, in any case in which Purchaser receives a credit at Closing on account of any obligation of Seller hereunder, Seller shall have no further liability for such obligation to the extent of the credit so given, Purchaser shall pay and discharge the same, and Purchaser shall indemnify, defend and hold Seller harmless Seller with respect thereto.

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4.4.12 Vouchers. Purchaser shall: (a) honor all outstanding unexpired gift certificates, coupons or other writings issued by Seller or its affiliates prior to the Closing Date that entitles the holder or bearer thereof to a credit (whether in a specified dollar amount or for a specified item, such as room night or meals) to be applied against the usual charge for rooms, meals, or goods and services at the Hotel (collectively, “Vouchers”) and shall assume all liability, if any, for all outstanding Vouchers as of the Closing Date; (b) receive a credit against the Purchase Price payable at Closing in the amount set forth on the schedule entitled “Vouchers and Barter” Agreements annexed to the Property Information Letter, with respect to the Vouchers listed thereon, as updated as of the Closing Date; (c) be reimbursed by Manager for any other Vouchers presented by holders thereof in accordance with the New Management Agreement; and (d) indemnify, defend and hold Seller harmless from and against all claims, liabilities, costs and expenses arising out of a violation of this Section 4.4.12 with respect to the Vouchers from and after the Closing Date.

4.4.13 Utility and Other Deposits. At Closing, Seller shall receive a credit for all refundable cash or other deposits posted with utility companies serving the Property or any governmental agencies or authorities or posted pursuant to any Service Contract, or, at Seller’s option, Seller shall be entitled to receive and retain such refundable cash and deposits.

4.4.14 Final Statement; Post-Closing Adjustments. Except for prorations for real estate taxes and other assessments, which shall be adjusted within fifteen (15) business days of receipt of the tax bill for the tax year in which the Closing occurs, and prorations of Percentage Rent in accordance with Section 4.4.5 hereof, Purchaser and Seller shall make a one-time post-Closing adjustment of any item of income and expense subject to adjustment as provided above which was either incomplete or incorrect (whether as a result of an error in calculation or a lack of complete and accurate information) as of the Closing. Purchaser will prepare and deliver to Seller for its review and approval a statement of prorations (the “Final Statement”) within ninety (90) days following the Closing Date, and the party in whose favor the original incorrect adjustment or error was made (“Adjusting Party”) shall pay to the other party (“Requesting Party”) the sum necessary to correct such prior incorrect adjustment or error within ten (10) days after completion of the Final Statement. Notwithstanding any provision of this Agreement to the contrary, all items required to be adjusted pursuant to this Section 4.4.14 shall be adjusted within one hundred twenty (120) days of Closing (except real estate taxes, which shall be re-adjusted within the period set forth above), and such adjustment shall be final and no further adjustment to the prorations or the Purchase Price shall be made.

4.4.15 Resolution of Disputes. In the case of a dispute with respect to any post-closing adjustment, the parties shall attempt to resolve such dispute, but if for any reason such dispute is not resolved by the date that is thirty (30) days after the delivery of the original notice of the claimed adjustment by Purchaser or Seller, but not to exceed one hundred fifty (150) days after Closing, then the parties shall, upon the written request of either party to the other, submit such dispute to Ernst & Young (“Outside Accountants”), and the determination of the Outside Accountants, which shall be made within a period of fifteen (15) days after such submittal by the parties, shall be conclusive. The fees and expenses of the Outside Accountants shall be paid equally by Purchaser and Seller. At such time as the amount of any adjustment or dispute shall be determined (either by agreement or by determination of the Outside Accountants), any amount that shall be payable by the Requesting Party to the Adjusting Party as a result of such adjustment or determination shall be paid within ten (10) business days after the date on which such agreement or determination shall have been made.

4.4.16 Survival. The provisions of this Section 4.4 shall survive Closing.

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4.5 Closing Costs.

(a) Seller Closing Costs(b) . At Closing, Seller shall pay: (a) the fees of any counsel representing it in connection with this transaction; (b) 100% of the premium for the Title Policy; (c) one-half of the escrow fees charged by Escrow Agent; (d) all recording and filing fees; and (e) 100% of the city, county, and state documentary transfer tax imposed in connection with the consummation of the transactions contemplated by this Agreement. The parties acknowledge and agree that Seller may use the Purchase Price to pay Seller’s closing costs.

(c) Purchaser Closing Costs(d) . At Closing, Purchaser shall pay: (a) the fees of any counsel representing Purchaser in connection with this transaction; (b) 100% of the (i) cost of any endorsements or extended coverages to the Title Policy, and (ii) cost of any title insurance provided to Purchaser’s lender; (c) the cost of any modifications or updates to the Survey, including the update referred to in Section 2.2; (d) one-half of the escrow fees charged by Escrow Agent; (e) the cost of any third party engineering and environmental reports and any updates obtained by Purchaser to the property condition report and the Phase I environmental report; and (f) all bulk sales taxes, sales tax on the sale of the Personal Property (or any part thereof) and any other sales or use taxes.

(e) Other Costs(f) . All other costs and expenses incident to this transaction and the closing thereof shall be paid in a manner consistent with custom for similar transactions in the city where the Hotel is located. Notwithstanding the foregoing, in the event that this Agreement is terminated as a result of a party’s default, such defaulting party shall pay all escrow and title cancellation fees charged in connection with such cancellation.

4.6 Conditions Precedent to Obligation of Purchaser. The obligation of Purchaser to consummate the transaction hereunder shall be subject to the fulfillment on or before the Closing Date of all of the following conditions, any or all of which may be waived by Purchaser in its sole discretion:

(a) All of the representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects as of the Closing Date (with appropriate modifications permitted under this Agreement or not materially adverse to Purchaser).

(b) Seller shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by Seller as of the Closing Date.

(c) Seller shall have delivered to Purchaser or deposited with Escrow Agent all of the items required to be delivered to Purchaser or deposited with Escrow Agent pursuant to the terms of Section 4.2.

(d) Title Company shall have issued, or be irrevocably committed to issue subject to payment of title premiums, the Title Policy.

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(e) Seller shall deliver an executed Tenant Estoppel for the Space Lease for Liquor Seller.

(f) The existing alcoholic beverage license for the Hotel (License No. 326147), which is owned by 8440 LLC (the “Existing Liquor License”) shall be in full force and effect.

4.7 Conditions Precedent to Obligation of Seller. The obligation of Seller to consummate the transaction hereunder shall be subject to the fulfillment on or before the Closing Date of all of the following conditions, any or all of which may be waived by Seller in writing in its sole discretion:

(a) Purchaser shall have deposited with Escrow Agent the Purchase Price as adjusted pursuant to and payable in the manner provided for in this Agreement and Seller shall have received such Purchase Price from Escrow Agent.

(b) All of the representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects as of the Closing Date (with modifications which are not materially adverse to Seller).

(c) Purchaser shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by Purchaser as of the Closing Date.

(d) Purchaser shall have deposited with Escrow Agent all of the items required to be delivered to Seller or deposited with Escrow Agent pursuant to the terms of Section 4.3.

4.8 Failure or Waiver of Conditions Precedent. If other than as a result of a default by either party (in which case Article VI shall apply), any of the conditions set forth in Sections 4.6 or 4.7 are not fulfilled or waived on or before the Outside Closing Date, the sole and exclusive remedy available to the party benefited by such conditions shall be to terminate this Agreement by written notice to the other party, whereupon the Earnest Money shall be refunded to Purchaser (less Purchaser’s share of any escrow charges) and all rights and obligations hereunder of each party shall be at an end except those that expressly survive any termination of this Agreement. Either party benefited by a condition set forth in Sections 4.6 and 4.7 above may, at its election, at any time or times on or before the date specified for the satisfaction of the condition, waive in writing the benefit of such condition. The parties’ consummation of the Closing pursuant to this Agreement shall waive any remaining unfulfilled conditions and any liability on the part of the other party for breaches of representations and warranties of which such party had actual knowledge as of the Closing.

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4.9 Alcoholic Beverage License.

(a) Purchaser and Seller recognize that the Existing Liquor License and all alcoholic beverages on hand at the Hotel or the Property as of the Effective Date, whether issued to the food and beverage department or held in reserve storage (the “Liquor Inventory” and, together with the Existing Liquor License, the “Liquor Assets”) are currently owned by 8440 LLC, a California limited liability company (the “Liquor Seller”). On or prior to Closing, Wolverines Lessee LLC, a Delaware limited liability company (“Wolverines LLC”), and Liquor Seller (collectively, the “Liquor Designee”) shall execute a separate escrow agreement relating to the transfer of the Liquor Assets to Liquor Designee, as co-licensees, (the “Liquor Assets Escrow Agreement”), in the form of Exhibit I attached hereto, and any other documents required by the California Department of Alcoholic Beverage Control (the “ABC”) and reasonably required by the Liquor Assets Escrow Agent (as defined below) to effectuate such transfer, and the parties shall, at or prior to Closing, deliver a fully executed Liquor Assets Escrow Agreement to Bay Commercial Bank, 3895 East Castro Valley Boulevard—Suite A, Castro Valley, CA 94552, Attention Chloe Flowers (the “Liquor Assets Escrow Agent”) along with the Liquor Assets Purchase Price.

(b) Simultaneously with the Closing, Purchaser shall deposit into the Liquor Assets Escrow, in cash or other immediately available funds, an amount equal to Seventy-Five Thousand and 00/100 Dollars ($75,000.00) (the “Liquor Assets Purchase Price”), which amount shall be allocated as set forth in the Liquor Assets Escrow Agreement. The amount deposited as the Liquor Assets Purchase Price shall be a credit to Purchaser against the Purchase Price at Closing.

(c) The Liquor Assets Escrow Agreement shall close as promptly as possible after the Closing, subject to Applicable Law. Upon the closing of the Liquor Assets Escrow Agreement, the Liquor Assets Escrow Agent shall deliver to Liquor Seller the Liquor Assets Purchase Price (less any amounts disbursed to third parties by the Liquor Assets Escrow Agent from the Liquor Assets Escrow pursuant to the terms of the Liquor Assets Escrow Agreement).

(d) Promptly after the Liquor Assets Escrow Agreement and Liquor Assets Purchase Price has been deposited with the Liquor Assets Escrow Agent, Purchaser shall, at its cost and expense, submit an application to the ABC to transfer of the Existing Liquor License to the Liquor Designee, as co-licensees. Liquor Seller shall use commercially reasonable efforts to cooperate with Purchaser and Liquor Designee to cause the Existing Liquor License to be transferred or issued as provided herein, which such cooperation shall include, without limitation, maintaining and renewing the Existing Liquor License until such time as the Liquor Designee secures approval from the ABC for the transfer of the Existing Liquor License (or receives an unappealable order denying the transfer.

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ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS

5.1 Representations and Warranties of Seller. Seller hereby makes the following representations and warranties to Purchaser as of the Effective Date, subject to the qualifications and exceptions set forth below:

(a) Organization and Authority. Seller has been duly organized and is validly existing and in good standing under the laws of Delaware and is qualified to do business in the State of California. Seller has the full right and authority to enter into this Agreement and to transfer all of the Property to be conveyed by Seller pursuant hereto and to consummate or cause to be consummated the transactions contemplated herein to be made by Seller. The person signing this Agreement on behalf of Seller is authorized to do so.

(b) No Breach. The execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated herein will not: (i) result in a breach or acceleration of or constitute a default or event of termination under the provisions of any agreement or instrument by which the Property is bound which would have a material adverse impact on the ownership and operation of the Property by Purchaser; or (ii) constitute or result in the violation or breach by Seller of any judgment, order, writ, injunction or decree issued against or imposed upon Seller or result in the violation of any Applicable Law, rule or regulation of any governmental authority which, with respect to any of the foregoing, would have a material adverse impact on the ownership or operation of the Property by Purchaser.

(c) Litigation/Condemnation. Except as set forth on the schedule entitled “Litigation” annexed to the Property Information Letter, neither Seller nor Manager has received written notice and, to Seller’s knowledge, there has been no written threat, of any litigation which has been filed against Seller that arises out of the ownership of the Property, or affecting the Property, an adverse determination of which would reasonably be expected to materially and adversely affect the Property or use thereof, or Seller’s ability to perform its obligations hereunder, nor has Seller received written notice of any condemnation proceedings.

(d) Space Leases. The list of Space Leases attached hereto as Schedule 1.1(j) lists all leases or licenses for the lease and occupancy of space at the Hotel, and Seller has made available to Purchaser a true and correct copy of each such Space Lease. No written notice of default has been delivered by Seller or Manager or received by Seller or Manager with respect to any Space Leases that, to Seller’s knowledge, remains uncured, other than as set forth in Schedule 5.1(d). Any and all brokerage, leasing and other commissions and tenant improvement credits or contributions due under any such Space Leases have been performed in all material respects and all amounts due from Seller under the Space Leases as of the Closing Date have been (or will be) paid by the Closing Date.

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(e) Service Contracts and Equipment Leases. There are no Service Contracts, including without limitation Equipment Leases, which will affect the Property in any material respect after the Closing Date except as set forth on Schedule 1.1(e)-1(a), Schedule 1.1(e)-1(b), Schedule 1.1(e)-2(a), Schedule 1.1(e)-2(b), or Service Contracts entered into after the Effective Date which Seller is permitted to enter into under the terms of this Agreement. No Service Contracts, including without limitation Equipment Leases, have been amended except as set forth in said Schedules or as otherwise permitted pursuant to this Agreement. As of the Effective Date and the Closing Date, no written notice of material default has been delivered by Seller or Manager or, to Seller’s knowledge, received by Seller or Manager with respect to any Service Contracts or Equipment Leases that, to Seller’s knowledge, remain uncured. The copies of Service Contracts and Equipment Leases made available to Purchaser by Seller are true and complete in all material respects.

(f) Personal Property. Seller owns the Personal Property, other than any leased Personal Property under the Equipment Leases, free of all liens and encumbrances.

(g) No Consents. No consent, approval or action of, filing with or notice to any governmental or regulatory authority or any other person or entity on the part of Seller is required in connection with the execution, delivery and performance of Agreement or the consummation of the transactions contemplated.

(h) No Violations. Except for violations shown in or disclosed by the Title Report or any Title Update and any violations disclosed on the schedule entitled “Violations of Law” annexed to the Property Information Letter, Seller has not received any written notice of, nor does Seller have any knowledge of, any violation in any material respect of Applicable Law that remains uncured.

(i) Liquor Licenses. Neither Seller nor Manager has received any written notice from any Governmental Authority or other Person of any violation, suspension, revocation or non renewal of the liquor licenses held by Seller or any of its affiliates in effect with respect to the Hotel that has not been cured or dismissed.

(j) Hotel Operating Statements. To Seller’s knowledge, the operating statements of the Hotel provided to Purchaser: fairly present in all material respects the financial condition of the Hotel as of the date thereof and the results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the periods covered thereby.

(k) Patriot Act Compliance. Neither Seller nor any individual or entity having an interest in Seller or controlled by Seller: (i) is a person or entity listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (September 25, 2001) (the “Order”) and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable orders (such lists are collectively referred to as the “Lists”); (ii) is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order; or (iii) is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order.

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(l) Employees.

(i) There are no employees of the Hotel other than those employees who are employed by Manager with respect to the Hotel.

(ii) Neither the Seller nor the Manager is a party to any collective bargaining agreement or other agreement with any labor union with respect to the Property or the Hotel or any employees at the Hotel.

(iii) Neither the Seller nor the Manager is a party to any written employment agreement with any employee at the Hotel that contains a fixed term or provides for severance other than in accordance with the generally applicable severance policy of Manager or Seller.

* * *

Notwithstanding the foregoing, if Purchaser has actual knowledge of a breach of any representation or warranty made by Seller in this Agreement prior to Closing and Purchaser nevertheless proceeds to close the purchase of the Property, such representation or warranty by Seller shall be deemed to be qualified or modified to reflect Purchaser’s knowledge of such breach and Seller shall have no liability whatsoever respecting the same.

5.2 Knowledge Defined. For purposes of this Agreement, “knowledge” means (a) with respect to Seller, the actual knowledge of Richard Szymanski or Richard Russo (provided that, in no event shall such person have any personal liability arising under this Agreement), without any duty of inquiry or investigation (other than to make reasonable inquiries of the general manager of the Hotel), and expressly excluding the knowledge of any other shareholder, partner, member, trustee, beneficiary, director, officer, employee, agent or representative of Seller or any of its affiliates, and (b) with respect to Purchaser: (i) the actual knowledge of Thomas Fisher and Jon Bortz (provided that, in no event shall such person(s) have any personal liability arising under this Agreement); (ii) any matter disclosed in this Agreement or in any exhibits or schedules to this Agreement; (iii) any matter disclosed in any of the Seller Due Diligence Materials or any other documents or other written materials delivered by Seller or its agents to Purchaser prior to Closing; (iv) any matter disclosed by Purchaser’s inspections or investigations of the Property; and (v) any matter disclosed by a Tenant Estoppel (defined below).

5.3 Covenants of Seller.

(a) Seller hereby covenants as follows:

(i) From the Effective Date hereof until the Closing or earlier termination of this Agreement, Seller shall cause Manager to operate and maintain the Hotel in the ordinary course and in a manner generally consistent with the manner in which Manager has operated and maintained the Hotel during the twenty-four (24) month period prior to the date hereof, in good condition consistent with past practice, reasonable wear and tear excepted and so as (i) to maintain levels of Retail Inventory and Consumable Inventory consistent with past practice (ii)  maintain all existing insurance coverages for the Hotel, (iii) perform maintenance and repairs for the Property and Hotel in the ordinary course of business and consistent with past practices, and (iv) maintain all Permits and the Existing Liquor License in full force and effect, subject in all events to force majeure and other circumstances or events outside of control of Seller.

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(ii) From and after the Effective Date until the Closing, Seller shall not sell, assign or enter into any agreement to sell or transfer the Hotel or any portion thereof, except for the provision of hotel rooms and facilities in the ordinary course.

(iii) From and after the Effective Date until the Closing, Seller shall not (i) enter into any new, written management agreement or Service Contracts, Space Lease or other agreement or encumbrance with respect to the Property (other than agreements with potential guests or groups entered into in the ordinary course of business consistent with past practice), nor shall Seller enter into any written agreements modifying the Service Contracts, Permitted Exceptions or Space Leases unless: (A) any such agreement or modification will not bind Purchaser or the Property after the Closing Date; (B) any such agreement or modification is subject to termination on not more than thirty (30) days’ notice without penalty; or (C) Seller has obtained Purchaser’s prior written consent to such agreement or modification which consent shall not unreasonably be withheld or delayed or (ii) grant its consent to any action described in clause (i) above by Manager; provided that Seller shall be permitted to enter into a new lease with Liquor Seller on the same terms as the existing Space Lease with Liquor Seller except for the term thereof which shall extend to February 28, 2019. Contracts and agreements entered into after the Effective Date in accordance with this Section 5.3(a)(iii) shall constitute, as applicable, “Service Contracts” or “Space Leases” and be scheduled on, and assigned pursuant to, the Assignment of Contracts or the Assignment of Space Leases.

(b) Following the Effective Date and prior to Closing, Seller shall obtain from 8440 LLC, in its capacity as tenant under the Space Lease for certain restaurant, bar, and similar areas in the Hotel, an estoppel in the form required under the applicable Lease (or, if neither a form nor the contents of any estoppel is specified, in substantially the form of Exhibit H attached hereto) (such estoppel being referred to herein as a “Tenant Estoppel”), which Tenant Estoppel shall be delivered to Purchaser at the Closing pursuant to Section 4.6(e).

5.4 Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to Seller:

(a) ERISA. Purchaser is not acquiring the Property with the assets of an employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 (as amended, “ERISA”).

(b) Organization and Authority. Purchaser has been duly organized and is validly existing and in good standing under the laws of the State of Delaware. Purchaser has the full right, power and authority to purchase the Property as provided in this Agreement and to carry out Purchaser’s obligations hereunder, and all requisite action necessary to authorize Purchaser to enter into this Agreement and to carry out its obligations hereunder have been, or by the Closing will have been, taken. The person signing this Agreement on behalf of Purchaser is authorized to do so, and this Agreement is enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency and similar laws.

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(c) No Breach. The execution, delivery and performance of this Agreement by Purchaser and the consummation of the transaction contemplated herein will not: (i) result in a breach or acceleration of or constitute a default under any agreement or instrument by which Purchaser is bound or affected which would have a material adverse impact on the ability of Purchaser to timely close the acquisition of the Property pursuant to the terms of this Agreement; or (ii) constitute or result in the violation or breach by Purchaser of any judgment, order, writ, injunction or decree issued against or imposed upon Purchaser or result in the violation of any Applicable Law, rule or regulation of any governmental authority which, with respect to any of the foregoing, would have a material adverse impact on the ability of Purchaser to timely complete the acquisition of the Property pursuant to this Agreement.

(d) No Consents. No consent, approval or action of, filing with or notice to any governmental or regulatory authority or any other person or entity on the part of Purchaser is required in connection with the execution, delivery and performance of Agreement or the consummation of the transactions contemplated.

(e) Pending Actions. There is no action, suit, arbitration, unsatisfied order or judgment, government investigation or proceeding pending against Purchaser which, if adversely determined, could individually or in the aggregate materially interfere with the consummation of the transaction contemplated by this Agreement.

(f) Patriot Act Compliance. Neither Purchaser nor any individual or entity having an interest in Purchaser or controlled by Purchaser (i) is in violation of any applicable anti-money laundering or anti-bribery laws and regulations, (ii) is a person or entity listed on the Lists; (iii) is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order; or (iv) is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Order.

(g) Tax Identification Number. Purchaser’s valid tax identification number is 45-1822358.

(h) Bankruptcy. No petition in bankruptcy (voluntary or otherwise), assignment for the benefit of creditors, or petition seeking reorganization or arrangement or other action under federal or state bankruptcy laws is pending against or contemplated by Purchaser or its general partner(s) or controlling shareholders or members.

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5.5 Covenants of Purchaser and/or of Seller.

(a) Purchaser may at its election (but subject to the limitations of Section 3.1 above), inspect the Property for the presence of Hazardous Substances, and, at Seller’s request, shall furnish to Seller without representation or warranty copies of any reports received by Purchaser in connection with any such inspection. Purchaser shall also furnish to Seller without representation or warranty copies of any other reports received by Purchaser relating to any other physical inspections of the Property conducted on Purchaser’s behalf, if any (including, specifically, without limitation, any reports analyzing compliance of the Property with the provisions of the Americans with Disabilities Act, 42 U.S.C. §12101, et seq., if applicable).

(b) Purchaser hereby assumes full responsibility for its inspections of the Property regarding Hazardous Substances and irrevocably waives any claim against Seller and releases Seller from all liability arising from the presence of Hazardous Substances on the Property.

(c) Not later than three (3) days prior to the Closing, Seller shall send, or cause the Manager to send, written notice to guests or other persons who have safe deposit boxes at the Hotel advising of the sale of the Hotel and requesting verification or removal of the contents within two (2) days. The safe deposit boxes of guests or other persons not responding to said written notice shall be opened only in the presence of the Manager or representatives of both Seller and Purchaser. The contents of all boxes opened as aforesaid shall be listed at the time such boxes are opened and each such list shall be signed by or on behalf of the Manager or by or on behalf of Seller and Purchaser, and Purchaser shall not be liable or responsible for any items claimed to have been in said boxes unless such items are included in such list. Seller agrees to indemnify, defend and hold Purchaser harmless from and against any liability or responsibility for any items claimed to have been in said boxes but not included on such list and Purchaser agrees to indemnify, defend and hold Seller harmless from and against any liability or responsibility for items claimed to have been in said boxes and included in such list and all claims, losses and liabilities with respect thereto arising out of the acts or omissions of Purchaser after the Closing Date.

(d) All baggage or other property of guests of the Hotel which has been checked with or left in the care of Seller and remains in Seller’s care as of the Cut-Off Time shall be inventoried and tagged jointly by Seller and Purchaser. Purchaser hereby agrees to defend, indemnify and hold harmless Seller against any claims, losses or liabilities in connection with such tagged baggage and property arising out of the acts or omissions of Purchaser from and after the Closing Date. Seller hereby agrees to defend, indemnify and hold harmless Purchaser against all claims, losses and liabilities with respect to such tagged baggage and property arising out of the acts or omissions of Seller prior to the Closing Date.

(e) Purchaser shall honor (and shall cause its manager to honor) all reservations made in the ordinary course of business at the Hotel (including honoring the rates at which such reservations were made, including reservations made on a wholesale, reward points redemption, or other basis), or for any related conference, banquet, or meeting space or any other facilities in connection with the Hotel made by Seller on or prior to the Cut-Off Time for periods on or after the Closing Date.

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The provisions of this Section 5.5 shall survive Closing or any earlier termination of this Agreement.

5.6 Employees.

(a) For purposes of this Agreement, “Employees” means, collectively, all individuals employed at the Hotel by Manager as of the Closing Date, irrespective of whether such individuals are active or on leaves of absence or otherwise inactive but still employed at the Hotel.

(b) Purchaser agrees that it will cause the Manager to continue to employ, following the Closing, the Employees so that Seller shall not be required to give any layoff, closing or other termination notices or otherwise incur any liability pursuant to the provisions of the Federal Worker Adjustment and Retraining Notification Act. 29 U.S.C. 2101-2109 (the “Federal WARN Act”) and the California Worker Adjustment and Retraining Notification Act (the “California WARN Act”). Purchaser shall be required to assume and discharge all obligations and liabilities of Seller or Manager with respect to costs of termination of any Employee incurred after the Closing including, without limitation, any severance claim made after the Closing or arising from the transactions contemplated by this Agreement.

(c) From and after the Closing, Purchaser (i) shall be solely responsible for complying or causing compliance with all applicable provisions of federal, state and municipal laws and regulations relating to Employees, including Purchaser’s covenants set forth in this Section 5.6, including without limitation compliance with any applicable provisions of the Federal WARN Act or the California WARN Act, and (ii) hereby agrees to indemnify, defend, protect and hold Seller, Manager, and their respective affiliates harmless from and against any and all claims, liabilities, debts, costs, expenses, damages, attorneys’ fees and disbursements arising out of any violation of the Federal WARN Act or the California WARN Act in connection with the transaction contemplated by this Agreement. Seller agrees to indemnify, defend, protect and hold Purchaser and its affiliates harmless from and against any and all claims, liabilities, debts, costs, expenses, damages, attorneys’ fees and disbursements arising out of any violation of the Federal WARN Act or the California WARN Act for any period prior to the Closing (excluding any matters arising from the transaction contemplated by this Agreement).

(d) During the period prior to Closing, the parties agree to reasonably cooperate and also to consult on a regular basis and coordinate their activities relating to employee matters so as to facilitate a smooth transition of Hotel operations and the continued proper performance by the Employees of their respective duties up to Closing.

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(e) Purchaser agrees to indemnify, defend and hold harmless Seller, Manager and their respective officers, directors, members, owners and affiliates (together with Seller and Manager, the “Seller-Related Parties”) from and against any claim, liability, or judgment asserted against any of the Seller-Related Parties on account of or with respect to any of the following: (i) any causes of action, damages, complaints, judgments, orders and/or claims, whatsoever, and all costs and expenses (including, without limitation, reasonable attorneys’ fees and costs) incurred in connection therewith, which may be asserted against any of the Seller-Related Parties on account of any violation of the National Labor Relations Act, Title VII of the Civil Rights Act, the Fair Labor Standards Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the Vocational Rehabilitation Act of 1973, the Federal WARN Act and/or the California WARN Act, California Labor Law, California and City of West Hollywood Human Rights Law, and/or any other applicable federal, state or city employment statutes, laws, rules and regulations (collectively, “Employment Laws”) by Purchaser, or any designee or management company engaged by Purchaser to employ Hotel personnel (other than Manager), except to the extent such are based on the acts of any Seller Related Parties (other than those arising from the transactions contemplated by this Agreement), and (ii) any claims or liabilities arising (A) under ERISA and/or any other applicable federal or state law or regulation concerning employee benefit plans with respect to the employment of employees by Purchaser or such designee or management company from and after the Closing or from the transactions contemplated by the Agreement, to the extent that any such claim or liability relates to any period of employment from and after the Closing or arise from the transactions contemplated by this Agreement or (B) from or under any employee benefit plan applicable to any Employee or any other employee hired by Purchaser or such designee or management company to perform services at or for the Hotel, to the extent that any such claim or liability relates to any period of employment from and after the Closing or arise from the transactions contemplated by this Agreement. For the avoidance of doubt, nothing in this Section 5.6(e) shall be deemed to require Purchaser to indemnify any Seller-Related Party with respect to any claim, liability or judgment of the type described in clause (i) or (ii) of Section 5.6(f).

(f) Seller agrees to indemnify, defend and hold harmless Purchaser, or any designee or management company engaged by Purchaser to employ Hotel personnel and their respective officers, directors, members, owners and affiliates (together with Purchaser, the “Purchaser-Related Parties”) from and against any claim, liability, or judgment asserted against any of the Purchaser-Related Parties other than those arising from the transactions contemplated by this Agreement on account of or with respect to any of the following: (i) any causes of action, damages, complaints, judgments, orders and/or claims, whatsoever, and all costs and expenses (including, without limitation, reasonable attorneys’ fees and costs) incurred in connection therewith, which may be asserted against any of the Purchaser-Related Parties on account of any violation of the Employment Laws occurring up to and including the Closing by Seller-Related Parties, except to the extent such are based on the acts of any Purchaser-Related Parties and (ii) any claims or liabilities arising (A) under ERISA and/or any other applicable federal or state law or regulation concerning employee benefit plans with respect to the employment of employees by Seller-Related Parties up to and including the Closing, or (B) from or under any employee benefit plan applicable to any Employee or any other employee hired by Purchaser or such designee or management company to perform services at or for the Hotel, to the extent that any such claim or liability relates to any period of employment up to and including the Closing. For the avoidance of doubt, nothing in this Section 5.6(f) shall be deemed to require Seller to indemnify any Purchaser-Related Party with respect to any claim, liability or judgment of the type described in clause (i) or (ii) of Section 5.6(e).

(g) Purchaser’s and Seller’s obligations under this Section 5.6 shall survive Closing without limitation.

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5.7 Independent Audit. From the Effective Date until two (2) years after the Closing or earlier termination of this Agreement, Seller shall make the books and records for the years ending December 31, 2010, 2009, and 2008 and interim periods as required by the rules and regulations of the Securities and Exchange Commission (“SEC”) of the Property/Seller available to Purchaser and Purchaser’s independent accountants for inspection, copying and audit by Purchaser’s designated accountants at the expense of Purchaser. Seller and the Manager of the Property will provide the Purchaser’s independent accountants with a management representation letter with respect to the audited historical financial statements of the Property/Seller for the years ending December 31, 2010, 2009, and 2008 and any unaudited interim period required by the rules and regulations of the SEC. Seller shall provide Purchaser with copies of, or access to, such factual information, accounting records and financial information as may be reasonably requested by Purchaser or its auditors, and in the possession or control of Seller, to enable Purchaser or its affiliates to file reports or registration statements in compliance with the rules and regulations of the SEC. This Section 5.7 shall survive the Closing for two (2) years.

ARTICLE VI
DEFAULT

6.1 Default by Purchaser. If prior to Closing, Purchaser defaults under this Agreement, Seller shall be entitled, as its sole and exclusive remedy (without limiting Seller’s rights with respect to any indemnification obligations of Purchaser under Section 11.1, ARTICLE III and/or Section 11.18) to terminate this Agreement and receive the Earnest Money as liquidated damages for the breach of this Agreement, it being agreed between the parties hereto that the actual damages to Seller in the event of such breach are impractical to ascertain and the amount of the Earnest Money is a reasonable estimate thereof. THEREFORE, SUBJECT TO THE PRECEDING SENTENCE, BY PLACING THEIR INITIALS BELOW, THE PARTIES ACKNOWLEDGE THAT THE EARNEST MONEY HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES’ REASONABLE ESTIMATE OF SELLER’S DAMAGES AND AS SELLER’S EXCLUSIVE REMEDY AGAINST PURCHASER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF PURCHASER. THE PARTIES ACKNOWLEDGE THAT THE PAYMENT OF SUCH LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER.

INITIALS: Seller YG              Purchaser TCF

Nothing contained in this Section 6.1 shall limit or prevent Seller, after Closing has occurred, from: (a) asserting any legal or equitable claims against Purchaser for Purchaser’s obligation to pay attorneys’ fees and other amounts under Section 11.18; (b) enforcing any indemnity obligation of Purchaser under this Agreement or preclude Seller from obtaining a damage award in connection therewith; or (c) enforcing Purchaser’s other obligations and liabilities which survive Closing.

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6.2 Default by Seller. In the event that Seller fails to consummate this Agreement for any reason other than Purchaser’s default (in which event Section 6.1 applies), then Purchaser shall be entitled, as its sole and exclusive remedy, to terminate this Agreement and receive the return of the Earnest Money, in which event Seller shall be released from any and all liability hereunder ; provided that if the termination resulted from an intentional or willful act of Seller, then Seller shall pay Purchaser its Termination Costs (as hereinafter defined) upon Purchaser’s written notice to Seller that the same have become due Purchaser expressly waives its rights to seek monetary or other damages in the event of Seller’s default hereunder other than as expressly provided in the preceding sentence. Notwithstanding the foregoing, if Purchaser is ready, willing and able to close and Seller is obligated to close pursuant to the terms of this Agreement, then Purchaser shall have the right for file suit for specific performance against Seller in a court having jurisdiction in the county and state in which the Property is located, on or before sixty (60) days following the date upon which Closing was to have occurred. Purchaser shall be deemed to have elected to waive such right to seek specific performance if it fails to file suit within such period. As material consideration to Seller’s entering into this Agreement with Purchaser, Purchaser expressly waives any right under statutory or common law or otherwise to record or file a lis pendens or a notice of pendency of action or similar notice against all of any portion of the Property unless all conditions precedent to Seller’s obligation to proceed to Closing have been satisfied and Seller defaults in its obligation to proceed to Closing. “Termination Costs” shall mean those reasonable costs actually incurred by Purchaser in connection with its investigation and efforts to purchase the Property, including, without limitation, actual reasonable fees and costs of counsel and consultants, all of which Termination Costs shall be evidenced by written documentation reasonably acceptable to Seller, but in no event shall the Termination Costs payable by Seller to Purchaser in connection with this Section 6.2 exceed $500,000.

6.3 Seller’s Right to Cure Defaults. Notwithstanding anything to the contrary in this Agreement, Purchaser shall not have the right to exercise its remedies under Section 6.2 for a Seller default unless Purchaser has provided written notice to Seller specifying in reasonable detail the nature of the Seller default, and Seller has not cured the same within ten (10) business days after Seller’s receipt of such notice (the “Seller Cure Period”), in which case the Outside Closing Date shall be extended until the date which is five (5) business days after the expiration of the Seller Cure Period.

6.4 Purchaser’s Right to Cure Defaults. Notwithstanding anything to the contrary contained in this Agreement, with respect to any default under this Agreement by Purchaser other than a default in Purchaser’s obligation to close the transaction contemplated hereunder on the Closing Date, Seller shall not have the right to exercise its remedies under Section 6.1 for any such Purchaser default unless Seller has provided written notice to Purchaser specifying in reasonable detail the nature of the Purchaser default, and Purchaser has not cured the same within 10 days after Purchaser’s receipt of such notice. It is expressly understood and agreed that there shall be no cure period afforded Purchaser and no need for Seller to provide any notice, written or otherwise, with respect to a default by Purchaser in its obligation to close the transaction on the Closing Date, and in the event of such a default, Seller shall have the immediate right to exercise its remedies on account thereof provided in Section 6.1 above.

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ARTICLE VII
SURVIVAL, INDEMNIFICATION, AND LIMITATIONS ON LIABILITY

7.1 Survival. The representations and warranties of Seller set forth in Section 5.1 of this Agreement, as updated by the certificate of Seller to be delivered to Purchaser at Closing in accordance with Section 4.2(e) hereof, and any other representations and warranties of Seller contained herein or in any other instrument delivered to Purchaser in connection herewith shall survive Closing for a period of six (6) months. The representations and warranties of Purchaser set forth in Section 5.4, as updated by the certificate of Purchaser to be delivered to Seller at Closing in accordance with Section 4.3(d) hereof, and any other representations and warranties of Purchaser contained herein or in any other instrument delivered to Seller in connection herewith shall survive the Closing for a period of nine (9) months from the Closing Date.

7.2 Seller’s Indemnification. From and after the Closing, Seller shall, subject to the provisions of this Section 7.2, defend, indemnify and save harmless Purchaser and its Affiliates, and their respective employees, contractors, officers, directors, and agents (collectively, “Purchaser Indemnitees”) from and against any and all losses, injuries, claims, penalties, liabilities, fines, damages, costs or expenses (including, without limitation, reasonable attorneys’ fee and costs) (collectively, “Losses”) arising out of, resulting from or relating to:

(a) the inaccuracy of any representation or warranty of Seller;

(b) the failure by Seller to perform or fulfill any covenant or agreement of Seller contained in this Agreement; or

(c) any injury to or death of any person or persons or damage to or destruction of any property owned by a third-party, arising out of or in any manner directly or indirectly connected with the Hotel and having accrued prior to the Closing Date (unless caused by a Purchaser Indemnitee).

The provisions of this Section 7.2 shall survive the Closing without limitation.

7.3 Purchaser’s Indemnification. From and after the Closing, Purchaser shall, subject to the provisions of this Section 7.3, defend, indemnify and save harmless Seller and its Affiliates, and their respective employees, contractors, officers, directors, and agents (collectively, “Seller Indemnitees”) from and against any and all Losses arising out of, resulting from or relating to:

(a) the inaccuracy of any representation or warranty of Purchaser;

(b) the failure by Purchaser to perform or fulfill any covenant or agreement of Purchaser contained in this Agreement; or

(c) any injury to or death of any person or persons or damage to or destruction of any property owned by a third-party, arising out of or in any manner directly or indirectly connected with the Hotel and having accrued after the Closing Date (unless caused by a Seller Indemnitee).

The provisions of this Section 7.3 shall survive the Closing without limitation.

7.4 Notice and Resolution of Claims.

(a) Notice. Each Person entitled to indemnification pursuant to Section 7.2 or 7.3 (an “Indemnitee”) shall give written notice to the indemnifying party or parties from whom indemnity is sought (the “Indemnifying Party”) promptly after obtaining knowledge of any claim that it may have under Section 7.2 or 7.3, as applicable. The notice shall set forth in reasonable detail the claim and the basis for indemnification. Failure to give the notice in a timely manner shall not release the Indemnifying Party from its obligations under Section 7.2 or 7.3, as applicable, except to the extent that the failure materially prejudices the ability of the Indemnifying Party to contest that claim.

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(b) Defense of Third Party Claims. If a claim for indemnification pursuant to Section 7.2 or 7.3 shall arise from any action made or brought by a third party that would reasonably be expected to result in indemnifiable Losses (a “Third Party Claim”), the Indemnifying Party may assume the defense of the Third Party Claim. If the Indemnifying Party assumes the defense of the Third Party Claim, the defense shall be conducted by counsel chosen by the Indemnifying Party, who shall be reasonably acceptable to Indemnitee, provided that the Indemnitee shall retain the right to employ its own counsel and participate in the defense of the Third Party Claim at its own expense (which shall not be recoverable from the Indemnifying Party under this ARTICLE VII unless (i) the Indemnitee is advised by counsel reasonably satisfactory to the Indemnifying Party that use of counsel of the Indemnifying Party’s choice would be expected to give rise to a conflict of interest, (ii) the Indemnifying Party shall not have employed counsel to represent the Indemnitee within a reasonable time after notice of the assertion of any such claim or institution of any such action or proceeding, or (iii) the Indemnifying Party shall authorize the Indemnitee in writing to employ separate counsel at the expense of the Indemnifying Party, in each of which cases the reasonable expenses of counsel to the Indemnitee shall be reimbursed by the Indemnifying Party). In no event shall the Indemnifying Party be obligated to pay the fees and expenses of more than one counsel (other than local counsel) for all Indemnitees with respect to any claim indemnified under this ARTICLE VII; provided that an Indemnitee shall be entitled to employ separate counsel at the expense of the Indemnifying Party if the Indemnitee is advised by counsel reasonably satisfactory to the Indemnifying Party that use of such other counsel would give rise to a conflict of interest, in which case the reasonable expenses of counsel to such Indemnitee shall be reimbursed by the Indemnifying Party. Notwithstanding the foregoing provisions of this Section 7.4(b), (i) no Indemnifying Party shall be entitled to settle any Third Party Claim for which indemnification is sought under Section 7.2 or 7.3 without the Indemnitee’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed, unless it has assumed the defense of such Third Party Claim and as part of the settlement the Indemnitee is released from all liability with respect to the Third Party Claim and the settlement does not impose any equitable remedy on the Indemnitee or require the Indemnitee to admit any fault, culpability or failure to act by or on behalf of the Indemnitee, and (ii) no Indemnitee shall be entitled to settle any Third Party Claim for which indemnification is sought under Section 7.2 or 7.3 without the Indemnifying Party’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed, unless the Third Party claim is for money damages only and such settlement does not include a statement as to, or an admission of fault, culpability or a failure to act by or on behalf of the Indemnifying Party and as part of such settlement the Indemnifying Party is released from all liability (for indemnification pursuant to this ARTICLE VII and otherwise) with respect to such Third Party Claim. If the Indemnifying Party does not notify the Indemnitee within twenty (20) Business Days after receipt of the Indemnitee’s notice of a Third Party Claim of indemnity hereunder that it elects to assume the control of the defense of any Third Party Claim, the Indemnitee shall have the right to contest the Third Party Claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement and the costs of such actions by the Indemnitee shall be paid by the Indemnifying Party.

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7.5 Limitations on Liability.

(a) Deductible.

(i) Seller shall not have any obligation or liability to any Purchaser Indemnitee under Section 7.2(a) unless and until the aggregate amount of Losses incurred or suffered by the Purchaser Indemnitees arising out of the matters referred to in Section 7.2(a) shall have exceeded $75,000, in which case Seller shall be obligated and liable under Section 7.2(a) only with respect to such excess.

(ii) Purchaser shall not have any obligation or liability to any Seller Indemnitee under Section 7.3(a) unless and until the aggregate amount of Losses suffered by the Seller Indemnitees arising out of the matters referred to in Section 7.3(a) shall have exceeded $75,000, in which case Purchaser shall be obligated and liable under Section 7.3(a) only with respect to such excess.

(b) Limit of Liability. The aggregate liability of Seller or Purchaser, as applicable—

(i) under Section 7.2(a) shall not exceed $3,000,000;

(ii) under Section 7.3(a) shall not exceed $3,000,000; and

(iii) under Section 7.2(b), 7.2(c), 7.3(b), or 7.3(c) shall not be subject to any limits.

(c) Limit on Time for Assertion of Claims. Neither Seller nor Purchaser shall have any obligation or liability pursuant to Section 7.2 or 7.3, respectively, for any breach of any representation or warranty unless notice of a claim asserting such breach shall have been given in accordance with Section 7.4 prior to the termination of the survival period applicable to such representation or warranty as set forth in Section ARTICLE VII. Neither Seller nor Purchaser shall have any obligation or liability pursuant to Section 7.2 or 7.3, respectively, for any breach of any covenant contained in this Agreement that occurred prior to the Closing unless notice of a claim asserting such breach shall have been given in accordance with Section 7.4 on or before the date six (6) months following the Closing Date.

7.6 Other Matters Regarding Indemnification.

(a) In the event either Seller or Purchaser (the “Claiming Party”) has actual knowledge on or before the Closing that any representation or warranty of the other is incorrect (either through independent investigation or through information and materials provided to the Claiming Party) or that a covenant of the other has been breached and the Claiming Party proceeds to Closing, then the Claiming Party shall not be permitted to assert a claim for such matters following the Closing Date.

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(b) The right to be indemnified for Losses, on the terms and subject to the limitations set forth in this ARTICLE VII, shall be the exclusive remedy available to the Parties and the Indemnitees for the matters set forth in Sections 7.2 and 7.3.

ARTICLE VIII
RISK OF LOSS

8.1 Minor Damage. In the event of loss or damage to the Real Property or any portion thereof which is not “major” (as hereinafter defined), this Agreement shall remain in full force and effect provided Seller shall, at Seller’s option, either (a) perform any necessary repairs (to return the Real Property to substantially the condition in which it existed immediately prior to such loss or damage), or (b) assign to Purchaser all of Seller’s right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies or condemnation awards relating to the premises in question (other than business interruption proceeds attributable to the period prior to Closing and proceeds in respect of amounts expended by or on behalf of Seller prior to Closing to restore the Property). In the event that Seller elects to perform repairs upon the Real Property, Seller shall use commercially reasonable efforts to complete such repairs promptly and the Outside Closing Date shall be extended a reasonable time, not to exceed thirty (30) days, in order to allow for the completion of such repairs. If Seller elects to assign a casualty claim to Purchaser, the Purchase Price shall be reduced by an amount equal to the deductible amount under Seller’s insurance policy with respect to such loss or damage and not paid by Seller prior to Closing and Seller shall assign all of its rights to proceeds under the applicable policy with respect to any claim for the applicable loss (other than business interruption proceeds attributable to the period prior to Closing and proceeds in respect of amounts expended by or on behalf of Seller prior to Closing to restore the Property). Upon Closing, full risk of loss with respect to the Property shall pass to Purchaser.

8.2 Major Damage. In the event of a “major” loss or damage to the Real Property, Purchaser may, upon notice in writing to Seller delivered within ten (10) days after Seller sends Purchaser written notice of the occurrence of such major loss or damage, terminate this Agreement by written notice to Seller, in which event the Earnest Money shall be returned to Purchaser and neither Seller nor Purchaser shall have any further rights or obligations under this Agreement except any obligations that expressly survive the termination of this Agreement. If Purchaser fails for any reason to deliver written notice of termination to Seller within ten (10) days after Seller sends Purchaser written notice of the occurrence of major loss or damage, then Purchaser shall be deemed to have elected to proceed with Closing, in which event Seller shall, at Seller’s option, either (a) perform any necessary repairs (to return the Real Property to substantially the condition in which it existed immediately prior to such loss or damage), or (b) assign to Purchaser all of Seller’s right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies or condemnation awards relating to the premises in question (other than business interruption proceeds attributable to the period prior to Closing and proceeds in respect of amounts expended by or on behalf of Seller prior to Closing to restore the Property). In the event that Seller elects to perform repairs upon the Real Property, Seller shall use commercially reasonable efforts to complete such repairs promptly and the Outside Closing Date shall be extended a reasonable time in order to allow for the completion of such repairs. If Seller elects to assign a casualty claim to Purchaser, the Purchase Price shall be reduced by an amount equal to the deductible amount under Seller’s insurance policy with respect to such loss or damage and not paid by Seller prior to Closing and Seller shall assign all of its rights to proceeds under the applicable policy with respect to any claim for the applicable loss (other than business interruption proceeds attributable to the period prior to Closing and proceeds in respect of amounts expended by or on behalf of Seller prior to Closing to restore the Property). Upon Closing, full risk of loss with respect to the Property shall pass to Purchaser.

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8.3 Definition of “Major” Loss or Damage. For purposes of Sections 8.1 and 8.2, “major” loss or damage refers to the following (a) loss or damage to the Real Property or any portion thereof such that the cost of repairing or restoring the premises in question to a condition substantially identical to that of the premises in question prior to the event of damage would be, in the opinion of a licensed independent architect or registered professional engineer with a minimum of ten (10) years experience related to commercial real estate construction selected by Seller, equal to or greater than five percent (5%) of the Purchase Price or (b) any loss due to a condemnation which permanently and materially adversely modifies or impairs the continued operation of the Hotel in substantially the same manner as the Hotel is operated on the Effective Date.

ARTICLE IX
COMMISSIONS

9.1 Brokerage Commissions. In the event the transaction contemplated by this Agreement is consummated, but not otherwise, Seller agrees to pay to Goldman Sachs (“Broker”) at Closing a brokerage commission pursuant to a separate written agreement between Seller and Broker and Seller shall indemnify and hold Purchaser harmless with respect to any payments due and owing to Broker in connection with this transaction under such agreement. Each party agrees that should any claim be made for brokerage commissions or finder’s fees by any broker or finder other than the Broker by, through or on account of any acts of said party or its representatives, said party will indemnify, defend, protect and hold the other party free and harmless from and against any and all loss, liability, cost, damage and expense in connection therewith. The provisions of this Section 9.1 shall survive Closing or earlier termination of this Agreement.

ARTICLE X
DISCLAIMERS AND WAIVERS

10.1 No Reliance on Documents. Except as expressly set forth in this Agreement, Seller makes no representation or warranty as to the truth, accuracy or completeness of any materials, data or information delivered by or on behalf of Seller or its brokers to Purchaser in connection with the transaction contemplated hereby including, without limitation, the Reports, material available in the E-Room, and other Seller Due Diligence Materials, provided, however, that Seller shall not intentionally alter any material, data or information for the purpose of misleading Purchaser. Purchaser acknowledges and agrees that all materials, data and information delivered by Seller to Purchaser in connection with the transaction contemplated hereby are provided to Purchaser as a convenience only and that any reliance on or use of such materials, data or information by Purchaser shall be at the sole risk of Purchaser, except as

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otherwise expressly stated herein. Without limiting the generality of the foregoing provisions, Purchaser acknowledges and agrees that (a) any environmental or other report with respect to the Property which is delivered by Seller to Purchaser shall be for general informational purposes only, (b) Purchaser shall not have any right to rely on any such report delivered by Seller to Purchaser, but rather will rely on its own inspections and investigations of the Property and any reports commissioned by Purchaser with respect thereto, and (c) except for matters expressly set forth in this Agreement, neither Seller nor any affiliate of Seller nor the person or entity which prepared any such report delivered by Seller to Purchaser shall have any liability to Purchaser for any inaccuracy in or omission from any such report or other materials provided to Purchaser in connection with this Agreement.

10.2 DISCLAIMERS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT: IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, PROFITABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ZONING, TAX CONSEQUENCES, LATENT OR PATENT PHYSICAL OR ENVIRONMENTAL CONDITION, UTILITIES, OPERATING HISTORY OR PROJECTIONS, VALUATION, GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE PROPERTY WITH GOVERNMENTAL LAWS, THE TRUTH, ACCURACY OR COMPLETENESS OF THE PROPERTY DOCUMENTS OR ANY OTHER INFORMATION PROVIDED BY OR ON BEHALF OF SELLER TO PURCHASER, OR ANY OTHER MATTER OR THING REGARDING THE PROPERTY. PURCHASER ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE PROPERTY “AS IS, WHERE IS, WITH ALL FAULTS”, EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT. PURCHASER HAS NOT RELIED AND WILL NOT RELY ON, AND SELLER IS NOT LIABLE FOR OR BOUND BY, ANY EXPRESSED OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY OR RELATING THERETO (INCLUDING SPECIFICALLY, WITHOUT LIMITATION, PROPERTY INFORMATION PACKAGES DISTRIBUTED WITH RESPECT TO THE PROPERTY AND ANY ACTUAL OR PROPOSED BUDGETS FOR THE REAL PROPERTY) MADE OR FURNISHED BY SELLER, THE MANAGER OF THE PROPERTY, OR ANY REAL ESTATE BROKER OR AGENT REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT. PURCHASER REPRESENTS TO SELLER THAT PURCHASER IS A SOPHISTICATED INSTITUTIONAL INVESTOR WITH SUBSTANTIAL EXPERIENCE AND EXPERTISE WITH INVESTMENT PROPERTIES AND HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS PURCHASER DEEMS NECESSARY TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND WILL RELY SOLELY

39

UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO, OTHER THAN SUCH REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AS ARE EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS DELIVERED AT CLOSING. UPON CLOSING AND SUBJECT TO THE REPRESENTATIONS AND WARRANTIES OF SELLER EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS DELIVERED AT CLOSING, PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER’S INVESTIGATIONS, AND PURCHASER, UPON CLOSING, SHALL BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER (AND SELLER’S OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES AND COURT COSTS) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER (AND SELLER’S OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS RELATING TO THE CONDITION OF THE PROPERTY (INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAWS) AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING THE PROPERTY EXCEPT FOR FRAUD AND OBLIGATIONS OF SELLER UNDER THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING. PURCHASER AGREES THAT SHOULD ANY CLEANUP, REMEDIATION OR REMOVAL OF HAZARDOUS SUBSTANCES OR OTHER ENVIRONMENTAL CONDITIONS ON THE PROPERTY BE REQUIRED AFTER THE CLOSING DATE, SUCH CLEAN-UP, REMOVAL OR REMEDIATION SHALL BE THE RESPONSIBILITY OF AND SHALL BE PERFORMED AT THE SOLE COST AND EXPENSE OF PURCHASER.

The waivers and releases set forth in Sections 5.5(a) and 5.5(b) and in the immediately preceding paragraph include claims of which Purchaser is presently unaware or which Purchaser does not presently suspect to exist which, if known by Purchaser, would materially affect Purchaser’s waiver or release of Seller and the other parties referenced in this Section.

10.3 Repairs, Reserves, and Capital Expenditures. Purchaser acknowledges and agrees that except as provided in Section 5.3 of this Agreement, (a) Seller shall have no obligation to make any repairs, replacements, improvements or alterations to the Property or to expend any funds therefor, including, without limitation, any reserves that may be held for such purpose, and (b) Purchaser shall not be entitled to a credit to the Purchase Price at Closing in the event capital expenditures actually made at the Hotel for any year are less than the budgeted amount as of the date of the Closing.

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10.4 Effect and Survival of Disclaimers. Seller and Purchaser acknowledge that the compensation to be paid to Seller for the Property has been decreased to take into account that the Property is being sold subject to the provisions of this Article X. Seller and Purchaser agree that the provisions of this Article X shall survive Closing.

ARTICLE XI
MISCELLANEOUS

11.1 Confidentiality. Prior to the Closing, and subject to the provisions of Section 11.2, this Agreement, the terms hereof and the Property Information shall be treated as “Evaluation Material” in accordance with that certain Confidentiality Agreement executed by Purchaser in favor of Seller (the “Confidentiality Agreement”). From and after the Closing, Seller and its affiliates shall hold in confidence, and shall not disclose to third parties without the prior written consent of Purchaser, any non-public proprietary information regarding the Hotel and the Property. The foregoing shall not be deemed to restrict the ability of Seller and its affiliates to comply with their disclosure and reporting obligations under applicable law.

11.2 Public Disclosure. Prior to the Closing, neither Purchaser nor Seller, nor any of their respective affiliates, shall make any press release or other public statement, or file any report with the Securities and Exchange Commission containing information, regarding the terms of this Agreement that are not generally known to the public (the “Confidential Information”) without affording the other party a reasonable opportunity (not to exceed two business days) to review and comment on the content of such release, report, or statement insofar as it applies to this Agreement and the transaction contemplated hereby. For the avoidance of doubt, Purchaser or Seller or their respective affiliates shall be permitted to make such disclosure and shall not be required to obtain the consent of the other party prior to making such disclosure. Notwithstanding the foregoing, Seller and Purchaser shall be permitted to (i) disclose any Confidential Information to the extent required by court order or under Applicable Law (subject to providing the other party the reasonably opportunity to review and comment on any such disclosure, as provided above, to the extent consistent with Applicable Law) and (ii) disclose any Confidential Information to any Person on a “need-to-know” basis, such as their respective members, trustees, directors, officers, employees, attorneys, consultants, engineers, surveyors, lenders, investors, and such other Persons whose assistance is required to consummate the transactions contemplated in this Agreement or to whom notice of this transaction may be required pursuant to the Service Contracts or Applicable Law, or with whom communication may be required to accomplish the assignment of the Permits, the Service Contracts or the Space Leases; provided, however, that Purchaser or Seller (as applicable) shall, to the extent consistent with Applicable Law, (a) advise such person of the confidential nature of such Confidential Information, and (b) use commercially reasonable efforts to cause such Person to maintain the confidentiality of such information. Purchaser and Seller shall mutually agree on the content of the initial press release regarding the consummation of the transaction contemplated by this Agreement following the Closing. Notwithstanding anything to the contrary contained herein, the parties understand and agree that Pebblebrook Hotel Trust, Inc. and Morgans Hotel Group Co. each will file a report on Form 8-K with the Securities and Exchange Commission in connection with the transaction contemplated by this agreement. The provisions of this Section 11.2 shall survive the Closing.

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11.3 Assignment. Purchaser may not assign or otherwise transfer this Agreement or any of its rights or obligations under this Agreement without first obtaining Seller’s written approval which may be given or withheld in Seller’s sole discretion; provided that Purchaser may assign all or any portion of this Agreement to one or more entities that are wholly-owned, directly or indirectly, by Pebblebrook Hotel, L.P. Any assignment by Purchaser of this Agreement shall not relieve Purchaser of its obligations under this Agreement and any permitted assignee must expressly assume the obligations of Purchaser in writing. Without limiting the foregoing, in no event shall Purchaser assign this Agreement to any assignee which, in the reasonable judgment of Seller, will cause the transaction contemplated hereby or any party thereto to violate the requirements of ERISA.

11.4 Notices. Any notice pursuant to this Agreement shall be given in writing by (a) personal delivery, or (b) reputable overnight delivery service with proof of delivery, or (c) United States Mail, postage prepaid, registered or certified mail, return receipt requested, or (d) legible facsimile transmission or PDF transmission completed before 5:00 p.m. (New York time) on a business day sent to the intended addressee at the address set forth below, or to such other address or to the attention of such other person as the addressee shall have designated by written notice sent in accordance herewith, and shall be deemed to have been given either at the time of personal delivery, or, in the case of expedited delivery service or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile transmission or PDF transmission, as of the date of the facsimile transmission or PDF transmission provided that an original of such facsimile or PDF is also sent to the intended addressee by means described in clauses (a), (b) or (c) above. Notices may be given by a party’s counsel on behalf of such party as if such party had given such notice itself. Unless changed in accordance with the preceding sentence, the addresses for notices given pursuant to this Agreement shall be as follows:

If to Seller:

Mondrian Holdings LLC
c/o Morgans Group LLC
475 Tenth Avenue
New York, NY 10018
Attention:  David Smail, Executive Vice President & General Counsel
Facsimile No.: (212) 277-4172
Email: david.smail@morganshotelgroup.com

With a copy to:

Hogan Lovells US LLP
555 13^th Street NW
Washington, DC 20004
Attention: Bruce W. Gilchrist
Facsimile No.: (202) 637-5600
Email: bruce.gilchrist@hoganlovells.com

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If to Purchaser:

Wolverines Owner LLC

c/o Pebblebrook Hotel Trust
2 Bethesda Metro Center
Suite 1530
Bethesda, Maryland 20814
Attention: Thomas Fisher
Facsimile no. (240) 396-5763
Email: tfisher@pebblebrookhotels.com

With a copy to:

Hunton & Williams LLP
1900 K Street, NW
Washington, DC 20006
Attention: John M. Ratino, Esquire
Facsimile No.: (202) 828-3779
Email: jratino@hunton.com

11.5 Modifications. This Agreement cannot be changed orally, and no executory agreement shall be effective to waive, change, modify or discharge it in whole or in part unless such executory agreement is in writing and is signed by the parties against whom enforcement of any waiver, change, modification or discharge is sought.

11.6 Calculation of Time Periods; Time is of the Essence. Unless otherwise specified, in computing any period of time described in this Agreement, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday under the laws of the State in which the Real Property is located, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday or legal holiday. The final day of any such period shall be deemed to end at 5:00 p.m., New York time. Time is of the essence with respect to each and every term and provision of this Agreement.

11.7 Successors and Assigns. Subject to the limitations on assignment set forth in Section 11.3 above, the terms and provisions of this Agreement are to apply to and bind the permitted successors and assigns of the parties hereto.

11.8 Entire Agreement. This Agreement, including the Exhibits, the Schedules and the Confidentiality Agreement contain the entire agreement between the parties pertaining to the subject matter hereof and fully supersedes all prior written or oral agreements and understandings between the parties pertaining to such subject matter.

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11.9 Further Assurances. Each party agrees that it will without further consideration execute and deliver such other documents and take such other action, whether prior or subsequent to Closing, as may be reasonably requested by the other party to consummate more effectively the purposes or subject matter of this Agreement. Without limiting the generality of the foregoing, Purchaser shall, if requested by Seller, (a) execute acknowledgments of receipt with respect to any materials delivered by Seller to Purchaser with respect to the Property, and (b) obtain sellers’ permits for any sales activities conducted at the Property prior to Closing and/or obtain “sale for resale certificates” for any Personal Property that may be sold after the Closing. The provisions of this Section 11.9 shall survive Closing.

11.10 Counterparts; Facsimile Signatures. This Agreement may be executed in counterparts, and all such executed counterparts shall constitute the same agreement. It shall be necessary to account for only one such counterpart in proving this Agreement. In order to expedite the transaction contemplated herein, telecopied, facsimile or PDF signatures may be used in place of original signatures on this Agreement. Seller and Purchaser intend to be bound by the signatures on the telecopied, facsimile or PDF document, are aware that the other party will rely on the telecopied, facsimile or PDF signatures, and hereby waive any defenses to the enforcement of the terms of this Agreement based on the form of signature.

11.11 Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement shall nonetheless remain in full force and effect.

11.12 Applicable Law. THIS AGREEMENT IS PERFORMABLE IN THE STATE OF NEW YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE SUBSTANTIVE FEDERAL LAWS OF THE UNITED STATES AND THE LAWS OF SUCH STATE. SELLER AND PURCHASER HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN A STATE OR FEDERAL COURT SITTING IN THE STATE OF NEW YORK. PURCHASER AND SELLER AGREE THAT THE PROVISIONS OF THIS SECTION 11.12 SHALL SURVIVE THE CLOSING OF THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT.

11.13 No Third Party Beneficiary. The provisions of this Agreement and of the documents to be executed and delivered at Closing are and will be for the benefit of Seller and Purchaser only and are not for the benefit of any third party, and accordingly, no third party shall have the right to enforce the provisions of this Agreement or of the documents to be executed and delivered at Closing.

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11.14 Exhibits and Schedules. The following schedules or exhibits attached hereto shall be deemed to be an integral part of this Agreement:

Schedule 1.1(a) -Legal Description of Land
Schedule 1.1(c) -Excluded Personal Property
Schedule 1.1(e)-1(a) -Service Contracts (assignable without consent)
Schedule 1.1(e)-1(b) -Service Contracts (consent required for assignment)
Schedule 1.1(e)-2(a) -Equipment Leases (assignable without consent)
Schedule 1.1(e)-2(b) -Equipment Leases (consent required for assignment)
Schedule 1.1(f) -Intellectual Property
Schedule 1.1(g) -Transferable Permits
Schedule 1.1(j) -List of Space Leases
Schedule 1.5(c) -Allocations of Real and Personal Property
Schedule 2.4(a) -Permitted Exceptions
Schedule 3.2 -Reports
Schedule 5.1(d) -Space Leases

Exhibit A -Deed
Exhibit B -Bill of Sale
Exhibit C -Assignment of Contracts
Exhibit D -Assignment of Space Leases
Exhibit E -FIRPTA Certificate
Exhibit F -Title Affidavit
Exhibit G -Escrow Agreement
Exhibit H -Form of Tenant Estoppel
Exhibit I -Form of Liquor Assets Escrow Agreement

11.15 Captions. The section headings appearing in this Agreement are for convenience of reference only and are not intended, to any extent and for any purpose, to limit or define the text of any section or any subsection hereof.

11.16 Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any exhibits, schedules or amendments hereto. Singular words shall connote the plural as well as the singular, and plural words shall connote the singular as well as the plural, and the masculine shall include the feminine and the neuter, as the context may require.

11.17 Termination of Agreement. It is understood and agreed that if either Purchaser or Seller terminates this Agreement pursuant to a right of termination granted hereunder, such termination shall operate to relieve Seller and Purchaser from all obligations under this Agreement, except for such obligations as are specifically stated herein to survive the termination of this Agreement.

11.18 Attorneys Fees. If any action or proceeding is commenced by either party to enforce their rights under this Agreement or to collect damages as a result of the breach of any of the provisions of this Agreement, the prevailing party in such action or proceeding, including any bankruptcy, insolvency or appellate proceedings, shall be entitled to recover all reasonable costs and expenses, including, without limitation, reasonable attorneys’ fees and court costs, in addition to any other relief awarded by the court.

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11.19 No Waiver. Failure of either party at any time to require performance of any provision of this Agreement shall not limit the party’s right to enforce the provision. Waiver of any breach of any provision shall not be a waiver of any succeeding breach of the provision or a waiver of the provision itself or any other provision.

11.20 No Reservation of Property. The preparation and/or delivery of unsigned drafts of this Agreement shall not create any legally binding rights in the Property and/or obligations of the parties, and Purchaser and Seller acknowledge that this Agreement shall be of no effect until it is duly executed by both Purchaser and Seller.

11.21 No Recordation. Purchaser shall not record this Agreement, nor any memorandum or other notice of this Agreement, in any public records.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the Effective Date.

SELLER: Mondrian Holdings LLC
	By:	Mondrian Senior Mezz LLC, its
		Managing Member
	By:	Morgans Group LLC, its
		Managing Member
	By:	Morgans Hotel Group Co., its
		Managing Member

By:	/s/ Yoav Gery
	Name:	Yoav Gery
	Title:	CDO & EVP
PURCHASER: Wolverines Owner LLC, a Delaware limited liability company
By:	/s/ Thomas C. Fisher
	Name:	Thomas C. Fisher
	Title:	Vice President

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Annex I

Definitions

(a) As used in this Agreement, the following terms have the meanings ascribed thereto below:

“Applicable Law” means all statutes, laws, common law, rules, regulations, ordinances, codes or other legal requirements of any Governmental Authority, Board of Fire Underwriters and similar quasi-governmental agencies or entities, and any judgment, injunction, order, directive, decree or other judicial or regulatory requirement of any court or Governmental Authority of competent jurisdiction affecting or relating to the Person or property in question.

“Consumable Supplies” shall mean office, cleaning, engineering, laundry and valet supplies, food service supplies, decorations, menus, guest supplies (including stationery, soap, matches, toilet and facial tissues) and such other supplies as are customarily consumed on a daily basis in the operation of the Hotel.

“Environmental Laws” means Applicable Laws regulating or relating to any Hazardous Substances including, without limitation, (i) the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. (“CERCLA”), (ii) the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq. (“RCRA”), (iii) the Federal Water Pollution Control Act, 33 U.S.C. § 2601 et seq., (iv) the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., (v) the Clean Water Act, 33 U.S.C. § 1251 et seq., (vi) the Clean Air Act, 42 U.S.C. § 7401 et seq., (vii) the Hazardous Materials Transportation Act, 49 U.S.C. § 5101 et seq., (viii) the Safe Drinking Water Act, 42 U.S.C. § 803 et seq., (ix) the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq., (x) the Emergency Planning and Community Right-To-Know Act of 1986, 42 U.S.C. § 11001 et seq., (xi) the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq. (to the extent it regulates exposure to Hazardous Substances), and similar state and local Applicable Law, as amended from time to time, and all regulations, rules and guidance issued pursuant thereto.

“Governmental Authority” means any federal, state or local government or other political subdivision thereof, including, without limitation, any agency or entity exercising executive, legislative, judicial, regulatory or administrative governmental powers or functions, in each case to the extent the same has jurisdiction over the person or property in question.

“Guest Records” shall mean guest records, profiles, histories, contact information and preferences gathered by Manager based on the guest’s stay or information provided by the guest during, prior to or after such stay at the Hotel.

“Hazardous Substances” means any hazardous or toxic substances, materials or waste, whether solid, semisolid, liquid or gaseous, including, without limitation, asbestos, polychlorinated biphenyls, petroleum or petroleum by-products (excluding any substances of kinds and amounts ordinarily used or stored in similar properties for purposes of cleaning or other maintenance or operations and otherwise in compliance with all Environmental Laws), and any other material or substance which is defined as a “hazardous substance”, “hazardous waste”, “toxic waste” or “toxic substance” under any Environmental Laws.

Annex I- 1

“Operating Equipment” shall mean chinaware, glassware, linens, silverware, and other items of a comparable nature, and all replacements, additions and substitutions therefor.

“Manager’s Materials” shall mean materials, files, lists, records, compilations and methods of operation which constitute valuable proprietary information, trade secrets and Manager’s work product, including, by way of example and not of limitation, Guest Records, marketing techniques, customer and mailing lists and reservation systems.

“Manager’s Tradenames” shall mean the Primary Name, the marks “Morgans”, “A Morgans Hotel”, “Mondrian”, “SkyBar”, “Asia de Cuba” and “ADCB” or any other tradenames, trademarks, service marks, symbols, logos or designs owned or licensed by Manager or any of its affiliates including, without limitation, the name of any restaurant, bar and/or lounge at any Morgans Hotel, and any words or designs, marketing materials, concepts and trade dress (such as the menu and the items thereon) related thereto.

“Primary Name” shall mean Mondrian.

“Property Information Letter” shall mean that certain letter from Seller to Purchaser dated as of the Effective Date.

(b) The following terms are defined in the Section of this Agreement set forth after such term below:

ABC	Section 4.9(a)
Adjusting Party	Section 4.4.14
Agreement	Introduction
Assignment of Contracts	Section 4.2(c)
Assignment of Space Leases	Section 4.2(d)
Bookings	Section 1.1(d)
Broker	Section 9.1
California WARN Act	Section 5.6(b)
Claiming Party	Section 7.6(a)
Closing	Section 4.1(a)
Closing Date	Section 4.1(a)
Confidentiality Agreement	Section 11.1
Consumable Inventory	Section 1.1(i)
Cut-Off Time	Section 4.4.11
Deed	Section 4.2(a)
Effective Date	Introduction
Employees	Section 5.6(a)
Employment Laws	Section 5.6(e)

Annex I- 2

Equipment Leases	Section 1.1(e)
ERISA	Section 5.4(a)
Escrow Agreement	Section 1.6(b)
Excluded Permits	Section 1.1(g)
Excluded Personal Property	Section 1.1(c)
Existing Liquor License	Section 4.6(f)
Federal WARN Act	Section 5.6(b)
Final Statement	Section 4.4.14
Hotel	Recitals
Hotel Payables	Section 4.4.6
House Bank Funds	Section 1.1(k)
Improvements	Recitals
Initial Earnest Money	Section 1.6(a)
Intangibles	Section 1.1(h)
Land	Recitals
Lease Year	Section 4.4.5(d)
Legal Requirements	Section 2.4(d)
Liquor Assets	Section 4.9(a)
Liquor Assets Escrow Agent	Section 4.9(a)
Liquor Assets Escrow Agreement	Section 4.9(a)
Liquor Assets Purchase Price	Section 4.9(b)
Liquor Designee	Section 4.9(a)
Liquor Inventory	Section 4.9(a)
Liquor Seller	Section 4.9(a)
Lists	Section 5.1(k)
Losses	Section 7.2
Management Agreement	Section 1.7
Manager	Section 1.7
Monetary Encumbrances	Section 2.3(c)
OFAC	Section 5.1(k)
Order	Section 5.1(k)
Outside Accountants	Section 4.4.15
Outside Closing Date	Section 4.1(a)
Percentage Rent	Section 4.4.5(d)
Permits	Section 1.1(g)
Permitted Exceptions	Section 2.4
Personal Property	Section 1.1(c)
Pre-Closing Date	Section 4.1(b)
Preliminary Statement	Section 4.4
Property	Section 1.2(a)
Property Information	Section 3.1(a)
Purchase Price	Section 1.4
Purchaser	Introduction
Purchaser Indemnitees	Section 7.2
Purchaser-Related Parties	Section 5.6(f)

Annex I- 3

Real Property	Recitals
Receivables	Section 1.2(b)(v)
Rent	Section 4.4.5
Rent Arrears	Section 4.4.5(b)
Requesting Party	Section 4.4.14
Retail Inventory	Section 1.1(i)
Retained IP	Section 1.1(f)
Seller	Introduction
Seller Cure Period	Section 6.3
Seller Indemnitees	Section 7.3
Seller-Related Parties	Section 5.6(e)
Service Contracts	Section 1.1(e)
Space Leases	Section 1.1(j)
Survey	Section 2.2
Taxes	Section 4.4.1(a)
Tenant Estoppel	Section 5.3(b)
Title Affidavit	Section 4.2(k)
Title Company	Section 2.1
Title Policy	Section 2.5
Title Report	Section 2.1
Title Update	Section 2.1
Unopened Inventory	Section 1.1(i)
Wolverines LLC	Section 4.9(a)

Annex I- 4

Exhibit A

Deed

RECORDING REQUESTED BY:
MAIL TAX STATEMENTS AND
WHEN RECORDED MAIL TO:
Order No.:
Escrow No.:
APN:	SPACE ABOVE THIS LINE FOR RECORDER’S USE
THE UNDERSIGNED GRANTOR(S) DECLARE(S):	DOCUMENTARY TRANSFER TAX IS $
	_____  Computed on full value of property conveyed, or
	_____  Computed on full value less liens and encumbrances remaining at time of sale.
	_____  Unincorporated area  _____  City of

GRANT DEED

For valuable consideration, receipt of which is hereby acknowledged, Mondrian Holdings LLC, a Delaware limited liability company hereby GRANTS to Wolverines Owner LLC, a Delaware limited liability company, the real property situated in the County of Los Angeles, State of California, more particularly described as follows:

Lot “A” of Tract No. 2527, in the city of West Hollywood, county of Los Angeles, state of California, as per map recorded in Book 34 Page 14 of Maps, in the office of the county recorder of said county.

EXCEPT therefrom that portion thereof lying Southerly of a line bearing North 89 degrees 54’ West from a point on the East line of said Lot, distant North 0 degrees 06’ East thereon 320 feet from the Southeast corner of said Lot.

Dated:	Mondrian Holdings LLC, a Delaware limited liability company
	By:
		Name:
		Title:

STATE OF CALIFORNIA	)
	)	ss:
COUNTY OF LOS ANGELES	)

On                      before me,                                          (here insert name of the officer), Notary Public, personally appeared                                         , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Notary Public [Notary Seal]

MAIL TAX STATEMENTS AS DIRECTED ABOVE

Exhibit A

Exhibit B

BILL OF SALE

For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, MONDRIAN HOLDINGS LLC, a Delaware limited liability company (“Seller”), in connection with the sale of certain real property located in West Hollywood, California, which is more particularly described in that certain Purchase and Sale Agreement dated as of                                         , 2011 (“Purchase Agreement”), between Seller and WOLVERINES OWNER LLC, a Delaware limited liability company (“Purchaser”), hereby grants, assigns, transfers, conveys and delivers to Purchaser, without recourse and without any representation or warranty (including warranty of use and warranty, express or implied, as to merchantability and fitness for any purpose) except as expressly set forth in the Purchase Agreement, all of Seller’s right, title and interest in and to the “Personal Property”, the “Unopened Inventory”, the “Retail Inventory” and the “Consumable Inventory”, as such terms are defined in the Purchase Agreement and, in each case, solely to the extent the “Personal Property”, the “Unopened Inventory”, the “Retail Inventory” and the “Consumable Inventory” are included in the definition of “Property” in the Purchase Agreement. This Bill of Sale shall be governed by the laws of the State of New York.

[Signature on following page]

Exhibit B

IN WITNESS WHEREOF, Seller has executed this Bill of Sale as of                     , 2011.

SELLER:

MONDRIAN HOLDINGS LLC,
a Delaware limited liability company

By:

Its:

Exhibit C

Assignment of Contracts

ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS,
PERMITS, BOOKINGS AND INTANGIBLES

THIS ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS, PERMITS, BOOKINGS AND INTANGIBLES (this “Assignment”) is made as of                     , 2011, by MONDRIAN HOLDINGS LLC, a Delaware limited liability company (“Seller”), in favor of WOLVERINES OWNER, LLC, a Delaware limited liability company (“Purchaser”).

RECITALS

A. Seller is the owner of certain property commonly known as the “Mondrian” located at 8440 Sunset Boulevard, West Hollywood, California.

B. Seller and Purchaser have entered into that certain Purchase and Sale Agreement dated as of                     , 2011 (as may be amended, the “Purchase Agreement”), pursuant to which Seller has agreed to sell and Purchaser has agreed to purchase the real property described in Schedule 1.1(a) attached thereto and the improvements located thereon, on the terms and conditions stated in the Purchase Agreement. All terms not otherwise defined herein shall have the meaning assigned to them in the Purchase Agreement.

C. Pursuant to the Purchase Agreement, Seller has agreed to assign to Purchaser all of Seller’s right, title and interest to (a) the Service Contracts set forth on Annex 1 attached hereto (the “Assumed Service Contracts”) (b) the Permits, (c) the Bookings, and (d) the Intangibles.

NOW, THEREFORE, Seller and Purchaser agree as follows:

1. Assignment. Seller hereby sells, assigns, transfers and conveys to Purchaser, without recourse and without representation or warranty (except to the extent expressly provided in the Purchase Agreement, as to which all of the limitations set forth in the Purchase Agreement shall apply), all of Seller’s right, title and interest in and to (a) the Assumed Service Contracts, (b) the Permits, (c) the Bookings and (d) the Intangibles.

2. Assumption. Purchaser hereby assumes the benefits of Seller and assumes and agrees to be bound by all of the covenants, obligations, liabilities, and burdens of Seller that arise or accrue from and after the date of this Assignment under or in connection with (a) the Assumed Service Contracts, (b) the Permits, (c) the Bookings, and (d) the Intangibles. This Assignment is made by Seller without recourse and without any express or implied representation or warranty whatsoever (except to the extent expressly provided in the Purchase Agreement, as to which all of the limitations set forth in the Purchase Agreement shall apply).

3. Successors. This Assignment shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, legal representatives, successors and assigns.

4. Governing Law. This Assignment shall be governed by the laws of the State of New York.

Exhibit C

5. Further Assurances. Seller and Purchaser agree to execute such other documents and perform such other acts as may be reasonably necessary or proper and usual to effect this Assignment.

6. Counterparts. This Assignment may be executed in counterparts, each of which shall be deemed an original, and both of which together shall constitute one and the same instrument.

[signature page follows]

IN WITNESS WHEREOF, Purchaser and Seller have executed this Assignment as of the date first above written.

SELLER:

MONDRIAN HOLDINGS LLC,
a Delaware limited liability company

By:

Its:

PURCHASER:

WOLVERINES OWNER LLC,
a Delaware limited liability company

By:

Its:

Annex 1

Assumed Service Contracts

[to be completed at Closing]

Exhibit D

Assignment of Space Leases

ASSIGNMENT AND ASSUMPTION OF SPACE LEASES

THIS ASSIGNMENT AND ASSUMPTION OF SPACE LEASES (this “Assignment”) is made as of                     , 2011 (the “Effective Date”), by MONDRIAN HOLDINGS LLC, a Delaware limited liability company (“Seller”) in favor of WOLVERINES OWNER LLC, a Delaware limited liability company (“Purchaser”).

RECITALS

A. Seller is the owner of certain property commonly known as the “Mondrian” located at 8440 Sunset Boulevard, West Hollywood, California.

B. Seller and Purchaser have entered into that certain Purchase and Sale Agreement dated as of                     , 2011 (as may be amended, the “Purchase Agreement”), pursuant to which Seller has agreed to sell and Purchaser has agreed to purchase the real property described in Schedule 1.1(a) attached thereto and the improvements located thereon, on the terms and conditions stated in the Purchase Agreement. All terms not otherwise defined herein shall have the meaning assigned to them in the Purchase Agreement.

C. Pursuant to the Purchase Agreement, Seller has agreed to assign to Purchaser all of Seller’s right, title and interest to the Space Leases.

NOW, THEREFORE, Seller and Purchaser agree as follows:

1. Assignment. Seller hereby sells, assigns, transfers and conveys to Purchaser, without recourse and without representation or warranty, all of Seller’s right, title and interest in and to the Space Leases.

2. Assumption. Purchaser hereby assumes the benefits of Seller and assumes and agrees to be bound by all of the covenants, obligations, liabilities, and burdens of Seller under the Space Leases that arise or accrue from and after the date of this Assignment.

3. Successors. This Assignment shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, legal representatives, successors and assigns.

4. Governing Law. This Assignment shall be governed by the laws of the State of New York.

5. Attorneys’ Fees. If any action or proceeding is commenced by either party to enforce their rights under this Assignment or to collect damages as a result of the breach of any of the provisions of this Assignment, the prevailing party in such action or proceeding, including, without limitation, any bankruptcy, insolvency or appellate proceedings, shall be entitled to recover all reasonable costs and expenses, including, without limitation, reasonable attorneys’ fees and court costs actually incurred, in addition to any other relief awarded by the court.

6. Counterparts. This Assignment may be executed in counterparts, each of which shall be deemed an original, and both of which together shall constitute one and the same instrument.

[signature page follows]

Exhibit D

IN WITNESS WHEREOF, Purchaser and Seller have executed this Assignment as of the date first above written.

SELLER:

MONDRIAN HOLDINGS LLC,
a Delaware limited liability company

By:

Its:

PURCHASER:

WOLVERINES OWNER LLC,
a Delaware limited liability company

By:

Its:

Exhibit E

FIRPTA CERTIFICATE

CERTIFICATION OF NON-FOREIGN STATUS

A. Federal FIRPTA Certificate

Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”) provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. For U.S. tax purposes (including Code Section 1445), the owner of a disregarded entity (which has legal title to a U.S. real property interest under local law) will be the transferor of the property and not the disregarded entity. To inform the transferee that withholding of tax is not required upon the disposition of a U.S. real property interest by                                          (the “Transferor”) the undersigned hereby certifies the following on behalf of the Transferor:

1. Transferor is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Code and the Income Tax Regulations promulgated thereunder);

2. Transferor’s U.S. tax identification number is                     ; and

3. Transferor’s office address is                     .

Transferor understands that this certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

Transferor understands that Transferee is relying on this certification in determining whether withholding is required upon said transfer.

Exhibit E

Under penalty of perjury the undersigned declare that they have examined this certification and to the best of their knowledge and belief it is true, correct and complete, and they further declare that they have authority to sign this certification on behalf of Transferor.

Dated as of ___________, 2011

TRANSFEROR:

                                                                     ,
a                                                                  

By:

Its:

Exhibit F

Title Affidavit

OWNER’S AFFIDAVIT & GAP INDEMNITY

STATE OF	)
	) ss:
COUNTY OF	)

MONDRIAN HOLDINGS LLC, a Delaware limited liability company (“Owner”) the Owner of the premises described in Title Commitment No. NCS-480122-NY, and in consideration of First American Title Insurance Company (the “Company”) issuing its policy of title insurance insuring an interest in the real estate described herein, and being first duly sworn on oath, states as follows:

1. That Owner is the owner of, or has an ownership interest in, the real estate referred to herein (“Premises”), which is described as follows: (See Schedule A annexed hereto).

2. That Owner has owned real estate described herein, continuously for the last  _____  years.

3. That Owner’s possession of the real estate has been peaceable and undisturbed, and that title to the real estate has never been disputed or questioned.

4. That no proceedings in bankruptcy or receivership have been instituted by or against the Owner within the last ten (10) years, and that the Owner has never made an assignment for the benefit of creditors.

5. That there is not any action or proceeding now pending in any State or Federal Court in the United States, to which the Owner is a party; nor is there any State or Federal Court judgment, State of Federal Tax Lien, or any other State or Federal lien of any kind or nature against the Owner, which could constitute a lien or charge upon the real estate.

6. That the charter of said corporation is in full force and effect an no proceeding is pending for its dissolution or annulment. That all license, state franchise, and city corporation taxes, if applicable, due and payable by said corporation have been paid in full.

7. That Owner has not contracted for, received any notice regarding, and does not know of any improvement, alteration or change to be made in or about the real estate.

8. That there are not any delinquent real estate taxes or unpaid current real estate taxes; nor any pending or levied assessments on the real estate, including but not limited to those for trees, sidewalks, streets, sewers and water lines.

9. That the improvements on the real estate were completed more than five (5) years ago, and that there has not been any new construction or major repair work performed on the real estate for at least one hundred twenty-five (125) days. That the Owner has not contracted for any labor to be supplied to the premises, or for any materials to be delivered thereto, that might become the subject of a lien upon the premises and that have not been paid for.

(Continued)

Exhibit F

Owner’s Affidavit
Page Two

10. That there are not any unpaid bills or claims for labor, services, or materials, nor any recorded or unrecorded mortgages, home improvement loans, chattel mortgages, conditional bills of sale, retention of title agreements, security agreements, agreements not to sell or encumber, financing statements, or personal property leases, which affect the real estate or which affect any fixtures, appliances, or equipment now installed in or on the Premises.

11. No tenant or party has any rights to the Premises other than as to tenants, nor any option or rights of first refusal to purchase the Premises. The only tenants occupying the Premises are as set forth on Exhibit “A” annexed hereto.

12. None of the easements referred to in Schedule B interfere with the beneficial use of the improvements erected on the Premises.

13. That the covenants and restrictions contained in the aforesaid title commitment have not been violated by the erection of the improvements on the Premises and affiant knows of no facts which would cause such violation, nor has Owner received any notices of any violations thereof.

14. That the Company has been requested to issue its policy or policies of title insurance referenced above in favor of the Insured named therein;

AND WHEREAS, the Company is unwilling to issue said policy or policies until the closing instrument(s) under which the insured acquires an interest in said real property is/are filed for record in the appropriate recording office(s);

AND WHEREAS, the parties in the transaction have requested the Company to provide a so-called “New York Style Closing” which provides for the unconditional delivery of the closing instrument(s) between the parties and the passing of consideration therefore.

NOW THEREFORE it is agreed that in consideration of the Company issuing its policy or policies without making exception therein of matters which may arise between the most recent effective date of the title commitment (the last date upon which the search of title is effective) and the date the documents creating the interest being insured have been filed for record and which matters may constitute an encumbrance on or affect said title, the undersigned agrees to promptly defend, remove, bond or otherwise dispose of any encumbrance, lien or objectionable matter to title (collectively, “objection(s) to title”) which may arise or be filed, as the case may be, against the captioned premises during the period of time between the most recent effective date of title commitment and date of recording of all closing instruments, and to hold harmless and indemnify the Company against all expenses, costs and reasonable attorneys fees which may arise out of its failure to so remove, bond or otherwise dispose of any said objection(s) to title.

BY:                                         

Sworn to before me this
                      day of  _____,  2011
                                                            
(Notary Public)

Exhibit G

Escrow Agreement

DEPOSIT ESCROW INSTRUCTIONS

_________, 2011

First American Title Insurance Company
633 Third Avenue
New York, New York 10017
Attention: Andrew Jaeger

Attention:

Re: Deposit under that certain Purchase and Sale Agreement dated April _____, 2011 (the “Agreement”), by and between Mondrian Holdings LLC, a Delaware limited liability company (“Seller”), and Wolverines Owner LLC, a Delaware limited liability company (“Purchaser”); Escrow No. 480122 (“Escrow”).

Gentlemen and Ladies:

Purchaser and Seller have entered into the Agreement pursuant to which Purchaser agrees to purchase the Property (as defined in the Agreement). A copy of the Agreement has been delivered to you concurrently herewith.

In accordance with Section 1.6 of the Agreement, within one (1) business day following the execution of the Agreement, Purchaser will be delivering by wire transfer of immediately available federal funds in the amount of Five Million and 00/100 Dollars ($5,000,000.00) (together with any interest earned thereon, the “Earnest Money”), for deposit in the Escrow. You are to place the Earnest Money in an interest bearing account (for this purpose, Purchaser’s Federal Employer I.D. number is 45-1822358) and hold the Earnest Money in the Escrow and deliver it to Seller or Purchaser in accordance with these instructions. An executed IRS Form W-9 for Purchaser has been delivered to you to enable the Earnest Money to be invested.

In the event that (i) you receive written notice from Seller or Purchaser (the party that delivers such written notice is referred to herein as the “Notice Party”), which notice shall be delivered concurrently to the other party (the “Other Party”), stating that the Notice Party is terminating the Agreement and is entitled to the Earnest Money under the terms of the Agreement, and (ii) you have received written confirmation from the Other Party of its receipt of such written notice from the Notice Party, you shall, on the tenth (10th) business day after the Other Party’s receipt of such written notice from the Notice Party, deliver the Earnest Money (by delivering cash, certified check or some other form of immediately available funds, to the Notice Party at the address or pursuant to the wiring instructions provided in such written notice from the Notice Party); provided that, if you receive written notice from the Other Party or the Other Party’s counsel within nine (9) business days after the Other Party’s receipt of the such written notice from the Notice Party that the Other Party disputes the Notice Party’s right to receive the Earnest Money and directs you not to make the foregoing delivery, you shall not deliver the Earnest Money to the Notice Party but shall instead retain it or, if appropriate, interplead the Earnest Money in a court of competent jurisdiction in the State of New York. All notices delivered pursuant to these instructions shall be made in accordance with the provisions of Section 11.4 of the Agreement. Notices to Escrow Agent will be delivered to the attention of Andrew Jaeger, Esq. and Gregory Faust, reference Title No 480122.

Exhibit G

You are not to disclose to any person (other than the parties hereto, their employees, agents or independent contractors) any information about the Agreement or its existence or this letter of instructions (except if requested by either party or as may be required by court in any litigation or by law).

You are to maintain the Earnest Money in a federally-insured interest-bearing account at JP Morgan Chase and all interest accruing thereon shall be paid to the party entitled to the Earnest Money in accordance with this deposit escrow instruction letter. We understand that you shall not be responsible for any penalties, loss of principal or interest, or the consequences of a delay in withdrawal of the Deposit and interest accrued thereon, if any, which may be imposed as a result of the making or the redeeming of the above investment, as the case may be. Seller and Purchaser also agree that Escrow Agent shall not be liable for any loss or impairment of the Deposit while the Deposit is in the course of collection or of the Escrow if such loss or impairment results from the failure, insolvency or suspension of the financial institution in which the Deposit is deposited. Nor shall you be required to institute legal proceedings of any kind pursuant to these instructions, nor be required to defend any legal proceedings which may be instituted against you with respect to the subject matter of these instructions unless you are requested to do so by Purchaser or Seller and arrangements reasonably satisfactory to you have been made to indemnify you against the cost and expense of such defense by the party making such request. If any dispute shall arise with respect to these instructions, whether such dispute arises between the parties hereto or between the parties hereto and other persons, you may interplead such disputants. You shall be responsible only for the performance of such duties as are strictly set forth herein and in no event shall you be liable for any act or failure to act under the provisions of this letter except where such action or inaction is the result of your willful misconduct or gross negligence.

Seller and Purchaser each hereby agrees, jointly and severally, to indemnify you and hold you harmless against any loss, liability or damage (including the cost of litigation and reasonable counsel fees) incurred in connection with the performance of your duties hereunder except as a result of your willful misconduct or gross negligence.

In the event of any dispute between Seller and Purchaser respecting these instructions, Seller and Purchaser may elect to submit such dispute to any court of competent jurisdiction in the State of New York in accordance with Section 11.12 of the Agreement. The prevailing party in any such dispute shall be entitled to recover its legal fees and expenses incurred in connection with such dispute.

Please indicate your agreement to comply with the foregoing instructions by executing at least three (3) copies of this letter and returning, by overnight courier, one to Hogan Lovells US LLP, as counsel for Seller, and one to Hunton & Williams LLP, as counsel for Purchaser.

Very truly yours,

SELLER: MONDRIAN HOLDINGS LLC, a Delaware limited liability company
	By:	Mondrian Senior Mezz LLC, its Managing Member
		By:	Morgans Group LLC, its Managing Member
			By:	Morgans Hotel Group Co., its Managing Member
By:
	Name:
	Title:
PURCHASER: WOLVERINES OWNER LLC a Delaware limited liability company
By:
	Name:
	Title:

ACKNOWLEDGED AND AGREED:

First American Title Insurance Company

By:
	Name:
	Title:

Date:                     , 2011

Exhibit H

Form of Tenant Estoppel

TENANT ESTOPPEL CERTIFICATE

To:
	Attention:

Property Address:	8440 Sunset Boulevard
	West Hollywood, California
	(the “Property”)

Premises at Property:                                                              (the “Premises”)

[Reference Guarantor if applicable]

The undersigned tenant (the “Tenant”) hereby certifies to you as follows:

(1) Tenant is a tenant at the Property under a lease (the “Lease”) dated                      for the Premises.

(2) The Lease is in full force and effect, represents the entire agreement between the landlord and Tenant as to Tenant’s interest in the Property and Premises, and has not been canceled, modified, assigned, extended or amended except as follows:                                         .

(3) The Lease has been guaranteed by                      (the “Guarantor”) and such guaranty is in full force and effect [If no guarantor, then this section to be deleted].

(4) All base rent, rent escalations, additional rent, Tenant’s proportionate share of real estate taxes, insurance and operating expenses, and other sums or charges due and payable under the Lease by Tenant have been paid through                     , 20_____. There is no prepaid rent, additional rent, or other similar sums or charges, except for the current month, and the amount of security deposit currently being held by the landlord under the Lease is $_____.

(5) Base rent is currently payable in the amount of $                     per month, and Tenant is currently making estimated payments for operating expenses and taxes in the amount of $                     per month.

(6) The Lease commencement date occurred on                                          and the Lease terminates on                     . The Tenant has the following renewal option(s)                     .

(7) To Tenant’s knowledge: (a) the Lease is free from default and free from any event which could become a default under the Lease; (b) Tenant has no claims or counterclaims against the landlord; and (c) Tenant has no offsets or defenses against the payment of rent or other sums, or the performance of any of Tenant’s other obligations under the Lease.

(8) The Tenant has received no notice of prior sale, transfer or assignment, hypothecation or pledge of the Lease or of the rents payable thereunder, except                                                             .

Exhibit H

(9) The Tenant has full possession of the Premises, has not assigned the Lease or sublet the Premises or any part thereof and does not hold the Premises under an assignment or sublease, except pursuant to subleases consented to by the landlord and                                                             .

(10) The Tenant has no rights or options to purchase the Property or any part thereof of any interest therein by right of first refusal, rights of first offer or option or other similar right to purchase. Tenant has no right to lease other space in the Property except as set forth in the Lease.

(11) The Tenant is not insolvent or bankrupt and is not contemplating seeking relief under any insolvency or bankruptcy statutes. No actions, whether voluntary or otherwise, are pending against Tenant [or Guarantor] under the bankruptcy laws of the United States or any state and there are no claims or actions pending against Tenant [and/or Guarantor] which if decided against Tenant [and/or Guarantor] would materially and adversely affect Tenant’s [or Guarantor’s] financial condition or ability to perform Tenant’s [and/or Guarantor’s] obligations under, or in respect of, the Lease.

(12) To the best of Tenant’s knowledge, both Tenant and the landlord have performed all of their respective obligations under the Lease and Tenant has no knowledge of any event which with the giving of notice, the passage of time or both would constitute a default by the landlord under the Lease.

(13) The landlord has not agreed to grant Tenant any free rent or rent rebate or to make any contribution to Tenant’s improvements.

(14) All base building and other tenant improvement work to be performed by the landlord under the Lease has been substantially completed in accordance with the Lease, and all payments due to Tenant, including without limitation, under the Lease as a landlord contribution towards Tenant’s work has been paid in full, except as follows:                                                             . [To be deleted if there is no contractual obligation to perform work and/or make any landlord contribution].

(15) This certificate has been duly authorized, executed and delivered by Tenant.

The undersigned has executed this Estoppel Certificate with the knowledge and understanding that you, or one of your affiliates, is acquiring the Property in reliance on this Estoppel Certificate and that the undersigned will be bound by this Estoppel Certificate. The statements contained herein may be relied upon by you and your affiliates, the landlord, any purchaser of the Property or the landlord’s interest therein, any lenders to the owners of the Property, any of the owner’s constituent entities, and any mortgagee of the Property and their successors and assigns.

Dated this _____ day of                     , 20_____.

TENANT
By:
	Title:
[GUARANTOR]
By:
	Title:

Exhibit I

Form of Liquor Assets Escrow Agreement

LIQUOR ASSETS ESCROW AGREEMENT

TO:	Bay Commercial Bank
	3895 East Castro Valley Boulevard — Suite A
	Castro Valley, CA 94552,
	Attn: Chloe Flowers, Senior Vice President
	Tel: 510-300-8140

Date: May _____, 2011
Escrow Officer: C. Flowers
Escrow No. 210124

IT IS AGREED BETWEEN THE TRANSFEROR AND INTENDED TRANSFEREE THAT NONE OF THE SAID CONSIDERATION WILL BE PAID FOR THE TRANSFER OF THE LICENSE(S) UNTIL SUCH TIME AS ESCROW AGENT HAS BEEN ADVISED IN WRITING BY DEPARTMENT OF ALCOHOLIC BEVERAGE CONTROL (“ABC”) THAT THE TRANSFER OF SAID LICENSE(S) HAS BEEN APPROVED.

A.	THE TRANSFEROR (SELLER):	8440 LLC
	WHOSE MAILING ADDRESS IS:	c/o MORGANS HOTEL GROUP
		475 10TH AVENUE, 11TH FLOOR
		NEW YORK, NY 10018
B.	AND INTENDED TRANSFEREE:	8440 LLC AND WOLVERINES LESSEE
		LLC, AS CO-LICENSEES
	WHOSE MAILING ADDRESS IS:	c/o PEBBLEBROOK HOTEL TRUST
		2 BETHESDA METRO CENTER, STE 1530
		BETHESDA, MD 20814

Exhibit I

C.	Will complete all Department of ABC Requirements to cause license(s) to be transferred to Intended Transferee:
	Kind of Licenses:	TYPE 47 — ON-SALE GENERAL EATING PLACE
		TYPE 47 — ON-SALE GENERAL EATING PLACE
		TYPE 58 — CATERER PERMIT
		TYPE 66 — CONTROLLED ACCESS CABINET PERMIT
		TYPE 68 — PORTABLE BAR
		LICENSE NO. 326147
	Now Located at	8440 SUNSET BOULEVARD
		WEST HOLLYWOOD, CA 90069 (the “Premises”)

1. Pursuant to Section 24073 of the Business and Professions Code of the State of California, Transferor or Intended Transferee shall cause Notice of Intended Transfer to be filed for record in the Office of the Los Angeles County Recorder upon receipt of the total purchase price for the transfer. Transferor and the Intended Transferee shall deliver to Escrow Agent a conformed copy of said Notice, Intended Transferee shall deliver a copy of said Notice of Intended Transfer, certified by the County Recorder, to the ABC.

2. Prior to the release of ABC Form 226 “Applicant’s Statement That Consideration Has Been Deposited in Escrow”, Intended Transferee shall deliver to BAY COMMERCIAL BANK, Corporate Escrow Services (hereinafter, Escrow Agent), the full amount of the purchase price in the form of CASH in the amount of $75,000, of which $40,000 shall be allocated to the liquor licenses and $35,000 shall be allocated to the liquor inventory, which amounts constitute a deferral of a portion of the purchase price paid by Intended Transferee (or its affiliate) for the Premises.

3. License Renewal Fees which may become due prior to the transfer of the liquor license will be payable by Transferee.

INITIALS (Transferor(s)  _____) INITIALS (Intended Transferee(s)  _____ 

This section must be initialed by Transferor and Intended Transferee

TRANSFEROR AND INTENDED TRANSFEREE HEREBY ACKNOWLEDGE THAT IN THE EVENT ESCROW AGENT IS NOTIFIED BY THE ABC THAT A “TAX HOLD” HAS BEEN PLACED ON THE LIQUOR LICENSE OF THE TRANSFEROR BY THE STATE BOARD OF EQUALIZATION, EMPLOYMENT DEVELOPMENT DEPARTMENT, FRANCHISE TAX BOARD, CITY AND/OR COUNTY DELINQUENT BUSINESS TAXES AND/OR INTERNAL REVENUE SERVICE UNDER PROVISIONS OF BUSINESS AND PROFESSIONS CODE 24049, AND, THAT TO THE BEST OF ESCROW AGENT’S KNOWLEDGE, AFTER APPROPRIATE INQUIRY, NOTHING AT THE TIME OF SUCH NOTIFICATION IS PREVENTING THE TRANSFER OF THE LIQUOR LICENSE EXCEPT THE “RELEASE OF SAID TAX HOLD”, THEN ESCROW AGENT IS HEREBY AUTHORIZED AND INSTRUCTED TO PAY, WITHOUT FURTHER INSTRUCTION FROM THE TRANSFEROR AND INTENDED TRANSFEREE, FROM THE FUNDS DEPOSITED INTO ESCROW BY INTENDED TRANSFEREE, TO THE TAXING AGENCY HAVING PLACED SAID “TAX HOLD”, PER THEIR WRITTEN DEMAND DELIVERED TO ESCROW AGENT. UPON TRANSFER OF THE LIQUOR LICENSE THE AMOUNT RELEASED WILL BE DEDUCTED FROM SELLERS PROCEEDS.

FURTHER, TRANSFEROR AND INTENDED TRANSFEREE ACKNOWLEDGE AND UNDERSTAND THAT THE PAYMENT OF THE DEMAND FROM SAID TAXING AUTHORITY MAY OR MAY NOT CONSTITUTE FULL OR FINAL PAYMENT THEREOF AND DOES NOT RELIEVE THE TRANSFEROR OF ITS LIABILITY THERETO AND THAT THE TAXING AUTHORITY MAY STILL IMPOSE SUCCESSOR LIABILITY UPON THE INTENDED TRANSFEREE.

TRANSFEROR AND INTENDED TRANSFEREE HOLD ESCROW AGENT HARMLESS AND WITHOUT LIABILITY FOR FOLLOWING THESE INSTRUCTIONS AND THE EARLY RELEASE OF INTENDED TRANSFEREE’S FUNDS, AND INTENDED TRANSFEREE IS TO LOOK TO TRANSFEROR FOR RESTITUTION IN THE EVENT INTENDED TRANSFEREE SHOULD NOT ACQUIRE THE LIQUOR LICENSE IN QUESTION.

INITIALS (Transferor(s)  _____) INITIALS (Intended Transferee(s)  _____)

This section must be initialed by Transferor and Intended Transferee

D. UPON APPROVAL OF THE TRANSFER OF THE LICENSE BY THE ABC ESCROW AGENT SHALL;

1. Out of said purchase price, Escrow Agent is authorized to pay the claims of such of the bona fide creditors of Transferor who shall file their claims with Escrow Agent not later than the date on which written notice of transfer from the ABC is received.

2. All claims approved by Transferor shall be deemed to be bona fide and Escrow Agent may pay such approved claims. Should any claims be filed, which Transferor refuses to approve, Escrow Agent shall notify the claimant; and the pro rata amount thereof shall be retained by Escrow Agent for a period of 25 days; and if not attached, shall be paid to Transferor in accordance with Section 24074 of the Business and Professions Code of the State of California.

3. If such purchase price shall not be sufficient to pay said claims in full, Escrow Agent is to distribute said consideration pursuant to the provisions of Section 24074.1 of the Business and Professions Code of the State of California; provided, however, that prior to such distribution, Escrow Agent shall deliver written notice of each creditor setting forth the distribution to be made in accordance with this paragraph, which notice shall provide that such creditor may dispute such distribution if it can show reasonable proof that such distribution would violate the provisions of Section 24074.1 of the Business and Professions Code of the State of California.

4. Escrow Agent shall pay the balance remaining of such purchase price, after payment of creditor claims and other expenses, to Transferor or as directed by Transferor.

GENERAL PROVISIONS

TAXES: Escrow Agent is not to be concerned as to any unpaid beverage, unemployment, social security, personal property, sales tax, or any other tax or contribution, any federal liens, or any unpaid salaries or wages, unless otherwise specifically instructed in this escrow. SHOULD ESCROW AGENT BE DIRECTED AND INSTRUCTED IN THESE INSTRUCTIONS TO MAKE ANY SUCH PAYMENT, SAME MAY OR MAY NOT CONSTITUTE FULL OR FINAL PAYMENT THEREOF.

OTHER AGREEMENTS: Unless otherwise provided herein, Escrow Agent is not to be concerned with any conditional sales contract, lease contract or security agreement that may affect the herein referred to personal property, and is not responsible for the delivery of any papers other than described herein. Escrow Agent is not a party to, or bound by any agreement which may be deposited under, evidenced by, or arise out of these instructions, other than these instructions.

AGENCY RESPONSIBILITY: Escrow Agent is to make no examination of the property nor of the title thereto; Escrow Agent acts as a depositary only and is not responsible or liable in any manner whatever for the sufficiency, correctness, genuineness or validity of any instrument deposited with it hereunder, or with respect to form or execution of the same, or the identity, authority, or right of any person executing or depositing the same.

DEFAULTS: Escrow Agent shall not be required to take or be bound by notice of any default of any person, or to take any action with respect to such default involving any expense or liability, unless notice in writing is given to the Escrow Agent at the office above named, of such default by the undersigned or any of them, and unless it is indemnified in a manner satisfactory to it against such expense or liability. These instructions shall not be subject to revision or modification except upon receipt by Escrow Agent at the office above named of the written instructions of all of the parties hereto or their successors in interest. Notwithstanding anything herein to the contrary, in the event approval of the transfer of the License by the ABC has not occurred by the date that is 180 days after the date of these instructions, Intended Transferee shall be deemed in default hereunder and Escrow Agent shall immediately disburse the purchase price to Transferor as Transferor’s sole and exclusive remedy for such default, and upon such disbursement, this escrow shall be deemed cancelled.

THE PARTIES ACKNOWLEDGE AND AGREE THAT IF INTENDED TRANSFEREE IS DEEMED IN DEFAULT AS PROVIDED HEREIN, THE DAMAGES THAT TRANSFEROR WOULD SUSTAIN AS A RESULT OF SUCH DEFAULT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO ASCERTAIN. ACCORDINGLY, THE PARTIES AGREE THAT TRANSFEROR SHALL RETAIN THE PURCHASE PRICE AS FULL AND COMPLETE LIQUIDATED DAMAGES (AND NOT AS A PENALTY) AS TRANSFEROR’S SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT. THE PARTIES ACKNOWLEDGE THAT THE RETENTION OF THE PURCHASE PRICE AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO TRANSFEROR PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677.

NOTICES: Escrow Agent shall be protected in acting upon any notice, request, waiver, consent, receipt or other paper or document believed by Escrow Agent to be signed by the proper party or parties.

JUDGMENT: Escrow Agent shall not be liable for any error of judgment or for any act done or step taken or omitted by it in good faith or for any mistake of fact or law, or for anything which it may do or refrain from doing in connection herewith, except its own gross negligence or willful misconduct, and Escrow Agent shall have no duties to anyone except those signing these instructions.

COUNSEL: Escrow Agent may advise with legal counsel in the event of any dispute or questions as to the construction of the foregoing instructions, or Escrow Agent’s duties thereunder, and Escrow Agent shall incur no liability and shall be fully protected in acting in accordance with the opinion and instructions of counsel.

DISAGREEMENTS: In the event of any disagreement between the undersigned or any of them, and/or the person or persons named in the foregoing instructions, and/or any other person, resulting in adverse claims and demands being made in connection with or for any papers, money or property involved herein or affected hereby, Escrow Agent shall be entitled at its option to refuse to comply with any such claim or demand, so long as such disagreement shall continue, and in doing so doing Escrow Agent shall not be or become liable for damages or interest to the undersigned or any of them or to any person named in the foregoing instructions for its failure or refusal to comply with such conflicting or adverse demands, and Escrow Agent shall be entitled to continue to refrain and refuse so to act until;

1. the rights of the adverse claimants have been finally adjudicated in a court assuming and having jurisdiction of the parties and the money, papers, and property involved herein or affected hereby; and/or

2. all differences shall have been adjusted by agreement and Escrow Agent shall have been notified thereof in writing, signed by all of the persons interested.

In the event of such disagreement, Escrow Agent in its discretion, may file a suit in interpleader for the purpose of having the respective rights of the claimants adjudicated, and deposit with the court all documents and property held hereunder, and the undersigned agree to pay all reasonable costs and counsel fees incurred by Escrow Agent in such action and said costs and fees shall be included in the judgment in any such action.

FEES AND CHARGES: In the event that Escrow Agent performs any service not specifically provided hereinabove, or that there is any assignment or attachment of any interest in the subject matter of this escrow or modifications thereof, or that any controversy arises hereunder, or that Escrow Agent is made a party to, or intervenes in, any litigation pertaining to this escrow or the subject matter thereof, Escrow Agent shall be reasonably compensated therefor and reimbursed for all costs and expenses occasioned thereby. Escrow Agent shall have a first lien on the property and papers held by it hereunder for such compensation and expenses, and the parties hereto agree jointly and severally to pay the same, and to indemnify Escrow Agent against any loss, liability or expense incurred in any act or thing done hereunder.

For its ordinary services hereunder, the Escrow Agent shall be entitled to an initial fee of $1,025.00 which is Non-refundable, payable concurrently with its acceptance hereof, by Intended Transferee and to additional compensation, if applicable, paid by Transferor as follows:

Federal Express fees will be in addition to the escrow fee.

$15.00 for each claim in excess of three (3) paid through escrow

$50.00 for each disputed claim of Transferor

CANCELLATION: In the event this escrow is cancelled, Transferor or Intended Transferee will nevertheless pay the escrow fees plus all costs and expenses of Escrow Agent. Notwithstanding anything in these instructions to the contrary, Escrow Agent may, at his discretion, resign at any time prior to receipt of written notice from the ABC that the license(s) has been transferred by giving five (5) days written notice to the ABC and parties hereto, and shall be entitled to reimbursement only for those costs and expenses incurred by Escrow Agent to the date of such resignation. Upon cancellation by the parties or resignation of Escrow Agent, after deducting Escrow Agent’s fees and/or costs or expenses, the balance of funds and documents shall be returned to the parties who shall have deposited the same, except as otherwise provided in the “DEFAULTS” section above.

SIGNATURES: These instructions may be executed in counterparts, each of which so executed shall be deemed an original, irrespective of the date of its execution and delivery; and said counterparts together shall constitute one and the same instrument.

Each of the undersigned states he has read the foregoing instructions, understands and agrees to them.

DEPOSITS. All funds received in the escrow shall be deposited with other escrow funds in a non-interest bearing general escrow account or accounts of COMMERCIAL BANK, unless otherwise instructed verbally or in written form.

[Signatures follow]

TRANSFEROR:						INTENDED TRANSFEREE:
8440 LLC						8440 LLC
	By:	Mondrian Pledgor LLC					By:	Mondrian Pledgor LLC
		By:	Mondrian Senior Mezz LLC, its Managing Member					By:	Mondrian Senior Mezz LLC, its Managing Member
			By:	Morgans Group LLC, its Managing Member					By:	Morgans Group LLC, its Managing Member
				By:	Morgans Hotel Group Co., its Managing Member					By:	Morgans Hotel Group Co., its Managing Member
By:						By:
	Name:						Name:
	Title:						Title:
						WOLVERINES LESSEE LLC
						By:
							Name:
							Title:

Signature Page to Mondrian Liquor Assets Escrow Agreement

Schedule 1.1(a)

Legal Description of Land

Lot “A” of Tract No. 2527, in the city of West Hollywood, county of Los Angeles, state of California, as per map recorded in Book 34 Page 14 of Maps, in the office of the county recorder of said county.

EXCEPT therefrom that portion thereof lying Southerly of a line bearing North 89 degrees 54’ West from a point on the East line of said Lot, distant North 0 degrees 06’ East thereon 320 feet from the Southeast corner of said Lot.

Schedule 1.1(c)

Excluded Personal Property

1. Asia de Cuba uniforms

2. Four (4) ping pong tables

3. Six (6) portraits, photographs of (on file)

Schedule 1.1(e)-1

Service Contracts

Schedule 1.1(e)-1(a)

1. Maintenance Agreement, dated as of August 1, 2008, between ACCO Engineered Systems and Morgans Hotel Group

2. Standard Service Agreement, dated as of May 7, 1996, between American Waste Industries and Mondrian Hotel

3. Consulting Agreement, effective as of July 20, 2010, between 8440 LLC and Spin Global Management LLC, as terminated by notice, dated March 22, 2011

4. Contract, dated as of March 30, 2000, between Pico Cleaners and Mondrian Holding LLC and Ian Schrager Hotel, Ian Schrager Hotel Management LLC

5. Hotel Car Rental Agreement, dated as of November 11, 2009, between Midway Car Rental and Mondrian Hotel

6. Agreement (Landscape Maintenance Specifications), dated as of November 1, 2005, between Mondrian and Reliable Gardens Inc.

7. Limousine Agreement, dated as of May 5, 2007, between Mondrian Holdings, LLC and CLS Los Angeles Transportation, LLC

8. Non-Guaranteed Monthly Interior Plant Maintenance Agreement, agreed and accepted on May 28, 2008, between Inner Gardens, Inc. and Mondrian.

9. Preventative Maintenance Agreement, dated as of July 21, 2009, between Advantage Fitness Products and Mondrian Hotel

10. Master Preventative Maintenance Service Agreement, dated as of June 5, 2009, between Mondrian Hotel and Fujitec America, Inc.

11. Routine Maintenance Agreement, dated as of March 21, 2008, between Mondrian and Western State Design, Inc.

12. Service Agreement, dated as of October 10, 2007, between Ontario Refrigeration Service, Inc. and Mondrian Hotel

13. Service Agreement, dated as of August 10, 2006, between, between Ontario Refrigeration Service, Inc. and Mondrian Hotel

14. Technical Support Agreement, executed as of July 26, 2002, between Minibar North America, Inc. and Mondrian Hotel

15. Music Service Agreement, dated as of May 1, 2002, between Mondrian Holdings and DMX Music, Inc.

16. Fire Alarm System Monitoring Proposal/Contract, dated as of February 15, 1990, between Mondrian Hotel and Fire Call

17. Music Services Agreement, dated as of December 31, 2008, between Morgans Hotel Group LLC and Sauce Industries, LLC (d/b/a Gray V)

18. Master Agreement for the Supply of Equipment, Software, Maintenance Services and Professional Services, dated as of November 16, 2000, between Mondrian Hotel and MAI Systems Corporation

19. Commercial Service Agreement, dated as of March 4, 2008, between Mondrian and Isotech Pest Management

20. Supplemental Law Enforcement Services Agreement at Special Events or Occurrences, dated as of July 1, 2006, between County of Los Angeles and Mondrian Hotel

21. Service Agreement, dated as of October 21, 2009, between Morgans Hotel Group-The Mondrian Hotel and Merchants Building Maintenance, LLC

22. Service Agreement, dated as of July 21, 2004, between PAETEC Communications, Inc. and Mondrian Holdings LLC

23. Pay Phone Service Agreement , dated as of November 1, 2005, between Mondrian Holdings and the Public Communications Division of SBC Communications Inc.

24. Contract, dated as of May 29, 2007, between Bevinco and Mondrian

25. Master Services Agreement, dated as of March 15, 2011, between Mondrian West Hollywood and TRAVELCLICK, Inc.

26. LodgeNet Content and System Maintenance Agreement, dated as of November 6, 2009, between Mondrian Holdings LLC and LodgeNet Interactive Corporation

27. Computer Services Agreement, effective as of [December 14, 2010], between Mondrian Los Angeles and Eleven Wireless Inc.

28. Customer Care Agreement, dated as of July 9, 2009, between Sunray Technology Ventures Inc. and Mondrian Los Angeles

29. Letter Agreement from SPG Security/Specialized Protective Group to Mondrian Hotel Director of Security, dated as of September 1, 2008

30. Service Agreement, dated as of _____, between Mondrian Hotel and Gemini Electronic Security Inc.

31. Consultant Services Agreement (Interior Design), dated as of January 17, 2007, between Benjamin Noriega-Ortiz, LLC and Mondrian Holdings LLC

32. Agreement, dated as of October 25, 1999, between Sectran Security, Incorporated and Mondrian Hotel

33. Invoice, dated March 12, 2011, by USA Mobility Wireless Inc. for Morgans Hotel Group

34. Consulting Agreement, dated as of March 14, 2006, between Mondrian Holdings LLC and House & Robertson Architects, Inc.

35. Contract, dated as of December 15, 2007, between Bevinco and SkyBar

36. LP — Gas Service Order Form, dated as of August 23, 2006, with Avcogas for SkyBar

Warranties

37. From CDW Direct: Three (3) year warranty on six (6) laptops, Mfg# HPE-U441E, expires on or about February 2014

38. From DELL: “3 Year Basic Limited Warranty and 3 Year NBD Onsite Service”, Product Code U3OS, expires on or about September 2012

39. From Fujitec America, Inc.: One (1) year limited warranty against defects in material and workmanship, expires on or about August 2011.

40. From Midwest Roofing Inc.:

a. Ten (10) year warranty on materials (excluding skylight lens, A/C ducts, conduits, gutters, drains, or other similar equipemtn), expires on or about August 2019

b. Seven (7) year warranty on labor, expires on or about August 2016

41. Washex Machinery of California: One (1) year warranty on flatironer, expires on January 1, 2012

Schedule 1.1(e)-1(b)

1. Lease/Rental Agreement, dated as of March 10, 2010, between Public Storage and Mondrian Hotel

2. Lease/Rental Agreement, dated as of April 30, 2010, between Public Storage and Mondrian Hotel

3. Placement Agreement, dated as of January 3, 2007, between Mondrian Los Angeles and OSA Financial, Inc.

4. Hotel Parking Facility Management Agreement, dated as of April 30, 2003, between Mondrian Holdings LLC, dba The Mondrian Hotel and Quality Parking Service, Inc., as amended by Amendment to Hotel Parking Facility Management Agreement, dated as of December 4, 2008, between Mondrian Holdings LLC, dba The Mondrian Hotel and Quality Parking Service, Inc.

5. Customer Subscriber Agreement, dated as of October 7, 2010, between Mondrian Holdings, LLC and Cogent Communications, Inc.

6. Master Service Agreement, dated as of November 15, 2004, between Mondrian Holdings, LLC and Shift4 Corporation

7. SpaSoft Support Services Agreement, dated as of January 1, 2004, between Springer-Miller Systems, Inc. and Mondrian Holdings LLC

8. Letter of Agreement, dated as of December 3, 2010, between Mondrian Holdings LLC and Virgin Mobile Canada, a Division of Bell Mobility Inc.

9. Equipment Maintenance Contract, dated as of February 28, 2003, between Design Communications, Inc. and Mondrian Holdings, LLC

10. Lodgenet Free-to-Guest License Agreement, dated as of August 13, 2009, Mondrian Holdings LLC and LodgeNet Interactive Corporation

11. Lodgenet Free-to-Guest License Agreement, dated as of November 6, 2009, Mondrian Holdings LLC and LodgeNet Interactive Corporation

12. Amendment to Lodgenet Free-to-Guest License Agreement, effective as of June 4, 2010, between Mondrian Holdings LLC and LodgeNet Interactive Corporation

Schedule 1.1(e)-2

Equipment Leases

Schedule 1.1(e)-2(a)

1. Certificate of Delivery, Installation and Training, dated as of February 20, 2008, between Mondrian Hotel and Priority Mailing Systems, Inc.

Schedule 1.1(e)-2(b)

1. Order Agreement, dated as of March 21, 2007, between Mondrian Hotel and Lanier Worldwide, Inc.

Schedule 1.1(f)

Intellectual Property

None.

Schedule 1.1(g)

List of Transferable Permits

None.

Schedule 1.1(j)

List of Space Leases

1. Sublease (Food and Beverage Premises) Mondrian, dated as of November 13, 1996, between Ian Schrager Hotels, Inc. and 8440 LLC

2. License Agreement, dated as of March  _____, 2011, between Mondrian Holdings LLC and Artspace Marketplace, Inc.

3. Building Sign License Agreement, dated as of April 12, 2001, between Mondrian Holdings LLC and Eller Media Company, Inc., and expiration notice, dated April 4, 2011

4. Lease, dated as of February  _____, 2011, between Mondrian Holdings LLC and Branded Cities, LLC (relating to signage)

Schedule 1.5(c)

Allocations of Real and Personal Property

Land/Building:	$	130,909,000
FF&E:	$	6,091,000
Total:	$	137,000,000

Schedule 2.4(a)

Permitted Exceptions

1. The lien of supplemental taxes, if any, assessed in connection with the change of ownership pursuant to this Agreement pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code.

2. An easement for public road and incidental purposes in the document recorded November 8, 1962 as Instrument No. 5516, in Book D-1817 Page 222 of Official Records.

By Resolution No. 96-1627, the City Council of the City of West Hollywood ordering the vacation of a portion of Sunset Boulevard and Olive Drive at 8440 Sunset Boulevard, in the city of West Hollywood, recorded September 12, 1996 as Instrument No. 96-1504898.

3. The terms and provisions contained in the document entitled “Acceptance Affidavit” recorded May 7, 1996 as Instrument No. 96-713245 of Official Records.

4. The terms and provisions contained in the document entitled “Acceptance Affidavit of Resolution No. 01-2619R — A Resolution of the City Council of the City of West Hollywood Approving the Appeal of Hillcrest Realty Services, and Approving Conditional Use Permit 2001-11 for a Tall Wall Sign at 8440 Sunset Boulevard, West Hollywood, California” recorded January 18, 2002 as Instrument No. 02-0143019 of Official Records.

5. A notice of assessment recorded November 5, 1996 as Instrument No. 96-1796913 of Official Records, executed by City Clerk of the City of West Hollywood.

6. The terms and provisions contained in the document entitled “Acceptance Affidavit” recorded July 18, 2006 as Instrument No. 06-1577722 of Official Records.

Schedule 3.2

Reports

1. Phase I Environmental Site Assessment, dated August 14, 2006, prepared by IVI Due Diligence Services, Inc.

2. Property Condition Report for Mortgage Financing Purposes, dated August 11, 2006, prepared by IVI Due Diligence Services, Inc.

3. Letter regarding Probable Maximum Loss at Site, dated August 11, 2006, prepared by IVI Due Diligence Services, Inc.

Schedule 5.1(d)

Material Defaults under Space Leases

None.

EX-10.4

Exhibit 10.4

Execution Version

CREDIT AGREEMENT

Dated as of July 28, 2011

by and among

MORGANS GROUP LLC,
as Borrower,

BEACH HOTEL ASSOCIATES LLC,
as Borrower,

MORGANS HOTEL GROUP CO.,
as a Guarantor,

DEUTSCHE BANK SECURITIES INC.,
as Sole Lead Arranger,

DEUTSCHE BANK TRUST COMPANY AMERICAS,
as Agent,

and

THE FINANCIAL INSTITUTIONS INITIALLY SIGNATORY HERETO
AND THEIR ASSIGNEES PURSUANT TO SECTION 13.5,
as Lenders

ARTICLE I Definitions	1
Section 1.1 Definitions	1
Section 1.2 General; References to Times	27
Section 1.3 GAAP	27
Section 1.4 Pro Forma Calculations	27
Section 1.5 Florida Borrower Representative	28
Section 1.6 Joint and Several Obligations	28
ARTICLE II Credit Facility	28
Section 2.1 Loans	28
Section 2.2 Letters of Credit	29
Section 2.3 Rates and Payment of Interest on Loans	33
Section 2.4 Number of Interest Periods	34
Section 2.5 Repayment of Loans	34
Section 2.6 Prepayments	34
Section 2.7 Continuation	35
Section 2.8 Conversion	35
Section 2.9 Notes	35
Section 2.10 Voluntary Reductions of the Commitment	36
Section 2.11 Amount Limitations	36
Section 2.12 Incremental Commitments	37
ARTICLE III Payments, Fees and Other General Provisions	38
Section 3.1 Payments	38
Section 3.2 Pro Rata Treatment	39
Section 3.3 Sharing of Payments, Etc.	39
Section 3.4 Lockbox Account	40
Section 3.5 Several Obligations	41
Section 3.6 Minimum Amounts	41
Section 3.7 Fees	42
Section 3.8 Computations	43
Section 3.9 Usury	43
Section 3.10 Agreement Regarding Interest and Charges	43
Section 3.11 Statements of Account	43
Section 3.12 Defaulting Lenders	44
Section 3.13 Taxes	46
Section 3.14 Mitigation Obligations; Replacement of Lenders	49
ARTICLE IV Florida Property	50
Section 4.1 Frequency of Calculations of Borrowing Base	50
Section 4.2 Frequency of Appraisals	50
Section 4.3 Additional Appraisals Required under Applicable Law	51

i

ARTICLE V Yield Protection, Etc.	51
Section 5.1 Additional Costs; Capital Adequacy	51
Section 5.2 Suspension of LIBOR Loans	53
Section 5.3 Illegality	53
Section 5.4 Compensation	53
Section 5.5 Treatment of Affected Loans	54
Section 5.6 Change of Lending Office	54
Section 5.7 Assumptions Concerning Funding of LIBOR Loans	55
ARTICLE VI Conditions Precedent	55
Section 6.1 Initial Conditions Precedent	55
Section 6.2 Conditions Precedent to All Loans and Letters of Credit	59
ARTICLE VII Representations and Warranties	60
Section 7.1 Representations and Warranties	60
Section 7.2 Survival of Representations and Warranties, Etc.	66
ARTICLE VIII Affirmative Covenants	67
Section 8.1 Preservation of Existence and Similar Matters	67
Section 8.2 Compliance with Applicable Law and Material Contracts	67
Section 8.3 Maintenance of Property	67
Section 8.4 Insurance	67
Section 8.5 Payment of Taxes and Claims	68
Section 8.6 Visits and Inspections	68
Section 8.7 Use of Proceeds; Letters of Credit	68
Section 8.8 Environmental Matters	69
Section 8.9 Books and Records	69
Section 8.10 Further Assurances	69
Section 8.11 Exchange Listing	69
Section 8.12 Minimum Hedging Requirement	69
Section 8.13 Post-Closing Deliverables	69
ARTICLE IX Information	70
Section 9.1 Quarterly Financial Statements	70
Section 9.2 Year-End Statements	70
Section 9.3 Compliance Certificate; Borrowing Base Certificate; Etc.	70
Section 9.4 Other Information	71
Section 9.5 Electronic Delivery of Certain Information	73
ARTICLE X Negative Covenants	74
Section 10.1 Indebtedness; Certain Equity Securities	74
Section 10.2 Liens	78

ii

Section 10.3 Fundamental Changes	80
Section 10.4 Investments, Loans, Advances, Guarantees and Acquisitions	80
Section 10.5 Asset Sales	83
Section 10.6 Swap Agreements	84
Section 10.7 Restricted Payments	84
Section 10.8 Transactions with Affiliates	85
Section 10.9 Restrictive Agreements	86
Section 10.10 Amendment of Material Documents	86
Section 10.11 Financial Covenants	87
Section 10.12 Changes in Fiscal Periods	87
Section 10.13 ERISA Exemptions	87
Section 10.14 Availability of Exceptions	87
ARTICLE XI Default	88
Section 11.1 Events of Default	88
Section 11.2 Remedies Upon Event of Default	91
Section 11.3 Remedies Upon Default	92
Section 11.4 Allocation of Proceeds	92
Section 11.5 Collateral Account	92
Section 11.6 Performance by Agent	94
Section 11.7 Rights Cumulative	94
ARTICLE XII The Agent	95
Section 12.1 Appointment; Nature of Duties	95
Section 12.2 Lack of Reliance on the Agent	95
Section 12.3 Certain Rights of Agent	96
Section 12.4 The Agent in its Individual Capacity	96
Section 12.5 Reliance; Delivery of Information	96
Section 12.6 Collateral Matters	96
Section 12.7 Holders	97
Section 12.8 Indemnification of Agent	97
Section 12.9 Successor Agent	98
Section 12.10 Titled Agents	98
ARTICLE XIII Miscellaneous	99
Section 13.1 Notices	99
Section 13.2 Expenses	100
Section 13.3 Setoff	101
Section 13.4 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL	102
Section 13.5 Successors and Assigns	103
Section 13.6 Amendments	106
Section 13.7 Nonliability of Agent, Issuing Bank and Lenders	108
Section 13.8 Confidentiality	109

iii

Section 13.9 Termination; Survival	109
Section 13.10 Severability of Provisions	110
Section 13.11 Patriot Act	110
Section 13.12 Counterparts	110
Section 13.13 Obligations with Respect to Loan Parties	110
Section 13.14 Limitation of Liability	110
Section 13.15 Entire Agreement	110
Section 13.16 Construction	111
Section 13.17 Nature of Borrower Obligations	111

SCHEDULES

Schedule 1.1(A)	—	List of Material Subsidiaries
Schedule 2.1	—	Loan Commitments and Applicable Percentages
Schedule 7.1(b)	—	Ownership Structure
Schedule 7.1(d)	—	Governmental Approvals
Schedule 7.1(f)	—	Title to Properties; Liens
Schedule 7.1(g)	—	Indebtedness as of Effective Date
Schedule 7.1(h)	—	Material Contracts
Schedule 7.1(i)	—	Litigation
Schedule 7.1(y)	—	Existing Swap Agreements
Schedule 10.4	—	Existing Investments
Schedule 10.9	—	Restrictive Agreements

EXHIBITS

Exhibit A	—	Form of Assignment and Assumption
Exhibit B	—	Form of Notice of Borrowing
Exhibit C	—	Form of Notice of Continuation
Exhibit D	—	Form of Notice of Conversion
Exhibit E	—	Intentionally Omitted
Exhibit F	—	Form of Note
Exhibit G	—	Form of Intercompany Note
Exhibit H	—	Form of Letter of Credit Request
Exhibit I	—	Form of Compliance Certificate
Exhibit J	—	Form of Guaranty
Exhibit K	—	Form of Security Deed
Exhibit L	—	Form of Assignment of Leases and Rents
Exhibit M	—	Form of Environmental Indemnity Agreement
Exhibit N	—	Intentionally Omitted
Exhibit O	—	Form of Property Management Contract Assignment
Exhibit P	—	Form of Pledge Agreement
Exhibit Q	—	Form of Security Agreement
Exhibit R	—	Form of Borrowing Base Certificate
Exhibit S	—	Form of Incremental Commitment Agreement
Exhibit T	—	Form of Closing Certifications

iv

THIS CREDIT AGREEMENT (as modified, supplemented, amended, restated (including any amendment and restatement hereof), extended or renewed from time to time, this “Agreement”) dated as of July 28, 2011 by and among MORGANS GROUP LLC, a limited liability company formed under the laws of the State of Delaware (the “MG Borrower”), BEACH HOTEL ASSOCIATES LLC, a limited liability company formed under the laws of the State of Delaware (the “Florida Borrower”), MORGANS HOTEL GROUP CO., a corporation formed under the laws of the State of Delaware (“Holdings”), DEUTSCHE BANK SECURITIES INC., as Sole Lead Arranger (the “Arranger”), DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent, and each of the financial institutions initially a signatory hereto together with their assignees pursuant to Section 13.5.(b).

WHEREAS, the Agent and the Lenders desire to make available to the Borrowers a revolving credit facility in the initial amount of $100,000,000, which will include a $15,000,000 letter of credit subfacility, on the terms and conditions contained herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto agree as follows:

ARTICLE I

Definitions

Section 1.1 Definitions. In addition to terms defined elsewhere herein, the following terms shall have the following meanings for the purposes of this Agreement:

“Act” has the meaning given that term in Section 9.4.(f).

“Additional Costs” has the meaning given that term in Section 5.1.

“Adjusted LIBOR” means, with respect to each Interest Period for any LIBOR Loan, the rate obtained by dividing (a) LIBOR for such Interest Period by (b) a percentage equal to 1 minus the stated maximum rate (stated as a decimal) of all reserves, if any, required to be maintained with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”) as specified in Regulation D of the Board of Governors of the Federal Reserve System (or against any other category of liabilities which includes deposits by reference to which the interest rate on LIBOR Loans is determined or any applicable category of extensions of credit or other assets which includes loans by an office of any Lender outside of the United States of America to residents of the United States of America). Any change in such maximum rate shall result in a change in Adjusted LIBOR on the date on which such change in such maximum rate becomes effective.

“Adjusted Net Operating Income” means, for the most recently completed four fiscal quarters, Net Operating Income for the Florida Property, less (a) the Deemed FF&E Reserve for such period and (b) the Deemed Management Fee for such period.

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified; provided, however, that for purposes of Section 10.8., the term “Affiliate” shall also include any Person that directly, or indirectly through one or more intermediaries, owns 5% or more of any class of Equity Interests of the Person specified or that is an executive officer or director of the Person specified.

“Agent” means DBTCA, as contractual representative for the Lenders under the terms of this Agreement, and any of its successors.

“Agreement Date” means July 28, 2011.

“Applicable Law” means all applicable provisions of constitutions, statutes, laws, rules, regulations and orders of all Governmental Authorities, the common law, and all orders and decrees of all courts, tribunals and arbitrators.

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“Applicable Margin” means 4.00% per annum for LIBOR Loans and 3.00% per annum for Base Rate Loans.

“Appraisal” means, in respect of the Florida Property, an appraisal prepared by an M.A.I. designated member of the Appraisal Institute acceptable to the Agent and commissioned by and addressed to the Agent (acceptable to the Agent as to form, substance and appraisal date), having at least the minimum qualifications required under Applicable Law governing the Agent and the Lenders, including FIRREA, and determining the “as is” market value of the Florida Property as between a willing buyer and a willing seller.

“Appraised Value” means the “as is” market value of the Florida Property as reflected in the then most recent Appraisal prepared and then in effect pursuant to this Agreement of the Florida Property; provided, however, that in the event of a Major Casualty and following the delivery of an Appraisal made pursuant to Section 3.12(f)(i)(a)(i) of the Security Deed, the Appraised Value as reflected in such Appraisal shall be increased on a dollar-for-dollar basis by the amount of expenditures made for restoration of the Florida Property following the date of such Appraisal as a result of the Major Casualty in question (as set forth in a certificate delivered to Agent by MG Borrower setting forth in reasonable detail the nature and amount of such expenditures) until a new Appraisal has been delivered pursuant to Section 4.2. (with each such increase in the Appraised Value to be effective upon the delivery of the next Borrowing Base Certificate by MG Borrower).

“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an affiliate of a Lender or (c) an entity or an affiliate of an entity that administers or manages a Lender.

“Arranger” means Deutsche Bank Securities Inc., together with its successors and permitted assigns.

“Assignee” has the meaning given that term in Section 13.5.(b).

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“Assignment and Assumption” means an Assignment and Assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 13.5.), and accepted by the Agent, substantially in the form of Exhibit A or otherwise in form and substance satisfactory to the Agent.

“Assignment of Leases and Rents” means an Assignment of Leases and Rents executed by the Florida Borrower in favor of the Agent for the benefit of the Lenders, substantially in the form of Exhibit L or otherwise in form and substance satisfactory to the Agent.

“Base Rate” means the per annum rate of interest equal to the greatest of (a) the Prime Rate, (b) the Federal Funds Rate plus one-half of one percent (0.5%) and (c) one-month LIBOR, which shall be determined on a daily basis, plus one percent (1.00%). Any change in the Base Rate resulting from a change in the Prime Rate, the Federal Funds Rate or the one-month LIBOR shall become effective as of 12:01 a.m. on the Business Day on which each such change occurs. The Base Rate is a reference rate used by the Lender acting as the Agent in determining interest rates on certain loans and is not intended to be the lowest rate of interest charged by the Lender acting as the Agent or any other Lender on any extension of credit to any debtor. One-month LIBOR, for purposes of determining the Base Rate, shall never be less than one percent (1.00%) per annum.

“Base Rate Loan” means a Loan bearing interest at a rate based on the Base Rate.

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

“Borrowers” means the MG Borrower and the Florida Borrower, collectively, and “a Borrower”, “such Borrower” or “any Borrower” means either of the foregoing.

“Borrowing Base” means the Borrowing Base Value of the Florida Property.

“Borrowing Base Certificate” means a report certified by the chief financial officer of the MG Borrower, setting forth the calculations required to establish the Borrowing Base as of a specified date, substantially in the form of Exhibit R or otherwise in form and substance satisfactory to the Agent.

“Borrowing Base Value” means, an amount equal to the lesser of (i) 55.0% of the Appraised Value of the Florida Property and (ii) the quotient obtained by dividing (x) the aggregate Adjusted Net Operating Income for the Florida Property by (y) eleven percent (11%).

“Business Day” means (a) any day other than a Saturday, Sunday or other day on which banks in New York, New York are authorized or required to close and (b) with reference to a LIBOR Loan, any such day that is also a day on which dealings in Dollar deposits are carried out in the London interbank market.

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

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“Cash Collateralize” means, to deposit in the Collateral Account or to pledge and deposit with or deliver to the Issuing Bank, for the benefit of itself or one or more Lenders, as collateral for Letter of Credit Liabilities or obligations of Lenders to fund participations in respect of Letter of Credit Liabilities, cash or deposit account balances or, if the Issuing Bank shall agree in its sole discretion, other credit support, in each case pursuant to documentation in form and substance satisfactory to the Issuing Bank. “Cash Collateral” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.

“Change in Control” means (a)(i) the cessation of Holdings being the sole managing member of the MG Borrower or (ii) the gaining by any member of the MG Borrower (other than Holdings) of the right to exercise control or management power over the business and affairs of the MG Borrower, except as otherwise expressly permitted in the LLC Agreement and as required by Applicable Law, (b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the SEC thereunder), of Equity Interests representing more than 40% of the aggregate total voting power represented by the issued and outstanding Equity Interests in Holdings (excluding any Equity Interests held by Permitted Investors), (c) the occupation of a majority of the seats (other than vacant seats) on the board of directors of Holdings by individuals who were neither (i) nominated by the board of directors of Holdings or the Permitted Investors nor (ii) appointed by directors so nominated or (d) the MG Borrower ceases to own and control all of the legal, beneficial, economic and voting rights associated with all of the outstanding Equity Interests of the Florida Borrower.

“Clift Hotel” means the hotel located at 495 Geary Street, San Francisco, California 94102.

“Collateral” means any real or personal property directly or indirectly securing any of the Obligations or any other obligation of a Person under or in respect of any Loan Document to which it is a party, and includes, without limitation, all “Collateral” under and as defined in the Security Deed, any “Management Agreement” as defined in the Property Management Contract Assignment, all “Leases” and all “Rents” each as defined in the Assignment of Leases and Rents, all “Collateral” as defined in the Pledge Agreement, all “Collateral” as defined in the Security Agreement, and all other property subject to a Lien created by a Security Document.

“Collateral Account” means a special non-interest bearing deposit account or securities account maintained by, or on behalf of, the Agent and under its sole dominion and control.

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“Commitment” means, as to each Lender, such Lender’s obligation (a) to make Loans pursuant to Section 2.1. and (b) to issue (in the case of the Lender then acting as Issuing Bank) or participate in (in the case of the other Lenders) Letters of Credit pursuant to Section 2.2.(a) and 2.2.(i), respectively (but in the case of the Lender acting as the Issuing Bank excluding the aggregate amount of participations in the Letters of Credit held by the other Lenders), in each case, in an amount up to, but not exceeding, the amount set forth opposite such Lender’s name on Schedule 2.1 under the caption “Commitment” or opposite such caption in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.

“Commitment Percentage” means, as to each Lender, the ratio, expressed as a percentage, of (a) the amount of such Lender’s Commitment to (b) the aggregate amount of the Commitments of all Lenders; provided, however, that if at the time of determination the Commitments have terminated or been reduced to zero, the “Commitment Percentage” of each Lender shall be the Commitment Percentage of such Lender in effect immediately prior to such termination or reduction.

“Compliance Certificate” has the meaning given that term in Section 9.3.(a).

“Communications” has the meaning given that term in Section 9.5.(d).

“Consolidated EBITDA” means, for the most recently completed four fiscal quarters, for Holdings and its consolidated subsidiaries, Consolidated Net Income for such period (excluding income related to the Clift Hotel), adjusted by (A) adding thereto to the extent actually deducted in determining said Consolidated Net Income, (i) Consolidated Interest Expense, minority interest and provision for taxes for such period, (ii) the amount of all consolidated amortization of intangibles and depreciation for such period, (iii) any non-recurring non-cash charges in such period to the extent that such non-cash charges do not give rise to a liability that would be required to be reflected on the consolidated balance sheet of Holdings (and so long as no cash payments or cash expenses will be associated therewith (whether in the current period or for any future period)), (iv) other non-operating expense or loss, including restructuring, development and disposal costs and impairment losses (or, if applicable, minus non-operating income or gain) in each case as defined in Holdings’ consolidated statements of operations and comprehensive loss/income for such period, (v) non-cash expenses resulting from the grant of stock options or other equity-related incentives to any director, officer or employee of Holdings, the Borrowers or any Subsidiary pursuant to a written plan or agreement approved by the board of directors of Holdings, (vi) any payments to directors and officers of Holdings in lieu of stock pursuant to the Outperformance Award Program (2011) and any payments made to directors and officers of Holdings under the Executive Promoted Interest Bonus Pool (2011) from certain promoted interests that Holdings, the MG Borrower or any Subsidiary has received from owners of hotels managed by Holdings, the MG Borrower or any Subsidiary, and (vii) all amounts attributable to equity in income/loss of unconsolidated affiliates, and (B) subtracting therefrom to the extent actually included in determining said consolidated net income, the amount of non-recurring non-cash gains during such period; provided, that Consolidated EBITDA shall be determined without giving effect to any extraordinary gains or losses (including any taxes attributable to any such extraordinary gains or losses) or gains or losses (including any taxes attributable to such gains or losses) from sales of assets other than from sales of inventory (excluding real property) in the ordinary course of business.

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“Consolidated Fixed Charges” means, for the most recently completed four fiscal quarters, for Holdings and its Subsidiaries, the sum (without duplication) of (i) Consolidated Interest Expense for such period, plus (ii) the scheduled principal amount of all amortization payments (but not final balloon payments at maturity) for such period on all indebtedness of Holdings and its consolidated subsidiaries (other than any payments in respect of Indebtedness associated with the Clift Hotel); plus (iii) preferred stock dividends paid by the Borrowers and Guarantors during such period to the extent relating to amounts accrued during such period.

“Consolidated Interest Expense” means, for the most recently completed four fiscal quarters, for Holdings and its Subsidiaries, the aggregate cash interest expense for such period, including capitalized interest and the portion of any payments made in respect of capitalized lease liabilities allocable to interest expense, but excluding (i) deferred financing costs, (ii) other non-cash interest expense, (iii) any capitalized interest relating to construction financing for a property to the extent an interest reserve or a loan “holdback” is maintained in respect of such capitalized interest pursuant to the terms of such financing as reasonably approved by the Agent, and (vi) interest expense related to the Clift Hotel.

“Consolidated Net Income” means, for any period, the net income or loss of Holdings, the MG Borrower and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income of any Subsidiary to the extent that the declaration or payment of dividends or other distributions by such Subsidiary of that income is not at the time permitted by Applicable Law or any agreement or instrument applicable to such Subsidiary, except to the extent of the amount of cash dividends or other cash distributions actually paid to the MG Borrower or any Subsidiary during such period to the extent such dividends or distribution are attributable to the operating income of such Subsidiary, (b) the income/loss of any Unconsolidated Affiliate, except to the extent of the amount of cash dividends or other cash distributions actually paid to the MG Borrower or any Subsidiary during such period to the extent such dividends or distribution are attributable to the operating income of such Unconsolidated Affiliate, and (c) the income/loss of the Excluded Subsidiary.

“Continue”, “Continuation” and “Continued” each refers to the continuation of a LIBOR Loan from one Interest Period to another Interest Period pursuant to Section 2.7.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies, or the dismissal or appointment of the management, of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

“Convert”, “Conversion” and “Converted” each refers to the conversion of a Loan of one Type into a Loan of another Type pursuant to Section 2.8.

“Convertible Notes” means Holdings’ Convertible Senior Subordinated Unsecured Notes due October 2014 issued by Holdings during the month of October, 2007.

“Credit Event” means any of the following: (a) the making (or deemed making) of any Loan, and (b) the issuance of a Letter of Credit.

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“Customary Nonrecourse Exceptions” means customary exceptions for fraud, misapplication of funds, environmental indemnities, voluntary bankruptcy, collusive involuntary bankruptcy and other customary exceptions to non-recourse liability at the time the related Indebtedness is incurred.

“DBTCA” means Deutsche Bank Trust Company Americas, together with its successors and assigns.

“Debtor Relief Laws” means the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.

“Deemed FF&E Reserve” means a deemed reserve for FF&E equal to four percent (4%) of Gross Hotel Revenues from the Florida Property.

“Deemed Management Fee” means a deemed base management fee in an amount equal to the greater of the actual management fees payable and three and a half percent (3.5%) of Gross Hotel Revenues from the Florida Property.

“Default” means any of the events specified in Section 11.1., whether or not there has been satisfied any requirement for the giving of notice, the lapse of time, or both.

“Defaulting Lender” means, subject to Section 3.12(g), any Lender that (a) has failed to (i) fund all or any portion of its Loans within two Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Agent and the MG Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Agent, the Issuing Bank or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit) within two Business Days of the date when due, (b) has notified the MG Borrower, the Issuing Bank or the Agent in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Agent, the Issuing Bank or the MG Borrower, to confirm in writing to the Agent and the MG Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Agent and the MG Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be a

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Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Agent that a Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 3.12.(g)) upon delivery of written notice of such determination to the MG Borrower and each Lender.

“Defaulting Subsidiary” has the meaning given that term in Section 11.1.

“Delano License” means that certain License Agreement, effective as of February 17, 2006, between the MG Borrower and the Management Company.

“Delano Management Agreement” means that certain Amended and Restated Management Agreement, dated June 23, 2011, between the Florida Borrower and the Management Company.

“Disqualified Preferred Stock” means Equity Interests that (a) mature or are mandatorily redeemable or subject to mandatory repurchase or redemption or repurchase at the option of the holders thereof, in each case in whole or in part and whether upon the occurrence of any event, pursuant to a sinking fund obligation on a fixed date or otherwise, prior to the date that is 180 days after the Termination Date (other than (i) upon payment in full of the Obligations and termination of the Commitments or (ii) upon a “change in control”; provided that any payment required pursuant to this clause (ii) is contractually subordinated in right of payment to the Obligations on terms reasonably satisfactory to the Agent and such requirement is applicable only in circumstances that are market on the date of issuance of such Equity Interests), (b) except in the case of the Trust Preferred Securities, require the maintenance or achievement of any financial performance standards other than as a condition to the taking of specific actions, or provide remedies to holders thereof (other than voting and management rights and increases in pay-in-kind dividends) or (c) are convertible or exchangeable, automatically or at the option of any holder thereof, into any Indebtedness (other than Indebtedness permitted under Section 10.1.), Equity Interests or other assets other than Preferred Stock or Trust Preferred Securities otherwise permitted hereunder.

“Dollars” or “$” means the lawful currency of the United States of America.

“Effective Date” means the later of: (a) the Agreement Date; and (b) the date on which all of the conditions precedent set forth in Section 6.1. shall have been fulfilled or waived in writing by the Requisite Lenders.

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“Eligible Assignee” means any Person other than a natural Person that is: (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the “OECD”), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000 (provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD), (c) a Person that is engaged in the business of commercial banking and that is: (1) an Affiliate of a Lender or the Agent, (2) an Affiliate of a Person of which a Lender or the Agent is an Affiliate, or (3) a Person of which a Lender or the Agent is a Subsidiary, (d) an insurance company, mutual fund or other financial institution organized under the laws of the United States, any state thereof, any other country which is a member of the OECD or a political subdivision of any such country which invests in bank loans and has a net worth of at least $500,000,000; or (e) a fund (other than a mutual fund) which invests in bank loans and whose assets exceed $100,000,000; provided, however, that (i) no Person shall be an “Eligible Assignee” unless at the time of the proposed assignment to such Person: (x) such Person is able to make its Commitment Percentage of the Commitments in U.S. dollars, and (y) such Person is exempt from withholding of tax on interest and is able to deliver the documents related thereto pursuant to Section 3.13.(c) and (ii) no Borrower or any Affiliate of any Borrower shall be an “Eligible Assignee”; and provided, further, that no Defaulting Lender shall be an “Eligible Assignee” so long as such Lender remains a Defaulting Lender.

“Environmental Indemnity Agreement” means an Environmental Indemnity Agreement executed by the Borrowers in favor of the Agent and the Lenders, substantially in the form of Exhibit M or otherwise in form and substance satisfactory to the Agent.

“Environmental Laws” means any Applicable Law relating to environmental protection or the manufacture, storage, remediation, disposal or clean-up of Hazardous Materials including, without limitation, the following: Clean Air Act, 42 U.S.C. § 7401 et seq.; Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.; National Environmental Policy Act, 42 U.S.C. § 4321 et seq.; regulations of the Environmental Protection Agency and any applicable rule of common law and any judicial interpretation thereof relating primarily to the environment or Hazardous Materials.

“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person.

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

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

“Event of Default” means any of the events specified in Section 11.1., provided that any requirement for notice or lapse of time or any other condition has been satisfied.

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“Excluded Subsidiary” means Clift Holdings LLC (“Clift”), a Delaware limited liability company.

“Excluded Taxes” has the meaning set forth in Section 3.13(a).

“Executive Promoted Interest Bonus Pool (2011)” means that certain executive long-term incentive plan providing participants with the right, among other things, to receive an interest in a bonus pool constituting certain promoted interests in hotel investments made by Holdings and its Subsidiaries, as further described in that certain report on Form 8-K filed by Holdings on March 24, 2011, as in effect on the Effective Date.

“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code (as enacted on the Effective Date and any amended or successor provisions that are substantively comparable and not substantially more onerous to comply with) and the regulations promulgated thereunder or published administrative guidance implementing such provisions.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upward to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Agent by federal funds dealers selected by the Agent on such day on such transaction as determined by the Agent.

“Fees” means the fees and commissions provided for or referred to in Section 3.7. and any other fees payable by the Borrowers hereunder or under any other Loan Document.

“FF&E” means furniture, fixtures and equipment.

“Financial Officer” means the chief financial officer, principal accounting officer, treasurer or controller of Holdings and for purposes of Section 9.4.(e), shall include the chief executive officer of Holdings.

“FIRREA” means the Financial Institution Recovery, Reform and Enforcement Act of 1989, as amended.

“Fixed Charge Coverage Ratio” means the ratio (determined on a Pro Forma Basis in accordance with Section 1.3.) of (A) Consolidated EBITDA for the period of four consecutive fiscal quarters of Holdings most recently ending for which financial results have been delivered pursuant to Sections 9.1. or 9.2., as applicable, to (B) Consolidated Fixed Charges for such period.

“Florida Borrower” has the meaning set forth in the introductory paragraph hereof and shall include the Florida Borrower’s successors and permitted assigns.

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“Florida Property” means the Delano Hotel located in Miami Beach, Florida on the land described in Exhibit A to the Security Deed.

“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrowers are resident for tax purposes. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“Foreign Subsidiary” means a Subsidiary that is not incorporated or organized under the laws of any state of the United States or the District of Columbia.

“Free Cash Flow” means, for any fiscal quarter of Holdings and its Subsidiaries, Consolidated EBITDA minus Consolidated Fixed Charges minus provisions for income taxes associated with the operating income for such fiscal quarter of Holdings and its Subsidiaries; provided that for purposes of this definition Consolidated EBITDA and Consolidated Fixed Charges shall be calculated for the most recently completed fiscal quarter for which financial results have been delivered pursuant to Sections 9.1. or 9.2. and shall not be calculated for the most recently completed four fiscal quarters of Holdings and its Subsidiaries.

“Fronting Exposure” means, at any time there is a Defaulting Lender, with respect to Issuing Bank, such Defaulting Lender’s Commitment Percentage of the outstanding Letter of Credit Liabilities with respect to Letters of Credit issued by Issuing Bank other than Letter of Credit Liabilities as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof.

“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of activities.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession.

“Governmental Approvals” means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all Governmental Authorities.

“Governmental Authority” means any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body, agency, bureau, commission, board, department or other entity (including, without limitation, the Federal Deposit Insurance Corporation, the Comptroller of the Currency or the Federal Reserve Board, any central bank or any comparable authority) or any arbitrator with authority to bind a party at law.

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“Gross Hotel Revenues” means all revenues and receipts of every kind derived from operating the Florida Property, and parts thereof, including, but not limited to: income (from both cash and credit transactions), before commissions and discounts for prompt or cash payments, from rentals or sales of rooms, cabanas, stores, offices, meeting space, exhibit space, or sales space of every kind; license, lease, and concession fees and rentals (not including gross receipts of licensees, lessees, and concessionaires); net income from vending machines; spa and health club fees and revenues; food and beverage sales; parking; sales of merchandise (other than proceeds from the sale of FF&E no longer necessary to the operation of the Florida Property); service charges, to the extent not distributed to the employees at the Florida Property as, or in lieu of, gratuities; and proceeds, if any, from business interruption or other loss of income insurance; provided, however, that Gross Hotel Revenues shall not include the following: gratuities to employees of the Florida Property; federal, state, or municipal excise, sales, use, or similar taxes collected directly from tenants, patrons, or guests or included as part of the sales price of any goods or services; insurance proceeds (other than proceeds from business interruption or other loss of income insurance) or condemnation proceeds.

“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation, provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

“Guarantor” means any Person that is a party to the Guaranty as a “Guarantor” and in any event shall include Holdings and the Management Company.

“Guaranty” means the Guaranty to which the Guarantors are parties substantially in the form of Exhibit J or otherwise in form and substance satisfactory to the Agent.

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

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“Holdings” has the meaning set forth in the introductory paragraph hereof and shall include Holding’s successors and permitted assigns.

“Hudson Hotel” shall mean the asset owned by MG Borrower’s Subsidiaries located at 356 West 58th Street, New York, NY 10019.

“Incremental Commitment” shall mean, for any Lender, any Commitment provided by such Lender after the Effective Date in an Incremental Commitment Agreement delivered pursuant to Section 2.12.; it being understood, however, that on each date upon which an Incremental Commitment of any Lender becomes effective, such Incremental Commitment of such Lender shall be added to (and thereafter become a part of) the Commitment of such Lender for all purposes of this Agreement as contemplated by Section 2.12.

“Incremental Commitment Agreement” shall mean each Incremental Commitment Agreement in substantially the form of Exhibit S (appropriately completed, and with such modifications as may be reasonably satisfactory to the Agent) executed and delivered in accordance with Section 2.12.

“Incremental Commitment Date” shall mean each date upon which an Incremental Commitment under an Incremental Commitment Agreement becomes effective as provided in Section 2.12.(b).

“Incremental Commitment Requirements” shall mean, with respect to any provision of an Incremental Commitment on a given Incremental Commitment Date, the satisfaction of each of the following conditions on the Incremental Commitment Date of the respective Incremental Commitment Agreement: (i) no Default or Event of Default exists or would exist after giving effect thereto; (ii) the representations and warranties made or deemed made by each Loan Party in the Loan Documents to which any of them is a party, shall be true and correct in all material respects on the Incremental Commitment Date of the respective Incremental Commitment Agreement with the same force and effect as if made on and as of such date except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date) and except for changes in factual circumstances not prohibited under the Loan Documents (other than a change in factual circumstances since the Effective Date, that constitutes a material adverse change in the business, assets, liabilities, financial condition or results of operations of Holdings and its Subsidiaries taken as a whole); (iii) the delivery by the MG Borrower to the Agent of an acknowledgment, in form and substance reasonably satisfactory to the Agent and executed by each Loan Party, acknowledging that such Incremental Commitment and all Loans subsequently incurred, and Letters of Credit issued, as applicable, pursuant to such Incremental Commitment shall constitute Obligations under the Loan Documents and secured on a pari passu basis with the Obligations under the Security Documents; (iv) the delivery by each Loan Party to the Agent of such other officers’ certificates, board of director (or equivalent governing body) resolutions and evidence of good standing (to the extent available under Applicable Law) as the Agent shall reasonably request; (v) the MG Borrower shall have delivered a certificate executed by an authorized officer of the MG Borrower, certifying to such officer’s knowledge, compliance with the requirements of preceding clauses (i) and (ii); and (vi) the completion by each Loan Party of (x) such other conditions precedent that may be included in the respective Incremental Commitment Agreement and (y) such other actions as the Agent may reasonably request in connection with such Incremental Commitment in order to create, continue or maintain the security interest of the Agent in the Collateral and the perfection thereof (including, without limitation, any amendments to the Security Documents, title insurance policies and such other documents reasonably requested by the Agent to be delivered in connection therewith).

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“Incremental Lender” shall have the meaning provided in Section 2.12.(b).

“Incremental Security Documents” shall have the meaning provided in Section 2.12.(b).

“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding trade accounts payable and other accrued obligations, in each case incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. Notwithstanding the foregoing, in connection with any Permitted Acquisition, the term “Indebtedness” shall not include contingent post-closing purchase price adjustments or earn-outs to which the seller in such Permitted Acquisition may become entitled.

“Indemnified Person” has the meaning given that term in Section 13.2.(a).

“Information” has the meaning given that term in Section 9.5.(a).

“Intellectual Property” has the meaning given that term in Section 7.1.(t).

“Interest Period” means with respect to any LIBOR Loan, each period commencing on the date such LIBOR Loan is made, or in the case of the Continuation of a LIBOR Loan the last day of the preceding Interest Period for such Loan, and ending 1, 2 or 3 months, as the MG Borrower may select in a Notice of Borrowing, Notice of Continuation or Notice of Conversion, as the case may be, except that each Interest Period that commences on the last Business Day of a calendar month, or on a date for which there is no corresponding date in the appropriate subsequent calendar month, shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) if any Interest Period would otherwise end after the Termination Date, such Interest Period shall end on the Termination Date; and (ii) each Interest Period that would otherwise end on a day which is not a Business Day shall end on the immediately following Business Day (or, if such immediately following Business Day falls in the next calendar month, on the immediately preceding Business Day).

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

“Issuing Bank” shall mean DBTCA (except as otherwise provided in Section 12.9.) and any other Lender reasonably acceptable to the Agent which agrees to issue Letters of Credit hereunder. Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by one or more Affiliates of such Issuing Bank (and such Affiliate shall be deemed to be an “Issuing Bank” for all purposes of the Loan Documents).

“L/C Commitment Amount” equals $15,000,000.

“Lender” means each financial institution from time to time party hereto as a “Lender,” together with its respective successors and permitted assigns.

“Lending Office” means, for each Lender and for each Type of Loan, the office of such Lender specified as such on its signature page hereto or in the applicable Assignment and Assumption, or such other office of such Lender of which such Lender may notify the Agent in writing from time to time.

“Letter of Credit” has the meaning given that term in Section 2.2.(a).

“Letter of Credit Documents” means, with respect to any Letter of Credit, collectively, any application therefor, any certificate or other document presented in connection with a drawing under such Letter of Credit and any other agreement, instrument or other document governing or providing for (a) the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations.

“Letter of Credit Liabilities” means, without duplication, at any time and in respect of any Letter of Credit, the sum of (a) the Stated Amount of such Letter of Credit plus (b) the aggregate unpaid principal amount of all Reimbursement Obligations of the MG Borrower at such time due and payable in respect of all drawings made under such Letter of Credit. For purposes of this Agreement, a Lender (other than the Lender acting as the Issuing Bank) shall be deemed to hold a Letter of Credit Liability in an amount equal to its participation interest in the related Letter of Credit under Section 2.2.(i), and the Lender acting as the Issuing Bank shall be deemed to hold a Letter of Credit Liability in an amount equal to its retained interest in the related Letter of Credit after giving effect to the acquisition by the Lenders other than the Lender acting as the Issuing Bank of their participation interests under such Section.

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“LIBOR” means, for any LIBOR Loan and any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term “LIBOR” shall mean, for any LIBOR Loan and any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on the Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on the Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. If for any reason none of the foregoing rates is available, LIBOR shall be, for any LIBOR Loan and any Interest Period therefor, the rate per annum reasonably determined by the Agent as the rate of interest at which Dollar deposits in the approximate amount of the LIBOR Loan comprising part of such borrowing would be offered by the Agent to major banks in the London interbank Eurodollar market at their request at or about 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. Notwithstanding the foregoing, LIBOR, for any LIBOR Loan and any Interest Period therefor, shall never be less than one percent (1.00%) per annum.

“LIBOR Loan” means a Loan bearing interest at a rate based on LIBOR.

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

“LLC Agreement” means the amended and restated limited liability agreement of the MG Borrower dated as of February 17, 2006 as amended from time to time to the extent not prohibited by Section 10.10.

“Loan” means a loan made by a Lender to the Borrowers pursuant to Section 2.1.(a)(i).

“Loan Document” means this Agreement, each Note, each Letter of Credit Document, the Guaranty, each Security Document and each other document or instrument now or hereafter executed and delivered by a Loan Party in connection with, pursuant to or relating to this Agreement.

“Loan Modification Agreement” has the meaning given that term in Section 13.6.(d).

“Loan Party” means each of Holdings, the MG Borrower, the Florida Borrower and the Management Company and any other Guarantor.

“Lockbox Account” has the meaning given that term in Section 3.4(a).

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“Lockbox Budget” means a detailed operating budget for the Florida Property which (a) is in the form most recently delivered to each Lender pursuant to Section 9.4.(b)(ii) and (b) has been approved by the Agent following the occurrence of such Trigger Event.

“Major Casualty” has the meaning given that term in the Security Deed.

“Management Company” means Morgans Hotel Group Management LLC, a limited liability company formed under the laws of the State of Delaware, and its successors and permitted assigns.

“Material Adverse Effect” means a materially adverse effect on (a) the business, assets, liabilities, financial condition or results of operations of the MG Borrower and its Subsidiaries taken as a whole, (b) the ability of the MG Borrower and the other Loan Parties, taken as a whole, to perform their obligations under the Loan Documents, (c) the validity or enforceability of any of the Loan Documents, (d) the rights and remedies of the Lenders, the Issuing Bank and the Agent under any of the Loan Documents or (e) the timely payment of the principal of or interest on the Loans or other amounts payable in connection therewith or the timely payment of all Reimbursement Obligations.

“Material Contract” means any contract or other arrangement (other than Loan Documents), whether written or oral, to which the MG Borrower, any Subsidiary or any other Loan Party is a party or to which its property is bound as to which the breach, nonperformance, cancellation or failure to renew by any party thereto could reasonably be expected to have a Material Adverse Effect.

“Material Indebtedness” means Indebtedness (other than the Obligations), or obligations in respect of one or more Swap Agreements, of any one or more of the Loan Parties in an aggregate principal amount exceeding $10,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of a Loan Party in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Loan Party would be required to pay if such Swap Agreement were terminated at such time.

“Material Subsidiary” means any Subsidiary which is a “significant subsidiary” of the MG Borrower within the meaning of Rule 1-02 of Regulation S-X promulgated by the SEC as in effect on August 5, 1998. Notwithstanding the foregoing, the Material Subsidiaries as of any date of determination shall be determined as of the end of the most recent fiscal quarter for which financial statements have been delivered pursuant to Sections 9.1. or 9.2. Schedule 1.1(A) sets forth the Material Subsidiaries as of the Agreement Date.

“MG Borrower” has the meaning set forth in the introductory paragraph hereof and shall include the MG Borrower’s successors and permitted assigns.

“Minimum Collateral Amount” means, at any time, (i) with respect to Cash Collateral consisting of cash or deposit account balances, an amount equal to 105% of the Fronting Exposure of the Issuing Bank with respect to Letters of Credit issued and outstanding at such time and (ii) otherwise, an amount determined by the Issuing Bank in its sole discretion.

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“Moody’s” means Moody’s Investors Service, Inc., and its successors.

“Multiemployer Plan” means at any time a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period.

“Net Operating Income” means, for any period, the amount obtained by subtracting Operating Expenses from Operating Income.

“Net Sale Proceeds” means for any sale or other disposition of assets, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received from such sale or other disposition of assets, net of (i) reasonable transaction costs (including, without limitation, any underwriting, brokerage or other customary selling commissions, reasonable legal, advisory and other fees and expenses (including title and recording expenses), associated therewith and sales, VAT and transfer taxes arising therefrom), (ii) payments of unassumed liabilities relating to the assets sold or otherwise disposed of at the time of, or within 30 days after, the date of such sale or other disposition, (iii) the amount of such gross cash proceeds required to be used to permanently repay any Indebtedness which is secured by the respective assets which were sold or otherwise disposed of, and (iv) the estimated increase or decrease, as applicable, in income taxes which will be payable by Holdings’ consolidated group or any Subsidiary of Holdings with respect to the fiscal year of Holdings in which the sale or other disposition occurs as a result of such sale or other disposition; provided, however, that such gross proceeds shall not include any portion of such gross cash proceeds which Holdings determines in good faith should be reserved for post-closing adjustments (to the extent Holdings delivers to the Lenders a certificate signed by a duly authorized officer as to such determination), it being understood and agreed that on the day that all such post-closing adjustments have been determined (which shall not be later than six months following the date of the respective asset sale), the amount (if any) by which the reserved amount in respect of such sale or disposition exceeds the actual post-closing adjustments payable by Holdings or any of its Subsidiaries shall constitute Net Sale Proceeds on such date received by Holdings and/or any of its Subsidiaries from such sale or other disposition.

“Non-Consenting Lender” has the meaning given that term in Section 13.6.(c).

“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.

“Nonrecourse Indebtedness” means, with respect to a Person, Indebtedness for borrowed money in respect of which recourse for payment (except for Customary Nonrecourse Exceptions) is contractually and solely limited to specific assets of such Person encumbered by a Lien securing such Indebtedness.

“Note” has the meaning given that term in Section 2.9.(a).

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“Notice of Borrowing” means a notice in the form of Exhibit B to be delivered to the Agent pursuant to Section 2.1.(b) evidencing the MG Borrower’s request for a borrowing of Loans.

“Notice of Continuation” means a notice in the form of Exhibit C to be delivered to the Agent pursuant to Section 2.7. evidencing the MG Borrower’s request for the Continuation of a LIBOR Loan.

“Notice of Conversion” means a notice in the form of Exhibit D to be delivered to the Agent pursuant to Section 2.8. evidencing the MG Borrower’s request for the Conversion of a Loan from one Type to another Type.

“Obligations” means, individually and collectively: (a) the aggregate principal balance of, and all accrued and unpaid interest on, all Loans (including all interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of, Holdings or any of its Subsidiaries, whether or not allowed in such case or proceeding); (b) all Reimbursement Obligations and all other Letter of Credit Liabilities; and (c) all other indebtedness, amounts, liabilities, obligations, covenants and duties of the MG Borrower and the other Loan Parties owing to the Agent, the Issuing Bank or any Lender of every kind, nature and description, under or in respect of this Agreement or any of the other Loan Documents, including, without limitation, the Fees and indemnification obligations, whether direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any promissory note.

“OFAC” means U.S. Department of the Treasury’s Office of Foreign Assets Control and any successor Governmental Authority.

“Operating Expenses” means, with respect to the Florida Property for any period, the actual costs and expenses of owning, operating, managing, and maintaining the Florida Property during such period, determined on an accrual basis, excluding (i) depreciation or amortization or other noncash items, (ii) the principal of and interest on indebtedness for borrowed money, (iii) income taxes or other taxes in the nature of income taxes, (iv) distributions to the shareholders of the Florida Borrower, (v) capital expenditures, payments (without duplication) for FF&E or into FF&E reserves and (vi) management fees actually paid or payable during such period.

“Operating Income” means, with respect to the Florida Property for any period, all income received from any Person during such period in connection with the ownership or operation of the Florida Property, determined on an accrual basis, and including the following:

(i) Gross Hotel Revenues;

(ii) all amounts payable pursuant to any reciprocal easement and/or operating agreements, covenants, conditions and restrictions, condominium documents and similar agreements affecting the Florida Property, but specifically excluding any management agreement; and

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(iii) condemnation awards to the extent that such awards are compensation for lost rent allocable to such specified period.

“Operational Covenants” means covenants contained in any agreement relating to indebtedness that impose requirements or limitations on (i) the operation of the business of Holdings and its Subsidiaries, including the consummation of acquisitions, investments and dispositions or (ii) the incurrence, payment or modification of obligations to third parties, including indebtedness, contingent obligations, liens and restricted payments; provided, however, Operational Covenants shall not include any interest, premium, fee or indemnification obligations, registration rights, trustee matters or securities law obligations that relate solely to the terms of such indebtedness.

“Outperformance Award Program (2011)” means that certain executive long-term incentive plan providing participants with the right, among other things, to receive a participating percentage in an outperformance pool, as further described in that certain report on Form 8-K filed by Holdings on March 24, 2011, as in effect on the Effective Date.

“Participant” has the meaning given that term in Section 13.5.(d).

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

“Permitted Acquisition” means any acquisition by the MG Borrower or a Wholly Owned Subsidiary of all the outstanding Equity Interests (other than directors’ qualifying shares) in, all or substantially all the assets of, or all or substantially all the assets constituting a division or line of business of, a Person if (a) no Default or Event of Default has occurred and is continuing or would result therefrom, (b) such acquisition and all transactions related thereto are consummated in accordance with Applicable Laws, (c) Holdings is in compliance, on a Pro Forma Basis after giving effect to such acquisition as of the last day of the most-recently ended fiscal quarter of Holdings, with the covenant contained in Section 10.11., (d) the business of such Person or such assets, as the case may be, constitutes a business permitted by Section 10.3.(b), and (e) the MG Borrower has delivered to the Agent a certificate of a Financial Officer to the effect set forth in clauses (a), (b), (c), and (d) above, together with all relevant financial information for the Person or assets to be acquired and setting forth reasonably detailed calculations demonstrating compliance with clause (c) above (which calculations shall, if made as of the last day of any fiscal quarter of Holdings for which the MG Borrower has not delivered to the Agent the financial statements and certificate of a Financial Officer required to be periodically delivered by Sections 9.1. and 9.2. and Section 9.3.(a), respectively, be accompanied by a reasonably detailed calculation of Consolidated EBITDA and Consolidated Fixed Charges for the relevant period).

“Permitted Amendment” has the meaning given that term in Section 13.6.(d).

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“Permitted Investments” means (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody’s; (c) investments in certificates of deposit, banker’s acceptances and time or demand deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $500,000,000; (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and (e) investments in “money market funds” within the meaning of Rule 2a-7 of the Investment Company Act of 1940, as amended, substantially all of whose assets are invested in investments of the type described in clauses (a) through (d) above.

“Permitted Investors” means OTK Associates, David T. Hamamoto and Yucaipa.

“Permitted Liens” means (a) Liens imposed by law for taxes, assessments or other governmental charges that are not yet due or are being contested in compliance with Section 8.5.; (b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlords’ and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 8.5.; (c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) judgment liens in respect of judgments that do not constitute an Event of Default under Section 11.1.(k); (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the Florida Property or interfere with the ordinary conduct of business of the MG Borrower or any Subsidiary; (g) Liens arising from Permitted Investments described in clause (d) of the definition of the term “Permitted Investments”; and (h) any cash collateral or other credit support provided to the Agent or the Issuing Bank in respect of a Defaulting Lender pursuant to Section 11.5. or Section 3.12.

“Person” means an individual, corporation, partnership, limited liability company, association, trust or unincorporated organization, or a government or any agency or political subdivision thereof.

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

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“Platform” has the meaning given that term in Section 9.5.(a).

“Pledge Agreement” means the Pledge Agreement executed by the MG Borrower in favor of the Agent for the benefit of the Lenders, substantially in the form of Exhibit P or otherwise in form and substance satisfactory to the Agent.

“Post-Default Rate” means a rate per annum equal to the Base Rate as in effect from time to time plus the Applicable Margin for Base Rate Loans plus three percent (3.0%).

“Preferred Dividends” means, for any period and without duplication, all Restricted Payments paid during such period on Preferred Equity Interests issued by Holdings, the MG Borrower or a Subsidiary. Preferred Dividends shall not include dividends or distributions (a) to the extent paid solely in Equity Interests payable to holders of such class of Equity Interests; (b) paid or payable to Holdings, the MG Borrower or a Subsidiary; or (c) constituting or resulting in the redemption or repurchase of Preferred Equity Interests, other than scheduled redemptions not constituting balloon, bullet or similar redemptions in full. Payments made with respect to the Trust Preferred Securities (other than repurchases pursuant to Section 10.4.(n)) will be considered Preferred Dividends.

“Preferred Equity Interest” means, with respect to any Person, Equity Interests in such Person which are entitled to preference or priority over any other Equity Interest in such Person in respect of the payment of dividends or distribution of assets upon liquidation or both, and in the case of the MG Borrower, shall include the Trust Preferred Securities. Preferred Equity Interests include Equity Interests in the form of preferred stock, trust preferred securities and other similar securities with regularly scheduled cash or payment-in-kind dividend payments and other “debt-like” characteristics, but do not include customary real estate joint venture and other similar equity ownership arrangements, even if such arrangements involve some disproportionate sharing of cash flows of the applicable entity.

“Preferred Stock” means Preferred Equity Interests of Holdings, the MG Borrower or any Subsidiary (other than the Florida Borrower or any of its Subsidiaries) other than Disqualified Preferred Stock and common stock (and equivalent interests in a limited liability company or partnership).

“Prime Rate” means the rate of interest per annum announced publicly by the Lender then acting as the Agent as its prime rate from time to time. The Prime Rate is not necessarily the best or the lowest rate of interest offered by the Lender acting as the Agent or any other Lender.

“Principal Office” means the address of the Agent specified in Section 13.1., or any subsequent office which the Agent shall have specified by written notice to the MG Borrower and Lenders as the Principal Office referred to herein, to which payments due are to be made and at which Loans will be disbursed and Letters of Credit requested.

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“Pro Forma Basis” means, with respect to the calculation of the financial covenant contained in Section 10.11. as of any date, that such calculation shall give pro forma effect to all acquisitions and other investments, all issuances, incurrences or assumptions of Indebtedness in connection therewith (with any such Indebtedness being deemed to be amortized during the applicable testing period in accordance with its terms) and all sales, transfers or other dispositions of any material assets outside the ordinary course of business (including all permanent repayments of Indebtedness associated with such transfer or disposition) that have occurred during the four consecutive fiscal quarter period of the MG Borrower most-recently ended on or prior to such date as if they occurred on the first day of such four consecutive fiscal quarter period (including cost savings to the extent such cost savings would be permitted to be reflected in pro forma financial information complying with the requirements of GAAP and Article XI of Regulation S-X under the Securities Act, as interpreted by the Staff of the SEC, and as certified by a Financial Officer).

“Property” means any parcel of real property owned or leased (in whole or in part) or operated by the MG Borrower or any Subsidiary.

“Property Debt” has the meaning specified in Section 11.1.

“Property Management Agreement” means, collectively, all agreements entered into by a Loan Party pursuant to which such Loan Party engages a Person to advise it with respect to the management of the Florida Property.

“Property Management Contract Assignment” means an Assignment of Management Agreement and Subordination of Management Fees executed by a Loan Party in favor of the Agent for the benefit of the Lenders substantially in the form of Exhibit O or otherwise in form and substance reasonably satisfactory to the Agent. Such document may, at the Agent’s election, constitute a subordination of the relevant Property Management Agreement, rather than an assignment thereof.

“Receipt” has the meaning given that term in Section 3.4.

“Register” has the meaning given that term in Section 13.5.(c).

“Regulatory Change” means, with respect to any Lender, any change effective after the Agreement Date in Applicable Law (including without limitation, Regulation D of the Board of Governors of the Federal Reserve System) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks, including such Lender, of or under any Applicable Law (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any Governmental Authority or monetary authority charged with the interpretation or administration thereof or compliance by any Lender with any request or directive regarding capital adequacy. For purposes of this Agreement, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, regulations, publications, orders, guidelines and directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case, shall be deemed to have been adopted and gone into effect after the Agreement Date regardless of when adopted, enacted or issued.

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“Reimbursement Obligation” means the absolute, unconditional and irrevocable obligation of the MG Borrower to reimburse the Issuing Bank for any drawing honored by the Issuing Bank under a Letter of Credit.

“Requisite Lenders” means, as of any date, Lenders having more than 50.0% of the aggregate amount of the Commitments (not held by Defaulting Lenders, who are not entitled to vote), or, if the Commitments have been terminated or reduced to zero, Lenders holding more than 50.0% of the principal amount of the aggregate outstanding Loans and Letter of Credit Liabilities (not held by Defaulting Lenders, who are not entitled to vote). Commitments, Loans and Letter of Credit Liabilities held by Defaulting Lenders shall be disregarded when determining the Requisite Lenders. For purposes of this definition, a Lender shall be deemed to hold a Letter of Credit Liability to the extent such Lender has acquired a participation therein under the terms of this Agreement and has not failed to perform its obligations in respect of such participation.

“Restricted Payment” means (i) any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in Holdings, the MG Borrower or any Subsidiary, (ii) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Equity Interests in Holdings, the MG Borrower or any Subsidiary or any option, warrant or other right to acquire any such Equity Interests in Holdings, the MG Borrower or any Subsidiary, or any other payment (including any payment under any Swap Agreement) that has a substantially similar effect to any of the foregoing or (iii) any unscheduled dividend, payment, redemption, repurchase, retirement, cancellation or termination of the Convertible Notes or Trust Preferred Securities.

“Restricted Payment Cap Amount” means at any date of determination, the sum of (a) $25,000,000 plus (b) an amount equal to 50% of Free Cash Flow for each fiscal quarter of the MG Borrower beginning with the fiscal quarter ended June 30, 2011 plus (c) the aggregate net proceeds of new Equity Interests issuances in Holdings after the Effective Date.

“Sanctioned Entity” means (a) an agency of the government of, (b) an organization directly or indirectly controlled by, or (c) a Person resident in, in each case, a country that is subject to a sanctions program identified on the list maintained by the OFAC and published from time to time, as such program may be applicable to such agency, organization or Person.

“Sanctioned Person” means a Person named on the list of Specially Designated Nationals or Blocked Persons maintained by the OFAC as published from time to time.

“SEC” means the Securities and Exchange Commission or any Governmental Authority succeeding to any of its principal functions.

“Securities Act” means the Securities Act of 1933, as amended from time to time, together with all rules and regulations issued thereunder.

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“Security Agreement” means the Security Agreement executed by the Florida Borrower in favor of the Agent for the benefit of the Lenders, substantially in the form of Exhibit Q or otherwise in form and substance satisfactory to the Agent.

“Security Deed” means the mortgage executed by the Florida Borrower in favor of the Agent for the benefit of the Lenders, substantially in the form of Exhibit K or otherwise in form and substance satisfactory to the Agent.

“Security Document” means the Security Deed, the Assignment of Leases and Rents, the Property Management Contract Assignment, the Pledge Agreement, the Security Agreement and any other security agreement, financing statement, or other document, instrument or agreement creating, evidencing or perfecting any of the Agent’s Liens in any of the Collateral or any Lien of the Borrowers in any Collateral that has been collaterally assigned to the Agent for the benefit of the Lenders under any Security Document.

“Solvent” means, when used with respect to any Person, that (a) the fair value and the fair salable value of its assets (excluding any Indebtedness due from any affiliate of such Person) are each in excess of the fair valuation of its total liabilities (including all contingent liabilities computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that could reasonably be expected to become an actual and matured liability); (b) such Person is able to pay its debts or other obligations in the ordinary course as they mature; and (c) such Person has capital not unreasonably small to carry on its business and all business in which it proposes to be engaged.

“S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc., and its successors.

“Stated Amount” means the amount available to be drawn by a beneficiary under a Letter of Credit from time to time, as such amount may be increased or reduced from time to time in accordance with the terms of such Letter of Credit.

“Subject Property” has the meaning specified in Section 11.1.

“Subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP.

“Swap Agreement” means any agreement with respect to any cap, swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions, provided that in no event shall a Swap Agreement include (i) any phantom stock or other employee benefit plan or agreement on account of services provided by current or former directors, officers, employees or consultants of Holdings, the Borrower or the Subsidiaries or (ii) any warrants or options issued by Holdings or its Subsidiaries.

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“Taxes” has the meaning given that term in Section 3.13.

“Termination Date” means July 28, 2014.

“Titled Agents” means the Arranger, any documentation agent, any other Person awarded a similar honorific title in connection with the Agreement, and their respective successors and permitted assigns.

“Total Assets” means, as of any date, the total assets (without deducting accumulated depreciation) of Holdings, the MG Borrower and the Subsidiaries (other than the Excluded Subsidiary) determined on a consolidated basis in accordance with GAAP.

“Treasury Management Services Agreement” means any agreement for cash management, controlled disbursement services, or related services including the automatic clearing house transfer of funds of the account of the MG Borrower or any Subsidiary.

“Trigger Event” has the meaning given that term in Section 3.4.

“Trust Preferred Securities” means (a) the $50,000,000 in trust preferred securities issued by MHG Capital Trust I, a Subsidiary of the MG Borrower, the proceeds of which were used by such Subsidiary to acquire the MG Borrower’s Junior Subordinated Notes due October 30, 2036 and (b) any other trust preferred securities issued by any Subsidiary of the MG Borrower on then applicable market terms and otherwise substantially similar thereto, the proceeds of which are used to acquire notes from the MG Borrower that are subordinated to the Loans and other Obligations on terms no less favorable to the Lenders than the Junior Subordinated Notes referred to in the immediately preceding clause (a) and none of which securities or notes mature prior to the date 10 years after the Termination Date and cannot be required to be repurchased, repaid or otherwise retired at the option of the holders thereof prior to the date 10 years after the Termination Date.

“Type” with respect to any Loan, refers to whether such Loan is a LIBOR Loan or Base Rate Loan.

“Unconsolidated Affiliate” means, with respect to any Person, any other Person in whom such Person holds an investment, which investment is accounted for in the financial statements of such Person on an equity basis of accounting and whose financial results would not be consolidated under GAAP with the financial results of such Person on the consolidated financial statements of such Person.

“Unfunded Liabilities” means, with respect to any Plan at any time, the amount (if any) by which (a) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (b) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA.

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“Wholly Owned Subsidiary” means any Subsidiary of a Person in respect of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors’ qualifying shares) are at the time directly or indirectly owned or controlled by such Person or one or more other Subsidiaries of such Person or by such Person and one or more other Subsidiaries of such Person.

Section 1.2 General; References to Times. References in this Agreement to “Sections”, “Articles”, “Exhibits”, “Schedules” and “Annexes” are to sections, articles, exhibits, schedules and annexes herein and hereto unless otherwise indicated. References in this Agreement to any document, instrument or agreement (a) shall include all exhibits, schedules and other attachments thereto, (b) shall include all documents, instruments or agreements issued or executed in replacement thereof, to the extent permitted hereby and (c) shall mean such document, instrument or agreement, or replacement or predecessor thereto, as amended, supplemented, restated or otherwise modified as of the date of this Agreement and from time to time thereafter to the extent not prohibited hereby and in effect at any given time. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. Unless explicitly set forth to the contrary, a reference to “Subsidiary” means a Subsidiary of the MG Borrower or a Subsidiary of such Subsidiary and a reference to an “Affiliate” means a reference to an Affiliate of Holdings. Titles and captions of Articles, Sections, subsections and clauses in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. Unless otherwise indicated, all references to time are references to New York, New York time.

Section 1.3 GAAP. Unless otherwise indicated, all accounting terms, ratios and measurements shall be interpreted or determined in accordance with GAAP as in effect from time to time; provided that, (i) all computations and all definitions (including accounting terms) used in determining compliance with Section 10.11. and (ii) the definition of “Capital Lease Obligations”, in each case, shall utilize GAAP and policies in conformity with those used to prepare the audited financial statements of Holdings and its Subsidiaries referred to in Section 7.1.(k) for the fiscal year ended December 31, 2010.

Section 1.4 Pro Forma Calculations. With respect to any period during which any transaction described in the definition of Pro Forma Basis occurs, for purposes of determining compliance with the covenants contained in Section 10.11., or for purposes of determining the Consolidated EBITDA, Consolidated Fixed Charges or Consolidated Interest Expense, calculations with respect to such period shall be made on a Pro Forma Basis.

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Section 1.5 Florida Borrower Representative. The Florida Borrower hereby appoints the MG Borrower to act as the Florida Borrower’s exclusive agent for all purposes under this Agreement and the other Loan Documents (including, without limitation, with respect to all matters related to the borrowing, repayment and administration of Loans as described in Articles II. and III.). The Florida Borrower acknowledges and agrees that (a) the MG Borrower may execute such documents on behalf of the Florida Borrower as the MG Borrower deems appropriate in its sole discretion and the Florida Borrower shall be bound by and obligated by all of the terms of any such document executed by the MG Borrower on behalf of the Florida Borrower, (b) any notice or other communication delivered by the Agent or any Lender hereunder to the MG Borrower shall be deemed to have been delivered to the Florida Borrower and (c) the Agent and each of the Lenders shall accept (and shall be permitted to rely on) any document or agreement executed by the MG Borrower on behalf of the Florida Borrower. The Florida Borrower must act through the MG Borrower for all purposes under this Agreement and the other Loan Documents. Notwithstanding anything contained herein to the contrary, to the extent any provision in this Agreement requires the Florida Borrower to interact in any manner with the Agent or the Lenders, the Florida Borrower shall do so through the MG Borrower.

Section 1.6 Joint and Several Obligations. EACH OF THE BORROWERS SHALL BE JOINTLY AND SEVERALLY OBLIGATED IN RESPECT OF THE OBLIGATIONS OF THE OTHER BORROWER, AND ACCORDINGLY, THE BORROWERS CONFIRM THAT EACH BORROWER IS LIABLE FOR THE FULL AMOUNT OF THE “OBLIGATIONS” AND ALL OF THE OTHER OBLIGATIONS AND LIABILITIES OF THE BORROWERS HEREUNDER AND UNDER THE OTHER LOAN DOCUMENTS.

ARTICLE II

Credit Facility

Section 2.1 Loans.

(a) Generally.

(i) Loans to the Borrowers. Subject to the terms and conditions hereof, including without limitation, Section 2.11., during the period from the Effective Date to but excluding the Termination Date, each Lender severally and not jointly agrees to make Loans to the Borrowers in an aggregate principal amount at any one time outstanding up to, but not exceeding, the lesser of (x) the amount of such Lender’s Commitment and (y) such Lender’s Commitment Percentage of the Borrowing Base.

(ii) Revolving Nature of Loans. Subject to the terms and conditions of this Agreement, during the period from the Effective Date to but excluding the Termination Date, the Borrowers may borrow, repay and reborrow Loans hereunder.

(b) Requesting Loans. The MG Borrower shall give the Agent notice pursuant to a Notice of Borrowing or telephonic notice of each borrowing of Loans. Each Notice of Borrowing shall be delivered to the Agent before 11:00 a.m. (i) in the case of LIBOR Loans, on the date three Business Days prior to the proposed date of such borrowing and (ii) in the case of Base Rate Loans, on the date one Business Day prior to the proposed date of such borrowing. Any such telephonic notice shall include all information to be specified in a written Notice of Borrowing and shall be promptly confirmed in writing by the MG Borrower pursuant to a Notice of Borrowing sent to the Agent by telecopy on the same day of the giving of such telephonic notice. The Agent will provide notice of the Notice of Borrowing (or the information contained in such Notice of Borrowing) to each Lender promptly upon receipt by the Agent. Each Notice of Borrowing or telephonic notice of each borrowing shall be irrevocable once given and binding on the Borrowers.

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(c) Disbursements of Loan Proceeds. No later than 1:00 p.m. on the date specified in the Notice of Borrowing, each Lender will make available for the account of its applicable Lending Office to the Agent at the Principal Office, in immediately available funds, the proceeds of the Loan to be made by such Lender. Unless the Agent shall have been notified by any Lender prior to the specified date of borrowing that such Lender does not intend to make available to the Agent the Loan to be made by such Lender on such date, the Agent may assume that such Lender will make the proceeds of such Loan available to the Agent on the date of the requested borrowing as set forth in the Notice of Borrowing and the Agent may (but shall not be obligated to), in reliance upon such assumption, make available to the Borrowers the amount of such Loan to be provided by such Lender. Subject to satisfaction of the applicable conditions set forth in Article VI. for such borrowing, the Agent will make the proceeds of such borrowing available to the Borrowers no later than 3:00 p.m. on the date and at the account specified by the MG Borrower in such Notice of Borrowing.

Section 2.2 Letters of Credit.

(a) Letters of Credit. Subject to the terms and conditions of this Agreement, including without limitation Section 2.11, the Issuing Bank, on behalf of the Lenders, agrees to issue for the account of the Borrowers during the period from and including the Effective Date to, but excluding, the date 30 days prior to the Termination Date one or more letters of credit (each a “Letter of Credit”) up to a maximum aggregate Stated Amount at any one time outstanding not to exceed the L/C Commitment Amount.

(b) Terms of Letters of Credit. At the time of issuance, the amount, form, terms and conditions of each Letter of Credit, and of any drafts or acceptances thereunder, shall be subject to approval by the Issuing Bank and the MG Borrower. Notwithstanding the foregoing, in no event may the expiration date of any Letter of Credit extend beyond the earlier of (i) the date one year from its date of issuance or (ii) the date that is 5 days prior to the Termination Date; provided, however, a Letter of Credit may (i) contain a provision providing for the automatic extension of the expiration date in the absence of a notice of non-renewal from the Issuing Bank and (ii) contain an expiration date beyond the Termination Event provided that at the time of issuance or extension of such Letter of Credit, the MG Borrower shall have posted with the Issuing Bank Cash Collateral in an amount equal to 100% of the Fronting Exposure of the Issuing Bank with respect to such Letter of Credit.

(c) Requests for Issuance of Letters of Credit. The MG Borrower shall give the Agent written notice of a letter of credit request in the form of Exhibit H attached hereto at least five Business Days prior to the requested date of issuance of a Letter of Credit, such notice to describe in reasonable detail the proposed terms of such Letter of Credit and the nature of the transactions or obligations proposed to be supported by such Letter of Credit, and in any event shall set forth with respect to such Letter of Credit the proposed (i) Stated Amount, (ii) beneficiary, and (iii) expiration date. Provided the MG Borrower has given the notice prescribed by the first sentence of this subsection and subject to the other terms and conditions of this Agreement, including the satisfaction of any applicable conditions precedent set forth in Article VI. and delivery to the Issuing Bank of all items required to be delivered in connection with the issuance of such Letter of Credit, the Issuing Bank shall issue the requested Letter of Credit on the requested date

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of issuance for the benefit of the stipulated beneficiary. The Issuing Bank shall not at any time be obligated to issue any Letter of Credit if such issuance would conflict with, or cause the Issuing Bank or any Lender to exceed any limits imposed by, any Applicable Law. In addition, the Issuing Bank shall not at any time be obligated to issue any Letter of Credit if any Lender is then in default of its obligations to fund under Section 2.2.(e) or Section 2.2.(j) or is otherwise a Defaulting Lender, unless the Issuing Bank shall no longer have Fronting Exposure as a result of the operation of Sections 3.12. and 11.5., as applicable. References herein to “issue” and derivations thereof with respect to Letters of Credit shall also include extensions or modifications of any outstanding Letters of Credit, unless the context otherwise requires. Upon the written request of the MG Borrower, the Issuing Bank shall deliver to the MG Borrower a copy of each issued Letter of Credit within a reasonable time after the date of issuance thereof. To the extent any term of a Letter of Credit Document is inconsistent with a term of any Loan Document, the term of such Loan Document shall control.

(d) Reimbursement Obligations. Upon receipt by the Issuing Bank from the beneficiary of a Letter of Credit of any demand for payment under such Letter of Credit, the Issuing Bank shall promptly notify the MG Borrower of the amount to be paid by the Issuing Bank as a result of such demand and the date on which payment is to be made by the Issuing Bank to such beneficiary in respect of such demand; provided, however, the Issuing Bank’s failure to give, or delay in giving, such notice shall not discharge the Borrowers in any respect from the applicable Reimbursement Obligation. The Borrowers hereby unconditionally and irrevocably agree to pay and reimburse the Issuing Bank for the amount of each demand for payment under such Letter of Credit on or prior to the date on which payment is to be made by the Issuing Bank to the beneficiary thereunder or otherwise in accordance with the provisions of clause (e) below, without presentment, demand, protest or other formalities of any kind (other than notice as provided in this subsection). Upon receipt by the Issuing Bank of any payment in respect of any Reimbursement Obligation, the Issuing Bank shall promptly pay to each Lender that has acquired a participation therein under the second sentence of Section 2.2.(i) such Lender’s Commitment Percentage of such payment.

(e) Manner of Reimbursement. Upon its receipt of a notice referred to in the immediately preceding subsection (d), the MG Borrower shall advise the Issuing Bank whether or not the Borrowers intend to borrow hereunder to finance their obligation to reimburse the Issuing Bank for the amount of the related demand for payment and, if it does, the MG Borrower shall submit a timely request for such borrowing of Loans as provided in the applicable provisions of this Agreement. If the MG Borrower fails to so advise the Issuing Bank, or if the Borrowers fail to reimburse the Issuing Bank for a demand for payment under a Letter of Credit by the date of such payment, then (i) if the applicable conditions contained in Article VI. would permit the making of Loans, the Borrowers shall be deemed to have requested a borrowing of Loans in an amount equal to the unpaid Reimbursement Obligation and the Issuing Bank shall give each Lender prompt notice of the amount of the Loan to be made available to the Issuing Bank not later than the applicable time specified in Section 2.2.(j) and (ii) if such conditions would not permit the making of Loans, the provisions of subsection (j) of this Section shall apply. The limitations of Section 3.6.(a) shall not apply to any borrowing of Base Rate Loans under this subsection.

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(f) Effect of Letters of Credit on Commitments. Upon the issuance by the Issuing Bank of any Letter of Credit and until such Letter of Credit shall have expired or been terminated, the Commitment of each Lender shall be deemed to be utilized for all purposes of this Agreement in an amount equal to the product of (i) such Lender’s Commitment Percentage and (ii) the sum of (A) the Stated Amount of such Letter of Credit plus (B) any related Reimbursement Obligations then outstanding.

(g) Issuing Bank’s Duties Regarding Letters of Credit; Unconditional Nature of Reimbursement Obligations. In determining whether to pay under any Letter of Credit, the Issuing Bank shall have no obligation relative to the other Lenders other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to substantially comply on their face with the requirements of such Letter of Credit. The MG Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, neither the Issuing Bank nor any of the Lenders shall be responsible for, and the Borrowers’ obligations in respect of the Letters of Credit shall not be affected in any manner by, (i) the form, validity, sufficiency, accuracy, genuineness or legal effects of any document submitted by any party in connection with the application for and issuance of or any drawing honored under any Letter of Credit even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit, or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telex, telecopy or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit, or of the proceeds thereof; (vii) the misapplication by the beneficiary of the proceeds of any drawing under any Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Issuing Bank or the Lenders. None of the above shall affect, impair or prevent the vesting of any of the Issuing Bank’s or any Lender’s rights or powers hereunder. Any action taken or omitted to be taken by the Issuing Bank under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final, non-appealable judgment), shall not create against the Issuing Bank or any Lender any liability to the Borrowers or any Lender. In this regard, the obligation of the Borrowers to reimburse

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the Issuing Bank for any drawing made under any Letter of Credit, and to repay a Loan made pursuant to the second sentence of Section 2.2.(e), shall be absolute, unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement and any other applicable Letter of Credit Document under all circumstances whatsoever, including without limitation, the following circumstances: (A) any lack of validity or enforceability of any Letter of Credit Document or any term or provision therein; (B) any amendment or waiver of or any consent to departure from all or any of the Letter of Credit Documents; (C) the existence of any claim, setoff, defense or other right which the Borrowers may have at any time against the Issuing Bank, any Lender, any beneficiary of a Letter of Credit or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or in the Letter of Credit Documents or any unrelated transaction; (D) any breach of contract or dispute between the Borrowers, the Issuing Bank, any Lender or any other Person; (E) any demand, statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein or made in connection therewith being untrue or inaccurate in any respect whatsoever; (F) any non-application or misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit; (G) payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate which does not strictly comply with the terms of such Letter of Credit; and (H) any other act, omission to act, delay or circumstance whatsoever that might, but for the provisions of this Section, constitute a legal or equitable defense to or discharge of the Borrowers’ Reimbursement Obligations. Notwithstanding anything to the contrary contained in this Section or Section 13.2., but not in limitation of the Borrowers’ unconditional obligation to reimburse the Issuing Bank for any drawing made under a Letter of Credit as provided in this Section and to repay a Loan made pursuant to the second sentence of the immediately preceding subsection (e), the Borrowers shall have no obligation to indemnify the Issuing Bank or any Lender in respect of any liability incurred by the Issuing Bank or such Lender arising solely out of the gross negligence or willful misconduct of the Issuing Bank or such Lender in respect of a Letter of Credit as determined by a court of competent jurisdiction in a final, non-appealable judgment. Except as otherwise provided in this Section, nothing in this Section shall affect any rights the Borrowers may have with respect to the gross negligence or willful misconduct of the Issuing Bank or any Lender with respect to any Letter of Credit.

(h) Amendments, Etc. The issuance by the Issuing Bank of any amendment, supplement or other modification to any Letter of Credit shall be subject to the same conditions applicable under this Agreement to the issuance of new Letters of Credit (including, without limitation, that the request therefor be made through the Issuing Bank), and no such amendment, supplement or other modification shall be issued unless either (i) the respective Letter of Credit affected thereby would have complied with such conditions had it originally been issued hereunder in such amended, supplemented or modified form or (ii) the Requisite Lenders (or all of the Lenders if required by Section 13.6.) shall have consented thereto. In connection with any such amendment, supplement or other modification, the Borrowers shall pay the Fees, if any, payable under the last sentence of Section 3.7.(b).

(i) Lenders’ Participation in Letters of Credit. Immediately upon the issuance by the Issuing Bank of any Letter of Credit each Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Issuing Bank, without recourse or warranty, an undivided interest and participation to the extent of such Lender’s Commitment Percentage of the liability of the Issuing Bank with respect to such Letter of Credit, and each Lender thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to the Issuing Bank to pay and discharge when due, such Lender’s Commitment Percentage of the Issuing Bank’s liability under such Letter of Credit. In addition, upon the making of each payment by a Lender to the Issuing Bank in respect of any Letter of Credit pursuant to the immediately following subsection (j), such Lender shall, automatically and without any further action on the part of the Issuing Bank or such Lender, acquire (i) a participation in an amount equal to such payment in the Reimbursement Obligation owing to the Issuing Bank by the Borrowers in respect of such Letter of Credit and (ii) a participation in a percentage equal to such Lender’s Commitment Percentage in any interest or other amounts payable by the Borrowers in respect of such Reimbursement Obligation (other than the Fees payable to the Issuing Bank pursuant to the third and last sentences of Section 3.7.(b)).

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(j) Payment Obligation of Lenders. Each Lender severally agrees to pay to the Issuing Bank on demand in immediately available funds in Dollars the amount of such Lender’s Commitment Percentage of each drawing paid by the Issuing Bank under each Letter of Credit to the extent such amount is not reimbursed by the Borrowers pursuant to Section 2.2.(d); provided, however, that in respect of any drawing under any Letter of Credit, the maximum amount that any Lender shall be required to fund, whether as a Loan or as a participation, shall not exceed such Lender’s Commitment Percentage of such drawing. If the notice referenced in the second sentence of Section 2.2.(e) is received by a Lender not later than 11:00 a.m., then such Lender shall make such payment available to the Issuing Bank not later than 2:00 p.m. on the date of demand therefor; otherwise, such payment shall be made available to the Issuing Bank not later than 1:00 p.m. on the next succeeding Business Day. Each Lender’s obligation to make such payments to the Issuing Bank under this subsection, and the Issuing Bank’s right to receive the same, shall be absolute, irrevocable and unconditional and shall not be affected in any way by any circumstance whatsoever, including without limitation, (i) the failure of any other Lender to make its payment under this subsection, (ii) the financial condition of the MG Borrower or any other Loan Party, (iii) the existence of any Default or Event of Default, including any Event of Default described in Section 11.1.(h) or 11.1.(i) or (iv) the termination of the Commitments. Each such payment to the Issuing Bank shall be made without any offset, abatement, withholding or deduction whatsoever.

(k) Information to Lenders. Promptly after issuance, amendment or payment of a Letter of Credit, the Issuing Bank shall notify each Lender in writing of such issuance or amendment or payment and, if so requested by any Lender, the Issuing Bank shall furnish such Lender with a copy of the issued Letter of Credit or such amendment. Other than as set forth in this subsection, the Issuing Bank shall have no duty to notify the Lenders regarding the issuance or other matters regarding Letters of Credit issued hereunder. The failure of the Issuing Bank to perform its requirements under this subsection shall not relieve any Lender from its obligations under Section 2.2.(j).

Section 2.3 Rates and Payment of Interest on Loans.

(a) Rates. (i) The MG Borrower and the Florida Borrower, jointly and severally, promise to pay to the Agent for the account of each Lender interest on the unpaid principal amount of each Loan made by such Lender, for the period from and including the date of the making of such Loan to but excluding the date such Loan shall be paid in full, at the following per annum rates:

(A) during such periods as such Loan is a Base Rate Loan, at the Base Rate (as in effect from time to time) plus the Applicable Margin; and

(B) during such periods as such Loan is a LIBOR Loan, at Adjusted LIBOR for such Loan for the Interest Period therefor plus the Applicable Margin.

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Notwithstanding the foregoing, automatically upon the occurrence and during the continuance of an Event of Default pursuant to Sections 11.1.(a), (b), (h), (i) or (j) and at the request of the Requisite Lenders upon the occurrence and during the continuance of any other Event of Default, the MG Borrower and the Florida Borrower each shall pay to the Agent for the account of each Lender interest at a rate per annum equal to the rate which is 3% in excess of the rate then borne on the outstanding principal amount of any Loan made by such Lender to or for the benefit of the MG Borrower or the Florida Borrower, as the case may be, on all Reimbursement Obligations and on any other amount payable by the MG Borrower or the Florida Borrower, as applicable, hereunder or under the Notes held by such Lender to or for the account of such Lender (including without limitation, accrued but unpaid interest to the extent permitted under Applicable Law), which interest shall be payable from time to time on demand.

(b) Payment of Interest. Accrued and unpaid interest on each Loan shall be payable (i) in the case of a Base Rate Loan, monthly in arrears on the first day of each calendar month, (ii) in the case of a LIBOR Loan, in arrears on the last day of each Interest Period therefor, and (iii) in the case of any Loan, in arrears upon the payment, prepayment or Continuation thereof or the Conversion of such Loan to a Loan of another Type (but only on the principal amount so paid, prepaid, Continued or Converted). Interest payable at the Post-Default Rate shall be payable from time to time on demand. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall give notice thereof to the Lenders to which such interest is payable and to the MG Borrower. All determinations by the Agent of an interest rate hereunder shall be conclusive and binding on the Lenders and the Borrowers for all purposes, absent manifest error.

Section 2.4 Number of Interest Periods. There may be no more than 8 different Interest Periods for LIBOR Loans outstanding at the same time.

Section 2.5 Repayment of Loans. On the Termination Date, the MG Borrower and the Florida Borrower, jointly and severally, agree to repay the entire outstanding principal amount of, and all accrued but unpaid interest on, the Loans.

Section 2.6 Prepayments.

(a) Optional. Subject to Section 5.4., the Borrowers may prepay any Loan owing by it at any time without premium or penalty. The MG Borrower shall give the Agent at least one Business Day’s prior written notice of the prepayment of any Loan.

(b) Mandatory. If at any time the aggregate principal amount of all outstanding Loans plus the aggregate amount of all Letter of Credit Liabilities exceeds the lesser of (A) the aggregate amount of the Commitments in effect at such time or (B) the Borrowing Base at such time, then (subject to Section 4.1.) the Borrowers shall within five Business Days prepay Loans and (after all Loans have been prepaid) Cash Collateralize the Letter of Credit Liabilities in an aggregate amount equal to such excess.

(c) Application of Prepayments. All payments under the immediately preceding subsection (b) shall be applied to pay all amounts of principal outstanding on the Loans and any Reimbursement Obligations pro rata in accordance with Section 3.2. and if any Letters of Credit are outstanding at such time the remainder, if any, shall be deposited into the Collateral Account for application to future Reimbursement Obligations. If as a result of this Section any outstanding LIBOR Loan is prepaid prior to the end of the applicable Interest Period therefor, the Borrowers shall pay all amounts due under Section 5.4.

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Section 2.7 Continuation. So long as no Default or Event of Default shall exist, the MG Borrower may on any Business Day, with respect to any LIBOR Loan, elect to maintain such LIBOR Loan or any portion thereof as a LIBOR Loan by selecting a new Interest Period for such LIBOR Loan. Each new Interest Period selected under this Section shall commence on the last day of the immediately preceding Interest Period. Each selection of a new Interest Period shall be made by the MG Borrower giving to the Agent a Notice of Continuation not later than 11:00 a.m. on the third Business Day prior to the date of any such Continuation. Such notice by the MG Borrower of a Continuation shall be by telephone or telecopy, confirmed promptly in writing if by telephone, in the form of a Notice of Continuation, specifying (a) the proposed date of such Continuation, (b) the LIBOR Loans and portions thereof subject to such Continuation and (c) the duration of the selected Interest Period, all of which shall be specified in such manner as is necessary to comply with all limitations on Loans outstanding hereunder. Each Notice of Continuation shall be irrevocable by and binding on the Borrowers once given. Promptly after receipt of a Notice of Continuation, the Agent shall notify each Lender by telecopy, or other similar form of transmission, of the proposed Continuation. If the MG Borrower shall fail to select in a timely manner a new Interest Period for any LIBOR Loan in accordance with this Section, or if a Default or Event of Default shall exist, such Loan will automatically, on the last day of the current Interest Period therefor, Convert into a Base Rate Loan notwithstanding the first sentence of Section 2.8. or the MG Borrower’s failure to comply with any of the terms of such Section.

Section 2.8 Conversion. The MG Borrower may on any Business Day, upon the MG Borrower’s giving of a Notice of Conversion to the Agent, Convert all or a portion of a Loan of one Type into a Loan of another Type; provided, however, a Base Rate Loan may not be Converted to a LIBOR Loan if a Default or Event of Default shall exist. Any Conversion of a LIBOR Loan into a Base Rate Loan shall be made on, and only on, the last day of an Interest Period for such LIBOR Loan and, upon Conversion of a Base Rate Loan into a LIBOR Loan, the Borrowers shall pay accrued interest to the date of Conversion on the principal amount so Converted. Each such Notice of Conversion shall be given not later than 11:00 a.m. on the Business Day prior to the date of any proposed Conversion into Base Rate Loans and on the third Business Day prior to the date of any proposed Conversion into LIBOR Loans. Promptly after receipt of a Notice of Conversion, the Agent shall notify each Lender by telecopy, or other similar form of transmission, of the proposed Conversion. Subject to the restrictions specified above, each Notice of Conversion shall be by telephone (confirmed promptly in writing) or telecopy in the form of a Notice of Conversion specifying (a) the requested date of such Conversion, (b) the Type of Loan to be Converted, (c) the portion of such Type of Loan to be Converted, (d) the Type of Loan such Loan is to be Converted into and (e) if such Conversion is into a LIBOR Loan, the requested duration of the Interest Period of such Loan. Each Notice of Conversion shall be irrevocable by and binding on the Borrowers once given.

Section 2.9 Notes.

(a) Note. The Loans made by each Lender to or for the benefit of the Borrowers shall, in addition to this Agreement, also be evidenced by a promissory note of the Borrowers substantially in the form of Exhibit F, payable to such Lender or its registered assigns in a principal amount equal to the amount of its Commitment as originally in effect and otherwise duly completed. Each promissory note described in this subsection is referred to as a “Note.”

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(b) Records. The date, amount, interest rate, Type and duration of Interest Periods (if applicable) of each Loan made by each Lender, and each payment made on account of the principal thereof, shall be recorded by such Lender on its books and such entries shall be binding on the Borrowers, absent manifest error; provided, however, that the failure of a Lender to make any such record shall not affect the obligations of the Borrowers under any of the Loan Documents.

(c) Lost, Stolen, Destroyed or Mutilated Notes. Upon receipt by the MG Borrower of (i) written notice from a Lender that a Note of such Lender has been lost, stolen, destroyed or mutilated, and (ii) (A) in the case of loss, theft or destruction, an unsecured agreement of indemnity from such Lender in form reasonably satisfactory to the Borrowers, or (B) in the case of mutilation, upon surrender and cancellation of such Note, the Borrowers shall at its own expense cause to be executed and delivered to such Lender a new Note dated the date of such lost, stolen, destroyed or mutilated Note.

Section 2.10 Voluntary Reductions of the Commitment. The Borrowers shall have the right to terminate or reduce the aggregate unused amount of the Commitments (for which purpose use of the Commitments shall be deemed to include the aggregate amount of Letter of Credit Liabilities) at any time and from time to time without penalty or premium upon not less than five Business Days’ prior written notice to the Agent of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction and shall (other than in connection with a termination of all Commitments relating to the anticipated closing of a refinancing or other transaction, the proceeds of which are to be applied to repay amounts owing hereunder) be irrevocable once given and effective only upon receipt by the Agent; provided, however, the Borrowers shall compensate the Lenders (in accordance with Section 5.4.) for any losses attributable to a permitted revocation of such notice; and provided, further, if the Borrowers seek to reduce the aggregate amount of all Commitments below $25,000,000, then the Commitments shall all automatically and permanently be reduced to zero. The Agent will promptly transmit such notice to each Lender. The Commitments, once terminated or reduced, may not be increased or reinstated (other than pursuant to Section 2.12.).

Section 2.11 Amount Limitations. Notwithstanding any other term of this Agreement or any other Loan Document, no Lender shall be required to make a Loan, the Issuing Bank shall not be required to issue a Letter of Credit and no reduction of the Commitments pursuant to Section 2.10. shall take effect, if immediately after the making of such Loan, the issuance of such Letter of Credit or such reduction in the Commitments, the aggregate principal amount of all outstanding Loans, together with the aggregate amount of all Letter of Credit Liabilities, would exceed the lesser of (i) the aggregate amount of the Commitments at such time and (ii) the Borrowing Base at such time.

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Section 2.12 Incremental Commitments. (a) The MG Borrower shall have the right, in consultation and coordination with the Agent as to all of the matters set forth below in this Section 2.12., but without requiring the consent of the Agent or the Lenders (except, in either case, as otherwise provided in this Section 2.12.), to request at any time and from time to time after the Effective Date and prior to the day immediately preceding the second anniversary of the Effective Date that one or more Lenders (and/or one or more other Persons which are Eligible Assignees and which will become Lenders) provide Incremental Commitments and, subject to the applicable terms and conditions contained in this Agreement and the relevant Incremental Commitment Agreement, make Loans and participate in Letters of Credit pursuant thereto; provided that (i) no Lender shall be obligated to provide an Incremental Commitment, and until such time, if any, as such Lender has agreed in its sole discretion to provide an Incremental Commitment and executed and delivered to the Agent and the Borrowers an Incremental Commitment Agreement as provided in clause (b) of this Section 2.12., such Lender shall not be obligated to fund any Loans in excess of its Commitment (if any) or participate in any Letters of Credit, in each case, as in effect prior to giving effect to such Incremental Commitment provided pursuant to this Section 2.12.; provided, that the Lenders shall have at least 10 Business Days following the MG Borrower’s request for Incremental Commitments to decide whether or not to provide any such Incremental Commitments (and, to the extent that any Lender fails to respond within such 10 Business Day period, such Lender shall be deemed to have rejected to provide an Incremental Commitment), (ii) any Lender (including any Person which is an Eligible Assignee who will become a Lender) may so provide an Incremental Commitment without the consent of the Agent or any other Lender; provided that (x) any Person that is not a Lender prior to the effectiveness of its Incremental Commitment shall require the consent of the Agent (which consent shall not be unreasonably withheld) to provide an Incremental Commitment pursuant to this Section 2.12., (iii) the aggregate amount of each request (and provision therefor) for Incremental Commitments shall be in a minimum aggregate amount for all Lenders which provide an Incremental Commitment pursuant to a given Incremental Commitment Agreement pursuant to this Section 2.12. (including Persons who are Eligible Assignees and will become Lenders) of at least $5,000,000 (or such lesser amount that is acceptable to the Agent), (iv) the aggregate amount of all Incremental Commitments permitted to be provided pursuant to this Section 2.12. shall not exceed in the aggregate $10,000,000, (v) the MG Borrower shall not increase the Commitment pursuant to this Section 2.12. more than two times, (vi) the Applicable Margins, Termination Date and all other terms of the Loans to be incurred pursuant to an Incremental Commitment shall the same in all respects as those applicable to any other Loans, (vii) all Loans incurred pursuant to an Incremental Commitment (and all interest, fees and other amounts payable thereon) shall be Obligations under this Agreement and the other applicable Loan Documents and shall be secured by the relevant Security Documents, and guaranteed under the Guaranty, on a pari passu basis will all other Loans (and related Obligations) secured by each relevant Security Document and guaranteed under the Guaranty, and (viii) each Lender (including any Person which is an Eligible Assignee who will become a Lender) agreeing to provide an Incremental Commitment pursuant to an Incremental Commitment Agreement shall, subject to the satisfaction of the relevant conditions set forth in this Agreement, participate in Letters of Credit pursuant to Sections 2.2(j) and make Loans as provided in Section 2.1 and such Loans shall constitute Loans for all purposes of this Agreement and the other applicable Loan Documents.

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(b) At the time of the provision of Incremental Commitments pursuant to this Section 2.12., (I) the Borrowers, each Guarantor and the Agent and each such Lender or other Eligible Assignee which agrees to provide an Incremental Commitment (each, an “Incremental Lender”) shall execute and deliver to the MG Borrower and the Agent an Incremental Commitment Agreement, appropriately completed (with the effectiveness of the Incremental Commitment provided therein to occur on the date set forth in such Incremental Commitment Agreement, which date in any event shall be no earlier than the date on which (i) all fees required to be paid in connection therewith at the time of such effectiveness shall have been paid, (ii) all Incremental Commitment Requirements have been satisfied, (iii) all conditions set forth in this Section 2.12. shall have been satisfied and (iv) all other conditions precedent that may be set forth in such Incremental Commitment Agreement shall have been satisfied) and (II) the Borrowers, each Guarantor, the Agent and each Incremental Lender (as and if applicable) shall execute and deliver to the Agent such additional Security Documents and/or amendments to the Security Documents which are necessary to ensure that all Loans incurred pursuant to the Incremental Commitments are secured by each relevant Security Document (the “Incremental Security Documents”). The Agent shall promptly notify each Lender as to the effectiveness of each Incremental Commitment Agreement and, at such time, Schedule 2.1 shall be deemed modified to reflect the Incremental Commitments of such Incremental Lenders.

(c) It is understood and agreed that the Incremental Commitments provided by an Incremental Lender or Incremental Lenders, as the case may be, pursuant to each Incremental Commitment Agreement shall constitute part of, and be added to, the Commitments and each Incremental Lender shall constitute a Lender for all purposes of this Agreement and each other Loan Document.

(d) At the time of any provision of Incremental Commitments pursuant to this Section 2.12., the Borrowers shall, in coordination with and if requested by the Agent, repay outstanding Loans of certain of the Lenders (notwithstanding the provisions of Section 3.2.), and incur additional Loans from certain other Lenders (including the Incremental Lenders), in each case to the extent necessary so that all of the Lenders participate in each outstanding borrowing of Loans pro rata on the basis of their respective Commitments (after giving effect to any increase in the Commitments pursuant to this Section 2.12.) and with the Borrowers being obligated to pay to the respective Lenders any costs of the type referred to in Section 5.4 in connection with any such repayment and/or borrowing.

ARTICLE III

Payments, Fees and Other General Provisions

Section 3.1 Payments. Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Borrowers under this Agreement or any other Loan Document shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Agent at its Principal Office, not later than 2:00 p.m. on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Subject to Section 11.4., the MG Borrower may, at the time of making each payment under this Agreement or any Note, specify to the Agent the amounts payable by the Borrowers hereunder to which such payment is to be applied. Each payment received by the Agent for the account of a Lender under this Agreement or any Note shall be paid promptly to such Lender at the applicable Lending Office of such Lender. If the Agent fails to pay such amount to a Lender as provided in the previous sentence, the Agent shall pay interest on such amount until paid at a rate per annum equal to the Federal Funds Rate from time to time in effect. If the due date of any payment under this Agreement or any other Loan Document would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall be payable for the period of such extension.

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Section 3.2 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing from the Lenders under Section 2.1.(a) and 2.2.(e) shall be made from the Lenders, each payment of the Fees under Section 3.7.(a) and the first sentence of Section 3.7.(b) shall be made for the account of the Lenders, and each termination or reduction of the amount of the Commitments under Section 2.10. shall be applied to the respective Commitments of the Lenders, pro rata according to the amounts of their respective Commitments; (b) each payment or prepayment of principal of Loans by the Borrowers shall be made for the account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Loans held by them and owing by the Borrowers, provided that if immediately prior to giving effect to any such payment in respect of any Loans the outstanding principal amount of the Loans shall not be held by the Lenders pro rata in accordance with their respective Commitments in effect at the time such Loans were made, then such payment shall be applied to the Loans in such manner as shall result, as nearly as is practicable, in the outstanding principal amount of the Loans being held by the Lenders pro rata in accordance with their respective Commitments; (c) each payment of interest on Loans by the Borrowers shall be made for the account of the Lenders pro rata in accordance with the amounts of interest on such Loans then due and payable to the respective Lenders; (d) the making, Conversion and Continuation of Loans of a particular Type (other than Conversions provided for by Section 5.5.) shall be made pro rata among the Lenders according to the amounts of their respective Commitments (in the case of making of Loans) or their respective Loans (in the case of Conversions and Continuations of Loans) and the then current Interest Period for each Lender’s portion of each Loan of such Type shall be coterminous; and (e) the Lenders’ participation in, and payment obligations in respect of, Letters of Credit under Section 2.2., shall be pro rata in accordance with their respective Commitments.

Section 3.3 Sharing of Payments, Etc. If a Lender shall obtain payment of any principal of, or interest on, any Loan, or shall obtain payment on any other Obligation owing by the MG Borrower or any other Loan Party through the exercise of any right of set-off, banker’s lien or counterclaim or similar right or otherwise or through voluntary prepayments directly to a Lender or other payments made by a Loan Party to a Lender not in accordance with the terms of this Agreement and such payment should be distributed to the Lenders pro rata in accordance with Section 3.2. or Section 11.4., as applicable, such Lender shall promptly purchase from the other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans made by the other Lenders or other Obligations owed to such other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such payment (net of any reasonable expenses which may be incurred by such Lender in obtaining or preserving such benefit) pro rata in accordance with Section 3.2. or Section 11.4., as applicable. To such end, all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Each of the Borrowers agrees that any Lender so purchasing a participation (or direct interest) in the Loans or other Obligations owed by such Borrower to such other Lenders may exercise all rights of set-off, banker’s lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrowers, and the provisions of this Section 3.3. shall not be construed to apply to any cash collateral or other credit support provided to the Agent in respect of a Defaulting Lender pursuant to Section 11.5. or Section 3.12.

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Section 3.4 Lockbox Account. Upon the occurrence and during the continuance of (x) an Event of Default (provided, that in the case of an Event of Default due to a failure to comply with Section 10.11 hereof, such Event of Default shall cease to continue for purposes of this Section 3.4 if, after the occurrence of such Event of Default, the Loan Parties are in compliance with Section 10.11 for two consecutive fiscal quarters and no other Events of Default have occurred) or (y) any event set forth in Section 2.6(b) (each of (x) or (y), a “Trigger Event”), all cash produced by, and all other cash proceeds (including, without limitation, cash proceeds produced from the operation) of, the Florida Property received by Holdings, the MG Borrower, any Subsidiaries, the Management Company or any agent or successor of any of the foregoing (collectively, “Receipts”) shall be managed as provided in this Section 3.4.; provided, that fee and reimbursement payments under the Delano Management Agreement received by the Management Company shall not be deemed to be Receipts for purposes of this Section 3.4.

(a) From and after the Effective Date, a non-interest bearing deposit account shall be maintained with the Agent by the Florida Borrower at the Florida Borrower’s expense (the “Lockbox Account”). Upon the occurrence and during the continuance of a Trigger Event, each of Holdings and the MG Borrower shall, and shall cause the Florida Borrower and each other Subsidiary, the Management Company and any agent or successor of any of the foregoing to, ensure that all Receipts are either (x) paid directly into the Lockbox Account or (y) within one (1) Business Day after receipt by Holdings, the MG Borrower, the Florida Borrower and each other Subsidiary, the Management Company or any other manager or agent of any of the foregoing, deposited into the Lockbox Account, in each case in accordance with procedures and arrangements acceptable to the Agent and subject only to such changes as may be approved in advance by the Agent.

(b) Each of Holdings and the Borrowers acknowledges and agrees that neither it nor any Subsidiary, the Management Company or any other manager or agent of any of the foregoing shall have any right to object to or seek to delay or to cause any application of any Receipts deposited and/or paid into the Lockbox Account or any transfer of funds in accordance with the provisions of this Section 3.4.

(c) Each of Holdings and the Borrowers acknowledges that the Lockbox Account will be subject to the control of the Agent and, upon the occurrence and during the continuance of a Trigger Event, the funds in the Lockbox Account shall only be used (x) to pay expenses in any Lockbox Budget approved by the Agent and debt service and other amounts due under this Agreement or the other Loan Documents, in each case to the extent not already funded by the Loan Parties and/or (y) at the Agent’s discretion, with the Requisite Lenders’ consent, to prepay the Loans and/or cash collateralize the Letters of Credit.

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(d) At all times after the termination of a Trigger Event or at any time when no Trigger Event exists, the Agent shall cause all of the available balance in the Lockbox Account to be released to the Florida Borrower, such release to be made as promptly as practicable to such deposit account as the Florida Borrower may designate. Funds are not available if, in the determination of the Agent, they are subject to a hold, dispute or legal process preventing their withdrawal, are not “collected funds” or, if funds are made available by the Agent in its sole discretion prior to such funds being “collected funds”, are subject to a reserve established by the Agent for settlement of funds and returned items. Each of Holdings and the Borrowers acknowledges and agrees that the Agent may debit the Lockbox Account for any entries, whether credit or debit, that are subsequently returned for any reason. Notwithstanding the foregoing or anything else in this Section 3.4. to the contrary, the Agent shall be permitted to comply with any writ, levy order or other similar judicial or regulatory order or process concerning the Lockbox Account or any check or other payment instruction and shall not be in violation of this Section 3.4. for so doing.

(e) To the extent that any Receipts are not sent directly to the Lockbox Account but are received by Holdings, the MG Borrower or any Subsidiary after a Trigger Event, such Receipts shall be held in trust for the benefit of the Agent and remitted as promptly as practicable (and in any event, no later than one (1) Business Day after receipt thereof) in the form received, to the Lockbox Account. Each of Holdings and the Borrowers acknowledges and agrees that its compliance with the terms of this Section 3.4. is essential.

(f) Each of Holdings and the Borrowers hereby irrevocably appoints and makes each of the officers of the Agent the true and lawful attorney for each of Holdings and the Borrowers (without requiring any of them to act as such) with full power of substitution to endorse the name of Holdings or the Borrowers upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to Holdings or the Borrowers. In addition, if Holdings or the Borrowers breaches its obligation hereunder to direct Receipts to the Lockbox Account, the Agent, as the true and lawful attorney for Holdings or the Borrowers, may, by the signature or other act of any of the Agent’s officers (without requiring any of them to do so), direct any account debtor or other applicable Person to make payments of or with respect to Receipts to the Lockbox Account.

Section 3.5 Several Obligations. No Lender shall be responsible for the failure of any other Lender to make a Loan or to perform any other obligation to be made or performed by such other Lender hereunder, and the failure of any Lender to make a Loan or to perform any other obligation to be made or performed by it hereunder shall not relieve the obligation of any other Lender to make any Loan or to perform any other obligation to be made or performed by such other Lender.

Section 3.6 Minimum Amounts.

(a) Borrowings and Conversions. Except as otherwise provided in Section 2.2.(e), each borrowing of Base Rate Loans shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess thereof. Each borrowing, Conversion and Continuation of LIBOR Loans shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount.

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(b) Prepayments. Each voluntary prepayment of Loans shall be in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess thereof (or, if less, the aggregate principal amount of Loans then outstanding).

(c) Reductions of Commitments. Each reduction of the Commitments under Section 2.10. shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess thereof.

(d) Letters of Credit. The initial Stated Amount of each Letter of Credit shall be at least $25,000.

Section 3.7 Fees.

(a) Unused Fee. During the period from the Effective Date to but excluding the Termination Date, the Borrowers agree to pay to the Agent for the account of the Lenders an unused facility fee with respect to the daily difference between the (i) aggregate amount of the Commitments and (ii) the aggregate principal amount of all outstanding Loans plus the aggregate amount of all Letter of Credit Liabilities (the “Unused Amount”). Such fee shall be computed by multiplying the Unused Amount with respect to the applicable day by one-half of one-percent (0.50%). Such fee shall be payable in arrears on the last day of each March, June, September or December of each calendar year and shall be nonrefundable. Any such accrued and unpaid fee shall also be payable on the Termination Date or any earlier date of termination of the Commitments or reduction of the Commitments to zero.

(b) Letter of Credit Fees. The Borrowers agree to pay to the Agent for the account of each Lender a letter of credit fee at a rate per annum equal to the Applicable Margin for LIBOR Loans (or automatically upon the occurrence and during the continuance of an Event of Default pursuant to Sections 11.1(a), (b), (h), (i) or (j) and at the request of the Requisite Lenders upon the occurrence and during the continuance of any other Event of Default, at a per annum rate equal to 3.0% in excess of the Applicable Margin for LIBOR Loans) times the daily Stated Amount of each Letter of Credit for the period from and including the date of issuance of such Letter of Credit (x) through and including the date such Letter of Credit expires or is terminated or (y) to but excluding the date such Letter of Credit is drawn in full and is not subject to reinstatement, as the case may be. The fees provided for in the immediately preceding sentence shall be nonrefundable and payable in arrears on (i) the last day of March, June, September and December in each year, (ii) the Termination Date, (iii) the date the Commitments are terminated or reduced to zero and (iv) following the occurrence of the events described in clauses (ii) and (iii), from time to time on demand of the Agent. In addition, the Borrowers shall pay to the Issuing Bank for its own account and not the account of any Lender, an issuance fee in respect of each Letter of Credit equal to the greater of (i) $1,500 or (ii) one-eighth of one percent (0.125%) of the initial Stated Amount of such Letter of Credit payable (A) for the period from and including the date of issuance of such Letter of Credit through and including the expiration date of such Letter of Credit and (B) if the expiration date of any Letter of Credit is extended (whether as a result of the operation of an automatic extension clause or otherwise), for the period from but excluding the previous expiration date to and including the extended expiration date. The fees provided for in the immediately preceding sentence shall be nonrefundable and payable in arrears (i) on the last day of March, June, September and December in each year, (ii) the Termination Date, (iii) the date the Commitments are terminated and (iv) thereafter from time to time on demand of the Issuing Bank. The Borrowers shall pay directly to the Issuing Bank from time to time on demand all commissions, charges, costs and expenses in the amounts customarily charged by the Issuing Bank from time to time in like circumstances with respect to the issuance of each Letter of Credit, drawings, amendments and other transactions relating thereto.

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(c) Administrative and Other Fees. The Borrowers agree to pay the administrative and other fees of the Agent as may be agreed to in writing by the Borrowers and the Agent from time to time.

Section 3.8 Computations. Unless otherwise expressly set forth herein, any accrued interest on any Loan, any Fees or any other Obligations due hereunder shall be computed on the basis of a year of 360 days and the actual number of days elapsed; provided, however, interest on Base Rate Loans shall be computed on the basis of a year of 365 or 366 days, as applicable, and the actual number of days elapsed.

Section 3.9 Usury. In no event shall the amount of interest due or payable on the Loans or other Obligations exceed the maximum rate of interest allowed by Applicable Law and, if any such payment is paid by any Loan Party or received by any Lender, then such excess sum shall be credited as a payment of principal, unless the Borrowers shall notify the respective Lender in writing that the Borrowers elect to have such excess sum returned to it forthwith. It is the express intent of the parties hereto that the Borrowers not pay and the Lenders not receive, directly or indirectly, in any manner whatsoever, interest in excess of that which may be lawfully paid by the Borrowers under Applicable Law.

Section 3.10 Agreement Regarding Interest and Charges. The parties hereto hereby agree and stipulate that the only charge imposed upon the Borrowers for the use of money in connection with this Agreement is and shall be the interest specifically described in Sections 2.3.(a)(i). Notwithstanding the foregoing, the parties hereto further agree and stipulate that all agency fees, syndication fees, facility fees, closing fees, letter of credit fees, unused fees, underwriting fees, default charges, late charges, funding or “breakage” charges, increased cost charges, attorneys’ fees and reimbursement for costs and expenses paid by the Agent or any Lender to third parties or for damages incurred by the Agent or any Lender, in each case in connection with the transactions contemplated by this Agreement and the other Loan Documents, are charges made to compensate the Agent or any such Lender for underwriting or administrative services and costs or losses performed or incurred, and to be performed or incurred, by the Agent and the Lenders in connection with this Agreement and shall under no circumstances be deemed to be charges for the use of money. All charges other than charges for the use of money shall be fully earned and nonrefundable when due.

Section 3.11 Statements of Account. The Agent will account to the Borrowers monthly with a statement of Loans, Letters of Credit, accrued interest and Fees, charges and payments made pursuant to this Agreement and the other Loan Documents, and such account rendered by the Agent shall be deemed conclusive and binding on the Lenders and the Borrowers absent manifest error. The failure of the Agent to deliver such a statement of accounts shall not relieve or discharge the Borrowers from any of their respective obligations hereunder.

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Section 3.12 Defaulting Lenders. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by Applicable Law:

(a) Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Requisite Lenders and in Section 13.6.

(b) Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by the Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article XI or otherwise) or received by the Agent from a Defaulting Lender pursuant to Section 13.3. shall be applied at such time or times as may be determined by the Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Agent hereunder; second, to Cash Collateralize the Issuing Bank’s Letter of Credit Liabilities with respect to such Defaulting Lender in accordance with Section 11.5; third, as the MG Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Agent; fourth, if so determined by the Agent and the MG Borrower, to be held in a deposit account and released pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) Cash Collateralize the Issuing Bank’s future Letter of Credit Liabilities with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 11.5; fifth, to the payment of any amounts owing to the Lenders or the Agent as a result of any judgment of a court of competent jurisdiction obtained by any Lender or the Agent against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; sixth, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrowers as a result of any judgment of a court of competent jurisdiction obtained by the Borrowers against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and seventh, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or Reimbursement Obligations in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 6.2 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and Reimbursement Obligations owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or Reimbursement Obligations owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in Letter of Credit Liabilities are held by the Lenders pro rata in accordance with the Commitments without giving effect to Section 3.12.(e). Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 3.12.(b) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.

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(c) Certain Fees. No Defaulting Lender shall be entitled to receive any fee pursuant to Section 3.7(a) for any period during which that Lender is a Defaulting Lender (and the Borrowers shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender). Each Defaulting Lender shall be entitled to receive fees pursuant to Section 3.7(b) for any period during which that Lender is a Defaulting Lender only to the extent allocable to its Commitment Percentage of the Stated Amount of Letters of Credit for which it has provided Cash Collateral pursuant to Section 11.5.

(d) With respect to any fee pursuant to Section 3.7 not required to be paid to any Defaulting Lender pursuant to clause (c) above, the Borrowers shall (x) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in Letter of Credit Liabilities that has been reallocated to such Non-Defaulting Lender pursuant to clause (e) below, (y) pay to Issuing Bank the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to Agent’s Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.

(e) Reallocation of Participations to Reduce Fronting Exposure. All or any part of such Defaulting Lender’s participation in Letter of Credit Liabilities shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Commitment Percentages (calculated without regard to such Defaulting Lender’s Commitment) but only to the extent that (x) the conditions set forth in Section 6.2 are satisfied at the time of such reallocation (and, unless the MG Borrower shall have otherwise notified the Agent at such time, the Borrowers shall be deemed to have represented and warranted that such conditions are satisfied at such time), and (y) such reallocation does not cause the aggregate amount of the Loans and Letter of Credit Liabilities of any Non-Defaulting Lender to exceed such Non-Defaulting Lender’s Commitment. No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.

(f) Cash Collateral. If the reallocation described in clause (e) above cannot, or can only partially, be effected, the Borrowers shall, without prejudice to any right or remedy available to it hereunder or under law, Cash Collateralize the Agent’s Fronting Exposure in accordance with the procedures set forth in Section 11.5.

(g) Defaulting Lender Cure. If the MG Borrower and the Agent agree in writing that a Lender is no longer a Defaulting Lender, the Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit to be held pro rata by the Lenders in accordance with the Commitments (without giving effect to Section 3.12(e)), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrowers while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.

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(h) New Letters of Credit. So long as any Lender is a Defaulting Lender, the Issuing Bank shall not be required to issue, extend, renew or increase any Letter of Credit unless it is satisfied that it will have no Fronting Exposure after giving effect thereto.

Section 3.13 Taxes.

(a) Taxes Generally. All payments by or on behalf of the Borrowers of principal of, and interest on, the Loans and all other Obligations shall be made free and clear of and without deduction for any present or future excise, stamp or other taxes, fees, duties, levies, imposts, charges, deductions, withholdings or other charges of any nature whatsoever imposed by any taxing authority (but excluding (i) any taxes imposed on or measured by any Lender’s net income or branch profits in each case by the United States or by the jurisdiction under the laws of which such Lender is organized or the jurisdiction in which the principal office or applicable Lending Office of such Lender is located, (ii) any taxes (other than withholding taxes) with respect to the Agent or a Lender that would not be imposed but for a connection between the Agent or such Lender and the jurisdiction imposing such taxes (other than a connection arising solely by virtue of the activities of the Agent or such Lender pursuant to or in respect of this Agreement or any other Loan Document or as a result of having received a payment under, received or perfected a security interest under or sold or assigned an interest in any Loan Document), and (iii) any withholding taxes imposed as a result of the failure of the Agent or a Lender, as applicable, to provide (to the extent able) the forms or certificates required to be provided under Section 3.13.(c) and (iv) taxes arising under FATCA such excluded taxes being collectively called “Excluded Taxes” and such non-excluded items being collectively called “Taxes”). If any withholding or deduction from any payment to be made by or on behalf of a Borrower hereunder is required in respect of any Taxes pursuant to any Applicable Law, then such Borrower or Guarantor, as applicable, will:

(i) pay directly to the relevant Governmental Authority the full amount required to be so withheld or deducted;

(ii) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such Governmental Authority; and

(iii) pay to the Agent for its account or the account of the applicable Lender, as the case may be, such additional amount or amounts as is necessary to ensure that the net amount actually received by the Agent or such Lender will equal the full amount that the Agent or such Lender would have received had no such withholding or deduction been required.

(b) Tax Indemnification. If any Borrower or Guarantor fails to pay any Taxes when due to the appropriate Governmental Authority or fails to remit to the Agent, for its account or the account of the respective Lender, as the case may be, the required receipts or other required documentary evidence, such Borrower or Guarantor shall indemnify the Agent and the Lenders for any incremental Taxes, interest or penalties that may become payable by the Agent or any Lender as a result of any such failure. For purposes of this Section, a distribution hereunder by the Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrowers.

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(c) Tax Forms. Each Foreign Lender agrees to deliver to the Borrowers and the Agent on or prior to the Effective Date, or in the case of (x) a Lender that is an Assignee of an interest under this Agreement (unless the respective Lender was already a Lender hereunder immediately prior to such assignment) or (y) an Eligible Assignee that becomes a Lender, on the date of such assignment or on the date such Eligible Assignee becomes a Lender hereunder, as the case may be, (i) two accurate and complete original signed copies of Internal Revenue Service (“IRS”) Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) (or successor forms) certifying to such Lender’s entitlement as of such date to a complete exemption from United States withholding tax with respect to payments to be made by the Borrowers under this Agreement and under any Note or (ii) if the Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code and cannot deliver either IRS Form W-8ECI or W-8BEN (with respect to a complete exemption under an income tax treaty) (or successor forms) pursuant to clause (i) above, (x) a certificate representing that such Lender is not a “bank” within the meaning of 881(c)(3)(A) of the Internal Revenue Code (“Non-Bank Certificate”) and (y) two accurate and complete original signed copies of IRS Form W-8BEN (with respect to the portfolio interest exemption) (or successor form) certifying to such Lender’s entitlement as of such date to a complete exemption from US withholding tax with respect to payments of interest to be made by the Borrowers under this Agreement and under any Note or (iii) in the case of a Lender that is a flow-through entity for US federal income tax purposes, two accurate and complete signed copies of IRS Form W-8IMY (and all necessary attachments) establishing a complete exemption from United States withholding tax with respect to payments made to the Lender under this Agreement or under any Note. In addition, each Foreign Lender shall, in the case of any payment made after December 31, 2012 in respect of any Loan, Letters of Credit, Note or obligation that was not treated as outstanding for purposes of FATCA on March 18, 2012, provide any forms, documentation, or other information as shall be prescribed by the Internal Revenue Service to demonstrate that the relevant Foreign Lender has complied with the applicable reporting requirements of FATCA so that such payments made to such Foreign Lender hereunder would not be subject to U.S. federal withholding taxes imposed by FACTA. Each Lender that is a United States person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for U.S. federal income tax purposes, agrees to deliver to the Borrowers and the Agent on or prior to the date it becomes a party to this Agreement, two accurate and complete original signed copies of IRS Form W-9 certifying to such Person’s entitlement to exemption from United States federal backup withholding, unless such Lender demonstrates that it is treated as an exempt recipient under Treasury Regulation Section 1.6049-4(c)(1)(ii). In addition, each Lender agrees that from time to time after the Effective Date, when a lapse in time or change in circumstances renders the previous forms or certifications obsolete or inaccurate in any material respect, such Lender will deliver to the Borrowers and the Agent two new accurate and complete original signed

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copies of IRS Form W-8ECI, Form W-8BEN (with respect to the benefits of any income tax treaty), or Form W-8BEN (with respect to the portfolio interest exemption) and a Non-Bank Certificate or Form W-8IMY (with respect to a flow-through entity) or Form W-9 (with respect to backup withholding), as the case may be, and any successor forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax or backup withholding with respect to payments by the Borrowers under this Agreement and under any Note, or it shall immediately notify the Borrowers and the Agent of its inability to deliver any such form or certificate in which case such Lender shall not be required to deliver any such form or certificate pursuant to this Section 3.13.(c). Notwithstanding anything to the contrary contained in Section 3.13.(a), but subject to the immediately succeeding sentence, (x) the Borrowers shall be entitled, to the extent they are required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, Fees or other amounts payable hereunder for the account of any Lender that is lending to the Borrowers to the extent that such Lender has not provided to the Borrowers, the IRS Forms that establish a complete exemption from such deduction or withholding and (y) the Borrowers shall not be obligated pursuant to Section 3.13.(a) to gross-up payments to be made to a Lender in respect of income or similar taxes imposed by the United States if such Lender has not provided to the Borrowers the IRS Forms required to be provided to the Borrowers pursuant to this Section 3.13.(c) (except, in the case of an Eligible Assignee or Assignee, to the extent the Borrowers were required to gross-up payments to the relevant assignor). Notwithstanding anything to the contrary contained in the preceding sentence, the Borrowers agree to pay any additional amounts or indemnify (in the case of a payment made by a Lender) each Lender in the manner set forth in Section 3.13.(a) and (b) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by the Borrowers (or paid by a Lender) as described in the immediately preceding sentence as a result of any changes that are effective after the Effective Date in any Applicable Law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of income or similar Taxes. If any Governmental Authority asserts that the Agent did not properly withhold or backup withhold, as the case may be, any tax or other amount from payments made to or for the account of any Lender, such Lender shall indemnify the Agent therefor, including all penalties and interest, any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, and costs and expenses (including all reasonable fees and disbursements of any law firm or other external counsel and the allocated cost of internal legal services and all disbursements of internal counsel) of the Agent. The obligation of the Lenders under this Section shall survive the termination of the Commitments, repayment of all Obligations and the resignation or replacement of the Agent.

(d) Refunds. If the Agent or a Lender determines, in its sole discretion, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section (including additional amounts paid by the Borrowers pursuant to this Section), it shall pay to the applicable indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of the Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that the applicable indemnifying party, upon the request of the Agent or such Lender, agrees promptly to repay the amount paid over pursuant to this Section (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Agent or such Lender in the event the Agent or such Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (d), in no event will the Agent or Lender be required to pay any amount to an indemnifying party pursuant to this paragraph (d) the payment of which would place the Agent or Lender in a less favorable net after-tax position than the Agent or Lender would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This paragraph shall not be construed to require the Agent or Lender to make available its Tax returns (or any other information relating to its Taxes which it deems confidential) to the Borrowers or any other Person. Neither the Agent nor any Lender shall be required to pay any amounts pursuant to this paragraph (d) at any time that an Event of Default exists, provided that such amounts shall become due and payable at the time such Event of Default ceases to exist and no other Event of Default exists.

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Section 3.14 Mitigation Obligations; Replacement of Lenders.

(a) If (i) any Lender requests compensation under Section 5.1., (ii) the Borrowers are required to pay any additional amount to any Lender, the Agent or any Governmental Authority for the account of any Lender or the Agent pursuant to Section 3.13.(a) (provided that this clause (ii) shall not be applicable if the Borrowers are required to pay any additional amount to the Requisite Lenders pursuant to Section 3.13.(a)), (iii) any Lender is a Non-Consenting Lender, (iv) any Lender shall have given notice under Section 5.1.(b) or Section 5.3. of its inability to make or maintain as such any LIBOR Loan (provided that this clause (iv) shall not be applicable if the Requisite Lenders have given such notice) or (v) any Lender becomes a Defaulting Lender (any such Defaulting Lender and any Lender referred to in (i) through (iv) above being herein referred to as an “Affected Lender”), then the MG Borrower may, by giving written notice thereof to the Agent, such Affected Lender and the other Lenders, demand that such Affected Lender assign its Commitment and all of its other interests, rights and obligations under this Agreement and the other Loan Documents to an Eligible Assignee subject to and in accordance with the provisions of Section 13.5.(b), in consideration of the applicable payments provided for in subsection (b) below, and upon such demand the Affected Lender shall promptly, assign its Commitment and all of its other interests, rights and obligations under this Agreement and the other Loan Documents to such Eligible Assignee. Upon any such assignment, the Affected Lender’s interest in the Loans and its rights hereunder (but not its liability in respect thereof or under the Loan Documents to the extent the same relate to the period prior to the effective date of the purchase) shall terminate on the date of purchase, and the Affected Lender shall promptly execute all documents reasonably requested to surrender and transfer such interest to the purchaser or assignee thereof, including an appropriate Assignment and Assumption Agreement, and shall pay to the Agent an assignment fee as provided in Section 13.5.(b)(iv). Notwithstanding the foregoing, an Affected Lender shall not be required to make any such assignment if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstance entitling the MG Borrower to require such assignment and delegation cease to apply. In the case of any such assignment resulting from a claim for compensation under Section 5.1. or payments required to be made pursuant to Section 3.13.(a) it shall be a condition to such assignment that such assignment will result in a reduction in such compensation or payments.

(b) In the case of an Affected Lender, the sum required to be paid upon assignment of its Commitment shall be (i) the purchase price equal to the outstanding principal of its Loans, accrued interest thereon and all accrued fees owing to such Affected Lender, all of which shall be paid by the Assignee, and (ii) all other amounts payable by the Borrowers to such Affected Lender hereunder (including amounts, if any, payable under Section 3.13.(a) or Section 5.1), all of which shall be paid by the Borrowers.

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ARTICLE IV

Florida Property

Section 4.1 Frequency of Calculations of Borrowing Base. Initially, the Borrowing Base shall be the amount set forth as such in the Borrowing Base Certificate delivered under Section 6.1. Thereafter, the Borrowing Base shall be the amount set forth as such in the Borrowing Base Certificate delivered from time to time under this Section 4.1, Section 4.2.(b) or 9.3.(b). Any change in the Borrowing Base Value of the Florida Property shall become effective as of the date the next Borrowing Base Certificate is delivered, provided that the applicable Borrowing Base Certificate substantiates such change. Any change in the Borrowing Base Value of the Florida Property determined pursuant to an Appraisal described in Section 4.2. or Section 4.3. shall be effective immediately upon Agent’s delivery of notice to the MG Borrower that the Agent has accepted the applicable Appraisal, and shall be reflected in a Borrowing Base Certificate reflecting such new Borrowing Base Value, which certificate shall be delivered by the MG Borrower to the Agent within five Business Days of the MG Borrower’s receipt of such notice from the Agent. Notwithstanding the foregoing, to the extent that any decrease in the Borrowing Base Value of the Florida Property resulting from an Appraisal would require the Borrowers to prepay any Loan or cash collateralize any Letter of Credit pursuant to Section 2.6(b), such prepayment or cash collateral shall be due within five Business Days after the date that the Agent has delivered to the MG Borrower notice that the Agent has accepted such Appraisal; provided further, however, that nothing contained in this sentence shall delay the effectiveness of such decrease in the Borrowing Base Value of the Florida Property for the purposes of determining whether any condition is met for the making of any Loan or the issuance of any Letter of Credit.

Section 4.2 Frequency of Appraisals. The Appraised Value of the Florida Property shall be determined or redetermined, as applicable, under each of the following circumstances:

(a) The Agent will obtain a new Appraisal for the Florida Property in the second fiscal quarter of 2012, and such Appraisal shall be at the sole cost of the Borrowers;

(b) The Agent may also obtain a new Appraisal of the Florida Property once during every twelve (12) months following the date of the Appraisal described in subsection (a) above, or at any time and more frequently if a Default or an Event of Default exists. Any such Appraisal will be at the sole cost of the Borrowers. The Agent will also be allowed to obtain a new Appraisal of the Florida Property at any other time that the Agent has a reasonable basis to believe that the value of the Florida Property has changed (but in no event more than once every 6 months), in its discretion or at the request of the Requisite Lenders; provided, that any such Appraisal will be at the sole cost of the Lenders. The Borrowing Base shall be redetermined as a result of delivery of any new Appraisal performed under this Section 4.2. or under Section 4.3. below, in each case to the extent such Appraisal is accepted by the Agent pursuant to Section 4.1.; and within five Business Days after MG Borrower’s receipt of notice from the Agent that the Agent has accepted such Appraisal, the MG Borrower shall deliver to the Agent, a Borrowing Base Certificate reflecting the Borrowing Base after giving effect to the new Appraised Value of any applicable Properties.

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(c) Following any Major Casualty or any “Major Taking” under and as defined in any Security Deed, and such Appraisal shall be at the sole cost of the Borrowers; and

(d) Upon the MG Borrower’s written request for a redetermination of the Appraised Value of the Florida Property, the Agent shall redetermine the Appraised Value of the Florida Property (based on a new Appraisal of the Florida Property obtained by the Agent), all at the Borrowers’ expense; provided, that the MG Borrower may request a new Appraisal of the Florida Property pursuant to this subsection only 2 times.

Section 4.3 Additional Appraisals Required under Applicable Law. If under FIRREA or any other Applicable Law, the Agent or any Lender is required to obtain an Appraisal of the Florida Property in addition to any other Appraisal previously obtained with respect to the Florida Property pursuant to this Agreement, the Agent shall have the right to cause such an Appraisal to be prepared at the Borrowers’ cost and expense. The Borrowing Base shall be redetermined as a result of delivery of any such new Appraisal if Applicable Law requires such redetermination, in which case the Borrowing Base shall be redetermined in the manner required under such Applicable Law.

ARTICLE V

Yield Protection, Etc.

Section 5.1 Additional Costs; Capital Adequacy.

(a) Additional Costs. The Borrowers shall promptly pay to the Agent for the account of each affected Lender from time to time such amounts as such Lender may determine to be necessary to compensate such Lender for any costs incurred by such Lender that it determines are attributable to its making or maintaining of any LIBOR Loans or its obligation to make any LIBOR Loans hereunder, any reduction in any amount receivable by such Lender under this Agreement or any of the other Loan Documents in respect of any of such Loans or such obligation or the maintenance by such Lender of capital in respect of its Loans or its Commitment (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), in each case to the extent resulting from any Regulatory Change that: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or any of the other Loan Documents in respect of any of such Loans or its Commitment (other than Taxes that are provided for in Section 3.3. and Excluded Taxes); or (ii) imposes or modifies any reserve, special deposit or similar requirements (other than Regulation D of the Board of Governors of the Federal Reserve System or other reserve requirement to the extent utilized in the determination of Adjusted LIBOR for such Loan) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender, or any Commitment of such Lender (including, without limitation, the Commitment of such Lender hereunder); or (iii) has or would have the effect of reducing the rate of return on capital of such Lender to a level below that which such Lender could have achieved but for such Regulatory Change (taking into consideration such Lender’s policies with respect to capital adequacy).

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(b) Lender’s Suspension of LIBOR Loans. Without limiting the effect of the provisions of the immediately preceding subsection (a), if, by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender that includes deposits by reference to which the interest rate on LIBOR Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender that includes LIBOR Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets that it may hold, then, if such Lender so elects by notice to the MG Borrower (with a copy to the Agent), the obligation of such Lender to make or Continue, or to Convert any other Type of Loans into, LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of Section 5.5. shall apply).

(c) Additional Costs in Respect of Letters of Credit. Without limiting the obligations of the Borrowers under the preceding subsections of this Section (but without duplication), if as a result of any Regulatory Change or any risk-based capital guideline or other requirement heretofore or hereafter issued by any Governmental Authority there shall be imposed, modified or deemed applicable any tax, reserve, special deposit, capital adequacy or similar requirement against or with respect to or measured by reference to Letters of Credit (other than Taxes that are provided for in Section 3.3. and Excluded Taxes) and the result shall be to increase the cost to the Issuing Bank of issuing (or any Lender of purchasing participations in) or maintaining its obligation hereunder to issue (or purchase participations in) any Letter of Credit or reduce any amount receivable by the Issuing Bank or any Lender hereunder in respect of any Letter of Credit, then, upon demand by the Issuing Bank or such Lender, the Borrowers shall pay promptly, and in any event within 10 days of demand, to the Issuing Bank for its account or the account of such Lender, as applicable, from time to time as specified by the Issuing Bank or a Lender, such additional amounts as shall be sufficient to compensate the Issuing Bank or such Lender for such increased costs or reductions in amount.

(d) Notification and Determination of Additional Costs. Each of the Agent, the Issuing Bank and each Lender agrees to notify the MG Borrower of any event occurring after the Agreement Date entitling the Agent, the Issuing Bank or such Lender to compensation under any of the preceding subsections of this Section as promptly as practicable; provided, however, the failure of the Agent, the Issuing Bank or any Lender to give such notice shall not release the Borrowers from any of its obligations hereunder (and in the case of a Lender, to the Agent); provided further, that (i) none of the Agent, the Issuing Bank or any Lender shall be entitled to claim any additional cost, reduction in amounts, loss, tax or other additional amount under this Section 5.1. if such Person fails to provide such notice to the MG Borrower within 270 days of the date the Agent, the Issuing Bank or such Lender becomes aware of the occurrence of the event giving rise to the additional cost, reduction in amounts, loss, tax or other additional amount and (ii) it shall be a condition precedent to any claim under this Section 5.1. that the claimant is generally imposing similar claims or charges on its other similarly situated borrowers. The Agent, the Issuing Bank or such Lender agrees to furnish to the MG Borrower (and in the case of a Lender, to the Agent) a certificate setting forth in reasonable detail the basis and amount of each request by the Agent, the Issuing Bank or such Lender for compensation under this Section. Absent manifest error, determinations by the Agent, the Issuing Bank or any Lender of the effect of any Regulatory Change shall be conclusive, provided that such determinations are made on a reasonable basis and in good faith.

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Section 5.2 Suspension of LIBOR Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of Adjusted LIBOR for any Interest Period:

(a) the Agent reasonably determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining Adjusted LIBOR for such Interest Period, or

(b) the Agent reasonably determines (which determination shall be conclusive) that Adjusted LIBOR will not adequately and fairly reflect the cost to the Lenders of making or maintaining LIBOR Loans for such Interest Period;

then the Agent shall give the MG Borrower and each Lender prompt notice thereof and, so long as such condition remains in effect, the Lenders shall be under no obligation to, and shall not, make additional LIBOR Loans, Continue LIBOR Loans or Convert Loans into LIBOR Loans and the Borrowers shall, on the last day of each current Interest Period for each outstanding LIBOR Loan, either cause such Loan to be repaid or cause such Loan to be Converted into a Base Rate Loan.

Section 5.3 Illegality. Notwithstanding any other provision of this Agreement, if any Lender shall reasonably determine (which determination shall be conclusive and binding) that it has become unlawful for such Lender to honor its obligation to make or maintain LIBOR Loans hereunder, then such Lender shall promptly notify the MG Borrower thereof (with a copy to the Agent) and such Lender’s obligation to make or Continue, or to Convert Loans of any other Type into, LIBOR Loans shall be suspended until such time as such Lender may again make and maintain LIBOR Loans (in which case the provisions of Section 5.5. shall be applicable).

Section 5.4 Compensation. The Borrowers shall pay to the Agent for the account of each Lender, upon the request of such Lender through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss (but not lost profits), cost or expense that such Lender reasonably determines is attributable to:

(a) any payment or prepayment (whether mandatory or optional) of a LIBOR Loan, or Conversion of a LIBOR Loan, made by such Lender for any reason (including, without limitation, acceleration) on a date other than the last day of the Interest Period for such Loan;

(b) any failure by any Borrower for any reason (including, without limitation, the failure of any of the applicable conditions precedent specified in Article VI. to be satisfied) to borrow a LIBOR Loan from such Lender on the requested date for such borrowing, or to Convert a Base Rate Loan into a LIBOR Loan or Continue a LIBOR Loan on the requested date of such Conversion or Continuation; or

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(c) any revocation of a notice of termination of Commitments delivered by the MG Borrower pursuant to Section 2.10.

Upon the MG Borrower’s request, any Lender requesting compensation under this Section shall provide the MG Borrower with a statement setting forth in reasonable detail the basis for requesting such compensation and the method for determining the amount thereof. Absent manifest error, determinations by any Lender in any such statement shall be conclusive, provided that such determinations are made on a reasonable basis and in good faith.

Section 5.5 Treatment of Affected Loans. If the obligation of any Lender to make LIBOR Loans or to Continue, or to Convert Base Rate Loans into, LIBOR Loans shall be suspended pursuant to Section 5.1.(b) or 5.3., then such Lender’s LIBOR Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for LIBOR Loans (or, in the case of a Conversion required by Section 5.1.(b) or 5.3., on such earlier date as such Lender may specify to the MG Borrower with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 5.1. or 5.3. that gave rise to such Conversion no longer exist:

(a) to the extent that such Lender’s LIBOR Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender’s LIBOR Loans shall be applied instead to its Base Rate Loans; and

(b) all Loans that would otherwise be made or Continued by such Lender as LIBOR Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate Loans of such Lender that would otherwise be Converted into LIBOR Loans shall remain as Base Rate Loans.

If such Lender gives notice to the MG Borrower (with a copy to the Agent) that the circumstances specified in Section 5.1. or 5.3. that gave rise to the Conversion of such Lender’s LIBOR Loans pursuant to this Section no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when LIBOR Loans made by other Lenders are outstanding, then such Lender’s Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding LIBOR Loans, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding LIBOR Loans and by such Lender are held pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments.

Section 5.6 Change of Lending Office. Each Lender agrees that it will use reasonable efforts to designate an alternate Lending Office with respect to any of its Loans affected by the matters or circumstances described in Section 3.12., 5.1. or 5.3. to reduce the liability of the Borrowers or avoid the results provided thereunder, so long as such designation is not disadvantageous to such Lender as determined by such Lender in its sole discretion, except that such Lender shall have no obligation to designate a Lending Office located in the United States of America.

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Section 5.7 Assumptions Concerning Funding of LIBOR Loans. Calculation of all amounts payable to a Lender under this Article V. shall be made as though such Lender had actually funded LIBOR Loans through the purchase of deposits in the relevant market bearing interest at the rate applicable to such LIBOR Loans in an amount equal to the amount of the LIBOR Loans and having a maturity comparable to the relevant Interest Period; provided, however, that each Lender may fund each of its LIBOR Loans in any manner it sees fit and the foregoing assumption shall be used only for calculation of amounts payable under this Article V.

ARTICLE VI

Conditions Precedent

Section 6.1 Initial Conditions Precedent. The obligation of the Lenders to effect or permit the occurrence of the first Credit Event hereunder, whether as the making of a Loan or the issuance of a Letter of Credit, is subject to the following conditions precedent:

(a) The Agent shall have received each of the following, in form and substance satisfactory to the Agent:

(i) counterparts of this Agreement executed by each of the parties hereto;

(ii) Notes executed by the Borrowers payable to each Lender and complying with the applicable provisions of Section 2.9.;

(iii) the Guaranty executed by Holdings and the Management Company;

(iv) a Security Deed executed by the Florida Borrower;

(v) an Assignment of Leases and Rents executed by the Florida Borrower;

(vi) an Environmental Indemnity Agreement executed by the Florida Borrower and the MG Borrower;

(vii) Intentionally Omitted;

(viii) the Pledge Agreement executed by the MG Borrower as the owner of all the outstanding Equity Interests of the Florida Borrower, subjecting all such Equity Interests to the Lien of the Pledge Agreement and all certificates, if any, representing any such Equity Interests, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the MG Borrower, together with an Acknowledgment and Consent, substantially in the form of Schedule 2 to the Pledge Agreement, duly executed by the Florida Borrower as the issuer of such Equity Interest;

(ix) the Security Agreement executed by the Florida Borrower;

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(x) each document (including, without limitation, any UCC financing statement) required by the Pledge Agreement, the Security Agreement or under Applicable Law or reasonably deemed necessary or appropriate by the Agent to be entered into, filed, registered or recorded in order to create in favor of the Agent, for the benefit of the Lenders, a perfected first-priority Lien in (i) the Equity Interests in the Florida Borrower and all other related Collateral (as defined in the Pledge Agreement) and (ii) such reserves, operating accounts, deposit accounts, trademarks, copyrights, other Intellectual Property and all other related Collateral (as defined in the Security Agreement), shall have been entered into, filed, registered or recorded or shall have been delivered to the Agent and be in proper form for filing, registration or recordation, as appropriate;

(xi) a Property Management Contract Assignment executed by the Florida Borrower and the Management Company;

(xii) Intentionally Omitted;

(xiii) an opinion or opinions of counsel to the Loan Parties, addressed to the Agent, the Issuing Bank and the Lenders;

(xiv) the articles of incorporation, articles of organization, certificate of limited partnership or other comparable organizational instrument of each Loan Party certified as of a recent date by the Secretary of State of the state of formation of such Loan Party;

(xv) a certificate of good standing or certificate of similar meaning with respect to each Loan Party issued as of a recent date by the Secretary of State of the state of formation of such Loan Party and certificates of qualification to transact business or other comparable certificates issued by each Secretary of State (and any state department of taxation, as applicable) of each state in which such Loan Party is required to be so qualified and where the failure to be so qualified could reasonably be expected to have a Material Adverse Effect;

(xvi) a certificate of incumbency signed by the Secretary or Assistant Secretary (or other individual performing similar functions) of each Loan Party with respect to each of the officers of such Loan Party authorized to execute and deliver the Loan Documents to which such Loan Party is a party, and in the case of the MG Borrower, the officers of the MG Borrower then authorized to deliver Notices of Borrowings, Notices of Continuation and Notices of Conversion and to request the issuance of Letters of Credit;

(xvii) copies certified by the Secretary or Assistant Secretary (or other individual performing similar functions) of each Loan Party of (i) the by-laws of such Loan Party, if a corporation, the operating agreement of such Loan Party, if a limited liability company, the partnership agreement of such Loan Party, if a limited or general partnership, or other comparable document in the case of any other form of legal entity and (ii) all corporate, partnership, member or other necessary action taken by such Loan Party to authorize the execution, delivery and performance of the Loan Documents to which it is a party;

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(xviii) closing certificates in the form of Exhibit T attached hereto (or otherwise in form and substance satisfactory to the Agent) duly completed and executed by the Borrowers;

(xix) evidence of the payment of all Fees then due and payable under Section 3.7., and any other Fees payable to the Agent, the Titled Agents and the Lenders on or prior to the Effective Date;

(xx) a Borrowing Base Certificate calculated as of June 30, 2011;

(xxi) copies of all Property Management Agreements, franchise or license agreements and all other material contracts, if any, which relate to the use, occupancy, operation, management, maintenance, enjoyment or ownership of the Florida Property;

(xxii) copies of all material occupancy and operating permits and licenses relating to the use, occupancy, operation, maintenance, enjoyment or ownership of the Florida Property;

(xxiii) an ALTA 2006 Form mortgagee’s policy of title insurance or other form acceptable to the Agent in favor of the Agent for the benefit of the Lenders with respect to the Florida Property, including endorsements with respect to such items of coverage as the Agent may reasonably request (and which endorsements are available in Florida), in a coverage amount equal to no less than $100,000,000, issued by Chicago Title Insurance Company, showing the fee simple title to the land and improvements described in the Security Deed as vested in the Florida Borrower, and insuring that the Lien granted by the Security Deed is a valid first priority Lien, subject only to such restrictions, encumbrances, easements and reservations as are acceptable to the Agent and nonconsensual Liens permitted by Section 10.2. and copies of all documents of record reflected in Schedule B of such policy of title insurance;

(xxiv) a certified survey of the Florida Property prepared by a surveyor licensed in Florida in accordance with the then effective Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys;

(xxv) a “life of loan” Federal Emergency Management Agency Standard Flood Hazard Determination with respect to the Florida Property, in form and substance acceptable to the Agent (together with notice about special flood hazard area status and flood disaster assistance, duly executed by the Florida Borrower and evidence of flood insurance, in the event any improved parcel of the Florida Property is located in a special flood hazard area);

(xxvi) evidence in the form of (x) a zoning report prepared by the Planning Zoning Resource Corporation or (y) an ALTA 3.1 zoning endorsement to the title policy for the Florida Property indicating that the Florida Property complies with applicable zoning and land use laws or that the Florida Property is the subject of a legal non-conforming use;

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(xxvii) final certificates of occupancy for all improvements located at the Florida Property which require a certificate of occupancy under Applicable Law;

(xxviii) an Appraisal of the Florida Property acceptable to the Agent;

(xxix) an inspection report prepared by an architect or engineer acceptable to the Agent and addressed to the Agent for the benefit of the Lenders with respect to the Florida Property;

(xxx) copies of all engineering, mechanical, structural and maintenance studies performed with respect to the Florida Property not more than 12 months old;

(xxxi) evidence that the insurance that will be required under the applicable Loan Document for the Florida Property is in effect;

(xxxii) a “Phase I” (and a “Phase II” if warranted) environmental assessment of the Florida Property not more than 12 months old prepared by an environmental engineering firm acceptable to the Agent and upon which the Agent and the Lenders are expressly permitted to rely, and any additional environmental studies or assessments available to any Borrower performed with respect to the Florida Property;

(xxxiii) UCC, tax, judgment and lien search reports with respect to all applicable Loan Parties and the Florida Property in all necessary or appropriate jurisdictions and under all legal and appropriate trade names indicating that there are no Liens of record on the Florida Property or any of the Collateral relating thereto other than Liens expressly permitted under the Loan Documents to exist on the Florida Property or any of the Collateral relating thereto;

(xxxiv) copies of all leases of the Florida Property; and

(xxxv) such other due diligence materials, documents, agreements and instruments as the Agent on behalf of the Lenders may reasonably request.

(b) In the good faith judgment of the Agent and the Lenders:

(i) there shall not have occurred or become known to the Agent or any of the Lenders any event, condition, situation or circumstance since the date of the information contained in the financial and business projections, budgets, pro forma data and forecasts concerning Holdings, the MG Borrower, the other Loan Parties and the other Subsidiaries delivered to the Agent and the Lenders prior to the Effective Date that has had or could reasonably be expected to result in a Material Adverse Effect;

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(ii) no litigation, action, suit, investigation or other arbitral, administrative or judicial proceeding shall be pending or threatened which could reasonably be expected to (1) result in a Material Adverse Effect or (2) restrain or enjoin, impose materially burdensome conditions on, or otherwise materially and adversely affect the ability of any Loan Party to fulfill its obligations under the Loan Documents to which it is a party;

(iii) Holdings, the MG Borrower, the other Loan Parties and the other Subsidiaries shall have received all approvals, consents and waivers, and shall have made or given all necessary filings and notices, as shall be required to consummate the transactions contemplated hereby without the occurrence of any default under, conflict with or violation of (1) any Applicable Law or (2) any agreement, document or instrument to which the MG Borrower or any other Loan Party is a party or by which any of them or their respective properties is bound, except for such approvals, consents, waivers, filings and notices the receipt, making or giving of which would not reasonably be likely to (A) have a Material Adverse Effect, or (B) restrain or enjoin, impose materially burdensome conditions on, or otherwise materially and adversely affect the ability of any Loan Party to fulfill its obligations under the Loan Documents to which it is a party; and

(iv) there shall not have occurred or exist any other material disruption of financial or capital markets that could reasonably be expected to materially and adversely affect the transactions contemplated by the Loan Documents.

(c) When all of the conditions contained in the immediately preceding subsections (a) and (b) have been satisfied or waived in accordance with the terms hereof, the Agent shall promptly notify the MG Borrower and the Lenders thereof.

Section 6.2 Conditions Precedent to All Loans and Letters of Credit. The obligations of the Lenders to make any Loans and of the Issuing Bank to issue any Letters of Credit are all subject to the further conditions precedent that: (a) no Default or Event of Default shall exist as of the date of the making of such Loan or date of issuance of such Letter of Credit or would exist immediately after giving effect thereto and (b) the representations and warranties made or deemed made by each Loan Party in the Loan Documents to which any of them is a party, shall be true and correct in all material respects on and as of the date of the making of such Loan or date of issuance of such Letter of Credit with the same force and effect as if made on and as of such date except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date) and except for changes in factual circumstances not prohibited under the Loan Documents (other than a change in factual circumstances since the Effective Date, that constitutes a material adverse change in the business, assets, liabilities, financial condition or results of operations of Holdings and its Subsidiaries taken as a whole). Each Credit Event shall constitute a certification by the Borrowers to the effect set forth in the preceding sentence (both as of the date of the giving of notice relating to such Credit Event and, unless the Borrowers otherwise notify the Agent prior to the date of such Credit Event, as of the date of the occurrence of such Credit Event). In addition, the Borrowers shall be deemed to have represented to the Agent, the Issuing Bank and the Lenders at the time such Loan is made or Letter of Credit issued that all conditions to the occurrence of such Credit Event contained in this Article VI. have been satisfied.

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ARTICLE VII

Representations and Warranties

Section 7.1 Representations and Warranties. In order to induce the Agent, the Issuing Bank and each Lender to enter into this Agreement and to make Loans and issue Letters of Credit, Holdings and each of the Borrowers represents and warrants to the Agent, the Issuing Bank and each Lender as follows:

(a) Organization; Power; Qualification. Each of Holdings, the MG Borrower, each other Loan Party and each other Subsidiary is a corporation, partnership or other legal entity, duly organized or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation, has the power and authority to own or lease its respective properties and to carry on its respective business as now being and hereafter proposed to be conducted and is duly qualified and is in good standing as a foreign corporation, partnership or other legal entity, and authorized to do business, in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization and where the failure to be so qualified or authorized could reasonably be expected to have, in each instance, a Material Adverse Effect.

(b) Ownership Structure. Part I of Schedule 7.1.(b) sets forth, as of the Effective Date, a complete and correct list in all material respects of all Subsidiaries of Holdings setting forth for each such Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person holding any Equity Interests in such Subsidiary, (iii) the nature of the Equity Interests held by each such Person, (iv) the percentage of ownership of such Subsidiary represented by such Equity Interests and (v) whether such Subsidiary is a Material Subsidiary and/or a Foreign Subsidiary. Except as disclosed in such Schedule (i) each of Holdings, the MG Borrower, the other Loan Parties and the other Subsidiaries owns, free and clear of all Liens (other than Liens permitted under Section 10.2.), and has the unencumbered right to vote, all outstanding Equity Interests in each Person shown to be held by it on such Schedule, (ii) all of the issued and outstanding capital stock of each such Person that is a Subsidiary of Holdings organized as a corporation is validly issued, fully paid and nonassessable and (iii) there are no outstanding subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders’ or voting trust agreements) for the issuance, sale, registration or voting of, or outstanding securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, any such Person. Part II of Schedule 7.1.(b) sets forth, as of the Effective Date, a complete and correct list in all material respects of all Unconsolidated Affiliates of the MG Borrower setting forth for each such Unconsolidated Affiliate, (i) the jurisdiction of organization of such Unconsolidated Affiliate, (ii) each Person that is a Loan Party or a Subsidiary of Holdings holding any Equity Interests in such Unconsolidated Affiliate and (iii) the percentage of ownership of such Unconsolidated Affiliate represented by such Equity Interests.

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(c) Authorization of Agreement, Etc. The Borrowers have the right and power, and have taken all necessary action to authorize them, to borrow and obtain other extensions of credit hereunder. Each Loan Party has the right and power, and has taken all necessary action to authorize it, to execute, deliver and perform each of the Loan Documents to which it is a party in accordance with their respective terms and to consummate the transactions contemplated hereby and thereby. The Loan Documents to which any Loan Party is a party have been duly executed and delivered by the duly authorized officers of such Loan Party and each is a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its respective terms except as the same may be limited by bankruptcy, insolvency, and other similar laws affecting the rights of creditors generally and the availability of equitable remedies for the enforcement of certain obligations (other than the payment of principal) contained herein or therein and as may be limited by equitable principles generally.

(d) Compliance of Loan Documents with Laws, Etc. The execution, delivery and performance of this Agreement and the other Loan Documents to which any Loan Party is a party in accordance with their respective terms and the borrowings and other extensions of credit hereunder do not and will not, by the passage of time, the giving of notice, or both: (i) except as set forth in Schedule 7.1.(d), require any Governmental Approval or violate any Applicable Law (including all Environmental Laws) relating to any Loan Party; (ii) violate, result in a breach of or constitute a default under the organizational documents of any Loan Party, or any indenture, agreement or other instrument to which any Loan Party is a party or by which it or any of its respective properties may be bound; or (iii) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by any Loan Party other than Liens created pursuant to the Security Documents.

(e) Compliance with Law; Governmental Approvals. Each of Holdings, the MG Borrower, each other Loan Party and each other Subsidiary is in compliance with each Governmental Approval applicable to it and in compliance with all other Applicable Laws (including without limitation, Environmental Laws) relating to such Person except for noncompliances which, and Governmental Approvals the failure to possess which, could not, individually or in the aggregate, reasonably be expected to cause a Default or Event of Default or have a Material Adverse Effect.

(f) Title to Properties; Liens. Schedule 7.1.(f) is a complete and correct listing of all of the real property owned or leased by Holdings, the MG Borrower, each other Loan Party and each other Subsidiary as of the Effective Date. Each such Person has good, marketable and legal title to, or a valid leasehold interest in, its respective assets. Except as set forth on such Schedule, there are no Liens against any assets of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary except for Liens permitted under Section 10.2.

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(g) Existing Indebtedness. Schedule 7.1.(g) is a complete and correct listing, as of the Effective Date of all Indebtedness for borrowed money of Holdings, the MG Borrower and its Subsidiaries, including without limitation, Indebtedness in respect of Guarantees, in each case, that is not otherwise disclosed on the financial statements referenced in Section 7.1(k)(ii).

(h) Material Contracts. Schedule 7.1.(h) is a true, correct and complete listing of all Material Contracts as of the Effective Date. As of the Effective Date, no event or condition exists which with the giving of notice, the lapse of time, or both, would permit any party (other than the Loan Parties and their Subsidiaries) to any such Material Contract to terminate such Material Contract as a result of any default condition thereunder.

(i) Litigation. Except as set forth on Schedule 7.1.(i), there are no actions, suits, investigations or proceedings pending (nor, to the knowledge of Holdings or the Borrowers, are there any actions, suits or proceedings threatened) against or in any other way relating adversely to or affecting Holdings, the MG Borrower, any other Loan Party, any other Subsidiary or any of their respective property in any court or before any arbitrator of any kind or before or by any other Governmental Authority which could reasonably be expected to have a Material Adverse Effect. There are no strikes, slow downs, work stoppages or walkouts or other labor disputes in progress or, to Holdings or the Borrowers’ knowledge, threatened relating to Holdings, the MG Borrower, any other Loan Party or any other Subsidiary which could reasonably be expected to have a Material Adverse Effect.

(j) Taxes. All federal, state and other tax returns of Holdings, the MG Borrower, the other Loan Parties and the other Subsidiaries required by Applicable Law to be filed have been duly filed, and all federal, state and other taxes, assessments and other governmental charges or levies upon Holdings, the MG Borrower, each other Loan Party, each other Subsidiary and their respective properties, income, profits and assets which are due and payable have been paid, except any such nonpayment which is at the time permitted under Section 8.5. As of the Effective Date, none of the United States income tax returns of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary is under audit. All charges, accruals and reserves on the books of Holdings, the MG Borrower, each other Loan Party and each other Subsidiary in respect of any taxes or other governmental charges are in accordance with GAAP.

(k) Financial Statements. The MG Borrower has furnished to each Lender copies of (i) the audited consolidated balance sheet of Holdings and its Subsidiaries for the fiscal year ending December 31, 2010, and the related audited consolidated statements of operations and comprehensive loss, cash flows and net assets (deficit) for the fiscal year ending on such dates, with the opinion thereon of BDO Seidman, LLP, and (ii) the unaudited consolidated balance sheet of Holdings and its consolidated Subsidiaries for the fiscal quarter ending March 31, 2011, and the related unaudited consolidated statements of operations and comprehensive loss, cash flows and net assets (deficit) for the period of one fiscal quarter ending on such date. Such financial statements (including in each case related schedules and notes) present fairly, in all material respects and in accordance with GAAP consistently applied throughout the periods involved, the consolidated financial position of Holdings and its consolidated Subsidiaries as at their respective dates and the results of operations and the cash flow for such periods (subject, as to interim statements, to changes resulting from normal year-end audit adjustments). As of the Effective Date, neither Holdings nor any of its Subsidiaries has any contingent liabilities, liabilities, liabilities for taxes, unusual or long-term commitments or unrealized or forward anticipated losses from any unfavorable commitments that would be required to be set forth in its financial statements or in the notes thereto, except as referred to or reflected or provided for in said financial statements.

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(l) No Material Adverse Change. Since December 31, 2010, there has been no material adverse change in the business, assets, liabilities, financial condition or results of operations of Holdings and its Subsidiaries taken as a whole. As of the Effective Date, each of Holdings, the Borrowers and the Management Company is Solvent. Holdings is Solvent on a consolidated basis and each of the Borrowers is Solvent.

(m) ERISA. Each member of the ERISA Group is in compliance with its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan, except in each case for noncompliances which could not reasonably be expected to have a Material Adverse Effect. As of the Effective Date, no “reportable event” (as defined in Section 4043 of ERISA) has occurred with respect to any Plan. As of the Effective Date, no member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA.

(n) Not Plan Assets; No Prohibited Transaction. None of the assets of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary constitutes “plan assets” within the meaning of ERISA, the Internal Revenue Code and the respective regulations promulgated thereunder. The execution, delivery and performance of this Agreement and the other Loan Documents, and the borrowing and repayment of amounts hereunder, do not and will not constitute “prohibited transactions” under ERISA or the Internal Revenue Code.

(o) Absence of Defaults. None of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary is in default under its articles of incorporation, bylaws, partnership agreement or other similar organizational documents, and no event has occurred, which has not been remedied, cured or waived, which, in any such case: (i) constitutes a Default or an Event of Default; or (ii) constitutes, or which with the passage of time, the giving of notice, or both, would constitute, a default or event of default by any such person under any agreement (other than this Agreement) or judgment, decree or order to which any such Person is a party or by which any such Person or any of its respective properties may be bound where such default or event of default could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

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(p) Environmental Laws. Each of Holdings, the MG Borrower, the other Loan Parties and the other Subsidiaries has obtained all Governmental Approvals which are required under Environmental Laws and is in compliance with all terms and conditions of such Governmental Approvals which the failure to obtain or to comply with could reasonably be expected to have a Material Adverse Effect. Except for any of the following matters that could not be reasonably expected to have a Material Adverse Effect, (i) neither Holdings nor any of the Borrowers is aware of, or has received notice of, any past, present or future events, conditions, circumstances, activities, practices, incidents, actions, or plans which, with respect to Holdings, the MG Borrower, any other Loan Party or any other Subsidiary, may interfere with or prevent compliance or continued compliance with Environmental Laws, or may give rise to any common-law or legal liability, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, study, or investigation, arising under Environmental Laws or based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling or the emission, discharge, release or threatened release into the environment, of any Hazardous Material, and (ii) there is no civil, criminal, or administrative action, suit, demand, claim, hearing, notice, or demand letter, notice of violation, investigation, or proceeding pending or, to the knowledge of Holdings or the Borrowers, threatened, against Holdings, the MG Borrower, any other Loan Party or any other Subsidiary relating to Environmental Laws.

(q) Investment Company; Etc. None of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary is (i) an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, or (ii) subject to any other Applicable Law which purports to regulate or restrict its ability to borrow money or to consummate the transactions contemplated by this Agreement or to perform its obligations under any Loan Document to which it is a party.

(r) Margin Stock. No part of the proceeds of the Loans, and no Letter of Credit, will be used to purchase or carry any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying such margin stock. Neither the making of any Loan nor the use of the proceeds thereof nor the issuance of any Letter of Credit will violate the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.

(s) Affiliate Transactions. Except as permitted by Section 10.8., None of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary is a party to any transaction with an Affiliate.

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(t) Intellectual Property. Each of Holdings, the MG Borrower, each other Loan Party and each other Subsidiary owns or has the right to use, under valid license agreements or otherwise, all patents, licenses, franchises, trademarks, trademark rights, service marks, service mark rights, trade names, trade name rights, rights in trade dress, trade secrets and copyrights (including, without limitation, in the case of the Florida Borrower the right to use of the name “Delano” in connection with the ownership and operation of the Florida Property pursuant to the Delano Management Agreement) (collectively, “Intellectual Property”), necessary or material to the conduct of its businesses as now conducted and as contemplated by the Loan Documents, without known conflict with any patent, license, franchise, trademark, trademark right, service mark, service mark right, trade secret, trade name, trade dress right, copyright or other proprietary right of any other Person. Each of Holdings, the MG Borrower, each other Loan Party and each other Subsidiary has taken all steps as they deem reasonably necessary to protect their respective rights under and with respect to such Intellectual Property. As of the Effective Date, no claim has been asserted by any Person with respect to the use of any such Intellectual Property by Holdings, the MG Borrower, any other Loan Party or any other Subsidiary, or challenging or questioning the validity or effectiveness of any such Intellectual Property. The current operation and development of boutique hotels by Holdings, the MG Borrower, the other Loan Parties and the other Subsidiaries does not infringe on the rights of any Person, subject to such claims and infringements as do not, in the aggregate, give rise to any liabilities on the part of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary that could reasonably be expected to have a Material Adverse Effect. There is no requirement under Applicable Law that the Florida Property be known as or operated under the name “The Delano” or any other name.

(u) Business. Holdings, the MG Borrower, the other Loan Parties and the other Subsidiaries are engaged in the business of operating, owning, acquiring and redeveloping boutique hotels, together with other business activities incidental thereto.

(v) Broker’s Fees. No broker’s or finder’s fee, commission or similar compensation will be payable with respect to the transactions contemplated hereby, except for any compensation that will have been paid on or prior to the Effective Date.

(w) Accuracy and Completeness of Information. No written information, report or other papers or data (excluding financial projections and other forward looking statements) furnished to the Agent or any Lender by, on behalf of, or at the direction of, Holdings, the MG Borrower, any other Loan Party or any other Subsidiary in connection with, pursuant to or relating in any way to this Agreement, contained any untrue statement of a fact material to the creditworthiness of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary or omitted to state a material fact necessary in order to make such statements contained therein, in light of the circumstances under which they were made, not misleading. All financial statements (including in each case all related schedules and notes) furnished to the Agent or any Lender by, on behalf of, or at the direction of, Holdings, the MG Borrower, any other Loan Party or any other Subsidiary in connection with, pursuant to or relating in any way to this Agreement, present fairly, in all material respects and in accordance with GAAP consistently applied throughout the periods involved, the financial position of the Persons involved as at the date thereof and the results of operations for such periods (subject, as to interim statements, to changes resulting from normal year-end audit adjustments). All financial projections and other forward looking statements prepared by or on behalf of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary that have been or may hereafter be made available to the Agent or any Lender were or will be prepared in good faith based on reasonable assumptions.

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(x) Foreign Assets Control. None of Holdings, the MG Borrower, any other Loan Party, any other Subsidiary or to the knowledge of Holdings or the Borrowers any Affiliate; (i) is a Sanctioned Person, (ii) has any of its assets in Sanctioned Entities in a manner that violates Applicable Law, (iii) derives any of its operating income from investments in, or transactions with, Sanctioned Persons or Sanctioned Entities in a manner that violates Applicable Law, or (iv) will apply the proceeds of this Credit Agreement in any way that would cause any of the parties to the Agreement to violate Applicable Law; provided, however, that with respect to transactions with individual hotel guests, the above representations are made to the best of knowledge and belief.

(y) Swap Agreements. As of the Effective Date, except for the Swap Agreements listed on Schedule 7.1.(y), (i) no Loan Party is a party to or a guarantor of any Swap Agreement; (ii) no Swap Agreement is secured by any assets of any Loan Party; and (iii) no Loan Party has any direct or contingent obligation with respect to any Swap Agreement.

Section 7.2 Survival of Representations and Warranties, Etc. All statements contained in any certificate, financial statement or other instrument delivered by or on behalf of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary to the Agent or any Lender pursuant to or in connection with this Agreement or any of the other Loan Documents (including, but not limited to, any such statement made in or in connection with any amendment hereto or thereto or any statement contained in any certificate, financial statement or other instrument delivered by or on behalf of Holdings or the Borrowers or any other Loan Party prior to the Effective Date and delivered to the Agent or any Lender in connection with the underwriting or closing of the transactions contemplated hereby) shall constitute representations and warranties made by the Borrowers to the Agent and the Lenders under this Agreement. All representations and warranties made under this Agreement and the other Loan Documents shall be deemed to be made at and as of the Effective Date and the date of the occurrence of any Credit Event, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date) and except for changes in factual circumstances not prohibited under the Loan Documents (other than a change in factual circumstances since the Effective Date, that constitutes a material adverse change in the business, assets, liabilities, financial condition or results of operations of Holdings and its Subsidiaries taken as a whole). All such representations and warranties shall survive the effectiveness of this Agreement, the execution and delivery of the Loan Documents and the making of the Loans and the issuance of the Letters of Credit.

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ARTICLE VIII

Affirmative Covenants

For so long as this Agreement is in effect, unless the Requisite Lenders (or, if required pursuant to Section 13.6., each of the Lenders directly and adversely affected thereby) shall otherwise consent in the manner provided for in Section 13.6., each of Holdings and the Borrowers, as applicable, shall comply with the following covenants:

Section 8.1 Preservation of Existence and Similar Matters. Except as otherwise permitted under Section 10.3., Holdings and the MG Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, preserve and maintain its respective existence, rights, franchises, licenses and privileges in the jurisdiction of its incorporation or formation and qualify and remain qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification and authorization and where the failure to be so authorized and qualified could reasonably be expected to have a Material Adverse Effect.

Section 8.2 Compliance with Applicable Law and Material Contracts. Holdings and the MG Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, comply with (a) all Applicable Laws, including the obtaining of all Governmental Approvals, the failure with which to comply could reasonably be expected to have a Material Adverse Effect, and (b) all terms and conditions of (i) all Material Contracts to which it is a party, (ii) the Delano Management Agreement and (iii) the Delano License, in each case if the failure with which to comply could give any other party thereto the right to terminate such Material Contract, the Delano Management Agreement or the Delano License, as applicable.

Section 8.3 Maintenance of Property. In addition to the requirements of any of the other Loan Documents, Holdings and the MG Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, (a) protect and preserve all of its respective material properties, including, but not limited to, all Intellectual Property, and maintain in good repair, working order and condition all material tangible properties, ordinary wear and tear and casualty and condemnation events (subject to Sections 3.12. and 4.1. of the Security Deed) excepted, and (b) make or cause to be made all needed and appropriate repairs, renewals, replacements and additions to such material properties, so that the business carried on in connection therewith may be properly and advantageously conducted at all times.

Section 8.4 Insurance. In addition to the requirements of any of the other Loan Documents, Holdings and the MG Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, maintain insurance (on a replacement cost basis) with financially sound and reputable insurance companies (with an A.M. Best policyholders rating of at least A-IX (with respect to liability) or A-X (with respect to property damage)) against such risks (including, without limitation, acts of terrorism) and in such amounts as are customarily maintained by prudent Persons engaged in similar businesses and in similar locations and in any event as may be required by Applicable Law, and from time to time deliver to the Agent upon its request a detailed list, together with copies of all policies of the insurance then in effect, stating the names of the insurance companies, the amounts and rates of the insurance, the dates of the expiration thereof and the properties and risks covered thereby. In addition to the requirements of the immediately preceding sentence, Holdings and the Borrowers will at all times cause insurance coverage on the Florida Property to be maintained consistent in all material respects with such insurance coverage maintained on the Effective Date, including, without limitation, wind damage insurance in the amount of $100,000,000, provided that if such wind damage insurance is not available on commercially reasonable terms, then such other amount as may be reasonably approved by the Agent.

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Section 8.5 Payment of Taxes and Claims. Holdings and the MG Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, pay and discharge when due (a) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any properties belonging to it, and (b) all lawful claims of materialmen, mechanics, carriers, warehousemen and landlords for labor, materials, supplies and rentals which, if unpaid, might become a Lien on any properties of such Person; provided, however, that this Section shall not require the payment or discharge of any such tax, assessment, charge, levy or claim which is being contested in good faith by appropriate proceedings which operate to suspend the collection thereof and for which adequate reserves have been established on the books of Holdings, the MG Borrower, such other Loan Party or such other Subsidiary, as applicable, in accordance with GAAP.

Section 8.6 Visits and Inspections. Holdings and the MG Borrower shall, and shall cause each other Loan Party and each other Subsidiary to, permit representatives or agents of any Lender or the Agent, from time to time after reasonable prior notice if no Event of Default shall be in existence, as often as may be reasonably requested, but only during normal business hours and at the expense of such Lender or the Agent (unless a Default or Event of Default shall exist, in which case the exercise by the Agent or such Lender of its rights under this Section shall be at the expense of the Borrowers), as the case may be, to: (a) visit and inspect all properties of Holdings, the MG Borrower, such other Loan Party or such other Subsidiary to the extent any such right to visit or inspect is within the control of such Person; (b) inspect and make extracts from their respective books and records, including but not limited to management letters prepared by independent accountants; and (c) discuss with its officers and employees, and its independent accountants, its business, properties, condition (financial or otherwise), results of operations and performance. If requested by the Agent, each of Holdings and the Borrowers shall execute an authorization letter addressed to its accountants authorizing the Agent or any Lender to discuss the financial affairs of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary with its accountants.

Section 8.7 Use of Proceeds; Letters of Credit. The Borrowers shall use the proceeds of the Loans and the Letters of Credit for general corporate purposes only and not to fund or support any activity that this Agreement does not permit the Borrowers to undertake. No part of the proceeds of any Loan or Letter of Credit will be used (a) for the purpose of buying or carrying “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to others for the purpose of purchasing or carrying any such margin stock or (b) to fund any operations in, to finance any investments or activities in, or to make any payments to, a Sanctioned Person or Sanctioned Entity.

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Section 8.8 Environmental Matters. Holdings and the MG Borrower shall, and shall cause the other Loan Parties and the other Subsidiaries to, comply with all Environmental Laws and to maintain their Property in compliance with all Environmental Laws, the failure to comply with which could reasonably be expected to have a Material Adverse Effect. If Holdings, the MG Borrower, any other Loan Party or any other Subsidiary shall (a) receive notice that any violation of any Environmental Law may have been committed or is about to be committed by such Person, (b) receive notice that any administrative or judicial complaint or order has been filed or is about to be filed against Holdings, the MG Borrower, any other Loan Party or any other Subsidiary alleging violations of any Environmental Law or requiring Holdings, the MG Borrower, any other Loan Party or any other Subsidiary to take any action in connection with the release of Hazardous Materials or (c) receive notice from a Governmental Authority or private party alleging that Holdings, the MG Borrower, any other Loan Party or any other Subsidiary may be liable or responsible for costs associated with a response to or cleanup of a release of Hazardous Materials or any damages caused thereby, and the matters referred to in such notices, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, the MG Borrower shall provide the Agent with a copy of such notice promptly, and in any event within 10 Business Days, after the receipt thereof by Holdings, the MG Borrower, any other Loan Party or any other Subsidiary. Holdings and the MG Borrower shall, and shall cause the other Loan Parties and the other Subsidiaries to, take promptly all actions necessary to prevent the imposition of any Liens on any of their respective properties arising out of or related to any Environmental Laws.

Section 8.9 Books and Records. Holdings and the MG Borrower shall, and shall cause the other Loan Parties and the other Subsidiaries to, maintain books and records pertaining to its respective business operations in such detail, form and scope as is consistent with good business practice and in accordance with GAAP.

Section 8.10 Further Assurances. The Borrowers shall, at the Borrowers’ cost and expense and upon request of the Agent, execute and deliver or cause to be executed and delivered to the Agent such further instruments, documents and certificates, and do and cause to be done such further acts, that may be necessary or advisable in the reasonable opinion of the Agent to carry out the provisions and purposes of this Agreement and the other Loan Documents.

Section 8.11 Exchange Listing. Holdings shall maintain at least one class of common shares of Holdings having trading privileges on the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers Automated Quotation System.

Section 8.12 Minimum Hedging Requirement. At all times not less than seventy percent (70%) of the consolidated funded indebtedness (excluding the aggregate principal amount of all outstanding Loans plus the aggregate amount of all Letter of Credit Liabilities) of Holdings shall bear interest at a fixed rate or be the subject of one or more hedge arrangements which have the effect of making the indebtedness which is the subject of such hedge arrangements bear interest at a fixed rate.

Section 8.13 Post-Closing Deliverables. Not later than 45 days following the Effective Date (or such later date as may be permitted by the Agent in its sole discretion), the Florida Borrower shall execute and deliver a deposit account control agreement, executed by the Florida Borrower, Wells Fargo Bank, N.A. and the Agent, in form and substance reasonably satisfactory to the Agent.

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ARTICLE IX

Information

For so long as this Agreement is in effect, unless the Requisite Lenders shall otherwise consent in the manner set forth in Section 13.6., Holdings and the Borrowers, as applicable, shall comply with the following covenants:

Section 9.1 Quarterly Financial Statements. Not later than 5 days following the filing by Holdings of its Form 10-Q with the SEC, and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of Holdings, the MG Borrower shall furnish to the Agent a copy of Holdings’ unaudited consolidated balance sheet and unaudited consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by a Financial Officer as presenting fairly in all material respects the financial condition and results of operations of Holdings and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes.

Section 9.2 Year-End Statements. Not later than 5 days following the filing by Holdings of its Form 10-K with the SEC, and in any event within 90 days after the end of each fiscal year of Holdings, the MG Borrower shall furnish to the Agent a copy of Holdings’ audited consolidated balance sheet and audited consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows as of the end of and for such year, and related notes thereto, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by BDO Seidman, LLP or other independent registered public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of Holdings and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied.

Section 9.3 Compliance Certificate; Borrowing Base Certificate; Etc. Concurrently with the delivery of financial statements under Sections 9.1. and 9.2., the MG Borrower shall furnish to the Agent each of the following:

(a) Compliance Certificate. A certificate of a Financial Officer substantially in the form of Exhibit I (a “Compliance Certificate”) (i) providing the certification set forth therein as to the existence of a Default or Event of Default, if a Default or Event of Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with the covenants contained in Section 10.11. and (iii) stating whether any change in the application of GAAP to the financial statements of Holdings has occurred since the later of the date of the MG Borrower’s audited financial statements referred to in Section 7.1.(k) and the date of the prior certificate delivered pursuant to this Section indicating such a change and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;

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(b) Borrowing Base Certificate. A Borrowing Base Certificate including a calculation of the Adjusted Net Operating Income of the Florida Property and setting forth the other information to be contained therein as of the last day of the applicable fiscal period; and

(c) Income Statements. An income statement for the Florida Property for the period covered by the applicable financial statements.

Section 9.4 Other Information. Holdings or the MG Borrower, as applicable, shall furnish to the Agent each of the following:

(a) Securities Filings. Within five Business Days of the filing thereof, copies of all registration statements (excluding the exhibits thereto (unless requested by the Agent) and any registration statements on Form S-8 or its equivalent), reports on Forms 10-K, 10-Q and 8-K (or their equivalents) and all other periodic reports which Holdings, the MG Borrower, any other Loan Party or any other Subsidiary shall file with the SEC or any national securities exchange;

(b) Budgets. Prior to the commencement of each fiscal year of Holdings, (i) a detailed consolidated budget for such fiscal year (including a projected consolidated balance sheet and consolidated statements of projected operations, comprehensive income and cash flows as of the end of and for such fiscal year) and (ii) a detailed operating budget for the Florida Property for such fiscal year (including a projected balance sheet and statements of projected operations, comprehensive income and cash flows as of the end of and for such fiscal year) and, in each case, promptly when available, any significant revisions of any such budget;

(c) ERISA. If and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any “reportable event” (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement, which has resulted or could reasonably be expected to result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief executive officer or chief financial officer of Holdings setting forth details as to such occurrence and the action, if any, which Holdings or applicable member of the ERISA Group is required or proposes to take;

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(d) Change of Financial Condition. Prompt notice of any change in the business, operations, properties, financial condition or results of operations of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary which has had or could reasonably be expected to have a Material Adverse Effect;

(e) Default. Promptly upon a Financial Officer obtaining knowledge thereof, notice of the occurrence of any Default or Event of Default;

(f) Patriot Act Information. From time to time and promptly upon each request, information identifying any Loan Party as a Lender may request in order to comply with the USA PATRIOT ACT (Title III of Pub. Law 107-56 (signed into law October 26, 2001)) (as amended from time to time, the “Act”);

(g) Intentionally Omitted;

(h) Other Information. From time to time and promptly upon each request, such data, certificates, reports, statements, documents or further information regarding the business, assets, liabilities, financial condition, results of operations or business prospects of Holdings, the MG Borrower, any other Loan Party or any other Subsidiary as the Agent or any Lender may reasonably request;

(i) ADR, Etc. Within thirty (30) days after the end of each calendar month, commencing with July, 2011, average daily rate, occupancy and revenue per available room reports for the Florida Property for such calendar month; and

(j) STAR Reports. Within thirty (30) days after the end of each calendar month, commencing with July, 2011, STAR reports from Smith Travel Research for the Florida Property for such calendar month.

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Section 9.5 Electronic Delivery of Certain Information. (a) Holdings and the MG Borrower may deliver documents, materials and other information required to be delivered pursuant to Article IX. (collectively, “Information”) in an electronic format acceptable to the Agent by e-mailing any such Information to an e-mail address of the Agent as specified by the Agent from time to time. The Agent shall promptly post such Information (which the Agent shall do promptly upon receipt) on behalf of Holdings or the MG Borrower, as applicable, on an internet or intranet website to which each Lender and the Agent has access, whether a commercial, third-party website (such as Intralinks or SyndTrak) or a website sponsored by the Agent (the “Platform”).

(b) In addition, Holdings and the MG Borrower may deliver Information required to be delivered pursuant to Sections 9.1., 9.2., and 9.4.(a) by posting any such Information to Holdings’ internet website (as of the Effective Date, www.morganshotelgroup.com). Any such Information provided in such manner shall only be deemed to have been delivered to the Agent or a Lender (i) on the date on which the Agent or such Lender, as applicable, receives notice from Holdings or the MG Borrower that such Information has been posted to Holdings’ internet website and (ii) only if such Information is publicly available without charge on such website. If for any reason, the Agent or a Lender either did not receive such notice or after reasonable efforts was unable to access such website, then the Agent or such Lender, as applicable, shall not be deemed to have received such Information. In addition to any manner permitted by Section 13.1., Holdings and the MG Borrower may notify the Agent or a Lender that Information has been posted to such a website by causing an e-mail notification to be sent to an e-mail address specified from time to time by the Agent or such Lender, as applicable.

(c) Notwithstanding anything in this Section to the contrary Holdings and the MG Borrower shall deliver paper copies of Information to the Agent or any Lender that requests Holdings and the MG Borrower to deliver such paper copies until a written request to cease delivering paper copies is given to Holdings and the MG Borrower by the Agent or such Lender, as applicable.

(d) Each of Holdings and the Borrowers acknowledges and agrees that the Agent may make Information, as well as any other written information, reports, data, certificates, documents, instruments, agreements and other materials relating to Holdings, the MG Borrower, any Subsidiary or any other Loan Party or any other materials or matters relating to this Agreement, any of the other Loan Documents or any of the transactions contemplated by the Loan Documents, in each case to the extent that the Agent’s communication thereof to the Lenders is otherwise permitted hereunder (collectively, the “Communications”) available to the Lenders by posting the same on the Platform. Each of Holdings and the Borrowers acknowledges that (i) the distribution of material through an electronic medium, such as the Platform, is not necessarily secure and that there are confidentiality and other risks associated with such distribution, (ii) the Platform is provided “as is” and “as available” and (iii) neither the Agent nor any of its affiliates warrants the accuracy, adequacy or completeness of the Communications or the Platform and each expressly disclaims liability for errors or omissions in the Communications or the Platform.

(e) The Agent shall have no obligation to request the delivery or to maintain copies of any of the Information or other materials referred to above, and in no event shall have any responsibility to monitor compliance by Holdings or the Borrowers with any such requests. Each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such Information or other materials.

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ARTICLE X

Negative Covenants

For so long as this Agreement is in effect, unless the Requisite Lenders (or, if required pursuant to Section 13.6., all of the Lenders directly and adversely affected thereby) shall otherwise consent in the manner set forth in Section 13.6., each of Holdings and the Borrowers, as applicable, shall comply with the following covenants:

Section 10.1 Indebtedness; Certain Equity Securities. (a) The MG Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except:

(i) Indebtedness created under the Loan Documents;

(ii) (1) Indebtedness existing on the Effective Date and set forth in Schedule 7.1(g) or otherwise disclosed on the financial statements referenced in Section 7.1(k)(ii), and (2) extensions, renewals and replacements of any Indebtedness set forth on Schedule 7.1(g) (other than the Convertible Notes), provided that such extending, renewal or replacement Indebtedness (A) other than in the case of extending, renewing or replacing Indebtedness in respect of the Hudson Hotel, shall not be Indebtedness of an obligor that was not an obligor with respect to the Indebtedness being extended, renewed or replaced (unless such obligor is a Subsidiary formed specifically for that purpose), (B) shall not be in a principal amount that exceeds the principal amount of the Indebtedness being extended, renewed or replaced (plus any accrued but unpaid interest and redemption premium thereon), and (C) shall not have an earlier maturity date or shorter weighted average life than the Indebtedness being extended, renewed or replaced;

(iii) Nonrecourse Indebtedness of any Subsidiary that is not a Loan Party and obligations of any Loan Party (other than the Florida Borrower or any of its Subsidiaries) in respect of Customary Nonrecourse Exceptions; provided that after giving effect to the incurrence of such Indebtedness, Holdings shall be in pro forma compliance with the covenants set forth in Section 10.11;

(iv) Indebtedness of the MG Borrower to any Subsidiary and of any Subsidiary to the MG Borrower or any other Subsidiary, provided (A) that Indebtedness of any Subsidiary that is not a Loan Party to the MG Borrower or any Subsidiary that is a Loan Party shall be subject to Section 10.4. and (B) Indebtedness of the MG Borrower to any Subsidiary and Indebtedness of any Subsidiary that is a Loan Party to any Subsidiary that is not a Loan Party shall be subordinated to the Obligations on terms set forth on Exhibit G or as otherwise may be reasonably satisfactory to the Agent;

(v) Guarantees by the MG Borrower of Indebtedness of Holdings or any Subsidiary and by any Subsidiary (other than the Florida Borrower or any of its Subsidiaries) of Indebtedness of the MG Borrower or any other Subsidiary, provided that (A) the Indebtedness so Guaranteed is permitted by this Section (other than clause (a)(ii) or (a)(vii)), (B) Guarantees by the MG Borrower or any Subsidiary that is a Loan Party of Indebtedness of any Subsidiary that is not a Loan Party shall be subject to Section 10.4. and (C) Guarantees permitted under this clause (v) shall be subordinated to the Obligations of the applicable Subsidiary that is a Loan Party to the same extent and on the same terms as the Indebtedness so Guaranteed is subordinated to the Obligations;

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(vi) (A) Indebtedness of the MG Borrower or any Subsidiary (other than the Florida Borrower or any of its Subsidiaries) incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed by the MG Borrower or any Subsidiary (other than the Florida Borrower or any of its Subsidiaries) in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, provided that such Indebtedness is incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement, and (B) extensions, renewals and replacements of any such Indebtedness so long as the principal amount of such extensions, renewals and replacements does not exceed the principal amount of the Indebtedness being extended, renewed or replaced (plus any accrued but unpaid interest and redemption premium thereon); provided, however, that the aggregate principal amount of Indebtedness permitted by this clause (vi) shall not exceed $5,000,000 at any time outstanding, and any Indebtedness permitted by this clause (vi) that is incurred on or after the Effective Date shall not be used to finance the acquisition, construction, improvement or expansion of hotels not owned by the MG Borrower or its Subsidiaries;

(vii) Indebtedness of any Person that becomes a Subsidiary (other than a Subsidiary of the Florida Borrower) after the Effective Date, provided that such Indebtedness exists at the time such Person becomes a Subsidiary and was not created in contemplation of or in connection with such Person becoming a Subsidiary, and extensions, renewals and replacements of any such Indebtedness so long as the principal amount of such extensions, renewals and replacements does not exceed the principal of the Indebtedness being extended, renewed or replaced (plus any accrued but unpaid interest and redemption premium thereon), provided that the aggregate principal amount of Indebtedness permitted by this clause (vii) shall not exceed $5,000,000 at any time outstanding;

(viii) other unsecured Indebtedness of the MG Borrower or any Subsidiary (other than the Florida Borrower or any of its Subsidiaries) in an aggregate principal amount not exceeding $5,000,000 at any time outstanding;

(ix) Indebtedness owed to any Person (including obligations in respect of letters of credit for the benefit of such Person) providing workers’ compensation, health, disability or other employee benefits or property, casualty or liability insurance, pursuant to reimbursement or indemnification obligations to such Person, in each case incurred in the ordinary course of business;

(x) Indebtedness of the MG Borrower or any Subsidiary in respect of performance bonds, bid bonds, appeal bonds, surety bonds, performance and completion guarantees and similar obligations (other than in respect of other Indebtedness), in each case provided in the ordinary course of business;

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(xi) Indebtedness in respect of Swap Agreements permitted by Section 10.6.;

(xii) to the extent constituting Indebtedness of the MG Borrower or any Subsidiary (other than the Florida Borrower or any of its Subsidiaries) Investments made pursuant to Section 10.4(l), (m) or (q);

(xiii) (A) Guarantees and/or indemnities (other than in respect of payment of principal or interest) by the MG Borrower or any Subsidiary (other than the Florida Borrower or any of its Subsidiaries) in respect of capital contributions, project completions and cost-overruns and other performance matters and (B) Guarantees and/or indemnities by the MG Borrower or any Subsidiary (other than the Florida Borrower or any of its Subsidiaries) in respect of Customary Nonrecourse Exceptions, in each case in connection with investments or Indebtedness otherwise permitted under this Agreement and (C) indemnities by the Florida Borrower incurred in the ordinary course of business in connection with the ownership and operation of the Florida Property, including, without limitation, pursuant to contracts for the restoration or renovation of property owned by the Florida Borrower;

(xiv) unsecured Indebtedness incurred solely in connection with the acquisition of Equity Interests in a Subsidiary or joint venture permitted pursuant to Section 10.4., provided that such unsecured Indebtedness (A) shall not exceed $25,000,000 at any time outstanding, (B) shall not have an earlier maturity date or shorter weighted average life than one (1) year after the Termination Date and (C) shall be an obligation incurred by the buyer to the seller in connection with the acquisition of such Equity Interests, and provided further that such unsecured Indebtedness may be guaranteed by a Subsidiary (other than the Florida Borrower or any of its Subsidiaries) so long as such Subsidiary concurrently becomes a Guarantor under the Guaranty;

(xv) unsecured Indebtedness incurred (other than by the Florida Borrower or any of its Subsidiaries) to refinance the Trust Preferred Securities existing on the Effective Date, provided that such unsecured Indebtedness (A) shall not be in a principal amount that exceeds the principal amount of the Trust Preferred Securities being refinanced (plus any accrued but unpaid interest and redemption premium thereon), (B) shall not have an earlier maturity date or shorter weighted average life than two (2) years after the Termination Date, (C) shall not contain any (i) financial maintenance covenants and (ii) Operational Covenants that are more restrictive than the covenants contained in the Loan Documents and (D) shall have an interest rate of less than 8.675%, and provided further that such unsecured Indebtedness may be guaranteed by a Subsidiary (other than the Florida Borrower or any of its Subsidiaries) so long as such Subsidiary concurrently becomes a Guarantor under the Guaranty;

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(xvi) unsecured Indebtedness incurred (other than by the Florida Borrower or any of its Subsidiaries) to refinance the Convertible Notes, provided that such unsecured Indebtedness (A) shall not be in a principal amount that exceeds the principal amount of the Convertible Notes being refinanced (plus any accrued but unpaid interest and redemption premium thereon), (B) shall not have an earlier maturity date or shorter weighted average life than two (2) years after the Termination Date, and (C) shall not contain any (x) financial maintenance covenants (it being understood that this clause shall not limit financial condition covenants that apply solely as conditions to the consummation of specified transactions) and (y) Operational Covenants that are more restrictive than the Operational Covenants contained in the Loan Documents, and provided further that (i) Holdings is in compliance, on a Pro Forma Basis after giving effect to such unsecured Indebtedness, with the covenant contained in Section 10.11., (ii) such unsecured Indebtedness may be guaranteed by a Subsidiary (other than the Florida Borrower or any of its Subsidiaries) so long as such Subsidiary concurrently becomes a Guarantor under the Guaranty and (iii) such unsecured Indebtedness may contain Operational Covenants that are more restrictive than the Operational Covenants contained in the Loan Documents so long as, if the Requisite Lenders shall so request, the Borrowers shall, and shall cause the Guarantors to, enter into such agreements as may be reasonably requested to modify the Loan Documents to contain those of the more restrictive Operational Covenants applicable to such unsecured Indebtedness as may be specified in the request of the Requisite Lenders (it being understood that the incorporation of any such Operational Covenants shall also incorporate any applicable default notice and cure periods included in such unsecured Indebtedness with respect to such incorporated Operational Covenants); and

(xvii) unsecured Indebtedness incurred (other than by the Florida Borrower or any of its Subsidiaries) to refinance Preferred Stock existing on the Effective Date, provided that such unsecured Indebtedness (A) shall not be in a principal amount that exceeds the redemption price of the Preferred Stock being refinanced, (B) shall not have an earlier maturity date or shorter weighted average life than two (2) years after the Termination Date and (C) shall not contain any (i) financial maintenance covenants (it being understood that this clause shall not limit financial condition covenants that apply solely as conditions to the consummation of specified transactions) and (ii) Operational Covenants that are more restrictive than the covenants contained in the Loan Documents, provided further (i) that the Fixed Charge Coverage Ratio, on a Pro Forma Basis after giving effect to such unsecured Indebtedness, shall be greater than or equal to 1.50 to 1.00, (ii) that such unsecured Indebtedness may be guaranteed by a Subsidiary (other than the Florida Borrower or any of its Subsidiaries) so long as such Subsidiary concurrently becomes a Guarantor under the Guaranty and (iii) such unsecured Indebtedness may contain Operational Covenants that are more restrictive than the Operational Covenants contained in the Loan Documents so long as, if the Requisite Lenders shall so request, the Borrowers shall, and shall cause the Guarantors to, enter into such agreements as may be reasonably requested to modify the Loan Documents to contain those of the more restrictive Operational Covenants applicable to such unsecured Indebtedness as may be specified in the request of the Requisite Lenders (it being understood that the incorporation of any such Operational Covenants shall also incorporate any applicable default notice and cure periods included in such unsecured Indebtedness with respect to such incorporated Operational Covenants).

(b) Holdings will not create, incur, assume or permit to exist any Indebtedness except (i) Indebtedness created under the Loan Documents and (ii) Indebtedness that would be permitted to be created, incurred or assumed by the MG Borrower or any Subsidiary under Sections 10.1.(a)(ii), (v), (ix), (x), (xi), (xiii), (xiv), (xv), (xvi) and (xvii).

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(c) Neither Holdings nor the MG Borrower will, nor will they permit any Subsidiary to, issue after the Effective Date any Preferred Equity Interests except for Preferred Equity Interests that (i) are Preferred Stock or (ii) issued pursuant to the Outperformance Award Program (2011); provided that the Florida Borrower shall not issue any Preferred Equity Interests after the Effective Date.

Section 10.2 Liens. (a) Neither Holdings nor the MG Borrower will, nor will they permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:

(i) Liens created under the Loan Documents and in the case of any Collateral encumbered by a Security Document, other Liens expressly permitted on such Collateral by such Security Document;

(ii) Permitted Liens;

(iii) any Lien on any property or asset of the MG Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 7.1.(f), provided that (A) such Lien shall not apply to any other property or asset of the MG Borrower or any Subsidiary (other than assets financed by the same financing source pursuant to the same financing scheme in the ordinary course of business) and (B) such Lien shall secure only those obligations that it secures on the date hereof and extensions, renewals and replacements thereof so long as the principal amount of such extensions, renewals and replacements does not exceed the principal amount of the obligations being extended, renewed or replaced (plus any accrued but unpaid interest and redemption premium thereon);

(iv) Liens securing Indebtedness permitted by clause (a)(iii) of Section 10.1; provided that such Liens shall not apply to any property of a Loan Party other than Equity Interests of the entity that directly or indirectly owns the property financed by such Indebtedness (other than Equity Interests in the Loan Parties);

(v) any Lien existing on any property or asset prior to the acquisition thereof by the MG Borrower or any Subsidiary (other than the Florida Borrower or any of its Subsidiaries) or existing on any property or asset of any Person that becomes a Subsidiary (other than a Subsidiary of the Florida Borrower) after the date hereof prior to the time such Person becomes a Subsidiary, provided that (A) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (B) such Lien shall not apply to any other property or asset of the MG Borrower or any Subsidiary (other than assets financed by the same financing source pursuant to the same financing scheme in the ordinary course of business) and (C) such Lien shall secure only those obligations that it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be, and extensions, renewals and replacements thereof so long as the principal amount of such extensions, renewals and replacements does not exceed the principal amount of the obligations being extended, renewed or replaced (plus any accrued but unpaid interest and redemption premium thereon);

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(vi) Liens on fixed or capital assets acquired, constructed or improved (including any such assets made the subject of a Capital Lease Obligation incurred) by the MG Borrower or any Subsidiary (other than the Florida Borrower or any of its Subsidiaries), provided that (A) such Liens secure Indebtedness incurred to finance such acquisition, construction or improvement and are permitted by clause (vi)(A) of Section 10.1.(a) or to extend, renew or replace such Indebtedness and are permitted by clause (vi)(B) of Section 10.1.(a), (B) such Liens and the Indebtedness secured thereby are incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement (provided that this clause (B) shall not apply to any Indebtedness permitted by clause (vi)(B) of Section 10.1.(a) or any Lien securing such Indebtedness), (C) the Indebtedness secured thereby does not exceed the lesser of the cost of acquiring, constructing or improving such fixed or capital asset or, in the case of Indebtedness permitted by clause (vi)(A) of Section 10.1.(a), its fair market value at the time such security interest attaches, and in any event, the aggregate principal amount of such Indebtedness does not exceed $5,000,000 at any time outstanding and (D) such Liens shall not apply to any other property or assets of the MG Borrower or any Subsidiary (except assets financed by the same financing source pursuant to the same financing scheme in the ordinary course of business);

(vii) Liens of a collecting bank arising in the ordinary course of business under Section 4-208 of the Uniform Commercial Code in effect in the relevant jurisdiction covering only the items being collected upon;

(viii) Liens representing any interest or title of a licensor, lessor or sublicensor or sublessor under any lease or license permitted by this Agreement;

(ix) Liens that are rights of setoff relating to deposit accounts in favor of banks and other depositary institutions arising in the ordinary course of business;

(x) Liens not otherwise permitted by this Section 10.2.(a) to the extent that the aggregate outstanding principal amount of the obligations secured thereby does not exceed $1,000,000 at any time outstanding; and

(xi) Liens granted by a Subsidiary that is not a Loan Party in favor of the MG Borrower or another Loan Party in respect of Indebtedness or other obligations owed by such Subsidiary to such Loan Party.

(b) No Liens on Collateral. For avoidance of a doubt, neither Holdings nor the MG Borrower will, nor will they permit the Florida Borrower or any other Subsidiary to, create, incur, assume, or permit to exist Indebtedness secured by, or Liens on, the Florida Property or any other Collateral except for Permitted Encumbrances (as defined in the Security Deed encumbering such Collateral).

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Section 10.3 Fundamental Changes. (a) Neither Holdings nor the MG Borrower will, nor will they permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or liquidate or dissolve, except that, (i) if at the time thereof and immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing (w) any Person (other than the Florida Borrower) may merge into the MG Borrower in a transaction in which the MG Borrower is the surviving entity, (x) any Person (other than the MG Borrower and the Florida Borrower) may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary and (if any party to such merger is a Loan Party) is a Subsidiary that is Loan Party, (y) any Subsidiary (other than a Subsidiary that is a Loan Party) may liquidate or dissolve if the MG Borrower determines in good faith that such liquidation or dissolution is in the best interests of the MG Borrower and is not materially disadvantageous to the Lenders and (z) any Subsidiary (other than any Subsidiary that is a Loan Party) may merge into another Person in a transaction permitted by Section 10.5. in which such Person is the surviving entity, provided that any such merger involving a Person that is not a Wholly Owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Sections 10.4. and 10.5.

(b) The MG Borrower will not, and Holdings and the MG Borrower will not permit any Subsidiary to, engage to any material extent in any business other than businesses of the type conducted by the MG Borrower and the Subsidiaries on the Effective Date and businesses reasonably related thereto.

(c) Holdings will not engage in any business or activity other than the ownership of Equity Interests of the MG Borrower, and activities incidental thereto and compliance with its obligations under the Loan Documents. Holdings will not own or acquire any assets (other than Equity Interests of the MG Borrower, Hard Rock Hotel Holdings LLC, cash, Permitted Investments and other immaterial assets) or incur any liabilities (other than liabilities under the Loan Documents, liabilities permitted pursuant to Section 10.1.(b), liabilities imposed by law, including tax liabilities, and other liabilities incidental to its existence as a public holding company and permitted business and activities).

Section 10.4 Investments, Loans, Advances, Guarantees and Acquisitions. Neither Holdings nor the MG Borrower will, nor will they permit any Subsidiary to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly-owned Subsidiary prior to such merger) any Equity Interests (but specifically excluding (x) Holdings’ right to acquire and hold additional Equity Interests in the MG Borrower and (y) redemptions or other repurchases by the MG Borrower or Holdings of any such Equity Interests in accordance with the provisions of Sections 4.2.(e) and 7.4.(d) of the LLC Agreement) in or evidences of Indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except:

(a) Permitted Investments;

(b) Permitted Acquisitions;

(c) investments existing on the date hereof in any Subsidiary or joint venture and set forth on Schedule 10.4.;

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(d) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses of Holdings, the MG Borrower or any Subsidiary for accounting purposes and that are made in the ordinary course of business;

(e) (i) investments by Holdings in Equity Interests of the MG Borrower, by the MG Borrower or any other Loan Party (other than Holdings) in Equity Interests of a Subsidiary that is a Loan Party or any direct or indirect Wholly Owned Subsidiary of any Loan Party and (ii) loans or advances made by the MG Borrower or any other Loan Party (other than Holdings) to any Subsidiary that is a Loan Party or any direct or indirect Wholly Owned Subsidiary of any Loan Party and (iii) any contribution of assets from a Loan Party or a Wholly Owned Subsidiary of a Loan Party to another Loan Party or Wholly Owned Subsidiary of a Loan Party;

(f) investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

(g) investments in the form of Swap Agreements permitted by Section 10.6.;

(h) investments of any Person existing at the time such Person becomes a Subsidiary or consolidates or merges with the MG Borrower or any Subsidiary (including in connection with a Permitted Acquisition) so long as such investments were not made in contemplation of such Person becoming a Subsidiary or of such consolidation or merger;

(i) investments resulting from pledges or deposits described in clause (c) or (d) of the definition of the term “Permitted Lien”;

(j) investments received in connection with the disposition of any asset permitted by Section 10.5.;

(k) receivables or other trade payables owing to the MG Borrower or a Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms, provided that such trade terms may include such concessionary trade terms as the MG Borrower or any Subsidiary deems reasonable under the circumstances;

(l) investments by the MG Borrower or a Subsidiary (other than the Florida Borrower or any of its Subsidiaries) in Subsidiaries and joint ventures the primary business of which are businesses of the type conducted by the MG Borrower and the Subsidiaries on the Effective Date and businesses reasonably related thereto, provided that immediately after giving effect to such investment, in the case of any investment in a joint venture that is not a Subsidiary, (i) the MG Borrower or such Subsidiary will own Equity Interests in such joint venture representing at least 50% of the aggregate equity value represented by the issued and outstanding Equity Interests in such joint venture, (ii) the MG Borrower or a Subsidiary will manage or otherwise be responsible for the day-to-day operations of such joint venture pursuant to a customary management contract (or will have been designated to act in such capacity upon project completion) or will have influence over such day-to-day operations by virtue of a franchise arrangement (or will have been designated to have such influence upon project completion) or (iii) the MG Borrower or a Subsidiary will be the managing member or day-to-day administrative member of such joint venture, or will have approval rights over major decisions with respect to such joint venture;

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(m) other investments, loans and advances by the MG Borrower or any Subsidiary (other than the Florida Borrower or any of its Subsidiaries) in an aggregate amount, as valued at cost at the time each such investment, loan or advance is made and including all related commitments for future investments, loans or advances (and the principal amount of any Indebtedness that is assumed or otherwise incurred in connection with such investment, loan or advance other than Guarantees permitted under Section 10.1.(a)(xiii)) and without giving effect to any write-downs or write-offs thereof, that at the time of, and after giving effect to, the making thereof would not exceed $150,000,000 plus (i) the Net Sale Proceeds of asset sales by Holdings and any of its Subsidiaries that occur after the Effective Date minus any amounts expended pursuant to Section 10.7.(ix) and (ii) the Restricted Payment Cap Amount minus any amounts expended pursuant to Section 10.7.(viii);

(n) repurchases by either of Holdings or the MG Borrower of the Trust Preferred Securities or other Equity Interests to the extent permitted by Section 10.7(viii);

(o) any Guarantees and/or indemnities permitted by Section 10.1.(a)(xiii);

(p) investments and contributions of promoted interests or assets of a similar nature to the Subsidiary formed for the purpose of issuing Equity Interests to the beneficiaries of the Executive Promoted Interest Bonus Pool (2011); and

(q) investments and contributions made, and cash flow guaranties or similar instruments of assurance provided, in connection with obtaining or maintaining management agreements in favor of the Management Company.

Notwithstanding the foregoing, the Florida Borrower will not purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly-owned Subsidiary prior to such merger) any Equity Interests in or evidences of Indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except as provided in Sections 10.4.(a), (b), (d), (i) and (k).

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Section 10.5 Asset Sales. Neither Holdings nor the MG Borrower will, nor will they permit any Subsidiary to, sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest owned by it, nor will Holdings or the MG Borrower permit any Subsidiary to issue any additional Equity Interest in such Subsidiary (other than issuing directors’ qualifying shares and other than issuing Equity Interests to the MG Borrower or another Subsidiary in compliance with Section 10.4.(e)(i)), except:

(a) sales, transfers, leases and other dispositions of (i) inventory, (ii) used or surplus equipment and (iii) Permitted Investments, in each case in the ordinary course of business;

(b) sales, transfers, leases and other dispositions to the MG Borrower or a Subsidiary, provided that any such sales, transfers, leases or other dispositions involving a Subsidiary that is not a Loan Party shall be made in compliance with Section 10.8.;

(c) sales, transfers and other dispositions of accounts receivable in connection with the compromise, settlement or collection thereof consistent with past practice;

(d) sales, transfers, leases and other dispositions of property to the extent that such property constitutes an investment permitted by clause (f), (h) or (j) of Section 10.4. or another asset received as consideration for the disposition of any asset permitted by this Section (in each case, other than Equity Interests in a Subsidiary, unless all Equity Interests in such Subsidiary are sold);

(e) sale and leaseback transactions (other than with respect to the Florida Property or any other Collateral) not prohibited by any other Section of this Article X.;

(f) leases entered into in the ordinary course of business, to the extent that they do not materially interfere with the business of Holdings, the MG Borrower or any Subsidiary;

(g) licenses or sublicenses of Intellectual Property in the ordinary course of business, to the extent that they do not materially interfere with the business of Holdings, the MG Borrower or any Subsidiary;

(h) dispositions resulting from any casualty or other damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the MG Borrower or any Subsidiary;

(i) sales, transfers and other dispositions of assets (other than the Florida Property or any other Collateral) or any direct or indirect interest therein, provided that promptly following the receipt of any cash proceeds from such sale, transfer or disposition, the MG Borrower or the applicable Subsidiary will use such proceeds to (x) acquire, maintain, develop, construct, improve, upgrade or repair assets useful in the business of the Loan Parties, make Restricted Payments pursuant to Section 10.7.(ix) or make investments pursuant to Section 10.4.(b), (l) or (m), in each case within one (1) year of such receipt or (y) repay outstanding Indebtedness;

(j) sales, transfers and other dispositions of assets (other than the Florida Property or any other Collateral) that are not permitted by any other clause of this Section, provided that the aggregate fair market value of all assets sold, transferred or otherwise disposed of in reliance upon this clause (j) shall not exceed $5,000,000 during any fiscal year of the MG Borrower.

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Section 10.6 Swap Agreements. Neither Holdings nor the MG Borrower will, nor will they permit any Subsidiary to, enter into any Swap Agreement, except (i) Swap Agreements entered into to hedge or mitigate risks to which the MG Borrower or any Subsidiary has actual exposure (other than those in respect of shares of capital stock or other equity ownership interests of the MG Borrower or any Subsidiary), (ii) Swap Agreements entered into in order to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of the MG Borrower or any Subsidiary, (iii) the MG Borrower or any Subsidiary will be entitled to issue interest rate protection pursuant to one or more Swap Agreements if and to the extent that one or more other Wholly Owned Subsidiaries of the MG Borrower or such Subsidiary is purchasing or already owns offsetting interest rate protection for the same duration (or longer) and notional amount (or greater) and (iv) Holdings may enter into hedge and warrant transactions in connection with the Convertible Notes or other Indebtedness incurred to refinance the Convertible Notes permitted hereunder for the purpose of reducing potential dilution from conversion of the Convertible Notes or such Indebtedness incurred to refinance the Convertible Notes permitted hereunder.

Section 10.7 Restricted Payments. Neither Holdings nor the MG Borrower will, nor will they permit any Subsidiary to, declare or make, or authorize, directly or indirectly, any Restricted Payment, except (i) the Subsidiaries of the MG Borrower may declare and pay dividends ratably with respect to their Equity Interests, (ii) Holdings may declare and pay dividends with respect to its common stock payable solely in shares of common stock, (iii) the MG Borrower may make Restricted Payments to Holdings so that Holdings may (and Holdings may), make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans approved by Holdings’ board of directors for management or employees of Holdings, the MG Borrower and the Subsidiaries, (iv) the MG Borrower may make Restricted Payments to Holdings at such times and in such amounts (A) as shall be necessary to permit Holdings to discharge its general corporate and overhead (including franchise taxes and directors fees) expenses incurred in the ordinary course and other permitted liabilities and (B) as shall be necessary to pay the tax liabilities of Holdings directly attributable to (or arising as a result of) the operations of the MG Borrower and the Subsidiaries; provided that (1) the amount of Restricted Payments pursuant to clause (B) of this clause (iv) shall not exceed the amount that the MG Borrower and the Subsidiaries would be required to pay in respect of federal, State and local taxes were the MG Borrower and the Subsidiaries to pay such taxes as stand-alone taxpayers and (2) all Restricted Payments made to Holdings pursuant to this clause (iv) are used by Holdings for the purposes specified herein within 10 Business Days after Holdings’ receipt thereof, (v) so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, each of Holdings, the MG Borrower and its Subsidiaries may declare and pay dividends in respect of Preferred Stock and/or Trust Preferred Securities otherwise permitted hereunder, (vi) to the extent constituting Restricted Payments, Holdings, the MG Borrower and its Subsidiaries may (A) purchase Equity Interests in any Subsidiary or joint venture to the extent otherwise permitted by Section 10.4. and (B) make interest payments in respect of the Convertible Notes, (vii) Holdings, the MG Borrower and its Subsidiaries may make Restricted Payments pursuant to the Outperformance Award Program (2011) and the Executive Promoted Interest Bonus Pool (2011), (viii) Holdings, the MG Borrower and its Subsidiaries may make Restricted Payments not otherwise permitted by this Section 10.7., including the purchase of the Trust Preferred Securities existing on the

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Effective Date and/or the redemption of the Convertible Notes, in an aggregate amount not to exceed the Restricted Payment Cap Amount and (ix) Holdings, the MG Borrower and its Subsidiaries may make Restricted Payments in order to purchase the Trust Preferred Securities existing on the Effective Date and/or in order to redeem the Convertible Notes in an aggregate amount equal to the Net Sale Proceeds from the sale of assets of Holdings and any of its Subsidiaries (excluding Net Sale Proceeds from the sale of (a) the Florida Property or (b) in the case of the Trust Preferred Securities existing on the Effective Date, the Hudson Hotel); provided that a Restricted Payment pursuant to this clause (ix) shall only be permitted if the Fixed Charge Coverage Ratio immediately after giving effect to any Restricted Payment pursuant to this clause (ix) shall be greater than or equal to the Fixed Charge Coverage Ratio immediately prior to such Restricted Payment. Notwithstanding the foregoing, Holdings, the MG Borrower and its Subsidiaries may (A) redeem Preferred Equity Interests provided that such redemption is funded through the concurrent issuance of new Preferred Equity Interests or common stock and (B) redeem the Trust Preferred Securities existing on the Effective Date, the Convertible Notes and Preferred Stock with the proceeds of any refinancing thereof permitted pursuant to Sections 10.1.(a)(xv), 10.1(a) (xvi), 10.1(a) (xvii) or 10.1(b).

Section 10.8 Transactions with Affiliates. Neither Holdings nor the MG Borrower will, nor will they permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (i) transactions at prices and on terms and conditions not less favorable to the MG Borrower or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties or, in the case of management and/or franchise agreements arising in the ordinary course of business, agreements between any Subsidiary and the MG Borrower or any other Subsidiary as reasonably deemed appropriate by the MG Borrower, (ii) transactions between or among the MG Borrower and the Subsidiaries that are Loan Parties not involving any other Affiliate, (iii) payroll, travel and similar advances to cover matters permitted under Section 10.4.(d), (iv) the payment of reasonable fees to directors or managers of Holdings, the MG Borrower or any Subsidiary who are not employees of Holdings, the MG Borrower or any Subsidiary, and compensation and employee benefit arrangements paid to, and indemnities provided for the benefit of, directors, managers, officers or employees of Holdings, the MG Borrower or the Subsidiaries in the ordinary course of business, (v) any issuances of securities or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment agreements, stock options, stock ownership plans and other benefit plans approved by Holdings’ board of directors or any committee thereof, (vi) employment and severance arrangements entered into in the ordinary course of business between Holdings, the MG Borrower or any Subsidiary and any employee thereof and approved by Holdings’ board of directors or any committee thereof, (vii) intentionally omitted, (viii) any Restricted Payment permitted by Section 10.7. or any distributions of cash or other assets from any Person to any Loan Party or any Subsidiary in respect of Equity Interests held by such Loan Party or Subsidiary in that Person and (ix) capital contributions and other investments permitted by Section 10.4. by the MG Borrower to a Subsidiary or other Affiliate or by a Subsidiary to any other Subsidiary or Affiliate, provided that a Financial Officer has determined in good faith that the terms of such contribution or other investment are fair and reasonable to the contributing party.

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Section 10.9 Restrictive Agreements. Neither Holdings nor the MG Borrower will, nor will they permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of Holdings, the MG Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets or (b) the ability of any Wholly-Owned Subsidiary of the MG Borrower to pay dividends or other distributions with respect to any of its Equity Interests or to repay loans or advances to the MG Borrower or any other Loan Party or to Guarantee the Obligations, provided that (i) the foregoing shall not apply to restrictions and conditions imposed by (A) Applicable Law or (B) any Loan Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 10.9. or included in any Indebtedness incurred pursuant to Section 10.1(a)(vii) (but shall apply to any extension or renewal of, or any amendment, modification or replacement if it results in an expansion of the scope of, any such restriction or condition in any material respect), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary or any assets pending such sale, provided that such restrictions and conditions apply only to the Subsidiary or assets that is or are to be sold and such sale is permitted hereunder, (iv) the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement to the extent that such Indebtedness (x) prohibits the issuer thereof (other than a Loan Party) from issuing any Guarantee of the Obligations, (y) contains negative pledge clauses or other restrictions or conditions applicable only to the property or assets of, or the direct or indirect Equity Interests in, such issuer; or (z) arising under organizational documents of the issuer of such Indebtedness or any Subsidiary of the MG Borrower that is reasonably related to such financing, (v) clause (a) of the foregoing shall not apply to (x) customary provisions in leases, licenses and other contracts restricting the assignment thereof or (y) restrictions on the transfer or pledge of direct or indirect equity interests in any joint venture or Subsidiary that is not a Wholly Owned Subsidiary and (vi) the foregoing shall not apply to restrictions in any unsecured Indebtedness otherwise permitted hereunder so long as (x) in the case of restrictions of the type described in clause (a), such restrictions are not more restrictive than the restrictions set forth herein in any material respect and (y) in the case of restrictions on Guarantees of the type described in clause (b) above, such restriction permits Guarantees of the Obligations by any Subsidiary if the such Indebtedness is also guarantied by such Subsidiary.

Section 10.10 Amendment of Material Documents. Neither Holdings nor the MG Borrower will, nor will they permit any Subsidiary to, amend, modify, waive, terminate or release (a) its certificate of incorporation, by-laws or other organizational documents, (b) the Convertible Notes and the Trust Preferred Securities existing on the Effective Date, other than repayment or termination of such Indebtedness, (c) any agreements governing any joint venture of the MG Borrower or any Subsidiary as of the Effective Date which joint venture owns any asset used in or related to the Florida Property, in each case if the effect of such amendment, modification, waiver, termination or release is materially adverse to Holdings, the MG Borrower, any Subsidiary or the Lenders or (d) the Delano Management Agreement, the Delano License or any Material Contract without the prior written consent of the Agent, in each case if the effect of such amendment, modification, waiver, termination or release is materially adverse to Holdings, the MG Borrower, any Subsidiary or the Lenders; provided, however, that in the case of clause (b), any amendment, modification or waiver with respect to Indebtedness that would not violate the requirements of Section 10.1.(a)(ii), 10.1(a)(xv), 10.1(a)(xvi) or 10.1(b), if made in the context of a refinancing of such Indebtedness permitted hereunder shall be permitted under this Section 10.10. (whether or not associated with a refinancing). Neither Holdings nor the MG Borrower will, nor will they permit any Subsidiary to, amend, modify, waive, terminate or release any agreements governing any joint venture of the MG Borrower or any Subsidiary as of the Effective Date if such amendment, modification, waiver, termination or release would have a Material Adverse Effect.

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Section 10.11 Financial Covenants. Neither Holdings nor the Borrowers shall permit:

(a) Minimum Fixed Charge Coverage Ratio. The ratio (determined on a Pro Forma Basis in accordance with Section 1.3.) of (i) Consolidated EBITDA for the period of four consecutive fiscal quarters of Holdings most recently ending to (ii) Consolidated Fixed Charges for such period, (x) at any time on or prior to June 30, 2012, to be less than 1.05 to 1.00, (y) at any time after June 30, 2012, to be less than 1.10 to 1.00 and (z) notwithstanding the foregoing clauses (x) and (y), in the event any unsecured Indebtedness is incurred pursuant to Section 10.1(a).(xvii), at any time after the incurrence of such unsecured Indebtedness, to be less than 1.20 to 1.00.

Section 10.12 Changes in Fiscal Periods. Holdings will neither (a) permit its fiscal year or the fiscal year of the MG Borrower or any Subsidiary to end on a day other than December 31, nor (b) change its method of determining fiscal quarters.

Section 10.13 ERISA Exemptions. Holdings and the MG Borrower shall not, and shall not permit any Subsidiary to, permit any of its respective assets to become or be deemed to be “plan assets” within the meaning of ERISA, the Internal Revenue Code and the respective regulations promulgated thereunder.

Section 10.14 Availability of Exceptions. For the avoidance of doubt, in determining compliance with the restrictions set forth in this Article X with respect to any proposed financing, purchase, sale or other transaction, the Loan Parties shall be entitled to elect and rely upon any single exception or any combination of applicable exceptions as they deem appropriate.

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ARTICLE XI

Default

Section 11.1 Events of Default. Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of Applicable Law or pursuant to any judgment or order of any Governmental Authority:

(a) any Borrower shall fail to pay any principal of any Loan owing by it or any Reimbursement Obligation, when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;

(b) any Borrower shall fail to pay any interest on any Loan owing by it or any fee, any other amount (other than an amount referred to in paragraph (a) of this Article) payable by it under any Loan Document or any other Obligation, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days;

(c) any representation or warranty made or deemed made by or on behalf of Holdings, the MG Borrower or any Subsidiary in any Loan Document or any amendment or modification thereof or waiver thereunder, or in any written report, certificate, financial statement or other document furnished pursuant to or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect in any material respect when made or deemed made;

(d) Holdings or any Borrower shall fail to observe or perform any covenant, condition or agreement contained in (i) Section 8.1. (with respect to keeping in effect the existence of Holdings, the MG Borrower or the Florida Borrower), Section 8.7., subsection (e) of Section 9.4., Section 10.1., subsection (b) of Section 10.2., Section 10.3., Section 10.7. or Section 10.11., or (ii) Section 8.4. (with respect to the Florida Property) or any other Section of Article X. not referred to in clause (i) above and in the case of this clause (ii) only, such failure shall continue unremedied for a period of 10 days after the MG Borrower receives written notice thereof from the Agent;

(e) (i) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document (other than those specified in subsections (a), (b) or (d) of this Section), and such failure shall continue unremedied for a period of 30 days after the MG Borrower receives written notice thereof from the Agent to the MG Borrower and/or (ii) an Event of Default (under and as defined in any of the other Loan Documents) shall occur;

(f) Holdings, the MG Borrower or any Subsidiary that is a Loan Party shall fail to make any payment of principal or interest (regardless of amount) in respect of any Material Indebtedness, beyond any applicable period of grace set forth in such Material Indebtedness;

(g) any event or condition occurs that (A) results in any Material Indebtedness becoming due prior to its scheduled maturity or (B) constitutes a default with respect to any Material Indebtedness and all applicable notice or cure periods have expired such that the lender or other party thereto is entitled to accelerate such Material Indebtedness or exercise its other similar enforcement or collateral remedies on account of such default;

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(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of Holdings, the MG Borrower, any Subsidiary that is a Loan Party or any other Material Subsidiary or its debts, or of a substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency, receivership, relief of debtors or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Holdings, the MG Borrower, any Subsidiary that is a Loan Party or any other Material Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;

(i) Holdings, the MG Borrower, any Subsidiary that is a Loan Party or any other Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency, receivership, relief of debtors or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in subsection (h) of this Section 11.1., (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Holdings, the MG Borrower, any Subsidiary that is a Loan Party or any other Material Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any proceeding described in subsection (h) of this Section 11.1., (v) make a general assignment for the benefit of creditors or (vi) take any formal action for the purpose of effecting any of the foregoing;

(j) Holdings, the MG Borrower, any Subsidiary that is a Loan Party, or any other Material Subsidiary shall become unable, admit in writing its inability or fail generally, to pay its debts as they become due;

(k) one or more judgments for the payment of money in an aggregate amount in excess of $10,000,000 shall be rendered against Holdings, the MG Borrower, or any Subsidiary or any combination thereof (provided that in determining whether the foregoing threshold is satisfied, there shall be excluded any portion of such judgments that is fully covered by a solvent third party insurance company (less any applicable deductible) and as to which the insurer has not disputed, in writing, its responsibility to cover such judgment, order, decree or arbitration award) and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of Holdings, the MG Borrower or any Subsidiary to enforce any such judgment;

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(l) any “reportable event” (as defined in Section 4043 of ERISA) shall have occurred with respect to any Plan that results in an aggregate liability in excess of $10,000,000; any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA with a resulting aggregate liability in excess of $10,000,000, or a waiver of such standard or extension of any amortization is sought or granted under Section 412 of the Code or Section 302 or 304 of ERISA; any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $10,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Liabilities in excess of $10,000,000 shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer, any Plan or Plans having aggregate Unfunded Liabilities in excess of $10,000,000; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $10,000,000;

(m) any Lien purported to be created under any Security Document shall cease to be, or shall be asserted by any Loan Party not to be, a valid and perfected Lien on any Collateral, with the priority required by the applicable Security Document, except (i) as a result of the sale or other disposition of the applicable Collateral in a transaction permitted under the Loan Documents or (ii) as a result of the Agent’s failure to (A) maintain possession of any stock certificates, promissory notes or other instruments delivered to it under any Security Document or (B) file Uniform Commercial Code continuation statements;

(n) any Loan Document shall for any reason be asserted by any Loan Party in writing not to be a legal, valid and binding obligation of any Loan Party thereto;

(o) the Guaranty shall cease to be in full force and effect (other than in accordance with the terms of the Loan Documents); or

(p) a Change in Control shall occur.

Notwithstanding the foregoing, any events that would give rise to an Event of Default under subsections (h), (i), (j) or (k) of this Section 11.1. will not constitute an Event of Default with respect to a Subsidiary of the MG Borrower that is not a Loan Party (the “Defaulting Subsidiary”), if and for so long as (1) the Defaulting Subsidiary is a special purpose entity that does not own any assets other than a direct or indirect interest in one Property (the “Subject Property”) and that does not have any Indebtedness or other liabilities other than those directly related to the ownership and operation of the Subject Property, (2) the event giving rise to the Event of Default occurs as a result of a default by the Defaulting Subsidiary under a mortgage loan or mezzanine loan (the “Property Debt”) financing the Subject Property, (3) the Subject Property is not Collateral for any of the Obligations, (4) such Property Debt is non-recourse to Holdings, the MG Borrower and any other Subsidiary (other than the Defaulting Subsidiary), (5) neither Holdings, the MG Borrower nor any other Subsidiary (other than the Defaulting Subsidiary) has any remaining liability or obligation with respect to the Property Debt or any other Indebtedness of the Defaulting Subsidiary other than Customary Nonrecourse Exceptions with respect to the Property Debt, and (6) the Agent has not determined that there is a reasonable basis for any claim to be asserted, or if a claim has been asserted, has not determined that there is a reasonable basis for such claim, in either case, against Holdings, the MG Borrower or any other Subsidiary (other than a claim against the Defaulting Subsidiary) under any such Customary Nonrecourse Exceptions, under any guaranty or under any other document related to such Property Debt or any other Indebtedness of the Defaulting Subsidiary.

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Section 11.2 Remedies Upon Event of Default. Upon the occurrence of an Event of Default the following provisions shall apply:

(a) Acceleration; Termination of Facilities.

(i) Automatic. Upon the occurrence of an Event of Default specified in Section 11.1.(h) or 11.1.(i), (A)(i) the principal of, and all accrued interest on, the Loans and the Notes at the time outstanding, (ii) an amount equal to the Stated Amount of all Letters of Credit outstanding as of the date of the occurrence of such Event of Default (for deposit into the Collateral Account pursuant to Section 11.5.) and (iii) all of the other Obligations, including, but not limited to, the other amounts owed to the Lenders, the Issuing Bank and the Agent under this Agreement, the Notes or any of the other Loan Documents shall become immediately and automatically due and payable without presentment, demand, protest, or other notice of any kind, all of which are expressly waived by the Borrowers and (B) all of the Commitments, the obligation of the Lenders to make Loans and the obligation of the Issuing Bank to issue Letters of Credit hereunder, shall all immediately and automatically terminate.

(ii) Optional. If any other Event of Default shall exist, the Agent shall, at the written direction of the Requisite Lenders: (A) declare (1) the principal of, and accrued interest on, the Loans and the Notes at the time outstanding, (2) an amount equal to the Stated Amount of all Letters of Credit outstanding as of the date of the occurrence of such other Event of Default (for deposit into the Collateral Account pursuant to Section 11.5.) and (3) all of the other Obligations, including, but not limited to, the other amounts owed to the Lenders, the Issuing Bank and the Agent under this Agreement, the Notes or any of the other Loan Documents to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Borrowers and (B) terminate the Commitments, the obligation of the Lenders to make Loans hereunder and the obligation of the Issuing Bank to issue Letters of Credit hereunder.

(b) Loan Documents. The Requisite Lenders may direct the Agent to, and the Agent if so directed shall, exercise any and all of its rights under any and all of the other Loan Documents.

(c) Applicable Law. The Requisite Lenders may direct the Agent to, and the Agent if so directed shall, exercise all other rights and remedies it may have under any Applicable Law.

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(d) Appointment of Receiver. To the extent permitted by Applicable Law, the Agent and the Lenders shall be entitled to the appointment of a receiver for the assets and properties of the MG Borrower and its Subsidiaries, without notice of any kind whatsoever and without regard to the adequacy of any security for the Obligations or the solvency of any party bound for their payment, to take possession of all or any portion of the business operations of the MG Borrower and its Subsidiaries and to exercise such power as the court shall confer upon such receiver.

Section 11.3 Remedies Upon Default. Upon the occurrence of a Default specified in Section 11.1.(h), the Commitments shall immediately and automatically terminate.

Section 11.4 Allocation of Proceeds. While an Event of Default exists, all payments received by the Agent under any of the Loan Documents, in respect of any principal of or interest on the Obligations or any other amounts payable by the Borrowers hereunder or thereunder, shall be applied in the following order and priority:

(a) payment of all amounts due the Agent in respect of fees and expenses due under Section 13.2.;

(b) payment of all amounts due the Lenders in respect of fees and expenses due under Section 13.2., pro rata in the amount then due each Lender;

(c) payments of interest on all Loans and Reimbursement Obligations, to be applied for the ratable benefit of the Lenders;

(d) payment of all amounts due the Agent, the Issuing Bank and the Lenders pursuant to Sections 12.8. and 13.9.;

(e) payments of principal of all Loans, Reimbursement Obligations and other Letter of Credit Liabilities, to be applied for the ratable benefit of the Lenders; provided, however, to the extent that any amounts available for distribution pursuant to this subsection are attributable to the issued but undrawn amount of an outstanding Letter of Credit, such amounts shall be paid to the Issuing Bank for deposit into the Collateral Account;

(f) payment of all other Obligations and other amounts due and owing by the MG Borrower and the other Loan Parties under any of the Loan Documents, if any, to be applied for the ratable benefit of the Lenders;

(g) any amount remaining after application as provided above, shall be paid to the Borrowers or whoever else may be legally entitled thereto.

Section 11.5 Collateral Account. (a) At any time that there shall exist a Defaulting Lender, within one Business Day following the written request of the Agent, the Borrowers shall Cash Collateralize the Issuing Bank’s Fronting Exposure with respect to such Defaulting Lender (determined after giving effect to Section 3.12.(e) and any Cash Collateral provided by such Defaulting Lender) in an amount not less than the Minimum Collateral Amount.

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(b) As collateral security for the prompt payment in full when due of all Letter of Credit Liabilities and the other Obligations, the MG Borrower hereby pledges and grants to the Agent, for the ratable benefit of the Issuing Bank and the Lenders as provided herein, a security interest in all of its right, title and interest in and to the Collateral Account and the balances from time to time in the Collateral Account (including the investments and reinvestments therein provided for below). The balances from time to time in the Collateral Account shall not constitute payment of any Letter of Credit Liabilities until applied by the Agent as provided herein. Anything in this Agreement to the contrary notwithstanding, funds held in the Collateral Account shall be subject to withdrawal only as provided in this Section.

(c) Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under Section 11.5.(a) or Section 3.12. in respect of Letters of Credit (including, as to Cash Collateral provided by a Defaulting Lender, any interest accrued on such obligation) shall be applied to the satisfaction of the Defaulting Lender’s obligation to fund participations in respect of Letter of Credit Liabilities for which the Cash Collateral was so provided, prior to any other application of such property as may otherwise be provided for herein.

(d) Amounts on deposit in the Collateral Account shall be invested and reinvested by the Agent in Permitted Investments as the Agent shall determine in its sole discretion. All such investments and reinvestments shall be held in the name of and be under the sole dominion and control of the Agent for the ratable benefit of the Lenders. The Agent shall exercise reasonable care in the custody and preservation of any funds held in the Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Agent accords other funds deposited with the Agent, it being understood that the Agent shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any funds held in the Collateral Account.

(e) If a drawing pursuant to any Letter of Credit occurs on or prior to the expiration date of such Letter of Credit, the MG Borrower and the Lenders authorize the Agent to use the monies deposited in the Collateral Account and proceeds thereof to make payment to the beneficiary with respect to such drawing or the payee with respect to such presentment.

(f) If an Event of Default exists, the Requisite Lenders may, in their discretion, at any time and from time to time, instruct the Agent to liquidate any such investments and reinvestments and apply proceeds thereof to the Obligations in accordance with Section 11.4.

(g) So long as no Default or Event of Default exists, and to the extent amounts on deposit in or credited to the Collateral Account exceed the aggregate amount of the Letter of Credit Liabilities then due and owing, the Agent shall, from time to time, at the request of the MG Borrower, deliver to the MG Borrower within 10 Business Days after the Agent’s receipt of such request from the MG Borrower, against receipt from the MG Borrower but without any recourse, warranty or representation whatsoever, such amount of the credit balances in the Collateral Account as exceeds the aggregate amount of the Letter of Credit Liabilities at such time.

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(h) The MG Borrower shall pay to the Agent from time to time such fees as the Agent normally charges for similar services in connection with the Agent’s administration of the Collateral Account and investments and reinvestments of funds therein.

(i) Notwithstanding the foregoing, Cash Collateral (or the appropriate portion thereof) provided to reduce the Issuing Bank’s Fronting Exposure shall no longer be required to be held as Cash Collateral pursuant to Section 11.5.(a) following (i) the elimination of the applicable Fronting Exposure (including by the termination of Defaulting Lender status of the applicable Lender), or (ii) at any time that there exists excess Cash Collateral as provided Section 11.5.(g); provided that, subject to Section 3.12. the Person providing Cash Collateral and the Issuing Bank may agree that Cash Collateral shall be held to support future anticipated Fronting Exposure or other obligations; and provided, further that to the extent that such Cash Collateral was provided by the MG Borrower, such Cash Collateral shall remain subject to the security interest granted pursuant to the Loan Documents.

Section 11.6 Performance by Agent. If the Loan Parties shall fail to perform any covenant, duty or agreement contained in any of the Loan Documents, the Agent may, after notice to the Loan Parties, perform or attempt to perform such covenant, duty or agreement on behalf of the Loan Parties after the expiration of any cure or grace periods set forth herein. In such event, the Loan Parties shall, at the request of the Agent, promptly pay any amount reasonably expended by the Agent in such performance or attempted performance to the Agent, together with interest thereon at the applicable Post-Default Rate from the date of such expenditure until paid. Notwithstanding the foregoing, neither the Agent nor any Lender shall have any liability or responsibility whatsoever for the performance of any obligation of the Loan Parties under this Agreement or any other Loan Document.

Section 11.7 Rights Cumulative. The rights and remedies of the Agent, the Issuing Bank and the Lenders under this Agreement and each of the other Loan Documents shall be cumulative and not exclusive of any rights or remedies which any of them may otherwise have under Applicable Law. In exercising their respective rights and remedies the Agent, the Issuing Bank and the Lenders may be selective and no failure or delay by the Agent, the Issuing Bank or any of the Lenders in exercising any right shall operate as a waiver of it, nor shall any single or partial exercise of any power or right preclude its other or further exercise or the exercise of any other power or right.

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ARTICLE XII

The Agent

Section 12.1 Appointment; Nature of Duties. The Lenders hereby irrevocably designate and appoint DBTCA as Agent to act as specified herein and in the other Loan Documents. Each Lender hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, the Agent to take such action on its behalf under the provisions of this Agreement, the other Loan Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its respective duties hereunder by or through its officers, directors, agents, employees or affiliates. The Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement and in the other Loan Documents. Neither the Agent nor any of its officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Loan Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision). The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender or the holder of any Note; and nothing in this Agreement or in any other Loan Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. Notwithstanding any other provision of this Agreement or any provision of any other Loan Document, the Arranger is named as such for recognition purposes only, and in its capacity as such shall have no powers, duties, responsibilities or liabilities with respect to this Agreement or the other Loan Documents or the transactions contemplated hereby and thereby; it being understood and agreed that the Arranger shall be entitled to all indemnification and reimbursement rights in favor of the Agent as, and to the extent, provided for under Section 12.8. and Section 13.2. Without limitation of the foregoing, the Arranger shall not, solely by reason of this Agreement or any other Loan Documents, have any fiduciary relationship in respect of any Lender or any other Person.

Section 12.2 Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Lender and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of Holdings and its Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of Holdings and its Subsidiaries and, except as expressly provided in this Agreement, the Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Agent shall not be responsible to any Lender or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Loan Document or the financial condition of Holdings or any of its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Loan Document, or the financial condition of Holdings or any of its Subsidiaries or the existence or possible existence of any Default or Event of Default.

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Section 12.3 Certain Rights of Agent. If the Agent requests instructions from the Requisite Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Loan Document, the Agent shall be entitled to refrain from such act or taking such action unless and until the Agent shall have received instructions from the Requisite Lenders; and the Agent shall not incur liability to any Lender by reason of so refraining. Without limiting the foregoing, neither any Lender nor the holder of any Note shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any other Loan Document in accordance with the instructions of the Requisite Lender.

Section 12.4 The Agent in its Individual Capacity. With respect to its obligation to make Loans, or issue or participate in Letters of Credit, under this Agreement, the Agent shall have the rights and powers specified herein for a “Lender” and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term “Lender,” “Requisite Lenders,” or any similar terms shall, unless the context clearly indicates otherwise, include the Agent in its respective individual capacities. The Agent and its affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, investment banking, trust or other business with, or provide debt financing, equity capital or other services (including financial advisory services) to any Loan Party or any Affiliate of any Loan Party (or any Person engaged in a similar business with any Loan Party or any Affiliate thereof) as if they were not performing the duties specified herein, and may accept fees and other consideration from any Loan Party or any Affiliate of any Loan Party for services in connection with this Agreement and otherwise without having to account for the same to the Lenders.

Section 12.5 Reliance; Delivery of Information. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that the Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Loan Document and its duties hereunder and thereunder, upon advice of counsel selected by the Agent. The Agent shall not be required to deliver to any Lender originals or copies of any documents, instruments, notices, communications or other information received by the Agent from any Loan Party, any Subsidiary, the Requisite Lenders, any Lender or any other Person under or in connection with this Agreement or any other Loan Document except (i) as specifically provided in this Agreement or any other Loan Document and (ii) as specifically requested from time to time in writing by any Lender with respect to a specific document, instrument, notice or other written communication received by and in the possession of the Agent at the time of receipt of such request and then only in accordance with such specific request

Section 12.6 Collateral Matters. (a) Each Lender authorizes and directs the Agent to enter into the Security Documents for the benefit of the Lenders and the Agent. Each Lender hereby agrees, and each holder of any Note by the acceptance thereof will be deemed to agree, that, except as otherwise set forth herein, any action taken by the Requisite Lenders in accordance with the provisions of this Agreement or the Security Documents, and the exercise by the Requisite Lenders of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders. The Agent is hereby authorized on behalf of all of the Lenders, without the necessity of any notice to or further consent from any Lender, from time to time prior to an Event of Default, to take any action with respect to any Collateral or Security Documents which may be necessary to perfect and maintain perfected the security interest in and liens upon the Collateral granted pursuant to the Security Documents.

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(b) The Lenders hereby authorize the Agent, at its option and in its discretion, to release any Lien granted to or held by the Agent upon any Collateral (i) upon termination of the Commitments and payment and satisfaction of all of the Obligations (other than inchoate indemnification obligations) as provided in Section 13.9., (ii) constituting property being sold or otherwise disposed of (to Persons other than Holdings and its Subsidiaries) upon the sale or other disposition thereof in compliance with Section 10.5. or (iii) as otherwise may be expressly provided in the relevant Security Documents. Upon request by the Agent at any time, the Lenders will confirm in writing the Agent’s authority to release particular types or items of Collateral pursuant to this Section 12.6. Upon the request of the MG Borrower under any of the circumstances described in the foregoing clauses (i)-(iii), the Agent shall promptly take such action as the MG Borrower may reasonably request to release such collateral and evidence such release of record.

(c) The Agent shall have no obligation whatsoever to the Lenders or to any other Person to assure that the Collateral exists or is owned by any Loan Party or is cared for, protected or insured or that the Liens granted to the Agent herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise or to continue exercising at all or in any manner or under any duty of care, disclosure or fidelity any of the rights, authorities and powers granted or available to the Agent in this Section 12.6 or in any of the Security Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion, given the Agent’s own interest in the Collateral as one of the Lenders and that the Agent shall have no duty or liability whatsoever to the Lenders, except for its gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision).

Section 12.7 Holders. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or endorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor.

Section 12.8 Indemnification of Agent. To the extent the Agent (or any affiliate thereof) is not reimbursed and indemnified by the Borrowers, the Lenders will reimburse and indemnify the Agent (and any affiliate thereof) in proportion to their respective “percentage” as used in determining the Requisite Lenders (determined as if there were no Defaulting Lenders) for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Agent (or any affiliate thereof) in performing its duties hereunder or under any other Loan Document or in any way relating to or arising out of this Agreement or any other Loan Document; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent’s (or such affiliate’s) gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision).

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Section 12.9 Successor Agent. (a) The Agent may resign from the performance of all its respective functions and duties hereunder and/or under the other Loan Documents at any time by giving 30 days’ prior written notice to the Lenders and the MG Borrower. In addition, if the Person serving as Agent is a Defaulting Lender pursuant to clause (a)(i) or (d) of the definition thereof, the Requisite Lenders may by notice in writing to the MG Borrower and such Person remove such Person as Agent, in which case the Agent shall be deemed to have resigned pursuant to this Section 12.9(a). Any such resignation by the Agent hereunder shall also constitute its resignation as Issuing Bank, in which case the resigning Agent (x) shall not be required to issue any further Letters of Credit and (y) shall maintain all of its rights as Issuing Bank with respect to any Letters of Credit issued by it prior to the date of such resignation. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below or as otherwise provided below.

(b) Upon any such notice of resignation by the Agent or at the direction of the Requisite Lenders, as applicable, the Requisite Lenders shall appoint a successor Agent hereunder or and under the other Loan Documents who shall be a commercial bank or trust company reasonably acceptable to the MG Borrower, which acceptance shall not be unreasonably withheld or delayed (provided that the MG Borrower’s approval shall not be required if an Event of Default then exists).

(c) If a successor Agent shall not have been so appointed within such 30 day period, the Agent, with the consent of the MG Borrower (which consent shall not be unreasonably withheld or delayed, provided that the MG Borrower’s consent shall not be required if an Event of Default then exists), shall then appoint a successor Agent who shall serve as Agent hereunder and under the other Loan Documents until such time, if any, as the Requisite Lenders appoint a successor Agent as provided above.

(d) If no successor Agent has been appointed pursuant to clause (b) or (c) above by the 40th day after the date such notice of resignation was given by the Agent, the Agent’s resignation shall become effective and the Requisite Lenders shall thereafter perform all the duties of the Agent hereunder and/or under any other Loan Document until such time, if any, as the Requisite Lenders appoint a successor Agent as provided above.

(e) Upon a resignation of the Agent pursuant to this Section 12.9., the Agent shall remain indemnified to the extent provided in this Agreement and the other Loan Documents and the provisions of this Section 12 (and the analogous provisions of the other Loan Documents) shall continue in effect for the benefit of the Agent for all of its actions and inactions while serving as the Agent.

Section 12.10 Titled Agents. Each of the Titled Agents in each such respective capacity, assumes no responsibility or obligation hereunder, including, without limitation, for servicing, enforcement or collection of any of the Loans, or for any duties as an agent hereunder for the Lenders. The titles of “Arranger” and other similar titles are solely honorific and imply no fiduciary responsibility on the part of the Titled Agents to the Agent, the Borrowers or any Lender and the use of such titles does not impose on the Titled Agents any duties or obligations greater than those of any other Lender or entitle the Titled Agents to any rights other than those to which any other Lender is entitled.

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ARTICLE XIII

Miscellaneous

Section 13.1 Notices. Unless otherwise provided herein, communications provided for hereunder shall be in writing (including telegraphic, telecopier or cable communication) and mailed, telegraphed, telecopied, cabled or delivered:

If to any Borrower or Holdings, to it at:

475 Tenth Avenue
New York, New York 10018
Attn: Richard Szymanski
Telephone: (212) 277-4188
Telecopy: (212) 277-4270

If to the Agent, to it at:

200 Crescent Court, Suite 550
Dallas, Texas 75201
Attn: Gerard Dupont
Telephone: (214) 740-7913
Telecopy: (214) 740-7910

with a copy to it at:

60 Wall Street
New York, New York 10005
Attn: George Reynolds
Telephone: (212) 250-2362
Telecopy: (212) 797-4496

If to a Lender, to it at:

To such Lender’s address or telecopy number, as applicable, set forth on its signature page hereto or in the administrative questionnaire required by the Agent and provided by such Lender;

or, as to any Loan Party or the Agent, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each Lender, at such other address as shall be designated by such Lender in a written notice to the MG Borrower and the Agent. All such notices and communications shall, when mailed, telegraphed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telecopier, except that notices and communications to the Agent and the MG Borrower shall not be effective until received by the Agent or the MG Borrower, as the case may be. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Agent; provided that the foregoing shall not apply to notices pursuant to Section 2 unless otherwise agreed by the Agent and the applicable Lender. Each of the Agent, Holdings and the Borrowers may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

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Section 13.2 Expenses. (a) The Borrowers hereby agree to: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable and documented out-of-pocket costs and expenses of the Agent (including, without limitation, the reasonable fees and disbursements of White & Case LLP and the Agent’s other counsel and consultants) in connection with the preparation, execution, delivery and administration of this Agreement and the other Loan Documents and the documents and instruments referred to herein and therein and any amendment, waiver or consent relating hereto or thereto, of the Agent and its Affiliates in connection with its or their syndication efforts with respect to this Agreement; (ii) after the occurrence and during the continuance of an Event of Default, pay all reasonable and documented out-of-pocket costs and expenses of the Agent, the Issuing Bank and each of the Lenders in connection with the enforcement of this Agreement and the other Loan Documents and the documents and instruments referred to herein and therein or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a “work-out” or pursuant to any insolvency or bankruptcy proceedings (including, in each case without limitation, the reasonable and documented out-of-pocket fees and disbursements of counsel and consultants for the Agent and, after the occurrence and during the continuance of an Event of Default, counsel for the Agent, the Issuing Bank and each of the Lenders; provided that, the obligation to reimburse the Lenders and the Agent for fees and expenses of counsel in connection with the matters described in this clause (ii) above shall be limited to (x) one law firm for the Agent and (y) one other law firm retained by the Requisite Lenders, together with (in the case of (x) and (y), as applicable) one additional counsel in each applicable jurisdiction); (iii) pay and hold the Agent, the Issuing Bank and each of the Lenders harmless from and against any and all present and future stamp, excise and other similar documentary taxes with respect to the foregoing matters and save the Agent, the Issuing Bank and each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to the Agent or such Lender) to pay such taxes; and (iv) indemnify the Agent, the Issuing Bank and each Lender, and each of their respective officers, directors, employees, representatives, agents, affiliates, trustees and investment advisors (each, an “Indemnified Person”) from and hold each of them harmless against any and all liabilities, obligations (including removal or remedial actions), losses, damages, penalties, claims, actions, judgments, suits, costs, expenses and disbursements (including reasonable attorneys’ and consultants’ fees and disbursements) incurred by, imposed on or assessed against any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding (whether or not the Agent, the Issuing Bank or any Lender is a party thereto and whether or not such investigation, litigation or other proceeding is brought by or on behalf of any Loan Party) related to the entering into and/or performance of this

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Agreement or any other Loan Document or the use of any Letter of Credit or the proceeds of any Loans hereunder or any consummation of any of the transactions contemplated herein or in any other Loan Document or the exercise of any of their rights or remedies provided herein or in the other Loan Documents, or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any Property at any time owned, leased or operated by Holdings or any of its Subsidiaries, the generation, storage, transportation, handling or disposal of Hazardous Materials by Holdings or any of its Subsidiaries at any location, whether or not owned, leased or operated by Holdings or any of its Subsidiaries, the non-compliance by Holdings or any of its Subsidiaries with any Environmental Law (including applicable permits thereunder), including, without limitation, the reasonable fees and disbursements of counsel and other consultants incurred in connection with any such investigation, litigation or other proceeding (but excluding any losses, liabilities, claims, damages or expenses (i) to the extent incurred by reason of the gross negligence or willful misconduct of the Indemnified Person to be indemnified (as determined by a court of competent jurisdiction in a final and non-appealable decision), (ii) constituting amounts in respect of Excluded Taxes, and (iii) in respect of Hazardous Materials in, upon, about or beneath the Collateral or migrating to the Collateral to the extent that such presence or migration of Hazardous Materials first occurs after the date upon which title to the Collateral is transferred to Agent, its nominee, any agent or receiver appointed on behalf of Agent or any third party transferee of the Collateral in the event of foreclosure of the Security Instrument or conveyance of the Collateral in lieu thereof, if such presence or migration does not arise from the acts or omissions of either Indemnitor or its respective affiliates)). To the extent that the undertaking to indemnify, pay or hold harmless the Agent, the Issuing Bank or any Lender set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrowers shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under Applicable Law.

(b) To the full extent permitted by Applicable Law, each of Holdings and the Borrowers shall not assert, and hereby waives, any claim against any Indemnified Person, on any theory of liability, for special, indirect, consequential or incidental damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. No Indemnified Person shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby, except to the extent the liability of such Indemnified Person results from such Indemnified Person’s gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision).

Section 13.3 Setoff. Subject to Section 3.3. and in addition to any rights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, to the fullest extent permitted by law, each of the Borrowers hereby authorizes the Agent, the Issuing Bank, each Lender, each affiliate of the Agent, the Issuing Bank or any Lender, and each Participant, at any time while an Event of Default exists, without prior notice to the Borrowers or to any other Person, any such notice being hereby expressly waived, but in the case of the Issuing Bank, a Lender, an affiliate of the Issuing Bank, a Lender or a Participant subject to receipt of the prior written consent of the Agent exercised in its sole discretion, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Agent, the Issuing Bank, such Lender, any such affiliate of the Agent, the Issuing Bank or such Lender, or such Participant, to or for the credit or the account of any of the Borrowers against and on account of any of the Obligations owing by any of the Borrowers, irrespective of whether or not any or all of the Loans and all other Obligations have been declared to be, or have otherwise become, due and payable as permitted by Section 11.2., and although such obligations shall be contingent or unmatured.

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Section 13.4 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS OTHERWISE PROVIDED IN ANY SECURITY DEED, BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE WHICH ARE LOCATED IN THE COUNTY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, EACH OF THE LOAN PARTIES PARTY HERETO HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE LOAN PARTIES PARTY HERETO HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER SUCH LOAN PARTY, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BROUGHT IN ANY OF THE AFOREMENTIONED COURTS, THAT SUCH COURTS LACK PERSONAL JURISDICTION OVER SUCH LOAN PARTY. EACH OF THE LOAN PARTIES PARTY HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH LOAN PARTY AT ITS ADDRESS SET FORTH IN SECTION 13.1 ABOVE, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH OF THE LOAN PARTIES PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH OF THE LOAN PARTIES PARTY HERETO IN ANY OTHER JURISDICTION.

(b) EACH OF THE LOAN PARTIES PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

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(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

Section 13.5 Successors and Assigns.

(a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrowers may not assign or otherwise transfer any of their respective rights or obligations hereunder without the prior written consent of the Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of the immediately following subsection (b), (ii) by way of participation in accordance with the provisions of the immediately following subsection (d) or (iii) by way of pledge or assignment of a security interest subject to the restrictions of the immediately following subsection (f) (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in the immediately following subsection (d) and, to the extent expressly contemplated hereby, the affiliates and the partners, directors, officers, employees, agents and advisors of the Agent and the Lenders and of their respective affiliates) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees (an “Assignee”) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:

(i) Minimum Amounts.

(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitments and the Loans at the time owing to it or in the case of an assignment to a Lender, an affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

(B) in any case not described in the immediately preceding subsection (A), the aggregate amount of the Commitments (which for this purpose includes Loans outstanding thereunder) or, if any of the applicable Commitments is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $5,000,000 unless each of the Agent and, so long as no Default or Event of Default shall exist, the MG Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).

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(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitments assigned.

(iii) Required Consents. No consent shall be required for any assignment except to the extent required by clause (i)(B) of this subsection (b) and, in addition:

(A) the consent of the MG Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default shall exist at the effective date specified in such assignment or (y) such assignment is to a Lender, an affiliate of a Lender or an Approved Fund;

(B) the consent of the Agent and the Issuing Bank (each such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of a Commitment if such assignment is to a Person that is not already a Lender with a Commitment, an affiliate of such Lender or an Approved Fund with respect to such Lender; and

(iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500 for each assignment, and the assignee, if it is not a Lender, shall deliver to the Agent an administrative questionnaire in the form customarily required by the Agent.

(v) No Assignment to Borrowers. No such assignment shall be made to Holdings, the MG Borrower or any of the MG Borrower’s Affiliates or Subsidiaries.

(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.

Subject to acceptance and recording thereof by the Agent pursuant to the immediately following subsection (c), from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 5.4. and 13.2. and the other provisions of this Agreement and the other Loan Documents as provided in Section 13.9. with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with the immediately following subsection (d).

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(c) Register. The Agent, acting solely for this purpose as an agent of the Borrowers, shall maintain at the Principal Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrowers, the Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrowers and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrowers or the Agent, sell participations to any Person (other than a natural person or Holdings, the MG Borrower or any of the MG Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver of any provision of any Loan Document described in Section 13.6.(b)(i), (b)(ii), (b)(iii), (b)(iv) or (b)(viii) that adversely affects such Participant. Subject to the immediately following subsection (e), the Borrowers agree that each Participant shall be entitled to the benefits of Sections 3.13., 5.1. and 5.4. to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by Applicable Law, each Participant also shall be entitled to the benefits of Section 13.3. as though it were a Lender, provided such Participant agrees to be subject to Section 3.3. as though it were a Lender. Upon request from the Agent, a Lender shall notify the Agent and the MG Borrower of the sale of any participation hereunder.

(e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Sections 3.13. and 5.1. than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the MG Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.13. unless the MG Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers and the Agent, to comply with Section 3.13.(c) as though it were a Lender.

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(f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(g) No Registration. Each Lender agrees that, without the prior written consent of the MG Borrower and the Agent, it will not make any assignment hereunder in any manner or under any circumstances that would require registration or qualification of, or filings in respect of, any Loan or Note under the Securities Act or any other securities laws of the United States of America or of any other jurisdiction.

Section 13.6 Amendments. (a) Except as otherwise expressly provided in this Agreement, any consent or approval required or permitted by this Agreement or any other Loan Document to be given by the Lenders may be given, and any term of this Agreement or of any other Loan Document may be amended, and the performance or observance by the MG Borrower or any other Loan Party or any Subsidiary of any terms of this Agreement or such other Loan Document or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Requisite Lenders (and, in the case of an amendment to any Loan Document, the written consent of each Loan Party a party thereto).

(b) Notwithstanding the foregoing, without the prior written consent of each Lender directly and adversely affected thereby (other than a Defaulting Lender), no amendment, waiver or consent shall do any of the following:

(i) increase the Commitments of the Lenders or subject the Lenders to any additional obligations; provided that without the consent of the Issuing Bank no amendment, waiver or consent shall amend, modify or waive any provision of Section 2.2 or alter the Issuing Bank’s rights or obligations with respect to Letters of Credit;

(ii) reduce the principal of, or interest that has accrued or the rates of interest that will be charged on the outstanding principal amount of, any Loans or other Obligations (except in connection with the waiver of applicability of any post-default increase in interest rates);

(iii) reduce the amount of any Fees payable hereunder or postpone any date fixed for payment thereof;

(iv) modify the definition of the term “Termination Date” or otherwise postpone any date fixed for any payment of any principal of, or interest on, any Loans or any other Obligations (including the waiver of any Default or Event of Default as a result of the nonpayment of any such Obligations as and when due (except in connection with the waiver of applicability of any post-default increase in interest rates));

(v) amend or otherwise modify the provisions of Section 3.2.;

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(vi) modify the definition of the term “Requisite Lenders” or otherwise modify in any other manner the number or percentage of the Lenders required to make any determinations or waive any rights hereunder or to modify any provision hereof, including without limitation, any modification of this Section 13.6. if such modification would have such effect;

(vii) release any Guarantor from its obligations under the Guaranty;

(viii) release any of the Collateral from the Lien of the Security Documents (except as otherwise permitted under Section 12.6.); or

(ix) amend or otherwise modify the provisions of Section 2.11.

(c) If any Lender (a “Non-Consenting Lender”) does not consent to a proposed amendment, waiver, consent or release with respect to any Loan Document that requires the consent of each Lender directly and adversely affected thereby and that has been approved by the Requisite Lenders, the MG Borrower may replace such Non-Consenting Lender in accordance with Section 3.14(a).

(d) Notwithstanding anything to the contrary contained herein, Loan Modification Offers and Permitted Amendments (as hereinafter defined) shall be permitted in accordance with this subsection (d), regardless of the preceding provisions of this Section 13.6. The MG Borrower may make one or more offers (each, a “Loan Modification Offer”) to all the Lenders to make one or more Permitted Amendments (as defined below). Permitted Amendments shall become effective only with respect to the Loans and Commitments of the Lenders that accept the applicable Loan Modification Offer (such Lenders, the “Accepting Lenders”). The Borrowers and each Accepting Lender shall execute and deliver to the Agent a loan modification agreement (a “Loan Modification Agreement”) and such other documentation as the Agent shall reasonably specify to evidence the acceptance of the Permitted Amendments and the terms and conditions thereof. In connection with any Loan Modification Offer, the Borrowers may, at their sole option, terminate or reduce the Commitments, and/or repay or reduce any Loans, of one or more of the Lenders that are not Accepting Lenders. Additionally, to the extent the Borrowers have reduced the Commitments and/or Loans of such Lenders, they may request any other financial institution (with the consent of the Agent, such consent not to be unreasonably conditioned, delayed or withheld) to provide a commitment to make loans on the terms set forth in such Loan Modification Offer in an amount not to exceed the amount of the Commitments reduced pursuant to the preceding sentence. The Agent shall promptly notify each Lender as to the effectiveness of each Loan Modification Agreement. Each of the parties hereto hereby agrees that, upon the effectiveness of any Loan Modification Agreement, this Agreement shall be deemed amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Permitted Amendment evidenced thereby and only with respect to the Loans and Commitments of the Accepting Lenders (including any amendments necessary to treat the Loans and Commitments of the Accepting Lenders as Loans and/or Commitments, it being understood that all borrowings and repayments will be made pro rata between all Loans; provided, that to the extent any Permitted Amendment extends the final maturity of the Commitments of the Accepting Lenders, the Loans and related Obligations may be repaid on the Termination Date on a non-ratable basis with the Commitments of the Accepting Lenders. “Permitted Amendments” shall be an extension of the scheduled maturity of the applicable Loans and Commitments of the Accepting Lenders, together with any one or more of the following: (i) a change in rate of interest (including a change to the Applicable Margin and/or a provision establishing a minimum rate), premium, fees or other amount with respect to the applicable Loans and/or Commitments of the Accepting Lenders (in each case effective after the scheduled maturity of the Loans), (ii) additional fees to the Accepting Lenders and (iii) such other amendments to this Agreement and the other Loan Documents as shall be appropriate, in the judgment of the Agent, to give effect to the foregoing Permitted Amendments.

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(e) Notwithstanding anything to the contrary herein, any provision of this Agreement may be amended by an agreement in writing entered into by the Loan Parties, the Requisite Lenders and the Agent (and, if its rights or obligations are affected thereby, the Issuing Bank) if (A) by the terms of such agreement the Commitment of each Lender not consenting to the amendment provided for therein shall terminate upon the effectiveness of such amendment and (B) at the time such amendment becomes effective, each Lender not consenting thereto receives payment in full of the principal of and interest accrued on each Loan made by it and all other amounts owing to it or accrued for its account under this Agreement (notwithstanding the provisions of Section 3.2. or any other similar provision of this Agreement that requires ratable payments to the Lenders).

(f) No amendment, waiver or consent, unless in writing and signed by the Agent, in such capacity, in addition to the Lenders required hereinabove to take such action, shall affect the rights or duties of the Agent under this Agreement or any of the other Loan Documents.

(g) No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon and any amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose set forth therein. Except as otherwise provided in Section 12.5., no course of dealing or delay or omission on the part of the Agent or any Lender in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. Any Event of Default occurring hereunder shall continue to exist until such time as such Event of Default is waived in writing in accordance with the terms of this Section, notwithstanding any attempted cure or other action by the MG Borrower, any other Loan Party or any other Person subsequent to the occurrence of such Event of Default. Except as otherwise explicitly provided for herein or in any other Loan Document, no notice to or demand upon the MG Borrower shall entitle the MG Borrower to any other or further notice or demand in similar or other circumstances.

Section 13.7 Nonliability of Agent, Issuing Bank and Lenders. The relationship between the Borrowers, on the one hand, and the Lenders, the Issuing Bank and the Agent, on the other hand, shall be solely that of borrower and lender. Neither the Agent nor the Issuing Bank or any Lender shall have any fiduciary responsibilities to the Borrowers or any other Loan Party and no provision in this Agreement or in any of the other Loan Documents, and no course of dealing between or among any of the parties hereto, shall be deemed to create any fiduciary duty owing by the Agent, the Issuing Bank or any Lender to any Lender, the MG Borrower, any Subsidiary or any other Loan Party. Neither the Agent nor the Issuing Bank or any Lender undertakes any responsibility to the Borrowers to review or inform the Borrowers of any matter in connection with any phase of the Borrowers’ business or operations.

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Section 13.8 Confidentiality. The Agent and each Lender shall assure that information about Holdings, the MG Borrower, the other Loan Parties and the other Subsidiaries, and the Properties thereof and their operations, affairs and financial condition, not generally disclosed to the public, which is furnished to the Agent or any Lender pursuant to the provisions of this Agreement or any other Loan Document, is used only for the purposes of this Agreement and the other Loan Documents and shall not be divulged to any Person other than the Agent, the Lenders, and their respective agents who are actively and directly participating in the evaluation, administration or enforcement of the Loan Documents and other transactions between the Agent or such Lender, as applicable, and Holdings or the MG Borrower, as applicable, but in any event the Agent and the Lenders may make disclosure: (a) to any of their respective affiliates (provided they shall agree to keep such information confidential in accordance with the terms of this Section 13.8.); (b) as reasonably requested by any potential or actual Assignee, Participant or other transferee in connection with the contemplated transfer of any Commitments or participations therein as permitted hereunder (provided they shall agree to keep such information confidential in accordance with the terms of this Section); (c) as required or requested by any Governmental Authority or representative thereof or pursuant to legal process or in connection with any legal proceedings or as otherwise required by Applicable Law; (d) to the Agent’s or such Lender’s independent auditors and other professional advisors (provided they shall be notified of the confidential nature of the information); (e) following the occurrence and during the continuance of a Default or an Event of Default, to any other Person in connection with the exercise by the Agent or the Lenders of remedies hereunder or under any of the other Loan Documents; (f) upon the prior consent (which consent shall not be unreasonably withheld) of Holdings or the MG Borrower, as applicable, to any contractual counter-parties to any swap or similar hedging agreement or to any rating agency; and (g) to the extent such information (x) becomes publicly available other than as a result of a breach of this Section actually known to such Lender to be such a breach or (y) becomes available to the Agent or any Lender on a nonconfidential basis from a source other than the MG Borrower or any Affiliate. Notwithstanding the foregoing, the Agent and each Lender may disclose any such confidential information, without notice to the MG Borrower or any other Loan Party, to Governmental Authorities in connection with any regulatory examination of the Agent or such Lender or in accordance with the regulatory compliance policy of the Agent or such Lender.

Section 13.9 Termination; Survival. At such time as (a) all of the Commitments have been terminated, (b) all Letters of Credit have terminated or expired or have been Cash Collateralized in accordance with the terms of this Agreement, (c) none of the Lenders is obligated any longer under this Agreement to make any Loans and (d) all Obligations (other than obligations which survive as provided in the following sentence) have been paid and satisfied in full, this Agreement and the other Loan Documents shall terminate. The indemnities to which the Agent and the Lenders are entitled under the provisions of Sections 3.13., 5.1., 5.4., 12.8. and 13.2. and any other provision of this Agreement and the other Loan Documents, and the provisions of Section 13.4., shall continue in full force and effect and shall protect the Agent and the Lenders (i) notwithstanding any termination of this Agreement, or of the other Loan Documents, against events arising after such termination as well as before and (ii) at all times after any such party ceases to be a party to this Agreement with respect to all matters and events existing on or prior to the date such party ceased to be a party to this Agreement. The Agent agrees to furnish to the MG Borrower, upon the MG Borrower’s request and at the Borrowers’ sole cost and expense, any release, termination, or other agreement or document evidencing the foregoing termination and the release of the Liens created under any of the Security Documents as may be reasonably requested by the MG Borrower.

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Section 13.10 Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions or affecting the validity or enforceability of such provision in any other jurisdiction.

Section 13.11 Patriot Act. Each Lender subject to the Act hereby notifies Holdings and the Borrowers that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies Holdings, the Borrowers and the other Loan Parties and other information that will allow such Lender to identify Holdings, the Borrowers and the other Loan Parties in accordance with the Act

Section 13.12 Counterparts. This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument.

Section 13.13 Obligations with Respect to Loan Parties. The obligations of the MG Borrower to direct or prohibit the taking of certain actions by the other Loan Parties as specified herein shall be absolute and not subject to any defense the MG Borrower may have that the MG Borrower does not control such Loan Parties.

Section 13.14 Limitation of Liability. Neither the Agent nor the Issuing Bank or any Lender, nor any affiliate, officer, director, employee, attorney, or agent of the Agent, the Issuing Bank or any Lender shall have any liability with respect to, and each of Holdings and the Borrowers hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by Holdings or the Borrowers in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Each of Holdings and the Borrowers hereby waives, releases, and agrees not to sue the Agent, the Issuing Bank or any Lender or any of the Agent’s, the Issuing Bank’s or any Lender’s affiliates, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or financed hereby.

Section 13.15 Entire Agreement. This Agreement and the other Loan Documents referred to herein embody the final, entire agreement among the parties hereto and supersede any and all prior commitments, agreements, representations, and understandings, whether written or oral, relating to the subject matter hereof and thereof and may not be contradicted or varied by evidence of prior, contemporaneous, or subsequent oral agreements or discussions of the parties hereto. There are no oral agreements among the parties hereto.

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Section 13.16 Construction. Each of the Agent, each Lender, the Borrowers and Holdings acknowledge that it has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by the Agent, each Lender, the Borrowers and Holdings.

Section 13.17 Nature of Borrower Obligations. Notwithstanding anything to the contrary contained elsewhere in this Agreement, it is understood and agreed by the various parties to this Agreement that:

(a) all Obligations to repay principal of, interest on, and all other amounts with respect to, the Loans, the Letters of Credit and all other Obligations pursuant to this Agreement and each other Loan Document (including, without limitation, all fees, indemnities, Taxes and other Obligations in connection therewith) shall constitute the joint and several obligations of each Borrower;

(b) The obligations of each Borrower with respect to the Obligations are independent of the obligations of the other Borrower with respect thereto, and a separate action or actions may be brought and prosecuted against each Borrower, whether or not the other Borrower or any Guarantor is joined in any such action or actions. Each Borrower waives, to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by either Borrower or other circumstance which operates to toll any statute of limitations as to either Borrower shall, to the fullest extent permitted by law, operate to toll the statute of limitations as to the other Borrower.

(c) Each Borrower authorizes the Agent, the Issuing Bank and the Lenders without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to:

(i) exercise or refrain from exercising any rights against the other Borrower or any Guarantor or others or otherwise act or refrain from acting;

(ii) release or substitute the other Borrower, endorsers, Guarantors or other obligors;

(iii) settle or compromise any of the Obligations of any other Loan Party, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of any Borrower to its creditors other than the Lenders;

(iv) apply any sums paid by any other Loan Party or any other Person, howsoever realized, to any liability or liabilities of such other Loan Party or other Person regardless of what liability or liabilities of such other Loan Party or other Person remain unpaid; and/or

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(v) consent to or waive any breach of, or act, omission or default under, this Agreement or any of the other Loan Documents, or otherwise, by any other Loan Party or any other Person.

(d) It is not necessary for the Agent, the Issuing Bank or any Lender to inquire into the capacity or powers of any Borrower or any of its Affiliates or the officers, directors, members, partners or agents acting or purporting to act on its behalf, and any Obligations made or created in reliance upon the professed exercise of such powers shall constitute the joint and several obligations of the Borrowers hereunder.

(e) No Borrower shall have any rights of contribution or subrogation with respect to the other Borrower as a result of payments made by it hereunder, in each case unless and until all of the Obligations have been paid in full in cash.

(f) Each Borrower waives any right to require the Agent, the Issuing Bank or the Lenders to (i) proceed against the other Borrower or any other Person, (ii) proceed against or exhaust any security held from any Borrower or any other Person or (iii) pursue any other remedy in the Agent’s, the Issuing Bank’s or Lenders’ power whatsoever. Each Borrower waives any defense based on or arising out of suretyship or any impairment of security held from any Borrower or any other Person or on or arising out of any defense of the other Borrower or any other Person other than payment in full in cash of the its Obligations, including, without limitation, any defense based on or arising out of the disability of the other Borrower or any other Person, or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the other Borrower, in each case other than as a result of the payment in full in cash of the Obligations.

(g) Notwithstanding anything herein or in any other Loan Document to the contrary, each Borrower’s joint and several liability for the Obligations shall be limited to the greater of (i) the amount for which it is Primarily Liable and (ii) such Borrower’s Allocable Amount (as defined in Section 13.17(h)). “Primarily Liable” for any Borrower, means liability in amount equal to the proceeds of the Loans which were made available to such Borrower. The “Allocable Amount” for any Borrower at any time shall be the maximum amount that could be recovered from such Borrower at such time under the Loan Documents without rendering such payment voidable under Section 548 of the Bankruptcy Code or under any applicable state fraudulent transfer or conveyance act, or similar statute or common law.

(h) If any Borrower makes a payment of any Obligations greater than that for which it is Primarily Liable, it shall be entitled to receive contribution and indemnification payments from, and to be reimbursed by, the other Borrower in an amount equal to the lesser of (i) the payment in excess of the amount for which it is Primarily Liable and (ii) the Allocable Amount which after giving effect to any Obligations of such other Borrower would not result in such contribution claim being a fraudulent transfer.

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(i) Nothing contained in this Section 13.17 shall limit the liability of any Borrower under the Loan Documents to pay the Loan and all accrued interest, fees, expenses and other Obligations related thereto, for which such Borrower is Primarily Liable.

(j) Each Borrower has requested that the Agent, the Issuing Bank and the Lenders make this credit facility available to the Borrowers on a combined basis, in order to finance the Loan Parties’ business most efficiently and economically. The Loan Parties’ business is a mutual and collective enterprise, and the Borrowers believe that consolidation of their credit facility will enhance the borrowing power of each Borrower and ease the administration of their relationship with the Agent, the Issuing Bank and the Lenders, all to the mutual advantage of the Borrowers. The Borrowers acknowledge and agree that the Administrative Agent’s, the Issuing Bank’s and each Lender’s willingness to extend credit to the Borrowers and to administer the Collateral on a combined basis, as set forth herein, is done solely as an accommodation to the Borrowers at their request.

(k) Each Borrower hereby subordinates any claims, including any rights at law or in equity to payment, subrogation, reimbursement, exoneration, contribution, indemnification or set off, that it may have at any time against the other Borrower, howsoever arising, to full and final payment in full, in cash, of all Obligations.

(l) Each Borrower hereby restates and makes the waivers made by each Guarantor in the Guaranty. Such waivers are hereby incorporated by reference as if fully set forth herein (and as if applicable to each Borrower) and shall be effective for all purposes under the Loan Documents (including, without limitation, in the event that any Borrower is deemed to be a surety or guarantor of the Obligations (by virtue of the Borrowers being co-obligors and jointly and severally liable hereunder, by virtue of each Borrower encumbering its interest in the Collateral for the benefit or debts of the other Borrower in connection herewith or otherwise)).

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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written.

MORGANS GROUP LLC, a Delaware limited liability company, as MG Borrower
By:	Morgans Hotel Group Co., its managing member
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary
BEACH HOTEL ASSOCIATES LLC, a Delaware limited liability company, as Florida Borrower
By:	Morgans Group LLC, its managing member
	By:	Morgans Hotel Group Co., its managing member
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary
MORGANS HOTEL GROUP CO., a Delaware corporation, as Holdings
By:	/s/ Richard Szymanski
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary

DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent and Lender
By:	/s/ George R. Reynolds
	Name:	George R. Reynolds
	Title:	Director
By:	/s/ James Rolison
	Name:	James Rolison
	Title:	Managing Director
Address for Notices:
Deutsche Bank Securities Inc. 200 Crescent Court, Suite 550 Dallas, Texas 75201 Attn: Gerard Dupont Telephone: 214-740-7913 Telecopier: 214-740-7910
with a copy to:
Deutsche Bank Securities Inc. 60 Wall Street New York, New York 10005 Attn: George Reynolds Telephone: 212-250-2362 Telecopier: 212-797-4496
OPERATIONS & LIBOR Lending Office:
Deutsche Bank Trust Company Americas 90 Hudson Street, 5th Floor Jersey City, New Jersey 07302 Attn: Deirdre Wall Telephone: 201-593-2170 Telecopier: 201-593-2308

AAREAL CAPITAL CORPORATION, a Delaware Corporation, as Lender
By:	/s/ Christoph Donner
	Name:	Christoph Donner
	Title:	Senior Managing Director
By:	/s/ Alan L. Griffin
	Name:	Alan L. Griffin
	Title:	Counsel
Address for Notices:
Aareal Capital Corporation 250 Park Avenue, Suite 820 New York, NY 10177 Attn: Daniel de Roo Telephone: 646-465-8614 Telecopier: 917-322-0290
OPERATIONS & LIBOR Lending Office:
Aareal Capital Corporation Paulinenstr. 15 65189 Wiesbaden-DE Attn: Annette Haas Telephone: +49.611.348.3055 Telecopier: +49.611 .348.71805

[Signature Page to Credit Agreement]

CITIBANK, N.A., as Lender
By:	/s/ Michael Chlopak
	Name: Title:	Michael Chlopak Vice President
Address for Notices:
Citibank, N.A. 388 Greenwich St, 23rd Floor New York, NY 10013 Attn: Bryce Hong Telephone: 212-723-6951 Telecopier: 646-688-2051
OPERATIONS & LIBOR Lending Office:
Citibank, N.A. 1615 Brett Road, Bldg III New Castle, DE 19720 Attn: Loan Administration Telephone: 302-894-6052 Telecopier: 212-994-0847

[Signature Page to Credit Agreement]

MIDFIRST BANK, a federally chartered savings association, as Lender
By:	/s/ Darrin Rigler
	Name:	Darrin Rigler
	Title:	Vice President
Address for Notices:
MidFirst Bank 501 NW Grand Blvd Oklahoma City, OK 73118 Attn: Darrin Rigler Telephone: 405-767-7608 Telecopier: 405-767-7119
OPERATIONS & LIBOR Lending Office:
MidFirst Bank 501 NW Grand Blvd Oklahoma City, OK 73118 Attn: Glenda Edwards Telephone: 405-767-7140 Telecopier: 405-767-7119

[Signature Page to Credit Agreement]

Schedule 1.1(A)

Loan Parties

Morgans Hotel Group Co., Guarantor
Morgans Group LLC, Borrower
Beach Hotel Associates LLC, Borrower
Morgans Hotel Group Management LLC, Guarantor

Schedule 2.1

Loan Commitments and Applicable Percentages

			Applicable
Lender	Commitment		Percentage
Deutsche Bank Trust Company Americas	$	30,000,000.00		30	%
Citibank, N.A.	$	30,000,000.00		30	%
Aareal Capital Corporation, a Delaware Corporation	$	30,000,000.00		30	%
MidFirst Bank, a federally chartered savings association	$	10,000,000.00		10	%
Total	$	100,000,000.00		100	%

Schedule 7.1(b)

Ownership Structure

Part I. Consolidated Affiliates of Morgans Group LLC

		Equity	Nature of	Status	3rd Party
Name	Jurisdiction	Interest	Equity Interest	(Material/Foreign)	Equity Interest
Morgans Group LLC	Delaware	97.1% Morgans Hotel Group Co.	Membership	Material	2.9% by Residual Hotel Interest LLC (DE)
Morgans Holdings LLC	Delaware	100% by Morgans Group LLC	Membership
MHG Capital Trust I	Delaware	100% Morgans Group LLC	Common Securities		100% Trust Preferred Holders (Trust Preferred Securities)
Morgans/Delano Pledgor LLC	Delaware	100% by Morgans Group LLC	Membership
Madison Bar Company LLC	Delaware	100% by Morgans/Delano Pledgor LLC	Membership
SC Morgans/Delano LLC	Delaware	100% by Morgans/Delano Pledgor LLC	Membership
SC Madison LLC	Delaware	100% by SC Morgans/Delano LLC	Membership
SC Collins LLC	Delaware	100% by SC Morgans/Delano LLC	Membership
Mondrian Miami Investment LLC	Delaware	100% by Morgans Group LLC	Membership
Beach Hotel Associates LLC	Delaware	100% by Morgans Group LLC	Membership	Material
Mondrian Miami Capital LLC	Delaware	100% by Morgans Group LLC	Membership
Henry Hudson Senior Mezz LLC	Delaware	100% by Morgans Group LLC	Membership	Material
Hudson Pledgor LLC	Delaware	100% by Henry Hudson Senior Mezz LLC	Membership
58th Street Bar Company LLC	Delaware	100% by Hudson Pledgor LLC	Membership

		Equity	Nature of	Status	3rd Party
Name	Jurisdiction	Interest	Equity Interest	(Material/Foreign)	Equity Interest
Henry Hudson Holdings LLC	Delaware	100% by Henry Hudson Senior Mezz LLC	Membership	Material
Hudson Managing Member LLC	Delaware	100% by Henry Hudson Senior Mezz LLC	Membership	Material
Hudson Leaseco LLC	New York	99.99% by Hudson Managing Member LLC	Membership	Material
		.01% Hudson Residual Interests Inc.	Membership	Material
Hudson Residual Interests Inc.	Delaware	100% by Morgans Group LLC	Stock
Mondrian Holdings LLC	Delaware	100% by Mondrian Senior Mezz LLC	Membership
Mondrian Senior Mezz LLC	Delaware	100% by Morgans Group LLC	Membership
Mondrian Pledgor LLC	Delaware	100% by Mondrian Senior Mezz LLC	Membership		100% to be acquired by Wolverines Lessee LLC
Sunset Restaurant LLC	Delaware	50% by Mondrian Pledgor LLC	Membership		100% to be acquired by Wolverines Lessee LLC
		50% by Mondrian Senior Mezz LLC	Membership
8440 LLC	California	1% by Sunset Restaurant LLC	Membership
		99% by Mondrian Pledgor LLC	Membership
MC South Beach LLC	Delaware	50% by 1100 West Properties LLC	Membership
		50% by Morgans Group LLC	Membership
Morgans Hotel Group Management LLC	Delaware	100% by Morgans Group LLC	Membership	Material
Royalton London LLC	New York	100% by Morgans Group LLC	Membership
Morgans Hotel Group U.K. Management Limited	United Kingdom	100% by Royalton London LLC	Membership	Foreign
Royalton UK Development Limited	United Kingdom	100% by Royalton London LLC (f/k/a S London LLC)	Membership	Foreign

		Equity	Nature of	Status	3rd Party
Name	Jurisdiction	Interest	Equity Interest	(Material/Foreign)	Equity Interest
Royalton Europe Holdings LLC	Delaware	100% by Morgans Group LLC	Membership
Morgans Newco Limited	United Kingdom	100% by Royalton Europe Holdings LLC	Membership	Foreign
SC Restaurant Company LLC	Delaware	100% by Morgans Group LLC	Membership
Shore Club Holdings, LLC	Delaware	100% by Morgans Group LLC	Membership
495 Geary LLC	Delaware	99% by Clift Holdings LLC	Membership
		1% by Morgans Group LLC	Membership
495 ABC License LLC	Delaware	100% Class A Membership by 495 Geary LLC	Membership		0% Class B Membership by SARH
Clift Holdings LLC	Delaware	100% by Morgans Group LLC	Membership	Material
MHG 1 Court Investment, LLC	Delaware	100% by Morgans Group LLC	Membership
MHG Puerto Rico Management LLC	Delaware	100% by Morgans Group LLC	Membership
MHG PR Investment LLC	Delaware	100% by Morgans Group LLC	Membership
MHG PR Member LLC	Puerto Rico	100% by MHG PR Investment LLC	Membership
MHG 150 Lafayette Investment LLC	Delaware	100% by Morgans Group LLC	Membership
MHG Mexico Management S. de R.L. de C.V	Mexico	1% by Morgans Group LLC	Membership	Foreign
		99% by MHG Mexico LLC	Membership
MHG Mexico LLC	Delaware	100% by Morgans Group LLC	Membership
Collins Hotel Associates Mezz LLC	Delaware	100% by Morgans Group LLC	Membership
MHG South America LLC	Delaware	100% by Morgans Group LLC	Membership
Mondrian Scottsdale Mezz Holding Company LLC	Delaware	100% by Morgans Group LLC	Membership
MHG Scottsdale Holdings LLC	Delaware	100% by Mondrian Scottsdale Mezz Holding Company LLC	Membership

		Equity	Nature of	Status	3rd Party
Name	Jurisdiction	Interest	Equity Interest	(Material/Foreign)	Equity Interest
SC Geary LLC	Delaware	100% by Clift Holdings LLC	Membership
Royalton Pledgor LLC	Delaware	100% Morgans Group LLC	Membership
43RD Restaurant LLC	Delaware	100% Royalton Pledgor LLC	Membership
Morgans/LV Management LLC	Delaware	100%Morgans Group LLC	Membership
Morgans/LV Investment LLC	Delaware	100% Morgans/LV Management LLC	Membership
MHG St. Barths Investment LLC	Delaware	100% Morgans Group LLC	Membership
MHG North State Street Investment LLC	Delaware	100% Morgans Group LLC	Membership

Part II. Unconsolidated Subsidiaries of Morgan Hotel Group Co.

Name	Jurisdiction	Equity Interest
1100 West Holdings II, LLC	Delaware	50% by Mondrian Miami Investment LLC
1100 West Holdings LLC	Delaware	100% by 1100 West Holdings II, LLC
1100 West Properties LLC	Delaware	100% by 1100 West Holdings, LLC
RMF Capital LLC	Delaware	50% by Mondrian Miami Capital LLC
Morgans Hotel Group Europe Limited	UK	50% by Royalton Europe Holdings LLC
Morgans Hotel Group London Limited	UK	100% by Morgans Hotel Group Europe Limited
NewCo London City Limited	UK	100% by Morgans Hotel Group Europe Limited
SC London LLC	Delaware	100% by Morgans Group LLC
SC London Limited	UK	100% by SC London LLC
Philips South Beach LLC	Illinois	6.7878% by Shore Club Holdings LLC
Normandy Morgans Ames AHP LLC	Delaware	31% by MGH 1 Court Investment LLC
Ames Court Street Mezz LLC	Delaware	100% by Normandy Morgans Ames AHP LLC
Ames Court Street LLC	Delaware	100% by Ames Court Street Mezz LLC
Ames Court Street Hotel LLC	Delaware	100% by Ames Court Street LLC
Historic Ames Building Credit JV	Delaware	90% by Normandy Morgans Ames AHP LLC
		10% by Historic Ames Building Credit LLC
Historic Ames Building Mezz LLC	Delaware	100% by Historic Ames Building Credit JV
Historic Ames Building LLC	Delaware	100% by Historic Ames Building Mezz LLC
Historic Ames Building Credit LLC	Delaware	0.01% by Normandy Morgans Ames AHP LLC
WC Owner LLC	Delaware	25% by MHG PR Member LLC
Cape Soho Hotel LLC	New York	20% by MHG 150 Lafayette Investment LLC
Sochin Realty Managers, LLC	Delaware	100% by Cape Soho Hotel LLC
Sochin Downtown Realty, LLC	New York	99.5% by Cape Soho Hotel LLC
		0.5% by Sochin Realty Managers, LLC
Hard Rock Hotel Holdings LLC	Delaware	8% by Morgans Group LLC
Hard Rock Hotel, Inc.	Nevada	100% by Hard Rock Hotel Holdings LLC
Christopher Hotel Holdings LLC	Delaware	49% by MHG St. Barths Investment LLC
Cedar Hotel Holdings LLC	Delaware	49% by MHG North State Street Investment LLC
Cedar Hotel LLC	Delaware	100% by Cedar Hotel Holdings LLC

Schedule 7.1(d)

Government Approvals

None.

Schedule 7.1(f)

Title to Properties; Liens

Title to Properties

Loan Party and/or Subsidiary	Address	Owned/Leased
Morgans Group LLC	475 10th Avenue 11th Floor New York, NY 10018	Leased
Beach Hotel Associates LLC	1685 Collins Avenue Miami Beach, FL 33139	Owned
Morgans Holdings LLC	237 Madison Ave New York, NY 10016	Leased
SC Madison LLC	237 Madison Ave New York, NY 10016	Leased
SC Collins LLC	1685 Collins Avenue Miami Beach, FL 33139	Leased
Henry Hudson Holdings LLC	356 West 58th Street New York, NY 10019	Owned, except for Unit 4 and Unit 10 as set forth below
Henry Hudson Holdings LLC	356 West 58th Street New York, NY 10019	Condominium Unit no. 10 leased from owner
Henry Hudson Holdings LLC	353 West 57th Street New York, NY 10019	Condominium Unit no. 4 leased from owner
Hudson Leaseco LLC	365 West 58th Street New York, NY 10019	Leased
58th Street Bar Company LLC	365 West 58th Street New York, NY 10019	Leased
8440 LLC	8440 Sunset Boulevard West Hollywood, CA 90069	Leased
Clift Holdings LLC	495 Geary Street San Francisco, CA 94102	Leased

The following Liens or the Liens created under the following documents:

1. Assignment of Consolidation and Modification of Mortgage, Security Agreement, Assignment of Rents and Fixture, dated as October 6, 2006, between Henry Hudson Holdings LLC and Wachovia Bank, National Association.

2. Loan and Security Agreement, dated as of October 6, 2006, between Henry Hudson Senior Mezz LLC and Wachovia Bank, National Association.

3. Ground Lease, dated October 14, 2004, by and between Geary Hotel Holdings, LLC and Clift Holdings LLC.

4. Equipment lien against the MG Borrower described in the financing statement filed with the Delaware Secretary of State on 5/6/2008 with an initial filing number of 20081558962 in favor of US Express Leasing, Inc.

5. Equipment lien against the MG Borrower described in the financing statement filed with the Delaware Secretary of State on 2/19/2009 with an initial filing number of 20090547437 in favor of Noreast Capital Corporation.

6. Equipment lien against Holdings described in the financing statement filed with the Delaware Secretary of State on 9/29/2008 with an initial filing number of 20083297080 in favor of Shuffle Master Inc.

7. Equipment lien against Holdings described in the financing statement filed with the Delaware Secretary of State on 1/22/2009 with an initial filing number of 200990220308 in favor of Shuffle Master Inc.

8. Equipment lien against Holdings described in the financing statement filed with the Delaware Secretary of State on 3/31/2010 with an initial filing number of 201001112428 in favor of Shuffle Master Inc.

9. Equipment lien against Holdings described in the financing statement filed with the Delaware Secretary of State on 1/22/2009 with an initial filing number of 20090220308 in favor of Shuffle Master Inc.

10. Equipment lien against Management Company described in the financing statement filed with the Delaware Secretary of State on 11/25/2008 with an initial filing number of 200883937735 in favor of US Express Leasing, Inc.

11. Equipment lien against Management Company described in the financing statement filed with the Delaware Secretary of State on 9/2/2009 with an initial filing number of 200992832449 in favor of Bank of the West.

12. Equipment lien against the Florida Borrower described in the financing statement filed with the Delaware Secretary of State on 7/8/2005 with an initial filing number of 200552100593 in favor of Konica Minolta Business Solutions U.S.A., Inc.

13. All liens set forth on Schedule B of the Loan Policy of Title Insurance issued by Chicago Title Insurance Company in Policy No. 7210709-506058, dated the date and time of the recorded instruments.

14. Lease dated February 11, 1999 between Irving Schatz, as lessor, and Ian Schrager Hotels LLC, as lessee, as assigned to Henry Hudson Holdings, LLC pursuant to that certain Assignment and Assumption of Lease, dated as of February 12, 1999, as amended pursuant to that certain Amendment of Lease, dated as of August 13, 2004.

15. Lease dated January 1, 1999 between Adrienne Schatz (a/k/a Adrienne Wechsler) and Cheryl Hirsch, as lessor, and Henry Hudson Holdings LLC, as lessee, as amended pursuant to that certain Amendment of Lease, dated as of September 30, 1999, as further amended pursuant to that certain Amendment of Lease, dated as of August 13, 2004.

Schedule 7.1(g)

Indebtedness as of the Effective Date

A. Indebtedness evidenced by:

1. Agreement of Consolidation and Modification of Mortgage, Security Agreement, Assignment of Rents and Fixture Filing, dated as of October 6, 2006, between Henry Hudson Holdings LLC and Wachovia Bank, National Association.

2. Loan and Security Agreement, dated as of October 6, 2006, between Henry Hudson Senior Mezz LLC and Wachovia Bank, National Association.

3. Ground Lease, dated October 14, 2004, by and between Geary Hotel Holdings, LLC and Clift Holdings, LLC.

4. 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.

5. Confirmation of OTC Convertible Note Hedge, dated October 11, 2007, between Morgans Hotel Group Co. and Merrill Lynch Financial Markets, Inc.

6. Confirmation of OTC Convertible Note Hedge, dated October 11, 2007, between Morgans Hotel Group Co. and Citibank, N.A.

7. Amended and Restated Confirmation of OTC Warrant Transaction, dated October 11, 2007, between Morgans Hotel Group Co. and Merrill Lynch Financial Markets, Inc.

8. Amended and Restated Confirmation of OTC Warrant Transaction, dated October 11, 2007, between Morgans Hotel Group Co. and Citibank, N.A.

9. The Trust Preferred Securities (as described under clause (a) of the related Credit Agreement definition) and Borrower’s Junior Subordinated Note issued in connection with that certain Junior Subordinated Indenture, dated as of August 4, 2006, between Morgans Hotel Group Co., Morgans Group LLC and JPMorgan Chase Bank, National Association.

10. Second Amended and Restated Completion Guaranty, dated as of November 25, 2008, from Abraham Galbut, Keith Menin, Seth Frolich and Morgans Group LLC for the benefit of Eurohypo AG, New York Branch.

11. Amendment to and Reaffirmation of Second Amended and Restated Completion Guaranty, dated as of April 29, 2010, from Abraham Galbut, Keith Menin, Seth Frohlich and Morgans Group LLC for the benefit of Eurohypo AG, New York Branch.

12. Completion Guaranty (Mezzanine), dated as of November 25, 2008, from Abraham Galbut, Keith Menin, Seth Frolich and Morgans Group LLC.

13. Amendment to and Reaffirmation of Completion Guaranty (Mezzanine), dated as of April 29, 2010, from Abraham Galbut, Keith Menin, Seth Frohlich and Morgans Group LLC for the benefit of Eurohypo AG, New York Branch

14. Agreement for Purchase of Condominium Units and related Rider, each dated as of April 25, 2008, by and among 1100 West Properties, LLC, as seller, and Abraham Galbut, Keith Menin, Seth Frohlich and Morgans Group LLC, jointly and severally as buyers.

15. Reaffirmation of Agreement for Purchase of Condominium Units and related Rider, dated as of November 25, 2008, made by 1100 West Properties, LLC, Abraham Galbut, Keith Menin, Seth Frohlich and Morgans Group LLC for the benefit of Eurohypo AG, New York Branch.

16. Amendment to Rider to Agreement for Purchase of Condominium Units, dated as of April 29, 2010, by and among 1100 West Properties, LLC, as seller, and Abraham Galbut, Keith Menin, Seth Frohlich and Morgans Group LLC, as buyers.

17. Indemnity Agreement, dated as of June 27, 2007, made by and among Morgans Group LLC, Craig D. Wood, Curtis Bashaw, Keith Bashaw and Sochin Downtown Realty LLC.

18. Indemnity Agreement, dated as of July 30, 2010, made by and among Morgans Group LLC, MHG 150 Lafayette Investment LLC, Morgans Hotel Group Management LLC, Craig D. Wood and Curtis Bashaw.

B. The Indebtedness associated with the liens described in Schedule 7.1(f).

Schedule 7.1(h)

Material Contracts

None.

Schedule 7.1(i)

Litigation

None.

Schedule 7.1(y)

Existing Swap Agreements

1. Swap Confirmation, dated September 14, 2010, between Henry Hudson Holdings LLC and SMBC Capital Markets, Inc., as agent for SMBC Derivative Products Limited.

2. Confirmation of OTC Convertible Note Hedge, dated October 11, 2007, between Morgans Hotel Group Co. and Merrill Lynch Financial Markets, Inc.

3. Confirmation of OTC Convertible Note Hedge, dated October 11, 2007, between Morgans Hotel Group Co. and Citibank, N.A.

4. Amended and Restated Confirmation of OTC Warrant Transaction, dated October 11, 2007, between Morgans Hotel Group Co. and Merrill Lynch Financial Markets, Inc.

5. Amended and Restated Confirmation of OTC Warrant Transaction, dated October 11, 2007, between Morgans Hotel Group Co. and Citibank, N.A.

Schedule 10.4

Existing Investments

1. The investments described on Schedule 7.1(b).

Schedule 10.9

Restrictive Agreements

1. The Trust Preferred Securities (as described under clause (a) of the relevant Credit Agreement definition).

EXHIBIT A

FORM OF ASSIGNMENT AND ASSUMPTION

This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [the][each]¹ Assignor identified in item 1 below ([the][each, an] “Assignor”) and [the][each]² Assignee identified in item 2 below ([the][each, an] “Assignee”). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees]³ hereunder are several and not joint.]⁴ Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, restated, supplemented and/or otherwise modified from time to time, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by [the][each] Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Agent as contemplated below (i) all of [the Assignor’s][the respective Assignors’] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below (including without limitation any letters of credit, guarantees, and swingline loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] “Assigned Interest”). Each such sale and assignment is without recourse

1	For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language.
2	For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language.
3	Select as appropriate.
4	Include bracketed language if there are either multiple Assignors or multiple Assignees.

Exhibit A
Page 2

to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.

1. Assignor[s]:
2. Assignee[s]:
	[for each Assignee, indicate [Affiliate][Approved Fund] of [identify Lender]
3. Borrower(s):	Morgans Group LLC (the “MG Borrower”); Beach Hotel Associates LLC (the “Florida Borrower,” and together with the MG Borrower, the “Borrowers”)
4. Agent:	Deutsche Bank Trust Company Americas, as the agent under the Credit Agreement
5. Credit Agreement:	The $100,000,000 Credit Agreement dated as of [_____], 2011 among the Borrowers, Morgans Hotel Group Co., the Lenders from time to time party thereto, Deutsche Bank Trust Company Americas, as Agent, and the other agents parties thereto.
6. Assigned Interest[s]:

			Aggregate
			Amount of	Amount of	Percentage
			Commitment/	Commitment/	Assigned of
		Facility	Loans for all	Loans	Commitment/		CUSIP
Assignor[s]5	Assignee[s]6	Assigned7	Lenders8	Assigned	Loans9		Number
			$	$		%
			$	$		%

[7. Trade Date:                     ]¹⁰

5	List each Assignor, as appropriate.
6	List each Assignee, as appropriate.
7	Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g. “Commitment,” etc.)
8	Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.
9	Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.
10	To be completed if the Assignor(s) and the Assignee(s) intend that the minimum assignment amount is to be determined as of the Trade Date.

Exhibit A
Page 3

[Page break]

Exhibit A
Page 4

Effective Date:                      _____, 20_____ [TO BE INSERTED BY AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR[S]11 [NAME OF ASSIGNOR]
By:
	Name:
	Title:
[NAME OF ASSIGNOR]
By:
	Name:
	Title:
ASSIGNEE[S]12 [NAME OF ASSIGNEE]
By:
	Name:
	Title:
[NAME OF ASSIGNEE]
By:
	Name:
	Title:
	[Page Break]

11	Add additional signature blocks as needed.
12	Add additional signature blocks as needed.

Exhibit A
Page 5

[Consented to and]13 Accepted: DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent
By:
	Name:
	Title:
[Consented to:]14 [MORGANS GROUP LLC]
By:
	Name:
	Title:

13	To be added only if the consent of the Agent is required by the terms of the Credit Agreement.
14	To be added only if the consent of the MG Borrower is required by the terms of the Credit Agreement.

ANNEX 1

STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties.

1.1 Assignor[s]. [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any other instrument or document delivered pursuant thereto (other than this Assignment and Assumption) or any collateral thereunder, (iii) the financial condition of the Borrowers, any of their respective Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrowers, any of their respective Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2. Assignee[s]. [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an assignee under Section 13.5.(b)(iii), (v) and (vi) of the Credit Agreement (subject to such consents, if any, as may be required under Section 13.5.(b)(iii) of the Credit Agreement), (iii) from and after the Effective Date specified for this Assignment and Assumption, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and either it, or the person exercising discretion in making its decision to acquire the Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 9.1. or 9.2., as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the][such] Assignee; (b) agrees that (i) it will, independently and without reliance on the Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender; and (c) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to or otherwise conferred upon the Agent by the terms thereof, together with such powers as are reasonably incidental thereto.

Annex 1
Page 2

2. Payments. From and after the Effective Date, the Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignee whether such amounts have accrued prior to, on or after the Effective Date specified for this Assignment and Assumption. The Assignor[s] and the Assignee[s] shall make all appropriate adjustments in payments by the Agent for periods prior to such Effective Date or with respect to the making of this assignment directly between themselves.

3. Effect of Assignment. Upon the delivery of a fully executed original hereof to the Agent, as of the Effective Date, (i) [the][each] Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Assumption with respect to [the][the relevant] Assigned Interest, have the rights and obligations of a Lender thereunder and under the other Loan Documents and (ii) [the][each] Assignor shall, to the extent provided in this Assignment and Assumption with respect to [the][the relevant] Assigned Interest, relinquish its rights and be released from its obligations under the Credit Agreement and the other Loan Documents.

4. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. THIS ASSIGNMENT AND ASSUMPTION SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

EXHIBIT B

FORM OF NOTICE OF BORROWING
                    , 20__

Deutsche Bank Trust Company Americas, as Agent
c/o DB Services New Jersey, Inc.
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
Attn: Melissa Brennan
Fax 1-866-240-3622
melissa.brennan@db.com
agency.transactions@db.com

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement dated as of July [_____], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC (the “Florida Borrower,” and together with the MG Borrower, collectively, the “Borrowers”), Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5. thereof (each, a “Lender” and collectively, the “Lenders”) and Deutsche Bank Trust Company Americas, as Agent (the “Agent”). Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement.

1.	Pursuant to Section 2.1(b) of the Credit Agreement, the MG Borrower hereby requests that the Lenders make Loans to the Borrowers in an aggregate principal amount equal to $                    .
2.	MG Borrower hereby requests that such Loans be made available on                     , 20_.
3.	MG Borrower hereby requests that the requested Loans all be of the following Type:
	[Check one box only]

o	Base Rate Loans
o	LIBOR Loans, each with an initial Interest Period for a duration of:
	[Check one box only]	o	1 month
		o	2 months
		o	3 months

4. MG Borrower hereby requests that the proceeds of this borrowing of Loans be made available to the Borrowers by                     .

Exhibit B
Page 2

MG Borrower hereby certifies to the Agent and the Lenders that as of the date hereof and as of the date of the making of the requested Loans and after giving effect thereto, (a) no Default or Event of Default has occurred and is continuing or would result from the making of the requested Loans, and (b) the representations and warranties made or deemed made by the MG Borrower and each other Loan Party in the Loan Documents to which any of them is a party are and shall be true and correct in all material respects, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date) and except for changes in factual circumstances not prohibited under the Loan Documents (other than a change in factual circumstances since the Effective Date, that constitutes a material adverse change in the business, assets, liabilities, financial condition or results of operations of Holdings and its Subsidiaries taken as a whole). In addition, the MG Borrower certifies to the Agent and the Lenders that all conditions to the making of the requested Loans contained in Article VI. of the Credit Agreement will have been satisfied (or waived in accordance with the applicable provisions of the Loan Documents) at the time such Loans are made.

If notice of the requested borrowing of Loans was previously given by telephone, this notice is to be considered the written confirmation of such telephone notice required by Section 2.1.(b) of the Credit Agreement.

Exhibit B
Page 3

IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Notice of Borrowing as of the date first written above.

MORGANS GROUP LLC
By:
	Name:
	Title:

EXHIBIT C

FORM OF NOTICE OF CONTINUATION
                    , 20__

Deutsche Bank Trust Company Americas, as Agent
c/o DB Services New Jersey, Inc.
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
Attn: Melissa Brennan
Fax 1-866-240-3622
melissa.brennan@db.com
agency.transactions@db.com

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement dated as of July [_____], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC (the “Florida Borrower,” and together with the MG Borrower, collectively, the “Borrowers”), Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5. thereof (the “Lenders”) and Deutsche Bank Trust Company Americas, as Agent (the “Agent”). Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement.

Pursuant to Section 2.7. of the Credit Agreement, the MG Borrower hereby requests a Continuation of a borrowing of Loans under the Credit Agreement, and in that connection sets forth below the information relating to such Continuation as required by such Section 2.7. of the Credit Agreement:

1.	The proposed date of such Continuation is                     , 20_.
2.	The aggregate principal amount of Loans subject to the requested Continuation is $                                         and was originally borrowed by the Borrowers on                     , 20_.
3.	The portion of such principal amount subject to such Continuation is $                                        .
4.	The current Interest Period for each of the Loans subject to such Continuation ends on                     , 20_.

Exhibit C
Page 2

5. The duration of the new Interest Period for each of such Loans or portion thereof subject to such Continuation is:

[Check one box only]	o 1 month
	o 2 months
	o 3 months

The MG Borrower hereby certifies to the Agent and the Lenders that as of the date hereof, as of the proposed date of the requested Continuation, and after giving effect to such Continuation, no Default or Event of Default has occurred and is continuing or would result from the requested Continuation.

If notice of the requested Continuation was given previously by telephone, this notice is to be considered the written confirmation of such telephone notice required by Section 2.7. of the Credit Agreement.

Exhibit C
Page 3

IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Notice of Continuation as of the date first written above.

MORGANS GROUP LLC
By:
	Name:
	Title:

EXHIBIT D

FORM OF NOTICE OF CONVERSION
                    , 20__

Deutsche Bank Trust Company Americas, as Agent
c/o DB Services New Jersey, Inc.
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
Attn: Melissa Brennan
Fax 1-866-240-3622
melissa.brennan@db.com
agency.transactions@db.com

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement dated as of July [_____], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC (the “Florida Borrower,” and together with the MG Borrower, collectively, the “Borrowers”), Morgans Hotel Group Co., the financial institutions party thereto and their assignees under Section 13.5. thereof (the “Lenders”) and Deutsche Bank Trust Company Americas, as Agent (the “Agent”). Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement.

Pursuant to Section 2.8. of the Credit Agreement, the MG Borrower hereby requests a Conversion of a borrowing of Loans of one Type into Loans of another Type under the Credit Agreement, and in that connection sets forth below the information relating to such Conversion as required by such Section 2.8. of the Credit Agreement:

1.	The proposed date of such Conversion is                     , 20_.
2.	The Loans to be Converted pursuant hereto are currently:

[Check one box only]	o Base Rate Loans
	o LIBOR Loans

3.	The aggregate principal amount of Loans subject to the requested Conversion is $                                         and was originally borrowed by the Borrowers on                     , 20_.
4.	The portion of such principal amount subject to such Conversion is $                    .

Exhibit D
Page 2

5. The amount of such Loans to be so Converted is to be converted into Loans of the following Type:

[Check one box only]

o Base Rate Loans
o LIBOR Loans, each with an initial Interest Period for a duration of:
[Check one box only]	o 1 month
	o 2 months
	o 3 months

The MG Borrower hereby certifies to the Agent and the Lenders that as of the date hereof and as of the date of the requested Conversion and after giving effect thereto, no Default or Event of Default has occurred and is continuing or would result from the requested Conversion (provided the certification under this clause shall not be made in connection with the Conversion of a Loan into a Base Rate Loan).

If notice of the requested Conversion was given previously by telephone, this notice is to be considered the written confirmation of such telephone notice required by Section 2.8 of the Credit Agreement.

Exhibit D
Page 3

IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Notice of Conversion as of the date first written above.

MORGANS GROUP LLC
By:
	Name:
	Title:

Exhibit D
Page 4

EXHIBIT A

Borrowing Base Certificate

EXHIBIT F

FORM OF NOTE

$                                         , 20___

FOR VALUE RECEIVED, the undersigned, MORGANS GROUP LLC, a limited liability company formed under the laws of the State of Delaware (the “MG Borrower”), and BEACH HOTEL ASSOCIATES LLC, a limited liability company formed under the laws of the State of Delaware (the “Florida Borrower,” and together with the MG Borrower, collectively, the “Borrowers”), jointly and severally, hereby promise to pay to _____or its registered assigns (the “Lender”), in care of Deutsche Bank Trust Company Americas, as Agent (the “Agent”) at 60 Wall Street, New York, New York 10005, or at such other address as may be specified in writing by the Agent to the Borrowers, the principal sum of _____AND _____/100 DOLLARS ($_____) (or such lesser amount as shall equal the aggregate unpaid principal amount of Loans made by the Lender to the Borrowers under the Credit Agreement (as herein defined)), on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount owing hereunder, at the rates and on the dates provided in the Credit Agreement.

The date and amount of each Loan made by the Lender to the Borrowers, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, endorsed by the Lender on the schedule attached hereto or any continuation thereof, provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrowers to make a payment when due of any amount owing under the Credit Agreement or hereunder.

This Note is one of the Notes referred to in the Credit Agreement dated as of July [_____], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among the MG Borrower, the Florida Borrower, Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5. thereof and the Agent and is entitled to the benefits thereof and of the other Loan Documents. This Note is secured by the Security Documents and is entitled to the benefit of the Guaranty. As provided in the Credit Agreement, this Note is subject to voluntary prepayment and mandatory repayment prior to the Termination Date, in whole or in part, and Loans may be converted from one Type into another Type to the extent provided in the Credit Agreement. Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement.

The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events upon the terms and conditions specified therein.

Except as permitted by Section 13.5. of the Credit Agreement, this Note may not be assigned by the Lender to any Person.

State of Florida Documentary Stamp Tax in the amount required by law has been paid and the documentary stamps obtained upon such payment have been affixed to the mortgage recorded in the State of Florida which secure this Note.

Exhibit F
Page 2

THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

Each of the Borrowers hereby waives presentment for payment, demand, notice of demand, notice of non payment, protest, notice of protest and all other similar notices.

State of Florida Documentary Stamp Tax in the amount required by law has been paid and the documentary stamps obtained upon such payment have been affixed to the mortgage recorded in the State of Florida which secure this Note.

Exhibit F
Page 3

IN WITNESS WHEREOF, the undersigned have executed and delivered this Note under seal as of the date first written above.

MORGANS GROUP LLC
By:
	Name:
	Title:
BEACH HOTEL ASSOCIATES LLC
By:
	Name:
	Title:

Exhibit F
Page 3

SCHEDULE OF LOANS

This Note evidences Loans made under the within-described Credit Agreement to the Borrowers, on the dates and in the principal amounts set forth below, subject to the payments and prepayments of principal set forth below:

		Amount	Unpaid
Date of	Principal Amount of	Paid or	Principal	Notation
Loan	Loan	Prepaid	Amount	Made By

EXHIBIT G
to
CREDIT AGREEMENT

FORM OF INTERCOMPANY NOTE

New York, New York
                     __, ____

FOR VALUE RECEIVED, the Payor hereby promises to pay on demand to the order of [_____], or its assigns (the “Payee”), in lawful money of the United States of America in immediately available funds, at such location in the United States of America as the Payee shall from time to time designate, the aggregate unpaid principal amount of all loans and advances heretofore and hereafter made by the Payee to the Payor and any other indebtedness now or hereafter owing by the Payor to the Payee in the books and records of the Payee. The Payee is hereby authorized (but shall not be required) to record all loans and advances made by it to the Payor (all of which shall be evidenced by this Intercompany Note (this “Note”)), and all repayments or prepayments thereof, in its books and records, such books and records constituting prima facie evidence of the accuracy of the information contained therein. Capitalized terms used herein but not otherwise defined herein shall have the meanings given such terms in the Credit Agreement (as defined below).

The Payor also promises to pay interest on the unpaid principal amount hereof in like money at said location from the date hereof until paid at such rate per annum as shall be agreed upon from time to time by the Payor and the Payee.

Upon any exercise of remedies pursuant to Section 11.2 of the Credit Agreement, including, without limitation, the automatic acceleration of the Loans pursuant to Section 11.2(a)(i), the unpaid principal amount hereof shall become immediately due and payable without presentment, demand, protest or notice of any kind in connection with this Note.

Reference is made to the Credit Agreement, dated as of July _____, 2011 by and among Morgans Group LLC, Beach Hotel Associates LLC, Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5. thereof (the “Lenders”) and Deutsche Bank Trust Company Americas, as Agent (the “Agent”) (as amended, restated, modified and/or supplemented from time to time, the “Credit Agreement”) and this Note is subject to the terms thereof. The Payor hereby acknowledges and agrees that the Agent may, pursuant to the Credit Agreement and the other Loan Documents as in effect from time to time, exercise all rights provided therein with respect to this Note.

The Payee agrees that any and all claims of the Payee against the Payor or any endorser of this Note, or against any of their respective properties, shall be subordinate and subject in right of payment to the Obligations until all of the Obligations have been performed and paid in full in immediately available funds; provided, that the Payor may make payments to the Payee so long as no Default or Event of Default has occurred and is continuing; and provided, further, that all loans and advances made by a Payee pursuant to this Note shall be received by the Payor subject to the provisions of the Loan Documents. Notwithstanding any right of the

EXHIBIT G
Page 2

Payee to ask, demand, sue for, take or receive any payment from the Payor, all rights, Liens and security interests of the Payee, whether now or hereafter arising and howsoever existing, in any assets of the Payor (whether constituting part of the security or collateral given to the Agent, the Issuing Bank or any Lender to secure payment of all or any part of the Obligations or otherwise) shall be and hereby are subordinated to the rights of the Agent, the Issuing Bank and each Lender in such assets. The Payee shall have no right to possession of any such asset or to foreclose upon, or exercise any other remedy in respect of, any such asset, whether by judicial action or otherwise, unless and until all of the Obligations shall have been performed and paid in full in immediately available funds.

The Payee irrevocably authorizes, empowers and appoints the Agent as the Payee’s attorney-in-fact (which appointment is coupled with an interest and is irrevocable) to, upon the occurrence and during the continuance of an Event of Default, (i) demand, sue for, collect and receive every such payment or distribution and give acquittance therefor and (ii) make and present for and on behalf of the Payee such proofs of claim and take such other action, in the Agent’s own name or in the name of the Payee or otherwise, as the Agent may deem necessary or advisable at the direction of the Requisite Lenders for the enforcement of this Note. The Payee also agrees, after the occurrence and during the continuance of an Event of Default, to execute, verify, deliver and file any such proofs of claim in respect of any payment or distribution of any kind or character, whether in cash, securities or other investment property, or otherwise, which shall be payable or deliverable upon or with respect to any indebtedness of the Payor to the Payee (“Payor Indebtedness”) reasonably requested by the Agent or as directed by the Requisite Lenders. Upon the occurrence and during the continuance of an Event of Default, the Agent may vote such proofs of claim in any insolvency or similar proceeding in respect of any Payor (and the Payee shall not be entitled to withdraw such vote), receive and collect any and all dividends or other payments or disbursements made on Payor Indebtedness in whatever form the same may be paid or issued and apply the same on account of any of the Obligations. Except as otherwise permitted under the Credit Agreement, should any payment, distribution, security or other investment property or instrument or any proceeds thereof be received by the Payee upon or with respect to Payor Indebtedness owing to the Payee after the occurrence and during the continuance of an Event of Default, the Payee shall receive and hold the same in trust, as trustee, for the benefit of the Agent, the Issuing Bank and each Lender, and if requested by the Agent, shall promptly deliver the same to the Agent in precisely the form received (except for the endorsement or assignment of the Payee where necessary or advisable), for application to any of the Obligations, due or not due, and, until so delivered, the same shall be segregated from the other assets of the Payee and held in trust by the Payee as the property of the Agent. If the Payee fails to make any such endorsement or assignment to the Agent, the Agent or any of its officers, employees or representatives are hereby irrevocably authorized to make the same. The Payee agrees that until the Obligations have been performed and paid in full in immediately available funds the Payee will not assign or transfer, or agree to assign or transfer, to any Person (other than in favor of the Agent pursuant to the Credit Agreement and the other Loan Documents or otherwise) any claim the Payee has or may have against the Payor.

The Payor and any endorser of this Note acknowledges and agrees that upon the occurrence and during the continuance of an Event of Default, the Agent may exercise all rights of the Payee under this Note and all payments under this Note shall be made without offset, counterclaim, abatement, reduction, recoupment, deduction or defense of any kind.

EXHIBIT G
Page 3

Notwithstanding anything to the contrary contained herein, in any other Loan Document or in any such promissory note or other instrument, this Note (i) replaces and supersedes any and all promissory notes or other instruments which create or evidence any loans or advances made on or before the date hereof by the Payee to the Payor and (ii) shall not be deemed replaced, superseded or in any way modified by any promissory note or other instrument entered into on or after the date hereof which purports to create or evidence any loan or advance by the Payee to the Payor.

The Payor hereby waives presentment, demand, protest or notice of any kind in connection with this Note.

THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.

[NAME OF PAYOR]
By:
	Name:
	Title:

Pay to the order of

[NAME OF PAYEE]
By:
	Name:
	Title:

EXHIBIT H

FORM OF LETTER OF CREDIT REQUEST

Date:           1          

Deutsche Bank Trust Company Americas, as Agent under the Credit Agreement, dated as of July [_____], 2011 (as amended, amended and restated, modified or otherwise supplemented from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC, Morgans Hotel Group Co., the agents and arrangers from time to time party thereto and the lenders from time to time party thereto.

Deutsche Bank Trust Company Americas, as Agent
Global Loan Operations, Standby L/C
60 Wall Street, MS NYC 60-0926
New York, NY 10005-2858
Attn: Charles Ferris, Assistant Vice President
Phone 212-250-1214
Fax 212-797-0403
charles.ferris@db.com

Ladies and Gentlemen:

The MG Borrower hereby requests that [_____2 _____], as the Issuing Bank under the Credit Agreement, issue an irrevocable [standby] [commercial] Letter of Credit for account of the undersigned on 3 (the “Date of Issuance”) in an aggregate stated amount of US $4 .

For purposes of this Letter of Credit Request, unless otherwise defined herein, all capitalized terms used herein which are defined in the Credit Agreement shall have the meaning specified therein.

The beneficiary of the Letter of Credit requested pursuant to this Letter of Credit Request will be 5 , and such Letter of Credit will support 6 and will have a stated expiration date of 7 .

1	Insert date of Letter of Credit Request.
2	Insert name of Issuing Bank. (Note , if the Agent is being requested to issue a commercial Letter of Credit, please insert the name of Deutsche Bank AG, New York Branch)
3	Insert proposed Date of Issuance, which must be a Business Day at least five Business Days after the date of the Letter of Credit Request.
4	Insert initial stated amount.
5	Insert full name and address of the Beneficiary.
6	Insert brief description of obligation to be supported by the Letter of Credit.
7	Insert date which cannot be later than the earlier of (a) the date which is one year after the Date of Issuance and (b) the date which is 5 Days prior to the Termination Date.

The MG Borrower hereby certifies to the Agent, the Issuing Bank and the Lenders that as of the date hereof and as of the Date of Issuance: (a) no Default or Event of Default has occurred and is continuing or would exist immediately after giving effect to the Letter of Credit issuance contemplated hereby, and (b) the representations and warranties made or deemed made by the Borrower and each other Loan Party in the Loan Documents to which any of them is a party are true and correct in all material respects, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date) and except for changes in factual circumstances not prohibited under the Loan Documents (other than a change in factual circumstances since the Effective Date, that constitutes a material adverse change in the business, assets, liabilities, financial condition or results of operations of Holdings and its Subsidiaries taken as a whole). In addition, the MG Borrower certifies to the Agent, the Issuing Bank and the Lenders as of the Date of Issuance that all conditions to the issuance of the requested Letter of Credit contained in Article VI. of the Credit Agreement have been satisfied (or waived in accordance with the applicable provisions of the Loan Documents).

The MG Borrower agrees that, if prior to the Date of Issuance any of the foregoing certifications shall cease to be true and correct, the MG Borrower shall promptly notify the Agent and the Issuing Bank thereof in writing (any such notice, a “Non-Compliance Notice”). Except to the extent, if any, that prior to the Date of Issuance the MG Borrower shall deliver a Non-Compliance Notice to the Agent and the Issuing Bank, each of the foregoing certifications shall be deemed to be made additionally on the Date of Issuance as if made on such date.

Copies of all required documentation with respect to the supported transaction are attached hereto.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

2

MORGANS GROUP LLC, a Delaware limited liability company
By:	Morgans Hotel Group Co.,
its Managing Member
By:
	Name:
	Title:

3

EXHIBIT I

FORM OF COMPLIANCE CERTIFICATE

                    , 20__

Deutsche Bank Trust Company Americas, as Agent
60 Wall Street
New York, New York 10005

Each of the Lenders Party to the Credit
Agreement referred to below

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement dated as of [_____], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC (the “Florida Borrower,” and together with the MG Borrower, collectively, the “Borrowers”), Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5. thereof (each, a “Lender” and collectively, the “Lenders”) and Deutsche Bank Trust Company Americas, as Agent (the “Agent”). Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement.

Pursuant to Section 9.3. of the Credit Agreement, the undersigned Financial Officer hereby certifies to the Agent, the Issuing Bank and the Lenders as follows:

(1) The undersigned is the ____________________of Holdings.

(2) The undersigned has examined the books and records of Holdings and the Borrowers and the Subsidiaries and has conducted such other examinations and investigations as are reasonably necessary to provide this Compliance Certificate.

(3) To the best of the undersigned’s knowledge, information and belief after due inquiry, no Default or Event of Default has occurred [if such is not the case, specify such Default or Event of Default and its nature, when it occurred and whether it is continuing and any action being taken or proposed to be taken by Holdings or the Borrowers with respect thereto].

Exhibit I
Page 2

(4) Attached hereto as Schedule 1 are reasonably detailed calculations demonstrating compliance with the covenants contained in Section 10.11. of the Credit Agreement.

(5) No change in the application of GAAP to the financial statements of Holdings has occurred since the later of the date of the MG Borrower’s audited financial statements referred to in Section 7.1.(k) of the Credit Agreement and the date of the last certification by a Financial Officer indicating such a change [if any such change has occurred, specify the effect of such change on the financial statements accompanying such certificate].

Exhibit I
Page 3

IN WITNESS WHEREOF, the undersigned has executed this certificate as of the date first above written.

SCHEDULE 1
of
EXHIBIT I

[CALCULATIONS TO BE ATTACHED]

EXHIBIT J

FORM OF GUARANTY

THIS GUARANTY dated as of July [________], 2011, (this “Guaranty”) executed and delivered by each of the undersigned and the other Persons from time to time party hereto pursuant to the execution and delivery of an Accession Agreement in the form of Annex I hereto (all of the undersigned, together with such other Persons each a “Guarantor” and collectively, the “Guarantors”) in favor of (a) DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Agent (the “Agent”) for itself, the Issuing Bank and each of the Lenders under that certain Credit Agreement dated as of July [_______], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC (the “Florida Borrower”, and together with the MG Borrower, collectively, the “Borrowers”), Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5. thereof (the “Lenders”) and the Agent and (b) the Lenders.

WHEREAS, pursuant to the Credit Agreement, the Agent, the Issuing Bank and the Lenders have agreed to make available to the Borrowers certain financial accommodations on the terms and conditions set forth in the Credit Agreement;

WHEREAS, each of the Borrowers and each of the Guarantors, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses as an integrated operation and have determined it to be in their mutual best interests to obtain financing from the Agent and the Lenders through their collective efforts;

WHEREAS, each Guarantor acknowledges that it will receive direct and indirect benefits from the Agent and the Lenders making such financial accommodations available to the Borrowers under the Credit Agreement and, accordingly, each Guarantor is willing to guarantee the Borrowers’ obligations to the Agent and the Lenders on the terms and conditions contained herein; and

WHEREAS, each Guarantor’s execution and delivery of this Guaranty is a condition to the Agent and the Lenders making, and continuing to make, such financial accommodations to the Borrowers.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Guarantor, each Guarantor agrees as follows:

Section 1. Guaranty. Each Guarantor hereby absolutely, irrevocably and unconditionally guaranties as primary obligor and not merely as surety, the due and punctual payment and performance when due, whether at stated maturity, by acceleration or otherwise, of all of the following (collectively referred to as the “Guarantied Obligations”): (a) all indebtedness and obligations owing by each of the Borrowers to any Lender, the Issuing Bank or the Agent under or in connection with the Credit Agreement and any other Loan Document, including without limitation, the repayment of all principal of the Loans and the Reimbursement Obligations, and the payment of all interest, Fees, charges, attorneys’ fees and other amounts payable to any Lender or the Agent thereunder or in connection therewith; (b) any and all extensions, renewals, modifications, amendments or substitutions of the foregoing; (c) all expenses, including, without limitation, reasonable attorneys’ fees and disbursements, that are incurred by the Lenders, the Issuing Bank and the Agent in the enforcement of any of the foregoing or any obligation of such Guarantor hereunder; and (d) all other Obligations.

EXHIBIT J
Page 2

Section 2. Guaranty of Payment and Not of Collection. This Guaranty is a guaranty of payment, and not of collection, and a debt of each Guarantor for its own account. Accordingly, none of the Lenders, the Issuing Bank or the Agent shall be obligated or required before enforcing this Guaranty against any Guarantor: (a) to pursue any right or remedy any of them may have against either of the Borrowers, any other Guarantor or any other Person or commence any suit or other proceeding against either of the Borrowers, any other Guarantor or any other Person in any court or other tribunal; (b) to make any claim in a liquidation or bankruptcy of either of the Borrowers, any other Guarantor or any other Person; or (c) to make demand of either of the Borrowers, any other Guarantor or any other Person or to enforce or seek to enforce or realize upon any collateral security held by the Lenders, the Issuing Bank or the Agent which may secure any of the Guarantied Obligations.

Section 3. Guaranty Absolute. Each Guarantor guarantees that the Guarantied Obligations will be paid strictly in accordance with the terms of the documents evidencing the same, regardless of any Applicable Law now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent or the Lenders with respect thereto. The liability of each Guarantor under this Guaranty shall be primary, absolute, irrevocable and unconditional in accordance with its terms and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including without limitation, the following (whether or not such Guarantor consents thereto or has notice thereof):

(a) (i) any change in the amount, interest rate or due date or other term of any of the Guarantied Obligations, (ii) any change in the time, place or manner of payment of all or any portion of the Guarantied Obligations, (iii) any amendment or waiver of, or consent to the departure from or other indulgence with respect to, the Credit Agreement, any other Loan Document, or any other document or instrument evidencing or relating to any Guarantied Obligations, or (iv) any waiver, renewal, extension, addition, or supplement to, or deletion from, or any other action or inaction under or in respect of, the Credit Agreement, any of the other Loan Documents, or any other documents, instruments or agreements relating to the Guarantied Obligations or any other instrument or agreement referred to therein or evidencing any Guarantied Obligations or any assignment or transfer of any of the foregoing;

(b) any lack of validity or enforceability of the Credit Agreement, any of the other Loan Documents, or any other document, instrument or agreement referred to therein or evidencing any Guarantied Obligations or any assignment or transfer of any of the foregoing;

EXHIBIT J
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(c) any furnishing to the Agent, the Issuing Bank or the Lenders of any security for the Guarantied Obligations, or any sale, exchange, release or surrender of, or realization on, any collateral securing any of the Obligations;

(d) any settlement or compromise of any of the Guarantied Obligations, any security therefor, or any liability of any other party with respect to the Guarantied Obligations, or any subordination of the payment of the Guarantied Obligations to the payment of any other liability of either of the Borrowers or any other Loan Party;

(e) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to such Guarantor, either of the Borrowers, any other Loan Party or any other Person, or any action taken with respect to this Guaranty by any trustee or receiver, or by any court, in any such proceeding;

(f) any act or failure to act by either of the Borrowers, any other Loan Party or any other Person which may adversely affect such Guarantor’s subrogation rights, if any, against either of the Borrowers or any other Loan Party to recover payments made under this Guaranty;

(g) any nonperfection or impairment of any security interest or other Lien on any collateral, if any, securing in any way any of the Obligations;

(h) any application of sums paid by either of the Borrowers, any other Guarantor or any other Person with respect to the liabilities of either of the Borrowers or any other Loan Party to the Agent or the Lenders, regardless of what liabilities of either of the Borrowers remain unpaid;

(i) any defect, limitation or insufficiency in the borrowing powers of either of the Borrowers or in the exercise thereof;

(j) any defense, set-off, claim or counterclaim (other than indefeasible payment and performance in full) which may at any time be available to or be asserted by either of the Borrowers, any other Loan Party or any other Person against the Agent or any Lender;

(k) any change in the corporate existence, structure or ownership of either of the Borrowers or any other Loan Party;

(l) any statement, representation or warranty made or deemed made by or on behalf of either of the Borrowers, any Guarantor or any other Loan Party under any Loan Document, or any amendment hereto or thereto, proves to have been incorrect or misleading in any respect; or

(m) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a Guarantor hereunder (other than indefeasible payment and performance in full).

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Section 4. Action with Respect to Guarantied Obligations. The Lenders, the Issuing Bank and the Agent may, at any time and from time to time, without the consent of, or notice to, any Guarantor, and without discharging any Guarantor from its obligations hereunder, take any and all actions described in Section 3 and may otherwise: (a) amend, modify, alter or supplement the terms of any of the Guarantied Obligations, including, but not limited to, extending or shortening the time of payment of any of the Guarantied Obligations or changing the interest rate that may accrue on any of the Guarantied Obligations; (b) amend, modify, alter or supplement the Credit Agreement or any other Loan Document; (c) sell, exchange, release or otherwise deal with all, or any part, of any collateral securing any of the Obligations; (d) release any other Loan Party or other Person liable in any manner for the payment or collection of the Guarantied Obligations; (e) exercise, or refrain from exercising, any rights against either of the Borrowers, any other Guarantor or any other Person; and (f) apply any sum, by whomsoever paid or however realized, to the Guarantied Obligations in such order as the Lenders shall elect.

Section 5. Representations and Warranties. Each Guarantor hereby makes to the Agent, the Issuing Bank and the Lenders all of the representations and warranties made by each of the Borrowers with respect to or in any way relating to such Guarantor as a Subsidiary or Loan Party under the Credit Agreement and the other Loan Documents, as if the same were set forth herein in full.

Section 6. Covenants. Each Guarantor will comply with all covenants which any Borrower is to cause such Guarantor to comply with as a Subsidiary or Loan Party under the terms of the Credit Agreement or any of the other Loan Documents.

Section 7. Waiver. Each Guarantor, to the fullest extent permitted by Applicable Law, hereby waives notice of acceptance hereof or any presentment, demand, protest or notice of any kind, and any other act or thing, or omission or delay to do any other act or thing, which in any manner or to any extent might vary the risk of such Guarantor or which otherwise might operate to discharge such Guarantor from its obligations hereunder.

Section 8. Inability to Accelerate Loan. If the Agent, the Issuing Bank and/or the Lenders are prevented under Applicable Law or otherwise from demanding or accelerating payment of any of the Guarantied Obligations by reason of any automatic stay or otherwise, the Agent, the Issuing Bank and/or the Lenders shall be entitled to receive from each Guarantor, upon demand therefor, the sums which otherwise would have been due had such demand or acceleration occurred.

Section 9. Reinstatement of Guarantied Obligations. If claim is ever made on the Agent, the Issuing Bank or any Lender for repayment or recovery of any amount or amounts received in payment or on account of any of the Guarantied Obligations, and the Agent or such Lender repays all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body of competent jurisdiction, or (b) any settlement or compromise of any such claim effected by the Agent, the Issuing Bank or such Lender with any such claimant (including each of the Borrowers or a trustee in bankruptcy for either of the Borrowers), then and in such event each Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding on it, notwithstanding any revocation hereof or the cancellation of the Credit Agreement, any of the other Loan Documents, or any other instrument evidencing any liability of either of the Borrowers, and such Guarantor shall be and remain liable to the Agent, the Issuing Bank or such Lender for the amounts so repaid or recovered to the same extent as if such amount had never originally been paid to the Agent, the Issuing Bank or such Lender.

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Section 10. Subrogation. Upon the making by any Guarantor of any payment hereunder for the account of either of the Borrowers, such Guarantor shall be subrogated to the rights of the payee against the Borrowers; provided, however, that such Guarantor shall not enforce any right or receive any payment by way of subrogation or otherwise take any action in respect of any other claim or cause of action such Guarantor may have against either of the Borrowers arising by reason of any payment or performance by such Guarantor pursuant to this Guaranty, unless and until all of the Guarantied Obligations have been indefeasibly paid and performed in full. If any amount shall be paid to such Guarantor on account of or in respect of such subrogation rights or other claims or causes of action, such Guarantor shall hold such amount in trust for the benefit of the Agent and the Lenders and shall forthwith pay such amount to the Agent to be credited and applied, at the Agent’s election, against the Guarantied Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement or to be held by the Agent as collateral security for any Guarantied Obligations existing.

Section 11. Payments Free and Clear. All sums payable by each Guarantor hereunder, whether of principal, interest, Fees, expenses, premiums or otherwise, shall be paid in full, without set off or counterclaim or any deduction or withholding whatsoever (including any Taxes), and if any Guarantor is required by Applicable Law or by a Governmental Authority to make any such deduction or withholding, such Guarantor shall pay to the Agent, the Issuing Bank and the Lenders such additional amount as will result in the receipt by the Agent, the Issuing Bank and the Lenders of the full amount payable hereunder had such deduction or withholding not occurred or been required.

Section 12. Set-off. In addition to any rights now or hereafter granted under any of the other Loan Documents or Applicable Law and not by way of limitation of any such rights, each Guarantor hereby authorizes the Agent, the Issuing Bank, each Lender and any of their respective affiliates, at any time while an Event of Default exists, without any prior notice to such Guarantor or to any other Person, any such notice being hereby expressly waived, but in the case of a Lender or an affiliate of a Lender subject to receipt of the prior written consent of the Agent exercised in its sole discretion, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Agent, the Issuing Bank, such Lender, or any affiliate of the Agent, the Issuing Bank or such Lender, to or for the credit or the account of such Guarantor against and on account of any of the Guarantied Obligations, although such obligations shall be contingent or unmatured. Each Guarantor agrees, to the fullest extent permitted by Applicable Law, that any Participant may exercise rights of setoff or counterclaim and other rights with respect to its participation as fully as if such Participant were a direct creditor of such Guarantor in the amount of such participation.

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Section 13. Subordination. Each Guarantor hereby expressly covenants and agrees for the benefit of the Agent, the Issuing Bank and the Lenders that all obligations and liabilities of the Borrowers or any other Loan Party to such Guarantor of whatever description, including without limitation, all intercompany receivables of such Guarantor from the Borrowers or any other Loan Party (collectively, the “Junior Claims”) shall be subordinate and junior in right of payment to all Guarantied Obligations. If an Event of Default shall exist, then no Guarantor shall accept any direct or indirect payment (in cash, property or securities, by setoff or otherwise) from either of the Borrowers or any other Loan Party on account of or in any manner in respect of any Junior Claim until all of the Guarantied Obligations have been indefeasibly paid in full.

Section 14. Avoidance Provisions. It is the intent of Morgans Hotel Group Management LLC (“Management Company”), the Agent, the Issuing Bank and the Lenders that in any Proceeding, Management Company’s maximum obligation hereunder shall equal, but not exceed, the maximum amount which would not otherwise cause the obligations of Management Company hereunder (or any other obligations of Management Company to the Agent, the Issuing Bank and the Lenders) to be avoidable or unenforceable against Management Company in such Proceeding as a result of Applicable Law, including without limitation, (a) Section 548 of the Bankruptcy Code of 1978, as amended (the “Bankruptcy Code”) and (b) any state fraudulent transfer or fraudulent conveyance act or statute applied in such Proceeding, whether by virtue of Section 544 of the Bankruptcy Code or otherwise. The Applicable Laws under which the possible avoidance or unenforceability of the obligations of Management Company hereunder (or any other obligations of Management Company to the Agent and the Lenders) shall be determined in any such Proceeding are referred to as the “Avoidance Provisions”. Accordingly, to the extent that the obligations of Management Company hereunder would otherwise be subject to avoidance under the Avoidance Provisions, the maximum Guarantied Obligations for which Management Company shall be liable hereunder shall be reduced to that amount which, as of the time any of the Guarantied Obligations are deemed to have been incurred under the Avoidance Provisions, would not cause the obligations of Management Company hereunder (or any other obligations of Management Company to the Agent, the Issuing Bank and the Lenders), to be subject to avoidance under the Avoidance Provisions. This Section is intended solely to preserve the rights of the Agent, the Issuing Bank and the Lenders hereunder to the maximum extent that would not cause the obligations of Management Company hereunder to be subject to avoidance under the Avoidance Provisions, and neither Management Company nor any other Person shall have any right or claim under this Section as against the Agent and the Lenders that would not otherwise be available to such Person under the Avoidance Provisions.

Section 15. Information. Each Guarantor assumes all responsibility for being and keeping itself informed of the financial condition of each of the Borrowers and the other Loan Parties, and of all other circumstances bearing upon the risk of nonpayment of any of the Guarantied Obligations and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, and agrees that neither the Agent nor the Issuing Bank or any of the Lenders shall have any duty whatsoever to advise any Guarantor of information regarding such circumstances or risks.

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Section 16. GOVERNING LAW; WAIVER OF JURY TRIAL.

(a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE WHICH ARE LOCATED IN THE COUNTY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH OF THE GUARANTORS HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE GUARANTORS HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER SUCH PARTY, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT BROUGHT IN ANY OF THE AFOREMENTIONED COURTS, THAT SUCH COURTS LACK PERSONAL JURISDICTION OVER SUCH PARTY. EACH OF THE GUARANTORS FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS NOTICE ADDRESS SET FORTH IN SECTION 24, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH OF THE GUARANTORS HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH OF THE PARTIES PARTY HERETO IN ANY OTHER JURISDICTION.

(b) EACH OF THE GUARANTORS HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY OTHER LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

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(c) EACH OF THE GUARANTORS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

Section 17. Loan Accounts. The Agent, the Issuing Bank and each Lender may maintain books and accounts setting forth the amounts of principal, interest and other sums paid and payable with respect to the Guarantied Obligations, and in the case of any dispute relating to any of the outstanding amount, payment or receipt of any of the Guarantied Obligations or otherwise, the entries in such books and accounts shall be deemed conclusive evidence of the amounts and other matters set forth herein, absent manifest error. The failure of the Agent, the Issuing Bank or any Lender to maintain such books and accounts shall not in any way relieve or discharge any Guarantor of any of its obligations hereunder.

Section 18. Waiver of Remedies. No delay or failure on the part of the Agent, the Issuing Bank or any Lender in the exercise of any right or remedy it may have against any Guarantor hereunder or otherwise shall operate as a waiver thereof, and no single or partial exercise by the Agent, the Issuing Bank or any Lender of any such right or remedy shall preclude any other or further exercise thereof or the exercise of any other such right or remedy.

Section 19. Termination. This Guaranty shall remain in full force and effect until indefeasible payment in full of the Guarantied Obligations and the termination or cancellation of the Credit Agreement in accordance with its terms.

Section 20. Successors and Assigns. Each reference herein to the Agent, the Issuing Bank or the Lenders shall be deemed to include such Person’s respective successors and assigns (including, but not limited to, any holder of the Guarantied Obligations) in whose favor the provisions of this Guaranty also shall inure, and each reference herein to each Guarantor shall be deemed to include such Guarantor’s successors and assigns, upon whom this Guaranty also shall be binding. The Lenders may, in accordance with the applicable provisions of the Credit Agreement, assign, transfer or sell any Guarantied Obligation, or grant or sell participations in any Guarantied Obligations, to any Person without the consent of, or notice to, any Guarantor and without releasing, discharging or modifying any Guarantor’s obligations hereunder. Subject to Section 13.8. of the Credit Agreement, each Guarantor hereby consents to the delivery by the Agent or any Lender to any Assignee or Participant (or any prospective Assignee or Participant) of any financial or other information regarding either of the Borrowers or any Guarantor. No Guarantor may assign or transfer its rights or obligations hereunder to any Person without the prior written consent of all Lenders and any such assignment or other transfer to which all of the Lenders have not so consented shall be null and void.

Section 21. JOINT AND SEVERAL OBLIGATIONS. THE OBLIGATIONS OF THE GUARANTORS HEREUNDER SHALL BE JOINT AND SEVERAL, AND ACCORDINGLY, EACH GUARANTOR CONFIRMS THAT IT IS LIABLE FOR THE FULL AMOUNT OF THE “GUARANTIED OBLIGATIONS” AND ALL OF THE OBLIGATIONS AND LIABILITIES OF EACH OF THE OTHER GUARANTORS HEREUNDER.

EXHIBIT J
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Section 22. Amendments. This Guaranty may not be amended except in writing signed by the Requisite Lenders (or all of the Lenders if required under the terms of the Credit Agreement), the Agent and each Guarantor.

Section 23. Payments. All payments to be made by any Guarantor pursuant to this Guaranty shall be made in Dollars, in immediately available funds to the Agent at the Principal Office, not later than 2:00 p.m. on the date of demand therefor.

Section 24. Notices. All notices, requests and other communications hereunder shall be in writing and shall be made by personal delivery, telecopy or certified or registered mail, return receipt requested, (a) to each Guarantor at its address set forth below its signature hereto, (b) to the Agent, the Issuing Bank or any Lender at its respective address for notices provided for in the Section 13.1 of the Credit Agreement, or (c) as to each such party at such other address as such party shall designate in a written notice to the other parties. Each such notice, request or other communication shall be effective in the manner set forth in Section 13.1 of the Credit Agreement.

Section 25. Severability. In case any provision of this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 26. Headings. Section headings used in this Guaranty are for convenience only and shall not affect the construction of this Guaranty.

Section 27. Limitation of Liability. Neither the Agent, the Issuing Bank nor any Lender, nor any affiliate, officer, director, employee, attorney, or agent of the Agent, the Issuing Bank or any Lender, shall have any liability with respect to, and each Guarantor hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by a Guarantor in connection with, arising out of, or in any way related to, this Guaranty or any of the other Loan Documents, or any of the transactions contemplated by this Guaranty, the Credit Agreement or any of the other Loan Documents. Each Guarantor hereby waives, releases, and agrees not to sue the Agent, the Issuing Bank or any Lender or any of the Agent’s, the Issuing Bank’s or any Lender’s affiliates, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Guaranty, the Credit Agreement or any of the other Loan Documents, or any of the transactions contemplated by Credit Agreement or financed thereby.

EXHIBIT J
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Section 29. Definitions. (a) For the purposes of this Guaranty:

“Proceeding” means any of the following: (i) a voluntary or involuntary case concerning any Guarantor shall be commenced under the Bankruptcy Code of 1978, as amended; (ii) a custodian (as defined in such Bankruptcy Code or any other applicable bankruptcy laws) is appointed for, or takes charge of, all or any substantial part of the property of any Guarantor; (iii) any other proceeding under any Applicable Law, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or composition for adjustment of debts, whether now or hereafter in effect, is commenced relating to any Guarantor; (iv) any Guarantor is adjudicated insolvent or bankrupt; (v) any order of relief or other order approving any such case or proceeding is entered by a court of competent jurisdiction; (vi) any Guarantor makes a general assignment for the benefit of creditors; (vii) any Guarantor shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; (viii) any Guarantor shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debts; (ix) any Guarantor shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing; or (x) any corporate action shall be taken by any Guarantor for the purpose of effecting any of the foregoing.

(b) Terms not otherwise defined herein are used herein with the respective meanings given them in the Credit Agreement.

[Signature on Next Page]

EXHIBIT J
Page 11

IN WITNESS WHEREOF, each Guarantor has duly executed and delivered this Guaranty as of the date and year first written above.

MORGANS HOTEL GROUP CO.
MORGANS HOTEL GROUP MANAGEMENT LLC,
	By:	Morgans Hotel Group Co.,
		its Managing Member
By:
	Name:
	Title:
Address for Notices:
c/o Morgans Group LLC
475 Tenth Avenue
New York, New York 10018
Attention: Richard Szymanski
Telecopy Number: (212) 277-4270
Telephone Number: (212) 277-4188

ANNEX I
of
EXHIBIT J

FORM OF ACCESSION AGREEMENT

THIS ACCESSION AGREEMENT dated as of _____, 20____, executed and delivered by  _____, a  _____  formed under the laws of the State of  _____  (the “New Guarantor”), in favor of (a) DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Agent (the “Agent”) for itself, the Issuing Bank and each of the Lenders under that certain Credit Agreement dated as of [_______], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC (the “Florida Borrower”, and together with the MG Borrower, collectively, the “Borrowers”), Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5. thereof (the “Lenders”) and the Agent, and (b) the Lenders.

WHEREAS, pursuant to the Credit Agreement, the Agent and the Lenders have agreed to make available to the Borrowers certain financial accommodations on the terms and conditions set forth in the Credit Agreement;

WHEREAS, the Borrowers, the New Guarantor, and the existing Guarantors, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses as an integrated operation and have determined it to be in their mutual best interests to obtain financing from the Agent and the Lenders through their collective efforts;

WHEREAS, the New Guarantor acknowledges that it will receive direct and indirect benefits from the Agent, the Issuing Bank and the Lenders making such financial accommodations available to the Borrowers under the Credit Agreement and, accordingly, the New Guarantor is willing to guarantee the Borrowers’ obligations to the Agent and the Lenders on the terms and conditions contained herein; and

WHEREAS, the New Guarantor’s execution and delivery of this Agreement is a condition to the Agent, the Issuing Bank and the Lenders continuing to make such financial accommodations to the Borrowers.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the New Guarantor, the New Guarantor agrees as follows:

Exhibit J

Section 1. Accession to Guaranty. The New Guarantor hereby agrees that it is a “Guarantor” under that certain Guaranty dated as of July [_______], 2011 (as amended, supplemented, restated or otherwise modified from time to time, the “Guaranty”), made by each Subsidiary and other Affiliate of the Borrowers party thereto in favor of the Agent, the Issuing Bank and the Lenders and assumes all obligations of a “Guarantor” thereunder and agrees to be bound thereby, all as if the New Guarantor had been an original signatory to the Guaranty. Without limiting the generality of the foregoing, the New Guarantor hereby:

(a) irrevocably and unconditionally guarantees the due and punctual payment and performance when due, whether at stated maturity, by acceleration or otherwise, of all Guarantied Obligations (as defined in the Guaranty);

(b) makes to the Agent, the Issuing Bank and the Lenders as of the date hereof each of the representations and warranties contained in Section 5 of the Guaranty and agrees to be bound by each of the covenants contained in Section 6 of the Guaranty; and

(c) consents and agrees to each provision set forth in the Guaranty.

SECTION 2. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.

Section 3. Definitions. Capitalized terms used herein and not otherwise defined herein shall have their respective defined meanings given them in the Credit Agreement.

[Signatures on Next Page]

Exhibit J

IN WITNESS WHEREOF, the New Guarantor has caused this Accession Agreement to be duly executed and delivered under seal by its duly authorized officers as of the date first written above.

[NEW GUARANTOR]
By:
	Name:
	Title:
Address for Notices:
c/o Morgans Group LLC
475 Tenth Avenue
New York, New York 10018
Attention: Richard Szymanski
Telecopy Number: (212) 277-4270
Telephone Number: (212) 277-4188

Accepted:

DEUTSCHE BANK TRUST COMPANY
AMERICAS, as Agent

By:
	Name:
	Title:

EXHIBIT K

FORM OF SECURITY DEED

Prepared by:
Leila Rachlin, Esq.
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
1111779-2180

MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS
AND FIXTURE FILING

from

BEACH HOTEL ASSOCIATES LLC

to

DEUTSCHE BANK TRUST COMPANY AMERICAS

(As Agent for the benefit of the Lenders, the Issuing Bank and for its own account,
pursuant to the Credit Agreement described herein)

dated as of July [__], 2011

Property: The Delano Hotel, Miami-Dade County, State of Florida

NOTE TO RECORDER: This Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing secures an aggregate obligation of $100,000,000.00. Florida documentary stamp taxes in the amount of $350,000 ($0.35 per $100 of indebtedness) and intangible taxes in the amount of $200,000 ($2 per $1,000 of indebtedness) are being paid in connection with the recording of this Security Instrument

Exhibit K
Page i

Table of Contents

	Page
ARTICLE I Defined Terms		1
ARTICLE II Grant and Conveyance		7
Section 2.1 Grant and Conveyance		7
Section 2.2 Intentionally Omitted		7
Section 2.3 Revolving Loan Account; Future Advances		8
ARTICLE III Covenants, Warranties and Representations		8
Section 3.1 Title to Collateral and Priority of this Instrument		8
Section 3.2 Hazardous Materials		8
Section 3.3 Separate Tract		9
Section 3.4 Leases		9
Section 3.5 Use		10
Section 3.6 Alterations or Waste		10
Section 3.7 Compliance with Legal Requirements		10
Section 3.8 [Intentionally Omitted]		10
Section 3.9 Prior Security Instrument Status		10
Section 3.10 Payment of Impositions		11
Section 3.11 Repair		11
Section 3.12 Insurance		11
Section 3.13 Restoration Following Casualty		14
Section 3.14 Hold Harmless		14
Section 3.15 [Intentionally Omitted]		14
Section 3.16 No Conflicts, Etc.		14
Section 3.17 Licenses and Permits		14
ARTICLE IV Condemnation		14
Section 4.1 Condemnation		14
ARTICLE V Events of Default		15
Section 5.1 Credit Agreement		15
Section 5.2 Foreclosure of Other Liens		15
Section 5.3 Disposition of Collateral and Beneficial Interest in Grantor		15
Section 5.4 Further Encumbrances		15
Section 5.5 Event of Default under any other Loan Document		15

Table of Contents
(continued)

	Page
ARTICLE VI Remedies		17
Section 6.1 Remedies		17
Section 6.2 Separate Sales		20
Section 6.3 Remedies Cumulative, Concurrent and Non-Exclusive		20
Section 6.4 No Conditions Precedent to Exercise of Remedies		21
Section 6.5 Release of and Resort to Collateral		21
Section 6.6 Waiver of Appraisement, Valuation, etc.		21
Section 6.7 Discontinuance of Proceedings		22
Section 6.8 Application of Proceeds		22
Section 6.9 Leases		22
Section 6.10 Purchase by Agent or Lenders		22
Section 6.11 Grantor as Tenant Holding Over		22
Section 6.12 Suits to Protect the Collateral		22
Section 6.13 Proofs of Claim		23
Section 6.14 Occupancy After Foreclosure		23
Section 6.15 Waiver of Grantor’s Rights		23
ARTICLE VII Security Agreement		24
Section 7.1 Security Interest		24
Section 7.2 Financing Statements		24
Section 7.3 Uniform Commercial Code Remedies		24
Section 7.4 Foreclosure of Security Interest		24
Section 7.5 No Obligation of Secured Party		24
Section 7.6 Information for Fixture Filing		25
ARTICLE VIII Assignment of Leases and Rents		25
Section 8.1 Assignment		25
Section 8.2 Intentionally Omitted		26
Section 8.3 Limited License		26
Section 8.4 Grantor’s Indemnities		26
Section 8.5 Appointment of Attorney-in-Fact		26
Section 8.6 Exculpation of Agent		27
Section 8.7 [Intentionally Omitted]		27
ARTICLE IX Miscellaneous		27
Section 9.1 Performance at Grantor’s Expense		27
Section 9.2 Survival of Obligations		28
Section 9.3 Recording and Filing		28
Section 9.4 Notices		28
Section 9.5 No Waiver		28
Section 9.6 Agent’s Right to Perform the Obligations		29

ii

Table of Contents
(continued)

	Page
Section 9.7 Covenants Running with the Land		30
Section 9.8 Successors and Assigns		30
Section 9.9 Severability		30
Section 9.10 Modification		30
Section 9.11 Assignment		30
Section 9.12 [Intentionally Omitted]		30
Section 9.13 Counterparts		30
Section 9.14 APPLICABLE LAW		30
Section 9.15 Subrogation		31
Section 9.16 Headings		31
Section 9.17 Conflict		31
Section 9.18 CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER OF JURY TRIAL		31
Section 9.19 Limitation on Interest		32
Section 9.20 Further Assurances		33
Section 9.21 Future Advances		33

EXHIBITS

Exhibit A	—	Legal Description
Exhibit B	—	Description of Permitted Encumbrances

iii

Exhibit K
Page 1

MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF
LEASES AND RENTS AND FIXTURE FILING

THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING (this “Security Instrument”) is made and delivered as of July [______], 2011 by BEACH HOTEL ASSOCIATES LLC, a Delaware limited liability company (“Grantor”), having a mailing address of c/o Morgans Group LLC, 475 Tenth Avenue, New York, New York 10018, to DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Agent (together with its successors and assigns, “Agent” or “Mortgagee”) for itself, the Issuing Bank and for each of the Lenders from time to time party to that certain Credit Agreement (as hereinafter defined), Agent having as its address for personal delivery 60 Wall Street, New York, NY 10005.

WHEREAS, pursuant to that certain Credit Agreement, dated as of July [_______], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Grantor, Morgans Group LLC (the “MG Borrower” and together with Grantor, collectively, “Borrowers”), Morgans Hotel Group Co., the lenders from time to time party thereto as “Lenders”, Agent, and the other parties thereto, Lenders and Agent have agreed to make available to Borrowers certain financial accommodations in an aggregate principal amount not to exceed $100,000,000.00 on the terms and conditions set forth in the Credit Agreement;

WHEREAS, to evidence the financial accommodations available directly to Borrowers under the Credit Agreement, Borrowers have executed and delivered Notes, as of even date herewith, in favor of the Lenders as payees in an aggregate maximum principal amount equal to $100,000,000.00 (including any subsequent renewals, amendments or substitutions, referred to herein collectively, as the “Note”); and

WHEREAS, Grantor’s execution and delivery of this Security Instrument to secure, among other things, its obligations under the Note and the Credit Agreement, is a condition to Agent and Lenders making, and continuing to make, such financial accommodations to Borrowers.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Grantor, Grantor and Agent agree as follows:

ARTICLE I

Defined Terms

Terms not otherwise defined herein have the respective meanings given them in the Credit Agreement. Terms defined in the Uniform Commercial Code as in effect in the State of New York have the respective meanings given such terms therein. In addition, as used in this Security Instrument, the following terms shall have the following meanings:

Exhibit K
Page 2

“Assignment of Leases and Rents” means the Assignment of Leases and Rents of even date herewith from Grantor as assignor thereunder to Mortgagee as assignee thereunder, covering the Leases and Rents, and given as an absolute assignment as an additional source of repayment of the Obligations.

“Boucher Brothers Agreement” means that certain Agreement, dated as of July 1, 2004, between Grantor and Boucher Brothers Management, Inc., a Florida corporation, as amended, restated, extended, supplemented or otherwise modified from time to time.

“Collateral” means the Property, Improvements, Fixtures, and Personalty together with:

(a) all rights, privileges, tenements, hereditaments, royalties, minerals, oil and gas rights, rights-of-way, zoning rights, development rights, air rights, easements, appendages and appurtenances in anywise appertaining thereto, and all right, title and interest, if any, of Grantor, in and to any streets, ways, alleys, strips or gores of land adjoining the Property or any part thereof; and

(b) all betterments, improvements, additions, alterations, appurtenances, substitutions, replacements and revisions thereof and thereto, and all reversions and remainders therein; and

(c) all of Grantor’s right, title and interest in and to any awards, remunerations, reimbursements, settlements or compensation heretofore made or hereafter to be made by any Governmental Authority pertaining to the Property, Improvements, Fixtures or Personalty including, but not limited to, those for any vacation of, or change of grade in, any streets affecting the Property or the Improvements and those for municipal utility district or other utility costs incurred or deposits made in connection with the Property; and

(d) all of Grantor’s right, title and interest in and to any proceeds of insurance required or maintained pursuant to the terms of Section 3.12 hereof; and

(e) all of Grantor’s right, title and interest in, to and under any management or leasing agreement with respect to the Property and Improvements, including without limitation, (a) all rights of Grantor to damages arising out of, or for, breach or default in respect thereof and (b) all rights of Grantor to perform and exercise all rights and remedies thereunder; and

(f) subject to the provisions of Section 8.3 hereof, all of the Leases and Rents; and

(g) any and all other security and collateral, of any nature whatsoever, now or hereafter given for the repayment or the performance and discharge of the Obligations.

Exhibit K
Page 3

As used in this Security Instrument, the term “Collateral” shall be expressly defined as meaning all or, where the context permits or requires, any portion of the above, and all or, where the context permits or requires, any interest therein; provided that the term “Collateral” shall not include any Excluded Property but if and when any property shall cease to be Excluded Property, such property shall be deemed at all times from and after the date hereof to constitute Collateral.

“Credit Agreement” has the meaning given that term in the recitals above.

“Excluded Property” has the meaning set forth in the Security Agreement.

“Event of Default” means any failure, happening or occurrence described in Article V hereinbelow.

“Fixtures” means fixtures now or hereafter located on the Property and shall in any event include all materials, supplies, Equipment, apparatus and other items now owned or hereafter acquired by Grantor and now or hereafter attached to, installed in or used in connection with any of the Improvements or the Property, including, but not limited to, any and all building and construction materials and supplies, furniture, furnishings, apparatus, machinery, equipment, motors, elevators, escalators, fittings, radiators, ranges, refrigerators, awnings, shades, screens, blinds, carpeting, office equipment and other furnishings, and all plumbing, heating, lighting, cooking, laundry, ventilating, refrigerating, incinerating, air conditioning and sprinkler equipment, telephone systems, televisions and televisions systems, computer systems, and appurtenances thereto, together with all accessions, replacements, betterments and substitutions for any of the foregoing and the proceeds thereof (but excluding in every event fixtures belonging to Tenants which do not become property of the Grantor upon expiration or earlier termination of the applicable Lease).

“Food and Beverage Lessee/Operators” shall mean SC Collins LLC, a Delaware limited liability company.

“Impositions” means (i) all real estate and personal property taxes, charges, assessments, excises and levies and any interest, costs or penalties with respect thereto, general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever, which at any time prior to or after the execution hereof may be assessed, levied or imposed upon the Collateral or the ownership, use, occupancy or enjoyment thereof, or any portion thereof; (ii) any charges, fees, license payments or other sums payable for any easement, license or agreement maintained for the benefit of the Collateral; and (iii) water, gas, sewer, electricity, telephone and other utility charges and fees related to the Collateral.

“Improvements” means any and all structures, buildings, improvements, additions, alterations, betterments or appurtenances to the Property, whether now existing or at any time hereafter situated, placed or constructed upon the Property, or any part thereof.

Exhibit K
Page 4

“Leases” means any and all leases, subleases, licenses, concessions, rental agreements or other agreements (written or oral, now or hereafter in effect) which grant rights to use, enjoy and/or occupy all or any part of the Collateral or which grant a possessory interest in and to, or the right to use, all or any part of the Collateral, together with all security and other deposits made in connection therewith and all guaranties thereof, together with and all extensions, renewals, supplements, modifications or replacements of any of the foregoing.

“Legal Requirements” means (i) any and all judicial decisions, statutes, rulings, rules, regulations, permits, certificates or ordinances of any Governmental Authority in any way applicable to Grantor or MG Borrower, or applicable to, affecting or impacting in any way the Collateral, including, without limiting the generality of the foregoing, the ownership, use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction thereof; (ii) any and all covenants, conditions and restrictions contained in any deed or other form of conveyance or in any other instrument of any nature that relate in any way or are applicable to the Collateral or the ownership, use or occupancy thereof; and (iii) Grantor’s or MG Borrower’s presently or subsequently effective bylaws and articles of incorporation, partnership agreement, partnership certificate, joint venture agreement, articles of organization, operating agreement, trust agreement or other form of business association agreement.

“Obligations” has the meaning ascribed to such term in the Credit Agreement.

“Permitted Encumbrances”: The “Permitted Liens” (as defined in the Credit Agreement), which include those items listed on Exhibit B attached hereto and incorporated herein by this reference.

“Personalty” means all of the Grantor’s right, title and interest in, to and under all of the personal property of the Grantor, now owned or hereafter acquired, located on, attached to or used in or about the Improvements and Property, including without limitation, all of the following:

(a) all machinery, equipment, systems, fittings, apparatus, appliances, furniture, furnishings, tools, fixtures, Inventory (as hereinafter defined) and articles of personal property and accessions thereof and renewals, replacements thereof and substitutions therefore (including, but not limited to, all plumbing, lighting and elevator fixtures, office furniture, beds, bureaus, chiffonniers, chests, chairs, desks, lamps, minors, bookcases, tables, rugs, carpeting, drapes, draperies, curtains, shades, Venetian blinds, wall coverings, screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage racks, stools, sofas, chinaware, flatware, linens, pillows, blankets, glassware, foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other entry systems, bars, bar fixtures, liquor and other drink dispensers, icemakers, radios, television sets, intercom and paging equipment, electric and electronic equipment, dictating equipment, telephone systems, computerized accounting systems, engineering equipment, vehicles, medical equipment, potted plants, heating, lighting and plumbing fixtures, fire prevention and extinguishing apparatus, theft

Exhibit K
Page 5

prevention equipment, cooling and air-conditioning systems, elevators, escalators, fittings, plants, apparatus, stoves, ranges, refrigerators, laundry machines, tools, machinery, engines, dynamos, motors, boilers, incinerators, switchboards, conduits, compressors, vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call systems, brackets, signs, bulbs, bells, ash and fuel conveyors, cabinets, lockers, shelving, spotlighting equipment, dishwashers, garbage disposals, washers and dryers), other customary hotel equipment and other property of every kind and nature whatsoever owned by Grantor, or in which Grantor has or shall have an interest, now or hereafter located upon, or in, and used in connection with the Property or the Improvements, or appurtenant thereto, and all building equipment, materials and supplies of any nature whatsoever owned by Grantor, or in which Grantor has or shall have an interest, now or hereafter located upon, or in, and used in connection with the Property or the Improvements or appurtenant thereto, (hereinafter, all of the foregoing items described in this Paragraph (a) are collectively called the “Equipment”), all of which, and any replacements, modifications, alterations and additions thereto, to the extent permitted by applicable law, shall be deemed to constitute fixtures and are part of the real estate and security for the performance of Grantor’s obligations.

(b) all inventory as defined in the Uniform Commercial Code applicable in the State of New York, including, without limitation, provisions in storerooms, refrigerators, pantries and kitchens, beverages in wine cellars and bars, other merchandise for sale, fuel, mechanical supplies, stationery and other supplies and similar items (the “Inventory”);

(c) all other goods now or hereafter relating to the Property and Improvements;

(d) all accessions to any of the foregoing, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto;

(e) all accounts now or hereafter arising from or by virtue of any transactions related to the Property or the Improvements, including without limitation, (i) all rights to payment of any monetary obligation, whether or not earned by performance, (x) for property that has been or is to be sold, leased, licensed, assigned or otherwise disposed of or (y) for services rendered or to be rendered, (ii) all rents, fees, charges or other payments for the use or occupancy of all or any portion of the Improvements or any of the other Collateral, and (iii) all rights to payment of any interest or finance charges payable to Grantor;

(f) to the extent permitted to be assigned by the terms thereof or by Applicable Law, all licenses, permits, rights, orders, variances, franchises or authorizations of or from any governmental authority or agency now or hereafter relating to the Property or Improvements;

(g) all general intangibles, including without limitation, all payment intangibles and all rights of Grantor under any contract, trademarks, tradenames, service marks and symbols now or hereafter used in connection with the Property or the Improvements, and all names and all rights to carry on business under such names, and all rights as a developer or declarant relating to the Property or Improvements), now or hereafter relating to the Property or the Improvements;

Exhibit K
Page 6

(h) all chattel paper, instruments, investment property, letter-of-credit rights, money, documents, supporting obligations and deposit accounts now or hereafter arising from or by virtue of any transactions related to the Property or the Improvements;

(i) all insurance policies of any kind maintained in effect by the Grantor or of which the Grantor is the beneficiary, now existing or hereafter acquired relating to the Property and Improvements, under which any of the property referred to in any of the preceding clauses above is insured, including without limitation, any proceeds payable to the Grantor pursuant to such policies and any unearned premiums thereon; and

(j) all cash and non-cash proceeds of any of the foregoing, which in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Mortgagee or Lenders from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority) and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.

“Proceeds” means all proceeds (including proceeds of proceeds) of any of the Collateral including all: (i) rights, benefits, distributions, premiums, profits, dividends, interest, cash, Instruments, contract rights, Inventory, Equipment, Deposit Accounts, and other property from time to time received, receivable, or otherwise distributed in respect of or in exchange for, or as a replacement of or a substitution for, any of the Collateral, or proceeds thereof; (ii) “proceeds,” as such term is defined in Section 9-102(a)(64) of the UCC; (iii) proceeds of any insurance, indemnity, warranty, or guaranty (including guaranties of delivery) payable from time to time with respect to any of the Collateral, or proceeds thereof; and (iv) payments (in any form whatsoever) made or due and payable to a Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral, or proceeds thereof.

“Property” means the real estate or interest therein described in Exhibit A attached hereto and incorporated herein by this reference, together with all of the easements, rights, privileges, tenements, hereditaments and appurtenances now or hereafter thereunto belonging or in any way appertaining thereto, and all of the estate, right, title, interest, claim and demand whatsoever of Grantor therein or thereto, either at law or in equity, in possession or in expectancy, now or hereafter acquired.

Exhibit K
Page 7

“Rents” means all receivables, revenues, rentals, credit card receipts, receipts and all payments received which relate to the rental, lease, franchise and use of space at the Property and/or Improvements or which relate to the Food and Beverage Lessee/Operators (it being acknowledged by Lender that the security interest granted hereunder in receivables, revenues, rentals, credit card receipts, receipts and all payments received which relate to the Food and Beverage Lessee/Operators shall not attach to interests of third-party joint venture partners of Grantor which are not affiliates of MG Borrower and/or Grantor) and rental and use of guest rooms or meeting rooms or banquet rooms or recreational facilities or bars, beverage or food sales, vending machines, mini-bars, room service, telephone, video and television systems, electronic mail, internet connections, guest laundry, bars, the provision or sale of other goods and services, and all other payments received from guests or visitors of the Property and/or Improvements, and other items of revenue, receipts or income, all cash or security deposits, lease termination payments, advance rentals and payments of similar nature and guarantees or other security held by, or issued in favor of, Grantor in connection therewith to the extent of Grantor’s rights or interest therein and all remainders, reversions and other rights and estates appurtenant thereto, and all base, fixed, percentage or additional rents, and other rents, oil and gas or other mineral royalties, and bonuses, issues, profits and rebates and refunds or other payments made by any Governmental Authority from or relating to the Property, the Improvements, the Fixtures or the Equipment plus all rents, common area charges and other payments now existing or hereafter arising, whether paid or accruing before or after the filing by or against Grantor of any petition for relief under the Bankruptcy Code and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents.

“Tenant” means the tenant or lessee under any Lease.

ARTICLE II

Grant and Conveyance

Section 2.1 Grant and Conveyance. For and in consideration of the sum of ONE DOLLAR ($1.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, MORTGAGE, TRANSFER, PLEDGE and SET OVER unto Mortgagee and the Mortgagee’s successors and/or assigns, the Collateral, subject, however, to the Permitted Encumbrances, TO HAVE AND TO HOLD the Collateral and all parts, rights, members and appurtenances thereof, IN FEE SIMPLE forever, as security for the full and timely payment and performance of the Obligations, for the benefit of Mortgagee and its successors and/or assigns. Grantor warrants and covenants that Grantor is lawfully seized and possessed of the Collateral as aforesaid, and has good right to convey the same subject only to the Permitted Encumbrances, and that Grantor does warrant and shall forever defend the title thereto against the claims of all Persons whomsoever, subject as to the Permitted Encumbrances.

Section 2.2 Intentionally Omitted.

Exhibit K
Page 8

Section 2.3 Revolving Loan Account; Future Advances. This Security Instrument secures a “revolving loan account”, and payment of any amounts outstanding under the Note or the Credit Agreement from time to time shall not cancel or release this Security Instrument, and re-advances shall be secured to the same extent as original obligations hereunder. This Security Instrument shall secure such future advances as may be made by Mortgagee, at its option and for any purpose, within twenty (20) years from the date of this Security Instrument, whether made directly to Grantor or made to MG Borrower. All such future advances shall be included within the “Obligations,” shall be secured to the same extent as if made on the date of the execution of this Security Instrument, and shall take priority from the time this Security Instrument is filed for record as provided by law. The total amount of indebtedness secured by this Security Instrument may decrease or increase from time to time, but the total unpaid balance so secured at any one time shall not exceed the maximum principal amount of $200,000,000, plus interest and any disbursements made for the payment of taxes, levies or insurance on the Property, with interest on those disbursements, plus any increase in the principal balance as the result of negative amortization or deferred interest. Without the prior written consent of Mortgagee, which Mortgagee may grant or withhold in its sole discretion, Grantor shall not file for record any notice limiting the maximum principal amount that may be secured by this Security Instrument to a sum less than the maximum principal amount set forth in this paragraph.

ARTICLE III

Covenants, Warranties and Representations

Grantor hereby unconditionally covenants, warrants and represents to Agent and Lenders as follows (which covenants, warranties and representations have been and will be relied upon by Agent and Lenders in advancing funds to Borrowers under the Loan Documents):

Section 3.1 Title to Collateral and Priority of this Instrument. Grantor has good, marketable and indefeasible fee simple title to the Property and Improvements, and good and marketable title to the Fixtures and Personalty, free and clear of any Liens options (except as set forth in the Leases), leases (other than the Leases), covenants and other rights, titles, interests or estates of any nature whatsoever except the Permitted Encumbrances. Except to the extent any of the following constitutes Excluded Property, this Security Instrument (a) constitutes a valid and enforceable first priority mortgage lien against the Property, Improvements and Fixtures; (b) creates valid and enforceable first priority security interest in and to the Personalty and, to the extent that the terms Leases and Rents include items covered by the Uniform Commercial Code as adopted in the State of New York, in the Leases and Rents; and (c) constitutes a valid and enforceable first priority assignment of the Leases and Rents not covered by such Uniform Commercial Code, all in accordance with the terms hereof.

Section 3.2 Hazardous Materials. Except as could not reasonably be expected to result in a Material Adverse Effect, the Collateral has not been used to treat, store or dispose of any Hazardous Materials in violation of Environmental Laws, and, no such Hazardous Materials (including without limitation, any materials containing asbestos), are located on, in or under the Collateral or used or emitted in connection therewith in violation of Environmental Laws, except as disclosed in writing in any environmental assessment reports delivered to Agent and upon which Agent and Lenders are entitled to rely. Grantor has obtained and shall maintain all licenses, permits and approvals required with respect to Hazardous Materials, and is in full compliance with all of the terms, conditions and requirements of such licenses, permits and approvals, in each case, except as could not reasonably be expected to result in a Material Adverse Effect. No portion of the Property is a wetland. Grantor shall promptly notify Agent of any (a) material change in the nature or extent of any Hazardous Materials, maintained on, in or under the Collateral or used or emitted in connection therewith and (b) change in wetlands located on the Property.

Exhibit K
Page 9

Section 3.3 Separate Tract. The Property is not a part of a larger tract of land owned by Grantor or any of its Affiliates and is not otherwise included under any unity of title or similar covenant with other lands not encumbered by this Security Instrument

Section 3.4 Leases. (a) Grantor has good title to the Leases and Rents and all requisite right, power and authority to assign the Leases (other than the Boucher Brothers Agreement) and Rents, and no other Person has any right, title or interest therein (other than the lessee’s interest therein held by a Tenant thereunder).

(b) Grantor has duly and punctually performed all of the material terms, covenants, conditions and warranties of the Leases on Grantor’s part to be performed, except for any nonperformance which could not reasonably be expected to result in a Material Adverse Effect.

(c) Except for transactions which have been terminated, Grantor has not previously sold, assigned, transferred, encumbered, mortgaged or pledged the Leases or the Rents, whether now due or hereafter to become due.

(d) There are no options to purchase all or any portion of the Collateral contained in any Lease. There are no options to renew by any Tenant except as stated in the Leases. Grantor shall furnish to Agent, promptly upon Agent’s request, true and complete copies of all Leases, and all extensions, supplements, modifications and amendments thereof.

(e) Grantor shall observe, perform and discharge all of its material obligations, covenants and warranties under the Leases, and Grantor shall give prompt notice to Agent of any failure on the part of Grantor to observe, perform or discharge any of the same.

(f) So long as the Obligations remain unpaid and undischarged, and unless Agent otherwise consents in writing, the fee and the leasehold estates in and to the Collateral shall not merge, but shall always remain separate and distinct, notwithstanding the union of such estates (without implying Agent’s consent to such union) either in Grantor, Agent or in any Tenant or in any third party by purchase or otherwise.

Exhibit K
Page 10

(g) From time to time upon Agent’s written request, Grantor shall furnish to Agent a current rent roll and the affidavit of an officer of Grantor, certifying as to certain matters with respect to the Leases and Rents, in form and substance reasonably satisfactory to Agent.

(h) From time to time upon the written request of Agent, but no more often than annually, Grantor shall cause to be furnished to Agent the estoppel certificate of each Tenant, in form and substance reasonably acceptable to Agent.

Section 3.5 Use. Grantor shall use the Collateral for commercial purposes only. Grantor shall not use, maintain, operate or occupy, or allow the use, maintenance, operation or occupancy of, the Collateral in any manner or for any purpose which (a) except as could not reasonably be expected to result in a Material Adverse Effect, violate any Legal Requirement, or (b) makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.

Section 3.6 Alterations or Waste. Grantor shall not commit or permit any physical waste of the Collateral, and shall not, without the prior written consent of Agent, which consent shall not be unreasonably withheld, conditioned or delayed, make or permit to be made any alteration (excluding any external structures) to the Collateral in excess of $5,000,000 per calendar year, except for (i) tenant improvement work under a Lease approved by Agent, (ii) alterations necessary to protect the safety of tenants or patrons of other users of the Property and the value of the Property, (iii) all alterations necessary to comply with Section 3.11 and (iv) the replacement of FF&E to the extent being of a routine and recurring nature and performed in the ordinary course of business of Grantor.

Section 3.7 Compliance with Legal Requirements. Except as could not reasonably be expected to result in a Material Adverse Effect, Grantor shall promptly and faithfully comply with, conform to and obey all present and future Legal Requirements including, without limitation, the Americans with Disabilities Act of 1990, as amended (42 USC § 12101, et seq.), the Federal Architectural Barriers Act, as amended (42 USC § 4151, et seq.), the Fair Housing Amendments Act of 1988, as amended (42 USC § 3601, et seq.) and The Rehabilitation Act of 1973, as amended (29 USC § 794), whether or not same shall necessitate structural changes in, improvements to, or interfere with the use or enjoyment of the Collateral.

Section 3.8 [Intentionally Omitted].

Section 3.9 Prior Security Instrument Status. Grantor shall protect the first priority status of the Lien of this Security Instrument and shall not place, or permit to be placed, except for Permitted Encumbrances, otherwise convey, mortgage, hypothecate or encumber the Collateral with, any other Lien, regardless of whether same is allegedly or expressly inferior to the title created by this Security Instrument, except in favor of Mortgagee. If any such Lien is asserted against the Collateral, Grantor shall promptly, and at its sole cost and expense, (a) give Agent written notice thereof within 5 days from Grantor obtaining knowledge of such Lien and (b) take such action so as to cause the same to be released, bonded or stayed to Agent’s reasonable satisfaction, or so long as the property subject to the lien of this Security Instrument is not impaired, contest the same in accordance with the provisions of the Credit Agreement. Such notice shall specify who is asserting such Lien and shall detail the origin and nature of the underlying facts giving rise to such asserted Lien.

Exhibit K
Page 11

Section 3.10 Payment of Impositions.

(a) Payment of Impositions. Grantor shall duly pay and discharge, or cause to be paid and discharged, the Impositions as provided in Section 8.5 of the Credit Agreement.

(b) Change in Law. If after the date hereof any change in Applicable Law governing the taxation of deeds of trust, mortgages or security agreements, or assignments of leases or debts secured thereby or the manner of collecting such taxes shall occur, and Agent reasonably determines that such change, adoption would adversely affect Agent’s, the Issuing Bank’s or the Lenders’ rights or benefits under the Loan Agreement, Grantor shall promptly pay any tax resulting from such adoption, change or making on or before the due date thereof.

Section 3.11 Repair. Grantor shall protect and preserve the Collateral and maintain all Collateral in good repair, working order and condition, ordinary wear and tear and casualty events excepted.

Section 3.12 Insurance.

(a) Types of Insurance. Grantor shall procure for, deliver to, and maintain for the benefit of Agent, or cause the Tenant(s) to procure for, deliver to and maintain for the benefit of Agent, during the term of this Security Instrument original paid up insurance policies or certified copies of paid up insurance policies (or, if there is blanket coverage, Agent shall require an underlier policy with the Collateral identified and specifically allocated amounts shown) in such amounts, form and substance as are required under Section 8.4 of the Credit Agreement.

(b) Insurance Companies, Form of Policies. All insurance policies maintained pursuant to this Section shall be in form and substance satisfactory to Agent, provided that all policies of liability coverage shall require not less than 30 days’ prior written notice to Agent of any cancellation, termination, expiration or change in coverage. Without limiting the discretion of Agent with respect to required endorsements to insurance policies, all such policies for loss of or damage to the Collateral shall contain a standard mortgagee clause (without contribution) naming Agent as mortgagee with loss proceeds payable to Agent notwithstanding (i) any act, failure to act or negligence of or violation of any warranty, declaration or condition contained in any such policy by any named insured; (ii) the occupation or use of the Collateral for purposes more hazardous than permitted by the terms of any such policy; (iii) any foreclosure or other action by Agent under the Loan Documents; or (iv) any change in title to or ownership of the Collateral or any portion thereof, such proceeds to be held for application as provided in the Loan Documents.

Exhibit K
Page 12

(c) Proof of Insurance. Within one (1) Business Day of the expiration or renewal date of each policy maintained pursuant to this Section, Grantor shall deliver to Agent evidence reasonably satisfactory to Agent that such policy has been renewed and that any such premiums related to such policy have been timely paid (which premiums may be financed pursuant to a payment or financing plan provided by the insurance carrier providing such insurance). In the event of foreclosure of this Security Instrument or any other transfer of title to the Collateral in extinguishment of the Obligations, all right, title, and interest of Grantor in and to all insurance policies then in force with respect to the Collateral shall pass to the purchaser or Agent.

(d) Grantor’s Statement of Insurance Carried. If at any time requested by Agent, Grantor shall furnish to Agent copies of certificates evidencing the amounts of insurance maintained in compliance with this Section 3.12, of the risks covered by such insurance, and of the insurance company or companies which carry such insurance.

(e) Payment of Proceeds to Agent. While an Event of Default exists, Agent is hereby authorized and empowered, at its option, to adjust or compromise any loss under any insurance policies maintained pursuant to this Section and to collect and receive the proceeds from any such policy or policies. In addition, Grantor hereby authorizes and directs each insurance company to make payment for all losses involving casualty insurance proceeds (other than business interruption insurance proceeds) in excess of $5,000,000 (a “Major Casualty”) directly to Agent. If any insurance company fails to disburse directly and solely to Agent in accordance with the requirements of the immediately preceding sentences, but disburses instead either solely to Grantor or to Grantor and Agent jointly, Grantor agrees immediately to endorse and transfer such proceeds to Agent. Upon the failure of Grantor to endorse and transfer such proceeds as aforesaid, Agent may execute such endorsements or transfers for and in the name of Grantor, and Grantor hereby irrevocably appoints Agent as Grantor’s agent and attorney-in-fact to do so, such appointment being coupled with an interest and being irrevocable.

Exhibit K
Page 13

(f) Application of Proceeds. After deducting from said insurance proceeds all of its actual, out-of-pocket expenses incurred in the collection and administration of such sums, including reasonable attorneys’ fees actually incurred, Agent shall apply the net proceeds of any Major Casualty or any part thereof:

(i) upon the written request of Grantor (which request shall set forth in reasonably sufficient detail that each of the following conditions have been satisfied), towards the restoration of the Collateral, provided that the following conditions (the “Restoration Conditions”) are met to the reasonable satisfaction of Agent:

(a) in Agent’s reasonable judgment, the Collateral can, with diligent restoration, be returned to a condition at least equal to the condition thereof that existed prior to the casualty within 60 days prior to the Maturity Date; provided however that this condition shall not apply in the event that (i) a new Appraisal of the Property in its then current condition is delivered pursuant to Section 4.2(c) of the Credit Agreement, (ii) a forward looking calculation of the Adjusted Net Operating Income of the Property for the immediately succeeding four (4) fiscal quarters, on a Pro Forma Basis taking into account the then current condition of the Property, is mutually agreed upon by Grantor and Agent, (iii) MG Borrower shall have delivered a Borrowing Base Certificate to Agent which Borrowing Base Certificate shall be calculated using the information determined pursuant to the immediately preceding clauses (i) and (ii) and (iv) based on the Borrowing Base calculated in the Borrowing Base Certificate delivered pursuant to the immediately preceding clause (iii), Borrowers is in compliance with Section 2.6(b) of the Credit Agreement.

(b) no Event of Default exists;

(c) all necessary Governmental Approvals can be obtained to allow the rebuilding and reoccupancy of the Collateral;

(d) there are sufficient sums available (through net proceeds and contributions by Grantor), for restoration or repair; and

(e) the amount of such proceeds (other than business interruption insurance proceeds) is not greater than $100,000,000; or

(ii) if the Restoration Conditions are not satisfied within 90 days following a Major Casualty, to the payment of the Obligations, whether or not due and as provided in Section 11.4 of the Credit Agreement or for any other purposes or objects for which Agent is expressly entitled to advance or apply funds under the Loan Documents;

all without affecting the Lien of this Security Instrument, and any balance of such moneys then remaining shall be paid to Grantor or whomever may be legally entitled thereto. Agent and Lenders shall not be held responsible for any failure to collect any insurance proceeds due under the terms of any policy regardless of the cause of such failure.

Section 3.13 Restoration Following Casualty. If any act or occurrence of any kind or nature, ordinary or extraordinary, foreseen or unforeseen (including any casualty for which insurance was not obtained or obtainable), shall result in damage to, or loss or destruction of, the Collateral in an amount in excess of $500,000, Grantor shall give notice thereof to Agent promptly and, at Grantor’s sole cost and expense and regardless of whether the insurance proceeds (if any) shall be sufficient for the purpose, Grantor shall commence and continue diligently to completion to restore, repair, replace and rebuild the Collateral in accordance with all Legal Requirements as nearly as possible to its value, condition and character immediately prior to such damage, loss or destruction.

Exhibit K
Page 14

Section 3.14 Hold Harmless. Grantor shall defend, at its own cost and expense, and hold Agent and Lenders harmless from any action, proceeding or claim affecting the Collateral or the Loan Documents, and all costs and expenses incurred by Agent and/or Lenders in protecting its interests hereunder in such an event (including all court costs and attorneys’ fees) shall be borne by Grantor and secured hereby, except to the extent the same are caused by the gross negligence or willful misconduct of Agent or any Lender, as applicable.

Section 3.15 [Intentionally Omitted].

Section 3.16 No Conflicts, Etc. The execution, delivery and performance of this Security Instrument and the other Security Documents encumbering or relating to any of the Collateral, in accordance with their respective terms do not and will not, by the passage of time, the giving of notice, or both: (a) require any Governmental Approval or violate any Applicable Law relating to Grantor or any of the Collateral; (b) conflict with, result in a breach of or constitute a default under the organizational documents of Grantor, or any indenture, agreement or other instrument to which Grantor is a party or by which it or any of the Collateral may be bound; or (c) except as provided herein or therein, result in or require the creation or imposition of any Lien upon or with respect to any of the Collateral.

Section 3.17 Licenses and Permits. Grantor currently holds and will continue to hold (i) all certificates of occupancy, licenses, registrations, permits, consents, franchises and approvals of any Governmental Authority or any other Person, the absence of which could reasonably be expected to result in a material adverse effect on the ownership, occupancy or operation of the Property and Improvements, taken as a whole, and (ii) the right to use the name “Delano” pursuant to the Delano Management Agreement in connection with the operation of the Property and Improvements. As of the date hereof, all such certificates of occupancy, licenses, registrations, permits, consents, franchises and approvals are current and in full force and effect.

ARTICLE IV

Condemnation

Section 4.1 Condemnation.

(a) Taking. If all or any portion of the Collateral is taken by condemnation or eminent domain powers of any Governmental Authority (or any transfer by private sale in lieu thereof), either temporarily or permanently, then, if any Event of Default then exists or the award and other proceeds payable in connection therewith exceeds $5,000,000 (a “Major Taking”), then such amount shall be paid to Agent and applied to payment of the Obligations after deducting any costs (including reasonable attorneys’ fees) incurred by Agent in connection therewith, or otherwise applied as provided in Section 11.4 of the Credit Agreement.

Exhibit K
Page 15

(b) Participation in Proceedings. Grantor shall promptly notify Agent of any actual or threatened initiation of any condemnation or eminent domain proceeding as to any part of the Collateral and, upon Agent’s request, shall promptly deliver to Agent copies of any and all papers served or received in connection with such proceedings. Agent shall have the right, at its option, to participate in such proceedings at the sole cost and expense of Grantor (including without limitation the Agent’s attorneys’ fees). Grantor shall execute such documents and take such other steps as required to permit such participation.

(c) Right to Settle Claims. Agent is hereby authorized, at any time that an Event of Default shall have occurred and be continuing, to adjust, compromise and collect any condemnation or eminent domain award or settle a claim for damages and to apply the same to the Obligations in accordance with the applicable provisions of the Loan Documents.

(d) Use of Proceeds. Grantor hereby assigns to Agent for the benefit of Lenders any proceeds or awards which may become due by reason of any condemnation or other taking for public use of the whole or any part of the Collateral or any rights appurtenant thereto, and Agent is authorized, at its option, to collect and receive all such compensation, awards or damages in respect of a Major Taking or otherwise when any Event of Default exists and to give proper receipts and acquittances therefor without any obligation to question the amount of any such compensation, awards or damages. The proceeds of any such condemnation award or proceeds or any part thereof, to the extent not applied pursuant to Section 4.1(a), shall be applied:

(i) if the Restoration Conditions in Section 3.12(f) are satisfied, towards restoration of the Collateral; or

(ii) if the Restoration Conditions are not satisfied, to the payment of the Obligations, whether or not due and as provided in Section 11.4 of the Credit Agreement, or for any other purposes or objects for which Agent is expressly entitled to advance or apply funds under the Loan Documents.

(e) Further Assignment. Grantor agrees to execute such further assignments of any compensation, awards, damages, claims, rights of action and proceeds as Agent may reasonably require to effect the terms of this Security Instrument. If, prior to the receipt by Agent of such award or proceeds, the Collateral shall have been bid on foreclosure of this Security Instrument, Agent shall have the right to receive such award or proceeds to the extent of any unpaid Obligations following such sale, with legal interest thereon, whether or not a deficiency judgment on this Security Instrument, the Obligations or the other Loan Documents shall have been sought or recovered, and to the extent of attorneys’ fees, costs and disbursements incurred by Agent in connection with the collection of such award or proceeds. If Grantor fails to assign such compensation, awards, damages, claims, rights of action, and proceeds as aforesaid, Agent may execute such endorsements or transfers for and in the name of Grantor and Grantor hereby appoints Agent as Grantor’s agent and attorney-in-fact so to do, such appointment being coupled with an interest and being irrevocable.

Exhibit K
Page 16

ARTICLE V

Events of Default

The term “Event of Default,” as used herein, shall mean the occurrence or happening, at any time and from time to time, of any one or more of the following (and Grantor shall be entitled to no notice of default other than as provided for below):

Section 5.1 Credit Agreement. The occurrence of an Event of Default under and as defined in the Credit Agreement.

Section 5.2 Foreclosure of Other Liens. If the holder of any Lien on any of the Collateral or any Lien secured by a pledge of a direct or indirect ownership interest in Grantor institutes foreclosure proceedings for the enforcement of its Lien, unless, as to mechanics’ or materialmen’s Lien, (i) such Lien is released from or cannot be enforced against the Collateral (by bonding the same off or otherwise) within 10 days after such foreclosure proceedings are instituted and (ii) the filing of such mechanic’s or materialmen’s Lien or other action taken by the lienor in connection therewith is not otherwise an Event of Default hereunder or under the Credit Agreement.

Section 5.3 Disposition of Collateral and Beneficial Interest in Grantor. Except as expressly permitted under the Credit Agreement or any other Loan Document, the occurrence of any sale, lease, exchange, assignment, conveyance, transfer or other disposition of all or any part of the Collateral, or any part thereof or any interest therein, or the conveyance, assignment, transfer or other disposition of all or any part of a direct beneficial ownership interest in Grantor.

Section 5.4 Further Encumbrances. Except as permitted under the Credit Agreement or any other Loan Document, and except for the Permitted Encumbrances, Grantor creates, places or permits to be created or placed, or through any act or failure to act, acquiesces in the placing of, or allows to remain, any Lien on all or any part of the Collateral (regardless of whether such Lien is expressly subordinate to the lien of this Security Instrument or any other Security Document) or if Grantor violates the provisions of Section 3.19.

Section 5.5 Event of Default under any other Loan Document. If an Event of Default shall occur under and as defined in any other Loan Document purported to create a Lien on any of the Collateral.

Exhibit K
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ARTICLE VI

Remedies

Section 6.1 Remedies. If an Event of Default exists, Agent may, and at the direction of the Requisite Lenders shall, exercise any or all of the following rights, remedies and recourses:

(a) Termination of License. (i) Terminate the License granted to Grantor in Section 8.3 hereof and exercise the rights, powers and privileges of landlord under the Leases, and then and thereafter, with or without taking possession of the Collateral, in Grantor’s own name or in the name of Agent, demand, collect, receive, sue for, attach and levy on the Rents (including demand for Rents collected for the period in which the demand occurs) and give proper receipts, releases and acquittances therefor.

(ii) Deliver a written demand to any Tenant for payment of Rents, which demand shall be sufficient evidence of each such Tenant’s obligation and authority to make all future payments of Rents to Agent without the necessity for further consent by the Grantor. Grantor, for itself and its agents, covenants and agrees not to countermand any such written demand to Tenants for payment of Rents.

(b) Entry on Collateral. (i) Demand that Grantor, and upon such demand Grantor shall, forthwith surrender to Agent the actual possession of the Collateral, and to the extent not prohibited by Applicable Law, enter and take possession of all of the Collateral without the appointment of a receiver, or an application therefor, and exclude Grantor and its agents and employees wholly therefrom, and have joint access with Grantor to the books, papers and accounts of Grantor.

(ii) If Grantor shall for any reason fail to surrender or deliver the Collateral or any part thereof after such demand by Agent, Agent may seek a judgment or decree conferring upon Agent the right to immediate possession or requiring Grantor to deliver immediate possession of the Collateral to Agent, and Grantor hereby specifically covenants and agrees that Grantor shall not oppose, contest or otherwise hinder or delay Agent in any action or proceeding by Agent to obtain such judgment or decree. Grantor shall pay to Agent, upon demand, all expenses of obtaining such judgment or decree, including reasonable compensation to Agent, its attorneys and agents, and all such expenses and compensation shall, until paid, become part of the Obligations and shall be secured by this Security Instrument.

(iii) Upon every such entering on or taking of possession, Agent may hold, store, use, operate, manage and control the Collateral and conduct the business thereof, and, from time to time, (A) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personalty and other property, (B) insure or keep the Collateral insured, (C) manage and operate the Collateral and exercise all the rights and powers of Grantor to the same extent as Grantor could in its own name or otherwise act with respect to the same, and (D) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted to Agent, all as Agent from time to time may determine to be in its best interest. Anything in this Security Instrument to the contrary notwithstanding, neither Agent nor any Lender shall be obligated to discharge or perform the duties of the landlord to any Tenant or incur any liability as the result of any exercise by Agent of its rights under this Security Instrument, and Agent shall be liable to account only for the Rents actually received by Agent.

Exhibit K
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(iv) Make, modify, enforce, cancel or accept surrender of any Lease, remove and evict any Tenant, increase or decrease Rents under any Lease, appear in and defend any action or proceeding purporting to affect the Collateral, and perform and discharge each and every obligation, covenant and agreement of Grantor contained in any Lease, whether or not Agent takes possession of the Collateral.

(v) Neither the entering upon and taking possession of the Collateral, nor the collection of any Rents and the application thereof as aforesaid, shall cure or waive any Event of Default theretofore or thereafter occurring, or affect any notice of an Event of Default hereunder or invalidate any act done pursuant to any such notice. Neither Agent nor any Lender shall be liable to Grantor, anyone claiming under or through Grantor, or anyone having an interest in the Collateral by reason of anything done or left undone by Agent hereunder. Nothing contained in this subsection (b) shall require Agent to incur any expense or do any act. If the Rents are not sufficient to meet the costs of taking control of and managing the Collateral and/or collecting the Rents, any funds expended by Agent or Lenders for such purposes shall become Obligations of Grantor to Agent or Lenders, as the case may be, secured by this Security Instrument. Such amounts, together with interest at the Post-Default Rate, and attorneys’ fees, if applicable, shall be immediately due and payable. Notwithstanding Agent’s continuance in possession or receipt and application of Rents, Agent shall be entitled to exercise every right provided for in this Security Instrument or by Applicable Law upon or after the occurrence of an Event of Default. Any of the actions referred to in this subsection (b) may be taken by Agent at such time as Agent is so entitled, without regard to the adequacy of any security for the Obligations hereby secured.

(c) Foreclosure and Sale. If the Obligations have been accelerated pursuant to the Credit Agreement, institute an action to foreclose this Security Instrument, or take such other action as may be allowed at law or in equity, for the enforcement hereof and realization on the Collateral or any other security which is herein or elsewhere in the Loan Documents provided for the Collateral or any part thereof at one or more sales before the door of the courthouse of the county in which the Property or any part of the Property is situated, or such other place as is required or permitted by Applicable Law, without notice except as required or set forth herein or otherwise required by Applicable Law, to the highest bidder for cash, or to proceed to final judgment and execution thereon, in order to pay the Obligations, and all expenses of sale and of all proceedings in connection therewith, including reasonable attorneys’ fees, all costs of suit, interest at the Post-Default Rate as provided in the Credit Agreement on any judgment obtained by Agent from and after the date of any sale of the Collateral (which may be sold in one parcel or in such parcels, manner or order as Agent shall elect) until actual payment is made of the full amount due Agent and Lenders, without further stay, any law, usage or custom to the contrary notwithstanding. In the event of any sale pursuant to any order in any judicial proceedings or otherwise, the Collateral may be sold as an entirety or in separate parcels and in such manner or order as Agent in its sole discretion may elect, and if Agent so elects, Agent may sell the Personalty covered by this Security Instrument at one or more separate sales in any manner permitted by the Uniform Commercial Code as adopted in the State of New York, and one or more exercises of the powers herein granted shall not extinguish nor exhaust such powers, until the entire Collateral is sold or the Obligations are paid in full. If the Obligations are now or hereafter further secured by any chattel mortgages, pledges, contracts of guaranty, assignments of lease or other security instruments, Agent may at its option exhaust the remedies granted under any of said security instruments, either concurrently or independently, and in such order as Agent may determine.

Exhibit K
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Immediately upon the first insertion of any advertisement or notice of any such sale, there shall be and become due and owing from the Grantor all reasonable expenses incident to said advertisement or notice, all court costs and all reasonable expenses incident to any foreclosure proceedings brought under this Security Instrument, including reasonable attorneys’ fees. No party shall be required to receive only the aggregate indebtedness then secured hereby with the interest thereon to the date of payment unless the same shall be accompanied by a tender of the said expenses, costs and commissions.

Agent, may, in addition to and not in abrogation of the rights covered under the immediately preceding subparagraph, or elsewhere in this Article VI, either with or without entry or taking possession as herein provided or otherwise, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to enforce payment of the Obligations or the performance of any term, covenant, condition or agreement of this Security Instrument or any other right and (ii) to pursue any other remedy available to it, all as Agent at its sole discretion shall elect.

(d) Receiver. Agent, to the extent permitted by Applicable Law, upon application to a court of competent jurisdiction, shall be entitled as a matter of strict right, without notice and without regard to the adequacy or value of any security for the Obligations or the solvency of any party bound for its payment, to the appointment of a receiver to take possession of and to operate the Collateral and to collect and apply the incomes, rents, issues, profits and revenues thereof. The receiver shall have all of the rights and powers permitted under the laws of the State of Florida. Grantor shall pay to Agent upon demand all expenses, including receiver’s fees, attorneys’ fees, costs and agent’s compensation, incurred pursuant to the provisions of this subsection, and any such amounts paid by Agent shall be added to the Obligations and shall be secured by this Security Instrument.

Exhibit K
Page 20

(e) Performance by Agent. At Agent’s option and without any obligation to do so, pay, perform or observe any term, covenant or condition of this Security Instrument not paid, performed or observed by Grantor, and all payments made or costs or expenses incurred by Agent in connection therewith shall be secured hereby and shall be, without demand, immediately repaid by Grantor to Agent with interest thereon at the Post-Default Rate. Agent shall be the sole judge of the necessity for any such actions and of the amounts to be paid Agent is hereby empowered to enter and to authorize others to enter upon the Collateral or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without thereby becoming liable to Grantor or any person in possession holding under Grantor.

(f) Relief From Automatic Stay. If Grantor is the subject of any insolvency, bankruptcy, receivership, dissolution, reorganization, or similar proceeding, federal or state, voluntary or involuntary, under any present or future Applicable Law, Agent shall be entitled to relief from the automatic stay as to the enforcement of its remedies under the Loan Documents against the Collateral, including specifically, but not limited to, the stay imposed by 11 U.S.C. Section 362, as amended, and Grantor hereby consents to the immediate lifting of any such automatic stay and will not contest any motion by Agent to lift such stay.

(g) Other. Exercise any and all other rights, remedies and recourses granted under this Security Instrument (including, without limitation, those set forth in Articles VII, VIII and IX hereinbelow) or now or hereafter existing in equity, at law, by virtue of statute or otherwise.

Section 6.2 Separate Sales. With respect to sales hereunder, the Collateral may be sold in one or more parcels and in such manner and order as Agent, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales.

Section 6.3 Remedies Cumulative, Concurrent and Non-Exclusive. Agent and Lenders shall have all rights, remedies and recourses granted in this Security Instrument and available under Applicable Law (including specifically those granted by the Uniform Commercial Code in effect and applicable to the Collateral or any portion thereof), and if such Event of Default also constitutes an Event of Default under the Credit Agreement, all rights, remedies and recourses granted in the Loan Documents and available under Applicable Law. All such rights and remedies (a) shall be cumulative and concurrent, to the fullest extent permitted by Applicable Law, (b) may be pursued separately, successively or concurrently against Grantor, MG Borrower or any other Loan Party or any other Person, or against any of the Collateral (as defined in the Credit Agreement), or against any one or more of them, at the sole discretion of Agent, all to the fullest extent permitted by Applicable Law, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive.

Exhibit K
Page 21

Section 6.4 No Conditions Precedent to Exercise of Remedies. Neither Grantor, MG Borrower, any other Loan Party or any other Person obligated for payment of all or any part of, or fulfillment of all or any of, the Obligations, shall be relieved of such obligation by reason of (a) the failure of Agent or any Lender to comply with any request of Grantor, MG Borrower, any Loan Party or any other Person so obligated, to foreclose this Security Instrument or to enforce any provisions of the other Loan Documents, (b) the release, regardless of consideration, of any of the Collateral (as defined in the Credit Agreement) or the addition of any other property to such Collateral, (c) any agreement or stipulation between any subsequent owner of any of such Collateral and Agent extending, renewing, rearranging or in any other way modifying the terms of the Loan Documents without first having obtained the consent of, given notice to or paid any consideration to Grantor, MG Borrower, such other Loan Party or such other Person, and in such event, Grantor, MG Borrower, all such other Loan Parties and all such other Persons shall continue to be liable to make payment according to the terms of any such extension or modification agreement unless expressly released and discharged, in writing, by Agent, or (d) by any other act or occurrence, save and except the complete payment and the complete fulfillment of all of the Obligations.

Section 6.5 Release of and Resort to Collateral. Agent may release, regardless of consideration, any part of the Collateral without, as to the remainder of the Collateral, in any way impairing, affecting, subordinating or releasing any of the Liens created or evidenced by any of the Loan Documents or their position as a first and prior Lien in and to the Collateral (as defined in the Credit Agreement). For payment of the Obligations, Agent may resort to any security therefor held by Agent in such order and manner as Agent may elect.

Section 6.6 Waiver of Appraisement, Valuation, etc. Grantor agrees, to the full extent permitted by Applicable Law, that neither Grantor nor anyone claiming through or under Grantor will set up, claim or seek to take advantage of any moratorium, reinstatement, forbearance, appraisement, valuation, stay, extension, homestead, exemption or redemption laws now or hereafter in force in order to prevent or hinder the enforcement or foreclosure of this Security Instrument or the absolute sale of the Collateral, the delivery of possession thereof immediately after such sale to the purchaser at such sale, or the exercise of any other right or remedy hereunder. Grantor, for itself and all who may at any time claim through or under it, hereby waives to the full extent that it may lawfully so do, the benefit of all such Applicable Laws, and any and all right to have assets subject to the Lien of this Security Instrument marshaled upon any foreclosure or sale under the power herein granted or a sale in inverse order of alienation.

Exhibit K
Page 22

Section 6.7 Discontinuance of Proceedings. In case Agent shall have proceeded to enforce any right, power or remedy under this Security Instrument by foreclosure, entry or otherwise, and such proceeding shall have been withdrawn, discontinued or abandoned for any reason, or shall have been determined adversely to Agent, then in every such case (a) Grantor and Agent shall be restored to their former positions and rights, (b) all rights, powers and remedies of Agent shall continue as if no such proceeding had been taken, (c) each and every Event of Default declared or occurring prior or subsequent to such withdrawal, discontinuance or abandonment shall be and shall be deemed to be a continuing Event of Default and (d) neither this Security Instrument, nor the Obligations, nor any other Loan Document, shall be or shall be deemed to have been reinstated or otherwise affected by such withdrawal, discontinuance or abandonment. Grantor hereby expressly waives the benefit of any Applicable Law now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the provisions of this Section.

Section 6.8 Application of Proceeds. The proceeds of any sale of, and the Rents and other amounts generated by the holding, leasing, operation or other use of, the Collateral (including, without limitation, the Leases) shall be applied by Agent (or the receiver, if one is appointed) as provided in Section 11.4 of the Credit Agreement.

Section 6.9 Leases. Agent, at its option, is authorized to foreclose this Security Instrument subject to the rights of any Tenants of the Collateral under any Leases, and the failure to make any Tenants parties to any such foreclosure proceedings and to foreclose their rights shall not be, nor be asserted to be by Grantor, a defense to any proceedings instituted by Agent to collect the Obligations.

Section 6.10 Purchase by Agent or Lenders. Upon any foreclosure sale or sales of all or any portion of the Collateral under the power of sale herein granted Agent may bid for and purchase the Collateral and shall be entitled to apply all or any part of the Obligations as a credit to the purchase price.

Section 6.11 Grantor as Tenant Holding Over. In the event of any such foreclosure sale or sales under the power herein granted, Grantor shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over.

Section 6.12 Suits to Protect the Collateral. Agent shall have the power to institute and maintain such suits and proceedings as it may deem expedient (a) to prevent any impairment of the Collateral by any acts which may be unlawful or constitute an Event of Default under this Security Instrument, (b) to preserve or protect its interest in the Collateral and in the Leases and Rents arising therefrom, and (c) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment rule or order would impair the security hereunder or be prejudicial to the interest of Agent. In such event, Grantor shall, at the request of the Agent, promptly pay any amount reasonably expended by the Agent in such performance or attempted performance to the Agent, together with interest thereon at the applicable Post-Default Rate from the date of such expenditure until paid.

Exhibit K
Page 23

Section 6.13 Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Grantor, its creditors or its property, Agent, to the extent permitted by Applicable Law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Agent allowed in such proceedings for the entire amount of the Obligations at the date of the institution of such proceedings and for any additional amount of the Obligations after such date.

Section 6.14 Occupancy After Foreclosure. The purchaser at any foreclosure sale pursuant to Section 6.1(c) shall become the legal owner of the Collateral or the portion thereof foreclosed. All occupants (except those which have previously executed a prior written agreement with purchaser) of the Collateral or any part thereof shall become tenants at sufferance of the purchaser at the foreclosure sale and shall deliver possession thereof immediately to the purchaser upon demand, subject to the rights, if any, of Tenants.

Section 6.15 Waiver of Grantor’s Rights. BY EXECUTION OF THIS SECURITY INSTRUMENT, GRANTOR EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT OF AGENT AND LENDERS TO ACCELERATE THE INDEBTEDNESS SECURED BY THIS SECURITY INSTRUMENT UPON AN EVENT OF DEFAULT WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS SECURITY INSTRUMENT; (B) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, WAIVES ANY AND ALL RIGHTS WHICH GRANTOR MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES OF AMERICA (INCLUDING, WITHOUT LIMITATION, THE FIFTH AND FOURTEENTH AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, (1) TO NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY AGENT OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO AGENT, EXCEPT SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS SECURITY INSTRUMENT AND (2) CONCERNING THE APPLICATION, RIGHTS OR BENEFITS OF ANY STATUTE OF LIMITATION OR ANY MORATORIUM, REINSTATEMENT, MARSHALING, FORBEARANCE, APPRAISEMENT, VALUATION, STAY, EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION LAWS; (C) ACKNOWLEDGES THAT GRANTOR HAS READ THIS SECURITY INSTRUMENT AND ANY AND ALL QUESTIONS OF GRANTOR REGARDING THE LEGAL EFFECT OF THIS SECURITY INSTRUMENT AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO GRANTOR, AND GRANTOR HAS CONSULTED WITH COUNSEL OF GRANTOR’S CHOICE PRIOR TO EXECUTING THIS SECURITY INSTRUMENT; AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF GRANTOR HAVE BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY GRANTOR AS PART OF A BARGAINED FOR LOAN TRANSACTION AND THAT THIS SECURITY INSTRUMENT IS VALID AND ENFORCEABLE BY AGENT AGAINST GRANTOR IN ACCORDANCE WITH ALL THE TERMS AND CONDITIONS HEREOF.

Exhibit K
Page 24

ARTICLE VII

Security Agreement

Section 7.1 Security Interest. This Security Instrument shall also constitute and serve as a security agreement on personal property within the meaning of under the Uniform Commercial Code as enacted in New York with respect to the Personalty, Fixtures, Leases and Rents. To this end, Grantor has GRANTED, BARGAINED, CONVEYED, ASSIGNED, TRANSFERRED and SET OVER, and by these presents, does GRANT, BARGAIN, CONVEY, ASSIGN, TRANSFER and SET OVER, to Agent for the benefit of the Lenders a security interest in all of Grantor’s right, title and interest in, to, under and with respect to the Personalty, Fixtures, Leases and Rents now owned or hereafter owned or acquired, in each case, to the extent not constituting Excluded Property, to secure the full and timely payment, performance and discharge of the Obligations. It is the intent of Grantor, Agent and Lenders that this Security Instrument encumber all Leases and Rents, in each case, to the extent not constituting Excluded Property, that all items contained in the definition of “Leases” and “Rents” which are included within Article 9 of the Uniform Commercial Code as adopted in New York be covered by the security interest granted in this Article VII and that all items contained in the definition of “Leases” and “Rents” which are excluded from Article 9 of the Uniform Commercial Code as adopted in New York be covered by the provisions of Article II and Article VIII hereof.

Section 7.2 Financing Statements. Grantor hereby authorizes Agent to file such Financing Statements and such further assurances as Agent may, from time to time, reasonably consider necessary to create, perfect and preserve Agent’s security interest herein granted, and Agent may cause such statements and assurances to be recorded and filed, at such times and places as may be required or permitted by law, to so create, perfect and preserve such security interest.

Section 7.3 Uniform Commercial Code Remedies. Agent shall have all the rights and remedies with respect to the Personalty, Fixtures, Leases and Rents afforded to a “secured party” by the Uniform Commercial Code as adopted in New York as to property within the scope thereof, in addition to, and not in limitation of, the other rights and remedies afforded by the Loan Documents.

Section 7.4 Foreclosure of Security Interest. If an Event of Default exists, Agent may elect, in addition to exercising any and all other rights and remedies set forth in Article VI or referred to in Section 7.3 or Article VII hereof, to proceed in the manner set forth in Article 9 of the Uniform Commercial Code as adopted in New York, relating to the procedure to be followed when a Security Agreement covers both real and personal property.

Section 7.5 No Obligation of Secured Party. The assignment and security interest herein granted shall not be deemed or construed to constitute Agent or any Lender as a trustee or mortgagee in possession of the Collateral, to obligate Agent or any Lender to lease the Collateral or attempt to do same, or to take any action, incur any expense or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise.

Exhibit K
Page 25

Section 7.6 Information for Fixture Filing. This Security Instrument is also being filed as a fixture filing with respect to the portions of the Collateral that are or are to become fixtures relating to the Property or Improvements. Grantor’s exact legal name, type of legal entity and jurisdiction of formation are as set forth in the first paragraph of this Security Deed. Grantor’s organizational identification number is 2345191. Grantor hereby represents to Agent and Lenders that, during the past five years prior to the date hereof, Grantor has not changed its name or merged with or otherwise combined its business with any Person; provided, however, Grantor has converted from a limited partnership. Without giving Agent at least 30-days’ prior written notice and to the extent such action is not otherwise prohibited by any of the Loan Documents, Grantor shall not (a) change its name; (b) reorganize or otherwise become formed under the laws of another jurisdiction or (c) become bound by a security agreement (other than a Loan Document) of another Person under Section 9-203(d) of the Uniform Commercial Code as in effect in any applicable jurisdiction. The information contained in this Section is provided in connection with the requirements of the Uniform Commercial Code so that this Security Instrument shall serve as a financing statement. The name of Grantor shall be the “Debtor” and the name of the Agent shall be the “Secured Party,” and a statement indicating the collateral covered hereby is set forth in the definition of “Collateral” above.

ARTICLE VIII

Assignment of Leases and Rents

Section 8.1 Assignment. For and in consideration of ONE DOLLAR ($1.00), and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to secure the full and timely payment of the Obligations and the full and timely performance and discharge of the Obligations, Grantor has GRANTED, BARGAINED, SOLD, CONVEYED, ASSIGNED, TRANSFERRED, SET OVER and DELIVERED, and by these presents does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER, SET OVER and DELIVER absolutely unto Agent for the benefit of the Lenders the Leases (whether now existing or entered into after the date hereof) and the Rents, subject only to the hereinafter described License, TO HAVE AND TO HOLD the Leases and the Rents unto Agent, its successors and assigns, for the benefit of the Lenders forever, and Grantor does hereby bind itself, its successors and assigns to WARRANT and FOREVER DEFEND the title to the Leases and the Rents unto Agent against every Person whomsoever lawfully claiming or to claim the same or any part thereof, in each case, other than the Boucher Brothers Agreement, but only to the extent, and for so long as, Grantor’s right to assign the Boucher Brothers Agreement is prohibited pursuant to the terms thereof or such prohibition is rendered unenforceable or otherwise deemed ineffective by the Uniform Commercial Code or any other Applicable Law. If an Event of Default exists, Agent shall have the right power and privilege (but shall be under no duty) to demand possession of the Rents, which demand shall, to the fullest extent permitted by Applicable Law, be sufficient action by Agent to entitle Agent to immediate and direct payment of the Rents (including delivery to Agent of Rents collected for the period in which the demand occurs and for any subsequent period), for application as provided herein, all without the necessity of any further action by Agent including, without limitation, any action to obtain possession of the Improvements or the Property. Grantor hereby authorizes and directs the Tenants under the Leases to pay Rents to Agent upon written demand by Agent accompanied by a notice from the Agent of the occurrence of an Event of Default, without further consent of Grantor, without any obligation on the part of any Tenant to determine whether an Event of Default has in fact occurred and regardless of whether Agent has taken possession of any portion of the Property, and the Tenants may rely upon any written statement delivered by Agent to the Tenants. Any such payment to Agent shall constitute payment to Grantor under the Leases, and Grantor hereby appoints Agent as Grantor’s lawful attorney-in-fact for giving, and Agent is hereby empowered to give, acquittances to any Tenants for such payments to Agent after a default.

Exhibit K
Page 26

Section 8.2 Intentionally Omitted.

Section 8.3 Limited License. Provided that there exists no Event of Default, Grantor shall have the right under a limited license granted hereby, and Agent hereby grants to Grantor a limited license (the “License”), to collect, all of the Rents arising from or out of the Leases, or any renewals or extensions thereof, or from or out of the Collateral or any part thereof.

Section 8.4 Grantor’s Indemnities. Grantor hereby agrees to indemnify and hold Agent and Lenders free and harmless from and against any and all liability, loss, cost, damage or expense which Agent and/or Lenders may incur under or by reason of this assignment, or for any action taken by the Agent hereunder, or by reason or in defense of any and all claims and demands whatsoever which may be asserted against Agent and/or Lenders arising out of the Leases (except to the extent caused by the gross negligence or willful misconduct of Agent or any Lender), including specifically, but without limitation, any claim by any Tenant of credit for Rents paid to and received by Grantor, but not delivered to Agent, for any period under any Lease more than 1 month in advance of the due date thereof. If Agent or any Lender incurs any such liability, loss, cost, damage or expense, the amount thereof, including reasonable attorneys’ fees, with interest thereon at the Post-Default Rate, shall be payable by Grantor to Agent immediately, without demand, and shall be secured hereby and by all other Loan Documents.

Section 8.5 Appointment of Attorney-in-Fact. Grantor hereby further constitutes and appoints Agent the true and lawful attorney-in-fact of the Grantor, and in the name, place and stead of said Grantor, to subject and subordinate at any time and from time to time any Lease or any part thereof to the lien and security interest of the Security Instrument or any other mortgage, security deed, deed of trust or security agreement on or to any ground lease of the Collateral, or to request or require such subordination, where such reservation, option or authority was reserved to the Grantor under any such Lease, or in any case where the Grantor otherwise would have the right, power or privilege so to do. The foregoing appointment is irrevocable and continuing and coupled with an interest, and such rights, powers and privileges shall be exclusive in Agent and its successors and assigns so long as any part of the Obligations secured hereby remains unpaid and undischarged. Grantor hereby warrants that Grantor has not at any time prior to the date hereof exercised any such rights, and Grantor hereby covenants not to exercise any such right, to subordinate any such Lease to the lien of this Security Instrument or to any other security deed, mortgage, deed of trust or security agreement or to any ground lease.

Exhibit K
Page 27

Section 8.6 Exculpation of Agent. The acceptance by Agent of this assignment of the Leases and Rents, with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Collateral by Agent, be deemed or construed to constitute Agent a “mortgagee in possession”, nor thereafter or at any time or in any event obligate the Agent to appear in or defend any action or proceeding relating to the Leases, the Rents or the Collateral or to take any action hereunder or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under any Lease or to assume any obligation or responsibility for any security deposits or other deposits delivered to Grantor by any Tenant and not assigned and delivered to Agent, nor shall Agent be liable in any way for any injury or damage to persons or property sustained by any person or persons, firm or corporation in or about the Collateral.

Section 8.7 [Intentionally Omitted].

ARTICLE IX

Miscellaneous

Section 9.1 Performance at Grantor’s Expense. Grantor shall pay to Agent and Lenders immediately upon demand all costs and expenses incurred by Agent and Lenders in connection herewith as provided in Section 13.2 of the Credit Agreement, and the same shall be secured hereby. For all purposes of this Security Instrument, Agent’s reasonable and documented costs and expenses shall include, without limitation, all appraisal and re-appraisal fees (in each case, subject to the limitations provided in Section 13.2 of the Credit Agreement as well as the other applicable limitations set forth in the Credit Agreement in respect of appraisals), reasonable and documented out-of-pocket legal fees (including, without limitation, fees for trial, appeal or other proceedings), accounting fees, environmental consultant fees (if any), auditor fees, and the cost to Agent of any documentary taxes, recording fees, brokerage fees, title search fees, title insurance premiums and title surveys (including any such title related fees and premiums incurred in connection with title updates). In addition, Grantor recognizes and agrees that formal written appraisals of the Collateral by a licensed independent appraiser may be required by federal regulatory reporting requirements on an annual or specialized basis, which shall be at Grantor’s expense.

Exhibit K
Page 28

Section 9.2 Survival of Obligations. Each and all of the Obligations shall survive the execution and delivery of the Loan Documents, and the consummation of the transactions contemplated thereby, and shall continue in full force and effect until the Obligations shall have been paid and performed in full as provided in Section 13.9 of the Credit Agreement; provided however, that nothing contained in this Section shall limit the obligations of Grantor as set forth in Section 3.14 and 8.4 herein.

Section 9.3 Recording and Filing. Grantor shall cause the Loan Documents and all amendments and supplements thereto and substitutions therefor to be recorded, filed, re-recorded and refiled in such manner and in such places as Agent shall reasonably request and shall pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 9.4 Notices. All notices or other communications required or permitted to be given pursuant to this Security Instrument shall be made and delivered as provided in Section 13.1 of the Credit Agreement.

Section 9.5 No Waiver. Any failure by Agent or Lenders to insist, or any election by Agent or Lenders not to insist, upon strict performance by Grantor of any of the terms, provisions or conditions of this Security Instrument shall not be deemed to be a waiver of same or of any other term, provision or condition hereof, and Agent and Lenders shall have the right at any time or times thereafter to insist upon strict performance by Grantor of any and all such terms, provisions and conditions. No delay or omission by Agent or Lenders to exercise any right, power or remedy accruing upon any breach or Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to be a waiver of any such breach or Event of Default, or acquiescence therein, and every right, power and remedy given by this Security Instrument to Agent or Lenders may be exercised from time to time and as often as may be deemed expedient by Agent or Lenders. No consent or waiver, expressed or implied, by Agent or Lenders to or of any breach or Event of Default by Grantor in the performance of the Obligations of Grantor or to any other Event of Default shall be deemed or construed to be a consent or waiver to or of any other breach or Event of Default in the performance of the same or any other Obligations of Grantor. Failure on the part of Agent to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver of rights hereunder or impair any rights, powers, or remedies of Agent or Lenders hereunder.

No act or omission by Agent or Lenders shall release, discharge, modify, change or otherwise affect the liability of Grantor under this Security Instrument or any of the other Loan Documents to which it is a party or in respect of any Obligations of Grantor or the liability of any subsequent purchaser of the Collateral or any part thereof, or any maker, cosigner, endorser, surety or guarantor, or preclude Agent or Lenders from exercising any right, power or privilege herein granted or intended to be granted in the event of any Event of Default then made or by any subsequent Event of Default, or alter the Lien of this Security Instrument. Without limiting the generality of the foregoing, Agent and Lenders may:

(a) grant forbearance or an extension of time for the payment of all or any portion of the Obligations;

Exhibit K
Page 29

(b) take other or additional security for the payment of the Obligations;

(c) waive or fail to exercise any right granted hereunder or in the Credit Agreement or the other Loan Documents;

(d) change any of the terms, covenants, conditions or agreements of the Credit Agreement, this Security Instrument, or the other Loan Documents;

(e) consent to the filing of any map, plat or replat affecting the Collateral;

(f) consent to the granting of any easement or other right affecting the Collateral;

(g) make or consent to any agreement subordinating the security interest or lien hereof; or

(h) take or omit to take any action whatsoever with respect to the Credit Agreement, this Security Instrument, the Collateral or any document or instrument evidencing, securing or in any way relating to the Obligations;

all without releasing, discharging, modifying, changing or affecting any such liability, or precluding Agent or Lenders from exercising any such right, power or privilege, or affecting the Lien of this Security Instrument. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Collateral, Agent, without notice, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Collateral or the Obligations, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, Obligations or undertakings.

Section 9.6 Agent’s Right to Perform the Obligations. If Grantor shall fail, refuse or neglect to make any payment or perform any act required by the Loan Documents after the expiration of relevant notice and cure periods, then at any time thereafter, and without notice to or demand upon Grantor and without waiving or releasing any other right, remedy or recourse Agent may have because of same, Agent may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Grantor, and shall have the right to enter the Property and Improvements for such purpose and to take all such action thereon and with respect to the Collateral as it may deem necessary or appropriate. If Agent shall elect to pay any Imposition or other sums due with reference to the Collateral, Agent may do so in reliance on any bill, statement or assessment procured from the appropriate Governmental Authority or other issuer thereof without inquiring into the accuracy or validity thereof. Similarly, in making any payments to protect the security intended to be created by the Loan Documents, Agent shall not be bound to inquire into the validity of any apparent or threatened adverse title, lien, encumbrance, claim or charge before making an advance for the purpose of preventing or removing the same. Grantor shall indemnify Agent and Lenders for all losses, expenses, damages, claims and causes of action, including reasonable attorneys’ fees, incurred or accruing by reason of any acts performed by Agent pursuant to the provisions of this Section or by reason of any other provision in the Loan Documents. All sums paid by Agent or Lenders pursuant to this Section, and all other sums expended by Agent or Lenders to which they shall be entitled to be indemnified, together with interest thereon at the Post-Default Rate from the date of such payment or expenditure, shall constitute additions to the Obligations, shall be secured by the Liens created by the Loan Documents and shall be paid by Grantor to Agent upon demand.

Exhibit K
Page 30

Section 9.7 Covenants Running with the Land. All Obligations contained in the Loan Documents are intended by the parties to be, and shall be construed as, covenants running with the Property.

Section 9.8 Successors and Assigns. Subject to Section 13.5 of the Credit Agreement, all of the terms of this Security Instrument shall apply to, be binding upon and inure to the benefit of the parties thereto, their successors, assigns, heirs and legal representatives, and all other Persons claiming by, through or under them.

Section 9.9 Severability. This Security Instrument is intended to be performed in accordance with, and only to the extent permitted by, all applicable Legal Requirements. If any provision of this Security Instrument or the application thereof to any Person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, then neither the remainder of the instrument in which such provision is contained nor the application of such provision to other Persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather, shall be enforced to the greatest extent permitted by Applicable Law.

Section 9.10 Modification. This Security Instrument may not be amended, revised, waived, discharged, released or terminated orally, but only by a written instrument or instruments as provided in Section 13.6 of the Credit Agreement.

Section 9.11 Assignment. This Security Instrument is assignable by Agent and any assignment hereof by Agent shall operate to vest in the assignee all rights and powers herein conferred upon and granted to Agent.

Section 9.12 [Intentionally Omitted].

Section 9.13 Counterparts. This Security Instrument may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute but one instrument.

Section 9.14 APPLICABLE LAW. THE PROVISIONS OF THIS SECURITY INSTRUMENT REGARDING THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS HEREIN GRANTED SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA. ALL OTHER PROVISIONS OF THIS SECURITY INSTRUMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

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Section 9.15 Subrogation. If any or all of the proceeds of the Obligations have been used to extinguish, extend or renew any obligations heretofore existing against the Collateral, then, to the extent of such funds so used, the obligations secured hereby shall be subrogated to all of the rights, claims, liens, titles and interests heretofore existing against the Collateral to secure the indebtedness so extinguished, extended or renewed, and the former rights, claims, liens, titles and interests, if any, are not waived, but rather, are continued in full force and effect in favor of Agent and are merged with the lien or security title and interest created herein as cumulative security for the repayment and the satisfaction of the Obligations.

Section 9.16 Headings. Titles and captions of Articles, Sections, subsections and clauses in this Security Instrument are for convenience only, and neither limit nor amplify the provisions of this Security Instrument.

Section 9.17 Conflict. Notwithstanding anything herein to the contrary, in the event of a conflict between this Security Instrument and the Credit Agreement, the Credit Agreement shall govern.

Section 9.18 CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER OF JURY TRIAL. (a) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS SECURITY INSTRUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE WHICH ARE LOCATED IN THE COUNTY OF NEW YORK, OR THE COURTS OF THE STATE OF FLORIDA AND, BY EXECUTION AND DELIVERY OF THIS SECURITY INSTRUMENT, THE GRANTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE GRANTOR HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER THE GRANTOR, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS SECURITY INSTRUMENT BROUGHT IN ANY OF THE AFORESAID COURTS THAT ANY SUCH COURT LACKS JURISDICTION OVER THE GRANTOR. THE GRANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE GRANTOR AT ITS ADDRESS FOR NOTICES PURSUANT TO SECTION 9.4 HEREOF, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. THE GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER THAT SUCH SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE MORTGAGEE, OR ANY LENDER, TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE GRANTOR IN ANY OTHER JURISDICTION.

Exhibit K
Page 32

(b) THE GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS SECURITY INSTRUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY, TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

(c) GRANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE OBLIGATIONS, THE CREDIT AGREEMENT, THE NOTE OR THIS SECURITY INSTRUMENT OR ANY ACTS OR OMISSIONS OF AGENT, LENDERS, THEIR OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.

Section 9.19 Limitation on Interest. It is the intent of the Grantor and the Mortgagee in the execution of this Security Instrument and all other instruments evidencing or securing the Obligations to contract in strict compliance with applicable usury laws. In furtherance thereof, the Mortgagee and the Grantor stipulate and agree that none of the terms and provisions contained in this Security Instrument shall ever be construed to create a contract for the use, forbearance or retention of money requiring payment of interest at a rate in excess of the maximum interest rate permitted to be charged by relevant law. If this Security Instrument or any other instrument evidencing or securing the Obligations violates any applicable usury law, then the interest rate payable in respect of the Loans or the Post-Default Rate, as applicable, shall be the highest rate permissible by law.

Exhibit K
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Section 9.20 Further Assurances. The Grantor shall, upon the request of the Mortgagee and at the expense of the Grantor: (a) promptly correct any defect, error or omission which may be discovered in this Security Instrument or any UCC financing statements filed in connection herewith; (b) promptly execute, acknowledge, deliver and record or file such further instruments (including, without limitation, further mortgages, deeds of trust, security deeds, security agreements, financing statements, continuation statements and assignments of rents or leases) and promptly do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Security Instrument and to subject to the Liens and security interests hereof any property intended by the terms hereof to be encumbered hereby, including, but not limited to, any renewals, additions, substitutions, replacements or appurtenances to the Collateral; and (c) promptly execute, acknowledge, deliver, procure and record or file any document or instrument (including specifically any financing statement) deemed advisable by the Mortgagee to protect, continue or perfect the Liens or the security interests hereunder against the rights or interests of third Persons.

Section 9.21 Future Advances. This Security Instrument is given to secure the Obligations under, or in respect of, the Loan Documents and shall secure not only obligations with respect to presently existing indebtedness under the foregoing documents and agreements but also any and all other indebtedness which may hereafter be owing to the Lenders and/or the Mortgagee under the Loan Documents, however incurred, whether interest, discount or otherwise, and whether the same shall be deferred, accrued or capitalized, including future advances and re-advances, pursuant to the Credit Agreement or the other Loan Documents, whether such advances are obligatory or to be made at the option of the Lenders and/or the Agent, or otherwise, to the same extent as if such future advances were made on the date of the execution of this Security Instrument. The Lien of this Security Instrument shall be valid as to all indebtedness secured hereby, including future advances, from the time of its filing for record in the recorder’s office of the county in which the Collateral is located. This Security Instrument is intended to and shall be valid and have priority over all subsequent Liens and encumbrances, including statutory Liens, excepting solely taxes and assessments levied on the real estate, to the extent of the maximum amount secured hereby, and Permitted Encumbrances related thereto. Although this Security Instrument is given to secure all future advances made by the Mortgagee and/or the Lender to or for the benefit of the MG Borrower, the Grantor and/or the Collateral, whether obligatory or optional, the Grantor and the Mortgagee hereby acknowledge and agree that the Mortgagee and the Lenders are obligated by the terms of the Loan Documents to make certain future advances, including advances of a revolving nature, subject to the fulfillment of the relevant conditions set forth in the Loan Documents.

[Remainder of Page Intentionally Left Blank]

Exhibit K
Page 34

IN WITNESS WHEREOF, Grantor has executed this Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing under seal, as of the day and year first above written.

GRANTOR:
BEACH HOTEL ASSOCIATES LLC,      a Delaware limited liability company
By: Morgans Group LLC,      a Delaware limited liability company
Its: Sole Member
By:
	Name:
	Title:
By:
	Name:
	Title:
Address for Notices:
c/o Morgans Group, LLC
475 Tenth Avenue
New York, New York 10018
Attention: Richard Szymanski
Telecopy Number: (212) 277-4270
Telephone Number: (212) 277-4188

[Acknowledgement on Next Page]

Exhibit K
Page 35

STATE OF  _________	)
	)	SS:
COUNTRY OF  ______	)

The foregoing instrument was acknowledged before me this  _____  day of  _____, 2011 by  _____  as  _____  of Morgans Group LLC, a Delaware limited liability company, the sole member of BEACH HOTEL ASSOCIATES, LLC, a Delaware limited liability company, on behalf of the company. He/she/they personally appeared before me and is/are personally known to me or produced  _____  as identification and did not take an oath.

	Notary:
[NOTARIAL SEAL]	Print Name:
	NOTARY PUBLIC, STATE OF
	My commission expires

EXHIBIT A
of
EXHIBIT K

LEGAL DESCRIPTION

Lots 9, 10, 11 and 12, in Block 29 of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, a subdivision of Miami-Dade County, Florida, according to the Plat thereof duly recorded upon the Public records of Miami-Dade County, Florida in Plat Book 2, page 77 thereof;

Also that tract of land shown on plat of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, according to the Plat thereof recorded in Plat Book 2, page 77, Public Records of Miami-Dade County, Florida, described as follows:

Begin at the Southeast corner of Lot 9 in Block 29 as shown on plat of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, according to the Plat thereof recorded in Plat Book 2, page 77, Public Records of Miami-Dade County, Florida; thence run in a Northerly direction along the Easterly line of said Block 29 of the aforesaid plat and the Northerly extension thereof a distance of 136.897 feet, more or less, to the point of intersection of the center line of 17th Street; thence run Easterly along the center line of 17th Street; extended, a distance of 204.17 feet, more or less to the point of intersection of said center line of 17th Street extended Easterly to the Erosion Control Line of the Atlantic Ocean said Line recorded in Plat Book 105, page 62, Public Records of Miami-Dade County, Florida, thence run Southerly along the said Erosion Control Line, a distance of 137.465 feet to the intersection of the extension Easterly of the Southerly Line of referenced Lot 9, thence run Westerly along the Easterly extension of Lot 9, a distance of 200.96 feet, more of less, to the Point of Beginning.

Less and except, however, that certain portion of such land as was appropriated and taken by the City of Miami Beach, Florida, in that certain eminent domain or condemnation proceeding a final judgment for which was recorded in Deed Book 3106, page 96, which covers that portion of the premises lying northerly of the northerly line of said Block 29 extended easterly to the Erosion Control Line recorded in Plat Book 105, page 62 of the Public Records of Miami-Dade County, Florida.

EXHIBIT K

EXHIBIT B
to
SECURITY INSTRUMENT

(DESCRIPTION OF PERMITTED ENCUMBRANCES)

Those items recorded in the records of Miami-Dade County, Florida, as set forth in Schedule B, Section 2, of that certain Commitment for Title Insurance issued by Chicago Title Insurance Company, Commitment No. 3508183, as endorsed and marked in connection with the making of the Loan referenced in the foregoing security instrument.

EXHIBIT L

FORM OF ASSIGNMENT OF LEASES AND RENTS

Prepared by:
Leila Rachlin, Esq.
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
1111779-2180

ASSIGNMENT OF LEASES AND RENTS

from

BEACH HOTEL ASSOCIATES LLC

to

DEUTSCHE BANK TRUST COMPANY AMERICAS

(As Agent for the benefit of the Lenders and the Issuing Bank, and for its own account, pursuant to
the Credit Agreement herein described)

dated as of July [     ], 2011

Property: The Delano Hotel, Miami-Dade County, State of Florida

Exhibit L
Page 2

ASSIGNMENT OF LEASES AND RENTS

THIS ASSIGNMENT OF LEASES AND RENTS (this “Assignment”) made as of                     , 2011 from BEACH HOTEL ASSOCIATES LLC, a Delaware limited liability company (“Assignor”), having a mailing address of c/o Morgans Group LLC, 475 Tenth Avenue, New York, New York 10018, to DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Agent (together with its successors and assigns, “Agent” or “Assignee”), for itself, the Issuing Bank and for each of the Lenders from time to time party to that certain Credit Agreement (as hereinafter defined), Agent having as its address for personal delivery 60 Wall Street, New York, New York 10005.

WHEREAS, pursuant to that certain Credit Agreement dated as of [                    ], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Assignor, Morgans Group LLC (the “MG Borrower”), the lenders from time to time party thereto as “Lenders” and Agent, Lenders and Agent have agreed to make available to Assignor and the MG Borrower certain financial accommodations in an aggregate principal amount not to exceed $100,000,000 on the terms and conditions set forth in the Credit Agreement;

WHEREAS, to induce Lenders and Agent to make, and to continue to make, such financial accommodations to Assignor and the MG Borrower under the Credit Agreement, Assignor desires to absolutely assign to Assignee, for its individual benefit and the benefit of the Lenders, all Rents and income from the Property and to assign to Assignee, for its individual benefit and the benefit of the Lenders, all present and future Leases with respect to all or any portion of the Property, to secure, among other things, Assignor’s and the MG Borrower’s obligations under the Credit Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Assignor, Assignor agrees as follows:

ARTICLE I

Defined Terms

Terms not otherwise defined herein have the respective meanings given them in the Credit Agreement. Terms defined in the Uniform Commercial Code as in effect in the State of New York have the respective meanings given such terms therein. In addition, as used in this Assignment, the following terms shall have the following meanings:

“Boucher Brothers Agreement” means that certain Agreement, dated as of July 1, 2004, between Assignor and Boucher Brothers Management, Inc., a Florida corporation, as amended, restated, extended, supplemented or otherwise modified from time to time.

Exhibit L
Page 3

“Event of Default” means the occurrence of an “Event of Default” as defined in the Credit Agreement, or as defined in the Security Instrument.

“Food and Beverage Lessee/Operators” shall mean SC Collins LLC, a Delaware limited liability company.

“Improvements” means any and all structures, buildings, improvements, additions, alterations, betterments or appurtenances to the Property, whether now existing or at any time hereafter situated, placed or constructed upon the Property, or any part thereof.

“Leases” means any and all leases, subleases, licenses, concessions, rental agreements or other agreements (written or oral, now or hereafter in effect) which grant rights to use, enjoy and/or occupy all or any part of the Collateral or which grant a possessory interest in and to, or the right to use, all or any part of the Collateral, together with all security and other deposits made in connection therewith and all guaranties thereof, together with and all extensions, renewals, supplements, modifications or replacements of any of the foregoing.

“Obligations” has the meaning ascribed to such term in the Credit Agreement.

“Premises” means the Property and Improvements, collectively.

“Property” means the real estate or interest therein described in Exhibit A attached hereto and incorporated herein by this reference, together with all of the easements, rights, privileges, tenements, hereditaments and appurtenances now or hereafter thereunto belonging or in any way appertaining thereto, and all of the estate, right, title, interest, claim and demand whatsoever of Assignor therein or thereto, either at law or in equity, in possession or in expectancy, now or hereafter acquired.

“Rents” means all receivables, revenues, rentals, credit card receipts, receipts and all payments received which relate to the rental, lease, franchise and use of space at the Property and/or Improvements or which relate to the Food and Beverage Lessee/Operators (it being acknowledged by Lender that the security interest granted hereunder in receivables, revenues, rentals, credit card receipts, receipts and all payments received which relate to the Food and Beverage Lessee/Operators shall not attach to interests of third-party joint venture partners of Grantor which are not affiliates of Borrower and/or Grantor) and rental and use of guest rooms or meeting rooms or banquet rooms or recreational facilities or bars, beverage or food sales, vending machines, mini-bars, room service, telephone, video and television systems, electronic mail, internet connections, guest laundry, bars, the provision or sale of other goods and services, and all other payments received from guests or visitors of the Property and/or Improvements, and other items of revenue, receipts or income, all cash or security deposits, lease termination payments, advance rentals and payments of similar nature and guarantees or other security held by, or issued in favor of, Grantor in connection therewith to the extent of Grantor’s rights or interest therein and all remainders, reversions and other rights and estates appurtenant thereto, and all base, fixed, percentage or additional rents, and other rents, oil and gas or other mineral royalties, and bonuses, issues, profits and rebates and refunds or other payments made by any Governmental Authority from or relating to the Property, the Improvements, the Fixtures (as defined in the Security Instrument) or the Equipment (as defined in the Security Instrument) plus all rents, common area charges and other payments now existing or hereafter arising, whether paid or accruing before or after the filing by or against Grantor of any petition for relief under the Bankruptcy Code and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents.

Exhibit L
Page 4

“Security Instrument” means that certain Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing of even date herewith from Assignor as grantor thereunder in favor of Agent as beneficiary thereunder, covering the Property and other related collateral more particularly described therein, and given as security for the repayment of the Obligations.

“Tenant” means the tenant or lessee under any Lease.

ARTICLE II

Grant and Conveyance

Assignor does hereby unconditionally, absolutely and presently bargain, sell, assign and set over unto Assignee, for its individual benefit and the benefit of the Lenders, all right, title and interest of Assignor in and to any and all existing or future Lease, together with the immediate and continuing right to collect and receive all the Rents (other than the Boucher Brothers Agreement, but only to the extent, and for so long as, Assignor’s right to assign the Boucher Brothers Agreement is prohibited pursuant to the terms thereof or such prohibition is rendered unenforceable or otherwise deemed ineffective by the Uniform Commercial Code or any other Applicable Law).

TO HAVE AND TO HOLD THE SAME UNTO ASSIGNEE as provided herein.

This Assignment is intended to be an absolute assignment from Assignor to Assignee and not merely the passing of a security interest; provided, however, that Assignee hereby grants to Assignor a revocable license to collect, except as hereinafter provided, the Rents and to enforce the Leases, so long as no Event of Default exists. If an Event of Default occurs, however, such license shall be revoked upon the written election of Assignee and Assignee shall not be required to take any further action whatsoever, including, without limitation, instituting legal proceedings of any kind, to terminate Assignor’s license to collect Rents or enforce any of the other provisions or remedies contained in the Assignment.

Exhibit L
Page 5

ARTICLE III

Representations, Warranties, and Covenants

Section 3.1 Assignee as Creditor. Notwithstanding the license granted in Article II above, Assignor agrees that upon the occurrence and during the continuance of an Event of Default Assignee, and not Assignor, shall be deemed to be the creditor of each Tenant in respect of assignments for the benefit of creditors in bankruptcy, reorganization, insolvency, dissolution, or receivership proceedings affecting such Tenant (without obligation on the part of Assignee, however, to file or make timely filings of claims in such proceedings or otherwise to pursue creditor’s rights therein), with an option to Assignee to apply any money received by Assignee as such creditor in reduction of the Obligations.

Section 3.2 Rights and Remedies. Assignor agrees that while an Event of Default exists, the license reserved herein by Assignor shall, upon the written election of Assignee, be revoked, cease and terminate so long as an Event of Default is continuing and Assignee is hereby authorized, at its option, to enter and take possession of the Premises, or any part thereof, and to perform all acts necessary for the operations and maintenance of the Premises in the same manner and to the same extent that Assignor might so act. It is the intention of the parties that Assignee’s right to collect the Rents due and owing may be exercised without electing to exercise Assignee’s right to enter, take over and assume the management, operation and maintenance of the Premises. In furtherance thereof and not by way of limitation, Assignee is empowered, but shall be under no obligation while an Event of Default exists, to collect the Rents, to enforce payment thereof and the performance of any and all other terms and provisions of the Leases, to exercise all the rights and privileges of Assignor thereunder, including the right to fix or modify Rents, to bring or defend any suits in connection with the possession of the Premises or any part thereof in its own name or Assignor’s name, to relet the Premises or any part thereof and to collect the Rents under any new Lease. Assignee shall from time to time apply the net amount of income after payment of all proper costs and charges, including loss or damage referred to in Section 3.6 below, and attorneys’ fees, to the Obligations as provided in Section 11.4. of the Credit Agreement. Such entry and taking possession of the Premises, or any part thereof, may be made by actual entry and possession, or by written notice served personally upon or sent by registered or certified mail to the last owner of the Premises appearing on the records of Assignee, as Assignee may elect, and no further authorization shall be required. Assignee shall only be accountable for money actually received by it pursuant to this Assignment. Notwithstanding any action taken by Assignee pursuant to this Section or otherwise in this Assignment, neither the assignment made pursuant hereto or any such action shall constitute Assignee as a “mortgagee in possession.” While an Event of Default exists, Assignee shall have all rights and remedies provided hereunder, as well as at law or in equity, none of which shall be exclusive remedies, but on a cumulative basis.

Section 3.3 Intentionally Omitted.

Section 3.4 Consent to Payment of Rents. Assignor irrevocably consents that the Tenants, upon demand and notice from Assignee of the occurrence of an Event of Default, shall pay the Rents to Assignee, without liability of the Tenants for the determination of the actual existence of any such Event of Default. Assignor hereby irrevocably authorizes and directs the Tenants, upon receipt of any notice from Assignee of an Event of Default, to pay to the Assignee the Rents due and to become due under the Leases. Assignor agrees that the Tenants shall have the right to rely upon any such notices of Assignee and that the Tenants shall pay such Rents to Assignee, without any obligation and without any right to inquire as to whether such Event of Default actually exists, notwithstanding any claim of Assignor to the contrary. Assignor shall have no claim against any Tenant for any Rents paid by any Tenant to Assignee. If an Event of Default shall cease to exist, Assignor may request that Assignee (and upon any such request Assignee shall) give written notice thereof to Tenants and thereafter, until further notice from Assignee, Tenants shall pay the Rents to Assignor.

Exhibit L
Page 6

Section 3.5 Right to Further Assignment. Assignee shall have the right to assign Assignor’s right, title, and interest in the Leases (other than the Boucher Brothers Agreement) to any subsequent holder of the Security Instrument and to any Person acquiring title to the Premises through foreclosure or otherwise. The receipt by Assignee of any Rents pursuant to this Assignment after the institution of foreclosure proceedings under the Security Instrument shall not cure any default nor affect such proceedings or any sale pursuant thereto. After Assignor shall have been barred and foreclosed of all right, title and interest in the Premises, no assignee of Assignor’s interest in the Leases shall be liable to account to Assignor for the Rents thereafter accruing.

Section 3.6 Indemnity. Nothing herein contained shall be construed to bind Assignee or Lenders to the performance of any of the terms and provisions contained in any of the Leases, or otherwise to impose any obligation on Assignee or Lenders, including, without limitation, any liability under the covenant of quiet enjoyment contained in any of the Leases in the event that any Tenant shall have been joined as party defendant in any action to foreclose the Security Instrument and shall have been barred and foreclosed thereby of all right, title, interest and equity of redemption in the Premises. Prior to actual entry and taking possession of the Premises by Assignee, this Assignment shall not operate to place responsibility for the control, care, management, or repair of the Premises upon Assignee or Lenders or for the carrying out of any of the terms and provisions of any Lease.

Section 3.7 Covenants Regarding Leases. Assignor covenants it will not, without the prior written consent of Assignee obtained in each instance:

(a) take any action with respect to any Lease which would impair the security of Assignee under this Assignment or the Security Instrument; or

(b) except as permitted under the Credit Agreement, sell, assign, transfer, mortgage, pledge or otherwise dispose of or encumber, whether by operation of Applicable Law or otherwise, any Lease or any rentals under any Lease or any current or future Rents.

Section 3.9 Further Assurances. Assignor agrees to execute and deliver to Assignee, and hereby irrevocably appoints Assignee and its successors and assigns as its agent and attorney-in-fact to execute and deliver during the term of this Assignment, such further instruments as Assignee may deem necessary to make this Assignment and any further assignment effective.

Section 3.10 Cancellation Proceeds. If any Lease permits cancellation thereof on payment of consideration and said privilege of cancellation is exercised, the payments made or to be made by reason thereof are hereby assigned to Assignee to be applied to the Obligations in accordance with the applicable terms of the Loan Documents or to be held in trust by Assignee as further security, without interest, for the Obligations.

Exhibit L
Page 7

Section 3.11 Notice of Default. Assignor will give prompt notice to Assignee of any notice of default received from any Tenant with respect to any Lease and furnish Assignee with complete copies of any said notice. If requested by Assignee, Assignor will enforce the Leases and all remedies available to Assignor against the Tenants in case of default under any Lease by a Tenant.

Section 3.12 Continued Interest. Notwithstanding any variation of the terms of any Loan Document, including any increase or decrease in the principal amount of the Obligations or in the rate of interest payable under the Obligations or any extension of time for payment thereunder or any release of part or parts of the Premises, the Leases and the Rents hereby assigned shall continue as additional security in accordance with the terms of this Assignment.

Section 3.13 Additional Security. Without prejudice to any of its rights under this Assignment, Assignee may (a) take security in addition to the security already given Assignee for the payment of the Obligations, (b) release such other security, (c) release any party primarily or secondarily liable on the Obligations, (d) grant or make extensions, renewals, modifications, or indulgences with respect to the Loan Documents and replacements thereof, which replacements of the Loan Documents may be on the same or on terms different from the present terms of the Loan Documents, and (e) apply any other security theretofore held by it to the satisfaction of the Obligations.

ARTICLE IV

Miscellaneous

Section 4.1 Headings. The Article, Section and Subsection entitlements hereof are inserted for convenience of reference only and shall in no way alter, modify or define, or be used in construing, the text of such Articles, Section or Subsection.

Section 4.2 Notice to Parties. All notices or other communications required or permitted to be given pursuant to this Assignment shall be made and delivered as provided in Section 13.1. of the Credit Agreement.

Section 4.3 Successors and Assigns. Subject to Section 13.5. of the Credit Agreement, all of the terms of this Assignment shall apply to, be binding upon and inure to the benefit of the parties thereto, their successors, assigns, heirs and legal representatives, and all other Persons claiming by, through or under them.

Section 4.4 Number and Gender. Whenever the singular or plural number, masculine or feminine or neuter gender is used herein, it shall equally include the other.

Exhibit L
Page 8

Section 4.5 Modification. This Assignment may only be amended, revised, waived, or otherwise modified by a written instrument or instruments as provided in Section 13.6 of the Credit Agreement.

SECTION 4.6 APPLICABLE LAW. THE PROVISIONS OF THIS ASSIGNMENT REGARDING THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS HEREIN GRANTED SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA. ALL OTHER PROVISIONS OF THIS ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

Section 4.7 Severability. This Assignment is intended to be performed in accordance with, and only to the extent permitted by, all applicable legal requirements. If any provision of any of this Assignment or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, then neither the remainder of the instrument in which such provision is contained nor the application of such provision to other persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather, shall be enforced to the greatest extent permitted by law.

Section 4.8 Time is of the Essence. Time is of the essence with respect to each and every covenant, agreement and obligation of Assignor under this Assignment.

Section 4.9 Counterparts. This Assignment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute but one instrument.

Section 4.10 Conflict. Notwithstanding anything contained herein to the contrary, in the event of a conflict between the terms of this Assignment and the Credit Agreement, the terms of the Credit Agreement shall govern.

Section 4.11 Florida Statutes. The assignment of rents contained in this Assignment is intended to and does constitute an assignment of rents as contemplated in Florida Statutes Section 697.07.

[Signatures on Next Page]

Exhibit L
Page 9

IN WITNESS WHEREOF this Assignment of Leases and Rents has been duly executed by Assignor under seal on the day and year first above written.

ASSIGNOR:
BEACH HOTEL ASSOCIATES LLC
By:	Morgans Group LLC,
	its Sole Member
	By:	Morgans Hotel Group Co.,
		its Managing Member
By:
	Name:
	Title:

(Acknowledgement on Next Page)

STATE OF	)
	)	SS:
COUNTRY OF	)

The foregoing instrument was acknowledged before me this       day of                     , 2011 by                                          as                                          of Morgans Group LLC, a Delaware limited liability company, the sole member of BEACH HOTEL ASSOCIATES, LLC, a Delaware limited liability company, on behalf of the company. He/she/they personally appeared before me and is/are personally known to me or produced                                          as identification and did not take an oath.

	Notary:
[NOTARIAL SEAL]	Print Name:
	NOTARY PUBLIC, STATE OF
	My commission expires

EXHIBIT A
of
EXHIBIT L

THE PROPERTY

Lots 9, 10, 11 and 12, in Block 29 of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, a subdivision of Miami-Dade County, Florida, according to the Plat thereof duly recorded upon the Public records of Miami-Dade County, Florida in Plat Book 2, page 77 thereof;

Also that tract of land shown on plat of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, according to the Plat thereof recorded in Plat Book 2, page 77, Public Records of Miami-Dade County, Florida, described as follows:

Begin at the Southeast corner of Lot 9 in Block 29 as shown on plat of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, according to the Plat thereof recorded in Plat Book 2, page 77, Public Records of Miami-Dade County, Florida; thence run in a Northerly direction along the Easterly line of said Block 29 of the aforesaid plat and the Northerly extension thereof a distance of 136.897 feet, more or less, to the point of intersection of the center line of 17th Street; thence run Easterly along the center line of 17th Street; extended, a distance of 204.17 feet, more or less to the point of intersection of said center line of 17th Street extended Easterly to the Erosion Control Line of the Atlantic Ocean said Line recorded in Plat Book 105, page 62, Public Records of Miami-Dade County, Florida, thence run Southerly along the said Erosion Control Line, a distance of 137.465 feet to the intersection of the extension Easterly of the Southerly Line of referenced Lot 9, thence run Westerly along the Easterly extension of Lot 9, a distance of 200.96 feet, more of less, to the Point of Beginning.

Less and except, however, that certain portion of such land as was appropriated and taken by the City of Miami Beach, Florida, in that certain eminent domain or condemnation proceeding a final judgment for which was recorded in Deed Book 3106, page 96, which covers that portion of the premises lying northerly of the northerly line of said Block 29 extended easterly to the Erosion Control Line recorded in Plat Book 105, page 62 of the Public Records of Miami-Dade County, Florida.

EXHIBIT M

FORM OF ENVIRONMENTAL INDEMNITY AGREEMENT

ENVIRONMENTAL INDEMNITY AGREEMENT

THIS ENVIRONMENTAL INDEMNITY AGREEMENT (this “Agreement”) is made as of July [_________], 2011, by Morgans Group LLC, a Delaware limited liability company (“MG Borrower”) and by Beach Hotel Associates LLC, a Delaware limited liability company (“Florida Borrower”), each having an address at c/o Morgans Group LLC, 475 Tenth Avenue, New York, New York 10018 (MG Borrower and Florida Borrower together, “Indemnitor”) to (a) DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Agent (together with its successors and assigns, “Agent”) for itself, the Issuing Bank and for each of the Lenders from time to time party to that certain Credit Agreement (as hereinafter defined), and (b) the LENDERS, individually and collectively (with Agent, collectively, “Indemnitees”).

WHEREAS, pursuant to that certain Credit Agreement dated as of July [_], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among MG Borrower, Florida Borrower, Morgans Hotel Group Co., the lenders from time to time party thereto as “Lenders” and Agent, Lenders, the Issuing Bank and Agent have agreed to make available to Indemnitor certain financial accommodations in an aggregate principal amount not to exceed $100,000,000 on the terms and conditions set forth in the Credit Agreement;

WHEREAS, to induce Lenders, the Issuing Bank and Agent to make, and to continue to make, such financial accommodations to Indemnitor under the Credit Agreement, Indemnitor desires to execute this Agreement in favor of Indemnitees.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Indemnitor, Indemnitor agrees as follows:

Section 1. Definitions. All capitalized terms used in this Agreement not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement. For purposes hereof, the following terms shall have the following meanings:

“Collateral” has the meaning given that term in the Security Instrument.

“Environmental Damages” means all claims, judgments, damages (including, without limitation, punitive damages), losses, penalties, fines, liabilities (including strict liability), Liens, costs and expenses, of whatever kind or nature, contingent or otherwise, matured or unmatured, foreseeable or unforeseeable, including, without limitation, attorneys’ fees and disbursements and consultants’ fees, which are incurred at any time as a result of the existence of any Hazardous Materials in, upon, about or beneath the Collateral or

EXHIBIT M
Page 2

migrating to or from the Collateral, or the existence of a violation of Environmental Requirements pertaining to the Collateral, and regardless of whether or not the existence of such Hazardous Materials or the violation of such Environmental Requirements arose prior to the present ownership or operation of the Collateral or as a result of the acts or omissions of Indemnitor or any parties related to Indemnitor, including, without limitation:

(i) claims, judgments, damages, losses, penalties, fines, liabilities, Liens, costs and expenses of any investigation or defense of any claim, suit or administrative proceeding or investigation or any directive of any governmental or quasi-governmental agency, department, commission, board, bureau or instrumentality, whether or not such is ultimately defeated, and of any settlement or judgment;

(ii) damages for personal injury, or injury to property or natural resources occurring in, upon, about or off of the Collateral, foreseeable or unforeseeable, including, without limitation, lost profits, consequential damages, the cost of demolition and rebuilding of any improvements on real property, interest and penalties;

(iii) diminution in the value of the Collateral, and damages for the loss of or restriction on the use of or adverse impact on the marketing of the Collateral or any portion thereof;

(iv) any loss resulting from a loss of priority of the Security Instrument due to the imposition of a Lien against the Collateral; and

(v) reasonable fees incurred for the services of attorneys, consultants, engineers, contractors, experts, laboratories and all other costs incurred in connection with the investigation, clean up or remediation of Hazardous Materials or any violation of Environmental Requirements including, but not limited to, the preparation of any feasibility studies or reports or the performance of any cleanup, remediation, removal, abatement, containment, closure, restoration or monitoring work required by any federal, state or local governmental agency or political subdivision, or reasonably necessary to make full economic use of the Collateral; and

(vi) liability to any Person to indemnify such Person for costs expended in connection with the items referenced in this definition.

“Environmental Requirements” means all Applicable Laws, orders, approvals, plans, authorizations, guidelines, concessions, franchises and similar items (whether now existing or hereafter enacted or promulgated), of all governmental or quasi-governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United States, states, municipalities and political subdivisions of any of them and all applicable judicial and administrative and regulatory decrees, judgments and orders relating to the protection of human health or the environment, including without limitation:

(i) all requirements, including, but not limited to, those pertaining to reporting, licensing, permitting, investigation, remediation and removal of emissions, discharges, releases or threatened releases of Hazardous Materials, chemical substances, pollutants, contaminants or hazardous or toxic substances, materials or wastes whether solid, liquid or gaseous in nature, into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature; and

EXHIBIT M
Page 3

(ii) all requirements pertaining to the protection of the health and safety of employees or the public in connection with exposure to Hazardous Materials.

“Hazardous Materials” has the meaning given such term in the Credit Agreement and in any event includes, without limitation, any substance:

(i) the presence of which requires notification, investigation or remediation under any Environmental Requirement; or

(ii) which is or becomes defined as “hazardous”, “toxic”, “noxious”, “waste”, “substance”, “material”, “pollutant” or “contaminant” or requires remediation under any present or future Environmental Requirement or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), Federal Clean Air Act (42 U.S.C. Section 7401 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 5101 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), and the Safe Drinking Water Act (42 U.S.C. Section 300(f) et seq.); or

(iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, any state of the United States, or municipality or any political subdivision of any of them; or

(iv) the presence of which on the Collateral causes or threatens to cause a nuisance upon the Collateral or to adjacent properties or poses or threatens to pose a hazard to the Collateral or to the health or safety of Persons on or about the Collateral; or

(v) which contains (a) asbestos; (b) gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic compounds, or (c) polychlorinated biphenyls (PCBs) or urea formaldehyde foam insulation; or

(vi) which contains or emits radioactive particles, waves or material, including radon gas.

“Hazardous Materials Claims”, means, to the best of Indemnitor’s knowledge, (a) no enforcement, cleanup, removal or other governmental or regulatory actions have, at any time, been instituted, contemplated or threatened against the Collateral, or against Indemnitor with respect to the Collateral, pursuant to any Environmental Requirements; (b) no violation or non-compliance with Environmental Requirements has occurred with respect to the Collateral at any time; and (c) no claims have, at any time, been made or threatened by any third party against the Collateral or against Indemnitor with respect to the Collateral, relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials.

EXHIBIT
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“Improvements” has the meaning given such term in the Security Instrument.

“Indemnitees” or “Indemnitee” has the meaning as set forth in the introductory paragraph of this Agreement, and refers to Agent, the Issuing Bank and all Lenders, their respective successors and assigns.

“Property” means the real estate or interest therein described in Exhibit A attached hereto and incorporated herein by this reference, and all rights, titles and interests appurtenant thereto.

“Security Instrument” means that certain Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing of even date herewith from Florida Borrower as grantor thereunder in favor of Agent as beneficiary thereunder, covering the Collateral and other related collateral more particularly described therein, and given as security for the repayment of the Obligations.

Section 2. Intentionally Omitted.

Section 3. Audit. Promptly, upon the written request of Agent, if an Event of Default exists and Agent has a reasonable good faith belief that violations of the covenants herein or in the other Loan Documents regarding environmental matters or of Environmental Requirements has occurred or is reasonably likely to occur, Indemnitor shall provide Agent, at Indemnitor’s expense, with an environmental site assessment or environmental audit report prepared by an environmental engineering firm reasonably acceptable to Agent, to assess the presence or absence of any Hazardous Material and the potential costs in connection with abatement, cleanup or removal of any Hazardous Material found on, under, at or within the Collateral in violation of the Loan Documents and Indemnitor shall cooperate in the conduct of such environmental audit.

Section 4. Intentionally Omitted.

Section 5. Remediation Activity. Without Agent’s prior written consent, Indemnitor shall not take any remedial action in response to the presence of any Hazardous Materials on, under or about the Collateral, nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Materials Claims, which remedial action, settlement, consent or compromise would reasonably be expected to materially impair the value of Indemnitees’ security hereunder; provided, however, that Agent’s prior consent shall not be necessary in the event that the presence of any Hazardous Material on, under, or about the Collateral either poses an immediate threat to the health, safety or welfare of any individual or is of such a nature that an immediate remedial response is necessary and it is not possible to obtain such consent before taking such action, provided that in such event Indemnitor shall notify Agent as soon as practicable of any action so taken. Agent agrees not to unreasonably withhold its consent, and such consent shall in any event be given where such consent is required hereunder, if either (i) a particular remedial action is ordered or requested by a court or governmental agency of competent jurisdiction, or (ii) Indemnitor establishes to the reasonable satisfaction of Agent that there is no reasonable alternative to such remedial action which would result in less impairment of Indemnitees’ security hereunder.

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Section 6. Participation. Following the occurrence and during the continuance of an Event of Default, Agent shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated by any Person in connection with any Hazardous Materials Claims and, in such case, to have its and Lenders’ reasonable attorneys’ fees and costs incurred in connection therewith paid by Indemnitor.

Section 7. Indemnification. Not in limitation of any other obligations of Indemnitor to indemnify Indemnitees contained in any of the other Loan Documents, Indemnitor hereby unconditionally and irrevocably indemnifies and agrees to reimburse, defend, pay and hold harmless Indemnitees and their respective directors, officers, shareholders, employees, successors, assigns, agents, contractors, subcontractors, experts, licensees, affiliates, lessees, trustees and invitees, from and against any and all Environmental Damages arising from the presence of Hazardous Materials in, upon, about or beneath the Collateral or migrating to or from the Collateral, or arising in any manner whatsoever out of the violation of any Environmental Requirements pertaining to the Collateral and the activities thereon, or the breach of any warranty or covenant or the inaccuracy of any representation of Indemnitor contained herein or in any of the other Loan Documents pertaining to Hazardous Materials or other environmental matters, including, without limitation, the covenants contained in Section 3.2 of the Security Instrument; provided, however, that notwithstanding the foregoing, Indemnitor shall have no liability hereunder to any Indemnitee with respect to any Environmental Damages suffered by any Indemnitee arising from (a) the gross negligence or willful misconduct of such Indemnitee or (b) Hazardous Materials in, upon, about or beneath the Collateral or migrating to the Collateral to the extent that such presence or migration of Hazardous Materials first occurs after the date upon which title to the Collateral is transferred to Agent, its nominee, any agent or receiver appointed on behalf of Agent or any third party transferee of the Collateral in the event of foreclosure of the Security Instrument or conveyance of the Collateral in lieu thereof, if such presence or migration does not arise from the acts or omissions of either Indemnitor or its respective affiliates. The obligations of Indemnitor under this Section shall include, but not be limited to, the burden and expense of defending all claims, suits and administrative proceedings or investigations or any directives of any governmental or quasi-governmental agency, department, commission, board, bureau or instrumentality even if such claims, suits or proceedings are groundless, false or fraudulent and conducting all negotiations of any description, and paying and discharging, when and as the same become due, any and all judgments, penalties or other sums due against any Indemnitee.

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Section 8. Termination; Survival. Upon satisfaction of the conditions for the termination of the Credit Agreement as provided in Section 13.9 of the Credit Agreement, this Agreement shall terminate. Notwithstanding any termination of this Agreement, the obligations of Indemnitor under Section 7 of this Agreement shall survive (i) the repayment of all Obligations and other sums due under the Credit Agreement and other Loan Documents; (ii) the release of the Collateral or any portion thereof from the lien of the Security Instrument; (iii) the reconveyance or foreclosure of the Collateral under the Security Instrument (notwithstanding that all or a portion of the obligations secured by the Security Instrument shall have been discharged thereby); (iv) the acquisition of the Collateral by any Indemnitee or any nominee or agent thereof; and/or (v) the transfer of all or any of any Indemnitee’s rights in and to the Obligations and/or the Collateral; and shall continue to be the personal liability, obligation and indemnification of Indemnitor, binding upon Indemnitor, forever.

Section 9. No Impairment of Liability. The liability of Indemnitor under Section 7 of this Agreement shall in no way be limited or impaired by (i) any extensions of time for performance required by any of the Loan Documents, (ii) any sale, assignment, or foreclosure of the Obligations or Security Instrument or any sale or transfer of all or part of the Collateral, (iii) any exculpatory provision contained in any of the Loan Documents limiting recourse to the Collateral or to any other security, or limiting Indemnitees’ rights to a deficiency judgment against Indemnitor, (iv) the accuracy or inaccuracy of the representations and warranties made under any of the Loan Documents, (v) the release of Indemnitor or any other Person from performance or observance of any of the agreements, covenants, terms or conditions contained in any of the Loan Documents by operation of Applicable Law, Indemnitee’s voluntary act, or otherwise, (vi) the release or substitution in whole or in part of any security for the Obligations or Loan Documents, or (vii) Agent’s failure to record or file any Loan Document (or Agent’s improper recording or filing of any such Loan Documents) or to otherwise perfect, protect, secure or insure any Lien given as security for the Obligations; and, in any such case, whether with or without notice to Indemnitor and with or without consideration.

Section 10. No Effect. The obligations of Indemnitor hereunder (i) shall not be affected by any investigation by or on behalf of Agent or Lenders or by any information which Agent or Lenders may have obtained with respect to the matters indemnified against by the Indemnitor hereunder and (ii) are separate and distinct from its obligations under the other Loan Documents.

Section 11. Inconsistent Provisions. The provisions of this Agreement shall govern and control over any inconsistent provision of any other Loan Document, including, without limitation, any exculpatory or non-recourse provisions contained in any of the Loan Documents, it being expressly understood and agreed that any exculpatory or non-recourse provisions contained in any Loan Document shall not apply to the obligations of Indemnitor under this Agreement.

Section 12. Counsel. Indemnitor agrees to pay to Indemnitee expenses incurred in connection with this Agreement in accordance with Section 13.2 of the Credit Agreement.

Section 13. Indemnitor’s Waivers. Indemnitor waives any right or claim of right to cause a marshaling of Indemnitor’s assets or to cause Indemnitees to proceed against any of the security for the Obligations before proceeding under this Agreement against the Indemnitor. Indemnitor expressly waives and relinquishes all rights and remedies accorded by Applicable Law to indemnitors or

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guarantors, except any rights of subrogation which Indemnitor may have, provided that the indemnity provided for hereunder shall neither be contingent upon the existence of any such rights of subrogation nor subject to any claims or defenses whatsoever which may be asserted in connection with the enforcement or attempted enforcement of such subrogation rights including, without limitation, any claim that such subrogation rights were abrogated by any acts of Indemnitees. Indemnitor hereby agrees to postpone the exercise of any and all rights of subrogation to the rights of Agent, the Issuing Bank or Lenders against the Indemnitor hereunder and any rights of subrogation to any collateral securing the Obligations until the Obligations shall have been paid in full in accordance with Section 13.9 of the Credit Agreement.

Section 14. Notice of Claims and Inquiries. Indemnitor shall promptly notify Agent upon receipt of any written inquiry, notice, claim, charge, cause of action or demand or upon receipt of any verbal inquiry, notice, claim, charge, cause of action or demand of any governmental authority or quasi governmental authority or any other type of verbal inquiry, notice, claim, charge, cause of action or demand pertaining to Hazardous Materials Claims that could reasonably be expected to result in Default under the Credit Agreement, including, without limitation, any notice of inspection, abatement or noncompliance, stating the nature and basis of such inquiry or notification. Indemnitor shall promptly deliver to Agent any and all documentation or records as Agent may reasonably request in connection with such notice or inquiry, and shall keep Agent advised of any subsequent material developments.

Section 15. Indemnitor Participation. If any action shall be brought against any Indemnitee, then after Agent notifies Indemnitor thereof, Indemnitor shall be entitled to participate therein, and to assume the defense thereof at the expense of Indemnitor with counsel reasonably satisfactory to such Indemnitee to settle and compromise any such claim or action; provided, however, that such Indemnitee may elect to be represented by separate counsel, at Indemnitee’s expense, and in any event no settlement or compromise of any claim or action shall be effected without the consent of such Indemnitee, which consent shall not be conditioned, withheld or delayed if the settlement or compromise does not impose any liability on Indemnitee or any other party indemnified hereunder and shall not otherwise be unreasonably conditioned, withheld or delayed.

Section 16. No Discharge. No dissolution, liquidation, insolvency, bankruptcy or other matter with respect to Indemnitor shall affect this Agreement or any of Indemnitor’s obligations hereunder.

Section 17. Severability. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all Applicable Law. If any provision of any of this Agreement or the application thereof to any Person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, then neither the remainder of the instrument in which such provision is contained nor the application of such provision to other persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather, shall be enforced to the greatest extent permitted by Applicable Law.

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Section 18. Notice to Parties. Unless otherwise provided herein, communications provided for hereunder shall be in writing and shall be given in accordance with the applicable provisions of the Credit Agreement.

SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

Section 20. Headings. The Section and Subsection entitlements hereof are inserted for convenience of reference only and shall in no way alter, modify or define, or be used in construing, the text of such Sections or Subsections.

Section 21. Modification. This Agreement may only be amended, revised, waived or otherwise modified by a written instrument or instruments as provided in Section 13.6. of the Credit Agreement.

Section 22. Successors and Assigns. The covenants, agreements and obligations of Indemnitor hereunder shall be binding upon Indemnitor and its respective legal representatives, successors and assigns, and the rights, remedies and benefits of Indemnitees hereunder shall inure to the benefit of Indemnitees and their respective legal representatives, successors and assigns. There are no parties who or which are intended to be a third party beneficiary of any benefit conferred under this Agreement, except for the legal representatives, successors and assigns of Indemnitees.

Section 23. Loan Document. This Agreement shall constitute a Loan Document.

Section 24. Joint and Several Liability. The obligations and agreements of Indemnitor hereunder are joint and several.

Section 25. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute but one instrument.

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IN WITNESS WHEREOF, this Environmental Indemnity Agreement has been duly executed and delivered by Indemnitor under seal as of the day and year first above written.

INDEMNITOR:
MORGANS GROUP LLC
By:
	Name:
	Title:
BEACH HOTEL ASSOCIATES LLC
By:
	Name:
	Title:

EXHIBIT A
to
EXHIBIT M

THE PROPERTY

Lots 9, 10, 11 and 12, in Block 29 of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, a subdivision of Miami-Dade County, Florida, according to the Plat thereof duly recorded upon the Public records of Miami-Dade County, Florida in Plat Book 2, page 77 thereof;

Also that tract of land shown on plat of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, according to the Plat thereof recorded in Plat Book 2, page 77, Public Records of Miami-Dade County, Florida, described as follows:

Begin at the Southeast corner of Lot 9 in Block 29 as shown on plat of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, according to the Plat thereof recorded in Plat Book 2, page 77, Public Records of Miami-Dade County, Florida; thence run in a Northerly direction along the Easterly line of said Block 29 of the aforesaid plat and the Northerly extension thereof a distance of 136.897 feet, more or less, to the point of intersection of the center line of 17th Street; thence run Easterly along the center line of 17th Street; extended, a distance of 204.17 feet, more or less to the point of intersection of said center line of 17th Street extended Easterly to the Erosion Control Line of the Atlantic Ocean said Line recorded in Plat Book 105, page 62, Public Records of Miami-Dade County, Florida, thence run Southerly along the said Erosion Control Line, a distance of 137.465 feet to the intersection of the extension Easterly of the Southerly Line of referenced Lot 9, thence run Westerly along the Easterly extension of Lot 9, a distance of 200.96 feet, more of less, to the Point of Beginning.

Less and except, however, that certain portion of such land as was appropriated and taken by the City of Miami Beach, Florida, in that certain eminent domain or condemnation proceeding a final judgment for which was recorded in Deed Book 3106, page 96, which covers that portion of the premises lying northerly of the northerly line of said Block 29 extended easterly to the Erosion Control Line recorded in Plat Book 105, page 62 of the Public Records of Miami-Dade County, Florida.

EXHIBIT O

FORM OF ASSIGNMENT OF MANAGEMENT AGREEMENT
AND SUBORDINATION OF MANAGEMENT FEES

THIS ASSIGNMENT OF MANAGEMENT AGREEMENT AND SUBORDINATION OF MANAGEMENT FEES (this “Assignment”) is made as of July [_______], 2011, by BEACH HOTEL ASSOCIATES LLC, a Delaware limited liability company (“Grantor”), having a mailing address of c/o Morgans Group LLC, 475 Tenth Avenue, New York, New York 10018, and MORGANS HOTEL GROUP MANAGEMENT LLC (“Manager”), having an address of 475 Tenth Avenue, New York, New York 10018, in favor of DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Agent (together with its successors and assigns, “Agent” or “Beneficiary”) for itself, the Issuing Bank and each of the Lenders from time to time party to that certain Credit Agreement (as hereinafter defined), Agent having as its address at 60 Wall Street, New York, New York 10005.

WHEREAS, pursuant to that certain Credit Agreement dated as of July [_______], 2011 as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “MG Borrower”), Grantor, the lenders from time to time party thereto (“Lenders”) and Agent, Lenders have agreed to make available to Grantor and the MG Borrower certain financial accommodations in an aggregate principal amount not to exceed $100,000,000 on the terms and conditions set forth in the Credit Agreement;

WHEREAS, pursuant to that certain Hotel Management Agreement, dated as of June 23, 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Management Agreement”), by and between Grantor and Manager, Grantor has employed Manager to operate and manage the Property; and

WHEREAS, to induce Lenders to make, and to continue to make, such financial accommodations to Grantor under the Credit Agreement, Grantor desires to assign to Agent, for its benefit and the benefit of the Issuing Bank and Lenders, all of its right, title and interest in, to and under the Management Agreement on the terms hereof to secure, among other things, Grantor’s obligations under the Credit Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Grantor, Grantor agrees as follows:

Section 1. Definitions. Terms not otherwise defined herein have the respective meanings given them in the Credit Agreement. Terms defined in the Uniform Commercial Code as in effect in the State of New York have the respective meanings given such terms therein. In addition, as used in this Assignment, the following terms shall have the following meanings:

“Assignment of Leases and Rents” has the meaning given such term in the Security Instrument.

“Collateral” has the meaning given such term in the Security Instrument.

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“Event of Default” means the occurrence of an “Event of Default” as defined in the Credit Agreement, or as defined in the Security Instrument.

“Management Agreement” has the meaning given such term in the recitals above.

“Management Fees” means any and all fees payable by Grantor to Manager pursuant to the terms of the Management Agreement.

“Manager” has the meaning given such term in the recitals above.

“Property” means the real estate or interest therein described in Exhibit A attached hereto and incorporated herein by this reference, and all rights, titles and interests appurtenant thereto.

“Security Instrument” means that certain Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing of even date herewith from Grantor, as grantor thereunder, to Agent, as beneficiary thereunder, covering the Property and other related collateral more particularly described therein, and given as security for the repayment of the Obligations.

Section 2. Assignment of Management Agreement. As security for the payment and performance of the Obligations, Grantor hereby assigns to Agent, for its benefit and the benefit of the Issuing Bank and Lenders, and grants to Agent, for its benefit and the benefit of the Issuing Bank and Lenders, a security interest in all of Grantor’s right, title and interest in, to and under the Management Agreement, including without limitation, (a) all rights of Grantor to damages arising out of, or for, breach or default in respect thereof and (b) all rights of Grantor to perform and exercise all rights and remedies thereunder.

Section 3. Subordination of Management Fees. The Management Fees and all rights and privileges of Manager to the Management Fees are hereby and shall at all times continue to be subject and unconditionally subordinate in all respects to the Lien and payment of the Security Instrument, the Obligations and the Loan Documents and to any renewals, extensions, modifications, assignments, replacements, or consolidations thereof and the rights, privileges, and powers of Agent and Lenders thereunder.

Section 4. Termination. At such time as the Credit Agreement has terminated in accordance with its terms and the Security Instrument is fully released or assigned of record, this Assignment shall terminate.

Section 5. Estoppel. Manager represents and warrants, as of the date hereof, that (a) the Management Agreement is in full force and effect and has not been modified, amended or assigned with respect to the Property, (b) neither Manager nor Grantor is in default under any of the terms, covenants or provisions of the Management Agreement with respect to the Property and Manager knows of no event which constitutes, or with the passage of time or the giving of notice or both would constitute, an event of default under the Management Agreement with respect to the Property, (c) neither Manager nor Grantor has commenced any action or given or received any notice for the purpose of terminating the Management Agreement with respect to the Property, (d) the Management Fees have been paid in full with respect to the Property for the period ending June 30, 2011 and (e) a true, correct and complete copy of the Management Agreement is attached hereto as Exhibit A.

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Section 6. Grantor’s Covenants. Grantor hereby covenants with Agent that during the term of this Assignment: (a) except as expressly permitted by the Credit Agreement, Grantor shall not terminate or amend any of the terms or provisions of the Management Agreement; and (b) Grantor shall, in the manner provided for in this Assignment, give notice to Agent of any notice or information that Grantor receives which indicates that Grantor is in default of the requirements of Section 8.2 of the Credit Agreement as they relate to the Management Agreement, that Manager is terminating the Management Agreement or that Manager is otherwise discontinuing its management of the Property. In accordance with Section 10.10 of the Credit Agreement, Grantor may terminate the Management Agreement pursuant to the terms contained therein provided that (i) Grantor enters into a replacement management agreement with a property manager acceptable to Agent, in Agent’s reasonable discretion; and (ii) such replacement property manager executes an assignment and subordination agreement in the form of this Assignment or other form acceptable to Agent.

Section 7. Agreement by Grantor and Manager. Grantor and Manager hereby agree (a) that while a Trigger Event exists, all Receipts shall be applied in accordance with Section 3.4 of the Credit Agreement and (b) that while an Event of Default exists, at the option of Agent exercised by written notice to Grantor and Manager: (i) Manager shall not collect or be entitled to any Management Fee and/or (ii) Agent may exercise its rights under this Assignment and, in connection with the exercise of remedies pursuant to Section 11.2(a) of the Credit Agreement, may immediately terminate the Management Agreement and require Manager to transfer its responsibility for the management of the Property to a management company selected by Agent in Agent’s sole and absolute discretion.

Section 8. Consent and Agreement by Manager. Manager hereby acknowledges and consents to this Assignment and agrees that Manager will act in conformity with the provisions of this Assignment and the rights of Agent and Lenders hereunder or otherwise related to the Management Agreement. If the responsibility for the management of the Property is transferred from Manager in accordance with the provisions hereof, Manager shall, and hereby agrees to, fully cooperate in transferring its responsibility to a new management company and effectuate such transfer no later than 30 days from the date the Management Agreement is terminated. Further, Manager hereby agrees (a) not to contest or impede the exercise by Agent and Lenders of any right they have under or in connection with this Assignment and (b) that Manager shall give at least 30 days prior written notice to Agent of its intention to terminate the Management Agreement or otherwise discontinue its management of the Property.

Section 9. Agent’s Agreement. So long as no Event of Default exists, any sums due to Grantor under the Management Agreement may be paid directly to Grantor.

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Section 10. Agent and Lenders Not Obligated. Notwithstanding any other provision of this Assignment to the contrary, Grantor and Manager expressly acknowledge and agree that Grantor and Manager shall continue to observe and perform all of the conditions and obligations contained in the Management Agreement to be observed and performed by them, and that neither this Assignment, nor any action taken pursuant hereto, shall cause Agent or Lenders to be under any obligation or liability in any respect whatsoever to any party to any Management Agreement or to any other Person for the observance or performance of any of the representations, warranties, conditions, covenants, agreements or terms therein contained.

Section 11. Intentionally Omitted.

Section 12. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS ASSIGNMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE WHICH ARE LOCATED IN THE COUNTY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS ASSIGNMENT, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE PARTIES HERETO HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER SUCH PARTY, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION PROCEEDING WITH RESPECT TO THIS ASSIGNMENT BROUGHT IN ANY OF THE AFOREMENTIONED COURTS, THAT SUCH COURTS LACK PERSONAL JURISDICTION OVER SUCH PARTY. EACH OF THE PARTIES HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH IN SECTION 13 BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST MANAGER IN ANY OTHER JURISDICTION.

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(b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS ASSIGNMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

(c) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS ASSIGNMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 13. Notice to Parties. Notices, requests and other communications required or permitted hereunder shall be in writing and shall be made by personal delivery, telecopy or certified or registered mail, return receipt requested, if to: (i) Manager, at the addresses and in the manner set forth for any Borrower in Section 13.1 of the Credit Agreement and (ii) Grantor or Agent, at the addresses and in the manner set forth in Section 13.1 of the Credit Agreement.

Section 14. Amendment. This Assignment, and any provisions hereof, may only be amended, supplemented, waived, or otherwise modified by an agreement in writing signed by the party against whom enforcement thereof is sought.

Section 15. Successors and Assigns. Subject to Section 13.5. of the Credit Agreement, all of the terms of this Assignment shall apply to, be binding upon and inure to the benefit of the parties thereto, their successors, assigns, heirs and legal representatives, and all other Persons claiming by, through or under them.

Section 16. Severability. This Assignment is intended to be performed in accordance with, and only to the extent permitted by, all applicable legal requirements. If any provision of any of this Assignment or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, then neither the remainder of the instrument in which such provision is contained nor the application of such provision to other persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather, shall be enforced to the greatest extent permitted by Applicable Law.

Section 17. Headings. The Section and Subsection entitlements hereof are inserted for convenience of reference only and shall in no way alter, modify or define, or be used in construing, the text of such Section or Subsection.

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Section 18. Counterparts. This Assignment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute but one instrument. The failure of any party hereto to execute this Assignment, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder.

Section 19. Number and Gender. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.

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Page 7

IN WITNESS WHEREOF the undersigned have executed this Assignment of Management Agreement and Subordination of Management Fees as of the date and year first written above.

GRANTOR:
BEACH HOTEL ASSOCIATES LLC
By:
	Name:
	Title:
MANAGER:
MORGANS HOTEL GROUP MANAGEMENT LLC
By:
	Name:
	Title:
Acknowledged:
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent
By:
	Name:
	Title:

EXHIBIT O
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EXHIBIT A

MANAGEMENT AGREEMENT

EXHIBIT P

FORM OF PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT (this “Agreement”) dated as of July [_______], 2011 executed and delivered by MORGANS GROUP LLC (the “Pledgor”) in favor of DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent (the “Pledgee”) for itself, the Issuing Bank and each of the Lenders identified below.

WHEREAS, pursuant to that certain Credit Agreement, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among the Pledgor, Beach Hotel Associates LLC (the “Florida Borrower”), Morgans Hotel Group Co., the lenders from time to time party thereto as “Lenders” and the Pledgee, the Lenders, the Issuing Bank and the Pledgee have agreed to make available to the Pledgor and the Florida Borrower certain financial accommodations on the terms and conditions contained in the Credit Agreement;

WHEREAS, the Florida Borrower and the Pledgor, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses and have determined it to be in their mutual best interests to obtain financing from the Lenders and the Pledgee through their collective efforts;

WHEREAS, the Pledgor acknowledges that it will receive direct and indirect benefits from the Lenders and the Pledgee making such financial accommodations available to the Borrower and the Florida Borrower under the Credit Agreement; and

WHEREAS, it is a condition precedent to the extension of such financial accommodations under the Credit Agreement that the Pledgor executes and delivers this Agreement, among other things, to grant to the Pledgee for the benefit of the Lenders and the Issuing Bank a security interest in the Collateral as security for the Secured Obligations.

NOW, THEREFORE, in consideration of the mutual agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties agree as follows:

Section 1. Definitions. Terms not otherwise defined herein are used herein with the respective meanings given them in the Credit Agreement. Terms defined in the Uniform Commercial Code as in effect in the State of New York shall have the respective definitions as so defined. In addition, as used in this Agreement:

“Bankruptcy Code” means United States Bankruptcy Code (11 U.S.C. Section 101 et seq.), as in effect from time to time, and any successor statute thereto.

“Issuer” means with respect to an Equity Interest, the Person who issued such Equity Interest and shall include each of the Persons identified as an Issuer on Schedule 1 attached hereto (or any addendum or supplement thereto), and any successors thereto, whether by merger or otherwise.

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“Proceeds” means all proceeds (including proceeds of proceeds) of any of the Collateral including all: (a) rights, benefits, distributions, premiums, profits, dividends, interest, cash, instruments, documents of title, accounts, contract rights, inventory, equipment, general intangibles, payment intangibles, deposit accounts, chattel paper, and other property from time to time received, receivable, or otherwise distributed in respect of or in exchange for, or as a replacement of or a substitution for, any of the Collateral, or proceeds thereof (including any cash, Equity Interests, or other instruments issued after any recapitalization, readjustment, reclassification, merger or consolidation with respect to the Issuers and any security entitlements, as defined in Section 8-102(a)(17) of the UCC, with respect thereto); (b) “proceeds,” as such term is defined in Section 9-102(a)(64) of the UCC; (c) proceeds of any insurance, indemnity, warranty, or guaranty (including guaranties of delivery) payable from time to time with respect to any of the Collateral, or proceeds thereof; and (d) payments (in any form whatsoever) made or due and payable to the Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral, or proceeds thereof.

“Secured Obligations” means, the Obligations (as defined in the Credit Agreement).

“UCC” means the Uniform Commercial Code as in effect in any applicable jurisdiction.

Section 2. Pledge. As security for the prompt performance and payment in full of the Secured Obligations, the Pledgor hereby pledges to the Pledgee for the benefit of itself, the Issuing Bank and each of the Lenders a security interest in, all of the Pledgor’s right, title and interest in, to and under the following, whether now existing or hereafter from time to time acquired (collectively, the “Collateral”):

(a) all Equity Interests now or hereafter owned, acquired or held by the Pledgor in the Florida Borrower, including without limitation, the Equity Interests described in Schedule 1 attached hereto;

(b) all payments due or to become due to the Pledgor in respect of any of the foregoing;

(c) all of the Pledgor’s claims, rights, powers, privileges, authority, puts, calls, options, security interests, liens and remedies, if any, in respect of any of the foregoing;

(d) all of the Pledgor’s rights to exercise and enforce any and every right, power, remedy, authority, option and privilege of the Pledgor relating to any of the foregoing including, without limitation, any power to (i) terminate, cancel or modify any agreement, (ii) execute any instruments and to take any and all other action on behalf of and in the name of the Pledgor in respect of any of the foregoing and the applicable Issuer thereof, (iii) exercise voting rights or make determinations, (iv) exercise any election (including, but not limited to, election of remedies), (v) exercise any “put”, right of first offer or first refusal, or other option, (vi) exercise any right of redemption or repurchase, (vii) give or receive any notice, consent, amendment, waiver or approval, (viii) demand, receive, enforce, collect or receipt for any of the foregoing, (ix) enforce or execute any checks, or other instruments or orders, and (x) file any claims and to take any action in connection with any of the foregoing;

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(e) all certificates and instruments representing or evidencing any of the foregoing;

(f) all other rights, titles, interests, powers, privileges and preferences pertaining to any of the foregoing; and

(g) all Proceeds of any of the foregoing.

Section 3. Representations and Warranties. The Pledgor hereby represents and warrants to the Pledgee, the Issuing Bank and the Lenders as follows:

(a) Title and Liens. The Pledgor is, and will at all times continue to be, the legal and beneficial owner of the Collateral of the Pledgor. None of the Collateral is subject to any adverse claim (as defined in the UCC) or other Lien other than Permitted Liens. No Person has control of any of the Collateral other than the Pledgee.

(b) Authorization. The Pledgor has the right and power, and has taken all necessary action to authorize it, to execute, deliver and perform this Agreement in accordance with its terms. The execution, delivery and performance of this Agreement in accordance with its terms, including the granting of the security interest hereunder, do not and will not, by the passage of time, the giving of notice, or both: (i) require any governmental approval (other than those that have been obtained) or violate any Applicable Law relating to the Pledgor; (ii) violate, result in a breach of or constitute a default under the organizational documents of the Pledgor, or any indenture, agreement or other instrument to which the Pledgor is a party or by which it or any of the Collateral of the Pledgor or its other property may be bound; or (iii) result in or require the creation or imposition of any Lien upon or with respect to any of the Collateral of the Pledgor or the Pledgor’s other property whether now owned or hereafter acquired.

(c) Validity and Perfection of Security Interest. This Agreement is effective to create in favor of the Pledgee, for the benefit of itself, the Issuing Bank and the Lenders, a legal, valid and enforceable security interest in the Collateral. Such security interest will be perfected (i) with respect to any such Collateral that is a “security” (as such term is defined in the UCC) and is evidenced by a certificate, when such Collateral is delivered to the Pledgee with duly executed stock powers with respect thereto, (ii) with respect to any such Collateral that is a “security” (as such term is defined in the UCC) but is not evidenced by a certificate, when the UCC financing statement in appropriate form is filed in the appropriate filing office in the jurisdiction of organization of the Pledgor or when control is established by the Pledgee over such interests in accordance with the provision of Section 8-106 of the UCC, or any successor provision, and (iii) with respect to any such Collateral that is not a “security” (as such term is defined in the UCC), when the UCC financing statement in the appropriate form is filed in the appropriate filing office in the jurisdiction of organization of the Pledgor. Except as set forth in this subsection, no action is necessary to perfect the security interest granted by the Pledgor under this Agreement.

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(d) Pledged Equity Interests. The information set forth on Schedule 1 hereto with respect to the Collateral of the Pledgor is true and correct.

(e) Name, Organization, Etc. The Pledgor’s exact legal name, type of legal entity, jurisdiction of formation, organizational identification number and location of its chief executive office are as set forth on Schedule 1 and such Schedule also lists all jurisdictions of incorporation, legal names and locations of Pledgor’s chief executive office for the five years preceding the date hereof.

(f) Authorization of Equity Interest. All Equity Interests which constitute Collateral are duly authorized, validly issued, fully paid and nonassessable and are not subject to preemptive rights of any Person.

(g) Interests in Partnerships and LLCs. None of the Collateral consisting of an interest in a partnership or in a limited liability company (i) is dealt in or traded on a securities exchange or in securities markets, (ii) by its terms expressly provides that it is a security governed by Article 8 of the UCC, (iii) is an investment company security, (iv) otherwise constitutes a security or (v) constitutes a financial asset.

Section 4. Covenants. The Pledgor hereby unconditionally covenants and agrees as follows:

(a) No Liens; No Sale of Collateral. The Pledgor will not create, assume, incur or permit or suffer to exist any adverse claim or other Lien on any of the Collateral other than Permitted Liens and shall not enter into any document, instrument or agreement (other than this Agreement or the other Loan Documents) which prohibits or purports to prohibit the creation or assumption of any Lien on any of the Collateral. The Pledgor will not sell, lease, lend, assign, transfer or otherwise dispose of all or any portion of the Collateral (or any interest therein).

(b) Change of Name, Etc. Without giving the Pledgee at least 30-days’ prior written notice and to the extent such action is not otherwise prohibited by any of the Loan Documents, the Pledgor shall not: (i) change its name; (ii) reorganize or otherwise become formed under the laws of another jurisdiction or (iii) become bound by a security agreement of another Person under Section 9-203(d) of the UCC.

(c) Defense of Title. The Pledgor will warrant and defend its title to and ownership of the Collateral of the Pledgor, at its sole cost and expense, against the claims of all Persons.

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(d) Delivery of Certificates, Etc. If the Pledgor shall receive any certificate (including, without limitation, any certificate representing a stock and/or liquidating dividends, other distributions in property, return of capital or other distributions made on or in respect of the Collateral, whether resulting from a subdivision, combination or reclassification of outstanding Equity Interests or received in exchange for Collateral or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets or on the liquidation, whether voluntary or involuntary, or otherwise), instrument, option or rights in respect of any Collateral, whether in addition to, in substitution of, as a conversion of, or in exchange for, any Collateral, or otherwise in respect thereof, the Pledgor shall hold the same in trust for the Pledgee, the Issuing Bank and the Lenders and promptly deliver such certificate or instrument to the Pledgee in the exact form received, duly indorsed by the Pledgor to the Pledgee, if required, together with an undated stock power covering such certificate (or other appropriate instrument of transfer) duly executed in blank by the Pledgor and with, if the Pledgee so requests, signature guaranteed, to be held by the Pledgee, subject to the terms of this Agreement, as Collateral.

(e) Uncertificated Securities. With respect to any Collateral that constitutes a security and is not represented or evidence by a certificate or instrument, the Pledgor shall cause the Issuer thereof either (i) to register the Pledgee as the registered owner of such security or (ii) to agree in writing with the Pledgee and the Pledgor that such Issuer will comply with the instructions with respect to such security originated by the Pledgee without further consent of the Pledgor.

(g) Additional Shares. The Pledgor shall not permit any Issuer to issue any additional Equity Interests unless such Equity Interests are pledged hereunder as provided herein. Further, the Pledgor shall not permit any Issuer to amend or modify its articles or certificate of incorporation, articles of organization, certificate of limited partnership, by-laws, operating agreement, partnership agreement or other comparable organizational instrument in a manner which would adversely affect the voting, liquidation, preference or other similar rights of any holder of the Equity Interests pledged hereunder.

(h) Issuer Acknowledgment. The Pledgor shall, upon the Pledgee’s request therefor, cause each Issuer of Collateral pledged by the Pledgor and which Issuer is not a Pledgor itself, to execute and deliver to the Pledgee an Acknowledgment and Consent substantially in the form of Schedule 2 attached hereto.

Section 5. Voting Rights; Dividends, etc.

(a) So long as no Event of Default exists:

(i) the Pledgor shall be entitled to exercise any and all voting and/or consensual rights and powers accruing to an owner of the Collateral or any part thereof for any purpose not inconsistent with the terms and conditions of any of the Loan Documents or any agreement giving rise to or otherwise relating to any of the Secured Obligations; and

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(ii) the Pledgor shall be entitled to retain and use any and all cash dividends or interest paid on the Collateral in the normal course of the applicable Issuer’s business, but any and all stock and/or liquidating dividends, other distributions in property, return of capital or other distributions made on or in respect of the Collateral, whether resulting from a subdivision, combination or reclassification of outstanding Equity Interests or received in exchange for Collateral or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets or on the liquidation, whether voluntary or involuntary, or otherwise, shall be and become part of the Collateral and, if received by the Pledgor, shall forthwith be delivered to the Pledgee.

The Pledgee agrees to execute and deliver to the Pledgor, or cause to be executed and delivered to the Pledgor, as appropriate, at the sole cost and expense of the Pledgor, all such proxies, powers of attorney, dividend orders and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and/or consensual rights and powers which the Pledgor is entitled to exercise pursuant to clause (i) above and/or to receive the dividends which the Pledgor is authorized to retain pursuant to clause (ii) above.

(b) If an Event of Default exists, all rights of the Pledgor to exercise the voting and/or consensual rights and powers which the Pledgor is entitled to exercise pursuant to subsection (a)(i) above and/or to receive the dividends and distributions which the Pledgor is authorized to receive and retain pursuant to subsection (a)(ii) above shall cease, and all such rights thereupon shall become immediately vested in the Pledgee, which shall have the sole and exclusive right and authority to exercise such voting and/or consensual rights and powers which the Pledgor shall otherwise be entitled to exercise pursuant to subsection (a)(i) above and/or to receive and retain the dividends and distributions which the Pledgor shall otherwise be authorized to retain pursuant to subsection (a)(ii) above. Any and all money and other property paid over to or received by the Pledgee pursuant to the provisions of this subsection (b) shall be retained by the Pledgee as additional Collateral hereunder and shall be applied in accordance with the provisions of Section 8. If the Pledgor shall receive any dividends, distributions or other property which it is not entitled to receive under this Section, the Pledgor shall hold the same in trust for the Pledgee, the Issuing Bank and the Lenders, without commingling the same with other funds or property of or held by the Pledgor, and shall promptly deliver the same to the Pledgee, in the identical form received, together with any necessary endorsements.

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Section 6. Remedies.

In addition to any right or remedy that the Pledgee, the Issuing Bank or any Lender may have under the other Loan Documents or otherwise under Applicable Law, if an Event of Default shall exist, the Pledgee may exercise any and all the rights and remedies of a secured party under the UCC and may otherwise sell, assign, transfer, endorse and deliver the whole or, from time to time, any part of the Collateral at a public or private sale or on any securities exchange, for cash, upon credit or for other property, for immediate or future delivery, and for such price or prices and on such terms as the Pledgee in its discretion shall deem appropriate. With respect to any Collateral held or maintained with a securities intermediary, the Pledgee shall be entitled to notify such securities intermediary that such securities intermediary should follow the entitlement orders of the Pledgee and that such securities intermediary should no longer follow entitlement orders of the Pledgor, without further consent of the Pledgee. To the extent permitted by Applicable Law, the Pledgee shall have the right (in its sole and absolute discretion) to register any Equity Interests which are part of the Collateral in its own name as pledgee or the name of its nominee (as Pledgee or as sub-agent), endorsed or assigned in blank or in favor of the Pledgee. The Pledgee shall be authorized at any sale (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Collateral for their own account in compliance with the Securities Act and any other Applicable Law and upon consummation of any such sale the Pledgee shall have the right to assign, transfer, endorse and deliver to the purchaser or purchasers thereof the Collateral so sold. Each purchaser at any sale of Collateral shall take and hold the property sold absolutely free from any claim or right on the part of the Pledgor, and the Pledgor hereby waives (to the fullest extent permitted by Applicable Law) all rights of redemption, stay and/or appraisal which the Pledgor now has or may at any time in the future have under any Applicable Law now existing or hereafter enacted. The Pledgor agrees that, to the extent notice of sale shall be required by Applicable Law, at least 10 days’ prior written notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Pledgee may fix and shall state in the notice or publication (if any) of such sale. At any such sale, the Collateral, or portion thereof to be sold, may be sold in one lot as an entirety or in separate parcels, as the Pledgee may determine in its sole and absolute discretion. The Pledgee shall not be obligated to make any sale of the Collateral if it shall determine not to do so regardless of the fact that notice of sale of the Collateral may have been given. The Pledgee may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case the sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Pledgee until the sale price is paid by the purchaser or purchasers thereof, but neither the Pledgee nor the Issuing Bank or any Lender shall incur any liability to the Pledgor in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public sale made pursuant to this Agreement, the Pledgee, any Lender and any other holder of any of the Secured Obligations, to the extent permitted by Applicable Law, may bid for or purchase, free from any right of redemption, stay and/or appraisal on the part of the Pledgor (all said rights being also hereby waived and released to the extent permitted by Applicable Law), any part of or all the Collateral offered for sale. For purposes hereof, a written agreement to purchase all or any part of the Collateral shall be treated as a

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sale thereof; the Pledgee shall be free to carry out such sale pursuant to such agreement and the Pledgor shall not be entitled to the return of any Collateral subject thereto, notwithstanding the fact that after the Pledgee shall have entered into such an agreement, all Events of Default may have been remedied or the Secured Obligations may have been paid in full as herein provided. The Pledgor hereby waives any right to require any marshaling of assets and any similar right. In addition to exercising the power of sale herein conferred upon it, the Pledgee shall also have the option to proceed by suit or suits at law or in equity to foreclose this Agreement and sell the Collateral or any portion thereof pursuant to judgment or decree of a court or courts having competent jurisdiction. The rights and remedies of the Pledgee, the Issuing Bank and the Lenders under this Agreement are cumulative and not exclusive of any rights or remedies which any of them otherwise have.

Section 7. Setoff. In addition to any rights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, the Pledgee, the Issuing Bank and each Lender is hereby authorized by the Pledgor, at any time or from time to time during the continuance of an Event of Default, without prior notice to the Pledgor or to any other Person, any such notice being hereby expressly waived, but in the case of a Lender subject to receipt of the prior written consent of the Pledgee exercised in its sole discretion, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Pledgee, the Issuing Bank, such Lender or any affiliate of the Pledgee, the Issuing Bank or such Lender, to or for the credit or the account of the Pledgor against and on account of any of the Secured Obligations, irrespective of whether or not any or all of the Secured Obligations have been declared to be, or have otherwise become, due and payable, and although such obligations shall be contingent or unmatured.

Section 8. Application of Proceeds of Sale and Cash. The proceeds of any sale of the whole or any part of the Collateral, together with any other moneys held by the Pledgee under the provisions of this Agreement, shall be applied in accordance with Section 11.4 of the Credit Agreement. The Pledgor shall remain liable and will pay, on demand, any deficiency remaining in respect of the Secured Obligations.

Section 9. Pledgee Appointed Attorney in Fact. The Pledgor hereby constitutes and appoints the Pledgee as the attorney-in-fact of the Pledgor with full power of substitution either in the Pledgee’s name or in the name of the Pledgor to do any of the following: (a) to perform any obligation of the Pledgor hereunder in the Pledgor’s name or otherwise; (b) to ask for, demand, sue for, collect, receive, receipt and give acquittance for any and all moneys due or to become due under and by virtue of any Collateral; (c) to prepare, execute, file, record or deliver notices, assignments, financing statements, continuation statements, applications for registration or like papers to perfect, preserve or release the Pledgee’s security interest in the Collateral; (d) to issue entitlement orders, instructions and other orders to any securities intermediary in connection with any of the Collateral held by or maintained with such securities intermediary; (e) to verify facts concerning the Collateral in the Pledgor’s name, its own name or a fictitious name; (f) to endorse checks, drafts, orders and other instruments for the payment of money payable to the Pledgor, representing any interest or dividend or other distribution payable in respect of the Collateral or any part thereof or on account thereof and to give full discharge

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for the same; (g) to exercise all rights, powers and remedies which the Pledgor would have, but for this Agreement, with respect to any of the Collateral; and (h) to carry out the provisions of this Agreement and to take any action and execute any instrument which the Pledgee may deem necessary or advisable to accomplish the purposes hereof, and to do all acts and things and execute all documents in the name of the Pledgor or otherwise, deemed by the Pledgee as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder; provided, that the Pledgee shall only exercise its rights under clauses (a), (b), (d), (e), (g) and (h) while an Event of Default exists. Nothing herein contained shall be construed as requiring or obligating the Pledgee, the Issuing Bank or any Lender to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby, and no action taken by the Pledgee or omitted to be taken with respect to the Collateral or any part thereof shall give rise to any defense, counterclaim or offset in favor of the Pledgor or to any claim or action against the Pledgee. The power of attorney granted herein is irrevocable and coupled with an interest.

Section 10. Pledgee’s Duty of Care. Other than the exercise of reasonable care to ensure the safe custody of the Collateral while being held by the Pledgee hereunder, the Pledgee shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that the Pledgor shall be responsible for preservation of all rights of the Pledgor in the Collateral. The Pledgee shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if such Collateral is accorded treatment substantially equal to that which the Pledgee accords its own property, it being understood that the Pledgee shall not have responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Collateral, whether or not the Pledgee has or is deemed to have knowledge of such matters or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral.

Section 11. Reimbursement of Pledgee. The Pledgor agrees to pay to the Pledgee expenses incurred in connection with this Agreement in accordance with Section 13.2 of the Credit Agreement.

Section 12. Indemnification. The Pledgor agrees to pay, indemnify, and hold the Pledgee, the Issuing Bank, each Lender and each of their respective predecessor, affiliate, subsidiaries, successors and assigns, together with their past, present and future officers, directors, agents, attorneys, financial advisors, representatives, partners, joint ventures, affiliates and the successor and assigns of any and all of them (each, an “Indemnified Person”) harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (“Indemnified Amounts”) brought against or incurred by an Indemnified Person, in any manner arising out of or, directly or indirectly, related in any way to or connected with this Agreement, including without limitation, the exercise by the Pledgee, the Issuing Bank or any Lender of any of its rights and remedies under this Agreement or any other action taken by the Pledgee, the Issuing Bank or any Lender pursuant to the terms of this Agreement; provided, however, the Pledgor shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Amounts to the extent arising from the gross negligence or willful misconduct of such Indemnified Party, as determined by a court of competent jurisdiction in a final, non-appealable judgment.

Exhibit P
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Section 13. Further Assurances. At any time and from time to time, at the request of the Pledgee, and at the sole expense of Pledgor, Pledgor shall promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further action as the Pledgee may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including the filing of any financing or continuation statement under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby.

Section 14. Securities Act. In view of the position of the Pledgor in relation to the Collateral, or because of other current or future circumstances, a question may arise under the Securities Act, or any similar Applicable Law hereafter enacted analogous in purpose or effect (the Securities Act and any such similar Applicable Law as from time to time in effect being called the “Federal Securities Laws”) with respect to any disposition of the Collateral permitted hereunder. The Pledgor understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Pledgee if the Pledgee were to attempt to dispose of all or any part of the Collateral in accordance with the terms hereof, and might also limit the extent to which or the manner in which any subsequent transferee of any Collateral could dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Pledgee in any attempt to dispose of all or part of the Collateral in accordance with the terms hereof under applicable Blue Sky or other state securities laws or similar Applicable Law analogous in purpose or effect. The Pledgor recognizes that in light of the foregoing restrictions and limitations the Pledgee may, with respect to any sale of the Collateral, limit the purchasers to those who will agree, among other things, to acquire such Collateral for their own account, for investment, and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that in light of the foregoing restrictions and limitations, the Pledgee, in its sole and absolute discretion, may, in accordance with Applicable Law, (a) proceed to make such a sale whether or not a registration statement for the purpose of registering such Collateral or part thereof shall have been filed under the Federal Securities Laws and (b) approach and negotiate with a single potential purchaser to effect such sale. The Pledgor acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions. In the event of any such sale, the Pledgee shall incur no responsibility or liability for selling all or any part of the Collateral in accordance with the terms hereof at a price that the Pledgee, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached. The provisions of this Section will apply notwithstanding the existence of public or private market upon which the quotations or sales prices may exceed substantially the price at which the Pledgee sells.

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Section 15. Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until it terminates in accordance with its terms.

Section 16. Security Interest Absolute. All rights of the Pledgee hereunder, the grant of a security interest in the Collateral and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of any Loan Document, any agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of the payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from any Loan Document, or any other agreement or instrument relating to any of the foregoing, (c) any exchange, release or nonperfection of any other collateral, or any release or amendment or waiver of or consent to or departure from any guaranty, for all or any of the Secured Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of the Secured Obligations or in respect of this Agreement (other than the indefeasible payment in full of all the Secured Obligations).

Section 17. No Waiver. Neither the failure on the part of the Pledgee, the Issuing Bank or any Lender to exercise, nor the delay on the part of the Pledgee, the Issuing Bank or any Lender in exercising any right, power or remedy hereunder, nor any course of dealing between the Pledgee, the Issuing Bank or any Lender, on the one hand, and the Pledgor, on the other hand, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or remedy hereunder preclude any other or the further exercise thereof or the exercise of any other right, power or remedy.

Section 18. Notices. Notices, requests and other communications required or permitted hereunder shall be in writing and shall be made by personal delivery, telecopy or certified or registered mail, return receipt requested, to the addresses and in the manner set forth in Section 13.1 of the Credit Agreement.

Section 19. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

Section 20. Amendments. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

Exhibit P
Page 12

Section 21. Binding Agreement; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that the Pledgor shall not be permitted to assign this Agreement or any interest herein or in the Collateral or any part thereof and any such assignment by the Pledgor shall be null and void absent the prior written consent of the Pledgee.

Section 22. Termination. Upon indefeasible payment in full of all of the Secured Obligations and termination of the Credit Agreement in accordance with its terms, this Agreement shall terminate. Upon termination of this Agreement in accordance with its terms, the Pledgee agrees to take such actions as the Pledgor may reasonably request, and at the sole cost and expense of the Pledgor, to evidence the termination of this Agreement.

Section 23. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under Applicable Law, but if any provision of this Agreement shall be prohibited by or invalid under Applicable Law, such provisions shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.

Section 24. Headings. Section headings used herein are for convenience only and are not to affect the construction of or be taken into consideration in interpreting this Agreement.

Section 25. Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple counterparts and attached to a single counterpart so that all signature pages are attached to the same document. Delivery of an executed counterpart by telecopy shall be effective as delivery of a manually executed counterpart.

[Signatures on Next Page]

Exhibit P
Page 13

IN WITNESS WHEREOF, the Pledgor has executed and delivered this Pledge Agreement under seal as of this the date first written above.

PLEDGOR:
MORGANS GROUP LLC
By:
	Name:
	Title:
Agreed to, accepted and acknowledged as of the
date first written above.
PLEDGEE:
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent
By:
	Name:
	Title:

SCHEDULE 1
to
PLEDGE AGREEMENT
of
EXHIBIT P

Pledged Equity Interests:

		Jurisdiction	Class of	Certificate
		of Formation	Equity	Number (if	Percentage of
Pledgor	Issuer	of Issuer	Interest	any)	Ownership
Morgans Group LLC	Beach Hotel Associates LLC	Delaware	Membership Interests	N/A		100	%

Pledgor Information:

				Location of Chief
	Jurisdiction of	Organizational ID		Executive
Pledgor	Formation	No.		Office
Morgans Group LLC	Delaware		4049027	475 Tenth Avenue New York, New York 10018

SCHEDULE 2
to
PLEDGE AGREEMENT
of
EXHIBIT P

FORM OF ACKNOWLEDGEMENT AND CONSENT

The undersigned hereby acknowledges receipt of a copy of the Pledge Agreement dated as of [_______], 2011 (the “Pledge Agreement”), made by Morgans Group LLC in favor of Deutsche Bank Trust Company Americas, as Agent. Terms not otherwise defined herein have the respective meanings given them in the Pledge Agreement.

The undersigned agrees for the benefit of the Pledgee, the Issuing Bank and the Lenders as follows:

(a) The undersigned will be bound by, and comply with, the terms of the Pledge Agreement applicable to the undersigned, including without limitation, Sections 4(e), 4(g) and 15.

(b) The undersigned will notify the Pledgee in writing promptly of the occurrence of any of the events described in Section 4(d) of the Pledge Agreement.

[(c) The undersigned will not permit any of the Equity Interests issued by it (i) to be dealt in or traded on a securities exchange or in securities markets; or (ii) to provide by its terms that it is a security governed by Article 8 of the UCC.]¹

IN WITNESS WHEREOF, the undersigned has executed and delivered this Acknowledgement and Consent under seal as of this the date first written above.

[ISSUER]
By:
	Name:
	Title:

¹ Include only if the Issuer is a partnership or limited liability company.

EXHIBIT Q

FORM OF SECURITY AGREEMENT

THIS SECURITY AGREEMENT is dated as of July [_____], 2011 from Beach Hotel Associates LLC, a Delaware limited liability company (“Grantor”) to Deutsche Bank Trust Company Americas, in its capacity as Agent for itself, the Issuing Bank and for each of the Lenders from time to time party to that certain Credit Agreement (as hereinafter defined) (the “Secured Party”).

WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “Borrower”), Grantor, Morgans Hotel Group Co., the lenders from time to time party thereto as “Lenders” and the Secured Party, the Lenders, the Issuing Bank and the Secured Party have agreed to make available to the Borrower and the Grantor certain financial accommodations on the terms and conditions contained in the Credit Agreement;

WHEREAS, the Borrower and Grantor, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses and have determined it to be in their mutual best interests to obtain financing from the Lenders, the Issuing Bank and the Secured Party through their collective efforts;

WHEREAS, Grantor acknowledges that it will receive direct and indirect benefits from the Lenders, the Issuing Bank and the Secured Party making such financial accommodations available to the Borrower and Grantor under the Credit Agreement; and

WHEREAS, it is a condition precedent to the extension of such financial accommodations under the Credit Agreement that Grantor executes and delivers this Agreement, among other things, to grant to the Secured Party for the benefit of itself, the Issuing Bank and each of the Lenders a security interest in the Collateral as security for the Secured Obligations.

NOW, THEREFORE, in consideration of the mutual agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties agree as follows:

Section 1. Definitions. (a) The following terms shall have the following meanings:

“Additional Pledged Collateral” means any Pledged Collateral acquired by Grantor after the date hereof and in which a security interest is granted pursuant to Section 2, including, to the extent a security interest is granted therein pursuant to such Section 2, (i) all additional Indebtedness from time to time owed to Grantor by any obligor on the Pledged Debt Instruments and the Instruments evidencing such Indebtedness and (ii) all interest, cash, Instruments and other property or Proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any of the foregoing.

Exhibit Q
Page 2

“Agreement” means this Security Agreement.

“Bankruptcy Code” means United States Bankruptcy Code (11 U.S.C. Section 101 et seq.), as in effect from time to time, and any successor statute thereto.

“Credit Agreement” has the meaning given that term in the recitals of this Agreement.

“Collateral” means all of Grantor’s right, title and interest to and under all of the following property, whether now owned or hereafter acquired by Grantor or in which Grantor now has or at any time in the future may acquire any right, title or interest, and whether now existing or hereafter arising:

(i) all Deposit Accounts;

(ii) all Equipment, including, without limitation, all machinery, equipment, systems, fittings, apparatus, appliances, furniture, furnishings, tools, fixtures, Inventory (as hereinafter defined) and articles of personal property and accessions thereof and renewals, replacements thereof and substitutions therefore (including, but not limited to, all plumbing, lighting and elevator fixtures, office furniture, beds, bureaus, chiffonniers, chests, chairs, desks, lamps, mirrors, bookcases, tables, rugs, carpeting, drapes, draperies, curtains, shades Venetian blinds, wall coverings, screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage racks, stools, sofas, chinaware, flatware, linens, pillows, blankets, glassware, foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other entry systems, bars, bar fixtures, liquor and other drink dispensers, icemakers, radios, television sets, intercom and paging equipment, electric and electronic equipment, dictating equipment, telephone systems, computerized accounting systems, engineering equipment, vehicles, medical equipment, potted plants, heating, lighting and plumbing fixtures, fire prevention and extinguishing apparatus, theft prevention equipment, cooling and air-conditioning systems, elevators, escalators, fittings, plants, apparatus, stoves, ranges, refrigerators, laundry machines, tools, machinery, engines, dynamos, motors, boilers, incinerators, switchboards, conduits, compressors, vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call systems, brackets, signs, bulbs, bells, ash and fuel, conveyors, cabinets lockers, shelving, spotlighting equipment, dishwashers, garbage disposals, washers and dryers) and other customary hotel equipment;

(iii) all Fixtures;

(iv) all Instruments;

(v) all Inventory, including, without limitation, provisions in storerooms, refrigerators, pantries and kitchens, beverages in wine cellars and bars, other merchandise for sale, fuel, mechanical supplies, stationery and other supplies and similar items;

(vi) all Investment Property;

(vii) all Intellectual Property;

Exhibit Q
Page 3

(viii) all General Intangibles, Permits, liquor and other governmental licenses and other licenses;

(ix) all Documents;

(x) all Accounts;

(xi) all Chattel Paper;

(xii) all Commercial Tort Claims identified on Schedule 6 hereto, as such schedule may be supplemented from time to time;

(xiii) all Letter-of-Credit Rights;

(xiv) all books and records pertaining to any property described in this definition;

(xv) all Supporting Obligations pertaining to any property described in this definition;

(xvi) all property of Grantor held by the Secured Party, including all property of every description, in the possession or custody of or in transit to the Secured Party for any purpose, including safekeeping, collection or pledge, for the account of Grantor or as to which Grantor may have any right or power;

(xvii) all other Goods and personal property of Grantor, whether tangible or intangible and wherever located;

(xviii) all Contracts, Contract Rights, agreements, guaranties, indemnities and other assurances, written and oral, insurance policies, permits, licenses, trade names, warranties on personal or real property, soil test reports, certificates of occupancy, termite bonds, payment and performance bonds, judgments, premium rebates or adjustments, unearned commissions and fees, proceeds of insurance policies (subject to the terms of the Security Instrument), construction contracts, deposits, prepayments, unpaid rents, credits in favor of Grantor, financing commitments from others, condemnation proceeds, sales or payment proceeds (subject to the terms of the Security Instrument), surveys, causes of action, chooses in action and all other intangibles of every nature, in connection with and to the extent the same affect or are related to, the Florida Property (all of which are collectively referred to hereinafter as the “Contract Documents”) and all of Grantor’s rights and privileges, if any, to modify, terminate or waive performance of any Contract Documents; and

(xix) to the extent not otherwise included, all Proceeds.

Exhibit Q
Page 4

The term “Collateral” shall not include any Excluded Property but if and when any property shall cease to be Excluded Property, such property shall be deemed at all times from and after the date hereof to constitute Collateral.

“Copyright Licenses” means any written agreement naming Grantor as licensor or licensee granting any right under any material Copyright, including the grant of any right to copy, publicly perform, create derivative works, manufacture, distribute, exploit or sell materials derived from any material Copyright.

“Copyright Security Agreement” means a Copyright Security Agreement executed by Grantor in favor of the Secured Party for the benefit of the Issuing Bank and the Lenders in substantially the form of Annex 1 hereto, pursuant to which Grantor has further evidenced its grant to the Secured Party, for the benefit of the Issuing Bank and the Lenders, of a security interest in all its respective Copyrights.

“Copyrights” means (a) all copyrights arising under the laws of the United States of America, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any foreign counterparts thereof, and (b) the right to obtain all renewals thereof.

“Deposit Account Control Agreement” means a letter agreement, in form and substance reasonably satisfactory to the Secured Party, executed by Grantor, the Secured Party and the financial institution at which Grantor maintains a Deposit Account.

“Excluded Property” means, collectively, (i) any permit, lease, license, contract, instrument or other agreement held by Grantor that prohibits or requires the consent of any Person other than the Borrower or any Affiliate as a condition to the creation by Grantor of a Lien thereon, or any permit, lease, license contract or other agreement held by Grantor to the extent that any Applicable Law prohibits the creation of a Lien thereon, but only, in each case, to the extent, and for so long as, such prohibition or consent requirement is not terminated or rendered unenforceable or otherwise deemed ineffective by the UCC or any other Applicable Law, (ii) any “intent to use” Trademark applications for which a statement of use has not been filed (but only until such statement is filed) and (iii) Equipment owned by Grantor that is subject to a purchase money Lien or a capital lease to the extent permitted under the Credit Agreement if the contract or other agreement in which such Lien is granted (or in the documentation providing for such Capital Lease) prohibits or requires the consent of any Person other than the Borrower or any Affiliate as a condition to the creation of any other Lien on such Equipment; provided, however, in each case, “Excluded Property” shall not include any Proceeds, substitutions or replacements of Excluded Property (unless such Proceeds, substitutions or replacements would otherwise constitute Excluded Property).

Exhibit Q
Page 5

“Intellectual Property” means, collectively, all rights, priorities and privileges of Grantor relating to intellectual property, whether arising under United States of America, multinational or foreign laws or otherwise, including Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks, Trademark Licenses, service marks, trade secrets and Internet domain names, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

“Material Intellectual Property” means Intellectual Property owned by or licensed to a Grantor and material to the conduct of the business of the Borrower and its Subsidiaries taken as a whole.

“Patent Security Agreement” means a Patent Security Agreement executed by Grantor in favor of the Secured Party for the benefit of the Issuing Bank and the Lenders, in substantially the form of Annex 1 hereto, pursuant to which Grantor has confirmed its grant to the Secured Party, for the benefit of the Issuing Bank and the Lenders, a security interest in all its respective Patents.

“Patents” means (a) all letters patent of the United States of America, any other country or any political subdivision thereof and all reissues and extensions thereof, (b) all applications for letters patent of the United States of America or any other country and all divisionals, continuations and continuations-in-part thereof, and (c) all rights to obtain any reissues, continuations or continuations-in-part of the foregoing.

“Patent License” means all agreements, whether written or oral, providing for the grant by or to Grantor of any right to manufacture, have manufactured, use, import, sell or offer for sale any invention covered in whole or in part by a Patent.

“Pledged Collateral” means, collectively, Pledged Debt Instruments, any other Investment Property of Grantor, all chattel paper, certificates or other Instruments representing any of the foregoing and all Security Entitlements of Grantor in respect of any of the foregoing. Pledged Collateral may be Instruments or Investment Property.

“Pledged Debt Instruments” means all right, title and interest of Grantor in Instruments evidencing any Indebtedness owed to Grantor, including all Indebtedness described on Schedule 1, issued by the obligors named therein.

“Proceeds” means all proceeds (including proceeds of proceeds) of any of the Collateral including all: (i) rights, benefits, distributions, premiums, profits, dividends, interest, cash, Instruments, contract rights, Inventory, Equipment, Deposit Accounts, and other property from time to time received, receivable, or otherwise distributed in respect of or in exchange for, or as a replacement of or a substitution for, any of the Collateral, or proceeds thereof; (ii) “proceeds,” as such term is defined in Section 9-102(a)(64) of the UCC; (iii) proceeds of any insurance, indemnity, warranty, or guaranty (including guaranties of delivery) payable from time to time with respect to any of the Collateral, or proceeds thereof; and (iv) payments (in any form whatsoever) made or due and payable to a Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral, or proceeds thereof.

Exhibit Q
Page 6

“Secured Obligations” means the Obligations (as defined in the Credit Agreement).

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

“Trademark License” means any agreement, whether written or oral, providing for the grant by or to Grantor of any right to use any Trademark.

“Trademark Security Agreement” means a Trademark Security Agreement executed by Grantor in favor of the Secured Party for the benefit of the Issuing Bank and the Lenders, in substantially the form of Annex 1 hereto, pursuant to which Grantor has confirmed its grant to the Secured Party for the benefit of the Issuing Bank and the Lenders, of a security interest in all its respective Trademarks.

“Trademarks” means (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and, in each case, all goodwill associated therewith, whether now existing or hereafter adopted or acquired, all registrations and recordings thereof and all applications in connection therewith, in each case whether in the United States Patent and Trademark Office or in any similar office or agency of the United States of America, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, and (b) the right to obtain all renewals thereof.

“UCC” means the Uniform Commercial Code as from time to time in effect in the State of New York; provided, however, to the extent that, by reason of mandatory provisions of law, any of the attachment, perfection, or priority of, or remedies with respect to, the Secured Party’s security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction solely for purposes of the provisions hereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

(b) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein have the respective meanings given them in the Credit Agreement.

Exhibit Q
Page 7

(c) Terms used herein without definition that are defined in the UCC have the respective meanings given them in the UCC and if defined in more than one article of the UCC, such terms shall have the meaning defined in Article 9 of the UCC, including the following terms (which are capitalized herein):

“Account”, “Certificated Security”, “Chattel Paper”, “Commercial Tort Claim”, “Commodities Intermediary”, “Commodity Account”, “Contract”, “Contract Right”, “Control Account”, “Deposit Account”, “Document”, “Equipment”, “Financial Asset”, “Fixtures”, “General Intangible”, “Goods”, “Instruments”, “Inventory”, “Investment Property”, “Letter-of-Credit Right”, “Permits”, “Securities Account”, “Securities Intermediary”, “Security”, “Security Entitlement”, “Supporting Obligation”, and “Uncertificated Security”.

(d) In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding” and the word “through” means “to and including.” The terms “herein,” “hereof,” “hereto” and “hereunder” and similar terms refer to this Agreement as a whole and not to any particular Article, Section, subsection or clause in this Agreement. Unless otherwise noted, references herein to an Annex, Schedule, Section, subsection or clause refer to the appropriate Annex or Schedule to, or Section, subsection or clause in this Agreement. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. Any reference in this Agreement to a Loan Document shall include all appendices, exhibits and schedules thereto, and, unless specifically stated otherwise all amendments, restatements, supplements or other modifications thereto, and as the same may be in effect at any time such reference becomes operative. The term “including” means “including without limitation” except when used in the computation of time periods. The terms “Lender,” “Issuing Bank,” and “Secured Party” include their respective successors and permitted assigns. Notwithstanding anything to the contrary set forth herein, the representations, warranties and covenants set forth in this Agreement shall not apply to Excluded Property.

Section 2. Grant of Security Interests in Collateral. Grantor, as security for the full, prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, hereby grants, collaterally assigns, mortgages, pledges and hypothecates to the Secured Party for the benefit of itself, the Issuing Bank and each of the Lenders, and grants to the Secured Party for the benefit of itself, the Issuing Bank and each of the Lenders a lien on and security interest in, all of Grantor’s right, title and interest in, to and under the Collateral.

Section 3. Grantors Remains Obligated. Notwithstanding any other provision of this Agreement to the contrary, (a) Grantor shall remain liable to observe and perform all the conditions and obligations to be observed and performed by it under each and every contract or other agreement included as part of the Collateral, all in accordance with the terms of each such contract and agreement, (b) neither the Secured Party nor the Issuing Bank or any Lender shall have any obligation or liability under any contract or other agreement included as part of the Collateral by reason of or arising out of this Agreement or the receipt by the Secured Party, the Issuing Bank or any Lender of any payment relating thereto, (c) the exercise by the Secured Party of any rights under this Agreement or otherwise in respect of the Collateral shall not release Grantor from its obligations under any contract or other agreement included as part of the Collateral and (d) neither the Secured Party nor the Issuing Bank or any Lender shall be obligated to take any of the following actions with respect to any contract or other agreement included as part of the Collateral: (i) perform any obligation of Grantor, (ii) make any payment, (iii) make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party, (iv) present or file any claim or (v) take any action to enforce any performance or to collect the payment of any amounts that may have been assigned to it or to which it may be entitled at any time or times.

Exhibit Q
Page 8

Section 4. Representations and Warranties. Grantor represents and warrants to the Secured Party, the Issuing Bank and the Lenders as follows:

(a) Title and Liens. Grantor is, and will at all times continue to be, the legal and beneficial owner of the Collateral. None of the Collateral is subject to any adverse claim (as defined in the UCC) or other Lien other than Permitted Liens or other Liens permitted under the Loan Documents.

(b) Authorization. Grantor has the right and power, and has taken all necessary action to authorize it, to execute, deliver and perform this Agreement in accordance with its terms. The execution, delivery and performance of this Agreement in accordance with its terms, including the granting of the security interest hereunder, do not and will not, by the passage of time, the giving of notice, or both: (i) violate any applicable law relating to Grantor; (ii) require and consent or approval of, or authorization, order or other action by, any governmental authority or other Person (other than those that have been obtained), (iii) violate, result in a breach of or constitute a default under the organizational documents of Grantor, or any indenture, agreement or other instrument to which Grantor is a party or by which it or any of the Collateral of Grantor or its other property may be bound; or (iv) result in or require the creation or imposition of any Lien upon or with respect to any of the Collateral of Grantor or Grantor’s other property whether now owned or hereafter acquired.

(c) Validity and Perfection of Security Interest. This Agreement is effective to create in favor of the Secured Party, for the benefit of itself, the Issuing Bank and the Lenders, a legal, valid and enforceable security interest in the Collateral to the extent required hereunder, including all Intellectual Property. Such security interest will be perfected upon (i) in the case of all Collateral in which a security interest may be perfected by the filing of a financing statement under the UCC (other than any Commercial Tort Claims not disclosed on Schedule 6 hereto), the completion of the filings and other actions specified on Schedule 2 (which, in the case of all filings and other documents referred to on such Schedule, have been delivered to the Secured Party in completed and duly executed form), (ii) the delivery to the Secured Party of all Collateral consisting of Instruments and Certificated Securities, in each case properly endorsed for transfer to the Secured Party or in blank, (iii) the execution of Deposit Account Control Agreements with respect to all Deposit Accounts to the extent required hereunder, and (iv) in the case of Intellectual Property, the taking of the actions described in the immediately following subsection (g). Each such security interest that may be perfected by the taking of the actions described in this Section 4(c) shall be prior to all other Liens on the Collateral except for Permitted Liens having priority over the Secured Party’s Lien by operation of Applicable Law.

Exhibit Q
Page 9

(d) Jurisdiction of Formation, Locations, Etc. Grantor’s jurisdiction of organization, exact legal name, organizational identification number, if any, and the location of Grantor’s chief executive office or sole place of business, in each case as of the date hereof, is specified on Schedule 3 and such Schedule also lists all jurisdictions of incorporation, legal names and locations of Grantor’s chief executive office or sole place of business for the five years preceding the date hereof.

(e) [Intentionally Omitted.]

(f) Pledged Collateral. All Pledged Collateral and, if applicable, any Additional Pledged Collateral, consisting of Certificated Securities or Instruments has been delivered to the Secured Party in accordance with Section 5(g) or Section 5(h).

(g) Intellectual Property. Schedule 4 lists all Material Intellectual Property of Grantor as of date hereof, separately identifying that owned by Grantor, that licensed to Grantor and that licensed by Grantor as licensor. The Material Intellectual Property set forth on such Schedule constitutes all of the Material Intellectual Property necessary to conduct Grantor’s business as conducted on the date hereof or on the date of the delivery of any update to such Schedule pursuant to Section 5(i) as conducted on the date of such update. All Material Intellectual Property is valid, subsisting, enforceable, unexpired and in full force and in effect. The use of Material Intellectual Property, or of embodiments thereof, does not infringe, misappropriate, dilute or violate in any material respect the intellectual property rights of any other Person. Grantor has taken all steps reasonably required to protect Grantor’s rights in trade secrets constituting Intellectual Property developed by or for Grantor. This Agreement is effective to create a valid and continuing Lien on such material Intellectual Property and, upon the filing of the Copyright Security Agreement with the United States Copyright Office, the filing of the Patent Security Agreement and the Trademark Security Agreement with the United States Patent and Trademark Office, and the filing of appropriate financing statements in the jurisdictions listed on Schedule 2 hereto, all action necessary or desirable to protect and perfect the Secured Party’s Lien in and on Grantor’s material Intellectual Property under the UCC or the laws of the United States will have been taken.

(h) Deposit Accounts. Schedule 5 sets forth all Deposit Accounts maintained by Grantor on the date hereof or on the date of the delivery of any update to such Schedule pursuant to Section 5(f), which sets forth such information separately for Grantor.

Exhibit Q
Page 10

Section 5. Covenants. Grantor hereby unconditionally covenants and agrees as follows:

(a) No Liens, Sale, Etc. Grantor shall (i) except for the security interests created by this Agreement, not create or suffer to exist any Lien upon or with respect to any Collateral, except Permitted Liens and other Liens permitted under the Loan Documents, (ii) not sell, transfer or assign (by operation of law or otherwise) any Collateral except as expressly permitted under the Credit Agreement, (iii) not enter into any agreement or undertaking restricting the right or ability of Grantor or the Secured Party to sell, assign or transfer, or grant any Lien in, any Collateral except as expressly permitted under the Credit Agreement and (iv) promptly notify the Secured Party of its entry into any agreement or assumption of undertaking that materially adversely restricts the ability to sell, assign or transfer, or grant any Lien in, any Collateral.

(b) Maintenance of Perfection. Grantor shall maintain the security interests created by this Agreement as perfected security interests having at least the priorities described in Section 4(c) and shall defend such security interests and the applicable priorities of such security interests against the claims and demands of all Persons.

(c) Statements of Collateral. Grantor shall furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may reasonably request, all in reasonable detail and in form and substance reasonably satisfactory to the Secured Party.

(d) Further Assurances. At any time and from time to time, at the request of the Secured Party, and at the sole expense of Grantor, Grantor shall promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further action as the Secured Party may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including the filing of any financing or continuation statement under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby.

(e) Changes in Locations, Name, Etc. Unless Grantor shall have given the Secured Party at least 30 days’ prior written notice (or such shorter time as shall be acceptable to the Secured Party) and shall have delivered to the Secured Party all additional financing statements and other documents reasonably requested by the Secured Party to maintain the validity, perfection and priority of the security interests provided for herein, Grantor shall not do any of the following:

(i) change its jurisdiction of organization or its location, in each case from that referred to in Section 4(d); or

(ii) change its legal name or organizational identification number, if any, or corporation, limited liability company or other organizational structure to such an extent that any financing statement filed in connection with this Agreement would become misleading.

Exhibit Q
Page 11

(f) Deposit Accounts and Control Agreements. Grantor shall deliver to the Secured Party as often as the Secured Party may reasonably request, a listing of all of the Deposit Accounts as of such date. To the extent requested by the Secured Party, Grantor shall obtain an authenticated Deposit Account Control Agreement, from each bank holding a Deposit Account. Grantor shall obtain authenticated control agreements from each issuer of Uncertificated Securities, (if requested by the Secured Party), Securities Intermediary, or commodities Intermediary issuing or holding any Financial Assets or Commodities to or for Grantor. Notwithstanding anything to the contrary set forth herein, so long as no Event of Default shall have occurred and be continuing, Secured Party shall not deliver a notice of control under any Deposit Account Control Agreement to the extent such Deposit Account Control Agreement requires the delivery of such notice.

(g) Pledged Collateral. Grantor shall deliver to the Secured Party, all certificates and Instruments representing or evidencing any Pledged Collateral (including Additional Pledged Collateral, but excluding any Instrument that is excluded from the delivery requirements of Section 5(h)), whether now existing or hereafter acquired, in suitable form for transfer by delivery or, as applicable, accompanied by Grantor’s endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to the Secured Party. While an Event of Default exists, the Secured Party shall have the right, at any time in its discretion and without notice to Grantor, (A) to transfer to or to register in its name or in the name of its nominees any Pledged Collateral and (B) to exchange any certificate or instrument representing or evidencing any Pledged Collateral for certificates or instruments of smaller or larger denominations. Except as permitted by the Credit Agreement, Grantor shall not grant “control” (within the meaning of such term under Article 9-106 of the UCC) over any Investment Property to any Person other than the Secured Party.

(h) Delivery of Instruments. If any amount in excess of $1,000,000 payable under or in connection with any Collateral owned by Grantor shall be or become evidenced by an Instrument, Grantor shall promptly deliver such Instrument to the Secured Party, duly indorsed in a manner reasonably satisfactory to the Secured Party, or, if consented to by the Secured Party, shall mark all such Instruments with the following legend: “This writing and the obligations evidenced or secured hereby are subject to the security interest of Deutsche Bank Trust Company Americas, as Secured Party, and any purchase or other transfer of this interest is a violation of the rights of Deutsche Bank Trust Company Americas.”

(i) Intellectual Property Generally. (i) With respect to Intellectual Property owned by such Grantor, such Grantor (either itself or through licensees) shall, except as could not reasonably be expected to result in a Material Adverse Effect, (i) continue to use each Trademark material to Grantor’s business in order to maintain such Trademark in full force and effect with respect to each class of goods for which such Trademark is currently used, free from any claim of abandonment for non-use, (ii) maintain consistent with past practice the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by Applicable Law, (iv) not adopt or use any mark that is confusingly similar to or a colorable imitation of such Trademark unless the Secured Party shall obtain a perfected security interest in such mark pursuant to this Agreement and (v) not (and use commercially reasonable efforts to not permit any

Exhibit Q
Page 12

licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark (or any goodwill associated therewith) may become destroyed, invalidated, impaired or harmed in any way. Grantor (either itself or through licensees) shall not do any act, or omit to do any act, whereby any Patent owned by such Grantor that is material to Grantor’s business may become forfeited, abandoned or dedicated to the public. Grantor (either itself or through licensees) (x) shall not (and shall not permit any licensee or sublicensee thereof to) do any act or omit to do any act whereby any portion of any Copyright that is material to Grantor’s business may become invalidated or otherwise impaired and (y) shall not (either itself or through licensees) do any act whereby any portion of any Copyright that is material to Grantor’s business may fall into the public domain. Grantor (either itself or through licensees) shall not do any act, or omit to do any act, whereby any trade secret may become publicly available or otherwise unprotectable. Grantor (either itself or through licensees) shall not do any act that knowingly uses any Intellectual Property to infringe, misappropriate, or violate the intellectual property rights of any other Person.

(ii) Protection of Intellectual Property. Grantor shall take all reasonable actions necessary or reasonably requested by the Secured Party, including in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency and any Internet domain name registrar, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of any Copyright, Trademark, Patent or Internet domain name owned by such Grantor, the absence of which could reasonably be expected to result in a Material Adverse Effect, including filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition and interference and cancellation proceedings.

(iii) Additional Intellectual Property Documents. At the request of the Secured Party, Grantor shall execute and deliver, with respect to registered Intellectual Property owned by it, in form and substance reasonably acceptable to the Secured Party and suitable for (i) filing in the United States Copyright Office, a Copyright Security Agreement, (ii) filing in the United States Patent and Trademark Office, Patent Security Agreement and (iii) filing in the United States Patent and Trademark Office, a Trademark Security Agreement. Upon request of the Secured Party, Grantor shall execute and deliver in form and substance reasonably acceptable to the Secured Party and suitable for recording with the appropriate Internet domain name registrar, a duly executed form of assignment for all Internet domain names of Grantor (together with appropriate supporting documentation as may be requested by the Secured Party).

(iv) Intellectual Property Schedule. Grantor shall deliver to the Secured Party as often as the Secured Party may reasonably request an update to Schedule 5.

Exhibit Q
Page 13

Section 6. Remedial Provisions.

(a) General Remedies. While an Event of Default exists, the Secured Party may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the UCC or any other Applicable Law. Without limiting the generality of the foregoing, the Secured Party, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived by Grantor), may in such circumstances forthwith collect, receive, appropriate and realize upon any Collateral, and may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver any Collateral (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Secured Party, the Issuing Bank or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by the UCC and other Applicable Law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption of Grantor, which right or equity is hereby waived and released by Grantor. Grantor further agrees, at the Secured Party’s request, to assemble the Collateral and make it available to the Secured Party at places that the Secured Party shall reasonably select, whether at Grantor’s premises or elsewhere. To the extent permitted by Applicable Law, Grantor waives all claims, damages and demands it may acquire against the Secured Party, the Issuing Bank or any Lender arising out of the exercise by the Secured Party of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.

(b) Pledged Collateral. Subject to the limitations set forth in Section 6(a) and while an Event of Default exists, upon notice by the Secured Party to the relevant Grantor, (i) the Secured Party shall have the right to receive any Proceeds of the Pledged Collateral and make application thereof to the Secured Obligations in the order provided in Section 6(h) and (ii) the Secured Party or its nominee may exercise any voting, consent, corporate and other right pertaining to the Pledged Collateral as if the Secured Party were the absolute owner thereof, all without liability except to account for property actually received by it; provided, however, that the Secured Party shall have no duty to Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. In order to permit the Secured Party to exercise the voting and other consensual rights that it is entitled to exercise pursuant hereto and to receive all distributions that it is entitled to receive hereunder, (i) Grantor shall promptly execute and deliver (or cause to be executed and delivered) to the Secured Party all such orders and instruments as the Secured Party may from time to time request and (ii) without limiting the immediately preceding clause (i), Grantor hereby grants to the Secured Party an irrevocable proxy to exercise all rights, powers, privileges and remedies to which a holder of the Pledged Collateral would be entitled, which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Collateral on the record books of the issuer thereof) by any other Person (including the issuer of such Pledged Collateral or any officer or agent thereof) while an Event of Default exists. Grantor hereby expressly authorizes and irrevocably instructs each issuer of any Pledged Collateral pledged hereunder by Grantor to (x) comply with any instruction received by it from the Secured Party in writing that states that an Event of Default exists and is otherwise in accordance with the terms of this Agreement, without any other or further instructions from Grantor, and Grantor agrees that such issuer shall be fully protected in so complying and (y) pay any payment with respect to the Pledged Collateral directly to the Secured Party.

Exhibit Q
Page 14

(c) Writ of Possession; Receiver. Grantor hereby acknowledges that the Secured Obligations arose out of a commercial transaction, and agrees that while an Event of Default exists the Secured Party shall have the right to an immediate writ of possession with respect to the Collateral without notice of a hearing or the requirement of posting a bond. The Secured Party shall have the right to the appointment of a receiver for the properties and assets of Grantor, and Grantor hereby consents to such rights and such appointment and hereby waives any objection Grantor may have thereto or the right to have a bond or other security posted by the Secured Party.

(d) Remedies Cumulative. Each right, power, and remedy of the Secured Party as provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Secured Party, of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by the Secured Party of any or all such other rights, powers, or remedies.

(e) Marshaling. The Secured Party shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Secured Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order. To the fullest extent that it lawfully may, Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Secured party’s rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or payment thereof is otherwise assured, and, to the fullest extent that it lawfully may, Grantor hereby irrevocably waives the benefits of all such laws.

(f) Proceeds to be Turned Over To Secured Party. Except as otherwise expressly provided in the Credit Agreement, all Proceeds received by the Secured Party hereunder in cash or cash equivalents shall be held by the Secured Party in as cash collateral for the Secured Obligations. All Proceeds while held by the Secured Party as such cash collateral (or by Grantor in trust for the Secured Party) shall continue to be held as collateral security for the Secured Obligations and shall not constitute payment thereof until applied as provided in the Credit Agreement.

Exhibit Q
Page 15

(g) Intellectual Property License. Grantor hereby grants to the Secured Party, subject to the terms of the Delano Management Agreement or any other applicable license agreement, a license or other right while an Event of Default exists to use, without liability for royalties or any other charge, Grantor’s labels, Patents, Copyrights, rights of use of any name, trade secrets, and all other Intellectual Property, whether owned by Grantor or with respect to which Grantor has rights under license, sublicense, or other agreements, as it pertains to collateral, in preparing for sale, advertising for sale and selling any Collateral, and Grantor’s rights under all licenses and all franchise agreements shall insure to the benefit of the Secured Party.

(h) Application of Proceeds. The proceeds of any sale of the whole or any part of the Collateral, together with any other moneys held by the Secured Party under the provisions of this Agreement, shall be applied in accordance with Section 11.4 of the Credit Agreement. Grantor shall remain liable and will pay, on demand, any deficiency remaining in respect of the Secured Obligations.

Section 7. Secured Party Appointed Attorney-in-Fact. Grantor hereby constitutes and appoints the Secured Party as the attorney-in-fact of Grantor with full power of substitution either in the Secured Party’s name or in the name of Grantor to do any of the following: (a) to perform any obligation of Grantor hereunder in Grantor’s name or otherwise; (b) to ask for, demand, sue for, collect, receive, receipt and give acquittance for any and all moneys due or to become due under and by virtue of any Collateral; (c) to prepare, execute, file, record or deliver notices, assignments, financing statements, continuation statements, applications for registration or like papers to perfect, preserve or release the Secured Party’s security interest in the Collateral; (d) to issue entitlement orders, instructions and other orders to any bank in connection with any of the Collateral held by or maintained with such bank; (e) to verify facts concerning the Collateral in such Grantor’s name, its own name or a fictitious name; (f) to endorse checks, drafts, orders and other instruments for the payment of money payable to such Grantor, representing any payment in respect of the Collateral or any part thereof or on account thereof and to give full discharge for the same; (g) to exercise all rights, powers and remedies which Grantor would have, but for this Agreement, with respect to any of the Collateral; and (h) to carry out the provisions of this Agreement and to take any action and execute any instrument which the Secured Party may deem necessary or advisable to accomplish the purposes hereof, and to do all acts and things and execute all documents in the name of Grantor or otherwise, deemed by the Secured Party as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder; provided, that the Pledgee shall only exercise its rights under clauses (a), (b), (d), (e) and (g) while an Event of Default exists. Nothing herein contained shall be construed as requiring or obligating the Secured Party, the Issuing Bank or any Lender to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby, and no action taken by the Secured Party or omitted to be taken with respect to the Collateral or any part thereof shall give rise to any defense, counterclaim or offset in favor of Grantor or to any claim or action against the Secured Party. The power of attorney granted herein is irrevocable and coupled with an interest.

Exhibit Q
Page 16

Section 8. Secured Party Duties. The powers conferred on the Secured Party hereunder are solely to protect the Secured Party’s interest in the Collateral, for the benefit of itself, the Issuing Bank and the Lenders, and shall not impose any duty upon the Secured Party to exercise any such powers. Except for the safe custody of any Collateral in its actual possession and the accounting for moneys actually received by it hereunder, the Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Secured Party shall be deemed to have exercise reasonable care in the custody and preservation of any Collateral in its actual possession if the Secured Party accords such Collateral treatment substantially equal to that which the Secured Party accords its own property.

Section 9. Authorization of Financing Statements. Grantor authorizes the Secured Party, and its counsel and other representatives, at any time and from time to time, to file or record financing statements, amendments to financing statements, and other filing or recording documents or instruments with respect to the Collateral in such form and in such offices as the Secured Party reasonably determines appropriate to perfect the security interests of the Secured Party under this Agreement. Grantor agrees that such financing statements and amendments may describe the Collateral covered thereby as “all personal property of the debtor” or words of similar effect. Grantor hereby also authorizes the Secured Party, and its counsel and other representatives, at any time and from time to time, to file continuation statements with respect to previously filed financing statements. A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection with this Agreement without the prior written consent of the Secured Party, subject to Grantor’s rights under Section 9-509(d)(2) of the UCC.

Section 10. Amendments. No amendment or waiver of any provision of this Agreement nor consent to any departure by Grantor herefrom shall in any event be effective unless the same shall be in writing and signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that Schedules to this Agreement may be supplemented through Security Agreement Supplements executed by Grantor and accepted by the Secured Party.

Section 11. Notices. Notices, requests and other communications required or permitted hereunder shall be in writing and shall be made by personal delivery, telecopy or certified or registered mail, return receipt requested, to the addresses and in the manner set forth in Section 13.1 of the Credit Agreement:

Section 12. No Waiver. Neither the failure on the part of the Secured Party, the Issuing Bank or any Lender to exercise, nor the delay on the part of the Secured Party, the Issuing Bank or any Lender in exercising any right, power or remedy hereunder, nor any course of dealing between the Secured Party, the Issuing Bank or any Lender, on the one hand, and Grantor, on the other hand, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or remedy hereunder preclude any other or the further exercise thereof or the exercise of any other right, power or remedy.

Exhibit Q
Page 17

Section 13. Binding Agreement; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that Grantor shall not be permitted to assign this Agreement or any interest herein and any such assignment by Grantor shall be null and void absent the prior written consent of the Secured Party.

Section 14. Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple counterparts and attached to a single counterpart so that all signature pages are attached to the same document. Delivery of an executed counterpart by telecopy shall be effective as delivery of a manually executed counterpart.

Section 15. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provisions shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.

Section 16. Headings. Section headings used herein are for convenience only and are not to affect the construction of or be taken into consideration in interpreting this Agreement.

SECTION 17. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

Section 18. Expenses. Grantor agrees to pay to the Secured Party expenses incurred in connection with this Agreement in accordance with Section 13.2 of the Credit Agreement.

Section 19. Indemnification. Grantor agrees to pay, indemnify, and hold the Secured Party, the Issuing Bank, each Lender and each of their respective predecessor, affiliate, subsidiaries, successors and assigns, together with their past, present and future officers, directors, agents, attorneys, financial advisors, representatives, partners, joint ventures, affiliates and the successor and assigns of any and all of them (each, an “Indemnified Person”) harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (“Indemnified Amounts”) brought against or incurred by an Indemnified Person, in any manner arising out of or, directly or indirectly, related in any way to or connected with this Agreement, including without limitation, the exercise by the Secured Party, the Issuing Bank or any Lender of any of its rights and remedies under this Agreement or any other action taken by the Secured Party, the Issuing Bank or any Lender pursuant to the terms of this Agreement; provided, however, Grantor shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Amounts to the extent arising from the gross negligence or willful misconduct of such Indemnified Party, as determined by a court of competent jurisdiction in a final, non-appealable judgment.

Exhibit Q
Page 18

Section 20. Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until it terminates in accordance with its terms.

Section 21. Reinstatement. Grantor further agrees that, if any payment made by any Loan Party or other Person and applied to the Obligations is at any time annulled, avoided, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid, or the proceeds of Collateral are required to be returned by the Secured Party to such Loan Party, its estate, trustee, receiver or any other party, including Grantor, under any bankruptcy law or other applicable law, then, to the extent of such payment or repayment, any Lien or other Collateral securing such liability shall be and remain in full force and effect, as fully as if such payment had never been made or, if prior thereto the Lien granted hereby or other Collateral securing such liability hereunder shall have been released or terminated by virtue of such cancellation or surrender, such Lien or other Collateral shall be reinstated in full force and effect, and such prior cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect any Lien or other Collateral securing the obligations of Grantor in respect of the amount of such payment.

Section 22. Security Interest Absolute. All rights of the Secured Party hereunder, the grant of a security interest in the Collateral and all obligations of Grantor hereunder, shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of any Loan Document, any agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of the payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from any Loan Document, or any other agreement or instrument relating to any of the foregoing, (c) any exchange, release or nonperfection of any other collateral, or any release or amendment or waiver of or consent to or departure from any guaranty, for all or any of the Secured Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, Grantor in respect of the Secured Obligations or in respect of this Agreement (other than the indefeasible payment in full of all the Secured Obligations).

[Signatures on Next Page]

Exhibit Q
Page 19

IN WITNESS WHEREOF, Grantor has executed and delivered this Security Agreement under seal as of this the date first written above.

GRANTOR: BEACH HOTEL ASSOCIATES LLC
By:
	Name:
	Title:

Agreed to, accepted and acknowledged as of the date first written above. SECURED PARTY: DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent
By:
	Name:
	Title:

SCHEDULE 1
to
SECURITY AGREEMENT
of
EXHIBIT Q

PLEDGED DEBT INSTRUMENTS

[TO BE COMPLETED BY GRANTOR]

SCHEDULE 2
to
SECURITY AGREEMENT
of
EXHIBIT Q

NECESSARY FILINGS

Filings of UCC Financing statements with the Secretary of State of Delaware.

SCHEDULE 3
to
SECURITY AGREEMENT
of
EXHIBIT Q

JURISDICTIONS OF ORGANIZATION, NAMES,
ORGANIZATIONAL ID NUMBERS, LOCATIONS, ETC.

				Location of
			Organizational	Chief Executive
Name	Jurisdiction	Federal Tax ID	ID	Office
Beach Hotel Associates LLC	Delaware	20-1487269	DE 2345191	1685 Collins Avenue Miami Beach, FL 33139 USA

SCHEDULE 4
to
SECURITY AGREEMENT
of
EXHIBIT Q

INTELLECTUAL PROPERTY

TRADEMARKS

None.

REGISTERED COPYRIGHTS

None.

PATENTS

None.

SCHEDULE 5
to
SECURITY AGREEMENT
of
EXHIBIT Q

DEPOSIT ACCOUNTS

Financial Institution(s)
where Accounts Maintained	Name of Account	Account Numbers
JPMorgan Chase	Development Account		114-742642
Mellon United Bank	Operating/Disbursement account		0101006021
Mellon United Bank	Payroll Account		0101002327
Mellon United Bank	Travel Agent Account		0101006039
Mellon United Bank	Payroll		0101020980
Mellon United Bank	Operating		0101020998
Wachovia	Cash Collateral Account		2000035272034

SCHEDULE 6
to
SECURITY AGREEMENT
of
EXHIBIT Q

Commercial Tort Claims

None.

ANNEX 1
to
SECURITY AGREEMENT
of
EXHIBIT Q

ANNEX 1 TO SECURITY AGREEMENT

FORM OF SHORT FORM INTELLECTUAL PROPERTY SECURITY AGREEMENT

THIS [COPYRIGHT] [PATENT] [TRADEMARK] SECURITY AGREEMENT is dated as of _____, 20_____ (this “Agreement”) from _____, a _____(the “Grantor”) in favor of Deutsche Bank Trust Company Americas, as Agent (the “Secured Party”).

WHEREAS, Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC (the “Florida Borrower,” and together with the MG Borrower, collectively, the “Borrowers”), Morgans Hotel Group Co., the financial institutions from time to time party thereto as “Lenders” and the Secured Party, entered into that certain Credit Agreement dated as of July _____, 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”);

WHEREAS, the Lenders and the Secured Party have agreed to make available to Borrowers certain financial accommodations on the terms and conditions contained in the Credit Agreement;

WHEREAS, the Borrowers, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses and have determined it to be in their mutual best interests to obtain financing from the Lenders and the Secured Party through their collective efforts;

WHEREAS, Grantor acknowledges that it will receive direct and indirect benefits from the Lenders and the Secured Party making such financial accommodations available to the Borrower under the Credit Agreement; and

WHEREAS, it is a condition precedent to the extension of such financial accommodations under the Credit Agreement that the Grantor execute and deliver this Agreement, among other things, to grant to the Secured Party for the benefit of the Issuing Bank and the Lenders a security interest in the Collateral as security for the Secured Obligations.

WHEREAS, Grantor is party to a Security Agreement [dated of even date herewith in] favor of the Secured Party (the “Security Agreement”) pursuant to which the Grantor is required to execute and deliver this [Copyright] [Patent] [Trademark] Security Agreement;

ANNEX 1
to
SECURITY AGREEMENT
of
EXHIBIT Q
Page 2

NOW, THEREFORE, in consideration of the above premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Grantor, the Grantor hereby agrees as follows:

Section 1. Defined Terms. Unless otherwise defined herein, terms defined in the Security Agreement and used herein have the respective meanings given them in the Security Agreement.

Section 2. Grants of Security Interests in Collateral. Grantor, as collateral security for the full, prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations of Grantor, hereby mortgages, pledges and hypothecates to the Secured Party for the benefit of the Issuing Bank and the Lenders, and grants to the Secured Party for the benefit of the Issuing Bank and the Lenders a lien on and security interest in, all of its right, title and interest in, to and under the following Collateral (the “[Copyright] [Patent] [Trademark] Collateral”):

Include following for Copyright Collateral

(a) all of its Copyrights and Copyright Licenses to which it is a party, including, without limitation, those referred to on Schedule I hereto;

(b) all extensions of the foregoing; and

(c) all Proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future infringement of any Copyright or Copyright licensed under any Copyright License.

Include following for Patent Collateral

(a) all of its Patents and Patent Licenses to which it is a party, including, without limitation, those referred to on Schedule I hereto;

(b) all reissues, continuations or continuations-in-part of the foregoing; and

(c) all Proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future infringement of any Patent or any Patent licensed under any Patent License.

Include following for Trademark Collateral

(a) all of its Trademarks and Trademark Licenses to which it is a party, including, without limitation, those referred to on Schedule I hereto;

(b) all goodwill of the business connected with the use of, and symbolized by, each Trademark; and

ANNEX 1
to
SECURITY AGREEMENT
of
EXHIBIT Q
Page 3

(c) all Proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present, future (i) infringement or dilution of any Trademark or Trademark licensed under any Trademark License or (ii) injury to the goodwill associated with any Trademark or any Trademark licensed under any Trademark License.

Section 3. Security Agreement. The security interest granted pursuant to this Agreement is granted in conjunction with the security interest granted to the Secured Party pursuant to the Security Agreement and Grantor hereby acknowledges and affirms that the rights and remedies of the Secured Party with respect to the security interest in the [Copyright] [Patent] [Trademark] Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.

[Signatures on Following Page]

ANNEX 1
to
SECURITY AGREEMENT
of
EXHIBIT Q
Page 4

IN WITNESS WHEREOF, Grantor has caused this [Copyright] [Patent] [Trademark] Security Agreement to be executed and delivered by its duly authorized offer as of the date first set forth above.

[GRANTOR]
By:
	Name:
	Title:

Agreed and accepted as of the date first written above:

DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent
By:
	Name:
	Title:

SCHEDULE I
to
[COPYRIGHT] [PATENT] [TRADEMARK] SECURITY AGREEMENT
of
EXHIBIT Q

[COPYRIGHT] [PATENT] [TRADEMARK] REGISTRATIONS
(INCLUDE ONLY U.S. REGISTERED INTELLECTUAL PROPERTY)

Include following for Copyright Collateral

REGISTERED COPYRIGHTS (Include Copyright Registration Number and Date):

1.

2.

COPYRIGHT APPLICATIONS:

1.

2.

COPYRIGHT LICENSES:

1.

2.

Include following for Patent Collateral

REGISTERED PATENTS:

1.

2.

PATENT APPLICATIONS:

1.

2.

PATENT LICENSES:

1.

2.

SCHEDULE I
to
[COPYRIGHT] [PATENT] [TRADEMARK] SECURITY AGREEMENT
of
EXHIBIT Q
Page 2

Include following for Trademark Collateral

REGISTERED TRADEMARKS:

1.

2.

TRADEMARK APPLICATIONS:

1.

2.

TRADEMARK LICENSES:

1.

2.

EXHIBIT R

FORM OF BORROWING BASE CERTIFICATE

Reference is made to that certain Credit Agreement dated as of July [___], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC, Beach Hotel Associates LLC, Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5. thereof (each, a “Lender” and collectively, the “Lenders”) and Deutsche Bank Trust Company Americas, as Agent (the “Agent”). Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement.

Pursuant to Section 9.3.(b) of the Credit Agreement, the undersigned hereby certifies to the Agent, the Issuing Bank and the Lenders that:

1. Schedule 1 attached hereto sets forth the calculations required to establish the Borrowing Base as of _____, 20__.

2. The aggregate principal amount of all outstanding Loans, together with the aggregate amount of all Letter of Credit Liabilities, as of the date hereof is $_____ and such amount does not exceed the Borrowing Base of $_____ or the aggregate amount of the Commitments of all Lenders.

Exhibit R
Page 2

IN WITNESS WHEREOF, the undersigned has signed this Borrowing Base Certificate on and as of _____, _____.

By:
	Name:
	Title:	Chief Financial Officer

SCHEDULE 1
of
EXHIBIT R

[SPREADSHEET TO BE PROVIDED]

EXHIBIT S

FORM OF INCREMENTAL COMMITMENT AGREEMENT

[Name(s) of Lender(s)]

[Date]

Morgans Group LLC
475 Tenth Avenue
New York, New York 10018
Attn: Richard Szymanski
Telephone:   (212) 277-4188
Telecopy:     (212) 277-4270

Re: Incremental Commitments

Ladies and Gentlemen:

Reference is hereby made to the Credit Agreement, dated as of July [_], 2011, by and among Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC (the “Florida Borrower,” and together with the MG Borrower, collectively, the “Borrowers”), Morgans Hotel Group Co. (“Holdings”), the lenders from time to time party thereto (the “Lenders”) and Deutsche Bank Trust Company Americas, as Agent (the “Agent”) (as amended, restated, modified or supplemented from time to time, the “Credit Agreement”). Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings set forth in the Credit Agreement. Each lender (each an “Incremental Lender”) party to this letter agreement (this “Agreement”) hereby severally agrees to provide the Incremental Commitment set forth opposite its name on Annex I attached hereto (for each such Incremental Lender, its “Incremental Commitment”). Each Incremental Commitment provided pursuant to this Agreement shall be subject to all of the terms and conditions set forth in the Credit Agreement, including, without limitation, Section 2.12 thereof.

Each Incremental Lender, Holdings, the Borrowers and the Agent acknowledge and agree that the Incremental Commitments provided pursuant to this Agreement shall constitute Incremental Commitments and, upon the Agreement Effective Date (as hereinafter defined), the Incremental Commitment of each Incremental Lender shall become, or in the case of an existing Lender, shall be added to (and thereafter become a part of), the Commitment of such Incremental Lender. Each Incremental Lender, the Borrowers and the Agent further agree that, with respect to the Incremental Commitment provided by each Incremental Lender pursuant to this Agreement, such Incremental Lender shall receive from the Borrowers such upfront fees and/or other fees, if any, as may be separately agreed to in writing with the Borrowers and acknowledged by the Agent, all of which fees shall be due and payable to such Incremental Lender on the terms and conditions set forth in each such separate agreement.

Exhibit S
Page 2

Furthermore, each of the parties to this Agreement hereby agrees to the terms and conditions set forth on Annex I hereto in respect of each Incremental Commitment provided pursuant to this Agreement.

Each Incremental Lender party to this Agreement, to the extent not already a party to the Credit Agreement as a Lender thereunder, (i) confirms that it is an Eligible Assignee, (ii) confirms that it has received a copy of the Credit Agreement and the other Loan Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Agreement and to become a Lender under the Credit Agreement, (iii) agrees that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and the other Loan Documents, (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and the other Loan Documents are required to be performed by it as a Lender, and (vi) in the case of each Incremental Lender that is a Foreign Lender, attaches the forms referred to in Section 3.13(c) of the Credit Agreement.

Upon the date of (i) the execution of a counterpart of this Agreement by each Incremental Lender, the Borrowers, Holdings and each other Loan Party and the Agent, (ii) the delivery to the Agent, Holdings and the Borrowers of a fully executed counterpart (including by way of facsimile or other electronic transmission) hereof, (iii) the payment of any fees then due and payable in connection herewith and (iv) the satisfaction of any other conditions precedent set forth in Section 4 of Annex I hereto (such date, the “Agreement Effective Date”), each Incremental Lender party hereto (i) shall be obligated to make the Loans provided to be made by it as provided in this Agreement, and participate in Letters of Credit issued on the terms, and subject to the conditions, set forth in the Credit Agreement and in this Agreement and (ii) to the extent provided in this Agreement, shall have the rights and obligations of a Lender thereunder and under the other applicable Loan Documents.

Each of the Borrowers acknowledges and agrees that (i) it shall be liable for all Obligations with respect to the Incremental Commitments provided hereby as provided in the Credit Agreement including, without limitation, all Loans made pursuant thereto, and (ii) all such Obligations (including all such Loans) shall be entitled to the benefits of the respective Security Documents and the Guarantee in accordance with the requirements of the Credit Agreement.

Each of the Borrowers acknowledges and agrees that, on the Incremental Commitment Date, (i) the representations and warranties made or deemed made by each Loan Party in the Loan Documents to which any of them is a party, shall be true and correct in all material respects on the Incremental Commitment Date with the same force and effect as if made on and as of such date except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date) and except for changes in factual circumstances not prohibited under the Loan Documents (other than a change in factual circumstances since the Effective Date, that constitutes a material adverse change in the business, assets, liabilities, financial condition or results of operations of Holdings and its Subsidiaries taken as a whole), and (ii) no Default or Event of Default exists or would exist after giving effect to the Incremental Commitment contemplated hereby.

Exhibit S
Page 3

Holdings and each Guarantor acknowledge and agree that all Obligations with respect to the Incremental Commitments provided hereby and all Loans made pursuant thereto shall (i) be fully guaranteed pursuant to the Guarantee as, and to the extent, provided therein and in the Credit Agreement and (ii) be entitled to the benefits of the Loan Documents as, and to the extent, provided therein and in the Credit Agreement.

Attached hereto as Annex II are true and correct copies of such officers’ certificates, board of director (or equivalent governing body) resolutions and evidence of good standing (to the extent available under Applicable Law) of the Loan Parties required to be delivered pursuant to clause (iv) of the definition of “Incremental Commitment Requirements” appearing in Section 1.01 of the Credit Agreement.

Attached hereto as Annex III is a true and correct copy of a certificate executed by an authorized officer of the MG Borrower required to be delivered pursuant to clause (v) of the definition of “Incremental Commitment Requirements” appearing in Section 1.01 of the Credit Agreement.

You may accept this Agreement by signing the enclosed copies in the space provided below, and returning one copy of same to us before the close of business on _____, 20_. If you do not so accept this Agreement by such time, our Incremental Commitments set forth in this Agreement shall be deemed canceled.

After the execution and delivery to the Agent of a fully executed copy of this Agreement (including by way of counterparts and by facsimile or other electronic transmission) by the parties hereto, this Agreement may only be changed, modified or varied by written instrument in accordance with the requirements for the modification of Loan Documents pursuant to Section 13.6 of the Credit Agreement.

In the event of any conflict between the terms of this Agreement and those of the Credit Agreement, the terms of the Credit Agreement shall control.

* * *

Exhibit S
Page 4

THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

Very truly yours, [NAME OF EACH INCREMENTAL LENDER]
By
	Name:
	Title

Agreed and Accepted this [_____] day of [_____, 201_]: MORGANS GROUP LLC
By:
	Name:
	Title:
BEACH HOTEL ASSOCIATES LLC
By:
	Name:
	Title:
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent
By:
	Name:
	Title:
By:
	Name:
	Title:

Exhibit S
Page 5

Each Guarantor acknowledges and agrees to each the foregoing provisions of this Incremental Commitment Agreement and to the incurrence of the Loans to be made pursuant thereto.

[EACH GUARANTOR], as a Guarantor
By:
	Name:
	Title:

ANNEX I

TERMS AND CONDITIONS FOR INCREMENTAL COMMITMENT AGREEMENT

Dated as of _____________, ____

1.	Name of the Borrowers: Morgans Group LLC and Beach Hotel Associates LLC
2.	Incremental Commitment amounts (as of the Agreement Effective Date):

Names of Incremental Lenders	Amount of Incremental Commitment
Total:1

3.	Applicable Margins to be applicable to all Loans2
4.	Other Conditions Precedent:3

1	The aggregate amount of Incremental Commitments must be at least $5,000,000 (or such lesser amount that is acceptable to the Agent). The aggregate amount of all Incremental Commitments permitted to be provided pursuant to Section 2.12 of the Credit Agreement shall not exceed in the aggregate $10,000,000.
2	Insert the Applicable Margins that shall apply to the Loans to be made pursuant to the Incremental Commitments being provided hereunder, provided if the Applicable Margins with respect to the Loans to be incurred pursuant to an Incremental Commitment shall be higher in any respect than those applicable to any other Loans, the Applicable Margins for the other Loans and extension of credit under the Credit Agreement shall be automatically increased as and to the extent needed to eliminate any deficiencies in accordance with the definition of “Applicable Margin” in the Credit Agreement.
3	Insert any additional conditions precedent which may be required to be satisfied prior to the Agreement Effective Date.

ANNEX II

[True and correct copies of such officers’ certificates, board of director (or equivalent governing body) resolutions and evidence of good standing (to the extent available under Applicable Law) of the Loan Parties required to be delivered pursuant to clause (iv) of the definition of “Incremental Commitment Requirements” appearing in Section 1.01 of the Credit Agreement.]

ANNEX III

[True and correct copy of a certificate executed by an authorized officer of the MG Borrower required to be delivered pursuant to clause (v) of the definition of “Incremental Commitment Requirements” appearing in Section 1.01 of the Credit Agreement]

FORM OF CLOSING CERTIFICATES

CERTIFICATE CONCERNING LEASES AND RENT ROLL

THIS CERTIFICATE CONCERNING LEASES AND RENT ROLL (this “Certificate”) is made by Beach Hotel Associates LLC, a Delaware limited liability company (“Owner”), in connection with that certain Credit Agreement dated as of July [_____], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Owner, Morgans Group LLC, Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5 thereof (“Lenders”) and Deutsche Bank Trust Company Americas, as Agent (“Agent”).

To induce Agent and Lenders to make, and to continue to make, available to Owner certain financial accommodations on the terms and conditions set forth in the Credit Agreement, Owner hereby certifies to Agent and Lenders that:

(a) As of the date of this Certificate, there are no occupancy rights (written or oral), leases or other tenancies affecting any part of the real property described on Exhibit A attached hereto (the “Property”) except those leases (the “Leases”) described on Exhibit B attached hereto and rights of hotel guests. Owner further certifies that: (i) the Leases are in full force and effect, with no known uncured defaults existing under any of the Leases except as set forth on Exhibit B; (ii) there are no options to extend any of the Leases except as set forth on Exhibit B; (iii) none of the Leases provide any tenant with an option or a right of first refusal to rent any additional space or to purchase or acquire any additional interest in the Property or in any part thereof except as set forth on Exhibit B; and (iv) Exhibit C is a true, correct and complete copy of the rent roll for the Property; and

(b) Agent and Lenders may rely on this Certificate in making, and continuing to make, available to Owner the financial accommodations pursuant to the Credit Agreement.

[Signature Appears on Following Page]

Exhibit T
Page 2

Dated as of _____, 20_____

OWNER:
BEACH HOTEL ASSOCIATES LLC, a Delaware limited liability company
By:	Morgans Group LLC, its sole member
	By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:

EXHIBIT A

LEGAL DESCRIPTION

Lots 9, 10, 11 and 12, in Block 29 of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, a subdivision of Miami-Dade County, Florida, according to the Plat thereof duly recorded upon the Public records of Miami-Dade County, Florida in Plat Book 2, page 77 thereof;

Also that tract of land shown on plat of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, according to the Plat thereof recorded in Plat Book 2, page 77, Public Records of Miami-Dade County, Florida, described as follows:

Begin at the Southeast corner of Lot 9 in Block 29 as shown on plat of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, according to the Plat thereof recorded in Plat Book 2, page 77, Public Records of Miami-Dade County, Florida; thence run in a Northerly direction along the Easterly line of said Block 29 of the aforesaid plat and the Northerly extension thereof a distance of 136.897 feet, more or less, to the point of intersection of the center line of 17th Street; thence run Easterly along the center line of 17th Street; extended, a distance of 204.17 feet, more or less to the point of intersection of said center line of 17th Street extended Easterly to the Erosion Control Line of the Atlantic Ocean said Line recorded in Plat Book 105, page 62, Public Records of Miami-Dade County, Florida, thence run Southerly along the said Erosion Control Line, a distance of 137.465 feet to the intersection of the extension Easterly of the Southerly Line of referenced Lot 9, thence run Westerly along the Easterly extension of Lot 9, a distance of 200.96 feet, more or less, to the Point of Beginning.

Less and except, however, that certain portion of such land as was appropriated and taken by the City of Miami Beach, Florida, in that certain eminent domain or condemnation proceeding a final judgment for which was recorded in Deed Book 3106, page 96, which covers that portion of the premises lying northerly of the northerly line of said Block 29 extended easterly to the Erosion Control Line recorded in Plat Book 105, page 62 of the Public Records of Miami-Dade County, Florida.

EXHIBIT B

1. Agreement of Lease, dated as of June 30, 2005, by and between Beach Hotel Associates LLC, as landlord and Base USA, Inc., as tenant.

2. Lease, dated as of January 1, 2000, by and between Beach Hotel Associates LLC, as landlord and SC Collins LLC, as tenant, as amended by the First Amendment to Lease, dated as of July [_____], 2011, by and between Beach Hotel Associates LLC, as landlord and SC Collins LLC, as tenant.

EXHIBIT C

RENT ROLL

CLOSING CERTIFICATION

Date: ____________, 20___

Reference is made to that certain Credit Agreement dated as of [_____], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Beach Hotel Associates LLC, a Delaware limited liability company (“Owner”), Morgans Group LLC (“MG Borrower”), Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5 thereof (“Lenders”) and Deutsche Bank Trust Company Americas, as Agent (“Agent”). Capitalized terms used herein but not otherwise defined shall have the meaning given such terms in the Credit Agreement. This certification is being delivered pursuant to Section 6.1(a) of the Credit Agreement.

Each of Owner and Borrower hereby certifies, represents and warrants to Agent, Issuing Bank and Lenders that the following statements are true and accurate as of the date hereof:

1. No Default or Event of Default has occurred and is continuing.

2. The representations and warranties made or deemed made by Owner and each other Loan Party in the Loan Documents to which any of them is a party are true and correct in all material respects except to the extent such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date).

3. Attached hereto as Schedule 1 are reasonably detailed calculations demonstrating compliance with the covenants contained in Section 10.11. of the Credit Agreement.

The certifications contained herein shall survive the closing of the Credit Agreement and the extension of financial accommodations thereunder. Agent, Issuing Bank and Lenders shall be entitled to act in reliance upon the certifications herein contained without further inquiry of any kind and notwithstanding anything to the contrary contained in any other agreements or document.

[Remainder of page intentionally left blank; signature page follows.]

6

IN WITNESS WHEREOF, Owner and Borrower have executed this Closing Certification as of the date first above written.

BEACH HOTEL ASSOCIATES LLC, a Delaware limited liability company
By:	Morgans Group LLC, its sole member
	By:	Morgans Hotel Group Co., its managing member
By:
	Name:
	Title:
MORGANS GROUP LLC, a Delaware limited liability company
By:
	Name:
	Title:

7

SCHEDULE 1
of
CLOSING CERTIFICATION

[CALCULATIONS TO BE ATTACHED]

EX-10.5

Exhibit 10.5

Execution Version

Prepared by:
Leila Rachlin, Esq.
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
1111779-2180

MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS
AND FIXTURE FILING

from

BEACH HOTEL ASSOCIATES LLC

to

DEUTSCHE BANK TRUST COMPANY AMERICAS

(As Agent for the benefit of the Lenders, the Issuing Bank and for its own account,
pursuant to the Credit Agreement described herein)

dated as of July 28, 2011

Property: The Delano Hotel, Miami-Dade County, State of Florida

NOTE TO RECORDER: This Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing secures an aggregate obligation of $100,000,000.00. Florida documentary stamp taxes in the amount of $350,000 ($0.35 per $100 of indebtedness) and intangible taxes in the amount of $200,000 ($2 per $1,000 of indebtedness) are being paid in connection with the recording of this Security Instrument

Table of Contents

	Page
ARTICLE I Defined Terms		1
ARTICLE II Grant and Conveyance		7
Section 2.1 Grant and Conveyance		7
Section 2.2 Intentionally Omitted		7
Section 2.3 Revolving Loan Account; Future Advances		7
ARTICLE III Covenants, Warranties and Representations		8
Section 3.1 Title to Collateral and Priority of this Instrument		8
Section 3.2 Hazardous Materials		8
Section 3.3 Separate Tract		8
Section 3.4 Leases		9
Section 3.5 Use		9
Section 3.6 Alterations or Waste		10
Section 3.7 Compliance with Legal Requirements		10
Section 3.8 [Intentionally Omitted]		10
Section 3.9 Prior Security Instrument Status		10
Section 3.10 Payment of Impositions		10
Section 3.11 Repair		10
Section 3.12 Insurance		11
Section 3.13 Restoration Following Casualty		13
Section 3.14 Hold Harmless		13
Section 3.15 [Intentionally Omitted]		13
Section 3.16 No Conflicts, Etc.		13
Section 3.17 Licenses and Permits		13
ARTICLE IV Condemnation		14
Section 4.1 Condemnation		14
ARTICLE V Events of Default		15
Section 5.1 Credit Agreement		15
Section 5.2 Foreclosure of Other Liens		15
Section 5.3 Disposition of Collateral and Beneficial Interest in Grantor		15
Section 5.4 Further Encumbrances		15
Section 5.5 Event of Default under any other Loan Document		15
ARTICLE VI Remedies		16
Section 6.1 Remedies		16
Section 6.2 Separate Sales		19

i

Table of Contents
(continued)

	Page
Section 6.3 Remedies Cumulative, Concurrent and Non-Exclusive		19
Section 6.4 No Conditions Precedent to Exercise of Remedies		20
Section 6.5 Release of and Resort to Collateral		20
Section 6.6 Waiver of Appraisement, Valuation, etc.		20
Section 6.7 Discontinuance of Proceedings		20
Section 6.8 Application of Proceeds		21
Section 6.9 Leases		21
Section 6.10 Purchase by Agent or Lenders		21
Section 6.11 Grantor as Tenant Holding Over		21
Section 6.12 Suits to Protect the Collateral		21
Section 6.13 Proofs of Claim		21
Section 6.14 Occupancy After Foreclosure		21
Section 6.15 Waiver of Grantor’s Rights		23
ARTICLE VII Security Agreement		23
Section 7.1 Security Interest		23
Section 7.2 Financing Statements		24
Section 7.3 Uniform Commercial Code Remedies		24
Section 7.4 Foreclosure of Security Interest		24
Section 7.5 No Obligation of Secured Party		24
Section 7.6 Information for Fixture Filing		24
ARTICLE VIII Assignment of Leases and Rents		25
Section 8.1 Assignment		25
Section 8.2 Intentionally Omitted		25
Section 8.3 Limited License		25
Section 8.4 Grantor’s Indemnities		25
Section 8.5 Appointment of Attorney-in-Fact		25
Section 8.6 Exculpation of Agent		25
Section 8.7 [Intentionally Omitted]		25
ARTICLE IX Miscellaneous		26
Section 9.1 Performance at Grantor’s Expense		26
Section 9.2 Survival of Obligations		26
Section 9.3 Recording and Filing		26
Section 9.4 Notices		26
Section 9.5 No Waiver		26
Section 9.6 Agent’s Right to Perform the Obligations		28
Section 9.7 Covenants Running with the Land		28
Section 9.8 Successors and Assigns		28

ii

Table of Contents
(continued)

	Page
Section 9.9 Severability		28
Section 9.10 Modification		29
Section 9.11 Assignment		29
Section 9.12 [Intentionally Omitted]		29
Section 9.13 Counterparts		29
Section 9.14 APPLICABLE LAW		29
Section 9.15 Subrogation		29
Section 9.16 Headings		29
Section 9.17 Conflict		29
Section 9.18 CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER OF JURY TRIAL		30
Section 9.19 Limitation on Interest		31
Section 9.20 Further Assurances		31
Section 9.21 Future Advances		31

EXHIBITS
Exhibit A	—	Legal Description
Exhibit B	—	Description of Permitted Encumbrances

iii

MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF
LEASES AND RENTS AND FIXTURE FILING

THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING (this “Security Instrument”) is made and delivered as of July 28, 2011 by BEACH HOTEL ASSOCIATES LLC, a Delaware limited liability company (“Grantor”), having a mailing address of c/o Morgans Group LLC, 475 Tenth Avenue, New York, New York 10018, to DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Agent (together with its successors and assigns, “Agent” or “Mortgagee”) for itself, the Issuing Bank and for each of the Lenders from time to time party to that certain Credit Agreement (as hereinafter defined), Agent having as its address for personal delivery 60 Wall Street, New York, NY 10005.

WHEREAS, pursuant to that certain Credit Agreement, dated as of July 28, 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Grantor, Morgans Group LLC (the “MG Borrower” and together with Grantor, collectively, “Borrowers”), Morgans Hotel Group Co., the lenders from time to time party thereto as “Lenders”, Agent, and the other parties thereto, Lenders and Agent have agreed to make available to Borrowers certain financial accommodations in an aggregate principal amount not to exceed $100,000,000.00 on the terms and conditions set forth in the Credit Agreement;

WHEREAS, to evidence the financial accommodations available directly to Borrowers under the Credit Agreement, Borrowers have executed and delivered Notes, as of even date herewith, in favor of the Lenders as payees in an aggregate maximum principal amount equal to $100,000,000.00 (including any subsequent renewals, amendments or substitutions, referred to herein collectively, as the “Note”); and

WHEREAS, Grantor’s execution and delivery of this Security Instrument to secure, among other things, its obligations under the Note and the Credit Agreement, is a condition to Agent and Lenders making, and continuing to make, such financial accommodations to Borrowers.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Grantor, Grantor and Agent agree as follows:

ARTICLE I

Defined Terms

Terms not otherwise defined herein have the respective meanings given them in the Credit Agreement. Terms defined in the Uniform Commercial Code as in effect in the State of New York have the respective meanings given such terms therein. In addition, as used in this Security Instrument, the following terms shall have the following meanings:

“Assignment of Leases and Rents” means the Assignment of Leases and Rents of even date herewith from Grantor as assignor thereunder to Mortgagee as assignee thereunder, covering the Leases and Rents, and given as an absolute assignment as an additional source of repayment of the Obligations.

“Boucher Brothers Agreement” means that certain Agreement, dated as of July 1, 2004, between Grantor and Boucher Brothers Management, Inc., a Florida corporation, as amended, restated, extended, supplemented or otherwise modified from time to time.

“Collateral” means the Property, Improvements, Fixtures, and Personalty together with:

(a) all rights, privileges, tenements, hereditaments, royalties, minerals, oil and gas rights, rights-of-way, zoning rights, development rights, air rights, easements, appendages and appurtenances in anywise appertaining thereto, and all right, title and interest, if any, of Grantor, in and to any streets, ways, alleys, strips or gores of land adjoining the Property or any part thereof; and

(b) all betterments, improvements, additions, alterations, appurtenances, substitutions, replacements and revisions thereof and thereto, and all reversions and remainders therein; and

(c) all of Grantor’s right, title and interest in and to any awards, remunerations, reimbursements, settlements or compensation heretofore made or hereafter to be made by any Governmental Authority pertaining to the Property, Improvements, Fixtures or Personalty including, but not limited to, those for any vacation of, or change of grade in, any streets affecting the Property or the Improvements and those for municipal utility district or other utility costs incurred or deposits made in connection with the Property; and

(d) all of Grantor’s right, title and interest in and to any proceeds of insurance required or maintained pursuant to the terms of Section 3.12 hereof; and

(e) all of Grantor’s right, title and interest in, to and under any management or leasing agreement with respect to the Property and Improvements, including without limitation, (a) all rights of Grantor to damages arising out of, or for, breach or default in respect thereof and (b) all rights of Grantor to perform and exercise all rights and remedies thereunder; and

(f) subject to the provisions of Section 8.3 hereof, all of the Leases and Rents; and

(g) any and all other security and collateral, of any nature whatsoever, now or hereafter given for the repayment or the performance and discharge of the Obligations.

As used in this Security Instrument, the term “Collateral” shall be expressly defined as meaning all or, where the context permits or requires, any portion of the above, and all or, where the context permits or requires, any interest therein; provided that the term “Collateral” shall not include any Excluded Property but if and when any property shall cease to be Excluded Property, such property shall be deemed at all times from and after the date hereof to constitute Collateral.

-2-

“Credit Agreement” has the meaning given that term in the recitals above.

“Excluded Property” has the meaning set forth in the Security Agreement.

“Event of Default” means any failure, happening or occurrence described in Article V hereinbelow.

“Fixtures” means fixtures now or hereafter located on the Property and shall in any event include all materials, supplies, Equipment, apparatus and other items now owned or hereafter acquired by Grantor and now or hereafter attached to, installed in or used in connection with any of the Improvements or the Property, including, but not limited to, any and all building and construction materials and supplies, furniture, furnishings, apparatus, machinery, equipment, motors, elevators, escalators, fittings, radiators, ranges, refrigerators, awnings, shades, screens, blinds, carpeting, office equipment and other furnishings, and all plumbing, heating, lighting, cooking, laundry, ventilating, refrigerating, incinerating, air conditioning and sprinkler equipment, telephone systems, televisions and televisions systems, computer systems, and appurtenances thereto, together with all accessions, replacements, betterments and substitutions for any of the foregoing and the proceeds thereof (but excluding in every event fixtures belonging to Tenants which do not become property of the Grantor upon expiration or earlier termination of the applicable Lease).

“Food and Beverage Lessee/Operators” shall mean SC Collins LLC, a Delaware limited liability company.

“Impositions” means (i) all real estate and personal property taxes, charges, assessments, excises and levies and any interest, costs or penalties with respect thereto, general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever, which at any time prior to or after the execution hereof may be assessed, levied or imposed upon the Collateral or the ownership, use, occupancy or enjoyment thereof, or any portion thereof; (ii) any charges, fees, license payments or other sums payable for any easement, license or agreement maintained for the benefit of the Collateral; and (iii) water, gas, sewer, electricity, telephone and other utility charges and fees related to the Collateral.

“Improvements” means any and all structures, buildings, improvements, additions, alterations, betterments or appurtenances to the Property, whether now existing or at any time hereafter situated, placed or constructed upon the Property, or any part thereof.

“Leases” means any and all leases, subleases, licenses, concessions, rental agreements or other agreements (written or oral, now or hereafter in effect) which grant rights to use, enjoy and/or occupy all or any part of the Collateral or which grant a possessory interest in and to, or the right to use, all or any part of the Collateral, together with all security and other deposits made in connection therewith and all guaranties thereof, together with and all extensions, renewals, supplements, modifications or replacements of any of the foregoing.

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“Legal Requirements” means (i) any and all judicial decisions, statutes, rulings, rules, regulations, permits, certificates or ordinances of any Governmental Authority in any way applicable to Grantor or MG Borrower, or applicable to, affecting or impacting in any way the Collateral, including, without limiting the generality of the foregoing, the ownership, use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction thereof; (ii) any and all covenants, conditions and restrictions contained in any deed or other form of conveyance or in any other instrument of any nature that relate in any way or are applicable to the Collateral or the ownership, use or occupancy thereof; and (iii) Grantor’s or MG Borrower’s presently or subsequently effective bylaws and articles of incorporation, partnership agreement, partnership certificate, joint venture agreement, articles of organization, operating agreement, trust agreement or other form of business association agreement.

“Obligations” has the meaning ascribed to such term in the Credit Agreement.

“Permitted Encumbrances”: The “Permitted Liens” (as defined in the Credit Agreement), which include those items listed on Exhibit B attached hereto and incorporated herein by this reference.

“Personalty” means all of the Grantor’s right, title and interest in, to and under all of the personal property of the Grantor, now owned or hereafter acquired, located on, attached to or used in or about the Improvements and Property, including without limitation, all of the following:

(a) all machinery, equipment, systems, fittings, apparatus, appliances, furniture, furnishings, tools, fixtures, Inventory (as hereinafter defined) and articles of personal property and accessions thereof and renewals, replacements thereof and substitutions therefore (including, but not limited to, all plumbing, lighting and elevator fixtures, office furniture, beds, bureaus, chiffonniers, chests, chairs, desks, lamps, minors, bookcases, tables, rugs, carpeting, drapes, draperies, curtains, shades, Venetian blinds, wall coverings, screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage racks, stools, sofas, chinaware, flatware, linens, pillows, blankets, glassware, foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other entry systems, bars, bar fixtures, liquor and other drink dispensers, icemakers, radios, television sets, intercom and paging equipment, electric and electronic equipment, dictating equipment, telephone systems, computerized accounting systems, engineering equipment, vehicles, medical equipment, potted plants, heating, lighting and plumbing fixtures, fire prevention and extinguishing apparatus, theft prevention equipment, cooling and air-conditioning systems, elevators, escalators, fittings, plants, apparatus, stoves, ranges, refrigerators, laundry machines, tools, machinery, engines, dynamos, motors, boilers, incinerators, switchboards, conduits, compressors, vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call systems, brackets, signs, bulbs, bells, ash and fuel conveyors, cabinets, lockers, shelving, spotlighting equipment, dishwashers, garbage disposals, washers and dryers), other customary hotel equipment and other property of every kind and nature whatsoever owned by Grantor, or in which Grantor has or shall have an interest, now or hereafter located upon, or in, and used in connection with the Property or the Improvements, or appurtenant thereto, and all building equipment, materials and supplies of any nature whatsoever owned by Grantor, or in which Grantor has or shall have an interest, now or hereafter located upon, or in, and used in connection with the Property or the Improvements or appurtenant thereto, (hereinafter, all of the foregoing items described in this Paragraph (a) are collectively called the “Equipment”), all of which, and any replacements, modifications, alterations and additions thereto, to the extent permitted by applicable law, shall be deemed to constitute fixtures and are part of the real estate and security for the performance of Grantor’s obligations.

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(b) all inventory as defined in the Uniform Commercial Code applicable in the State of New York, including, without limitation, provisions in storerooms, refrigerators, pantries and kitchens, beverages in wine cellars and bars, other merchandise for sale, fuel, mechanical supplies, stationery and other supplies and similar items (the “Inventory”);

(c) all other goods now or hereafter relating to the Property and Improvements;

(d) all accessions to any of the foregoing, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto;

(e) all accounts now or hereafter arising from or by virtue of any transactions related to the Property or the Improvements, including without limitation, (i) all rights to payment of any monetary obligation, whether or not earned by performance, (x) for property that has been or is to be sold, leased, licensed, assigned or otherwise disposed of or (y) for services rendered or to be rendered, (ii) all rents, fees, charges or other payments for the use or occupancy of all or any portion of the Improvements or any of the other Collateral, and (iii) all rights to payment of any interest or finance charges payable to Grantor;

(f) to the extent permitted to be assigned by the terms thereof or by Applicable Law, all licenses, permits, rights, orders, variances, franchises or authorizations of or from any governmental authority or agency now or hereafter relating to the Property or Improvements;

(g) all general intangibles, including without limitation, all payment intangibles and all rights of Grantor under any contract, trademarks, tradenames, service marks and symbols now or hereafter used in connection with the Property or the Improvements, and all names and all rights to carry on business under such names, and all rights as a developer or declarant relating to the Property or Improvements), now or hereafter relating to the Property or the Improvements;

(h) all chattel paper, instruments, investment property, letter-of-credit rights, money, documents, supporting obligations and deposit accounts now or hereafter arising from or by virtue of any transactions related to the Property or the Improvements;

(i) all insurance policies of any kind maintained in effect by the Grantor or of which the Grantor is the beneficiary, now existing or hereafter acquired relating to the Property and Improvements, under which any of the property referred to in any of the preceding clauses above is insured, including without limitation, any proceeds payable to the Grantor pursuant to such policies and any unearned premiums thereon; and

(j) all cash and non-cash proceeds of any of the foregoing, which in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Mortgagee or Lenders from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority) and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.

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“Proceeds” means all proceeds (including proceeds of proceeds) of any of the Collateral including all: (i) rights, benefits, distributions, premiums, profits, dividends, interest, cash, Instruments, contract rights, Inventory, Equipment, Deposit Accounts, and other property from time to time received, receivable, or otherwise distributed in respect of or in exchange for, or as a replacement of or a substitution for, any of the Collateral, or proceeds thereof; (ii) “proceeds,” as such term is defined in Section 9-102(a)(64) of the UCC; (iii) proceeds of any insurance, indemnity, warranty, or guaranty (including guaranties of delivery) payable from time to time with respect to any of the Collateral, or proceeds thereof; and (iv) payments (in any form whatsoever) made or due and payable to a Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral, or proceeds thereof.

“Property” means the real estate or interest therein described in Exhibit A attached hereto and incorporated herein by this reference, together with all of the easements, rights, privileges, tenements, hereditaments and appurtenances now or hereafter thereunto belonging or in any way appertaining thereto, and all of the estate, right, title, interest, claim and demand whatsoever of Grantor therein or thereto, either at law or in equity, in possession or in expectancy, now or hereafter acquired.

“Rents” means all receivables, revenues, rentals, credit card receipts, receipts and all payments received which relate to the rental, lease, franchise and use of space at the Property and/or Improvements or which relate to the Food and Beverage Lessee/Operators (it being acknowledged by Lender that the security interest granted hereunder in receivables, revenues, rentals, credit card receipts, receipts and all payments received which relate to the Food and Beverage Lessee/Operators shall not attach to interests of third-party joint venture partners of Grantor which are not affiliates of MG Borrower and/or Grantor) and rental and use of guest rooms or meeting rooms or banquet rooms or recreational facilities or bars, beverage or food sales, vending machines, mini-bars, room service, telephone, video and television systems, electronic mail, internet connections, guest laundry, bars, the provision or sale of other goods and services, and all other payments received from guests or visitors of the Property and/or Improvements, and other items of revenue, receipts or income, all cash or security deposits, lease termination payments, advance rentals and payments of similar nature and guarantees or other security held by, or issued in favor of, Grantor in connection therewith to the extent of Grantor’s rights or interest therein and all remainders, reversions and other rights and estates appurtenant thereto, and all base, fixed, percentage or additional rents, and other rents, oil and gas or other mineral royalties, and bonuses, issues, profits and rebates and refunds or other payments made by any Governmental Authority from or relating to the Property, the Improvements, the Fixtures or the Equipment plus all rents, common area charges and other payments now existing or hereafter arising, whether paid or accruing before or after the filing by or against Grantor of any petition for relief under the Bankruptcy Code and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents.

“Tenant” means the tenant or lessee under any Lease.

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ARTICLE II

Grant and Conveyance

Section 2.1 Grant and Conveyance. For and in consideration of the sum of ONE DOLLAR ($1.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, MORTGAGE, TRANSFER, PLEDGE and SET OVER unto Mortgagee and the Mortgagee’s successors and/or assigns, the Collateral, subject, however, to the Permitted Encumbrances, TO HAVE AND TO HOLD the Collateral and all parts, rights, members and appurtenances thereof, IN FEE SIMPLE forever, as security for the full and timely payment and performance of the Obligations, for the benefit of Mortgagee and its successors and/or assigns. Grantor warrants and covenants that Grantor is lawfully seized and possessed of the Collateral as aforesaid, and has good right to convey the same subject only to the Permitted Encumbrances, and that Grantor does warrant and shall forever defend the title thereto against the claims of all Persons whomsoever, subject as to the Permitted Encumbrances.

Section 2.2 Intentionally Omitted.

Section 2.3 Revolving Loan Account; Future Advances. This Security Instrument secures a “revolving loan account”, and payment of any amounts outstanding under the Note or the Credit Agreement from time to time shall not cancel or release this Security Instrument, and re-advances shall be secured to the same extent as original obligations hereunder. This Security Instrument shall secure such future advances as may be made by Mortgagee, at its option and for any purpose, within twenty (20) years from the date of this Security Instrument, whether made directly to Grantor or made to MG Borrower. All such future advances shall be included within the “Obligations,” shall be secured to the same extent as if made on the date of the execution of this Security Instrument, and shall take priority from the time this Security Instrument is filed for record as provided by law. The total amount of indebtedness secured by this Security Instrument may decrease or increase from time to time, but the total unpaid balance so secured at any one time shall not exceed the maximum principal amount of $200,000,000, plus interest and any disbursements made for the payment of taxes, levies or insurance on the Property, with interest on those disbursements, plus any increase in the principal balance as the result of negative amortization or deferred interest. Without the prior written consent of Mortgagee, which Mortgagee may grant or withhold in its sole discretion, Grantor shall not file for record any notice limiting the maximum principal amount that may be secured by this Security Instrument to a sum less than the maximum principal amount set forth in this paragraph.

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ARTICLE III

Covenants, Warranties and Representations

Grantor hereby unconditionally covenants, warrants and represents to Agent and Lenders as follows (which covenants, warranties and representations have been and will be relied upon by Agent and Lenders in advancing funds to Borrowers under the Loan Documents):

Section 3.1 Title to Collateral and Priority of this Instrument. Grantor has good, marketable and indefeasible fee simple title to the Property and Improvements, and good and marketable title to the Fixtures and Personalty, free and clear of any Liens options (except as set forth in the Leases), leases (other than the Leases), covenants and other rights, titles, interests or estates of any nature whatsoever except the Permitted Encumbrances. Except to the extent any of the following constitutes Excluded Property, this Security Instrument (a) constitutes a valid and enforceable first priority mortgage lien against the Property, Improvements and Fixtures; (b) creates valid and enforceable first priority security interest in and to the Personalty and, to the extent that the terms Leases and Rents include items covered by the Uniform Commercial Code as adopted in the State of New York, in the Leases and Rents; and (c) constitutes a valid and enforceable first priority assignment of the Leases and Rents not covered by such Uniform Commercial Code, all in accordance with the terms hereof.

Section 3.2 Hazardous Materials. Except as could not reasonably be expected to result in a Material Adverse Effect, the Collateral has not been used to treat, store or dispose of any Hazardous Materials in violation of Environmental Laws, and, no such Hazardous Materials (including without limitation, any materials containing asbestos), are located on, in or under the Collateral or used or emitted in connection therewith in violation of Environmental Laws, except as disclosed in writing in any environmental assessment reports delivered to Agent and upon which Agent and Lenders are entitled to rely. Grantor has obtained and shall maintain all licenses, permits and approvals required with respect to Hazardous Materials, and is in full compliance with all of the terms, conditions and requirements of such licenses, permits and approvals, in each case, except as could not reasonably be expected to result in a Material Adverse Effect. No portion of the Property is a wetland. Grantor shall promptly notify Agent of any (a) material change in the nature or extent of any Hazardous Materials, maintained on, in or under the Collateral or used or emitted in connection therewith and (b) change in wetlands located on the Property.

Section 3.3 Separate Tract. The Property is not a part of a larger tract of land owned by Grantor or any of its Affiliates and is not otherwise included under any unity of title or similar covenant with other lands not encumbered by this Security Instrument

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Section 3.4 Leases. (a) Grantor has good title to the Leases and Rents and all requisite right, power and authority to assign the Leases (other than the Boucher Brothers Agreement) and Rents, and no other Person has any right, title or interest therein (other than the lessee’s interest therein held by a Tenant thereunder).

(b) Grantor has duly and punctually performed all of the material terms, covenants, conditions and warranties of the Leases on Grantor’s part to be performed, except for any nonperformance which could not reasonably be expected to result in a Material Adverse Effect.

(c) Except for transactions which have been terminated, Grantor has not previously sold, assigned, transferred, encumbered, mortgaged or pledged the Leases or the Rents, whether now due or hereafter to become due.

(d) There are no options to purchase all or any portion of the Collateral contained in any Lease. There are no options to renew by any Tenant except as stated in the Leases. Grantor shall furnish to Agent, promptly upon Agent’s request, true and complete copies of all Leases, and all extensions, supplements, modifications and amendments thereof.

(e) Grantor shall observe, perform and discharge all of its material obligations, covenants and warranties under the Leases, and Grantor shall give prompt notice to Agent of any failure on the part of Grantor to observe, perform or discharge any of the same.

(f) So long as the Obligations remain unpaid and undischarged, and unless Agent otherwise consents in writing, the fee and the leasehold estates in and to the Collateral shall not merge, but shall always remain separate and distinct, notwithstanding the union of such estates (without implying Agent’s consent to such union) either in Grantor, Agent or in any Tenant or in any third party by purchase or otherwise.

(g) From time to time upon Agent’s written request, Grantor shall furnish to Agent a current rent roll and the affidavit of an officer of Grantor, certifying as to certain matters with respect to the Leases and Rents, in form and substance reasonably satisfactory to Agent.

(h) From time to time upon the written request of Agent, but no more often than annually, Grantor shall cause to be furnished to Agent the estoppel certificate of each Tenant, in form and substance reasonably acceptable to Agent.

Section 3.5 Use. Grantor shall use the Collateral for commercial purposes only. Grantor shall not use, maintain, operate or occupy, or allow the use, maintenance, operation or occupancy of, the Collateral in any manner or for any purpose which (a) except as could not reasonably be expected to result in a Material Adverse Effect, violate any Legal Requirement, or (b) makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.

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Section 3.6 Alterations or Waste. Grantor shall not commit or permit any physical waste of the Collateral, and shall not, without the prior written consent of Agent, which consent shall not be unreasonably withheld, conditioned or delayed, make or permit to be made any alteration (excluding any external structures) to the Collateral in excess of $5,000,000 per calendar year, except for (i) tenant improvement work under a Lease approved by Agent, (ii) alterations necessary to protect the safety of tenants or patrons of other users of the Property and the value of the Property, (iii) all alterations necessary to comply with Section 3.11 and (iv) the replacement of FF&E to the extent being of a routine and recurring nature and performed in the ordinary course of business of Grantor.

Section 3.7 Compliance with Legal Requirements. Except as could not reasonably be expected to result in a Material Adverse Effect, Grantor shall promptly and faithfully comply with, conform to and obey all present and future Legal Requirements including, without limitation, the Americans with Disabilities Act of 1990, as amended (42 USC § 12101, et seq.), the Federal Architectural Barriers Act, as amended (42 USC § 4151, et seq.), the Fair Housing Amendments Act of 1988, as amended (42 USC § 3601, et seq.) and The Rehabilitation Act of 1973, as amended (29 USC § 794), whether or not same shall necessitate structural changes in, improvements to, or interfere with the use or enjoyment of the Collateral.

Section 3.8 [Intentionally Omitted].

Section 3.9 Prior Security Instrument Status. Grantor shall protect the first priority status of the Lien of this Security Instrument and shall not place, or permit to be placed, except for Permitted Encumbrances, otherwise convey, mortgage, hypothecate or encumber the Collateral with, any other Lien, regardless of whether same is allegedly or expressly inferior to the title created by this Security Instrument, except in favor of Mortgagee. If any such Lien is asserted against the Collateral, Grantor shall promptly, and at its sole cost and expense, (a) give Agent written notice thereof within 5 days from Grantor obtaining knowledge of such Lien and (b) take such action so as to cause the same to be released, bonded or stayed to Agent’s reasonable satisfaction, or so long as the property subject to the lien of this Security Instrument is not impaired, contest the same in accordance with the provisions of the Credit Agreement. Such notice shall specify who is asserting such Lien and shall detail the origin and nature of the underlying facts giving rise to such asserted Lien.

Section 3.10 Payment of Impositions.

(a) Payment of Impositions. Grantor shall duly pay and discharge, or cause to be paid and discharged, the Impositions as provided in Section 8.5 of the Credit Agreement.

(b) Change in Law. If after the date hereof any change in Applicable Law governing the taxation of deeds of trust, mortgages or security agreements, or assignments of leases or debts secured thereby or the manner of collecting such taxes shall occur, and Agent reasonably determines that such change, adoption would adversely affect Agent’s, the Issuing Bank’s or the Lenders’ rights or benefits under the Loan Agreement, Grantor shall promptly pay any tax resulting from such adoption, change or making on or before the due date thereof.

Section 3.11 Repair. Grantor shall protect and preserve the Collateral and maintain all Collateral in good repair, working order and condition, ordinary wear and tear and casualty events excepted.

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Section 3.12 Insurance.

(a) Types of Insurance. Grantor shall procure for, deliver to, and maintain for the benefit of Agent, or cause the Tenant(s) to procure for, deliver to and maintain for the benefit of Agent, during the term of this Security Instrument original paid up insurance policies or certified copies of paid up insurance policies (or, if there is blanket coverage, Agent shall require an underlier policy with the Collateral identified and specifically allocated amounts shown) in such amounts, form and substance as are required under Section 8.4 of the Credit Agreement.

(b) Insurance Companies, Form of Policies. All insurance policies maintained pursuant to this Section shall be in form and substance satisfactory to Agent, provided that all policies of liability coverage shall require not less than 30 days’ prior written notice to Agent of any cancellation, termination, expiration or change in coverage. Without limiting the discretion of Agent with respect to required endorsements to insurance policies, all such policies for loss of or damage to the Collateral shall contain a standard mortgagee clause (without contribution) naming Agent as mortgagee with loss proceeds payable to Agent notwithstanding (i) any act, failure to act or negligence of or violation of any warranty, declaration or condition contained in any such policy by any named insured; (ii) the occupation or use of the Collateral for purposes more hazardous than permitted by the terms of any such policy; (iii) any foreclosure or other action by Agent under the Loan Documents; or (iv) any change in title to or ownership of the Collateral or any portion thereof, such proceeds to be held for application as provided in the Loan Documents.

(c) Proof of Insurance. Within one (1) Business Day of the expiration or renewal date of each policy maintained pursuant to this Section, Grantor shall deliver to Agent evidence reasonably satisfactory to Agent that such policy has been renewed and that any such premiums related to such policy have been timely paid (which premiums may be financed pursuant to a payment or financing plan provided by the insurance carrier providing such insurance). In the event of foreclosure of this Security Instrument or any other transfer of title to the Collateral in extinguishment of the Obligations, all right, title, and interest of Grantor in and to all insurance policies then in force with respect to the Collateral shall pass to the purchaser or Agent.

(d) Grantor’s Statement of Insurance Carried. If at any time requested by Agent, Grantor shall furnish to Agent copies of certificates evidencing the amounts of insurance maintained in compliance with this Section 3.12, of the risks covered by such insurance, and of the insurance company or companies which carry such insurance.

(e) Payment of Proceeds to Agent. While an Event of Default exists, Agent is hereby authorized and empowered, at its option, to adjust or compromise any loss under any insurance policies maintained pursuant to this Section and to collect and receive the proceeds from any such policy or policies. In addition, Grantor hereby authorizes and directs each insurance company to make payment for all losses involving casualty insurance proceeds (other than business interruption insurance proceeds) in excess of $5,000,000 (a “Major Casualty”) directly to Agent. If any insurance company fails to disburse directly and solely to Agent in accordance with the requirements of the immediately preceding sentences, but disburses instead either solely to Grantor or to Grantor and Agent jointly, Grantor agrees immediately to endorse and transfer such proceeds to Agent. Upon the failure of Grantor to endorse and transfer such proceeds as aforesaid, Agent may execute such endorsements or transfers for and in the name of Grantor, and Grantor hereby irrevocably appoints Agent as Grantor’s agent and attorney-in-fact to do so, such appointment being coupled with an interest and being irrevocable.

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(f) Application of Proceeds. After deducting from said insurance proceeds all of its actual, out-of-pocket expenses incurred in the collection and administration of such sums, including reasonable attorneys’ fees actually incurred, Agent shall apply the net proceeds of any Major Casualty or any part thereof:

(i) upon the written request of Grantor (which request shall set forth in reasonably sufficient detail that each of the following conditions have been satisfied), towards the restoration of the Collateral, provided that the following conditions (the “Restoration Conditions”) are met to the reasonable satisfaction of Agent:

(a) in Agent’s reasonable judgment, the Collateral can, with diligent restoration, be returned to a condition at least equal to the condition thereof that existed prior to the casualty within 60 days prior to the Maturity Date; provided however that this condition shall not apply in the event that (i) a new Appraisal of the Property in its then current condition is delivered pursuant to Section 4.2(c) of the Credit Agreement, (ii) a forward looking calculation of the Adjusted Net Operating Income of the Property for the immediately succeeding four (4) fiscal quarters, on a Pro Forma Basis taking into account the then current condition of the Property, is mutually agreed upon by Grantor and Agent, (iii) MG Borrower shall have delivered a Borrowing Base Certificate to Agent which Borrowing Base Certificate shall be calculated using the information determined pursuant to the immediately preceding clauses (i) and (ii) and (iv) based on the Borrowing Base calculated in the Borrowing Base Certificate delivered pursuant to the immediately preceding clause (iii), Borrowers is in compliance with Section 2.6(b) of the Credit Agreement.

(b) no Event of Default exists;

(c) all necessary Governmental Approvals can be obtained to allow the rebuilding and reoccupancy of the Collateral;

(d) there are sufficient sums available (through net proceeds and contributions by Grantor), for restoration or repair; and

(e) the amount of such proceeds (other than business interruption insurance proceeds) is not greater than $100,000,000; or

(ii) if the Restoration Conditions are not satisfied within 90 days following a Major Casualty, to the payment of the Obligations, whether or not due and as provided in Section 11.4 of the Credit Agreement or for any other purposes or objects for which Agent is expressly entitled to advance or apply funds under the Loan Documents;

all without affecting the Lien of this Security Instrument, and any balance of such moneys then remaining shall be paid to Grantor or whomever may be legally entitled thereto. Agent and Lenders shall not be held responsible for any failure to collect any insurance proceeds due under the terms of any policy regardless of the cause of such failure.

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Section 3.13 Restoration Following Casualty. If any act or occurrence of any kind or nature, ordinary or extraordinary, foreseen or unforeseen (including any casualty for which insurance was not obtained or obtainable), shall result in damage to, or loss or destruction of, the Collateral in an amount in excess of $500,000, Grantor shall give notice thereof to Agent promptly and, at Grantor’s sole cost and expense and regardless of whether the insurance proceeds (if any) shall be sufficient for the purpose, Grantor shall commence and continue diligently to completion to restore, repair, replace and rebuild the Collateral in accordance with all Legal Requirements as nearly as possible to its value, condition and character immediately prior to such damage, loss or destruction.

Section 3.14 Hold Harmless. Grantor shall defend, at its own cost and expense, and hold Agent and Lenders harmless from any action, proceeding or claim affecting the Collateral or the Loan Documents, and all costs and expenses incurred by Agent and/or Lenders in protecting its interests hereunder in such an event (including all court costs and attorneys’ fees) shall be borne by Grantor and secured hereby, except to the extent the same are caused by the gross negligence or willful misconduct of Agent or any Lender, as applicable.

Section 3.15 [Intentionally Omitted].

Section 3.16 No Conflicts, Etc. The execution, delivery and performance of this Security Instrument and the other Security Documents encumbering or relating to any of the Collateral, in accordance with their respective terms do not and will not, by the passage of time, the giving of notice, or both: (a) require any Governmental Approval or violate any Applicable Law relating to Grantor or any of the Collateral; (b) conflict with, result in a breach of or constitute a default under the organizational documents of Grantor, or any indenture, agreement or other instrument to which Grantor is a party or by which it or any of the Collateral may be bound; or (c) except as provided herein or therein, result in or require the creation or imposition of any Lien upon or with respect to any of the Collateral.

Section 3.17 Licenses and Permits. Grantor currently holds and will continue to hold (i) all certificates of occupancy, licenses, registrations, permits, consents, franchises and approvals of any Governmental Authority or any other Person, the absence of which could reasonably be expected to result in a material adverse effect on the ownership, occupancy or operation of the Property and Improvements, taken as a whole, and (ii) the right to use the name “Delano” pursuant to the Delano Management Agreement in connection with the operation of the Property and Improvements. As of the date hereof, all such certificates of occupancy, licenses, registrations, permits, consents, franchises and approvals are current and in full force and effect.

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ARTICLE IV

Condemnation

Section 4.1 Condemnation.

(a) Taking. If all or any portion of the Collateral is taken by condemnation or eminent domain powers of any Governmental Authority (or any transfer by private sale in lieu thereof), either temporarily or permanently, then, if any Event of Default then exists or the award and other proceeds payable in connection therewith exceeds $5,000,000 (a “Major Taking”), then such amount shall be paid to Agent and applied to payment of the Obligations after deducting any costs (including reasonable attorneys’ fees) incurred by Agent in connection therewith, or otherwise applied as provided in Section 11.4 of the Credit Agreement.

(b) Participation in Proceedings. Grantor shall promptly notify Agent of any actual or threatened initiation of any condemnation or eminent domain proceeding as to any part of the Collateral and, upon Agent’s request, shall promptly deliver to Agent copies of any and all papers served or received in connection with such proceedings. Agent shall have the right, at its option, to participate in such proceedings at the sole cost and expense of Grantor (including without limitation the Agent’s attorneys’ fees). Grantor shall execute such documents and take such other steps as required to permit such participation.

(c) Right to Settle Claims. Agent is hereby authorized, at any time that an Event of Default shall have occurred and be continuing, to adjust, compromise and collect any condemnation or eminent domain award or settle a claim for damages and to apply the same to the Obligations in accordance with the applicable provisions of the Loan Documents.

(d) Use of Proceeds. Grantor hereby assigns to Agent for the benefit of Lenders any proceeds or awards which may become due by reason of any condemnation or other taking for public use of the whole or any part of the Collateral or any rights appurtenant thereto, and Agent is authorized, at its option, to collect and receive all such compensation, awards or damages in respect of a Major Taking or otherwise when any Event of Default exists and to give proper receipts and acquittances therefor without any obligation to question the amount of any such compensation, awards or damages. The proceeds of any such condemnation award or proceeds or any part thereof, to the extent not applied pursuant to Section 4.1(a), shall be applied:

(i) if the Restoration Conditions in Section 3.12(f) are satisfied, towards restoration of the Collateral; or

(ii) if the Restoration Conditions are not satisfied, to the payment of the Obligations, whether or not due and as provided in Section 11.4 of the Credit Agreement, or for any other purposes or objects for which Agent is expressly entitled to advance or apply funds under the Loan Documents.

(e) Further Assignment. Grantor agrees to execute such further assignments of any compensation, awards, damages, claims, rights of action and proceeds as Agent may reasonably require to effect the terms of this Security Instrument. If, prior to the receipt by Agent of such award or proceeds, the Collateral shall have been bid on foreclosure of this Security Instrument, Agent shall have the right to receive such award or proceeds to the extent of any unpaid Obligations following such sale, with legal interest thereon, whether or not a deficiency judgment on this Security Instrument, the Obligations or the other Loan Documents shall have been sought or recovered, and to the extent of attorneys’ fees, costs and disbursements incurred by Agent in connection with the collection of such award or proceeds. If Grantor fails to assign such compensation, awards, damages, claims, rights of action, and proceeds as aforesaid, Agent may execute such endorsements or transfers for and in the name of Grantor and Grantor hereby appoints Agent as Grantor’s agent and attorney-in-fact so to do, such appointment being coupled with an interest and being irrevocable.

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ARTICLE V

Events of Default

The term “Event of Default,” as used herein, shall mean the occurrence or happening, at any time and from time to time, of any one or more of the following (and Grantor shall be entitled to no notice of default other than as provided for below):

Section 5.1 Credit Agreement. The occurrence of an Event of Default under and as defined in the Credit Agreement.

Section 5.2 Foreclosure of Other Liens. If the holder of any Lien on any of the Collateral or any Lien secured by a pledge of a direct or indirect ownership interest in Grantor institutes foreclosure proceedings for the enforcement of its Lien, unless, as to mechanics’ or materialmen’s Lien, (i) such Lien is released from or cannot be enforced against the Collateral (by bonding the same off or otherwise) within 10 days after such foreclosure proceedings are instituted and (ii) the filing of such mechanic’s or materialmen’s Lien or other action taken by the lienor in connection therewith is not otherwise an Event of Default hereunder or under the Credit Agreement.

Section 5.3 Disposition of Collateral and Beneficial Interest in Grantor. Except as expressly permitted under the Credit Agreement or any other Loan Document, the occurrence of any sale, lease, exchange, assignment, conveyance, transfer or other disposition of all or any part of the Collateral, or any part thereof or any interest therein, or the conveyance, assignment, transfer or other disposition of all or any part of a direct beneficial ownership interest in Grantor.

Section 5.4 Further Encumbrances. Except as permitted under the Credit Agreement or any other Loan Document, and except for the Permitted Encumbrances, Grantor creates, places or permits to be created or placed, or through any act or failure to act, acquiesces in the placing of, or allows to remain, any Lien on all or any part of the Collateral (regardless of whether such Lien is expressly subordinate to the lien of this Security Instrument or any other Security Document) or if Grantor violates the provisions of Section 3.19.

Section 5.5 Event of Default under any other Loan Document. If an Event of Default shall occur under and as defined in any other Loan Document purported to create a Lien on any of the Collateral.

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ARTICLE VI

Remedies

Section 6.1 Remedies. If an Event of Default exists, Agent may, and at the direction of the Requisite Lenders shall, exercise any or all of the following rights, remedies and recourses:

(a) Termination of License. (i) Terminate the License granted to Grantor in Section 8.3 hereof and exercise the rights, powers and privileges of landlord under the Leases, and then and thereafter, with or without taking possession of the Collateral, in Grantor’s own name or in the name of Agent, demand, collect, receive, sue for, attach and levy on the Rents (including demand for Rents collected for the period in which the demand occurs) and give proper receipts, releases and acquittances therefor.

(ii) Deliver a written demand to any Tenant for payment of Rents, which demand shall be sufficient evidence of each such Tenant’s obligation and authority to make all future payments of Rents to Agent without the necessity for further consent by the Grantor. Grantor, for itself and its agents, covenants and agrees not to countermand any such written demand to Tenants for payment of Rents.

(b) Entry on Collateral. (i) Demand that Grantor, and upon such demand Grantor shall, forthwith surrender to Agent the actual possession of the Collateral, and to the extent not prohibited by Applicable Law, enter and take possession of all of the Collateral without the appointment of a receiver, or an application therefor, and exclude Grantor and its agents and employees wholly therefrom, and have joint access with Grantor to the books, papers and accounts of Grantor.

(ii) If Grantor shall for any reason fail to surrender or deliver the Collateral or any part thereof after such demand by Agent, Agent may seek a judgment or decree conferring upon Agent the right to immediate possession or requiring Grantor to deliver immediate possession of the Collateral to Agent, and Grantor hereby specifically covenants and agrees that Grantor shall not oppose, contest or otherwise hinder or delay Agent in any action or proceeding by Agent to obtain such judgment or decree. Grantor shall pay to Agent, upon demand, all expenses of obtaining such judgment or decree, including reasonable compensation to Agent, its attorneys and agents, and all such expenses and compensation shall, until paid, become part of the Obligations and shall be secured by this Security Instrument.

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(iii) Upon every such entering on or taking of possession, Agent may hold, store, use, operate, manage and control the Collateral and conduct the business thereof, and, from time to time, (A) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personalty and other property, (B) insure or keep the Collateral insured, (C) manage and operate the Collateral and exercise all the rights and powers of Grantor to the same extent as Grantor could in its own name or otherwise act with respect to the same, and (D) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted to Agent, all as Agent from time to time may determine to be in its best interest. Anything in this Security Instrument to the contrary notwithstanding, neither Agent nor any Lender shall be obligated to discharge or perform the duties of the landlord to any Tenant or incur any liability as the result of any exercise by Agent of its rights under this Security Instrument, and Agent shall be liable to account only for the Rents actually received by Agent.

(iv) Make, modify, enforce, cancel or accept surrender of any Lease, remove and evict any Tenant, increase or decrease Rents under any Lease, appear in and defend any action or proceeding purporting to affect the Collateral, and perform and discharge each and every obligation, covenant and agreement of Grantor contained in any Lease, whether or not Agent takes possession of the Collateral.

(v) Neither the entering upon and taking possession of the Collateral, nor the collection of any Rents and the application thereof as aforesaid, shall cure or waive any Event of Default theretofore or thereafter occurring, or affect any notice of an Event of Default hereunder or invalidate any act done pursuant to any such notice. Neither Agent nor any Lender shall be liable to Grantor, anyone claiming under or through Grantor, or anyone having an interest in the Collateral by reason of anything done or left undone by Agent hereunder. Nothing contained in this subsection (b) shall require Agent to incur any expense or do any act. If the Rents are not sufficient to meet the costs of taking control of and managing the Collateral and/or collecting the Rents, any funds expended by Agent or Lenders for such purposes shall become Obligations of Grantor to Agent or Lenders, as the case may be, secured by this Security Instrument. Such amounts, together with interest at the Post-Default Rate, and attorneys’ fees, if applicable, shall be immediately due and payable. Notwithstanding Agent’s continuance in possession or receipt and application of Rents, Agent shall be entitled to exercise every right provided for in this Security Instrument or by Applicable Law upon or after the occurrence of an Event of Default. Any of the actions referred to in this subsection (b) may be taken by Agent at such time as Agent is so entitled, without regard to the adequacy of any security for the Obligations hereby secured.

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(c) Foreclosure and Sale. If the Obligations have been accelerated pursuant to the Credit Agreement, institute an action to foreclose this Security Instrument, or take such other action as may be allowed at law or in equity, for the enforcement hereof and realization on the Collateral or any other security which is herein or elsewhere in the Loan Documents provided for the Collateral or any part thereof at one or more sales before the door of the courthouse of the county in which the Property or any part of the Property is situated, or such other place as is required or permitted by Applicable Law, without notice except as required or set forth herein or otherwise required by Applicable Law, to the highest bidder for cash, or to proceed to final judgment and execution thereon, in order to pay the Obligations, and all expenses of sale and of all proceedings in connection therewith, including reasonable attorneys’ fees, all costs of suit, interest at the Post-Default Rate as provided in the Credit Agreement on any judgment obtained by Agent from and after the date of any sale of the Collateral (which may be sold in one parcel or in such parcels, manner or order as Agent shall elect) until actual payment is made of the full amount due Agent and Lenders, without further stay, any law, usage or custom to the contrary notwithstanding. In the event of any sale pursuant to any order in any judicial proceedings or otherwise, the Collateral may be sold as an entirety or in separate parcels and in such manner or order as Agent in its sole discretion may elect, and if Agent so elects, Agent may sell the Personalty covered by this Security Instrument at one or more separate sales in any manner permitted by the Uniform Commercial Code as adopted in the State of New York, and one or more exercises of the powers herein granted shall not extinguish nor exhaust such powers, until the entire Collateral is sold or the Obligations are paid in full. If the Obligations are now or hereafter further secured by any chattel mortgages, pledges, contracts of guaranty, assignments of lease or other security instruments, Agent may at its option exhaust the remedies granted under any of said security instruments, either concurrently or independently, and in such order as Agent may determine.

Immediately upon the first insertion of any advertisement or notice of any such sale, there shall be and become due and owing from the Grantor all reasonable expenses incident to said advertisement or notice, all court costs and all reasonable expenses incident to any foreclosure proceedings brought under this Security Instrument, including reasonable attorneys’ fees. No party shall be required to receive only the aggregate indebtedness then secured hereby with the interest thereon to the date of payment unless the same shall be accompanied by a tender of the said expenses, costs and commissions.

Agent, may, in addition to and not in abrogation of the rights covered under the immediately preceding subparagraph, or elsewhere in this Article VI, either with or without entry or taking possession as herein provided or otherwise, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to enforce payment of the Obligations or the performance of any term, covenant, condition or agreement of this Security Instrument or any other right and (ii) to pursue any other remedy available to it, all as Agent at its sole discretion shall elect.

(d) Receiver. Agent, to the extent permitted by Applicable Law, upon application to a court of competent jurisdiction, shall be entitled as a matter of strict right, without notice and without regard to the adequacy or value of any security for the Obligations or the solvency of any party bound for its payment, to the appointment of a receiver to take possession of and to operate the Collateral and to collect and apply the incomes, rents, issues, profits and revenues thereof. The receiver shall have all of the rights and powers permitted under the laws of the State of Florida. Grantor shall pay to Agent upon demand all expenses, including receiver’s fees, attorneys’ fees, costs and agent’s compensation, incurred pursuant to the provisions of this subsection, and any such amounts paid by Agent shall be added to the Obligations and shall be secured by this Security Instrument.

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(e) Performance by Agent. At Agent’s option and without any obligation to do so, pay, perform or observe any term, covenant or condition of this Security Instrument not paid, performed or observed by Grantor, and all payments made or costs or expenses incurred by Agent in connection therewith shall be secured hereby and shall be, without demand, immediately repaid by Grantor to Agent with interest thereon at the Post-Default Rate. Agent shall be the sole judge of the necessity for any such actions and of the amounts to be paid Agent is hereby empowered to enter and to authorize others to enter upon the Collateral or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without thereby becoming liable to Grantor or any person in possession holding under Grantor.

(f) Relief From Automatic Stay. If Grantor is the subject of any insolvency, bankruptcy, receivership, dissolution, reorganization, or similar proceeding, federal or state, voluntary or involuntary, under any present or future Applicable Law, Agent shall be entitled to relief from the automatic stay as to the enforcement of its remedies under the Loan Documents against the Collateral, including specifically, but not limited to, the stay imposed by 11 U.S.C. Section 362, as amended, and Grantor hereby consents to the immediate lifting of any such automatic stay and will not contest any motion by Agent to lift such stay.

(g) Other. Exercise any and all other rights, remedies and recourses granted under this Security Instrument (including, without limitation, those set forth in Articles VII, VIII and IX hereinbelow) or now or hereafter existing in equity, at law, by virtue of statute or otherwise.

Section 6.2 Separate Sales. With respect to sales hereunder, the Collateral may be sold in one or more parcels and in such manner and order as Agent, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales.

Section 6.3 Remedies Cumulative, Concurrent and Non-Exclusive. Agent and Lenders shall have all rights, remedies and recourses granted in this Security Instrument and available under Applicable Law (including specifically those granted by the Uniform Commercial Code in effect and applicable to the Collateral or any portion thereof), and if such Event of Default also constitutes an Event of Default under the Credit Agreement, all rights, remedies and recourses granted in the Loan Documents and available under Applicable Law. All such rights and remedies (a) shall be cumulative and concurrent, to the fullest extent permitted by Applicable Law, (b) may be pursued separately, successively or concurrently against Grantor, MG Borrower or any other Loan Party or any other Person, or against any of the Collateral (as defined in the Credit Agreement), or against any one or more of them, at the sole discretion of Agent, all to the fullest extent permitted by Applicable Law, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive.

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Section 6.4 No Conditions Precedent to Exercise of Remedies. Neither Grantor, MG Borrower, any other Loan Party or any other Person obligated for payment of all or any part of, or fulfillment of all or any of, the Obligations, shall be relieved of such obligation by reason of (a) the failure of Agent or any Lender to comply with any request of Grantor, MG Borrower, any Loan Party or any other Person so obligated, to foreclose this Security Instrument or to enforce any provisions of the other Loan Documents, (b) the release, regardless of consideration, of any of the Collateral (as defined in the Credit Agreement) or the addition of any other property to such Collateral, (c) any agreement or stipulation between any subsequent owner of any of such Collateral and Agent extending, renewing, rearranging or in any other way modifying the terms of the Loan Documents without first having obtained the consent of, given notice to or paid any consideration to Grantor, MG Borrower, such other Loan Party or such other Person, and in such event, Grantor, MG Borrower, all such other Loan Parties and all such other Persons shall continue to be liable to make payment according to the terms of any such extension or modification agreement unless expressly released and discharged, in writing, by Agent, or (d) by any other act or occurrence, save and except the complete payment and the complete fulfillment of all of the Obligations.

Section 6.5 Release of and Resort to Collateral. Agent may release, regardless of consideration, any part of the Collateral without, as to the remainder of the Collateral, in any way impairing, affecting, subordinating or releasing any of the Liens created or evidenced by any of the Loan Documents or their position as a first and prior Lien in and to the Collateral (as defined in the Credit Agreement). For payment of the Obligations, Agent may resort to any security therefor held by Agent in such order and manner as Agent may elect.

Section 6.6 Waiver of Appraisement, Valuation, etc. Grantor agrees, to the full extent permitted by Applicable Law, that neither Grantor nor anyone claiming through or under Grantor will set up, claim or seek to take advantage of any moratorium, reinstatement, forbearance, appraisement, valuation, stay, extension, homestead, exemption or redemption laws now or hereafter in force in order to prevent or hinder the enforcement or foreclosure of this Security Instrument or the absolute sale of the Collateral, the delivery of possession thereof immediately after such sale to the purchaser at such sale, or the exercise of any other right or remedy hereunder. Grantor, for itself and all who may at any time claim through or under it, hereby waives to the full extent that it may lawfully so do, the benefit of all such Applicable Laws, and any and all right to have assets subject to the Lien of this Security Instrument marshaled upon any foreclosure or sale under the power herein granted or a sale in inverse order of alienation.

Section 6.7 Discontinuance of Proceedings. In case Agent shall have proceeded to enforce any right, power or remedy under this Security Instrument by foreclosure, entry or otherwise, and such proceeding shall have been withdrawn, discontinued or abandoned for any reason, or shall have been determined adversely to Agent, then in every such case (a) Grantor and Agent shall be restored to their former positions and rights, (b) all rights, powers and remedies of Agent shall continue as if no such proceeding had been taken, (c) each and every Event of Default declared or occurring prior or subsequent to such withdrawal, discontinuance or abandonment shall be and shall be deemed to be a continuing Event of Default and (d) neither this Security Instrument, nor the Obligations, nor any other Loan Document, shall be or shall be deemed to have been reinstated or otherwise affected by such withdrawal, discontinuance or abandonment. Grantor hereby expressly waives the benefit of any Applicable Law now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the provisions of this Section.

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Section 6.8 Application of Proceeds. The proceeds of any sale of, and the Rents and other amounts generated by the holding, leasing, operation or other use of, the Collateral (including, without limitation, the Leases) shall be applied by Agent (or the receiver, if one is appointed) as provided in Section 11.4 of the Credit Agreement.

Section 6.9 Leases. Agent, at its option, is authorized to foreclose this Security Instrument subject to the rights of any Tenants of the Collateral under any Leases, and the failure to make any Tenants parties to any such foreclosure proceedings and to foreclose their rights shall not be, nor be asserted to be by Grantor, a defense to any proceedings instituted by Agent to collect the Obligations.

Section 6.10 Purchase by Agent or Lenders. Upon any foreclosure sale or sales of all or any portion of the Collateral under the power of sale herein granted Agent may bid for and purchase the Collateral and shall be entitled to apply all or any part of the Obligations as a credit to the purchase price.

Section 6.11 Grantor as Tenant Holding Over. In the event of any such foreclosure sale or sales under the power herein granted, Grantor shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over.

Section 6.12 Suits to Protect the Collateral. Agent shall have the power to institute and maintain such suits and proceedings as it may deem expedient (a) to prevent any impairment of the Collateral by any acts which may be unlawful or constitute an Event of Default under this Security Instrument, (b) to preserve or protect its interest in the Collateral and in the Leases and Rents arising therefrom, and (c) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment rule or order would impair the security hereunder or be prejudicial to the interest of Agent. In such event, Grantor shall, at the request of the Agent, promptly pay any amount reasonably expended by the Agent in such performance or attempted performance to the Agent, together with interest thereon at the applicable Post-Default Rate from the date of such expenditure until paid.

Section 6.13 Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Grantor, its creditors or its property, Agent, to the extent permitted by Applicable Law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Agent allowed in such proceedings for the entire amount of the Obligations at the date of the institution of such proceedings and for any additional amount of the Obligations after such date.

Section 6.14 Occupancy After Foreclosure. The purchaser at any foreclosure sale pursuant to Section 6.1(c) shall become the legal owner of the Collateral or the portion thereof foreclosed. All occupants (except those which have previously executed a prior written agreement with purchaser) of the Collateral or any part thereof shall become tenants at sufferance of the purchaser at the foreclosure sale and shall deliver possession thereof immediately to the purchaser upon demand, subject to the rights, if any, of Tenants.

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Section 6.15 Waiver of Grantor’s Rights. BY EXECUTION OF THIS SECURITY INSTRUMENT, GRANTOR EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT OF AGENT AND LENDERS TO ACCELERATE THE INDEBTEDNESS SECURED BY THIS SECURITY INSTRUMENT UPON AN EVENT OF DEFAULT WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS SECURITY INSTRUMENT; (B) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, WAIVES ANY AND ALL RIGHTS WHICH GRANTOR MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES OF AMERICA (INCLUDING, WITHOUT LIMITATION, THE FIFTH AND FOURTEENTH AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, (1) TO NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY AGENT OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO AGENT, EXCEPT SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS SECURITY INSTRUMENT AND (2) CONCERNING THE APPLICATION, RIGHTS OR BENEFITS OF ANY STATUTE OF LIMITATION OR ANY MORATORIUM, REINSTATEMENT, MARSHALING, FORBEARANCE, APPRAISEMENT, VALUATION, STAY, EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION LAWS; (C) ACKNOWLEDGES THAT GRANTOR HAS READ THIS SECURITY INSTRUMENT AND ANY AND ALL QUESTIONS OF GRANTOR REGARDING THE LEGAL EFFECT OF THIS SECURITY INSTRUMENT AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO GRANTOR, AND GRANTOR HAS CONSULTED WITH COUNSEL OF GRANTOR’S CHOICE PRIOR TO EXECUTING THIS SECURITY INSTRUMENT; AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF GRANTOR HAVE BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY GRANTOR AS PART OF A BARGAINED FOR LOAN TRANSACTION AND THAT THIS SECURITY INSTRUMENT IS VALID AND ENFORCEABLE BY AGENT AGAINST GRANTOR IN ACCORDANCE WITH ALL THE TERMS AND CONDITIONS HEREOF.

ARTICLE VII

Security Agreement

Section 7.1 Security Interest. This Security Instrument shall also constitute and serve as a security agreement on personal property within the meaning of under the Uniform Commercial Code as enacted in New York with respect to the Personalty, Fixtures, Leases and Rents. To this end, Grantor has GRANTED, BARGAINED, CONVEYED, ASSIGNED, TRANSFERRED and SET OVER, and by these presents, does GRANT, BARGAIN, CONVEY, ASSIGN, TRANSFER and SET OVER, to Agent for the benefit of the Lenders a security interest in all of Grantor’s right, title and interest in, to, under and with respect to the Personalty, Fixtures, Leases and Rents now owned or hereafter owned or acquired, in each case, to the extent not constituting Excluded Property, to secure the full and timely payment, performance and discharge of the Obligations. It is the intent of Grantor, Agent and Lenders that this Security Instrument encumber all Leases and Rents, in each case, to the extent not constituting Excluded Property, that all items contained in the definition of “Leases” and “Rents” which are included within Article 9 of the Uniform Commercial Code as adopted in New York be covered by the security interest granted in this Article VII and that all items contained in the definition of “Leases” and “Rents” which are excluded from Article 9 of the Uniform Commercial Code as adopted in New York be covered by the provisions of Article II and Article VIII hereof.

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Section 7.2 Financing Statements. Grantor hereby authorizes Agent to file such Financing Statements and such further assurances as Agent may, from time to time, reasonably consider necessary to create, perfect and preserve Agent’s security interest herein granted, and Agent may cause such statements and assurances to be recorded and filed, at such times and places as may be required or permitted by law, to so create, perfect and preserve such security interest.

Section 7.3 Uniform Commercial Code Remedies. Agent shall have all the rights and remedies with respect to the Personalty, Fixtures, Leases and Rents afforded to a “secured party” by the Uniform Commercial Code as adopted in New York as to property within the scope thereof, in addition to, and not in limitation of, the other rights and remedies afforded by the Loan Documents.

Section 7.4 Foreclosure of Security Interest. If an Event of Default exists, Agent may elect, in addition to exercising any and all other rights and remedies set forth in Article VI or referred to in Section 7.3 or Article VII hereof, to proceed in the manner set forth in Article 9 of the Uniform Commercial Code as adopted in New York, relating to the procedure to be followed when a Security Agreement covers both real and personal property.

Section 7.5 No Obligation of Secured Party. The assignment and security interest herein granted shall not be deemed or construed to constitute Agent or any Lender as a trustee or mortgagee in possession of the Collateral, to obligate Agent or any Lender to lease the Collateral or attempt to do same, or to take any action, incur any expense or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise.

Section 7.6 Information for Fixture Filing. This Security Instrument is also being filed as a fixture filing with respect to the portions of the Collateral that are or are to become fixtures relating to the Property or Improvements. Grantor’s exact legal name, type of legal entity and jurisdiction of formation are as set forth in the first paragraph of this Security Deed. Grantor’s organizational identification number is 2345191. Grantor hereby represents to Agent and Lenders that, during the past five years prior to the date hereof, Grantor has not changed its name or merged with or otherwise combined its business with any Person; provided, however, Grantor has converted from a limited partnership. Without giving Agent at least 30-days’ prior written notice and to the extent such action is not otherwise prohibited by any of the Loan Documents, Grantor shall not (a) change its name; (b) reorganize or otherwise become formed under the laws of another jurisdiction or (c) become bound by a security agreement (other than a Loan Document) of another Person under Section 9-203(d) of the Uniform Commercial Code as in effect in any applicable jurisdiction. The information contained in this Section is provided in connection with the requirements of the Uniform Commercial Code so that this Security Instrument shall serve as a financing statement. The name of Grantor shall be the “Debtor” and the name of the Agent shall be the “Secured Party,” and a statement indicating the collateral covered hereby is set forth in the definition of “Collateral” above.

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ARTICLE VIII

Assignment of Leases and Rents

Section 8.1 Assignment. For and in consideration of ONE DOLLAR ($1.00), and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to secure the full and timely payment of the Obligations and the full and timely performance and discharge of the Obligations, Grantor has GRANTED, BARGAINED, SOLD, CONVEYED, ASSIGNED, TRANSFERRED, SET OVER and DELIVERED, and by these presents does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER, SET OVER and DELIVER absolutely unto Agent for the benefit of the Lenders the Leases (whether now existing or entered into after the date hereof) and the Rents, subject only to the hereinafter described License, TO HAVE AND TO HOLD the Leases and the Rents unto Agent, its successors and assigns, for the benefit of the Lenders forever, and Grantor does hereby bind itself, its successors and assigns to WARRANT and FOREVER DEFEND the title to the Leases and the Rents unto Agent against every Person whomsoever lawfully claiming or to claim the same or any part thereof, in each case, other than the Boucher Brothers Agreement, but only to the extent, and for so long as, Grantor’s right to assign the Boucher Brothers Agreement is prohibited pursuant to the terms thereof or such prohibition is rendered unenforceable or otherwise deemed ineffective by the Uniform Commercial Code or any other Applicable Law. If an Event of Default exists, Agent shall have the right power and privilege (but shall be under no duty) to demand possession of the Rents, which demand shall, to the fullest extent permitted by Applicable Law, be sufficient action by Agent to entitle Agent to immediate and direct payment of the Rents (including delivery to Agent of Rents collected for the period in which the demand occurs and for any subsequent period), for application as provided herein, all without the necessity of any further action by Agent including, without limitation, any action to obtain possession of the Improvements or the Property. Grantor hereby authorizes and directs the Tenants under the Leases to pay Rents to Agent upon written demand by Agent accompanied by a notice from the Agent of the occurrence of an Event of Default, without further consent of Grantor, without any obligation on the part of any Tenant to determine whether an Event of Default has in fact occurred and regardless of whether Agent has taken possession of any portion of the Property, and the Tenants may rely upon any written statement delivered by Agent to the Tenants. Any such payment to Agent shall constitute payment to Grantor under the Leases, and Grantor hereby appoints Agent as Grantor’s lawful attorney-in-fact for giving, and Agent is hereby empowered to give, acquittances to any Tenants for such payments to Agent after a default.

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Section 8.2 Intentionally Omitted.

Section 8.3 Limited License. Provided that there exists no Event of Default, Grantor shall have the right under a limited license granted hereby, and Agent hereby grants to Grantor a limited license (the “License”), to collect, all of the Rents arising from or out of the Leases, or any renewals or extensions thereof, or from or out of the Collateral or any part thereof.

Section 8.4 Grantor’s Indemnities. Grantor hereby agrees to indemnify and hold Agent and Lenders free and harmless from and against any and all liability, loss, cost, damage or expense which Agent and/or Lenders may incur under or by reason of this assignment, or for any action taken by the Agent hereunder, or by reason or in defense of any and all claims and demands whatsoever which may be asserted against Agent and/or Lenders arising out of the Leases (except to the extent caused by the gross negligence or willful misconduct of Agent or any Lender), including specifically, but without limitation, any claim by any Tenant of credit for Rents paid to and received by Grantor, but not delivered to Agent, for any period under any Lease more than 1 month in advance of the due date thereof. If Agent or any Lender incurs any such liability, loss, cost, damage or expense, the amount thereof, including reasonable attorneys’ fees, with interest thereon at the Post-Default Rate, shall be payable by Grantor to Agent immediately, without demand, and shall be secured hereby and by all other Loan Documents.

Section 8.5 Appointment of Attorney-in-Fact. Grantor hereby further constitutes and appoints Agent the true and lawful attorney-in-fact of the Grantor, and in the name, place and stead of said Grantor, to subject and subordinate at any time and from time to time any Lease or any part thereof to the lien and security interest of the Security Instrument or any other mortgage, security deed, deed of trust or security agreement on or to any ground lease of the Collateral, or to request or require such subordination, where such reservation, option or authority was reserved to the Grantor under any such Lease, or in any case where the Grantor otherwise would have the right, power or privilege so to do. The foregoing appointment is irrevocable and continuing and coupled with an interest, and such rights, powers and privileges shall be exclusive in Agent and its successors and assigns so long as any part of the Obligations secured hereby remains unpaid and undischarged. Grantor hereby warrants that Grantor has not at any time prior to the date hereof exercised any such rights, and Grantor hereby covenants not to exercise any such right, to subordinate any such Lease to the lien of this Security Instrument or to any other security deed, mortgage, deed of trust or security agreement or to any ground lease.

Section 8.6 Exculpation of Agent. The acceptance by Agent of this assignment of the Leases and Rents, with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Collateral by Agent, be deemed or construed to constitute Agent a “mortgagee in possession”, nor thereafter or at any time or in any event obligate the Agent to appear in or defend any action or proceeding relating to the Leases, the Rents or the Collateral or to take any action hereunder or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under any Lease or to assume any obligation or responsibility for any security deposits or other deposits delivered to Grantor by any Tenant and not assigned and delivered to Agent, nor shall Agent be liable in any way for any injury or damage to persons or property sustained by any person or persons, firm or corporation in or about the Collateral.

Section 8.7 [Intentionally Omitted].

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ARTICLE IX

Miscellaneous

Section 9.1 Performance at Grantor’s Expense. Grantor shall pay to Agent and Lenders immediately upon demand all costs and expenses incurred by Agent and Lenders in connection herewith as provided in Section 13.2 of the Credit Agreement, and the same shall be secured hereby. For all purposes of this Security Instrument, Agent’s reasonable and documented costs and expenses shall include, without limitation, all appraisal and re-appraisal fees (in each case, subject to the limitations provided in Section 13.2 of the Credit Agreement as well as the other applicable limitations set forth in the Credit Agreement in respect of appraisals), reasonable and documented out-of-pocket legal fees (including, without limitation, fees for trial, appeal or other proceedings), accounting fees, environmental consultant fees (if any), auditor fees, and the cost to Agent of any documentary taxes, recording fees, brokerage fees, title search fees, title insurance premiums and title surveys (including any such title related fees and premiums incurred in connection with title updates). In addition, Grantor recognizes and agrees that formal written appraisals of the Collateral by a licensed independent appraiser may be required by federal regulatory reporting requirements on an annual or specialized basis, which shall be at Grantor’s expense.

Section 9.2 Survival of Obligations. Each and all of the Obligations shall survive the execution and delivery of the Loan Documents, and the consummation of the transactions contemplated thereby, and shall continue in full force and effect until the Obligations shall have been paid and performed in full as provided in Section 13.9 of the Credit Agreement; provided however, that nothing contained in this Section shall limit the obligations of Grantor as set forth in Section 3.14 and 8.4 herein.

Section 9.3 Recording and Filing. Grantor shall cause the Loan Documents and all amendments and supplements thereto and substitutions therefor to be recorded, filed, re-recorded and refiled in such manner and in such places as Agent shall reasonably request and shall pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 9.4 Notices. All notices or other communications required or permitted to be given pursuant to this Security Instrument shall be made and delivered as provided in Section 13.1 of the Credit Agreement.

Section 9.5 No Waiver. Any failure by Agent or Lenders to insist, or any election by Agent or Lenders not to insist, upon strict performance by Grantor of any of the terms, provisions or conditions of this Security Instrument shall not be deemed to be a waiver of same or of any other term, provision or condition hereof, and Agent and Lenders shall have the right at any time or times thereafter to insist upon strict performance by Grantor of any and all such terms, provisions and conditions. No delay or omission by Agent or Lenders to exercise any right, power or remedy accruing upon any breach or Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to be a waiver of any such breach or Event of Default, or acquiescence therein, and every right, power and remedy given by this Security Instrument to Agent or Lenders may be exercised from time to time and as often as may be deemed expedient by Agent or Lenders. No consent or waiver, expressed or implied, by Agent or Lenders to or of any breach or Event of Default by Grantor in the performance of the Obligations of Grantor or to any other Event of Default shall be deemed or construed to be a consent or waiver to or of any other breach or Event of Default in the performance of the same or any other Obligations of Grantor. Failure on the part of Agent to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver of rights hereunder or impair any rights, powers, or remedies of Agent or Lenders hereunder.

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No act or omission by Agent or Lenders shall release, discharge, modify, change or otherwise affect the liability of Grantor under this Security Instrument or any of the other Loan Documents to which it is a party or in respect of any Obligations of Grantor or the liability of any subsequent purchaser of the Collateral or any part thereof, or any maker, cosigner, endorser, surety or guarantor, or preclude Agent or Lenders from exercising any right, power or privilege herein granted or intended to be granted in the event of any Event of Default then made or by any subsequent Event of Default, or alter the Lien of this Security Instrument. Without limiting the generality of the foregoing, Agent and Lenders may:

(a) grant forbearance or an extension of time for the payment of all or any portion of the Obligations;

(b) take other or additional security for the payment of the Obligations;

(c) waive or fail to exercise any right granted hereunder or in the Credit Agreement or the other Loan Documents;

(d) change any of the terms, covenants, conditions or agreements of the Credit Agreement, this Security Instrument, or the other Loan Documents;

(e) consent to the filing of any map, plat or replat affecting the Collateral;

(f) consent to the granting of any easement or other right affecting the Collateral;

(g) make or consent to any agreement subordinating the security interest or lien hereof; or

(h) take or omit to take any action whatsoever with respect to the Credit Agreement, this Security Instrument, the Collateral or any document or instrument evidencing, securing or in any way relating to the Obligations;

all without releasing, discharging, modifying, changing or affecting any such liability, or precluding Agent or Lenders from exercising any such right, power or privilege, or affecting the Lien of this Security Instrument. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Collateral, Agent, without notice, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Collateral or the Obligations, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, Obligations or undertakings.

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Section 9.6 Agent’s Right to Perform the Obligations. If Grantor shall fail, refuse or neglect to make any payment or perform any act required by the Loan Documents after the expiration of relevant notice and cure periods, then at any time thereafter, and without notice to or demand upon Grantor and without waiving or releasing any other right, remedy or recourse Agent may have because of same, Agent may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Grantor, and shall have the right to enter the Property and Improvements for such purpose and to take all such action thereon and with respect to the Collateral as it may deem necessary or appropriate. If Agent shall elect to pay any Imposition or other sums due with reference to the Collateral, Agent may do so in reliance on any bill, statement or assessment procured from the appropriate Governmental Authority or other issuer thereof without inquiring into the accuracy or validity thereof. Similarly, in making any payments to protect the security intended to be created by the Loan Documents, Agent shall not be bound to inquire into the validity of any apparent or threatened adverse title, lien, encumbrance, claim or charge before making an advance for the purpose of preventing or removing the same. Grantor shall indemnify Agent and Lenders for all losses, expenses, damages, claims and causes of action, including reasonable attorneys’ fees, incurred or accruing by reason of any acts performed by Agent pursuant to the provisions of this Section or by reason of any other provision in the Loan Documents. All sums paid by Agent or Lenders pursuant to this Section, and all other sums expended by Agent or Lenders to which they shall be entitled to be indemnified, together with interest thereon at the Post-Default Rate from the date of such payment or expenditure, shall constitute additions to the Obligations, shall be secured by the Liens created by the Loan Documents and shall be paid by Grantor to Agent upon demand.

Section 9.7 Covenants Running with the Land. All Obligations contained in the Loan Documents are intended by the parties to be, and shall be construed as, covenants running with the Property.

Section 9.8 Successors and Assigns. Subject to Section 13.5 of the Credit Agreement, all of the terms of this Security Instrument shall apply to, be binding upon and inure to the benefit of the parties thereto, their successors, assigns, heirs and legal representatives, and all other Persons claiming by, through or under them.

Section 9.9 Severability. This Security Instrument is intended to be performed in accordance with, and only to the extent permitted by, all applicable Legal Requirements. If any provision of this Security Instrument or the application thereof to any Person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, then neither the remainder of the instrument in which such provision is contained nor the application of such provision to other Persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather, shall be enforced to the greatest extent permitted by Applicable Law.

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Section 9.10 Modification. This Security Instrument may not be amended, revised, waived, discharged, released or terminated orally, but only by a written instrument or instruments as provided in Section 13.6 of the Credit Agreement.

Section 9.11 Assignment. This Security Instrument is assignable by Agent and any assignment hereof by Agent shall operate to vest in the assignee all rights and powers herein conferred upon and granted to Agent.

Section 9.12 [Intentionally Omitted].

Section 9.13 Counterparts. This Security Instrument may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute but one instrument.

Section 9.14 APPLICABLE LAW. THE PROVISIONS OF THIS SECURITY INSTRUMENT REGARDING THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS HEREIN GRANTED SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA. ALL OTHER PROVISIONS OF THIS SECURITY INSTRUMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

Section 9.15 Subrogation. If any or all of the proceeds of the Obligations have been used to extinguish, extend or renew any obligations heretofore existing against the Collateral, then, to the extent of such funds so used, the obligations secured hereby shall be subrogated to all of the rights, claims, liens, titles and interests heretofore existing against the Collateral to secure the indebtedness so extinguished, extended or renewed, and the former rights, claims, liens, titles and interests, if any, are not waived, but rather, are continued in full force and effect in favor of Agent and are merged with the lien or security title and interest created herein as cumulative security for the repayment and the satisfaction of the Obligations.

Section 9.16 Headings. Titles and captions of Articles, Sections, subsections and clauses in this Security Instrument are for convenience only, and neither limit nor amplify the provisions of this Security Instrument.

Section 9.17 Conflict. Notwithstanding anything herein to the contrary, in the event of a conflict between this Security Instrument and the Credit Agreement, the Credit Agreement shall govern.

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Section 9.18 CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER OF JURY TRIAL. (a) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS SECURITY INSTRUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE WHICH ARE LOCATED IN THE COUNTY OF NEW YORK, OR THE COURTS OF THE STATE OF FLORIDA AND, BY EXECUTION AND DELIVERY OF THIS SECURITY INSTRUMENT, THE GRANTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE GRANTOR HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER THE GRANTOR, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS SECURITY INSTRUMENT BROUGHT IN ANY OF THE AFORESAID COURTS THAT ANY SUCH COURT LACKS JURISDICTION OVER THE GRANTOR. THE GRANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE GRANTOR AT ITS ADDRESS FOR NOTICES PURSUANT TO SECTION 9.4 HEREOF, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. THE GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER THAT SUCH SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE MORTGAGEE, OR ANY LENDER, TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE GRANTOR IN ANY OTHER JURISDICTION.

(b) THE GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS SECURITY INSTRUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY, TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

(c) GRANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE OBLIGATIONS, THE CREDIT AGREEMENT, THE NOTE OR THIS SECURITY INSTRUMENT OR ANY ACTS OR OMISSIONS OF AGENT, LENDERS, THEIR OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.

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Section 9.19 Limitation on Interest. It is the intent of the Grantor and the Mortgagee in the execution of this Security Instrument and all other instruments evidencing or securing the Obligations to contract in strict compliance with applicable usury laws. In furtherance thereof, the Mortgagee and the Grantor stipulate and agree that none of the terms and provisions contained in this Security Instrument shall ever be construed to create a contract for the use, forbearance or retention of money requiring payment of interest at a rate in excess of the maximum interest rate permitted to be charged by relevant law. If this Security Instrument or any other instrument evidencing or securing the Obligations violates any applicable usury law, then the interest rate payable in respect of the Loans or the Post-Default Rate, as applicable, shall be the highest rate permissible by law.

Section 9.20 Further Assurances. The Grantor shall, upon the request of the Mortgagee and at the expense of the Grantor: (a) promptly correct any defect, error or omission which may be discovered in this Security Instrument or any UCC financing statements filed in connection herewith; (b) promptly execute, acknowledge, deliver and record or file such further instruments (including, without limitation, further mortgages, deeds of trust, security deeds, security agreements, financing statements, continuation statements and assignments of rents or leases) and promptly do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Security Instrument and to subject to the Liens and security interests hereof any property intended by the terms hereof to be encumbered hereby, including, but not limited to, any renewals, additions, substitutions, replacements or appurtenances to the Collateral; and (c) promptly execute, acknowledge, deliver, procure and record or file any document or instrument (including specifically any financing statement) deemed advisable by the Mortgagee to protect, continue or perfect the Liens or the security interests hereunder against the rights or interests of third Persons.

Section 9.21 Future Advances. This Security Instrument is given to secure the Obligations under, or in respect of, the Loan Documents and shall secure not only obligations with respect to presently existing indebtedness under the foregoing documents and agreements but also any and all other indebtedness which may hereafter be owing to the Lenders and/or the Mortgagee under the Loan Documents, however incurred, whether interest, discount or otherwise, and whether the same shall be deferred, accrued or capitalized, including future advances and re-advances, pursuant to the Credit Agreement or the other Loan Documents, whether such advances are obligatory or to be made at the option of the Lenders and/or the Agent, or otherwise, to the same extent as if such future advances were made on the date of the execution of this Security Instrument. The Lien of this Security Instrument shall be valid as to all indebtedness secured hereby, including future advances, from the time of its filing for record in the recorder’s office of the county in which the Collateral is located. This Security Instrument is intended to and shall be valid and have priority over all subsequent Liens and encumbrances, including statutory Liens, excepting solely taxes and assessments levied on the real estate, to the extent of the maximum amount secured hereby, and Permitted Encumbrances related thereto. Although this Security Instrument is given to secure all future advances made by the Mortgagee and/or the Lender to or for the benefit of the MG Borrower, the Grantor and/or the Collateral, whether obligatory or optional, the Grantor and the Mortgagee hereby acknowledge and agree that the Mortgagee and the Lenders are obligated by the terms of the Loan Documents to make certain future advances, including advances of a revolving nature, subject to the fulfillment of the relevant conditions set forth in the Loan Documents.

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[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, Grantor has executed this Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing under seal, as of the day and year first above written.

WITNESS:		GRANTOR:
		BEACH HOTEL ASSOCIATES LLC, a Delaware limited liability company
By:	/s/ Meredith Dahl		By:	Morgans Group LLC, its Member
	Name: Meredith Dahl
				By: Morgans Hotel Group Co., its
				Managing Member
By:	/s/ Grace Chen		By:	/s/ Richard Szymanski
	Name: Grace Chen			Name: Richard Szymanski
				Title: Chief Financial Officer & Secretary
		Address for Notices:
		c/o Morgans Group, LLC 475 Tenth Avenue New York, New York 10018 Attention: Richard Szymanski Telecopy Number: (212) 277-4270 Telephone Number: (212) 277-4188

[Acknowledgement on Next Page]

STATE OF New York	)
	)	SS:
COUNTRY OF New York	)

The foregoing instrument was acknowledged before me this 25^th day of July, 2011 by Richard Szymanski as Chief Financial Officer and Secretary of Morgans Group LLC, a Delaware limited liability company, the sole member of BEACH HOTEL ASSOCIATES, LLC, a Delaware limited liability company, on behalf of the company. He/she/they personally appeared before me and is/are personally known to me or produced a driver’s license as identification and did not take an oath.

	Notary:	/s/ Grace Chen
[NOTARIAL SEAL]		Print Name: Grace Chen
		NOTARY PUBLIC, STATE OF New York
		My commission expires 4/2/15

EXHIBIT A

LEGAL DESCRIPTION

Lots 9, 10, 11 and 12, in Block 29 of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, a subdivision of Miami-Dade County, Florida, according to the Plat thereof duly recorded upon the Public records of Miami-Dade County, Florida in Plat Book 2, page 77 thereof;

Also that tract of land shown on plat of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, according to the Plat thereof recorded in Plat Book 2, page 77, Public Records of Miami-Dade County, Florida, described as follows:

Begin at the Southeast corner of Lot 9 in Block 29 as shown on plat of FISHER’S FIRST SUBDIVISION OF ALTON BEACH, according to the Plat thereof recorded in Plat Book 2, page 77, Public Records of Miami-Dade County, Florida; thence run in a Northerly direction along the Easterly line of said Block 29 of the aforesaid plat and the Northerly extension thereof a distance of 136.897 feet, more or less, to the point of intersection of the center line of 17th Street; thence run Easterly along the center line of 17th Street; extended, a distance of 204.17 feet, more or less to the point of intersection of said center line of 17th Street extended Easterly to the Erosion Control Line of the Atlantic Ocean said Line recorded in Plat Book 105, page 62, Public Records of Miami-Dade County, Florida, thence run Southerly along the said Erosion Control Line, a distance of 137.465 feet to the intersection of the extension Easterly of the Southerly Line of referenced Lot 9, thence run Westerly along the Easterly extension of Lot 9, a distance of 200.96 feet, more of less, to the Point of Beginning.

Less and except, however, that certain portion of such land as was appropriated and taken by the City of Miami Beach, Florida, in that certain eminent domain or condemnation proceeding a final judgment for which was recorded in Deed Book 3106, page 96, which covers that portion of the premises lying northerly of the northerly line of said Block 29 extended easterly to the Erosion Control Line recorded in Plat Book 105, page 62 of the Public Records of Miami-Dade County, Florida.

EXHIBIT B
to
SECURITY INSTRUMENT

(DESCRIPTION OF PERMITTED ENCUMBRANCES)

Those items recorded in the records of Miami-Dade County, Florida, as set forth in Schedule B, Section 2, of that certain Commitment for Title Insurance issued by Chicago Title Insurance Company, Commitment No. 3508183, as endorsed and marked in connection with the making of the Loan referenced in the foregoing security instrument.

EX-10.6

Exhibit 10.6

EXECUTION VERSION

SECURITY AGREEMENT

THIS SECURITY AGREEMENT is dated as of July 28, 2011 from Beach Hotel Associates LLC, a Delaware limited liability company (“Grantor”) to Deutsche Bank Trust Company Americas, in its capacity as Agent for itself, the Issuing Bank and for each of the Lenders from time to time party to that certain Credit Agreement (as hereinafter defined) (the “Secured Party”).

WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “Borrower”), Grantor, Morgans Hotel Group Co., the lenders from time to time party thereto as “Lenders” and the Secured Party, the Lenders, the Issuing Bank and the Secured Party have agreed to make available to the Borrower and the Grantor certain financial accommodations on the terms and conditions contained in the Credit Agreement;

WHEREAS, the Borrower and Grantor, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses and have determined it to be in their mutual best interests to obtain financing from the Lenders, the Issuing Bank and the Secured Party through their collective efforts;

WHEREAS, Grantor acknowledges that it will receive direct and indirect benefits from the Lenders, the Issuing Bank and the Secured Party making such financial accommodations available to the Borrower and Grantor under the Credit Agreement; and

WHEREAS, it is a condition precedent to the extension of such financial accommodations under the Credit Agreement that Grantor executes and delivers this Agreement, among other things, to grant to the Secured Party for the benefit of itself, the Issuing Bank and each of the Lenders a security interest in the Collateral as security for the Secured Obligations.

NOW, THEREFORE, in consideration of the mutual agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties agree as follows:

Section 1. Definitions. (a) The following terms shall have the following meanings:

“Additional Pledged Collateral” means any Pledged Collateral acquired by Grantor after the date hereof and in which a security interest is granted pursuant to Section 2, including, to the extent a security interest is granted therein pursuant to such Section 2, (i) all additional Indebtedness from time to time owed to Grantor by any obligor on the Pledged Debt Instruments and the Instruments evidencing such Indebtedness and (ii) all interest, cash, Instruments and other property or Proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any of the foregoing.

“Agreement” means this Security Agreement.

“Bankruptcy Code” means United States Bankruptcy Code (11 U.S.C. Section 101 et seq.), as in effect from time to time, and any successor statute thereto.

“Credit Agreement” has the meaning given that term in the recitals of this Agreement.

“Collateral” means all of Grantor’s right, title and interest to and under all of the following property, whether now owned or hereafter acquired by Grantor or in which Grantor now has or at any time in the future may acquire any right, title or interest, and whether now existing or hereafter arising:

(i) all Deposit Accounts;

(ii) all Equipment, including, without limitation, all machinery, equipment, systems, fittings, apparatus, appliances, furniture, furnishings, tools, fixtures, Inventory (as hereinafter defined) and articles of personal property and accessions thereof and renewals, replacements thereof and substitutions therefore (including, but not limited to, all plumbing, lighting and elevator fixtures, office furniture, beds, bureaus, chiffonniers, chests, chairs, desks, lamps, mirrors, bookcases, tables, rugs, carpeting, drapes, draperies, curtains, shades Venetian blinds, wall coverings, screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage racks, stools, sofas, chinaware, flatware, linens, pillows, blankets, glassware, foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other entry systems, bars, bar fixtures, liquor and other drink dispensers, icemakers, radios, television sets, intercom and paging equipment, electric and electronic equipment, dictating equipment, telephone systems, computerized accounting systems, engineering equipment, vehicles, medical equipment, potted plants, heating, lighting and plumbing fixtures, fire prevention and extinguishing apparatus, theft prevention equipment, cooling and air-conditioning systems, elevators, escalators, fittings, plants, apparatus, stoves, ranges, refrigerators, laundry machines, tools, machinery, engines, dynamos, motors, boilers, incinerators, switchboards, conduits, compressors, vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call systems, brackets, signs, bulbs, bells, ash and fuel, conveyors, cabinets lockers, shelving, spotlighting equipment, dishwashers, garbage disposals, washers and dryers) and other customary hotel equipment;

(iii) all Fixtures;

(iv) all Instruments;

(v) all Inventory, including, without limitation, provisions in storerooms, refrigerators, pantries and kitchens, beverages in wine cellars and bars, other merchandise for sale, fuel, mechanical supplies, stationery and other supplies and similar items;

(vi) all Investment Property;

(vii) all Intellectual Property;

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(viii) all General Intangibles, Permits, liquor and other governmental licenses and other licenses;

(ix) all Documents;

(x) all Accounts;

(xi) all Chattel Paper;

(xii) all Commercial Tort Claims identified on Schedule 6 hereto, as such schedule may be supplemented from time to time;

(xiii) all Letter-of-Credit Rights;

(xiv) all books and records pertaining to any property described in this definition;

(xv) all Supporting Obligations pertaining to any property described in this definition;

(xvi) all property of Grantor held by the Secured Party, including all property of every description, in the possession or custody of or in transit to the Secured Party for any purpose, including safekeeping, collection or pledge, for the account of Grantor or as to which Grantor may have any right or power;

(xvii) all other Goods and personal property of Grantor, whether tangible or intangible and wherever located;

(xviii) all Contracts, Contract Rights, agreements, guaranties, indemnities and other assurances, written and oral, insurance policies, permits, licenses, trade names, warranties on personal or real property, soil test reports, certificates of occupancy, termite bonds, payment and performance bonds, judgments, premium rebates or adjustments, unearned commissions and fees, proceeds of insurance policies (subject to the terms of the Security Instrument), construction contracts, deposits, prepayments, unpaid rents, credits in favor of Grantor, financing commitments from others, condemnation proceeds, sales or payment proceeds (subject to the terms of the Security Instrument), surveys, causes of action, chooses in action and all other intangibles of every nature, in connection with and to the extent the same affect or are related to, the Florida Property (all of which are collectively referred to hereinafter as the “Contract Documents”) and all of Grantor’s rights and privileges, if any, to modify, terminate or waive performance of any Contract Documents; and

(xix) to the extent not otherwise included, all Proceeds.

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The term “Collateral” shall not include any Excluded Property but if and when any property shall cease to be Excluded Property, such property shall be deemed at all times from and after the date hereof to constitute Collateral.

“Copyright Licenses” means any written agreement naming Grantor as licensor or licensee granting any right under any material Copyright, including the grant of any right to copy, publicly perform, create derivative works, manufacture, distribute, exploit or sell materials derived from any material Copyright.

“Copyright Security Agreement” means a Copyright Security Agreement executed by Grantor in favor of the Secured Party for the benefit of the Issuing Bank and the Lenders in substantially the form of Annex 1 hereto, pursuant to which Grantor has further evidenced its grant to the Secured Party, for the benefit of the Issuing Bank and the Lenders, of a security interest in all its respective Copyrights.

“Copyrights” means (a) all copyrights arising under the laws of the United States of America, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any foreign counterparts thereof, and (b) the right to obtain all renewals thereof.

“Deposit Account Control Agreement” means a letter agreement, in form and substance reasonably satisfactory to the Secured Party, executed by Grantor, the Secured Party and the financial institution at which Grantor maintains a Deposit Account.

“Excluded Property” means, collectively, (i) any permit, lease, license, contract, instrument or other agreement held by Grantor that prohibits or requires the consent of any Person other than the Borrower or any Affiliate as a condition to the creation by Grantor of a Lien thereon, or any permit, lease, license contract or other agreement held by Grantor to the extent that any Applicable Law prohibits the creation of a Lien thereon, but only, in each case, to the extent, and for so long as, such prohibition or consent requirement is not terminated or rendered unenforceable or otherwise deemed ineffective by the UCC or any other Applicable Law, (ii) any “intent to use” Trademark applications for which a statement of use has not been filed (but only until such statement is filed) and (iii) Equipment owned by Grantor that is subject to a purchase money Lien or a capital lease to the extent permitted under the Credit Agreement if the contract or other agreement in which such Lien is granted (or in the documentation providing for such Capital Lease) prohibits or requires the consent of any Person other than the Borrower or any Affiliate as a condition to the creation of any other Lien on such Equipment; provided, however, in each case, “Excluded Property” shall not include any Proceeds, substitutions or replacements of Excluded Property (unless such Proceeds, substitutions or replacements would otherwise constitute Excluded Property).

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“Intellectual Property” means, collectively, all rights, priorities and privileges of Grantor relating to intellectual property, whether arising under United States of America, multinational or foreign laws or otherwise, including Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks, Trademark Licenses, service marks, trade secrets and Internet domain names, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

“Material Intellectual Property” means Intellectual Property owned by or licensed to a Grantor and material to the conduct of the business of the Borrower and its Subsidiaries taken as a whole.

“Patent Security Agreement” means a Patent Security Agreement executed by Grantor in favor of the Secured Party for the benefit of the Issuing Bank and the Lenders, in substantially the form of Annex 1 hereto, pursuant to which Grantor has confirmed its grant to the Secured Party, for the benefit of the Issuing Bank and the Lenders, a security interest in all its respective Patents.

“Patents” means (a) all letters patent of the United States of America, any other country or any political subdivision thereof and all reissues and extensions thereof, (b) all applications for letters patent of the United States of America or any other country and all divisionals, continuations and continuations-in-part thereof, and (c) all rights to obtain any reissues, continuations or continuations-in-part of the foregoing.

“Patent License” means all agreements, whether written or oral, providing for the grant by or to Grantor of any right to manufacture, have manufactured, use, import, sell or offer for sale any invention covered in whole or in part by a Patent.

“Pledged Collateral” means, collectively, Pledged Debt Instruments, any other Investment Property of Grantor, all chattel paper, certificates or other Instruments representing any of the foregoing and all Security Entitlements of Grantor in respect of any of the foregoing. Pledged Collateral may be Instruments or Investment Property.

“Pledged Debt Instruments” means all right, title and interest of Grantor in Instruments evidencing any Indebtedness owed to Grantor, including all Indebtedness described on Schedule 1, issued by the obligors named therein.

“Proceeds” means all proceeds (including proceeds of proceeds) of any of the Collateral including all: (i) rights, benefits, distributions, premiums, profits, dividends, interest, cash, Instruments, contract rights, Inventory, Equipment, Deposit Accounts, and other property from time to time received, receivable, or otherwise distributed in respect of or in exchange for, or as a replacement of or a substitution for, any of the Collateral, or proceeds thereof; (ii) “proceeds,” as such term is defined in Section 9-102(a)(64) of the UCC; (iii) proceeds of any insurance, indemnity, warranty, or guaranty (including guaranties of delivery) payable from time to time with respect to any of the Collateral, or proceeds thereof; and (iv) payments (in any form whatsoever) made or due and payable to a Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral, or proceeds thereof.

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“Secured Obligations” means the Obligations (as defined in the Credit Agreement).

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

“Trademark License” means any agreement, whether written or oral, providing for the grant by or to Grantor of any right to use any Trademark.

“Trademark Security Agreement” means a Trademark Security Agreement executed by Grantor in favor of the Secured Party for the benefit of the Issuing Bank and the Lenders, in substantially the form of Annex 1 hereto, pursuant to which Grantor has confirmed its grant to the Secured Party for the benefit of the Issuing Bank and the Lenders, of a security interest in all its respective Trademarks.

“Trademarks” means (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and, in each case, all goodwill associated therewith, whether now existing or hereafter adopted or acquired, all registrations and recordings thereof and all applications in connection therewith, in each case whether in the United States Patent and Trademark Office or in any similar office or agency of the United States of America, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, and (b) the right to obtain all renewals thereof.

“UCC” means the Uniform Commercial Code as from time to time in effect in the State of New York; provided, however, to the extent that, by reason of mandatory provisions of law, any of the attachment, perfection, or priority of, or remedies with respect to, the Secured Party’s security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction solely for purposes of the provisions hereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

(b) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein have the respective meanings given them in the Credit Agreement.

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(c) Terms used herein without definition that are defined in the UCC have the respective meanings given them in the UCC and if defined in more than one article of the UCC, such terms shall have the meaning defined in Article 9 of the UCC, including the following terms (which are capitalized herein):

“Account”, “Certificated Security”, “Chattel Paper”, “Commercial Tort Claim”, “Commodities Intermediary”, “Commodity Account”, “Contract”, “Contract Right”, “Control Account”, “Deposit Account”, “Document”, “Equipment”, “Financial Asset”, “Fixtures”, “General Intangible”, “Goods”, “Instruments”, “Inventory”, “Investment Property”, “Letter-of-Credit Right”, “Permits”, “Securities Account”, “Securities Intermediary”, “Security”, “Security Entitlement”, “Supporting Obligation”, and “Uncertificated Security”.

(d) In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding” and the word “through” means “to and including.” The terms “herein,” “hereof,” “hereto” and “hereunder” and similar terms refer to this Agreement as a whole and not to any particular Article, Section, subsection or clause in this Agreement. Unless otherwise noted, references herein to an Annex, Schedule, Section, subsection or clause refer to the appropriate Annex or Schedule to, or Section, subsection or clause in this Agreement. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. Any reference in this Agreement to a Loan Document shall include all appendices, exhibits and schedules thereto, and, unless specifically stated otherwise all amendments, restatements, supplements or other modifications thereto, and as the same may be in effect at any time such reference becomes operative. The term “including” means “including without limitation” except when used in the computation of time periods. The terms “Lender,” “Issuing Bank,” and “Secured Party” include their respective successors and permitted assigns. Notwithstanding anything to the contrary set forth herein, the representations, warranties and covenants set forth in this Agreement shall not apply to Excluded Property.

Section 2. Grant of Security Interests in Collateral. Grantor, as security for the full, prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, hereby grants, collaterally assigns, mortgages, pledges and hypothecates to the Secured Party for the benefit of itself, the Issuing Bank and each of the Lenders, and grants to the Secured Party for the benefit of itself, the Issuing Bank and each of the Lenders a lien on and security interest in, all of Grantor’s right, title and interest in, to and under the Collateral.

Section 3. Grantors Remains Obligated. Notwithstanding any other provision of this Agreement to the contrary, (a) Grantor shall remain liable to observe and perform all the conditions and obligations to be observed and performed by it under each and every contract or other agreement included as part of the Collateral, all in accordance with the terms of each such contract and agreement, (b) neither the Secured Party nor the Issuing Bank or any Lender shall have any obligation or liability under any contract or other agreement included as part of the Collateral by reason of or arising out of this Agreement or the receipt by the Secured Party, the Issuing Bank or any Lender of any payment relating thereto, (c) the exercise by the Secured Party of any rights under this Agreement or otherwise in respect of the Collateral shall not release Grantor from its obligations under any contract or other agreement included as part of the Collateral and (d) neither the Secured Party nor the Issuing Bank or any Lender shall be obligated to take any of the following actions with respect to any contract or other agreement included as part of the Collateral: (i) perform any obligation of Grantor, (ii) make any payment, (iii) make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party, (iv) present or file any claim or (v) take any action to enforce any performance or to collect the payment of any amounts that may have been assigned to it or to which it may be entitled at any time or times.

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Section 4. Representations and Warranties. Grantor represents and warrants to the Secured Party, the Issuing Bank and the Lenders as follows:

(a) Title and Liens. Grantor is, and will at all times continue to be, the legal and beneficial owner of the Collateral. None of the Collateral is subject to any adverse claim (as defined in the UCC) or other Lien other than Permitted Liens or other Liens permitted under the Loan Documents.

(b) Authorization. Grantor has the right and power, and has taken all necessary action to authorize it, to execute, deliver and perform this Agreement in accordance with its terms. The execution, delivery and performance of this Agreement in accordance with its terms, including the granting of the security interest hereunder, do not and will not, by the passage of time, the giving of notice, or both: (i) violate any applicable law relating to Grantor; (ii) require and consent or approval of, or authorization, order or other action by, any governmental authority or other Person (other than those that have been obtained), (iii) violate, result in a breach of or constitute a default under the organizational documents of Grantor, or any indenture, agreement or other instrument to which Grantor is a party or by which it or any of the Collateral of Grantor or its other property may be bound; or (iv) result in or require the creation or imposition of any Lien upon or with respect to any of the Collateral of Grantor or Grantor’s other property whether now owned or hereafter acquired.

(c) Validity and Perfection of Security Interest. This Agreement is effective to create in favor of the Secured Party, for the benefit of itself, the Issuing Bank and the Lenders, a legal, valid and enforceable security interest in the Collateral to the extent required hereunder, including all Intellectual Property. Such security interest will be perfected upon (i) in the case of all Collateral in which a security interest may be perfected by the filing of a financing statement under the UCC (other than any Commercial Tort Claims not disclosed on Schedule 6 hereto), the completion of the filings and other actions specified on Schedule 2 (which, in the case of all filings and other documents referred to on such Schedule, have been delivered to the Secured Party in completed and duly executed form), (ii) the delivery to the Secured Party of all Collateral consisting of Instruments and Certificated Securities, in each case properly endorsed for transfer to the Secured Party or in blank, (iii) the execution of Deposit Account Control Agreements with respect to all Deposit Accounts to the extent required hereunder, and (iv) in the case of Intellectual Property, the taking of the actions described in the immediately following subsection (g). Each such security interest that may be perfected by the taking of the actions described in this Section 4(c) shall be prior to all other Liens on the Collateral except for Permitted Liens having priority over the Secured Party’s Lien by operation of Applicable Law.

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(d) Jurisdiction of Formation, Locations, Etc. Grantor’s jurisdiction of organization, exact legal name, organizational identification number, if any, and the location of Grantor’s chief executive office or sole place of business, in each case as of the date hereof, is specified on Schedule 3 and such Schedule also lists all jurisdictions of incorporation, legal names and locations of Grantor’s chief executive office or sole place of business for the five years preceding the date hereof.

(e) [Intentionally Omitted.]

(f) Pledged Collateral. All Pledged Collateral and, if applicable, any Additional Pledged Collateral, consisting of Certificated Securities or Instruments has been delivered to the Secured Party in accordance with Section 5(g) or Section 5(h).

(g) Intellectual Property. Schedule 4 lists all Material Intellectual Property of Grantor as of date hereof, separately identifying that owned by Grantor, that licensed to Grantor and that licensed by Grantor as licensor. The Material Intellectual Property set forth on such Schedule constitutes all of the Material Intellectual Property necessary to conduct Grantor’s business as conducted on the date hereof or on the date of the delivery of any update to such Schedule pursuant to Section 5(i) as conducted on the date of such update. All Material Intellectual Property is valid, subsisting, enforceable, unexpired and in full force and in effect. The use of Material Intellectual Property, or of embodiments thereof, does not infringe, misappropriate, dilute or violate in any material respect the intellectual property rights of any other Person. Grantor has taken all steps reasonably required to protect Grantor’s rights in trade secrets constituting Intellectual Property developed by or for Grantor. This Agreement is effective to create a valid and continuing Lien on such material Intellectual Property and, upon the filing of the Copyright Security Agreement with the United States Copyright Office, the filing of the Patent Security Agreement and the Trademark Security Agreement with the United States Patent and Trademark Office, and the filing of appropriate financing statements in the jurisdictions listed on Schedule 2 hereto, all action necessary or desirable to protect and perfect the Secured Party’s Lien in and on Grantor’s material Intellectual Property under the UCC or the laws of the United States will have been taken.

(h) Deposit Accounts. Schedule 5 sets forth all Deposit Accounts maintained by Grantor on the date hereof or on the date of the delivery of any update to such Schedule pursuant to Section 5(f), which sets forth such information separately for Grantor.

Section 5. Covenants. Grantor hereby unconditionally covenants and agrees as follows:

(a) No Liens, Sale, Etc. Grantor shall (i) except for the security interests created by this Agreement, not create or suffer to exist any Lien upon or with respect to any Collateral, except Permitted Liens and other Liens permitted under the Loan Documents, (ii) not sell, transfer or assign (by operation of law or otherwise) any Collateral except as expressly permitted under the Credit Agreement, (iii) not enter into any agreement or undertaking restricting the right or ability of Grantor or the Secured Party to sell, assign or transfer, or grant any Lien in, any Collateral except as expressly permitted under the Credit Agreement and (iv) promptly notify the Secured Party of its entry into any agreement or assumption of undertaking that materially adversely restricts the ability to sell, assign or transfer, or grant any Lien in, any Collateral.

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(b) Maintenance of Perfection. Grantor shall maintain the security interests created by this Agreement as perfected security interests having at least the priorities described in Section 4(c) and shall defend such security interests and the applicable priorities of such security interests against the claims and demands of all Persons.

(c) Statements of Collateral. Grantor shall furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may reasonably request, all in reasonable detail and in form and substance reasonably satisfactory to the Secured Party.

(d) Further Assurances. At any time and from time to time, at the request of the Secured Party, and at the sole expense of Grantor, Grantor shall promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further action as the Secured Party may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including the filing of any financing or continuation statement under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby.

(e) Changes in Locations, Name, Etc. Unless Grantor shall have given the Secured Party at least 30 days’ prior written notice (or such shorter time as shall be acceptable to the Secured Party) and shall have delivered to the Secured Party all additional financing statements and other documents reasonably requested by the Secured Party to maintain the validity, perfection and priority of the security interests provided for herein, Grantor shall not do any of the following:

(i) change its jurisdiction of organization or its location, in each case from that referred to in Section 4(d); or

(ii) change its legal name or organizational identification number, if any, or corporation, limited liability company or other organizational structure to such an extent that any financing statement filed in connection with this Agreement would become misleading.

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(f) Deposit Accounts and Control Agreements. Grantor shall deliver to the Secured Party as often as the Secured Party may reasonably request, a listing of all of the Deposit Accounts as of such date. To the extent requested by the Secured Party, Grantor shall obtain an authenticated Deposit Account Control Agreement, from each bank holding a Deposit Account. Grantor shall obtain authenticated control agreements from each issuer of Uncertificated Securities, (if requested by the Secured Party), Securities Intermediary, or commodities Intermediary issuing or holding any Financial Assets or Commodities to or for Grantor. Notwithstanding anything to the contrary set forth herein, so long as no Event of Default shall have occurred and be continuing, Secured Party shall not deliver a notice of control under any Deposit Account Control Agreement to the extent such Deposit Account Control Agreement requires the delivery of such notice.

(g) Pledged Collateral. Grantor shall deliver to the Secured Party, all certificates and Instruments representing or evidencing any Pledged Collateral (including Additional Pledged Collateral, but excluding any Instrument that is excluded from the delivery requirements of Section 5(h)), whether now existing or hereafter acquired, in suitable form for transfer by delivery or, as applicable, accompanied by Grantor’s endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to the Secured Party. While an Event of Default exists, the Secured Party shall have the right, at any time in its discretion and without notice to Grantor, (A) to transfer to or to register in its name or in the name of its nominees any Pledged Collateral and (B) to exchange any certificate or instrument representing or evidencing any Pledged Collateral for certificates or instruments of smaller or larger denominations. Except as permitted by the Credit Agreement, Grantor shall not grant “control” (within the meaning of such term under Article 9-106 of the UCC) over any Investment Property to any Person other than the Secured Party.

(h) Delivery of Instruments. If any amount in excess of $1,000,000 payable under or in connection with any Collateral owned by Grantor shall be or become evidenced by an Instrument, Grantor shall promptly deliver such Instrument to the Secured Party, duly indorsed in a manner reasonably satisfactory to the Secured Party, or, if consented to by the Secured Party, shall mark all such Instruments with the following legend: “This writing and the obligations evidenced or secured hereby are subject to the security interest of Deutsche Bank Trust Company Americas, as Secured Party, and any purchase or other transfer of this interest is a violation of the rights of Deutsche Bank Trust Company Americas.”

(i) Intellectual Property Generally. (i) With respect to Intellectual Property owned by such Grantor, such Grantor (either itself or through licensees) shall, except as could not reasonably be expected to result in a Material Adverse Effect, (i) continue to use each Trademark material to Grantor’s business in order to maintain such Trademark in full force and effect with respect to each class of goods for which such Trademark is currently used, free from any claim of abandonment for non-use, (ii) maintain consistent with past practice the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by Applicable Law, (iv) not adopt or use any mark that is confusingly similar to or a colorable imitation of such Trademark unless the Secured Party shall obtain a perfected security interest in such mark pursuant to this Agreement and (v) not (and use commercially reasonable efforts to not permit any

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licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark (or any goodwill associated therewith) may become destroyed, invalidated, impaired or harmed in any way. Grantor (either itself or through licensees) shall not do any act, or omit to do any act, whereby any Patent owned by such Grantor that is material to Grantor’s business may become forfeited, abandoned or dedicated to the public. Grantor (either itself or through licensees) (x) shall not (and shall not permit any licensee or sublicensee thereof to) do any act or omit to do any act whereby any portion of any Copyright that is material to Grantor’s business may become invalidated or otherwise impaired and (y) shall not (either itself or through licensees) do any act whereby any portion of any Copyright that is material to Grantor’s business may fall into the public domain. Grantor (either itself or through licensees) shall not do any act, or omit to do any act, whereby any trade secret may become publicly available or otherwise unprotectable. Grantor (either itself or through licensees) shall not do any act that knowingly uses any Intellectual Property to infringe, misappropriate, or violate the intellectual property rights of any other Person.

(ii) Protection of Intellectual Property. Grantor shall take all reasonable actions necessary or reasonably requested by the Secured Party, including in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency and any Internet domain name registrar, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of any Copyright, Trademark, Patent or Internet domain name owned by such Grantor, the absence of which could reasonably be expected to result in a Material Adverse Effect, including filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition and interference and cancellation proceedings.

(iii) Additional Intellectual Property Documents. At the request of the Secured Party, Grantor shall execute and deliver, with respect to registered Intellectual Property owned by it, in form and substance reasonably acceptable to the Secured Party and suitable for (i) filing in the United States Copyright Office, a Copyright Security Agreement, (ii) filing in the United States Patent and Trademark Office, Patent Security Agreement and (iii) filing in the United States Patent and Trademark Office, a Trademark Security Agreement. Upon request of the Secured Party, Grantor shall execute and deliver in form and substance reasonably acceptable to the Secured Party and suitable for recording with the appropriate Internet domain name registrar, a duly executed form of assignment for all Internet domain names of Grantor (together with appropriate supporting documentation as may be requested by the Secured Party).

(iv) Intellectual Property Schedule. Grantor shall deliver to the Secured Party as often as the Secured Party may reasonably request an update to Schedule 5.

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Section 6. Remedial Provisions.

(a) General Remedies. While an Event of Default exists, the Secured Party may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the UCC or any other Applicable Law. Without limiting the generality of the foregoing, the Secured Party, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived by Grantor), may in such circumstances forthwith collect, receive, appropriate and realize upon any Collateral, and may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver any Collateral (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Secured Party, the Issuing Bank or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by the UCC and other Applicable Law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption of Grantor, which right or equity is hereby waived and released by Grantor. Grantor further agrees, at the Secured Party’s request, to assemble the Collateral and make it available to the Secured Party at places that the Secured Party shall reasonably select, whether at Grantor’s premises or elsewhere. To the extent permitted by Applicable Law, Grantor waives all claims, damages and demands it may acquire against the Secured Party, the Issuing Bank or any Lender arising out of the exercise by the Secured Party of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.

(b) Pledged Collateral. Subject to the limitations set forth in Section 6(a) and while an Event of Default exists, upon notice by the Secured Party to the relevant Grantor, (i) the Secured Party shall have the right to receive any Proceeds of the Pledged Collateral and make application thereof to the Secured Obligations in the order provided in Section 6(h) and (ii) the Secured Party or its nominee may exercise any voting, consent, corporate and other right pertaining to the Pledged Collateral as if the Secured Party were the absolute owner thereof, all without liability except to account for property actually received by it; provided, however, that the Secured Party shall have no duty to Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. In order to permit the Secured Party to exercise the voting and other consensual rights that it is entitled to exercise pursuant hereto and to receive all distributions that it is entitled to receive hereunder, (i) Grantor shall promptly execute and deliver (or cause to be executed and delivered) to the Secured Party all such orders and instruments as the Secured Party may from time to time request and (ii) without limiting the immediately preceding clause (i), Grantor hereby grants to the Secured Party an irrevocable proxy to exercise all rights, powers, privileges and remedies to which a holder of the Pledged Collateral would be entitled, which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Collateral on the record books of the issuer thereof) by any other Person (including the issuer of such Pledged Collateral or any officer or agent thereof) while an Event of Default exists. Grantor hereby expressly authorizes and irrevocably instructs each issuer of any Pledged Collateral pledged hereunder by Grantor to (x) comply with any instruction received by it from the Secured Party in writing that states that an Event of Default exists and is otherwise in accordance with the terms of this Agreement, without any other or further instructions from Grantor, and Grantor agrees that such issuer shall be fully protected in so complying and (y) pay any payment with respect to the Pledged Collateral directly to the Secured Party.

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(c) Writ of Possession; Receiver. Grantor hereby acknowledges that the Secured Obligations arose out of a commercial transaction, and agrees that while an Event of Default exists the Secured Party shall have the right to an immediate writ of possession with respect to the Collateral without notice of a hearing or the requirement of posting a bond. The Secured Party shall have the right to the appointment of a receiver for the properties and assets of Grantor, and Grantor hereby consents to such rights and such appointment and hereby waives any objection Grantor may have thereto or the right to have a bond or other security posted by the Secured Party.

(d) Remedies Cumulative. Each right, power, and remedy of the Secured Party as provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Secured Party, of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by the Secured Party of any or all such other rights, powers, or remedies.

(e) Marshaling. The Secured Party shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Secured Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order. To the fullest extent that it lawfully may, Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Secured party’s rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or payment thereof is otherwise assured, and, to the fullest extent that it lawfully may, Grantor hereby irrevocably waives the benefits of all such laws.

(f) Proceeds to be Turned Over To Secured Party. Except as otherwise expressly provided in the Credit Agreement, all Proceeds received by the Secured Party hereunder in cash or cash equivalents shall be held by the Secured Party in as cash collateral for the Secured Obligations. All Proceeds while held by the Secured Party as such cash collateral (or by Grantor in trust for the Secured Party) shall continue to be held as collateral security for the Secured Obligations and shall not constitute payment thereof until applied as provided in the Credit Agreement.

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(g) Intellectual Property License. Grantor hereby grants to the Secured Party, subject to the terms of the Delano Management Agreement or any other applicable license agreement, a license or other right while an Event of Default exists to use, without liability for royalties or any other charge, Grantor’s labels, Patents, Copyrights, rights of use of any name, trade secrets, and all other Intellectual Property, whether owned by Grantor or with respect to which Grantor has rights under license, sublicense, or other agreements, as it pertains to collateral, in preparing for sale, advertising for sale and selling any Collateral, and Grantor’s rights under all licenses and all franchise agreements shall insure to the benefit of the Secured Party.

(h) Application of Proceeds. The proceeds of any sale of the whole or any part of the Collateral, together with any other moneys held by the Secured Party under the provisions of this Agreement, shall be applied in accordance with Section 11.4 of the Credit Agreement. Grantor shall remain liable and will pay, on demand, any deficiency remaining in respect of the Secured Obligations.

Section 7. Secured Party Appointed Attorney-in-Fact. Grantor hereby constitutes and appoints the Secured Party as the attorney-in-fact of Grantor with full power of substitution either in the Secured Party’s name or in the name of Grantor to do any of the following: (a) to perform any obligation of Grantor hereunder in Grantor’s name or otherwise; (b) to ask for, demand, sue for, collect, receive, receipt and give acquittance for any and all moneys due or to become due under and by virtue of any Collateral; (c) to prepare, execute, file, record or deliver notices, assignments, financing statements, continuation statements, applications for registration or like papers to perfect, preserve or release the Secured Party’s security interest in the Collateral; (d) to issue entitlement orders, instructions and other orders to any bank in connection with any of the Collateral held by or maintained with such bank; (e) to verify facts concerning the Collateral in such Grantor’s name, its own name or a fictitious name; (f) to endorse checks, drafts, orders and other instruments for the payment of money payable to such Grantor, representing any payment in respect of the Collateral or any part thereof or on account thereof and to give full discharge for the same; (g) to exercise all rights, powers and remedies which Grantor would have, but for this Agreement, with respect to any of the Collateral; and (h) to carry out the provisions of this Agreement and to take any action and execute any instrument which the Secured Party may deem necessary or advisable to accomplish the purposes hereof, and to do all acts and things and execute all documents in the name of Grantor or otherwise, deemed by the Secured Party as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder; provided, that the Pledgee shall only exercise its rights under clauses (a), (b), (d), (e) and (g) while an Event of Default exists. Nothing herein contained shall be construed as requiring or obligating the Secured Party, the Issuing Bank or any Lender to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby, and no action taken by the Secured Party or omitted to be taken with respect to the Collateral or any part thereof shall give rise to any defense, counterclaim or offset in favor of Grantor or to any claim or action against the Secured Party. The power of attorney granted herein is irrevocable and coupled with an interest.

Page 15

Section 8. Secured Party Duties. The powers conferred on the Secured Party hereunder are solely to protect the Secured Party’s interest in the Collateral, for the benefit of itself, the Issuing Bank and the Lenders, and shall not impose any duty upon the Secured Party to exercise any such powers. Except for the safe custody of any Collateral in its actual possession and the accounting for moneys actually received by it hereunder, the Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Secured Party shall be deemed to have exercise reasonable care in the custody and preservation of any Collateral in its actual possession if the Secured Party accords such Collateral treatment substantially equal to that which the Secured Party accords its own property.

Section 9. Authorization of Financing Statements. Grantor authorizes the Secured Party, and its counsel and other representatives, at any time and from time to time, to file or record financing statements, amendments to financing statements, and other filing or recording documents or instruments with respect to the Collateral in such form and in such offices as the Secured Party reasonably determines appropriate to perfect the security interests of the Secured Party under this Agreement. Grantor agrees that such financing statements and amendments may describe the Collateral covered thereby as “all personal property of the debtor” or words of similar effect. Grantor hereby also authorizes the Secured Party, and its counsel and other representatives, at any time and from time to time, to file continuation statements with respect to previously filed financing statements. A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection with this Agreement without the prior written consent of the Secured Party, subject to Grantor’s rights under Section 9-509(d)(2) of the UCC.

Section 10. Amendments. No amendment or waiver of any provision of this Agreement nor consent to any departure by Grantor herefrom shall in any event be effective unless the same shall be in writing and signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that Schedules to this Agreement may be supplemented through Security Agreement Supplements executed by Grantor and accepted by the Secured Party.

Section 11. Notices. Notices, requests and other communications required or permitted hereunder shall be in writing and shall be made by personal delivery, telecopy or certified or registered mail, return receipt requested, to the addresses and in the manner set forth in Section 13.1 of the Credit Agreement:

Section 12. No Waiver. Neither the failure on the part of the Secured Party, the Issuing Bank or any Lender to exercise, nor the delay on the part of the Secured Party, the Issuing Bank or any Lender in exercising any right, power or remedy hereunder, nor any course of dealing between the Secured Party, the Issuing Bank or any Lender, on the one hand, and Grantor, on the other hand, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or remedy hereunder preclude any other or the further exercise thereof or the exercise of any other right, power or remedy.

Page 16

Section 13. Binding Agreement; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that Grantor shall not be permitted to assign this Agreement or any interest herein and any such assignment by Grantor shall be null and void absent the prior written consent of the Secured Party.

Section 14. Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple counterparts and attached to a single counterpart so that all signature pages are attached to the same document. Delivery of an executed counterpart by telecopy shall be effective as delivery of a manually executed counterpart.

Section 15. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provisions shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.

Section 16. Headings. Section headings used herein are for convenience only and are not to affect the construction of or be taken into consideration in interpreting this Agreement.

SECTION 17. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

Section 18. Expenses. Grantor agrees to pay to the Secured Party expenses incurred in connection with this Agreement in accordance with Section 13.2 of the Credit Agreement.

Section 19. Indemnification. Grantor agrees to pay, indemnify, and hold the Secured Party, the Issuing Bank, each Lender and each of their respective predecessor, affiliate, subsidiaries, successors and assigns, together with their past, present and future officers, directors, agents, attorneys, financial advisors, representatives, partners, joint ventures, affiliates and the successor and assigns of any and all of them (each, an “Indemnified Person”) harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (“Indemnified Amounts”) brought against or incurred by an Indemnified Person, in any manner arising out of or, directly or indirectly, related in any way to or connected with this Agreement, including without limitation, the exercise by the Secured Party, the Issuing Bank or any Lender of any of its rights and remedies under this Agreement or any other action taken by the Secured Party, the Issuing Bank or any Lender pursuant to the terms of this Agreement; provided, however, Grantor shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Amounts to the extent arising from the gross negligence or willful misconduct of such Indemnified Party, as determined by a court of competent jurisdiction in a final, non-appealable judgment.

Page 17

Section 20. Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until it terminates in accordance with its terms.

Section 21. Reinstatement. Grantor further agrees that, if any payment made by any Loan Party or other Person and applied to the Obligations is at any time annulled, avoided, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid, or the proceeds of Collateral are required to be returned by the Secured Party to such Loan Party, its estate, trustee, receiver or any other party, including Grantor, under any bankruptcy law or other applicable law, then, to the extent of such payment or repayment, any Lien or other Collateral securing such liability shall be and remain in full force and effect, as fully as if such payment had never been made or, if prior thereto the Lien granted hereby or other Collateral securing such liability hereunder shall have been released or terminated by virtue of such cancellation or surrender, such Lien or other Collateral shall be reinstated in full force and effect, and such prior cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect any Lien or other Collateral securing the obligations of Grantor in respect of the amount of such payment.

Section 22. Security Interest Absolute. All rights of the Secured Party hereunder, the grant of a security interest in the Collateral and all obligations of Grantor hereunder, shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of any Loan Document, any agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of the payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from any Loan Document, or any other agreement or instrument relating to any of the foregoing, (c) any exchange, release or nonperfection of any other collateral, or any release or amendment or waiver of or consent to or departure from any guaranty, for all or any of the Secured Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, Grantor in respect of the Secured Obligations or in respect of this Agreement (other than the indefeasible payment in full of all the Secured Obligations).

[Signatures on Next Page]

Page 18

IN WITNESS WHEREOF, Grantor has executed and delivered this Security Agreement under seal as of this the date first written above.

GRANTOR:
BEACH HOTEL ASSOCIATES LLC, a Delaware limited liability company
	By:	Morgans Group LLC, its Sole Member
		By: Morgans Hotel Group Co.,
		its Managing Member
By:	/s/ Richard Szymanski
	Name: Richard Szymanski
	Title:   Chief Financial Officer and Secretary

Agreed to, accepted and acknowledged as of the date first written above.
SECURED PARTY:
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent
By:	/s/ George R. Reynolds
	Name: George R. Reynolds
	Title:
By:	/s/ James Rolison
	Name: James Rolison
	Title:  Managing Director

SCHEDULE 1
to
SECURITY AGREEMENT

PLEDGED DEBT INSTRUMENTS

None.

SCHEDULE 2
to
SECURITY AGREEMENT

NECESSARY FILINGS

Filings of UCC Financing statements with the Secretary of State of Delaware.

SCHEDULE 3
to
SECURITY AGREEMENT

JURISDICTIONS OF ORGANIZATION, NAMES,
ORGANIZATIONAL ID NUMBERS, LOCATIONS, ETC.

				Location of
			Organizational	Chief Executive
Name	Jurisdiction	Federal Tax ID	ID	Office
Beach Hotel Associates LLC	Delaware	On File	On File	1685 Collins Avenue Miami Beach, FL 33139 USA

SCHEDULE 4
to
SECURITY AGREEMENT

INTELLECTUAL PROPERTY

TRADEMARKS

None.

REGISTERED COPYRIGHTS

None.

PATENTS

None.

SCHEDULE 5
to
SECURITY AGREEMENT

DEPOSIT ACCOUNTS

Financial Institution(s)
where Accounts Maintained	Name of Account	Account Numbers
JPMorgan Chase	Development Account	On File
Mellon United Bank	Operating/Disbursement account	On File
Mellon United Bank	Payroll Account	On File
Mellon United Bank	Travel Agent Account	On File
Mellon United Bank	Payroll	On File
Mellon United Bank	Operating	On File
Wachovia	Cash Collateral Account	On File

SCHEDULE 6
to
SECURITY AGREEMENT

Commercial Tort Claims

None.

ANNEX 1
to
SECURITY AGREEMENT

ANNEX 1 TO SECURITY AGREEMENT

FORM OF SHORT FORM INTELLECTUAL PROPERTY SECURITY AGREEMENT

THIS [COPYRIGHT] [PATENT] [TRADEMARK] SECURITY AGREEMENT is dated as of                     , 20  _____  (this “Agreement”) from                     , a                      (the “Grantor”) in favor of Deutsche Bank Trust Company Americas, as Agent (the “Secured Party”).

WHEREAS, Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC (the “Florida Borrower,” and together with the MG Borrower, collectively, the “Borrowers”), Morgans Hotel Group Co., the financial institutions from time to time party thereto as “Lenders” and the Secured Party, entered into that certain Credit Agreement dated as of July  _____, 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”);

WHEREAS, the Lenders and the Secured Party have agreed to make available to Borrowers certain financial accommodations on the terms and conditions contained in the Credit Agreement;

WHEREAS, the Borrowers, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses and have determined it to be in their mutual best interests to obtain financing from the Lenders and the Secured Party through their collective efforts;

WHEREAS, Grantor acknowledges that it will receive direct and indirect benefits from the Lenders and the Secured Party making such financial accommodations available to the Borrower under the Credit Agreement; and

WHEREAS, it is a condition precedent to the extension of such financial accommodations under the Credit Agreement that the Grantor execute and deliver this Agreement, among other things, to grant to the Secured Party for the benefit of the Issuing Bank and the Lenders a security interest in the Collateral as security for the Secured Obligations.

WHEREAS, Grantor is party to a Security Agreement [dated of even date herewith in] favor of the Secured Party (the “Security Agreement”) pursuant to which the Grantor is required to execute and deliver this [Copyright] [Patent] [Trademark] Security Agreement;

Annex 1
to
Security Agreement

NOW, THEREFORE, in consideration of the above premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Grantor, the Grantor hereby agrees as follows:

Section 1. Defined Terms. Unless otherwise defined herein, terms defined in the Security Agreement and used herein have the respective meanings given them in the Security Agreement.

Section 2. Grants of Security Interests in Collateral. Grantor, as collateral security for the full, prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations of Grantor, hereby mortgages, pledges and hypothecates to the Secured Party for the benefit of the Issuing Bank and the Lenders, and grants to the Secured Party for the benefit of the Issuing Bank and the Lenders a lien on and security interest in, all of its right, title and interest in, to and under the following Collateral (the “[Copyright] [Patent] [Trademark] Collateral”):

Include following for Copyright Collateral

(a) all of its Copyrights and Copyright Licenses to which it is a party, including, without limitation, those referred to on Schedule I hereto;

(b) all extensions of the foregoing; and

(c) all Proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future infringement of any Copyright or Copyright licensed under any Copyright License.

Include following for Patent Collateral

(a) all of its Patents and Patent Licenses to which it is a party, including, without limitation, those referred to on Schedule I hereto;

(b) all reissues, continuations or continuations-in-part of the foregoing; and

(c) all Proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future infringement of any Patent or any Patent licensed under any Patent License.

Include following for Trademark Collateral

(a) all of its Trademarks and Trademark Licenses to which it is a party, including, without limitation, those referred to on Schedule I hereto;

(b) all goodwill of the business connected with the use of, and symbolized by, each Trademark; and

Page 2

Annex 1
to
Security Agreement

(c) all Proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present, future (i) infringement or dilution of any Trademark or Trademark licensed under any Trademark License or (ii) injury to the goodwill associated with any Trademark or any Trademark licensed under any Trademark License.

Section 3. Security Agreement. The security interest granted pursuant to this Agreement is granted in conjunction with the security interest granted to the Secured Party pursuant to the Security Agreement and Grantor hereby acknowledges and affirms that the rights and remedies of the Secured Party with respect to the security interest in the [Copyright] [Patent] [Trademark] Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.

[Signatures on Following Page]

Page 3

Annex 1
to
Security Agreement

IN WITNESS WHEREOF, Grantor has caused this [Copyright] [Patent] [Trademark] Security Agreement to be executed and delivered by its duly authorized offer as of the date first set forth above.

[GRANTOR]
By:
	Name:
	Title:

Agreed and accepted as of the date first written above:

DEUTSCHE BANK TRUST COMPANY AMERICAS, as Agent

By:
	Name:
	Title:

Page 4

SCHEDULE I
to
[COPYRIGHT] [PATENT] [TRADEMARK] SECURITY AGREEMENT

[COPYRIGHT] [PATENT] [TRADEMARK] REGISTRATIONS
(INCLUDE ONLY U.S. REGISTERED INTELLECTUAL PROPERTY)

Include following for Copyright Collateral

REGISTERED COPYRIGHTS (Include Copyright Registration Number and Date):

1.

2.

COPYRIGHT APPLICATIONS:

1.

2.

COPYRIGHT LICENSES:

1.

2.

Include following for Patent Collateral

REGISTERED PATENTS:

1.

2.

PATENT APPLICATIONS:

1.

2.

PATENT LICENSES:

1.

2.

Schedule I
to
[Copyright] [Patent] [Trademark] Security Agreement

Include following for Trademark Collateral

REGISTERED TRADEMARKS:

1.

2.

TRADEMARK APPLICATIONS:

1.

2.

TRADEMARK LICENSES:

1.

2.

Page 2

EX-10.7

Exhibit 10.7

EXECUTION VERSION

GUARANTY

THIS GUARANTY dated as of July 28, 2011, (this “Guaranty”) executed and delivered by each of the undersigned and the other Persons from time to time party hereto pursuant to the execution and delivery of an Accession Agreement in the form of Annex I hereto (all of the undersigned, together with such other Persons each a “Guarantor” and collectively, the “Guarantors”) in favor of (a) DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Agent (the “Agent”) for itself, the Issuing Bank and each of the Lenders under that certain Credit Agreement dated as of July 28, 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC (the “Florida Borrower”, and together with the MG Borrower, collectively, the “Borrowers”), Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5. thereof (the “Lenders”) and the Agent and (b) the Lenders.

WHEREAS, pursuant to the Credit Agreement, the Agent, the Issuing Bank and the Lenders have agreed to make available to the Borrowers certain financial accommodations on the terms and conditions set forth in the Credit Agreement;

WHEREAS, each of the Borrowers and each of the Guarantors, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses as an integrated operation and have determined it to be in their mutual best interests to obtain financing from the Agent and the Lenders through their collective efforts;

WHEREAS, each Guarantor acknowledges that it will receive direct and indirect benefits from the Agent and the Lenders making such financial accommodations available to the Borrowers under the Credit Agreement and, accordingly, each Guarantor is willing to guarantee the Borrowers’ obligations to the Agent and the Lenders on the terms and conditions contained herein; and

WHEREAS, each Guarantor’s execution and delivery of this Guaranty is a condition to the Agent and the Lenders making, and continuing to make, such financial accommodations to the Borrowers.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Guarantor, each Guarantor agrees as follows:

Section 1. Guaranty. Each Guarantor hereby absolutely, irrevocably and unconditionally guaranties as primary obligor and not merely as surety, the due and punctual payment and performance when due, whether at stated maturity, by acceleration or otherwise, of all of the following (collectively referred to as the “Guarantied Obligations”): (a) all indebtedness and obligations owing by each of the Borrowers to any Lender, the Issuing Bank or the Agent under or in connection with the Credit Agreement and any other Loan Document, including without limitation, the repayment of all principal of the Loans and the Reimbursement Obligations, and the payment of all interest, Fees, charges, attorneys’ fees and other amounts payable to any Lender or the Agent thereunder or in connection therewith; (b) any and all extensions, renewals, modifications, amendments or substitutions of the foregoing; (c) all expenses, including, without limitation, reasonable attorneys’ fees and disbursements, that are incurred by the Lenders, the Issuing Bank and the Agent in the enforcement of any of the foregoing or any obligation of such Guarantor hereunder; and (d) all other Obligations.

Section 2. Guaranty of Payment and Not of Collection. This Guaranty is a guaranty of payment, and not of collection, and a debt of each Guarantor for its own account. Accordingly, none of the Lenders, the Issuing Bank or the Agent shall be obligated or required before enforcing this Guaranty against any Guarantor: (a) to pursue any right or remedy any of them may have against either of the Borrowers, any other Guarantor or any other Person or commence any suit or other proceeding against either of the Borrowers, any other Guarantor or any other Person in any court or other tribunal; (b) to make any claim in a liquidation or bankruptcy of either of the Borrowers, any other Guarantor or any other Person; or (c) to make demand of either of the Borrowers, any other Guarantor or any other Person or to enforce or seek to enforce or realize upon any collateral security held by the Lenders, the Issuing Bank or the Agent which may secure any of the Guarantied Obligations.

Section 3. Guaranty Absolute. Each Guarantor guarantees that the Guarantied Obligations will be paid strictly in accordance with the terms of the documents evidencing the same, regardless of any Applicable Law now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent or the Lenders with respect thereto. The liability of each Guarantor under this Guaranty shall be primary, absolute, irrevocable and unconditional in accordance with its terms and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including without limitation, the following (whether or not such Guarantor consents thereto or has notice thereof):

(a) (i) any change in the amount, interest rate or due date or other term of any of the Guarantied Obligations, (ii) any change in the time, place or manner of payment of all or any portion of the Guarantied Obligations, (iii) any amendment or waiver of, or consent to the departure from or other indulgence with respect to, the Credit Agreement, any other Loan Document, or any other document or instrument evidencing or relating to any Guarantied Obligations, or (iv) any waiver, renewal, extension, addition, or supplement to, or deletion from, or any other action or inaction under or in respect of, the Credit Agreement, any of the other Loan Documents, or any other documents, instruments or agreements relating to the Guarantied Obligations or any other instrument or agreement referred to therein or evidencing any Guarantied Obligations or any assignment or transfer of any of the foregoing;

(b) any lack of validity or enforceability of the Credit Agreement, any of the other Loan Documents, or any other document, instrument or agreement referred to therein or evidencing any Guarantied Obligations or any assignment or transfer of any of the foregoing;

Page 2

(c) any furnishing to the Agent, the Issuing Bank or the Lenders of any security for the Guarantied Obligations, or any sale, exchange, release or surrender of, or realization on, any collateral securing any of the Obligations;

(d) any settlement or compromise of any of the Guarantied Obligations, any security therefor, or any liability of any other party with respect to the Guarantied Obligations, or any subordination of the payment of the Guarantied Obligations to the payment of any other liability of either of the Borrowers or any other Loan Party;

(e) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to such Guarantor, either of the Borrowers, any other Loan Party or any other Person, or any action taken with respect to this Guaranty by any trustee or receiver, or by any court, in any such proceeding;

(f) any act or failure to act by either of the Borrowers, any other Loan Party or any other Person which may adversely affect such Guarantor’s subrogation rights, if any, against either of the Borrowers or any other Loan Party to recover payments made under this Guaranty;

(g) any nonperfection or impairment of any security interest or other Lien on any collateral, if any, securing in any way any of the Obligations;

(h) any application of sums paid by either of the Borrowers, any other Guarantor or any other Person with respect to the liabilities of either of the Borrowers or any other Loan Party to the Agent or the Lenders, regardless of what liabilities of either of the Borrowers remain unpaid;

(i) any defect, limitation or insufficiency in the borrowing powers of either of the Borrowers or in the exercise thereof;

(j) any defense, set-off, claim or counterclaim (other than indefeasible payment and performance in full) which may at any time be available to or be asserted by either of the Borrowers, any other Loan Party or any other Person against the Agent or any Lender;

(k) any change in the corporate existence, structure or ownership of either of the Borrowers or any other Loan Party;

(l) any statement, representation or warranty made or deemed made by or on behalf of either of the Borrowers, any Guarantor or any other Loan Party under any Loan Document, or any amendment hereto or thereto, proves to have been incorrect or misleading in any respect; or

(m) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a Guarantor hereunder (other than indefeasible payment and performance in full).

Page 3

Section 4. Action with Respect to Guarantied Obligations. The Lenders, the Issuing Bank and the Agent may, at any time and from time to time, without the consent of, or notice to, any Guarantor, and without discharging any Guarantor from its obligations hereunder, take any and all actions described in Section 3 and may otherwise: (a) amend, modify, alter or supplement the terms of any of the Guarantied Obligations, including, but not limited to, extending or shortening the time of payment of any of the Guarantied Obligations or changing the interest rate that may accrue on any of the Guarantied Obligations; (b) amend, modify, alter or supplement the Credit Agreement or any other Loan Document; (c) sell, exchange, release or otherwise deal with all, or any part, of any collateral securing any of the Obligations; (d) release any other Loan Party or other Person liable in any manner for the payment or collection of the Guarantied Obligations; (e) exercise, or refrain from exercising, any rights against either of the Borrowers, any other Guarantor or any other Person; and (f) apply any sum, by whomsoever paid or however realized, to the Guarantied Obligations in such order as the Lenders shall elect.

Section 5. Representations and Warranties. Each Guarantor hereby makes to the Agent, the Issuing Bank and the Lenders all of the representations and warranties made by each of the Borrowers with respect to or in any way relating to such Guarantor as a Subsidiary or Loan Party under the Credit Agreement and the other Loan Documents, as if the same were set forth herein in full.

Section 6. Covenants. Each Guarantor will comply with all covenants which any Borrower is to cause such Guarantor to comply with as a Subsidiary or Loan Party under the terms of the Credit Agreement or any of the other Loan Documents.

Section 7. Waiver. Each Guarantor, to the fullest extent permitted by Applicable Law, hereby waives notice of acceptance hereof or any presentment, demand, protest or notice of any kind, and any other act or thing, or omission or delay to do any other act or thing, which in any manner or to any extent might vary the risk of such Guarantor or which otherwise might operate to discharge such Guarantor from its obligations hereunder.

Section 8. Inability to Accelerate Loan. If the Agent, the Issuing Bank and/or the Lenders are prevented under Applicable Law or otherwise from demanding or accelerating payment of any of the Guarantied Obligations by reason of any automatic stay or otherwise, the Agent, the Issuing Bank and/or the Lenders shall be entitled to receive from each Guarantor, upon demand therefor, the sums which otherwise would have been due had such demand or acceleration occurred.

Section 9. Reinstatement of Guarantied Obligations. If claim is ever made on the Agent, the Issuing Bank or any Lender for repayment or recovery of any amount or amounts received in payment or on account of any of the Guarantied Obligations, and the Agent or such Lender repays all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body of competent jurisdiction, or (b) any settlement or compromise of any such claim effected by the Agent, the Issuing Bank or such Lender with any such claimant (including each of the Borrowers or a trustee in bankruptcy for either of the Borrowers), then and in such event each Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding on it, notwithstanding any revocation hereof or the cancellation of the Credit Agreement, any of the other Loan Documents, or any other instrument evidencing any liability of either of the Borrowers, and such Guarantor shall be and remain liable to the Agent, the Issuing Bank or such Lender for the amounts so repaid or recovered to the same extent as if such amount had never originally been paid to the Agent, the Issuing Bank or such Lender.

Page 4

Section 10. Subrogation. Upon the making by any Guarantor of any payment hereunder for the account of either of the Borrowers, such Guarantor shall be subrogated to the rights of the payee against the Borrowers; provided, however, that such Guarantor shall not enforce any right or receive any payment by way of subrogation or otherwise take any action in respect of any other claim or cause of action such Guarantor may have against either of the Borrowers arising by reason of any payment or performance by such Guarantor pursuant to this Guaranty, unless and until all of the Guarantied Obligations have been indefeasibly paid and performed in full. If any amount shall be paid to such Guarantor on account of or in respect of such subrogation rights or other claims or causes of action, such Guarantor shall hold such amount in trust for the benefit of the Agent and the Lenders and shall forthwith pay such amount to the Agent to be credited and applied, at the Agent’s election, against the Guarantied Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement or to be held by the Agent as collateral security for any Guarantied Obligations existing.

Section 11. Payments Free and Clear. All sums payable by each Guarantor hereunder, whether of principal, interest, Fees, expenses, premiums or otherwise, shall be paid in full, without set off or counterclaim or any deduction or withholding whatsoever (including any Taxes), and if any Guarantor is required by Applicable Law or by a Governmental Authority to make any such deduction or withholding, such Guarantor shall pay to the Agent, the Issuing Bank and the Lenders such additional amount as will result in the receipt by the Agent, the Issuing Bank and the Lenders of the full amount payable hereunder had such deduction or withholding not occurred or been required.

Section 12. Set-off. In addition to any rights now or hereafter granted under any of the other Loan Documents or Applicable Law and not by way of limitation of any such rights, each Guarantor hereby authorizes the Agent, the Issuing Bank, each Lender and any of their respective affiliates, at any time while an Event of Default exists, without any prior notice to such Guarantor or to any other Person, any such notice being hereby expressly waived, but in the case of a Lender or an affiliate of a Lender subject to receipt of the prior written consent of the Agent exercised in its sole discretion, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Agent, the Issuing Bank, such Lender, or any affiliate of the Agent, the Issuing Bank or such Lender, to or for the credit or the account of such Guarantor against and on account of any of the Guarantied Obligations, although such obligations shall be contingent or unmatured. Each Guarantor agrees, to the fullest extent permitted by Applicable Law, that any Participant may exercise rights of setoff or counterclaim and other rights with respect to its participation as fully as if such Participant were a direct creditor of such Guarantor in the amount of such participation.

Page 5

Section 13. Subordination. Each Guarantor hereby expressly covenants and agrees for the benefit of the Agent, the Issuing Bank and the Lenders that all obligations and liabilities of the Borrowers or any other Loan Party to such Guarantor of whatever description, including without limitation, all intercompany receivables of such Guarantor from the Borrowers or any other Loan Party (collectively, the “Junior Claims”) shall be subordinate and junior in right of payment to all Guarantied Obligations. If an Event of Default shall exist, then no Guarantor shall accept any direct or indirect payment (in cash, property or securities, by setoff or otherwise) from either of the Borrowers or any other Loan Party on account of or in any manner in respect of any Junior Claim until all of the Guarantied Obligations have been indefeasibly paid in full.

Section 14. Avoidance Provisions. It is the intent of Morgans Hotel Group Management LLC (“Management Company”), the Agent, the Issuing Bank and the Lenders that in any Proceeding, Management Company’s maximum obligation hereunder shall equal, but not exceed, the maximum amount which would not otherwise cause the obligations of Management Company hereunder (or any other obligations of Management Company to the Agent, the Issuing Bank and the Lenders) to be avoidable or unenforceable against Management Company in such Proceeding as a result of Applicable Law, including without limitation, (a) Section 548 of the Bankruptcy Code of 1978, as amended (the “Bankruptcy Code”) and (b) any state fraudulent transfer or fraudulent conveyance act or statute applied in such Proceeding, whether by virtue of Section 544 of the Bankruptcy Code or otherwise. The Applicable Laws under which the possible avoidance or unenforceability of the obligations of Management Company hereunder (or any other obligations of Management Company to the Agent and the Lenders) shall be determined in any such Proceeding are referred to as the “Avoidance Provisions”. Accordingly, to the extent that the obligations of Management Company hereunder would otherwise be subject to avoidance under the Avoidance Provisions, the maximum Guarantied Obligations for which Management Company shall be liable hereunder shall be reduced to that amount which, as of the time any of the Guarantied Obligations are deemed to have been incurred under the Avoidance Provisions, would not cause the obligations of Management Company hereunder (or any other obligations of Management Company to the Agent, the Issuing Bank and the Lenders), to be subject to avoidance under the Avoidance Provisions. This Section is intended solely to preserve the rights of the Agent, the Issuing Bank and the Lenders hereunder to the maximum extent that would not cause the obligations of Management Company hereunder to be subject to avoidance under the Avoidance Provisions, and neither Management Company nor any other Person shall have any right or claim under this Section as against the Agent and the Lenders that would not otherwise be available to such Person under the Avoidance Provisions.

Section 15. Information. Each Guarantor assumes all responsibility for being and keeping itself informed of the financial condition of each of the Borrowers and the other Loan Parties, and of all other circumstances bearing upon the risk of nonpayment of any of the Guarantied Obligations and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, and agrees that neither the Agent nor the Issuing Bank or any of the Lenders shall have any duty whatsoever to advise any Guarantor of information regarding such circumstances or risks.

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Section 16. GOVERNING LAW; WAIVER OF JURY TRIAL.

(a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE WHICH ARE LOCATED IN THE COUNTY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH OF THE GUARANTORS HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE GUARANTORS HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER SUCH PARTY, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT BROUGHT IN ANY OF THE AFOREMENTIONED COURTS, THAT SUCH COURTS LACK PERSONAL JURISDICTION OVER SUCH PARTY. EACH OF THE GUARANTORS FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS NOTICE ADDRESS SET FORTH IN SECTION 24, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH OF THE GUARANTORS HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH OF THE PARTIES PARTY HERETO IN ANY OTHER JURISDICTION.

(b) EACH OF THE GUARANTORS HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY OTHER LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

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(c) EACH OF THE GUARANTORS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

Section 17. Loan Accounts. The Agent, the Issuing Bank and each Lender may maintain books and accounts setting forth the amounts of principal, interest and other sums paid and payable with respect to the Guarantied Obligations, and in the case of any dispute relating to any of the outstanding amount, payment or receipt of any of the Guarantied Obligations or otherwise, the entries in such books and accounts shall be deemed conclusive evidence of the amounts and other matters set forth herein, absent manifest error. The failure of the Agent, the Issuing Bank or any Lender to maintain such books and accounts shall not in any way relieve or discharge any Guarantor of any of its obligations hereunder.

Section 18. Waiver of Remedies. No delay or failure on the part of the Agent, the Issuing Bank or any Lender in the exercise of any right or remedy it may have against any Guarantor hereunder or otherwise shall operate as a waiver thereof, and no single or partial exercise by the Agent, the Issuing Bank or any Lender of any such right or remedy shall preclude any other or further exercise thereof or the exercise of any other such right or remedy.

Section 19. Termination. This Guaranty shall remain in full force and effect until indefeasible payment in full of the Guarantied Obligations and the termination or cancellation of the Credit Agreement in accordance with its terms.

Section 20. Successors and Assigns. Each reference herein to the Agent, the Issuing Bank or the Lenders shall be deemed to include such Person’s respective successors and assigns (including, but not limited to, any holder of the Guarantied Obligations) in whose favor the provisions of this Guaranty also shall inure, and each reference herein to each Guarantor shall be deemed to include such Guarantor’s successors and assigns, upon whom this Guaranty also shall be binding. The Lenders may, in accordance with the applicable provisions of the Credit Agreement, assign, transfer or sell any Guarantied Obligation, or grant or sell participations in any Guarantied Obligations, to any Person without the consent of, or notice to, any Guarantor and without releasing, discharging or modifying any Guarantor’s obligations hereunder. Subject to Section 13.8. of the Credit Agreement, each Guarantor hereby consents to the delivery by the Agent or any Lender to any Assignee or Participant (or any prospective Assignee or Participant) of any financial or other information regarding either of the Borrowers or any Guarantor. No Guarantor may assign or transfer its rights or obligations hereunder to any Person without the prior written consent of all Lenders and any such assignment or other transfer to which all of the Lenders have not so consented shall be null and void.

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Section 21. JOINT AND SEVERAL OBLIGATIONS. THE OBLIGATIONS OF THE GUARANTORS HEREUNDER SHALL BE JOINT AND SEVERAL, AND ACCORDINGLY, EACH GUARANTOR CONFIRMS THAT IT IS LIABLE FOR THE FULL AMOUNT OF THE “GUARANTIED OBLIGATIONS” AND ALL OF THE OBLIGATIONS AND LIABILITIES OF EACH OF THE OTHER GUARANTORS HEREUNDER.

Section 22. Amendments. This Guaranty may not be amended except in writing signed by the Requisite Lenders (or all of the Lenders if required under the terms of the Credit Agreement), the Agent and each Guarantor.

Section 23. Payments. All payments to be made by any Guarantor pursuant to this Guaranty shall be made in Dollars, in immediately available funds to the Agent at the Principal Office, not later than 2:00 p.m. on the date of demand therefor.

Section 24. Notices. All notices, requests and other communications hereunder shall be in writing and shall be made by personal delivery, telecopy or certified or registered mail, return receipt requested, (a) to each Guarantor at its address set forth below its signature hereto, (b) to the Agent, the Issuing Bank or any Lender at its respective address for notices provided for in the Section 13.1 of the Credit Agreement, or (c) as to each such party at such other address as such party shall designate in a written notice to the other parties. Each such notice, request or other communication shall be effective in the manner set forth in Section 13.1 of the Credit Agreement.

Section 25. Severability. In case any provision of this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 26. Headings. Section headings used in this Guaranty are for convenience only and shall not affect the construction of this Guaranty.

Section 27. Limitation of Liability. Neither the Agent, the Issuing Bank nor any Lender, nor any affiliate, officer, director, employee, attorney, or agent of the Agent, the Issuing Bank or any Lender, shall have any liability with respect to, and each Guarantor hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by a Guarantor in connection with, arising out of, or in any way related to, this Guaranty or any of the other Loan Documents, or any of the transactions contemplated by this Guaranty, the Credit Agreement or any of the other Loan Documents. Each Guarantor hereby waives, releases, and agrees not to sue the Agent, the Issuing Bank or any Lender or any of the Agent’s, the Issuing Bank’s or any Lender’s affiliates, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Guaranty, the Credit Agreement or any of the other Loan Documents, or any of the transactions contemplated by Credit Agreement or financed thereby.

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Section 29. Definitions. (a) For the purposes of this Guaranty:

“Proceeding” means any of the following: (i) a voluntary or involuntary case concerning any Guarantor shall be commenced under the Bankruptcy Code of 1978, as amended; (ii) a custodian (as defined in such Bankruptcy Code or any other applicable bankruptcy laws) is appointed for, or takes charge of, all or any substantial part of the property of any Guarantor; (iii) any other proceeding under any Applicable Law, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or composition for adjustment of debts, whether now or hereafter in effect, is commenced relating to any Guarantor; (iv) any Guarantor is adjudicated insolvent or bankrupt; (v) any order of relief or other order approving any such case or proceeding is entered by a court of competent jurisdiction; (vi) any Guarantor makes a general assignment for the benefit of creditors; (vii) any Guarantor shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; (viii) any Guarantor shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debts; (ix) any Guarantor shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing; or (x) any corporate action shall be taken by any Guarantor for the purpose of effecting any of the foregoing.

(b) Terms not otherwise defined herein are used herein with the respective meanings given them in the Credit Agreement.

[Signature on Next Page]

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IN WITNESS WHEREOF, each Guarantor has duly executed and delivered this Guaranty as of the date and year first written above.

MORGANS HOTEL GROUP CO.
By:	/s/ Richard Szymanski
	Name: Richard Szymanski
	Title:   Chief Financial Officer and Secretary
MORGANS HOTEL GROUP MANAGEMENT LLC, a Delaware limited liability company
	By:	Morgans Group LLC, its Managing Member
		By: Morgans Hotel Group Co.,
		its Managing Member
By:	/s/Richard Szymanski
	Name: Richard Szymanski
	Title:   Chief Financial Officer and Secretary
Address for Notices:
c/o Morgans Group LLC 475 Tenth Avenue New York, New York 10018 Attention: Richard Szymanski Telecopy Number: (212) 277-4270 Telephone Number: (212) 277-4188

ANNEX I

FORM OF ACCESSION AGREEMENT

THIS ACCESSION AGREEMENT dated as of                                         , 20  _____, executed and delivered by                                         , a                      formed under the laws of the State of                      (the “New Guarantor”), in favor of (a) DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Agent (the “Agent”) for itself, the Issuing Bank and each of the Lenders under that certain Credit Agreement dated as of [                    ], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Morgans Group LLC (the “MG Borrower”), Beach Hotel Associates LLC (the “Florida Borrower”, and together with the MG Borrower, collectively, the “Borrowers”), Morgans Hotel Group Co., the lenders party thereto and their assignees under Section 13.5. thereof (the “Lenders”) and the Agent, and (b) the Lenders.

WHEREAS, pursuant to the Credit Agreement, the Agent and the Lenders have agreed to make available to the Borrowers certain financial accommodations on the terms and conditions set forth in the Credit Agreement;

WHEREAS, the Borrowers, the New Guarantor, and the existing Guarantors, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses as an integrated operation and have determined it to be in their mutual best interests to obtain financing from the Agent and the Lenders through their collective efforts;

WHEREAS, the New Guarantor acknowledges that it will receive direct and indirect benefits from the Agent, the Issuing Bank and the Lenders making such financial accommodations available to the Borrowers under the Credit Agreement and, accordingly, the New Guarantor is willing to guarantee the Borrowers’ obligations to the Agent and the Lenders on the terms and conditions contained herein; and

WHEREAS, the New Guarantor’s execution and delivery of this Agreement is a condition to the Agent, the Issuing Bank and the Lenders continuing to make such financial accommodations to the Borrowers.

ANNEX I

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the New Guarantor, the New Guarantor agrees as follows:

Section 1. Accession to Guaranty. The New Guarantor hereby agrees that it is a “Guarantor” under that certain Guaranty dated as of July [_____], 2011 (as amended, supplemented, restated or otherwise modified from time to time, the “Guaranty”), made by each Subsidiary and other Affiliate of the Borrowers party thereto in favor of the Agent, the Issuing Bank and the Lenders and assumes all obligations of a “Guarantor” thereunder and agrees to be bound thereby, all as if the New Guarantor had been an original signatory to the Guaranty. Without limiting the generality of the foregoing, the New Guarantor hereby:

(a) irrevocably and unconditionally guarantees the due and punctual payment and performance when due, whether at stated maturity, by acceleration or otherwise, of all Guarantied Obligations (as defined in the Guaranty);

(b) makes to the Agent, the Issuing Bank and the Lenders as of the date hereof each of the representations and warranties contained in Section 5 of the Guaranty and agrees to be bound by each of the covenants contained in Section 6 of the Guaranty; and

(c) consents and agrees to each provision set forth in the Guaranty.

SECTION 2. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.

Section 3. Definitions. Capitalized terms used herein and not otherwise defined herein shall have their respective defined meanings given them in the Credit Agreement.

[Signatures on Next Page]

ANNEX I

IN WITNESS WHEREOF, the New Guarantor has caused this Accession Agreement to be duly executed and delivered under seal by its duly authorized officers as of the date first written above.

[NEW GUARANTOR]
By:
	Name:
	Title:
Address for Notices: c/o Morgans Group LLC 475 Tenth Avenue New York, New York 10018 Attention: Richard Szymanski Telecopy Number: (212) 277-4270 Telephone Number: (212) 277-4188

Accepted:

DEUTSCHE BANK TRUST COMPANY
AMERICAS, as Agent

By:
	Name:
	Title:

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 June 30, 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: August 8, 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 June 30, 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: August 8, 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 June 30, 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: August 8, 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 June 30, 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: August 8, 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.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2011	Dec. 31, 2010
LIABILITIES AND STOCKHOLDERS' DEFICIT
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, liquidation preference per share	$ 1,000	$ 1,000
Preferred stock, shares authorized	75,000	75,000
Preferred stock, shares issued	75,000	75,000
Common shares, par value	$ 0.01	$ 0.01
Common shares, shares authorized	200,000,000	200,000,000
Common shares, shares issued	36,277,495	36,277,495
Treasury stock shares	5,855,301	5,985,045

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Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Revenues:
Rooms	$ 33,485	$ 35,093	$ 64,519	$ 64,343
Food and beverage	15,611	17,549	33,641	35,045
Other hotel	1,733	2,444	3,749	4,653
Total hotel revenues	50,829	55,086	101,909	104,041
Management fees and other income	3,380	5,103	6,704	9,532
Total revenues	54,209	60,189	108,613	113,573
Operating Costs and Expenses:
Rooms	9,685	10,291	20,859	20,316
Food and beverage	13,135	14,184	28,237	28,100
Other departmental	1,036	1,260	2,247	2,512
Hotel selling, general and administrative	10,792	11,811	23,350	23,248
Property taxes, insurance and other	3,704	4,711	7,889	8,811
Total hotel operating expenses	38,352	42,257	82,582	82,987
Corporate expenses, including stock compensation of $2.0 million, $2.8 million, $6.0 million, and $6.6 million, respectively	8,049	9,220	18,883	19,225
Depreciation and amortization	4,199	8,011	12,572	15,356
Restructuring, development and disposal costs	3,800	1,189	8,393	1,866
Total operating costs and expenses	54,400	60,677	122,430	119,434
Operating loss	(191)	(488)	(13,817)	(5,861)
Interest expense, net	10,014	12,389	19,008	24,739
Equity in loss of unconsolidated joint ventures	910	7,739	10,393	8,002
Gain on asset sales	(620)		(620)
Other non-operating expenses	879	163	2,269	15,192
Loss before income tax expense	(11,374)	(20,779)	(44,867)	(53,794)
Income tax expense	428	279	293	573
Net loss from continuing operations	(11,802)	(21,058)	(45,160)	(54,367)
(Loss) income from discontinued operations, net of taxes	(5)	(447)	485	16,755
Net loss	(11,807)	(21,505)	(44,675)	(37,612)
Net loss attributable to noncontrolling interest	383	434	1,208	581
Net loss attributable to Morgans Hotel Group	(11,424)	(21,071)	(43,467)	(37,031)
Preferred stock dividends and accretion	2,229	2,114	4,416	4,192
Net loss attributable to common stockholders	(13,653)	(23,185)	(47,883)	(41,223)
Other comprehensive loss:
Unrealized gain on valuation of swap/cap agreements, net of tax	5	5,079	5	10,003
Share of unrealized (loss) gain on valuation of swap agreements from unconsolidated joint venture, net of tax	(845)		1,021
Realized loss on settlement of swap/cap agreements, net of tax		(2,588)		(5,141)
Foreign currency translation (loss) gain, net of tax	(3)	2	(109)	256
Comprehensive loss	$ (14,496)	$ (20,692)	$ (46,966)	$ (36,105)
(Loss) income per share:
Basic and diluted continuing operations	$ (0.45)	$ (0.75)	$ (1.55)	$ (1.91)
Basic and diluted discontinued operations	$ 0	$ (0.01)	$ 0.02	$ 0.55
Basic and diluted attributable to common stockholders	$ (0.45)	$ (0.76)	$ (1.53)	$ (1.36)
Weighted average number of common shares outstanding:
Basic and diluted	30,498	30,484	31,255	30,395

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Document and Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 08, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	Morgans Hotel Group Co.
Entity Central Index Key	0001342126
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		30,522,194

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Debt and Capital Lease Obligations

6 Months Ended

Jun. 30, 2011

Debt and Capital Lease Obligations [Abstract]

Debt and Capital Lease Obligations

6. Debt and Capital Lease Obligations

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

	As of		As of
	June 30,		December 31,		Interest rate at
Description	2011		2010		June 30, 2011
Notes secured by Hudson (a)	$	201,162	$	201,162	1.29% (LIBOR + 1.03%)
Notes secured by equity interests in Henry Hudson Holdings (a)		26,500		26,500	3.24% (LIBOR + 2.98%)
Clift debt (b)		85,989		85,033	9.60%
Liability to subsidiary trust (c)		50,100		50,100	8.68%
Convertible Notes, face value of $172.5 million (d)		165,007		163,869	2.38%
Revolving credit facility (e)		—		26,008	(e)
Capital lease obligations (f)		6,107		6,107	(f)
Debt and capital lease obligation	$	534,865	$	558,779
Mortgage debt secured by assets held for sale — Mondrian Los Angeles (a)	$	—		103,496
Notes secured by property held for non-sale disposition (g)	$	—	$	10,500

(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 another subsidiary of the Company entered into a mezzanine loan related to Hudson, secured by a pledge of the Company’s equity interests in Hudson Holdings.

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 Holdings Mortgage and consent to certain refinancings and other modifications of the Hudson Holdings Mortgage.

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.

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% on the Hudson Holdings Amended Mortgage, capped the 30-day LIBOR rate at 4.25% on the Mondrian Holdings Amended Mortgage, and effectively cap the 30-day LIBOR rate at 7.0% on the Hudson mezzanine loan.

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, 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.

The Hudson Holdings Amended Mortgage requires the Company’s subsidiary borrower to fund reserve accounts to cover monthly debt service payments. The subsidiary borrower is also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of Hudson. Reserves are deposited into restricted cash accounts and are released as certain conditions are met. Starting in 2009, the mortgage had fallen below the required debt service coverage and as such, all excess cash, once all other reserve accounts were completed, were funded into a curtailment reserve account. At the time the modification agreement was entered into, the majority of the balance in the curtailment reserve account was used to reduce the amount of debt outstanding under the Hudson Holdings Amended Mortgage, as discussed above. Under the Hudson Holdings Amended Mortgage, all excess cash is required to be funded into the curtailment reserve account regardless of the Company’s debt service coverage ratio. The subsidiary borrower is not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations and certain other liabilities.

The Hudson Holdings Amended Mortgage prohibits the incurrence of additional debt on Hudson. Furthermore, the subsidiary borrower is not permitted to incur additional mortgage debt or partnership interest debt. The Hudson Holdings Amended Mortgage does 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 borrower, 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 Hudson Holdings Amended Mortgage provides 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 Hudson Holdings Amended Mortgage, 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.

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 asset sales and debt refinancing. The Company believes it has 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.

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) 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.

(e) 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, (the “Amended Revolving Credit Facility”).

The Amended Revolving Credit Facility provided for a maximum aggregate amount of commitments of $125.0 million, divided into two tranches, which were secured by the mortgages on Morgans, Royalton and Delano South Beach.

The Amended Revolving Credit Facility bore 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 had a borrowing margin of 3.75% per annum and base rate loans have a borrowing margin of 2.75% per annum.

On May 23, 2011, in connection with the sale of Royalton and Morgans, the Company used a portion of the sales proceeds to retire all outstanding debt under the Amended Revolving Credit Facility. These hotels, along with Delano South Beach, were collateral for the Amended Revolving Credit Facility, which terminated with the sale of the properties securing the facility.

On July 28, 2011, the Company and certain of its subsidiaries, including Beach Hotel Associates LLC (the “Florida Borrower” collectively, the “Borrowers”), entered into a secured Credit Agreement (the “Delano Credit Agreement”), with Deutsche Bank Securities Inc. as sole lead arranger, Deutsche Bank Trust Company Americas, as agent (the “Agent”), and the lenders party thereto (the “Lenders”).

The Delano Credit Agreement provides commitments for a $100 million revolving credit facility and includes a $15 million letter of credit sub-facility. The maximum amount of such commitments available at any time for borrowings and letters of credit is determined according to a borrowing base valuation equal to the lesser of (i) 55% of the appraised value of Delano (the “Florida Property”) and (ii) the adjusted net operating income for the Florida Property divided by 11%. Extensions of credit under the Delano Credit Agreement are available for general corporate purposes. The commitments under the Delano Credit Agreement may be increased by up to an additional $10 million during the first two years of the facility, subject to certain conditions, including obtaining commitments from any one or more lenders to provide such additional commitments. The commitments under the Delano Credit Agreement terminate on July 28, 2014, at which time all outstanding amounts under the Delano Credit Agreement will be due and payable.

The obligations of the Borrowers under the Delano Credit Agreement are guaranteed by the Company and a subsidiary of the Company. Such obligations are also secured by a mortgage on the Florida Property and all associated assets of the Florida Borrower, as well as a pledge of all equity interests in the Florida Borrower.

The interest rate applicable to loans under the Delano Credit Agreement is a floating rate of interest per annum, at the Borrowers’ election, of either LIBOR (subject to a LIBOR floor of 1.00%) plus 4.00%, or a base rate plus 3.00%. In addition, a commitment fee of 0.50% applies to the unused portion of the commitments under the Delano Credit Agreement.

The Borrowers’ ability to borrow under the Delano Credit Agreement is subject to ongoing compliance by the Company and the Borrowers with various customary affirmative and negative covenants, including limitations on liens, indebtedness, issuance of certain types of equity, affiliated transactions, investments, distributions, mergers and asset sales. In addition, the Delano Credit Agreement requires that the Company and the Borrowers maintain a fixed charge coverage ratio (consolidated EBITDA to consolidated fixed charges) of no less than (i) 1.05 to 1.00 at all times on or prior to June 30, 2012 and (ii) 1.10 to 1.00 at all times thereafter.

The Delano Credit Agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the Lenders to, among other things, declare the principal, accrued interest and other obligations of the Borrowers under the Delano Credit Agreement to be immediately due and payable.

(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.

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 June 30, 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.

(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 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.

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Litigation

6 Months Ended

Jun. 30, 2011

Litigation [Abstract]

Litigation

11. Litigation

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 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. 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. The Company opposed Petra’s motion for summary judgment, and cross-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 our motion for summary judgment dismissing the complaint, and denied the plaintiff’s motion for summary judgment. Petra thereafter appealed the decision. On May 19, 2011, the appellate court unanimously affirmed the trial courts’ grant of summary judgment in the Company’s favor and the dismissal of Petra’s complaint. Petra has petitioned the New York Court of Appeals for permission to appeal further and the Company has opposed that petition, but the Court of Appeals has not yet ruled. 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.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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 and six months ended June 30, 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.

Effective January 1, 2010, the Financial Accounting Standards Board (“FASB”) amended the guidance in 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.

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.

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 hotel properties or an interest therein. When the Company sells a wholly-owned hotel subject to a long-term management contract, the pretax gain is deferred and is recognized over the life of the contract. In such instances, the Company establishes a deferred tax asset on the deferred gain and recognizes the related tax benefit through the tax provision. In May 2011, the Company used a portion of its tax net operating loss carryforwards to offset the gains on the sale of Royalton, Morgans and Mondrian Los Angeles.

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 and six months ended June 30, 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 June 30, 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.

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 June 30, 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.

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”).

In connection with its Outperformance Award Program, as discussed in note 7, the Company issued OPP LTIP Units (as defined in note 7) which were initially fair valued on the date of grant, and on June 30, 2011, utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run approximately 100,000 times. As the Company has the ability to settle the vested OPP LTIP Units with cash, these awards are not considered to be indexed to the Company’s stock price and must be accounted for as liabilities at fair value.

Although the Company has determined that the majority of the inputs used to value the OPP LTIP Units fall within Level 1 of the fair value hierarchy, the Monte Carlo simulation model utilizes Level 3 inputs, such as estimates of the Company’s volatility. Accordingly, the OPP LITP Unit liability was classified as a Level 3 fair value measure.

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 June 30, 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 June 30, 2011 and December 31, 2010 was approximately $237.9 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. For awards under the Company’s Outperformance Award Program, discussed in note 7, long-term incentive awards, the total compensation expense is based on the estimated fair value using the Monte Carlo pricing model. Compensation expense is recorded ratably over the vesting period, if any. Stock compensation expense recognized for the three months ended June 30, 2011 and 2010 was $2.0 million and $2.8 million, respectively. Stock compensation expense recognized for the six months ended June 30, 2011 and 2010 was $6.0 million and $6.6 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 (deficit) 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.

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 $9.2 million and $10.6 million as of June 30, 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, less than $0.3 million was recorded as noncontrolling interest as of December 31, 2010, which represents the Company’s joint venture partner’s interest in food and beverage 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.

New Accounting Pronouncements

Accounting Standards Update No. 2011-04 — “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU No.2011-04”) generally provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will be effective for interim and annual periods beginning on or after December 15, 2011. The Company does not believe ASU 2011-04 will have a material impact on its financial statements.

Accounting Standards Update No. 2011-05 — “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU No. 2011-05”) amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and it is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company believes the adoption of this update may provide additional detail on the consolidated financial statements when applicable, but will not have any other impact on the Company’s financial statements.

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Preferred Securities and Warrants

6 Months Ended

Jun. 30, 2011

Preferred Securities and Warrants [Abstract]

Preferred Securities and Warrants

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 June 30, 2011, the Company had undeclared and unpaid dividends of $10.3 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 securities, 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.

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 June 30, 2011, the value of the Series A Preferred Securities was $52.5 million, which includes accretion of $4.5 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 June 30, 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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Discontinued Operations

6 Months Ended

Jun. 30, 2011

Discontinued Operations [Abstract]

Discontinued Operations

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 and six months ended June 30, 2011 and 2010 (in thousands):

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
Operating revenues	$	—		$	—		$	—		$	1,594
Operating expenses		(8	)		(160	)		(35	)		(1,930	)
Interest expense		—			(302	)		—			(735	)
Depreciation and amortization expense		—			—			—			(268	)
Income tax benefit (expense)		3			148			(323	)		274
(Loss) gain on disposal		—			(133	)		843			17,820
(Loss) income from discontinued operations	$	(5	)	$	(447	)	$	485		$	16,755

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Omnibus Stock Incentive Plan

6 Months Ended

Jun. 30, 2011

Omnibus Stock Incentive Plan [Abstract]

Omnibus Stock Incentive Plan

7. Omnibus Stock Incentive Plan

RSUs, LTIPs and Stock Options

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.

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.

On April 7, 2011, the Compensation Committee of the Board of Directors of the Company issued an aggregate of 100,000 LTIP units to the Company’s Chief Financial Officer and other senior executive under the Amended 2007 Incentive Plan. All grants 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 estimated fair value of each such LTIP unit granted was $9.09 at the grant date.

Also on April 7, 2011, the Compensation Committee of the Board of Directors of the Company issued an aggregate of 186,900 RSUs to employees under the Amended 2007 Incentive Plan. All grants 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 estimated fair value of each such RSU granted was $9.09 at the grant date.

On May 19, 2011, the Company issued an aggregate of 36,270 RSUs to the Company’s non-employee directors under the Amended 2007 Incentive Plan, which vested immediately upon grant. The fair value of each such RSU was $8.27 at the grant date.

A summary of stock-based incentive awards as of June 30, 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		336,920			300,000		1,300,000
Distributed/exercised during 2011		(150,328	)		—		—
Forfeited during 2011		(91,015	)		—		—
Outstanding as of June 30, 2011		900,911			2,571,437		2,806,337
Vested as of June 30, 2011		208,576			2,243,835		1,506,337

As of June 30, 2011 and December 31, 2010, there were approximately $11.9 million and $6.8 million, respectively, of total unrecognized compensation costs related to unvested RSU, LTIP and option share awards. As of June 30, 2011, the weighted-average period over which this unrecognized compensation expense will be recorded is approximately 1.4 years.

Total stock compensation expense related to RSUs, LTIPs and options, which is included in corporate expenses on the accompanying consolidated statements of operations and comprehensive loss, was $1.6 million and $2.8 million for the three months ended June 30, 2011 and 2010, respectively, and $5.6 million and $6.6 million for the six months ended June 30, 2011 and 2010, respectively.

Outperformance Award Program

In connection with the Company’s senior management changes announced in March 2011, the Compensation Committee of the Board of Directors of the Company implemented an Outperformance Award Program, which is a long-term incentive plan intended to provide the Company’s senior management with the ability to earn cash or equity awards based on the Company’s level of return to shareholders over a three-year period.

Pursuant to the Outperformance Award Program, each of the Company’s newly hired senior managers, Messrs. Hamamoto, Gross, Flannery and Gery, will receive, an award (an “Award”), in each case reflecting the participant’s right to receive a participating percentage (the “Participating Percentage”) in an outperformance pool if the Company’s total return to shareholders (including stock price appreciation plus dividends) increases by more than 30% (representing a compounded annual growth rate of approximately 9% per annum) over a three-year period from March 20, 2011 to March 20, 2014 (or a prorated hurdle rate over a shorter period in the case of certain changes of control), of a new series of outperformance long-term incentive units (the “OPP LTIP Units,” as described below), subject to vesting and the achievement of certain performance targets.

The total return to shareholders will be calculated based on the average closing price of the Company’s common shares on the 30 trading days ending on the Final Valuation Date (as defined below). The baseline value of the Company’s common shares for purposes of determining the total return to shareholders will be $8.87, the closing price of the Company’s common shares on March 18, 2011. The Participation Percentages granted to Messrs. Hamamoto, Gross, Flannery and Gery are 35%, 35%, 10% and 10%, respectively.

Each of the current participants’ Awards vests on March 20, 2014 (or earlier in the event of certain changes of control) (the “Final Valuation Date”), contingent upon each participant’s continued employment, except for certain accelerated vesting events described below.

The aggregate dollar amount available to all participants is equal to 10% of the amount by which the Company’s March 20, 2014 valuation exceeds 130% (subject to proration in the case of certain changes of control) of the Company’s March 20, 2011 valuation (the “Total Outperformance Pool”) and the dollar amount payable to each participant (the “Participation Amount”) is equal to such participant’s Participating Percentage in the Total Outperformance Pool. Following the Final Valuation Date, the participant will either forfeit existing OPP LTIP Units or receive additional OPP LTIP Units so that the value of the vested OPP LTIP Units of the participant are equivalent to the participant’s Participation Amount.

Participants will forfeit any unvested Awards upon termination of employment; provided, however, that in the event a participant’s employment terminates because of death or disability, or employment is terminated by the Company without Cause or by the participant for Good Reason, as such terms are defined in the participant’s employment agreements, the participant will not forfeit the Award and will receive, following the Final Valuation Date, a Participation Amount reflecting his partial service. If the Final Valuation Date is accelerated by reason of certain change of control transactions, each participant whose Award has not previously been forfeited will receive a Participation Amount upon the change of control reflecting the amount of time since the effective date of the program, which was March 20, 2011.

OPP LTIP Units represent a special class of membership interest in our operating company, Morgans Group, which are structured as profits interests for federal income tax purposes. Conditioned upon minimum allocations to the capital accounts of the OPP LTIP Units for federal income tax purposes, each vested OPP LTIP Unit may be converted, at the election of the holder, into one Class A Unit in Morgans Group upon the receipt of shareholder approval for the shares of common stock underlying the OPP LTIP Units.

During the six-month period following the Final Valuation Date, Morgans Group may redeem some or all of the vested OPP LTIP Units (or Class A Units into which they were converted) at a price equal to the common share price (based on a 30-day average) on the Final Valuation Date. From and after the one-year anniversary of the Final Valuation Date, for a period of six months, participants will have the right to cause Morgans Group to redeem some or all of the vested OPP LTIP Units at a price equal to the greater of the common share price at the Final Valuation Date (determined as described above) or the then current common share price (calculated as determined in Morgans Group’s limited liability company agreement). Thereafter, beginning 18 months after the Final Valuation Date, each of these OPP LTIP Units (or Class A Units into which they were converted) is redeemable at the election of the holder for: (1) cash equal to the then fair market value of one share of the Company’s common stock, or (2) at the option of the Company, one share of common stock, in the event the Company then has shares available for that purpose under its shareholder-approved equity incentive plans. Participants are entitled to receive distributions on their vested OPP LTIP Units if any distributions are paid on the Company’s common stock following the Final Valuation Date.

The OPP LTIP Units were valued at approximately $7.3 million on the date of grant utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run approximately 100,000 times. For each simulation, the payoff is calculated at the settlement date, which is then discounted to the award date at a risk-free interest rate. The average of the values over all simulations is the expected value of the unit on the award date. Assumptions used in the valuations included factors associated with the underlying performance of the Company’s stock price and total shareholder return over the term of the performance awards including total stock return volatility and risk-free interest.

As the Company has the ability to settle the vested OPP LTIP Units with cash, these Awards are not considered to be indexed to the Company’s stock price and must be accounted for as liabilities at fair value. As of June 30, 2011, the fair value of the OPP LTIP Units were approximately $4.2 million and compensation expense relating to these OPP LTIP Units is being recorded over the vesting period. The fair value of the OPP LTIP Units were estimated on the date of grant and on June 30, 2011 using the following assumptions in the Monte-Carlo valuation: expected price volatility for the Company’s stock of 50%; a risk free rate of 1.46%; and no dividend payments over the measurement period.

Total stock compensation expense related to the OPP LTIP Units, which is included in corporate expenses on the accompanying consolidated statements of operations, was $0.4 million for the three and six months ended June 30, 2011.

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net loss	$ (44,675)	$ (37,612)
Adjustments to reconcile net loss to net cash used in operating activities (including discontinued operations):
Depreciation	11,198	14,506
Amortization of other costs	1,374	850
Amortization of deferred financing costs	5,974	3,057
Amortization of discount on convertible notes	1,138	1,138
Amortization of deferred gain on asset sales	(620)
Stock-based compensation	6,018	6,588
Accretion of interest on capital lease obligation	956	2,879
Equity in loss of unconsolidated joint ventures	10,393	8,002
Gain on disposal of property held for non-sale disposition		(17,927)
Impairment and loss on disposal of assets	1,040
Change in value of warrants		13,808
Change in value of interest rate caps and swaps, net	10
Changes in assets and liabilities:
Accounts receivable, net	1,507	(366)
Related party receivables	(1,555)	(107)
Restricted cash	5,637	(12,459)
Prepaid expenses and other assets	637	998
Accounts payable and accrued liabilities	(3,267)	(3,275)
Other liabilities		(138)
Discontinued operations	(843)	901
Net cash used in operating activities	(5,078)	(19,157)
Cash flows from investing activities:
Additions to property and equipment	(2,891)	(7,210)
Deposits to capital improvement escrows, net	556	199
Distributions from unconsolidated joint ventures	1,619	204
Proceeds from asset sales, net	268,147
Purchase of interest in food and beverage joint ventures, net of cash acquired	(19,294)
Investments in and settlement related to unconsolidated joint ventures	(7,559)	(3,578)
Net cash provided by (used in) investing activities	240,578	(10,385)
Cash flows from financing activities:
Proceeds from debt	63,992
Payments on debt and capital lease obligations	(193,496)
Debt issuance costs	(428)	(44)
Cash paid in connection with vesting of stock based awards	(398)	(433)
Cost of issuance of preferred stock		(246)
Distributions to holders of noncontrolling interests in consolidated subsidiaries	(827)	(958)
Net cash used in financing activities	(131,157)	(1,681)
Net increase (decrease) in cash and cash equivalents	104,343	(31,223)
Cash and cash equivalents, beginning of period	5,250	68,956
Cash and cash equivalents, end of period	109,593	37,733
Supplemental disclosure of cash flow information:
Cash paid for interest	12,275	18,378
Cash paid for taxes	149	17
Acquisition of interest in unconsolidated joint ventures:
Furniture, fixture and equipment	(706)
Other assets and liabilities, net	2,999
Distributions and losses in excess of investment in unconsolidated joint ventures	(1,587)
Cash included in purchase of interest in food and beverage joint ventures	$ 706

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Income (Loss) Per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share [Abstract]

Income (Loss) Per Share

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 June 30, 2011, warrants issued to the Investors, unvested restricted stock units, LTIP Units (as defined in note 7), stock options, and OPP LTIP Units 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
	June 30, 2011			June 30, 2010
Numerator:
Net loss from continuing operations	$	(11,802	)	$	(21,058	)
Net loss from discontinued operations		(5	)		(447	)
Net loss		(11,807	)		(21,505	)
Net loss attributable to noncontrolling interest		383			434
Net loss attributable to Morgans Hotel Group Co.		(11,424	)		(21,071	)
Less: preferred stock dividends and accretion		2,229			2,114
Net loss attributable to common shareholders	$	(13,653	)	$	(23,185	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		30,498			30,484
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		30,498			30,484
Basic and diluted loss from continuing operations per share	$	(0.45	)	$	(0.75	)
Basic and diluted loss from discontinued operations per share	$	0.00		$	(0.01	)
Basic and diluted loss available to common stockholders per common share	$	(0.45	)	$	(0.76	)

	Six Months			Six Months
	Ended			Ended
	June 30, 2011			June 30, 2010
Numerator:
Net loss from continuing operations	$	(45,160	)	$	(54,367	)
Net income from discontinued operations		485			16,755
Net loss		(44,675	)		(37,612	)
Net loss attributable to noncontrolling interest		1,208			581
Net loss attributable to Morgans Hotel Group Co.		(43,467	)		(37,031	)
Less: preferred stock dividends and accretion		4,416			4,192
Net loss attributable to common shareholders	$	(47,883	)	$	(41,223	)
Denominator, continuing and discontinued operations:
Weighted average basic common shares outstanding		31,255			30,395
Effect of dilutive securities		—			—
Weighted average diluted common shares outstanding		31,255			30,395
Basic and diluted loss from continuing operations per share	$	(1.55	)	$	(1.91	)
Basic and diluted income from discontinued operations per share	$	0.02		$	0.55
Basic and diluted loss available to common stockholders per common share	$	(1.53	)	$	(1.36	)

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Investments in and Advances to Unconsolidated Joint Ventures

6 Months Ended

Jun. 30, 2011

Investments in and Advances to Unconsolidated Joint Ventures [Abstract]

Investments in and Advances to Unconsolidated Joint Ventures

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
	June 30,		December 31,
Investment	2011		2010
Mondrian South Beach	$	4,339	$	5,817
Morgans Hotel Group Europe Ltd.		1,631		1,366
Mondrian SoHo		—		—
Boston Ames		10,244		10,709
Mondrian Los Angeles food and beverage — SC Sunset (1)		2,500		—
Mondrian South Beach food and beverage — MC South Beach (1)		1,700		—
Other		157		2,558
Total investments in and advances to unconsolidated joint ventures	$	20,571	$	20,450

	As of		As of
	June 30,		December 31,
Investment	2011		2010
Restaurant Venture — SC London (2)	$	—	$	(1,509	)
Hard Rock Hotel & Casino (3)		—		—
Total losses from and distributions in excess of investment in unconsolidated joint ventures	$	—	$	(1,509	)

(1)	Following the CGM Transaction, the Company’s ownership interest in these food and beverage joint ventures are less than 100%, and based on the Company’s evaluation, these two ventures do not meet the requirements of a variable interest entity. Accordingly, these joint ventures are accounted for using the equity method. Effective August 5, 2011, the Company no longer has an ownership interest in the food and beverage operations at Mondrian Los Angeles. See note 1.
(2)	Until June 20, 2011, the Company had a 50% ownership interest in the SC London restaurant venture. In connection with the CGM Transaction, the Company owns 100% of the SC London restaurant venture, which is consolidated into the Company’s financial statements effective June 20, 2011, the date the CGM Transaction closed.
(3)	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).

Equity in income (loss) from unconsolidated joint ventures

	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
Investment	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
Morgans Hotel Group Europe Ltd.	$	885		$	687		$	892		$	1,499
Restaurant Venture — SC London (1)		(290	)		(191	)		(510	)		(448	)
Mondrian South Beach		(978	)		192			(1,478	)		(232	)
Ames		(1	)		(95	)		(465	)		(491	)
Mondrian SoHo		(529	)		(8,335	)		(2,461	)		(8,335	)
Hard Rock Hotel & Casino (2)		—			—			(6,376	)		—
Other		3			3			5			5
Total equity in loss from unconsolidated joint ventures	$	(910	)	$	(7,739	)	$	(10,393	)	$	(8,002	)

(1)	Until June 20, 2011, the Company had a 50% ownership interest in the SC London restaurant venture. As a result of the CGM Transaction, the Company now owns 100% of the SC London restaurant venture, which is consolidated into the Company’s financial statements effective June 20, 2011, the date the CGM Transaction closed.
(2)	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 June 30, 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 and six months ended June 30, 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 June 30, 2011, Morgans Europe had outstanding mortgage debt of £99.5 million, or approximately $159.2 million at the exchange rate of 1.60 US dollars to GBP at June 30, 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.

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 June 30, 2011, there are remaining payables outstanding to vendors of approximately $1.3 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.

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.

Following the formation of Hard Rock Hotel Holdings, LLC, additional cash contributions were made by both the DLJMB Parties and the Morgans Parties, including disproportionate cash contributions 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.

On February 6, 2011, 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.

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 and completion of certain gaming de-registration procedures, the Company is no longer subject to Nevada gaming regulations.

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 calculated, as defined, based on ratios of net operating income to debt service for the three months ended September 30, 2011 of 1:1 or greater. In addition to new funds 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 be treated as a loan with priority over the equity, to complete the project. 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 June 30, 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, consolidation 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.

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 June 30, 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 was outstanding as of June 30, 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, including sufficient deposits into a debt service reserve account. 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 June 30, 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.

SC Sunset and MC South Beach

On June 20, 2011, the Company completed the CGM Transaction, pursuant to which subsidiaries of the Company acquired from affiliates of CGM the 50% interests CGM owned in the Company’s food and beverage joint ventures for approximately $20 million. CGM has agreed to continue to manage the food and beverage operations at these properties for a transitional period pursuant to short-term cancellable management agreements while the Company reassess its food and beverage strategy.

The Company’s ownership interest in two of the food and beverage ventures covered by the CGM Transaction, Sunset Restaurant LLC (“SC Sunset”) at Mondrian Los Angeles, and MC South Beach LLC (“MC South Beach”) at Mondrian South Beach, are less than 100%, and were reevaluated in accordance with ASC 810-10. The Company concluded that these two ventures do not meet the requirements of a variable interest entity and accordingly, these investments in joint ventures are accounted for using the equity method, as the Company does not believe it exercised control over significant asset decisions such as buying, selling or financing.

On August 5, 2011, an affiliate of Pebblebrook, the company that purchased Mondrian Los Angeles in May 2011 (as discussed in note 12), exercised its option to purchase the Company’s remaining ownership interest in the food and beverage operations at Mondrian Los Angeles for approximately $2.5 million. As a result of Pebblebrook’s exercise of this purchase option, the Company no longer has any ownership interest in the food and beverage operations at Mondrian Los Angeles.

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Assets Held for Sale and Deferred Gain

6 Months Ended

Jun. 30, 2011

Assets Held for Sale and Deferred Gain [Abstract]

Assets Held for Sale and Deferred Gain

12. Assets Held for Sale and Deferred Gain

On May 3, 2011, pursuant to a purchase and sale agreement, Mondrian Holdings sold Mondrian Los Angeles for $137.0 million to Pebblebrook. 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, were approximately $40 million. The Company continues to operate the hotel under a 20-year management agreement with one 10-year extension option.

On May 23, 2011, pursuant to purchase and sale agreements, Royalton LLC, a subsidiary of the Company, sold 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, sold Morgans for $51.8 million to Madison 237 Hotel, L.L.C., an affiliate of FelCor Lodging Trust, Incorporated. The Company applied a portion of the proceeds from the sale to retire the outstanding balance on the Amended Revolving Credit Facility. Net proceeds, after the repayment of debt and closing costs, were approximately $93 million. The Company continues to operate the hotels under a 15-year management agreement with one 10-year extension option.

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

The Company recorded deferred gains of approximately $11.5 million, $13.0 million and $56.0 million, respectively, related to the sales of Royalton, Morgans and Mondrian Los Angeles. As the Company has significant continuing involvement through long-term management agreements, the gains on sales are deferred and recognized over the initial term of the related management agreement. For the three months ended June 30, 2011, the Company recorded a gain of $0.6 million on the consolidated statements of operations and comprehensive loss.

The Company’s hotel management agreements for Royalton and Morgans contain performance tests that stipulate certain minimum levels of operating performance. These performance test provisions give the Company the option to fund a shortfall in operating performance. If the Company chooses not to fund the shortfall, the hotel owner has the option to terminate the management agreement. As of June 30, 2011, an insignificant amount was recorded in accrued expenses related to these performance test provisions.

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Other Liabilities

6 Months Ended

Jun. 30, 2011

Other Liabilities [Abstract]

Other Liabilities

5. Other Liabilities

Other liabilities consist of the following (in thousands):

	As of		As of
	June 30,		December 31,
	2010		2009
OPP Liability (note 7)	$	394	$	—
Designer fee payable		13,866		13,866
	$	14,260	$	13,866

OPP Liability

As discussed further in note 7, the estimated fair value of the OPP LTIP Units liability was approximately $0.4 million at June 30, 2011.

Designer Fee Payable

As of June 30, 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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Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (Parenthetical) (USD $) In Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Operating Costs and Expenses:
Stock compensation	$ 2.0	$ 2.8	$ 6.0	$ 6.6

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Organization and Formation Transaction

6 Months Ended

Jun. 30, 2011

Organization and Formation Transaction [Abstract]

Organization and Formation Transaction

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 June 30, 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 June 30, 2011 are as follows:

		Number of
Hotel Name	Location	Rooms		Ownership
Hudson	New York, NY		834		(1	)
Morgans	New York, NY		114		(2	)
Royalton	New York, NY		168		(2	)
Mondrian SoHo	New York, NY		270		(3	)
Delano South Beach	Miami Beach, FL		194		(4	)
Mondrian South Beach	Miami Beach, FL		328		(5	)
Shore Club	Miami Beach, FL		309		(6	)
Mondrian Los Angeles	Los Angeles, CA		237		(7	)
Clift	San Francisco, CA		372		(8	)
Ames	Boston, MA		114		(9	)
Sanderson	London, England		150		(5	)
St Martins Lane	London, England		204		(5	)
Water and Beach Club Hotel	San Juan, PR		78		(10	)
Hotel Las Palapas	Playa del Carmen, Mexico		75		(11	)

(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.
(2)	Operated under a management contract; wholly-owned until May 23, 2011, when the hotel was sold to a third-party.
(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 June 30, 2011 based on cash contributions. See note 4.
(4)	Wholly-owned hotel.
(5)	Owned through a 50/50 unconsolidated joint venture. See note 4.
(6)	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 June 30, 2011. See note 4
(7)	Operated under a management contract; wholly-owned until May 3, 2011, when the hotel was sold to a third party.
(8)	The hotel is operated under a long-term lease which is accounted for as a financing. See note 6.
(9)	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 June 30, 2011 based on cash contributions. See note 4.
(10)	Operated under a management contract, with an unconsolidated minority ownership interest of approximately 25% at June 30, 2011 based on cash contributions. Effective July 13, 2011 the Company no longer operates the Water and Beach Club Hotel.
(11)	Operated under a management contract.

Restaurant Joint Venture

Prior to June 20, 2011, the food and beverage operations of certain of the hotels were operated under 50/50 joint ventures with a third party restaurant operator, China Grill Management Inc. (“CGM”). The joint ventures operated, and CGM managed, certain restaurants and bars at Delano South Beach, Mondrian Los Angeles, Mondrian South Beach, Morgans, Sanderson and St Martins Lane. The food and beverage joint ventures at hotels the Company owned were consolidated, as the Company believed that it was the primary beneficiary of these entities. The Company’s partner’s share of the results of operations of these food and beverage joint ventures were recorded as noncontrolling interests in the accompanying consolidated financial statements. The food and beverage joint ventures at hotels in which the Company had a joint venture ownership interest were accounted for using the equity method, as the Company did not believe it exercised control over significant asset decisions such as buying, selling or financing, and the Company was not the primary beneficiary of the entities.

On June 20, 2011, pursuant to an omnibus agreement, subsidiaries of the Company acquired from affiliates of CGM the 50% interests CGM owned in the Company’s food and beverage joint ventures for approximately $20 million (the “CGM Transaction”). CGM has agreed to continue to manage the food and beverage operations at these properties for a transitional period pursuant to short-term cancellable management agreements while the Company reassesses its food and beverage strategy.

As a result of the CGM Transaction, the Company owns 100% of the former food and beverage joint venture entities located at Morgans, Delano South Beach, Sanderson and St Martins Lane, all of which are consolidated in the Company’s consolidated financial statements. Prior to the completion of the CGM Transaction, the Company accounted for the food and beverage entities located at Sanderson and St Martins Lane using the equity method of accounting. See note 4.

The Company’s resulting ownership interests in the remaining two of these food and beverage ventures, covered by the CGM Transaction, relating to the food and beverage operations at Mondrian Los Angeles and Mondrian South Beach, are less than 100%, and were reevaluated in accordance with ASC 810-10, Consolidation (“ASC 810-10”). The Company concluded that these two ventures do not meet the requirements of a variable interest entity and accordingly, these investments in joint ventures are accounted for using the equity method, as the Company does not believe it exercises control over significant asset decisions such as buying, selling or financing. See note 4. Prior to the completion of the CGM Transaction, the Company consolidated the Mondrian Los Angeles food and beverage entity, as it exercised control and was the primary beneficiary of the venture.

On August 5, 2011, an affiliate of Pebblebrook Hotel Trust (“Pebblebrook”), the company that purchased Mondrian Los Angeles in May 2011 (as discussed in note 12), exercised its option to purchase the Company’s remaining ownership interest in the food and beverage operations at Mondrian Los Angeles for approximately $2.5 million. As a result of Pebblebrook’s exercise of this purchase option, the Company no longer has any ownership interest in the food and beverage operations at Mondrian Los Angeles.

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Related Party Transactions

6 Months Ended

Jun. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions

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 $3.4 million and $5.1 million for the three months ended June 30, 2011 and 2010, respectively, and $6.7 million and $9.5 million for the six months ended June 30, 2011 and 2010, respectively.

As of June 30, 2011 and December 31, 2010, the Company had receivables from these affiliates of approximately $5.4 million and $3.8 million, respectively, which are included in related party receivables on the accompanying consolidated balance sheets.

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Consolidated Balance Sheets (USD $) In Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2011	Dec. 31, 2010
ASSETS
Property and equipment, net	$ 283,493	$ 291,078
Goodwill	54,057	53,691
Investments in and advances to unconsolidated joint ventures	20,571	20,450
Assets held for sale, net	0	194,964
Investment in property held for non-sale disposition, net	0	9,775
Cash and cash equivalents	109,593	5,250
Restricted cash	22,280	28,783
Accounts receivable, net	6,776	6,018
Related party receivables	5,393	3,830
Prepaid expenses and other assets	9,098	7,007
Deferred tax asset, net	80,404	80,144
Other, net	12,697	13,786
Total assets	604,362	714,776
LIABILITIES AND STOCKHOLDERS' DEFICIT
Debt and capital lease obligations	534,865	558,779
Mortgage debt of property held for non-sale disposition	0	10,500
Accounts payable and accrued liabilities	26,656	23,604
Debt obligation, accounts payable and accrued liabilities of assets held for sale	0	107,161
Accounts payable and accrued liabilities of property held for non-sale disposition	0	1,162
Distributions and losses in excess of investment in unconsolidated joint ventures	0	1,509
Deferred gain on asset sales	79,878	0
Other liabilities	14,260	13,866
Total liabilities	655,659	716,581
Commitments and contingencies
Preferred securities, $.01 par value; liquidation preference $1,000 per share, 75,000 shares authorized and issued at June 30, 2011 and December 31, 2010, respectively	52,534	51,118
Common stock, $.01 par value; 200,000,000 shares authorized; 36,277,495 shares issued at June 30, 2011 and December 31, 2010, respectively	363	363
Additional paid-in capital	290,537	297,554
Treasury stock, at cost, 5,855,301 and 5,985,045 shares of common stock at June 30, 2011 and December 31, 2010, respectively	(90,867)	(92,688)
Accumulated comprehensive loss	(2,277)	(3,194)
Accumulated deficit	(310,757)	(265,874)
Total Morgans Hotel Group Co. stockholders' deficit	(60,467)	(12,721)
Noncontrolling interest	9,170	10,916
Total deficit	(51,297)	(1,805)
Total liabilities and stockholders' deficit	$ 604,362	$ 714,776